NANO-X IMAGING LTD

Greetings, and welcome to the Nanox Imaging Limited fourth quarter and full year 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Bob Yedit of LifeSci Advisors. Thank you. You may begin.

Thank you, Daryl, and thanks to everyone for joining the NANOX Imaging for the 2020 conference call. On the call today, we will hear from Rand Polyakin, Chairman of the Board of Directors and Chief Executive Officer, and Yitzhak Manyan, Chief Financial Officer. Before we begin, I'd like to remind everyone that management's remarks today may contain forward-looking statements regarding the company's financial results, research and development, manufacturing commercialization activities, regulatory process, operations, the impact of COVID-19 on its business, and other matters. These statements are subject to risks, uncertainties, and assumptions and are based on 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 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 with our press release, with the primary differences being stock-based compensation and class action-related expenses. With those prepared remarks, it's my pleasure to turn the call over to NANAC's chairman and CEO, Ran Polyakin. Ran?

Hey, hello. Thank you very much, Bob, and thank you, everyone, for joining our fourth quarter update call. As Bob mentioned, also joining me on this call this morning is Rakhmayan, our CFO. So, you know, we had a very exciting Q4 session our first quarter of the year, and we would like to share with you some of the outcome. Before I will dig down into the details, I would like to cover numerous number of things that we successfully accomplished in this quarter, which I think will give you a little bit of the feeling of the activity that is going on in the company. So first and foremost, we successfully demonstrated the NanoSoc system at the RSNA 2020 meeting. That was a huge milestone for the company as we demonstrated the technology, the system, and also got two radiologists from the U.S. to vet those images, and we'll touch upon it in a minute. We also further invested in Korea. As you well know, Korea is a major part of our supply chain, and during the last quarter, we invested a lot, a lot in human resources investment and actually a lot of work, basically making sure that our supply chain is in line with our plans, which are basically starting to ship products. Still with this year, we talked about 1,000 units that will get into Q1 of 2022. To do that, we rented an interim manufacturing facility in Korea for MEMS production. We invested a lot of capital into expenditure for the advance of semiconductor manufacturing equipment. And we even purchased the land, which will be the major site for nano-oxygen in the Far East. We purchased the land that will be our permanent establishment for the MEMS chief facility, as well as other R&D mentors. All of that in South Korea. The next point that we did and we accomplished in this quarter is really we added to the senior leadership team a new COO, CTO, and CMO. All of them came to guide the company expansion and execution plan to build out our team so that we can deliver on the promise. We expanded our technology collaboration by signing agreement with Umbra Health to facilitate the transfer of our files through Umbra Health's platform into medical hospitals and medical imaging providers in the U.S. That's something that is very much tuned to setting our operation in the U.S. to work. We added two additional strong board members. One of them is Dan Zuskin. He used to be a former CFO of Teva Pharmaceutical. Actually, for 25 years, he even served on the board as a board member there. And the second one is Noga Kainan. who is very known in Israel to be the head of the CFO Forum for Israel, both extremely experienced in publicly traded companies. I think this is the next one is the news that everybody wanted me to say. So, indeed, we submitted a comprehensive response to the U.S. Food and Drug Administration, the FDA, which none of us believe addresses the agency's outstanding questions on the company's 510K submission proposal. seeking USA regulatory clearance of its single source Nano-X ARC. Nano-X expect that it can obtain US regulatory clearance of this single source quite soon. And the last one I think that you all pretty much was publicly shown. We completed a successful offering of 3.1 million shares by certain non-director, non-officer selling pre-IPO shareholders. So that's kind of the highlight of how exciting this quarter was. And I will get into details in a minute, but just before then, allow me for an additional couple of minutes just to remind for those of you that are not following the company on a daily basis, just to kind of set the ground. So what we have developed is proprietary imaging technology based on novel digital MEMS semiconductor cathode. we believe that we can achieve the same functionality as a legacy X-ray system, analog cathode, while allowing for lower-cost production than existing medical imaging systems. So this is really our trick. Now, the NanoSarc, the product, is a 3D tomosynthesis full-body imaging system, generated high-resolution 3D X-ray images that reconstruct the human body or images' specific body parts, and can be read by medical professionals. So it's a multipurpose device, the NanoX