Q3 2021 Profound Medical Corp Earnings Call
[music].
Welcome to the profound medical third quarter 2021 financial results Conference call. My name is Hilda and I will be your operator for today.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
During the question and answer session. If you have a question. Please press star and then one using your Touchtone phone.
Please note that this conference is being recorded.
I'll now turn the call over to Mr. Stephen Kilmer Investor Relations you may begin.
Thank you good afternoon, everyone. Let me start by pointing out that this conference call will include forward looking statements within the meaning of applicable securities laws in the United States and Canada.
All forward looking statements are based on profound current beliefs assumptions and expectations and relate to among other things expectations regarding the efficacy of the Companys treatment technologies.
The future clinical trials, the ability to obtain coding <unk> reimbursement from third party payers and anticipated financial performance business prospects strategies regulatory developments market acceptance and future commitments.
Such statements involve known and unknown risks uncertainties and other factors that may cause actual results performance or achievements to be materially different from those implied by such statements.
No forward looking statement can be guaranteed.
Listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date of this conference call profound.
Profound undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or otherwise other than as required by law.
For the benefit of those who are new to the story I would like to also take a moment to summarize our business.
Profound develops and markets customizable incision free therapies for the ablation of disease tissue.
We are currently commercializing Tulsa pro a technology that combines real time, MRI robotically driven trends erythrol ultrasound and closed loop temperature feedback control the <unk>.
Technology is designed to provide customizable and predictable of radiation for Ya ablation of a surgeon defied prostate volume while actively protecting the urethra and rectum to help preserve the patient's national functional abilities.
Tulsa Pro is CE marked health, Canada approved and five 10-K cleared by the FDA.
We're also commercializing <unk>, an innovative therapeutic platform that is CE marked for the treatment of uterine fibroids and palliative pain treatment of bone metastases.
So I believe has also been approved by the National Medical products administration for the noninvasive treatment. If you Didnt fibroids and has obtained FDA approval, a direct humanitarian device exemption for the treatment of Osteo upbeat on that.
While we do not expect this FDA hte approval to have a material impact on revenues in the near term. It is a significant milestone for our company and we are making preparations for U S. Commercial launch later in 2021.
On the call today, representing the company are Dr room megawatt Propounds, Chief Executive Officer, and Aaron Davidson, The company's senior Vice President of corporate development.
That said I will now turn the call over to Aaron.
Good afternoon, everyone and welcome to our third quarter 2021 conference call on behalf of the management team and everyone at profound I would like to thank you for your ongoing interest in our company for those of you who are shareholders. We appreciate your continued interest and support.
I will turn the call over to a room in a moment for an update on our commercial activities. However, before I do I'd like to provide a brief update on our third quarter 2021 financial results. As a reminder, we have changed our presentation currency from the Canadian to the U S dollar to streamline things all of the numbers we will refer.
Two have been rounded so they are proximate.
For the three months period ended September 32021, the company recorded revenue of $2 $5 million up 13% from $2 $2 million in the third quarter of 2020.
Total operating expenses in the 2021 third quarter, which consist of R&D G&A and selling and distribution expenses were $8 6 million, an increase of 30% compared with approximately $6 6 million in the third quarter of 2020.
Breaking that down further expenditures for R&D increased 14% on a year over year basis to $4 million.
This was primarily driven by increased costs associated with new and existing clinical trials increased spending on MRI utilization.
Solvents to assist with clinical trial initiatives.
<unk> restrictions being lifted additional lab rentals in Germany.
Options awarded to employees and additional head count.
G&A expenses increased by 35% to $2 $5 million due to options awarded to employees increased insurance costs and an overall increase to general expenses as offices continue to reopen from COVID-19 restrictions.
Finally, selling and distribution expenses increased by 72% to approximately $2 million.
Overall, the company recorded in the third quarter 2021, net loss of $6 million or 29 per common share compared with a net loss of $6 1 million or 33 cents per common share for the same three months period in 2020.
As at September 32021 per pound head cash of $72 $2 million U S.
With that I'll now turn the call over to Imran.
Thanks Erin.
