Greetings, and welcome to Nana's Imaging Ltd. Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Bob Yedic with LifeSci Advisors. Please proceed.
Thank you, operator, and thanks to everyone for joining Nanox Imaging 3rd quarter conference call. On today's call, we will hear from Rand Polyakan, Chairman of the Board of Directors and Chief Executive Officer and Yitzhak Mahyan, Nanox's Chief Financial Officer. Liddy Edwards, President of Nanox USA will join the team for the Q and A at the conclusion of the management's prepared remarks. Before we begin, I'd like to remind everyone that management's remarks may contain forward looking statements regarding the company's financial results, research and development, manufacturing and commercialization activities, regulatory process, operations, the impact of non COVID-nineteen on its business and other matters. These statements are subject to risks, uncertainties and assumptions and are based on the comp management's current expectations as of today and may not be updated in the future.
Therefore, these statements should not be relied upon as representing the company's views as of any subsequent date. Factors that may cause such a difference include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission. We will also refer to certain non GAAP financial measures to provide additional information to investors. A reconciliation of non GAAP to GAAP measures is provided in our press release with the primary differences being stock based compensation expense adjustments. With those prepared remarks, it's my pleasure to turn the call over to Nanox's Chairman and CEO, Ram Paliakan.
Ram?
Thank you very much, Bob, and thank you everybody joining our first quarterly conference call as a public company. It's very exciting times. As Bob mentioned, also joining me on the call this morning David Schachmarian, our Chief Financial Officer Lydia Edwards, our President of Nanox USA is also on the call and will join us for the Q and A session. Now on August 25, we closed a very successful initial public offering, including the full exercise of the underwriters option, which raised gross proceeds to the company of approximately $190,000,000 This transaction, which was a result of tireless work on behalf of the entire Nanox team, together with the successfully crossover financing round that closed in July, provides capital for Nanox to continue to execute on our vision. To increase early detection of medical conditions that are discoverable by X-ray and significantly expand access to medical screening globally.
Our investors include strategic partners such as SK Telecom, Foxconn and Fujifilm, as well as new institutional investors that share and support management's long term vision of the company. Now let's talk a bit about the need. So the market need. So we founded Nanox to address a significant unmet need in medical imaging. There has been a lack of meaningful innovation in legacy analog x-ray systems since the invention by William Rantgen more than 120 years ago.
High end X-ray products are very expensive and complex, resulting in machines that are very expensive to purchase, maintain and operate, not to talk about their large very large footprint. In short, these machines are too costly and complex for mass global deployments. As a result, it is estimated that approximately 2 thirds of the world population has no meaningful access to medical imaging, while the remaining 1 third often experience long waiting time. There is a significant missed opportunity here and we decided to pursue it. Since access to medical imaging allows for early detection of serious disease, such as cancer and cardiovascular failures when they are more treatable.
Early detection has the potential to drive improved patient outcome and reduce cost to healthcare system around the world. I'm going to talk a bit about Nanox Arc. Nanox Arc is one of the components of our system. And with NANOQ ARC, we developed a novel digital X shape source that we believe addresses the drawbacks of the current technologies and will enable a new class of medical imaging systems that can be produced at a significantly lower cost than existing systems. Our technology as it rules in field emission technology or field emission display, which was originally developed by Sony in Japan.
After investing substantial financial and human resources for over a decade, it successfully developed this technology for the television industry. Sony ceased development of this project in 2011 about and NANOS acquired the underlying know how for the FED technology in 2012, retained the original development team from Sony and spent over 8 more years developing a digital X-ray source for the medical imaging industry that could be produced on a commercial scale. So what we're talking about is a very deep and proprietary technology that took years and substantial R and D investment to bring it to its current status. This technology is protected by patents that have been granted to Nanox. Based on our digital X-ray technology, we are developing what we believe is a new breed of medical imaging device that we call the Nanox ARC.
