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Nano-X Imaging (NNOX 1.86% ) is one of my favorite biotechs. It's an incredible story. A bunch of engineers working for Sony developed a cold cathode technology for flat-screen TVs. Unfortunately, the tech was too expensive, and Sony killed the project.

The Japanese engineers didn't give up, however. They wondered if the science could work in the field of high-end X-rays, like CAT scanners used in hospitals. Those machines -- unlike televisions -- cost millions of dollars. On the other hand, a cold cathode X-ray machine could be built relatively cheaply for $10,000. So while that price point wouldn't work with televisions, it radically disrupts the high-end X-ray market.

While it's a revolutionary breakthrough, it has not been a quick process. The engineers at Sony spent over a decade developing the original cold cathode technology. A Japanese venture capitalist named Hitoshi Masuya started funding (along with Sony) a joint venture to use this tech for X-rays. After Sony decided to drop out, Masuya pitched the project to Ran Poliakine, a serial entrepreneur in Israel, and his company bought in.

Another decade went by as Nano-X developed the X-ray prototype (based loosely on the biobed from Star Trek), and raised more and more money from other venture capitalists in Asia, including SK Telecom in Korea, Fujifilm in Japan, and Foxconn in Taiwan. Finally, in 2020, the company went public in the markets in the U.S. It was truly an international effort.

Nano-X stock started trading on the Nasdaq in August 2020 at $24 a share. The stock zoomed to $94 in January 2021. And now, the stock has seen a precipitous drop to $9 a share, way under the IPO price.

It's now nearly 90% off its highs. Why did the stock run up so high? Why did it fall so far? Is Nano-X a failure? Or is the company closer to success than it's ever been? Let's dive in.

Nano-X, like a lot of biotechs, has neither profits nor revenues. That makes it a highly risky investment. It's a good idea when you're investing in a biotech stock without profits or revenues to keep your investment small.

The stock soared after the initial public offering because of investor excitement. Shorts quickly came in and tried to claim that the company was a complete fraud. Then the shorts were crushed, and the stock zoomed all the way up to $94 a share.

Since then, the founder of Nano-X stepped down from the CEO job (he remains chairman of the board). And while the company has received several clearances from the U.S. Food and Drug Administration (FDA), the important one -- for the company's multi-source device, the one that will compete with CAT scans -- has yet to materialize.

It is probably those delays that has caused the stock to drift lower, and lower, and lower still. Of course, we're in a bear market in 2022, and a lot of amazing companies are down 50% off their highs. But unprofitable biotechs without any revenues are hit even harder in such an environment. Nonetheless, while there might be more delays in the short term, I expect that ultimately the FDA will give Nano-X clearance for its device.

Dr. Frank David, an expert on clinical trials, came on Motley Fool Live a few weeks ago. One of the things he talked about was the difference between FDA approval (for pharmaceuticals) and FDA clearance (for medical devices). His opinion is that it's a lot easier for medical devices to get by the FDA and get on the market. As he put it, for the "vast majority of medical devices, the data bar for getting approved is actually pretty low."

So while the company has yet to receive its FDA clearance for its multi-source device, my opinion is that the odds that it will receive a clearance are really high. As Dr. David put it, the problem medical device companies run into is not regulatory approval but a failure in the marketplace: "[N]obody wants to use them and nobody wants to pay for them."

I don't expect hospitals with a CAT scan device to be the primary market for Nano-X's machine. Rather, I expect the demand to come from all the hospitals that don't have those high-end X-rays. Two-thirds of the world's population have no real access to medical imaging. The rest of the world might have to wait weeks or months to schedule one in a hospital.   

Nano-X's breakthrough makes its X-ray device profoundly smaller and cheaper than existing high-end systems. Traditionally you had to power up a CAT scanner to 2,000 degrees celsius. With its cold cathode technology, Nano-X uses microscopic nano-cones on a computer chip to power up the device.

That breakthrough creates enormous cost savings -- a $10,000 machine instead of a $1,000,000 one. Nano-X plans to make its device ubiquitous in hospitals worldwide, in Asia, Africa, South America, increasing the use of X-rays, one of the greatest diagnostic tools known to medical science. And Nano-X is going to give away its device free or under-cost and take a percentage every time the machine is used, the classic razor-and-blades model. The biotech plans to distribute 15,000 devices by the end of 2024.

Right now, the device is being used in the Hadassah Hospital in Jerusalem. Erez Meltzer, the chairman of the Hadassah Medical Center, said, "Nanox's scientific promise is profound, but more importantly, so are the possible life-saving implications of making professional X-Ray scanners at a fraction of the cost and at a similar quality of medical imaging currently available at Hadassah." 

Meltzer was so impressed with the device, in fact, that founder Poliakine was able to convince him to take the CEO job at Nano-X, and help scale up the company. Meltzer assumed the CEO job earlier this year.             

Nano-X currently has agreements to deploy 6,500 devices around the world. And pilot production at the Korean plant is scheduled to begin this year. Cautious investors might wait for the FDA to clear the multi-source device. Risk-tolerant investors might want to open a small position now. The opportunity is massive.

Taylor Carmichael owns Nano-X Imaging Ltd. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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