ARC. This is a very important point. Attached to the ARC, we have the NanoX Cloud, which is a software piece which is now in prototype stage, and those images that we took from the NanoX ARC can be sent to the cloud where it can be viewed, stored, matched with radiologists, reviewed using diagnostic AI, and sent for billing and reporting. So that's the other side of the system. So we have the NanoX Arc and then the NanoX Cloud. Again, very quickly, so just to make everybody familiar with what we do, our business model is very innovative. We call it MSAS, which is medical screening as a service, but really it's a SAS model, business model, that provides NanoX Arc at no or little cost to the healthcare provider, removing the large capital expenditure associated with traditional systems that is upfront or in-list payment. We are building a global network to deliver imaging availability. We have signed nine of those MSAS agreements for global deployment of over 5,000 units of our Nano-X Arc and additional 5,500 units through a strategic collaboration agreement. So again, business model is very novel. It's all due to the fact that we can reduce the cost dramatically and the connectivity through the cloud. Now, the next point that I want to, everybody knows, but still, I want to mention it, that we have today a very strong balance sheet. And, of course, our CFO will touch upon it. But it's important to know that we ended the year 2020 with $213 million, zero debt. And all of that is to fund continued development, manufacturing, and distribution of Donald Stark. Or, in other words, this is the money we need for execution of our plan, and we're clearly going to use it for that. The next point is that we're continuing to build a coalition of strong business partners. So just to mention, you know, SK Telecom and Fuji and Foxconn, all of those relationships are heavily being managed. We have a lot of initiatives there, and it all comes together to an integrated solution that we hope we can achieve very soon. So that's kind of, again, going back to the beginning, what is Nano-X and what we're here to do. And with that in mind, I would like to start and give you a little bit more color on the different activities. So let's start with the RSNA demonstration. So we successfully demonstrated our Nano-X Arc next-generation X-ray prototype at the 2020 Radiology Society of North America. It was virtual this year. annual meeting. People know this as RSNA. We made a live demonstration which was viewed by a global audience of thousands, featured a range of 2D and 3D images procedures using our groundbreaking digital X-ray tube in a unique multi-source array structure. I would like to review a few highlights from the demonstration which featured analysis and commentary by two US-based radiologists of images generated by the NANOSARC as compared with images generated by legacy source. So in other words, we demonstrated the systems with technology, but not only the technology, we also brought on board two radiologists from the US to give the validation there. In the first demonstration, a single source 2D images to the image of my hand, my physical hand was captured. The radiologist noted that the NanoSARC-based image provided excellent image quality, even smaller details with good contrast between bone and soft tissues. They were quite impressed. And by the way, this movie of this demonstration is available on our website, so everybody that wants to see it is there. In the second demonstration, a multi-source NanoSARC employing multiple tubes was used to capture a 3D tomosynthesis of a phantom hand. The image was compared to a conventional 2D x-ray taken the day before at a nearby hospital. The radiologists were impressed with the high resolution of NanoXARC image and were able to see things on that image that were not able to see on a 2D study. Furthermore, with its overlapping images and angles, the multi-source nanoXARC generated 3D tomosynthesis images allows radiologists to address the problem of overlapping biomass that often obscure their ability to make accurate diagnosis using a conventional 2D image. Similarly, a comparison of images of the phantom chest allowed the radiologists to determine that what appeared to be lung nodules in the lateral 2D X-ray image were actually blood vessels, as determined by the 3D tomosynthesis generated by the NanoxARC. Additionally, actual lung nodules not seen on the X-ray were detected by the 3D tomo of NanoxARC. In actual clinical practice, the discovery of lung nodules typically results in an early intervention such as lung biopsy, which if determined to be malignant, could have significant increasing the patient chance of successful medical outcome and prolonging survival. So this is a key point that we demonstrated. This is our vision for the NanosARC and the NanosCloud, which it's reduced the complexity and lower cost compared to a legacy X-ray systems. We aim to deploy thousands of these machines around the world, providing access to imaging to roughly two-thirds of the world population that either have limited or no access to any images today or experience very long wait times. Our goal is not to compete with established industry players, but rather to expand the overall market with an innovation approach suitable for mass deployment to smaller healthcare