There's a Lot to Like About Nano-X -- and 1 Big Risk

Israeli technology company Nano-X Imaging (NNOX -2.36%) says its low-cost X-ray machine and razor-and-blades business model could revolutionize the field of radiology. But investing in breakthrough technology isn't without risk. 

In this video from "Beat & Raise" on Motley Fool Live, recorded on Sept. 23, Fool.com contributors Taylor Carmichael and Brian Withers; along with tech, healthcare, and cannabis editor and analyst Olivia Zitkus; explore Nano-X's potential to change the game, and one potential hurdle investors should pay attention to.

Brian Withers: Up is Nano-X.

Taylor Carmichael: Yeah, I love this company. 

Withers: You only got six minutes. [laughs]

Taylor: I know. I've got to respond to Olivia could she does not love it like I do. I'm the passionate Nano-X guy.

Olivia Zitkus: I can't wait to ask my question.

Carmichael: I'm not going to give you enough time for a question.

Zitkus: That's the strategy. I'll let you start.

Carmichael: Seize all the time. Nano-X is an Israeli company. They were originally started by a bunch of Sony engineers who are working on using nanotechnology for flat screen televisions. Sony put just a massive amount of money into this, and ultimately, they canceled the project because it wasn't cost effective for flat screen TVs. There's other technology out there. But the engineers were really impressed with the technology. This is cold cathode micro nanotechnology. They thought, where can we use this technology to where it would be cost-effective, and they thought about x-rays. They were like, "Oh, that will be awesome."

They started their own company. They reached out to a Japanese entrepreneur and he funded them. They spent several years trying to take this flat screen television technology into x-rays. Their breakthrough that it had, for, for an x-ray machine, for CAT scan or an MRI, those machines cost about $1 million to $3 million for hospitals. They're incredibly expensive machines and it can take a long time for people to get scheduled for an MRI or to get scheduled for a CAT scan. The Nano-X machine, they think they can produce it for $10,000. It's a difference between $1 million and $10,000. That's such an extraordinary difference in price, it really shattered the market and they really upturned radiology.

We heard about the stock because a radiologist reached out to Brian Feroldi and said, "What you all think about this?" We didn't know it and then we looked into it and then we got excited. This is a Fool teaching us about this amazing company. The way it works is instead of having typically for an x-ray to run, you have to heat up the machine, that's why they're so big and inexpensive, 2,000 degrees Celsius, and then you cool it down again. That heat generation is what powers the x-ray and that's the way it's been for over century. What Nano-X's technology allows them to do is to keep it cold. There's no need to heat it all the way and so it's a lot smaller technology. It like a digital phone as opposed to a much bulkier phone. It's much smaller, it's cheaper, it's easier to make. They've gotten a lot of funding from manufacturers out in Asia. SK Telecom and the Foxconn guys who make the iPhone, they're very excited. The head of SK Telecom is on the board of Nano-X and they're going to be the ones manufacturing these. The FDA has already; it's not approved. What's the word, Olivia?

Zitkus: Authorized?

Carmichael: No. What is it?

Zitkus: It's clearance? They gave a clearance.

Carmichael: Clearance, yes. That's a special word.

Zitkus: All the FDA words.

Carmichael: Yeah. Corinne yelled at me for use on the wrong word in our article one time. It's clearance. They've got FDA clearance for their single-source device and they are still waiting for FDA clearance on their multi-source device. Their multi-source device will be what competes with MRI scanners and the CAT scanners. But they've already proven that the technology works. All of those shorts who were saying this is a fraud, this is a crime, this is Theranos. They were all proven wrong. What we're waiting on as investors, we're waiting for the multi-source, that's the one they are going to commercialize. They're also waiting for their cloud. They have a cloud version of it. All your x-rays are going to be digitized, they're going to be online, you can share them, and doctors are going to subscribe. The really cool thing about this is Nanox is not making money on the machines. They're going to sell the machines at cost or even below cost because they have the whole razor-and-blades model. They just want their machine to be ubiquitous and they're going to get 40% of the price of every x-ray, which is going to be incredibly cheap. A lot cheaper than existing x-rays, but they're going to make a lot of money on the use of the machines. That's what's excited me as an investor because it reminds me of Intuitive Surgical and other health plays like that. Go ahead and tell me why I'm wrong.

Zitkus: [laughs] I won't do that. It's an exciting idea. Every risk-averse bone in my body has been worried about this one probably since the IPO and since I started working with you on it. That's only because the FDA clearances were delayed last year and now this new clearance for the multi-source machine, I think you mentioned it, Taylor, is delayed. Also, the FDA has various types of clearances and as far as I can recall about Nano-X's first clearance, it wasn't the type of clearance that said, that was like the, oh, this is fancy brand new technology and we're going to allow them to roll it out. It was the clearance that said, oh this technology looks a lot like other existing already approved tech, so we're going to approve it. We're going to give it clearance. That might not be totally correct, but let me [laughs] know because I don't exactly remember the scenario. I'm still nervous about it.

Carmichael: Well, the first time that they applied there were delayed and the FDA said we'd need to see more data. You need to do this and do that and the other. They came back and they gave them more data and then they got it about a month after they got it cleared. The question is, does it work? Yes. Is it a fraud? No. That's been answered. But there are plenty of questions about the company of course. The question is, how long is it going to take? Like there have been delays and part of the reason there have been delays, I think is FDA has been swamped with COVID and COVID stuff. The FDA is delaying things naturally as part of a process. I think that the FDA needs more time for various things. I do think the rollout may take longer than the company says. These things never go quite as you want them to, but I'm extremely bullish on the market opportunity. I do think that the existing players are probably and they should be very nervous because their market is going to be seriously disrupted by this player.