As many of you know most of the med tech sector faced additional headwinds from COVID-19, Delta ovarian with surgeons in the third quarter.
Unfortunately.
Pace of New U S Tulsa pro system installations.
As planned as revenues generated in international markets like China, and Japan continued to be negatively impacted by the pandemic.
Tulsa Pro procedure volumes in the United States, However grew 20% sequentially over the second quarter of 2021.
This isn't a blip, but rather a developing trend as procedure volumes grew by the same percentage in Q2 compared with Q1.
On our last two calls I focus my remarks on explaining why the disruptions from Covid hadn't.
Translated into our being any less bullish on our business in the mid and long terms.
Today, I would like to reiterate that.
By underscoring how the foundation, we have been laying this year should translate into exciting 2022.
And beyond.
We believe.
The strong and steady increase in utilization we have seen throughout 2021.
Even in the face of Covid.
As a testament to the high quality of our <unk>.
Stalled base.
The unrivaled variety of prostate.
These patients that are being treated with our technology.
And boat bode well for the future.
With respect to building a high quality U S installed base, we had been targeting three major types of end users.
The adopters.
Independent imaging center companies.
And opinion, leading teaching hospitals.
Our early adopter Tulsa pro sites have continued to treat.
Growing number and an increasing variety of patients.
With respect to the imaging center companies, we have already signed multicenter agreement.
With two industry leaders Radnet and acumen.
Hope to sign additional agreements in the future.
Finally, as I highlighted in our last call. We also have agreements with renowned institutions like UCLA and Stanford Johns Hopkins Yale Cancer Center, while spend advanced prostate cancer Center.
Jacksonville and Mayo Rochester.
MGH cancer Center, Ut southwestern Memorial Hermann and Methodist Antonio.
We expect that list will continue to grow as we move forward.
Recurring revenue in Q3 was generated from a total of 16 sites.
We already have sufficient contracts in hand to install a total of more than 30 sites in the United States and expect to have more by year end.
Initially.
The typical time from the signing of a sales contract to the site being operational was generally around three months.
Doing this COVID-19 period. However, we have been experiencing delays due to a variety of factors, including a lack of labor at hospitals parts shortages from RMR partners.
And hospital administrations desire to delay deployment of new technology doing uncertain times can.
These delays have increased.
The time from contract to installation to five two months.
As a result, we now expect that the U S installed base will be approximately 20 by year end as compared to our previous estimate of 25.
While not what we had hoped there are actually two good news stories buried in this headline.
First.
We believe we are only about two months behind.
At this point such that we now anticipate.
Television for 25 cycle by end of February.
Second.
We are cautiously optimistic that the delays will begin to diminish by year end.
In the meantime, the team will continue to focus on optimizing the onboarding process with the goal of achieving installation times of even less than three months once the pandemic impact is behind us.
While the pace of installations.
Likely to be at and slow somewhat.
Even without Covid challenges the available market for Tulsa Pro is as large if not larger than what we first envisioned due to its flexibility to treat an unrivaled variety of patients.
Based on the utilization analysis that we shared on our last call.
Tulsa was used in all grades of cancers.
Ranging from low risk to the highest risk patients in the first half of 2021.
Importantly, the percentages of patients treated in those risk category.
Lastly corresponded.
With what we see in the real world with respect to patient population distribution.
Recently, one of the major universities, even treated a patient with metastatic cancer.
Our bleeding the patient's prostate with Tulsa.
And following that up with radiation therapy to kingdom scopes and other remaining cancer outside the prostate.
Based upon the patient population that is being treated with posture we believe.
Secondly, more than 80% of prostate cancer patients.
In addition.
Publications continue to show that patients treated with Tulsa continue to show superior outcomes that include minimal side effects, such as urinary incontinence or severe erectile dysfunction.
Interim results.
The European trial named part.
Which was conducted at Oslo University Hospital.
Were presented at the EUA in September.
Oslo University is widely considered to be one of the most credible sites in Europe.
This interim analysis garnered quite a bit of attention with urologists.
This is a single site level, one study, where they compared whole gland robotic prostatectomy.
