A report by activist short-seller Citron Research has accused Israeli company Nano-X Imaging (Nasdaq: NNOX) of being a fraud and a farce. The Israeli medical device company held its initial public offering (IPO) on Nasdaq last month at $18 per share, raising $190 million at a company valuation of $800 million.
Even though the company has no FDA approval or sales for its portable, lightweight CT scanners, which is claims will disrupt the medical device sector, investors rushed to the share which earlier this week peaked at $54, triple its IPO price on August 21, giving a market cap of $2.4 billion. In the two sessions since Citron published its damming report the share price has plunged to $38, giving a market cap of $1.7 billion, still more than double its IPO price.
Citron writes it its report entitled "A complete farce on the market", "Since its recent IPO, Nano-X Imaging (NNOX) has become a market darling based on the claim that they have created a better medical imaging device that is low cost, portable, and will forever change the way diagnostics are done globally as this new innovative technology will soon replace the legacy x-ray market. Citron puts NNOX under a corporate x-ray and we see right through it as a stock promotion that is actually insulting to anyone who spends 10 minutes to read the prospectus. This stock is heading to $0 as the company’s recent fair value opinion on their technology is $0.14 a share.
Citron also calls the report Theranos 2.0, referring to the company founded in 2003 which claimed to have devised a breakthrough technology for blood tests based on very small samples and which was worth $10 billion in 2015 when its claims were proven to be false.
Citron writes, "NNOX has never published any data showing their machine’s images compared to images from a standard CT scanner. There is not one scientific paper or submission that would back up any of these claims. As a matter of fact, we have not even seen proof of the product and have only seen a mockup drawing of what this machine is supposed to look like. To put the scale of this lie into perspective, just look at the medical imaging industry. Medical imaging is a highly competitive market with definitive leaders pushing the envelope namely: GE, Siemens, Philips, and Fuji. The only way to create a better mousetrap would be through years of R&D. Since its founding in 2018, NNOX claims that it has disrupted the medical imaging market with a total R&D spend of $7.5 million."
It should however be pointed out that Nanox claims to have bought technology developed by Sony for the TV market, which was abandoned by the giant company and that to date $100 million has been spent on investment, mainly by Sony.
Citron continues, "NNOX’s entire company has just 21 employees with 15 in R&D"
While investors have been gullible enough to buy the stock, the FDA had a different opinion. First it should be noted that NNOX did not even submit a novel product for approval but rather they submitted a 510(K) submission. For those not familiar, a 510(K) is a premarket submission made to the FDA to demonstrate that the device to be marketed is as safe and effective, that is, substantially equivalent, to a legally marketed device. Submitters compare their device to one or more similar legally marketed devices and make and support their substantial equivalence claims. By submitting a 510(K), you are saying you have nothing new and are seeking easy approval as you are just another product that has already been tested. Approval of 510(K) is so easy that the FDA approved 85% of 510(K) device applications in a year."
Regarding sales Citron accuses Nano-X of inventing fake customers. "Despite not having any unique technology, FDA approval, or even a working model, NNOX appears to have put out distribution agreements. As we all know, these agreements are worthless unless NNOX can deliver on its ridiculous claims. NNOX’s commercial agreements may sound nice on the surface, but these appear to be no more than fake customers."
Based in Neve Ilan near Jerusalem, the company was founded in 2012 by CEO Ran Poliakine, a former CEO of Powermat.
Nano-X raised $137 million before the IPO from investors including Korea's SK Telecom, Industrial Alliance, Yozma Korea, Foxconn, Fuji, and Jin Ji Full. Nano-X has developed a lightweight, mobile CT scanner, and has a business model based on a unique medical screening as a service (MSaaS) to allow wide distribution and accessibility, and charging health providers with a pay-per-scan service model.
Nano-X said it believes the unusual trading activities in its ordinary shares were caused by a report published by Citron Research on September 15, 2020, which contains factual errors and misleading speculations. Nanox believes that the allegations in the report are completely without merit and strongly condemns the publishing of the false and misleading information contained in this report. The company says it is carefully reviewing the report and will provide additional information on the allegations as appropriate.
Nano-X also refers to recent analysts' reports. Oppenheimer gave the company's share a "market Returns" recommendation and sees revenue of $114 million in 2022. BMC gave Nano-X a "Buy" recommendation and sees revenue of $128 million in 2022 on the assumption it gets FDA marketing approval. And Kantor Fitzgerald gives Nano-X and "Outperform" recommendation with revenue of $900 million by 2026.
Published by Globes, Israel business news - en.globes.co.il - on September 16, 2020
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