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Clearance? Approval? What Should Investors Make of Nano-X's FDA Decision?

By Brian Orelli, PhD and Keith Speights - May 9, 2021 at 3:23PM

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Here's your guide to the FDA's confusing jargon.

Last month, Nano-X Imaging (NNOX -1.77%) gained 501(k) clearance from the Food and Drug Administration (FDA) for its X-ray device. In this video from Motley Fool Live, recorded on April 5, contributors Brian Orelli and Keith Speights discuss the difference between an FDA clearance and approval and what the results could mean for the medical-device maker.

Brian Orelli: We have a couple of questions on Nano-X Imaging. It's up 24% today on a FDA clearance, a 501(k) clearance for their X-ray machine. Jason asked, what's the difference when the FDA uses clearance versus approval? Do they mean the same thing?

Keith Speights: Usually, Jason, when you see FDA clearance, it's typically referring to medical devices. The FDA does have a different process for, I'm going to say authorizing, for lack of a better word, they have a different process for granting market authorization for medical devices than they do for drugs. When you hear about a drug, it's going to typically say the drug is approved.

Unless it's in a case of, say, the COVID 19 vaccines where FDA has a special process for emergency use authorization setup. By the way, that doesn't just apply for COVID-19. That's a process that was already set up.

But when you see medical devices, which in this case, Nano-X has what could be a game-changing X-ray device that received clearance from the FDA instead of approval. But essentially, the end result is the same. It means that they can market the product in the United States.

Orelli: I believe that the difference is whether it's a new technology or not. X-ray is an old technology, so it's cleared based on the knowledge that we already know about how X-rays work. Then you are using that base to get the thing and that makes it easier -- where there is a harder approval for medical devices that are just brand-new and they've never been used before.

Speights: Yeah. There are some medical devices that do require a more stringent FDA process. In this case, the 510(k) clearance, a lot of medical devices that aren't, like you say, Brian, aren't breaking 100% new territory will just compare themselves against some existing technology to get cleared.

Orelli: Yeah. The moral of the story here is you shouldn't be worried about it being clearances. That's the standard way that any X-ray machine will do. Doctors are not going to be worried about it being cleared versus approved.

Speights: Right. Now, this is one of Nano-X's systems. They are planning, from what I understand, the company plans to file for FDA clearance for another device later this year. That second device is the one that they really are banking on for massive commercial globalization, although they hope to ship as many as 15,000 units of this initial system over the next few years. This is really big news for Nano-X for sure.

Orelli: I was a little surprised at the 24% jump just because it seemed to me as if it was almost a foregone conclusion that they were going to get clearance. I'm a little surprised at the valuation, but I haven't really followed the company that closely in terms of its valuation to see if it was down previous to this and was making up some ground here.

Speights: Yeah. The stock actually jumped higher in earlier trading and then gave up some of the gains, but it's still up quite a bit.

Brian Orelli, PhD, Keith Speights and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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