For the second time in two weeks a US investigative investment firm has attacked Israeli company Nano-X Imaging Ltd. (Nasdaq: NNOX) and claimed that it has been deceiving investors.
Muddy Waters Research LLC, headed by short-seller Carson Block, which is best known for exposing fraud at several Chinese and European companies including Sino-Forest Corp. a Chinese company traded in Canada, is the author of this latest attack. However, Muddy Waters itself has also been accused of inappropriate reporting on companies in which it had taken a short position.
The most serious allegation raised by Muddy Waters is that Nano-X hasn't yet developed a prototype of its compact, lightweight portable CT scan device, which it says will disrupt the medical imaging sector. Muddy Waters said, "If NNOX’s claims are achievable, it seemingly will come as a shock to most of the radiology profession. We interviewed five radiologists who were familiar with NNOX’s claims. Not a single one expressed credulity of NNOX. The ARC appears to be little more than a futuristic movie prop. In fact, an Israeli company that designed a pickup truck used in the movie Jurassic World claims credit for its design. We conclude that NNOX has no real product to sell other than its stock."
Muddy Waters report follows hard on a similar demolition job by Citron Research last week, which slammed Nano-X as a farce and a fraud.
Such reports by short trading research firms tend to use scathing language in order to cause investors to lose confidence in a company and send a share price tumbling in order to support their own short positions in the companies.
Despite the two attacks, Nano-X's share price has held up. The company raised $190 million last month at a company valuation of $800 million and saw its market cap rise to $2.8 billion at the beginning of September. The market cap has since fallen back to $1.3 billion, still well above its IPO level.
Based in Neve Ilan near Jerusalem, the company was founded in 2012 by CEO Ran Poliakine, a former CEO of Powermat.
Nano-X admits that its product has yet to receive FDA marketing approval but cites the comments of US radiologist Dr. Michael Yuz, the CEO of tele-radiology company USARAD and a member of Nano-X's advisory committee who writes that he has seen with his own eyes Nano-X's equipment produce clear images. The company did not respond to "Globes" request to talk with an additional radiologist who had used the product.
Nano-X claims to have signed marketing agreements worth $180 million worldwide for its product but Muddy Waters insists these agreements are worthless because Nano-X will be unable to supply the goods and the agreements signed are not binding. Muddy Waters report contains a picture of the offices of one of Nano-X's African distributors - a small shack - and claims that the company would be unlikely to be able to buy the $15.5 million of equipment is has agreed.
Nano-X raised $137 million before the IPO from investors including Korea's SK Telecom, Foxconn, and Fuji. SK Telecom, which has invested $23 million in the company, has been quick to rush to Nano-X's defense. Korea's biggest mobile carrier said, "The attack by short-traders does not change our relationship with Nano-X. We take an active role in the strategy and business development of the company. These short-traders have attacked good companies in the past and their price after the attack continued to rise."
Dr. Yuz told "Globes," "I met with Nano-X for the first time last November. I saw their machine in Israel and its digital components but I didn't see it demonstrated at that time. Later I saw it create an image of a heart on Zoom when Foxconn visited Israel and the device was presented to them. I saw a comparison of images from the device with images from regular equipment and they looked exactly the same. I saw 30 or 40 images. I trust SK, Fuji film and Foxconn who did their checks."
He added, "It's very expensive to produce a prototype, several hundred thousand dollars, and so before the offering there was only one prototype. The prototype was at Hadassah for a short while before being returned to the company and now it is in South Korea. Now that they have money, they will produce hundreds more units."
Nano-X's business plan in 2019 called for the production of 15,000 devices worldwide in the coming years at a manufacturing cost of $10,000 per device.
Dr. Yuz explains that the product has not yet been used on humans. "It's prohibited to conduct human trials until its safety has been proven. They carried out trials on model hearts made from real tissue. It is a very high quality model that itself probably costs more than a prototype and scanning it is very similar to scanning a human. This is what they are submitting to the FDA and it is not certain that they will demand clinical trials in order to approve the product, so I estimate that in the initial stage they can scan certain organs in the body and only afterwards a full body or specifically a full US body - American are big people.
Hadassah Hospital said, "The cooperation agreement was signed with the company in September 2019 as part5 of which Hadassah provided the company with services and there are options for joint development in the future. Hadassah is not a partner in developing the existing technology, which has yet to be tested on patients. As part of the agreement at the end of 2019, a prototype device was transferred to Hadassah for a number of weeks during which time samples from plastic materials were scanned and taken by the company but a person has not yet been scanned. The company received images of the scans taken by the prototype device, and it developed the images itself and images from regular scanners from sample devices in Hadassah."
None of the technicians who worked with the device which was installed in their department were prepared to talk about their experiences.
Published by Globes, Israel business news - en.globes.co.il - on September 24, 2020
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