The Nanox ARC is a low cost machine manufactured at a fraction of the cost of the current imaging equipment that will potentially revolutionize global availability of medical imaging. Our NanoChart is a full body multipurpose tomosynthesis extra system that we believe is capable, once approved by the applicable regulatory bodies of delivering medical imaging for a wide range of clinical procedure inside and outside of hospitals and large imaging centers. With that, I want to switch gears into the Nanox cloud, which is the other part of the system. In addition to the significant lower cost and reduced size of Nanox Arc versus existing X-ray machine, another key advantage of Nanox Arc is its seamless integration with the Nanox cloud. Our purpose built cloud based platform that seamlessly connect Nanoxart with a medical professional who review and interpret the images.
But geology diagnostics are a significant bottleneck in providing early detection because there are not enough licensed radiologists to review and analyze scans. And in most cases, licensed radiologists are not located in close proximity to the imaging devices. To avoid potentially magnifying the bottleneck with the deployment of the 1st wave of Nanoxx Arc system, we developed the Nanoxx Cloud to connect 3rd party radiology diagnostic services to the NanoxArc and provide potentially billing control among other features. Images captured by the Nanos Arc are transmitted through the Nanos cloud safely and securely to radiologists and enables connectivity to AI driven systems, which can provide an initial analysis and decision assisted information to those radiologists. With the Nanos cloud, hospitals and doctors would also be able to get a real time access to medical imaging scans, which would have the potential to facilitate timely patient care.
The Nanos cloud is essential backbone of our Nanos imaging system and it's expected to be HIPAA and GDPR compliance. And interoperable with existing medical system via API, which is application programming interface to other devices. With that, I wanted to touch upon a bit of what happened during the Q3 in Nanox following the IPO. So turning now to the recent development of the company. Of course, the key, key element is to execute our strategy.
So to do that, we further strengthened both the leadership team and the Board of Directors. First, we were pleased to announce that Mr. Park, CEO of SK Telecom, has joined our Board. SK Telecom is a global leader in the development and manufacturing of semiconductor. They are both an investor in NanOps as well as strategic partner.
In addition to our collaboration agreement with SK to deploy 2,500 Nanox Arc systems across South Korea and Vietnam, we are currently working to establish a full owned Korean subsidiary that will focus on scaling up production of the Nanox X-ray stores semiconductors, while leveraging SK's deep expertise in the area of semiconductor. Mr. Park's insights and guidance will be invaluable as we establish and grow our footprint, particularly in Asia. Furthermore, in September, we announced the appointment of Gilad Yaron, our Chief Business Officer, in this newly created role. Gilad will play a lead role in executing our existing MSAS agreement, medical screening as a service, while in parallel refining the company's commercial strategy and overseeing customer facing activities.
Gilat brings to Nanon's team extensive experience, leading high-tech organizations and rounds out what I believe is a world class team capable of realizing our vision for the company. Also, since our IPO, we signed agreements with FBI Medical to deploy non OPART units in Mexico and Guatemala and Ambra Health, a leading medical data and image management cloud software company to facilitate the transfer of medical images between U. S. Hospitals and medical imaging providers. Itzhak will provide more details on this agreement in a moment.
Now let's talk about regulatory. At this point, I would like to provide a brief update on the regulatory approval process. Recall that in January 2020, we submitted the 510 Care application to the FDA under its 3rd party review program for a single source of Nanox version of Nanox ARC. In March 2020, we received a request for additional information from the 3rd party reviewer, which we responded to in September 2020. Nanox is working to continue to optimize and develop additional features in the Nanox Arc and we plan to submit an additional 510 application for the multi source version of Nanos Arc in the coming months.
The multi source version of the Nanos Arc will be the imaging system that we will seek to commercialize with our partners. We currently expect to receive FDA clearance for the multisource system by mid-twenty 21, which would allow us to deploy our first machine during the second half of 2021 in the U. S. And in other countries. We anticipate that the non SARC imaging procedures in the U.
S. Will be covered by existing radiology CPT reimbursement code. In parallel, we remain on track to submit a multisource version of the Nanoxarc for CE Mark approval by the Q1 of 2021 and anticipate possible clearance in the EU next year as well. Now I know that everybody is very interested to hear about the RSNA. So before turning the call over to Itzhak to review the few financial highlights, I would like to remind you that we intend to conduct a live demonstration of our technology at the upcoming annual meeting of the Radiology Society of North America.
