Nano-X Imaging files for $100 million IPO

(Seeking Alpha) – Nano-X Imaging (NNOX) intends to raise $100 million from the sale of its common stock in an IPO, according to an amended registration statement.

Summary
Nano-X Imaging has filed proposed terms for its U.S. IPO.

The firm is developing improved medical imaging technologies.

While NNOX has promise, I can’t determine if the IPO is reasonably priced, so I’ll watch, wait and see.

The company is developing an improved and less costly form of medical imaging technology.

NNOX is preparing to go to market with multiple revenue streams and strong existing investor interest.

However, I’m uncertain about the IPO’s valuation, so I’ll watch the IPO from the sidelines.

Company & Technology
Neve Ilan, Israel-based Nano-X was founded to create a ‘novel digital microelectromechanical system (“MEMs”) semiconductor cathode’ that it believes can produce the same results as X-ray technology but at a fraction of the cost.

Management is headed by founder and Chief Executive Officer Mr. Ran Poliakine, who was previously a founder or co-founder of several high-tech companies in the hardware and software spaces.

The firm is developing a combination hardware and software system it calls Nanox System. Upon approval, management expects to produce a 3D tomosynthesis imaging system for its global marketing efforts.

Investors in the firm have invested at least $31.7 million and include SK Telecom TMT, Tsuri Limited and Everhart Finance, Yozma Group Korea and Asia Beam Limited.

Market and Competition
According to a 2020 market research report by Grand View Research, the global market for medical imaging was approximately $20.1 billion in 2017 and is expected to reach $30 billion by 2027.

This represents a forecast CAGR (Compound Annual Growth Rate) of 4.0% from 2018 to 2027.

Key elements driving this expected growth are increasing demand for early-stage diagnosis of disease, growing investment in new technologies and higher governmental support for better imaging options.

Also, the industry will see an increase in demand from teaching hospitals and universities as part of their training process upgrade.

Major competitive vendors that provide or are developing treatments include:

Carestream

XinRay Systems

Varex Imaging (VREX)

Management says its system has lower risk of fire, greater resistance to degradation and reduced positioning error deviation.

Financial Status
Nano-X’s recent financial results are typical of a development stage medical instrument firm in that they feature no revenue and significant R&D and G&A expenses associated with its development efforts.

As of December 31, 2019, the company had $9.6 million in cash and $20.6 million in total liabilities (unaudited, interim).

IPO Details
NNOX intends to sell 5.8 million shares of common stock at a midpoint price of $17.00 per share for gross proceeds of approximately $100 million, not including the sale of customary underwriter options.

Certain existing shareholders have indicated an interest to purchase shares of up to $80 million from the offering, a very strong signal of investor support for the IPO.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $665 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 14.19%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

We intend to use the net proceeds from this offering, together with cash on hand, cash equivalents, and short-term investments, for [i] the manufacturing of 12,000 Nanox.ARC units as part of the initial wave planned for global deployment and investment in manufacturing capacities, [ii] shipping, installation and deployment costs of the 12,000 units of the Nanox System, [iii] continued research and development of the Nanox.ARC, the development of the Nanox.CLOUD and regulatory clearance in various regions and [iv] sales and marketing expenses, general and administrative expenses and other general corporate purposes.

Management’s presentation of the company roadshow is not available.

Listed underwriters of the IPO are Cantor, Oppenheimer & Co, Berenberg and CIBC Capital Markets.

Commentary
NNOX is seeking U.S. capital market public investment to continue development and begin initial commercialization of its imaging technologies.

Existing investor support for the IPO is extremely strong, with indications of interest for 80% of the IPO.

This level of support for a medical instrument firm is quite telling, as it indicates insiders seek additional shares at the IPO price.

The market opportunity for the firm’s Nanox.ARC units is substantial and the firm’s investors are primarily Asia Pacific region based, so management appears to be prioritizing the U.S. and Asian markets for initial rollout.

Management expects to employ a flexible sales model of either outright sale, subscription or royalty-based models, depending on the location and circumstances.

The subscription model is expected to be the primary go-to-market revenue model and while it requires greater capital up front to fund, it promises to provide a steadier and more predictable income stream over time, which I favor.

As to valuation, management is asking IPO investors to pay an Enterprise Value of $665 million versus that of Varex, a direct competitor, whose EV is $904 million.

Varex has TTM revenue of $770 million versus zero for NNOX, so that proposed Enterprise Value isn’t cheap.

For life science investors with a patient hold time frame for NNOX to earn its proposed valuation, the IPO may be worth a closer look.

As for me, I’m more skeptical that the valuation is reasonable, so my opinion is NEUTRAL.

Expected IPO Pricing Date: August 20, 2020.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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