In early trading on Wednesday, shares of medical device start-up Nano-X Imaging (NNOX 3.83%) briefly went down to $18.30, which was an all-time low for the stock. The company just reported financial results for the third quarter of 2021, but investors were likely less concerned about the numbers and more concerned about an investigation that the Securities and Exchange Commission (SEC) just launched. As of 11:50 a.m. EST, Nanox stock had recovered somewhat from its all-time low but was still down 10%.
Nanox is still a pre-revenue company, but it reached some important milestones during the third quarter nonetheless. It completed its acquisition of Zebra Medical Vision and renamed it Nanox AI. And it completed its acquisitions of USARAD Holdings and the assets of MDWEB. These will, in theory, provide a range of ways to profit from the medical images its devices will capture once they're being produced, sold, and used.
For the third quarter, Nanox recorded a net loss of $13.5 million, which was actually a little better than what Wall Street analysts were expecting. However, the company disclosed that it's under investigation from the SEC for violations of federal security laws.
The company said it is providing the SEC with documents outlining the estimated cost to build its medical devices, which suggests the agency is investigating whether Nanox misled investors in its presentations. In a worst-case scenario, this is bad news, which is why the stock is selling off today.
It's still premature to assume Nanox is guilty of breaking federal security laws. It's entirely possible the SEC will find the company is presenting the facts accurately, which could actually boost investor confidence in the long run. But since investors don't know what or when the SEC will decide, it's best to seriously weigh the downside risk here and invest accordingly.
As far as business operations are concerned, Nanox needs to keep making progress toward getting its medical devices fully approved by the Food and Drug Administration and deployed. And it seems it has plenty of time from a financial perspective. So far in 2021, it's had about a $40 million operating loss but still has $180 million in cash and marketable securities. At this rate, the company still has years of financial breathing room to make its business vision a reality.