This year, the RSNA conference will be a virtual medical meeting held from November 29 to December 5. At the meeting, we will demonstrate live our digital X-ray technology in a range of 2 d and 3 d medical imaging procedures. This session will be followed by a lecture and presentation of clinical applications of Nanox Heart System by well known radiologists and company distribution partners. We intend to make this material available to our investors and global stakeholders, so they can join and witness our technology. At this point, I will turn the call over to Itzhak discuss the market, competition, our business model and financials.
Ittak, please.
Thank you, Ben. So let's turn to the large market that Nanox Imaging is pursuing. The estimated size of the x-ray based medical imaging market is approximately $21,000,000,000 and to large extent it is dominated by many large multinational organizations including GE, Philips and Siemens. So one may wonder how relatively small companies such as ours can compete effectively. Our strategy is to expand the medical imaging market so that we are not competing with and do not intend to take away market share from those existing players, but instead we intend to increase the size of the pie.
The existing dominant players in the medical imaging market primarily target hospitals and large medical imaging centers. We intend to target other places that deliver healthcare services that are not able to afford expensive medical imaging systems such as urgent care units and outpatient clinics and countries where most of the population does not have meaningful access to medical imaging because there are simply not enough imaging machines. We are ultimately offering availability and affordability with the Nanox ARC. We will aim to target many healthcare providers do not have medical imaging capabilities and thereby increase the size of the market while avoiding head to head competition with the big players in the market that already exists. A distinct advantage of Nanos is our flexible business model.
The MSaaS model allows healthcare providers to pay on a first gen basis, avoiding the significant upfront capital expenditures, sometimes measured in 1,000,000 of dollars per machine that are associated with legacy X-ray technology. Even with the guaranteed minimum services fees that are included in our customer contract at 7 scans per day and $40 per scan to Nanox, the initial outlay is far less for the Nanox system than the conventional X-ray machine. We believe that this financial model is critical to our vision to increase early detection of medical conditions that are discovered by X-ray by eliminating the significant upfront capital cost of X-ray system as a barrier to broader adoption, while providing long term value to our shareholders. To that end, it is our goal to globally deploy 15,000 nanotalk units by the end of 2024. We are very pleased with the significant progress we are making toward this goal.
We've contracted deployment of 5,150 systems with 9 service providers in 13 countries contingent about regulatory approval, customer acceptance and other factors. During the Q3 of 2020, we signed an initial 7 year MSAS agreement with SPI Medical to deploy 6 30 Nanoxarq units across Mexico and Guatemala. SPI distributes specialty pharmaceutical products and medical devices across Mexico and more to its global health synergy leaders such as Philips, G, Simis and Toshiba. Using the contractual minimum of 7 scans per day at $14 per scan payable to Nanox, this contract is expected to generate minimum annual service fees of $17,000,000 to the company once all systems are deployed and upon obtaining the necessary regulatory approval and additional contractual terms. In addition, we signed strategic collaboration agreements aiming to deploy an additional 5,500 units in the U.
S, Korea and Vietnam using our MSAS business model. Subsequent to the end of the Q3, we announced an agreement with Umbra Health, a leading medical data and image management cloud software company to facilitate the transfer of medical images between U. S. Hospitals and medical imaging providers. Ambra will serve as the enterprise image exchange solution integrated with planned U.
S. Nanox ARC system deployment by the Nanox cloud infrastructure. The Ambras will consolidate multiple imaging system into a cloud storage platform that lets medical imaging be accessed securely anytime, anywhere. Leading facilities use AMRA to connect directly to multiple modalities and imaging systems, creating unified source of imaging data that is accessible to providers and patients. ENDRA is the ideal partner for Nanox as their solution perfectly complements the Nanox Arc and Nanox Cloud.
In summary, over the past year, we were able to form what we believe is a very strong coalition of strategic partner, service provider and AI technology partners that share our vision and our go to market initiative. Now for the financial review. On August 25, 2020, we announced that we had closed a very successful initial public offering of 10.5 shares of our ordinary shares at $18 per share. The net profit of the offering to the company after underwriting discounts and commission and related expenses were approximately $170,000,000 This included the full exercise of the underwriters option. We want to express the appreciation to the high quality healthcare dedicated and general investment funds in the U.