<unk> for short.
Two focal therapy, using either HIFU or Tulsa.
The interim results were poor for robotic prostatectomy with more than 75% of those patients reporting urinary incontinence or erectile dysfunction of various degrees.
The trial design.
Only used HIFU or Tulsa for the focal therapy arm.
So as you can imagine.
<unk> results for focal therapy were significantly superior to RP and accordingly, Oslo is recommending focal therapy for it.
Certain subsets of patients where localized therapy as possible.
Since we joined relatively late in the study the full results of Tulsa won't be reported until next summer.
But even without published data in this trial.
There is rather tele indication of how Tulsa performed.
Instead of returning the Tulsa Pro system.
After completing patient recruitment sites purchased it from us for commercial use as they informed us that Tulsa was clearly the technology of choice.
Wide variety of patients could be treated with it and that it was the easiest technology to use.
To summarize while we look forward to the full data.
Which will include the Tulsa are resolved we believe there are already two key takeaways from this study.
First.
Barb study was the first direct comparison between HIFU in Tulsa, and the investigators would it with their pocket book and say we're off telephone.
Second.
Fox robotic radical prostatectomy arm.
It's similar to that in our planned level one kept in trial.
Accordingly.
If the RFP outcome in captain match, what was seen infarct.
We believe there is potential to demonstrate clear superiority.
Even though the captain trial has been designed with a non inferiority endpoint.
That provides a good segue to updating you on our reimbursement strategy.
We continue to view coding.
And ultimately payment coverage.
Coverage has a three year plus process.
In the short to medium term.
We are operating in a cash pay and C code environment, and we think we can continue to grow well there for the next couple of years.
As I mentioned in our last call based upon feedback from the relevant societies, including the American Urological Society and the American College of Radiology, we continue to believe that the clinical publications on the Tulsa procedure.
<unk> does we anticipate later this year will likely be sufficient to meet the requirement for our CPT one application by the end of this year.
If the adoption of Tulsa usage continues to increase as we anticipate we may get the support that we need to file in 2022.
In the meantime, we expect to initiate patient recruitment in the captain trial before end of this year.
In this study 201 prostate cancer patients will be randomized two to one to receive the Tulsa procedure or RP.
The primary endpoint will include safety and efficacy, including measurement of side effects and non inferior progression free survival over time.
So as you can see our strategy is to run captain in parallel with the filing of the CPT one application.
Our rationale is that even though kept it is not a requirement to obtain the CPT one code.
The trial base support Com.
Coverage by insurance Payors.
And we will also provide additional clinical data to support significant adoption.
To summarize.
Our team has continued to execute well.
We are building a high quality install base with users, including an attractive mix of early adopters large imaging center companies and some of the country's most prestigious teaching hospitals.
We continue to see broader Tulsa adoption, both in terms of procedure volumes and types of patients treated.
Our utilization data.
<unk>, two Tulsa, becoming a mainstream treatment in the U S, providing us with a large market opportunity.
And finally.
We are progressing Tulsa pro's reimbursement strategy by conducting additional studies to apply for a specific CPT code.
And ultimately a reimbursement determination.
This ends our prepared remarks for today.
With that we're happy to take any questions you might have.
Operator.
Thank you we will now begin the question and answer session. If you have a question. Please press star one you're saying your touchtone phone.
If you wish to be removed from the question queue. Please press the pound sign our husky.
If you are using a speakerphone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press star and then one using your Touchtone phone.
The first question comes from Anthony Petrone from Jefferies. Please go ahead.
Hi, Thanks for taking the question. This is zach on for Anthony.
First one can you provide an update on the tact trial.
Sure good afternoon.
The tact trial is pretty much it.
Near completion I think we do have a few patients left.
And I think.
We are looking to close that.
Either by end of this year or maybe another month or two after that.
And.
I guess.
You're probably also thinking about the three year data I think we did announce a three year data on the tact.
There was nothing there was nothing.
Unusual in that trial if anything.
Number of patients that are have great. Two erectile dysfunction continues to reduce to low double digits at this point.
