Xense is raising capital via a Crowd SAFE at a $228 million valuation cap. Given that Xense is a medical technology company, a high valuation is not surprising. However, since the company is approaching FDA submission and does not yet have a functioning prototype, this valuation is far too high. In order for investors to make a minimum 10x return, the company would need to reach a future valuation of at least $3 billion. Considering the potential of this technology, that is certainly a possibility — but there’s no guarantee. Medical technology generally tends to make a risky investment, and uTomo is a new technology without a prototype, leaving questions about whether it will work and be accepted. 

Additionally, Xense has raised two previous private rounds (for accredited investors) at $20 million and $50 million valuations. A $228 million valuation is a sharp increase. Given that the company is nearing FDA submission, an increase is expected. Companies that have at least a year until FDA submissions tend to raise at lower valuations due to the risk. But Xense plans to submit in the next few months, so it likely feels a high valuation is justified. The company was also issued a patent on its core technology in early 2022, another reason for the sharp valuation increase. However, given the risks involved, a $228 million valuation is far too high.

Xense is taking on the United States computed tomography (CT) market. This market was valued at $1.4 billion in 2020, and the global market is projected to grow 3.8% annually. Xense’s technology also operates in the X-ray market, which was worth $25.1 billion in 2020 and growing at a 7.3% rate each year. These are well-established markets — and thus slow-growing — that are fairly sizable. If Xense can successfully break into the CT and X-ray markets, the disruption it would create would be astronomical. If the company gets FDA approval and begins to scale, it will be an extremely attractive acquisition target for legacy CT brands like Toshiba, Siemens, and Phillips. 

Additionally, Xense can sell its product in the preclinical and veterinary markets before receiving FDA approval. The US preclinical imaging market was worth $852.4 million in 2021, with a growth rate of 4.3% per year. Finally, the veterinary imaging market stands at about $1.1 billion in 2022, and the global market grows at a rate of 6.8% annually. Both of these markets are smaller than the CT and X-ray markets, and they’re growing at a rather slow rate. However, Xense doesn’t need FDA approval to sell into these markets. As soon as its prototype is ready, the company will have a nice way to make money while its product is getting cleared for human applications.

As a whole, Xense’s combined market opportunity is attractive. Once uTomo is commercialized, adoption could be a slow process because hospitals and clinics tend to be resistant to change. Nevertheless, Xense has a chance to gain considerable market share.

Xense was founded by Ying Zhao, who currently serves as the company’s CEO and CTO. Zhao holds a Bachelor of Science in molecular and cell biology from the University of Connecticut, a Master of Science in microbiology from Boston University School of Medicine, and a Master of Science in electrical engineering from Columbia University. She has experience in the medtech space at Jenoptik Healthcare and Advanced Optical Technologies. She worked as head of business development and vice president at these two companies respectively. While Zhao has business experience in the medtech space, she does not have the technical expertise one would expect from the founder of a medical device company. However, much credit needs to be given to Zhao for getting a team in place (mostly part-time workers) to develop the technology over the past four years. As a result, it’s on the cusp of FDA submission. 

Alan Bliss serves as the director of hardware and electronics engineering for Xense. He has more than 20 years of experience in aerospace, hardware, and cloud software. He holds a Bachelor of Science in electrical engineering from California State Polytechnic University, Pomona. 

According to LinkedIn, only Zhao and Bliss publicly identify as working at Xense full-time. One important note is that Sean Lavine, a neurosurgeon and associate professor at Columbia University Medical School, is listed as head of medical affairs on Xense. While he does appear in the company’s raise page video to discuss the potential of the uTomo technology, he does not show affiliation as a full-time employee with the company in that video or on LinkedIn. In other words, Xense doesn’t have a full-time neurosurgeon or radiologist on staff. This detail is concerning because Xense is heading into FDA trails and will likely need that type of support. 

Xense will likely need to hire more full-time technical workers to help fine-tune the prototype as it seeks FDA approval and goes to market. Zhao told KingsCrowd that the company has four full-time staff members and 31 contractors as well as six radiologist and surgeon advisors.

In theory, Xense does not seem to have the necessary expertise from full-time staff to really carry the product through FDA clearance. But practically speaking, Zhao has clearly been able to navigate any technical hurdles that arose in the development of uTomo and is now on the verge of FDA submission. Therefore, one can reasonably assume that she will be able to continue leading this company successfully into the future. 

The technology that Xense is developing promises to provide computed tomography (CT) images that have 1% scatter (technical term for image blurriness created from scattered radiation beams). That would be a drastic improvement over today’s CT machines, which have between 5% to 80% scatter. Additionally, the Xense system will be able to conduct both X-ray and CT imaging with just one degree of movement, decreasing time to diagnosis for patients. 

If developed and commercialized successfully, Xense’s technology would represent a massive change from current CT technology and be extremely disruptive. If Xense can eventually prove its technology reduces time to diagnosis for patients and decreases cancer risk due to lower radiation exposure, the industry could be forced to move in this direction for safety reasons. And given that the uTomo device will be in a similar price range than modern scanners (the founder estimates prices ranging from $50,000 to $250,000 a year in subscription costs), this will be a no-brainer for providers.

Finally, Xense has also been granted a patent that protects its scatter removal technology and the novel 3D topographical imaging method that allows imaging with one degree of movement. The company is building a strong portfolio of intellectual property and has filed more than 50 patents. Xense already has some defensibility, which could increase even more in the future.

Altogether, Xense’s technology is protected by a patent and has the potential to revolutionize current CT technology.