S, Europe, Asia and Israel that became shareholders in Nanox. The Nanox offering was one of the top 5 largest pure medtech IPOs completed since 2015 on the NASDAQ. Together with profit from the earlier crossover funding round, we ended the Q3 of 2020 with cash and cash equivalents of approximately $240,000,000 and with no debt. We believe our current cash is sufficient to fully execute on our plan of manufacturing, shipping and installing 15,000 nanotouch system globally, while continuing to expand our delivery capabilities and invest in our clinical and product roadmap, highlighting a few key financial statement items. Non GAAP net loss attributed to ordinary shares for the Q1 of 2020 was $5,100,000 compared to non GAAP net loss of $1,900,000 in the prior year period.
A reconciliation between GAAP net loss and non GAAP net loss for the 3 month period ended September 30, 2019 is provided in the financial results that are part of the press release we issued this morning. The difference between GAAP and non GAAP net loss to ordinary shares is mainly due to share based compensation. Non GAAP research and development expenses for the Q1 2020 were $1,500,000 as compared to $400,000 for the comparable period in 2019, reflecting the increased development activities of our Nanox system. Non GAAP marketing expenses for the Q1 of 2020 were $500,000 as compared to $500,000 for the comparable period in 2019 as we continue building our brand awareness and product marketing capabilities. Non GAAP general and administrative expenses for the Q3 of 2020 were $3,100,000 as compared to $1,000,000 for the comparable period in 2019 as we ramp up our investment in expanding our management team and the overall organization infrastructure in addition to increased costs related with the company's IPO.
Net cash used in operating activities during the quarter was $3,400,000,000 As of September 30, 2020, we had approximately 45,600,000 shares outstanding. We want to make investors aware that we will be participating in several upcoming virtual conferences, including the Berenberg CEO Conference on November 12, the Jeffrey Donovan Healthcare Conference on November 17, and the ConocoR 2020 Medical Technology and Diagnostics Forum in November 19th. We hope to have the opportunity to meet you virtually of course at one of these events. We would now like to open the call for questions. Ron and I will be joined by Idla Edwards, President of Nanox USA.
Operator, please start the Q and A session.
Thank you. At this time, we will conduct a question and answer session. Our first question comes from Suraj Kalia with Oppenheimer. Please proceed with your question.
Good morning, Ron. Good morning,
it's can you hear me all right?
Absolutely. Yes, we can.
Perfect. So Ron, a bunch of questions. On the 510 application for the single source, I know it's just been a few weeks. When do you expect any feedback from the FDA, if at all?
I mean, from our point of view, our expectation is that in the very soon in a matter of weeks, actually, we will hear something from through the 3rd party evaluator. I think in the FDA matter, it's very hard to predict. So I would say that we feel that we completed our submission and we answer the additional information manner. And therefore, the feedback should be coming soon. But of course, we cannot know that for sure.
Got it. And Ran, the devices to be commercialized by your partners are multi source. When do you all expect to provide prototypes to your partners for their individual review?
Yes. So in terms of process, as we speak right now, we are assembling about 10 of those devices in Israel. Those devices will need to go through a ruggedized test right now, and we will conduct some tests that also will impact estimation of the FDA like safety and other type of test. Once this will be concluded, we will ship some of the devices to our partners in order for them to be educated by Nanoxlab and get training of how we operate it. That all of that should be done as soon as those testing will get done, which is in the coming with same months.
Got it. And Ran, I'll have 2 final questions and I'll let others jump in then. The ceramic tube, can you give us a status update on the ceramic tube? That is first. And the second and the last question at least from my side, Ron, obviously there has been a lot of speculation on the viability of the platform.
At your RSNA live demo, what is the one thing that you would advise investors and skeptics per se and say, you know what, have a look at this. This is what the core competency that we bring and this is in essence going to be a paradigm shift you need to watch out for? Thank you for taking my questions.
Okay. So I mean, as you know, I think the tubes are being made by glass and ceramic. We're on our way to actually produce ceramic tubes, getting ready to serial production, so we can ship a lot of them. That's happening in mainly in Korea, and that's going well. In terms of skepticism, I think it's not my role to tell skepticism what they how to assess.