There was one patient who had incontinence continues to improve so there's there's basically on all this.
The side effects. It continued to show improvement with time and there is no no severe erectile dysfunction and in terms of repeat.
The cop requiring secondary procedures, there's nothing unusual I think very.
Double digit patients that are requiring.
Secondary procedures.
Stage typically it would be mid double digits. So we think that.
The predictability that if you're kind of cancer free.
In the 12 months the likelihood of getting it in the future continues to decline. So I think the data the clinical data in tact two more tact to general continues to be to be on track with what we reported.
Previously.
You said that that data was presented I believe it a delay.
Where can people find a publication or.
Results.
So it is it is published.
Presentation at the moment.
It's an abstract so I think.
In fact, we can make that available to you I'm sure.
If you connect with me offline, we can make that available to you.
There is actually okay, great and then I.
By Dr. Clocks, we can make that presentation available to you.
Okay, Great and then on the.
<unk> on the installed base expectation for 'twenty by year end and 25 early in next year is that 25, the was there a drop out.
When when installs got pushed out or is it the same 25 that was expected by year end.
2021 yeah yeah.
Yes.
So there is no dropouts whatsoever.
There is no site that we've installed the system that is not using it or every site is looking to increase that is why you are seeing that our utilization even though the number of sites did not increase significantly the utilization continues to increase.
Hum.
And we.
The contracts that I talked about in the prepared remarks they are.
They don't like every site is defined the time frames that are defined for these sites.
Some uncertainty because of the delivery issues from our partners and so on but.
<unk>.
There's no site that has.
Cancel the contract fleet.
I mean, I mentioned 30, why the time, we finished this year will be more than that in fact.
Got it that's helpful. Thanks, and then one last question just on.
On procedures, we're hearing through the <unk>, earning season staffing shortages are impacting procedure volumes across med tech.
You guys, obviously are performing well and the procedure volumes, but curious if staffing.
It's a procedure volume number would have been even higher had it not been for staffing shortages. If you guys are seeing any impact.
On that front, thanks, and we'll hop back in queue.
Sure Zach I think.
I know everybody's talking about hearing about Covid. So are we.
And as I mentioned in the prepared remarks, we grew 20% sequentially from Q1 to Q2 and 20% from Q2 to Q3 and if you analyze annualize. These numbers that is about 80% growth over last year.
We there is no doubt in my mind that if there was no COVID-19, we would be growing in triple digits.
Such that it's likely more than the five per quarter that you had previously indicated a bunch of capacity.
Yes.
But what are you are right in that sense that.
We're all tired of Covid with.
With respect to.
The capacity.
We.
We have enough people in the company to be able to install at a pretty rapid pace right now.
As you can imagine this is a very high priority.
And as you can imagine you know quite frankly, our sales team exceeded their goal in terms of new contracts.
And so.
Installing and get going and we also know already from our installed base that wants the sites get the product it may take them a little bit slower maybe they will get faster, but every one of them will use the product.
And so we are absolutely anxious to get there and it is a high priority. So number one it is not an issue.
Can we have the capacity to do it and number two.
We will not be an issue I can assure you of that.
We have enough people.
We will get this.
Devices installed.
Bottleneck really is at the hospital level.
Hum.
The first question you asked was related to.
We're seeing a change in the hospitals.
And I have to be honest, we are there.
Not seeing big change yet.
We are tracking for example, like everybody else.
The number of patients who are COVID-19 related patients at these hospitals and we are certainly seeing a significant drop and we're watching the warm belt, which is where we are and that is where generally the COVID-19 issues have been the most severe we're not seeing a significant change at.
<unk> the finish line is basically not only getting the CPT one code, but also convincing insurance companies that they should cover which means they should actually paid for the procedure.
And so by separating them.
Think it's a smart strategy because it reduces the total time it will still take you know three years or so.
But we think it's a smart strategy to be able to do this in power. So.
Let me come back to the original statement, so I can remove any confusions.
So by end of this year.
We'll have everything that we need to qualify to file for the CPT one application next year.
In terms of publications and.