facilities, including urgent care centers, outpatient clinics, and rural areas in both developed and developing countries. As we have said before, currently there is significant misopportunity since access to medical imaging allows for early detection of serious disease, such as cancer and cardiovascular disease, when they are more treatable. Early detection has the potential to drive improved patient outcome and reduce cost to healthcare systems around the world. A replay of the RSNA demonstration is included as part of the investor webinar that we hosted immediately after the RSNA and is available on the investor section of our website. I encourage all interested parties to view it if you have not already done so. So that really summarizes the point of the RSNA. Again, a major milestone for the company. I'm very proud of the team that we put together this type of demonstration, which was very powerful and actually started a flood of interest and, I would say, credibility to the company that involved reaching out to the company from all over the world following this show. Now, I want to take a step back and talk about the unmet need. I want to take a step back, and for those who may be new to the story, I want to say that we founded Nanox to address a significant unmet need in medical imaging since there has been a lack of meaningful innovation in legacy analog X-ray technology since its invention more than 120 years ago. I and X-ray products are costly and complex. resulting in machines that are very expensive to purchase, maintain, and require a large footprint. In short, these machines are too costly and too complex for mass global deployment, despite the fact that everybody realized the power of medical imaging in modern healthcare. We developed a novel x-ray source based on digital MEM system. It's based on semiconductors. It's a nano system, actually, on a chip. that took years to develop. At scale, this can be produced at a significant lower cost than analog estuary cathode. We believe our device, the NanoXARC, has the potential to revolutionize the global availability of medical imaging. Another key advantage of NanoXARC, in addition to its size and cost, will be its seamless integration with the NanoCloud, our cloud-based platform that seamlessly integrates connects through an API, NanoX Arc, with a medical professional who reviews and interprets the images, regardless of where they are located. And that's very, it's a key point to the audience because the ability to disconnect between the patient and the diagnostic is key today, especially after what happened in the last year with COVID-19, et cetera. Everybody realized that what's happening in Africa is very relevant to New York City and vice versa. And for that reason, The Nanos Cloud is answering or giving the capabilities of uploading a scan from one area in the world and getting it diagnosed in a totally different area. And that's a very key point of the Nanos overall offering. The Nanos Cloud will provide hospitals and physicians with a faster access to critical information, and we believe the Nanos Cloud will be an important part of our value proposition. Going back to the first quarter development, I just want to turn now into the recent development of the company since our last quarterly report. I covered in high level. Now I'm going to go a little bit more in detail. In January, we announced an extension of our strategic collaboration with USA RAD Holdings, a U.S. joint commission accredited teleradiology and telemedicine company. to launch an advanced radiology diagnostic service. The service combines over 300 expert radiologists and over 20 FDA-cleared, 510K-cleared artificial intelligence algorithms to support the medical diagnostic industry. We plan to use the X-ray-based algorithm, including 2D and 3D tomosynthesis, to provide analysis of large data sets combined with expert radiologists' interpretation through a unique proprietary workflow. Once operational, the NanoSoc system is cleared by the FDA. This AI-based second opinion service will be an integral part of nano service offering. And that's a key, key point because it's not only that we're going to provide the images, but the diagnostic and the assistance of third-party AI companies is something that is, again, it's a key in the new era of healthcare. Recall that in February of last year, we announced a strategic collaboration with USA Radiology to deploy 3,000 nanoSARC units across the U.S. subject to regulatory approval. This new venture strengthened our partnership while allowing us to jointly offer the latest in emerging AI technologies to our customers. So, again, this is a key, key development in what happened in the Q4. And we all look forward for a very successful integration of this second opinion platform into our overall offering. The next point is Umbra Health. So I'm sure that most of you know about Umbra. And again, during the fourth quarter, we announced an agreement with Umbra Health, the leading medical data and image management cloud software company, to facilitate the transfer of medical images between U.S. hospitals and medical images provider. In the U.S., Umbra will serve is an enterprise image exchange solution integrated with a planned NanoX Arc system deployment via the NanoX cloud infrastructure. The AMBRA suite