I do believe that Singh is believing. We do have a solid technology. We believe that we're going to demonstrate our technology and explain the differences between our technology and the analog technology. And it should, I believe, provide a lot of comfort because you can see the device, you can see it's taking images, you can see some radiologists talking about it. And overall, again, seeing is believing.
So that's why we're going to fit life from one of the prominent places in Asia here. And I think and I hope that that will be a good demonstration of Timex technology and the platform that we are building.
Thank you.
Our next question comes from Steve Halper with Cantor Fitzgerald. Please proceed with your question.
Hi. Two questions. So in terms of the FDA single source submission, how important is that relative to the development on the multi source, whether it's the prototypes or the next application? And then on an unrelated question, could you just talk to us about where you stand with Foxconn and your ability to or their ability to ramp up assembly of the ARC devices assuming you get the Multisource approval?
Okay. Thank you, Steve. Well, I think that the single source, multi source is part of one strategy where we bring our X-ray source, which is a novel thing and put it in a device that has a predicate. It's not a precondition for the multi source, but we felt that while we had the single source, it was a good idea to take it through regulatory path alongside with the multi source, but it's not a precondition that one will stop the other. So that's kind of as to the strategy there.
And what was your second question? I'm sorry, Steve.
Steve? Ramping up production from Foxconn for the ARC devices.
Oh, yes. So Foxconn is fully on board. We have routine meetings, engineers to engineers. It's important to them all the way to the Chairman of Foxconn, Our supply chain management and R and D are based in Korea and Israel. As you know, they're working very, very closely with Foxconn.
The next step for them is for us to complete in Israel the 10 prototypes, which will also go through regulatory clearances while ramping up production. I do not expect any big issues in terms of ability to ramp up so that we can deliver the expected quantities in the second half of next year.
Thank you.
Our next question comes from Ravi Misra with Berenberg Capital. Please proceed.
Hi, Ron. It's Saq. Thank you for
taking the question. Hi. So first on the commercial strategy, can you just walk us through how you guys go about identifying some of the partners and how that process plays out in terms of how long it takes and kind of what is the back and forth that you have between some of these customers?
Sure. Itzhak, do you want to take this one?
Yes, absolutely. And it's a really good opportunity to speak about those service providers because we feel that we had a very good process of selecting partners that both have the experience as well as the capabilities of taking our offering to the respective market. And I suppose that we'll give some very visible examples, okay? So we've been speaking about a 1,000 unit agreement that we have for the market of Australia and even Norway that came with in a given with the Gateway Group. And Gateway Group is one of Australia's largest independent product distributors as you know.
And they only distribute things like health, wellness, medical supplies and devices. And they reach over 20,000 locations with presentation of medical device. And so they bring very good experience, very good presence in that particular market and that's a 3 year deal for 1,000 units. Another good example is a company by the name of ProMedica and that's for the Italian market. ProMedica is a very interesting company that already provide more than 25 years of experience representing the diagnostic imaging vendors such as the Fuji, Fujifilm, Siemens Medical, GE Healthcare and so forth and also manage commercial strategic activities for multinational companies in the for the marketing such as the MR guided focused ultrasound, a company by an MOCE site that there are many milliwhip and robotic system.
For interventional radiology procedures such as IC. So those are only two examples, okay, and I can speak more. So if I need to summarize my answer to your question, we are looking for service providers that both come with in terms of accessibility to the market. They come with a strong capabilities and most importantly, believe in our vision and they come to Israel, all of them came to Israel, they've been to our demo room, they play with the device, they've seen the prototype and they came to recognition that in terms of the development stage of our device, they feel extremely comfortable that if we collaborate and work together in their respective markets, bringing this MSAS model on a per scan basis, paper scan basis will be extremely successful.
Thanks. And then maybe on Ambra Health and just the infrastructure build that's ongoing right now. Can you maybe help us understand how you perceive the end to end chain and kind of where the weak points are? Not necessarily weak points, but where the gaps are that you need to continue to build out similar to the Ambra Health and USA RAD partnerships? Like what other work needs to be done here?
Maybe Lydia, if you could take that one or Ran or anyone?
Yes, Lydia. No, no, I think Lydia can give a good perspective on the U. S. Market. Lydia, please.