Clinical publications, which typically tends to be the biggest bottleneck.
And that's what I've been saying and we will absolutely meet that objective.
The reason we are doing another clinical trial inherently is not for the purpose of filing for the CPT one application, but for the purpose of providing extra very high quality data, which would be level, one data that would make it much easier for insurance companies.
Then two using the competitive study be able to say hey, we should pay for this procedure.
So it's really planning for the longer term future why we have started where we're starting the study now.
Other than later on that that's the that's the goal.
And and.
The level one study the Captain study, we have received very positive feedback from our urology community because they are not only seeing that as a way that hey This company.
Timeline, we should be looking for on the on the read that data readouts for captain and that'll be shortly.
Sure absolutely so.
Think that stuff.
The study design has 201 patients and.
We will be in low single digits in terms of patients treated by end of this year, that's our goal.
So, we'll probably have two or three patients and.
If I look at you know.
Timeline, the best way to look at it is to compare the recruitment rates at four tact and see how will that compare and we kind of started in tact with about five patients a month and ultimately we were treating about 10 patients a month, so if I look.
At it from that perspective, I think sometime in 2023, we should be able to complete it.
Treatment.
And.
Once we have finished recruitment.
Should be able to just like tact as presented at anyway, we should be able to start presenting at anyway.
Every year.
And data such as PSA.
Such as.
Immediate information on incontinence and so on.
Should begin to come out.
I again, you know very well these are.
Multi site level one study so the investigators.
And the lead investigators will ultimately make the decisions on when to publish the actual information, but we should be able to you know my best guess would be that sometime in 'twenty 'twenty three we should be able to start sharing.
The information.
In the meantime.
So we will yeah in the meantime, we will definitely talk about the recruitment rate as we go so you'll begin to have much better idea of when we begin to start reporting.
Great. Thanks, very much and I'll get back in the queue.
Thank you Rob.
Yeah.
Our next question comes from Josh Jennings from Cowen. Please go ahead.
Hi, This is Neil on for Josh Thanks for taking the question.
The Red Milkshake.
Next here.
For acumen.
Our expectation, whether we should have our first site.
Operational this year I think we will we certainly have the site identified.
Everything is on track.
We should be able to get there if not certainly in the first.
By end of February as I've mentioned before we should be able to get that first site operational.
And we have.
We've been in dialogue with them and picking additional sites and as you know they have acquired oncology.
A company with oncology. So we are going to sort of look at some additional sites.
Rather than the original sites to see if it actually makes sense to be able to use some of those sites, where they can take advantage of the C code and so on so I think there's that dialogue is continuing.
The interest level in general by Imaging Center company is.
Is quite good.
We are talking with additional imaging center companies.
And which is why in the prepared remarks I mentioned, we may have more agreements like this so.
Alright, because oncology and prostate cancer and then they are going to manage hospital sites hospital sites can Lucy code.
There's already an infrastructure in place to be able to treat complicated patients like that.
They will have the stuffing to do that so I think from our perspective. This is a positive development and we are really looking forward to to increase in that relationship.
Relationship in the oncology site.
Great. Thanks, that's it for me.
Thanks now.
Thank you. Our next question comes from Frank attacking Anna from Lake Street Capital.
Rune Air and thanks for taking my questions I wanted to.
Run back to the install a a little bit more hurting many different things staffing shortages training all of those types of things, but maybe just bring a filler deeper into what are the main things holding up the installs from actually becoming a.
Give or asked slightly differently. What are you specifically counting on getting resolved to get to the twenty-five number by February.
Alright I appreciate your question very much I wish I could tell you that there is just one issue that is holding things up.
Unfortunately that is not the case.
It's <unk> it is a little bit case by case.
You know I you know.
There are hospitals, where they're not even able to because of stopping shortage, they're not even able to operate all of their operating rooms, and I'm sure. It's not the first time you've ever heard it.
A number of companies I've talked about that that Ah staffing shortage is an issue and the stopping short at startup translates for us and administration, saying look I'm, having a hard time keeping my current.
Operating rooms, running you know I don't really want to.