consolidates multiple imaging systems into the cloud storage platform that lets medical imaging be accessed securely anytime, anywhere. Leading facilities use AMBRA to connect directly to multiple modalities, and imaging systems, creating a unified source of imaging data that is accessible to providers and patients. AMBRA is an ideal partner for NanoX, as their solution perfectly complements NanoX Arc and NanoX Cloud. The AMBRA network is vast. It includes seven of the top ten hospitals in the U.S. and six of the top ten children's hospitals. The network manages over 8 billion images, and it is utilized in over 50 countries. So again, this is the major development for the company. This is how we're setting up ourselves to actually execute on the value of accessibility. And AMBRA is a perfect partner for that. The next point that I touched upon before and I will touch upon it again is our Korean subsidiary. As many of you know, we manufacture the MEMSX chips at our facilities in Japan. In December, we established a Korean fully-owned subsidiary with support of SK Telecom and its affiliates company, SK Hynix. Now, for those of you that do not know, SK Group is the second or third largest company in Korea, and SK Hynix is one of the largest MEMS manufacturers in the world, so the help from them is very, very important. We got the help from them for the purpose of manufacturing our MEMS X-ray chips for the NanoX ARC, And indeed, we did get such a support for them. For 2021, we have secured an interim facility and are proceeding with tech transfer from our Japanese FAB and the purchase of capital equipment as we prepared to commence full-scale manufacturing later this year. We have also secured the land for a larger type of facility. It's a permanent chip facility. that we will build to collaborate in the collaboration with SK Hynix, which we anticipate will be operational during 2022. So that's really our long-term plan. And again, for the audience, as you know, NanoXID, we're going on a marathon here. If we are right in our thesis, we're going to change healthcare in many, many ways. And for that, you need to build an infrastructure, and that's exactly what we're doing. And we're doing it now. day in and day out, including the next topic, which is, again, to expand our leadership team. So in terms of leadership team, we announced several key hires since our last update. We announced the addition of Jim Dera as Chief Operating Officer, Ofer Korem as Chief Technology Officer, and Tamar Aron as Chief Marketing Officer. As we advanced along the U.S. regulatory path and worked towards shipping 1,000 commercial units by the end of the first quarter of 2022, having highly qualified individuals in these positions will be critical to further strengthening our operational capacity and preparing for continued business expansion. I'm pleased that Jim Ophir and Tamar have joined us at this important time for Nano-X, particularly as we ramp up manufacturing with our partners Foxconn and prepare for to transition to a commercial stage company. We also recently expanded our board of directors with the appointment of Dan Zuskind and Nogat Kainan, effective with our special general meeting of shareholders, which was held on February 9th. Dan serves as the chief financial officer of Teva Pharmaceutical from 1977 through 2008, and also served as director of Teva for various periods through 2018. Noga Kenan established a forum of owners, chairpersons, and CEOs of leading Israeli companies and also established the CFO Forum, which I referred to before, in 1997, which brings together leading Israeli CFOs. We welcome Dan and Noga to the board and look forward for their contributions. The next topic I want to touch upon is, of course, regulatory. I mean, we are all expecting the regulatory path to take place and that our units will be cleared so we can start and embark our execution plan in the U.S. and other countries. And at this point, I would like to provide a brief update on our U.S. regulatory approval process. Recall that in January 2020, we submitted the 510K application to the FDA under its third-party review program. For single source version of NanoXARC, in March 2020, we received a request for additional information from the third party reviewer, which we responded in September of 2020. We made an additional progress as the third party reviewer recommended the single source NanoXARC 2D system to the FDA for clearance in December. In late January of 2021, we received an additional information request from the FDA to which we have now submitted a complete and comprehensive response that we believe fully addresses the agency's remaining questions. Importantly, we are now in direct contact with the FDA in addition to the third-party reviewer, and we believe that the process towards 510 clearance will go smoothly from here. We continue to believe that we will receive FDA approval of both our single-source and multi-source device still within this year. If approved, we anticipate that the NanoSARC imaging procedure in the U.S. will be covered by existing radiology CPT reimbursement codes. Regarding the EU, we plan to submit the multi-source version on the NanoSARC CMR approval this year as well. At this point, I would like to turn the call over to Yitzhak to discuss the financials. Yitzhak, please.