Xense raised two previous private rounds for accredited investors, one of which generated $450,000 in 2020 at a $20 million valuation. The other generated $826,325 at a $50 million valuation in 2021. The company has seen obvious traction with investors, which is very important for a medical technology firm like Xense due to high research and development costs. 

Other than this, Xense’s main traction over the last four years has been in its research and development. Although there have not been any major announcements coming from Xense about the technology, it is clearly on the cusp of FDA submission and has made strides toward the goal of reaching federal approval and commercialization.

The company is operating in a very capital-intensive industry. As a result, cash management is critical to keeping the company alive. Despite its solid past fundraising efforts, Xense is burning through money quickly. The company projects a burn rate of up to $850,000 in the next three to six months as the company enters the critical FDA approval period. Additionally, the company will need at least $2 million to begin generating any revenue at all. With just $10,000 of cash on hand and raising just $1 million in this Regulation Crowdfunding raise, the company will likely need to take on more debt as expenses inevitably begin to rise. 

Overall, the company has found success in raising money from investors and advancing its research and development. However, it will need significantly more capital from new sources to reach commercialization.

The risks associated with medical technology startups are inherently higher than most other startup investments. 

Firstly and most importantly, Xense has a very high funding risk. The company will need $2 million to begin generating revenue and $50 million to become profitable. Additionally, founder Ying Zhao told us that the company will need six to 12 months to get FDA clearance once filed. The company predicts a burn rate of up to $850,000 over the next three to six months. Given that Xense is raising just $1 million from this raise, the company will struggle to keep up with monthly expenses without taking on further debt or raising money from other means. Institutional investors are notoriously resistant to invest in companies that have not received FDA approval, so Xense cannot rely on venture capital money. With just $10,000 in cash on hand, Xense may struggle to absorb any increase in costs that may arise during this new FDA submission phase.

The other major risk is technology risk. The company does not have a working prototype, which means it has not conducted any testing of the device on animals or humans. There is no way of telling if the device will work as predicted. It could take months or years of iterations before a perfected prototype is completed. That could cause potential delays in getting FDA approval and could also lead to increased costs. 

Thirdly, there is a risk that hospitals and clinics simply won’t adopt this technology. These institutions are often resistant to adopting expensive new technology, particularly if they have already spent large amounts of capital on existing computed tomography and X-ray machines. Xense is going to need to find hospital partners that will be more receptive to this, a process that Zhao told us is already underway. 

Lastly, Xense plans to manufacture the first 50 uTomo devices in-house before finding a contract manufacturer to scale production. Without a viable prototype, there’s no telling how much it will cost to manufacture these uTomo units. If it’s an expensive undertaking, the cost of goods could prove unsustainable for Xense. While this is not an important factor just yet, it is a risk that will become extremely important once the company begins distribution and tries to get the cost of goods sold down to a sustainable level. Because this is an unknown factor, it adds to the risk profile of Xense.

Medical technology is extremely expensive and requires large amounts of capital to get through the FDA approval process. However, Xense seems to lack the revenue and financial strength to reach commercialization on its own. Therefore, Xense will need to continually raise money to help absorb the inevitable product development costs. 

The company does not have a completed prototype, and without a prototype, there’s no way of knowing whether the company’s technology actually works. Additionally, the company has an extremely high valuation that will make it difficult for investors to receive a 10x return without Xense becoming a $3 billion company — which is far from guaranteed. In our conversations with CEO Ying Zhao, she told us that the combination of a $26 billion future market size in 2026 and the company’s portfolio of more than 50 patents justifies the high valuation. However, given that the company does not have a completed prototype yet or much financial breathing room, this valuation is not attractive enough given the risk.

For all the risks present with Xense, it could create astronomical disruption if successful. The company plans to combine X-ray and computed tomography (CT) imaging technology. Its product, uTomo, requires just one degree of radiation to reconstruct a 3D image. This decreases time to diagnosis since both imaging methods can be done simultaneously on the same device, and it also reduces unnecessary exposure of other parts of the body to harmful radiation. Although hospitals and clinics could be resistant to adapt to new technology, Xense just needs to make inroads at a small number of hospitals and clinics to get noticed by the legacy incumbents. Once they see how superior this new technology is to the status quo, Xense will become an extremely attractive investment target for these firms. 

Additionally, there are no other firms developing similar CT technology. Xense has been granted a patent on its core technology and, if successful, will be the first company to provide a drastic innovation to the CT imaging space in decades.

Xense is a medical technology company that is developing the next generation of X-ray and computed tomography (CT) imaging devices. The promise of the company’s uTomo scanner is that it will be capable of providing both X-ray and CT imaging with just one degree of movement (instead of the standard 360 degree rotation seen in current machines). This will decrease time to diagnosis and reduce unnecessary radiation exposure for both patients and technicians. 

Given that Xense is a prototype-stage medical technology firm, the technology and funding risks are very high compared to other startups. Xense faces high research and development costs and capital expenditure requirements. The company’s costs will continue to rise sharply as the product is iterated upon and as it goes through the FDA approval process. Therefore, the company will need to find additional funding outside of this raise to absorb rising costs. Additionally, the company’s $228 million valuation is extremely high given the numerous technology and funding risks present.

However, despite these risks, the company stands to become a massive disruptor in this space if the team is able to successfully reach FDA approval and iterate the product to become commercially viable and sustainable. No other companies are developing similar technology, and Xense’s core technology is patented. For these reasons, Xense has been rated as a Neutral Deal. 

For questions regarding the KingsCrowd analyst reports or ratings for this company, please reach out to [email protected]. 

Analysis written by Teddy Lyons, July 19, 2022.