Thank you, Ram. So as far as the role USAirag will play in our collaboration, it's pretty simple. The goal of that business agreement is to have USA RAD use its strong presence in the U. S. Teleradiology market as well as the standard radiology market to deploy our systems.
It's a strong partner for us, 25% owned by Siemens, which in itself gives it a professional component. The deal with USA RAD is nonexclusive. And as part of the partnership, USA RAD is going to perform the Telerat Radiology Services, which VR and Amex cloud based platform. And based on the fact that their customers have a really I'm sorry, their teleradiologists have a huge presence in the United States, we can use that to build out our sales structure. Now as far as Amber Health and the terms of the agreement, Brian, do you want to take that or do you want to talk to take that or?
Yes, it's hard to take it.
Yes, as we explained to before, Benoit, this is a very strong piece of the overall offering. You spoke about the entire platform. I think the Nanox trial, the best way to describe it that this is a very important switchboard over the cloud that really connects an end to end offering. And that includes, obviously, the service provider, the one who is providing the images on the ground using our Nanox Arc. It connects AI technology partners that is able to provide early annotation to the images, obviously provides accessibility to the right geologists who are enabling the agnostics of the images.
And the umbrella vision also provides the connectivity back to the hospital, especially in the U. S. Back to the patient medical file, okay, in case this is necessary. So what we are currently enabling is really an end to end suite of services that is allowing an end to end solution to the different service provider.
Great. And then maybe one last one just on RSNA. Did you guys announce what day the presentation would be on? And then just following that conference, can you help us understand a little bit more, I appreciate the demo units that you're giving to your partners, But in terms of the clinical build out, is there any other kind of study or partnerships with hospitals or universities that you're willing to announce here in terms of how to build out more of the usage and the conversation around that aspect of the device? Thanks.
Yes. So I think first of all in terms of RF and A, this is really it's a commercial conference that normally companies are attending to. So like any conference, we're going to have some materials on our science, on our technology. We're going to have some videos of our clinicians explaining what we're trying to do. We're going to have we have partnership with Duke University, so we're going to hopefully, someone from there will explain the project that we are running together with them.
We're going to have a full technology demo explaining the chip and then the tube and the 1 system, multi source system and the way to acquire images. We're going to show a bit of the very, very unique geometry we have or we could have in order to create reconstruction images that are very, very accessible to radiologists. And all of that is part of the normal business when we go to such a trade show. Now we're going to reach out to the big guys. We are already in touch with many of the medical health care companies because we believe that our source can be used also for their usage.
So we believe that Nanox, as an underlying technology, should interest them. And I can confirm that we do have many dialogues with many of the big companies other than Fuji that, of course, we announced. So we're going to do that. We're going to reach out to service providers, Our website and our Chief Business Officer is flooded with many, many companies from different countries that believe in our vision and trying to offer their services or their help under the MSaaS model. So all of these activities are going to be through the RSNA as well as the live demo, which is basically going to be a combination of technology and clinician.
So we hopefully going to have on-site in Israel, top radiologists actually from America that are going to explain what we see. And that's something very strong because it's connecting the dots between technology and clinicians. So that's for the RSNA. And I think going back to one of the questions before about skepticism, again, Singh is believing. We believe very much in our technology.
We know what we have and we know that from underlying technology, it really can disrupt the way people are doing this type of thing for the future. Now in terms of collaboration, as you know, we do have collaboration with few university hospitals in Israel and elsewhere. And I do believe that you are very strong advisory board members, some of which coming from Stanford, Duke University. In the U. K, we are very, very strong also in Korea, we are working on a road map of utilizing and examining non OX technology in different clinical settings.
And that's something that is coming. It's an ongoing effort. And I believe that when we have news to that end, we're going to introduce it. So that's about that's the answer to your question, Ravi.
Yes, great. I appreciate that level of detail. Look forward to speaking to you in a few days.
Thank you.
Thank you. At this time, there are no further questions in queue. I would like to turn the call back over to Mr. Ram Polyakan for closing comments.
Okay. Well, that concludes our call this morning. We hope that we were effective in conveying our enthusiasm for the opportunities that lies in front of us as a potential disruptor in the field of medical imaging, and we look forward to providing updates on our progress along the way, including the conferences that Isaac mentioned and our year end update. Thank you again and have a good day.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.