Start something new at this stage, if I can delay by a few weeks I would like to do that I think they are starting.
The sites that are more than a year old we are very confident that they will hit.
A number of 100 <unk> hundred procedures per site.
Number is very much intact.
I think that we are beginning to see very early but beginning to see more than one urologist per site.
A couple of our sites now and I think as that begins to happen again. There also we should feel pretty confident about getting to the 100 procedure run rate.
And I think the.
At the hospital Big names tied to our original goal was to be at about 40 procedures per year I think that's a solid number continues to be a solid number.
And I think some of the newer sites are more commercial sites and we are quite excited about some of these sites we haven't necessarily.
Publicly announced because they're on installed yet, but I think some of those types, we think could be.
Somewhere in between these big name hospitals, and they already adopters Sony Nagel.
<unk> 40 in the first year, so I think from a utilization perspective, we are.
I feel pretty pretty good overall.
Okay. That's helpful. And then last one for me just wanted to circle back to.
Neil's questions the acumen acquisition.
Alliance, maybe just level set us on what this does to the acumen installed base of more specifically what of that installed base looks like directly applicable opportunity to profound.
Sure.
So.
I think that what we were in fact negotiating we were under a confidential agreement shortly.
You know, we're certainly aware of the fact that there was something I did not know exactly what it was but certainly there is dialogue, but and so I think.
When we originally talked about 10 sites and by the way. It goes those sites are not included in that 30 number that I talked to you before.
Because they're not fully define the 30 numbers defined site.
The.
I think that is interesting about this acquisition for fracking them is that it broadens.
Beyond you know.
Imaging.
Service provider and imaging service provider is as I mentioned before a high volume low margin business that PD manner.
Management, there are just focusing on how many how what my utilization per device.
There's the oncology centers that they will be managing.
The synergy is actually even stronger.
Now.
Now as I mentioned before.
They have.
The infrastructure in place already.
And they have the ability to use T codes, so they don't need to necessarily.
Build up a cash practice, which we can help them do that but but I think it becomes.
Is your startup and so.
You know I think.
In the mid to long haul it we see that as a major positive we havent quite defined which 10 sites or can it be more than that can be less than that we haven't quite defined those yet, but I think at the level of strategy, we see that as a positive.
For both companies.
Got it and thank you for taking my questions.
Thank you Frank.
Thank you we have a question from Scott Mccauley from paradigm capital.
Good afternoon, guys. Thanks, a lot for taking my question I just wanted to maybe put a finer point on the kind of contract backlog.
And we have talked about before but on that particular.
Metric our sales team is actually exceeded their goals you know difficult to hear.
So.
I think that's the point that I wanted to make it from the perspective of what the profound team can do we're executing really well.
And if there was no COVID-19, we would have exited at 25 goals in fact.
Definitely.
Thanks for that clarity just on the kind of procedure volumes and and how that relates to chew. The revenue you saw him in the corner you highlighted the 20% plus kind of increase in procedure volumes, but looking at kind of that recurring revenue line. That's I'm just starting to report looks you know.
[noise] equivalent to to last quarter, and and I know that's not just the purposes your payments.
There's the leases and other things I beliefs, and they're gonna just can you talk about that disconnect between that increase in procedure volumes and kind of that maintained level of revenue.
Yeah, No I think that is exactly as you said that is.
Interesting.
And the one area that we think is going to be very important to our business, where we will not compete with.
If not we actually don't compete with pro stopped.
In particular, the area, where as we have talked before there are.
Over.
2 million.
Ah patients in the United States, who have been diagnosed with early stage prostate cancer and they are on active surveillance.
This patient population also had.
A high percentage of BPH.
And if you look at the five 10-K clearance for process.
It explicitly says, but it is not approved.
Approved for patients who have cancer. It is a for BPH only.
And so that market, where patients who have BPH and also have early stage cancer.
Thank you and now I would like to turn the call back to Mr. Argo megawatt for final remarks.
Yeah.
Thank you so much and I guess, our next call will be the year end call and we really look forward to connecting with you again at that time.
Thank you.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.
Okay.
Uh huh.
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