Profound Medical Corp. (NASDAQ:PROF) Q1 2023 Earnings Call Transcript May 10, 2023

Profound Medical Corp. beats earnings expectations. Reported EPS is $-0.32, expectations were $-0.34.

Operator: Good day and thank you for standing by. Welcome to the Profound Medical First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen Kilmer, Investor Relations. Please go ahead.

Stephen Kilmer: 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 of the United States and Canada. All forward-looking statements are based on Profound’s current beliefs, assumptions, and expectations and relate to, among other things, expectations regarding the efficacy of the company’s treatment technologies, results of future clinical trials, the ability to obtain coding and/or reimbursement from third-party payers, 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 undertakes no obligation to publicly update or revise any forward-looking statements, 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 Profound story, I would also like to take a moment to summarize our business. Profound develops and markets customizable incision-free therapies for the ablation of diseased tissue. We are currently commercializing TULSA-PRO, a technology that combines real-time MRI robotically-driven transurethral ultrasound and closed-loop temperature feedback control.

The technology is designed to provide customizable and predictable radiation-free ablation of a surgeon-defined prostate volume, while actively protecting the urethra and rectum to help preserve the patient’s natural functional abilities. TULSA-PRO is CE marked, Health Canada approved, and 510(k) cleared by the FDA. In the US, we employ a pure recurring revenue model for TULSA-PRO, whereby we charge customers on a per-procedure basis for TULSA-PRO consumables, lease of medical devices, and services associated with extended warranties. Outside of the United States, we primarily deploy a capital and consumable sales and service models separately if the situation warrants that. We’re also commercializing Sonalleve, an innovative therapeutic platform that is CE marked for the treatment of uterine fibroids and palliative pain treatment of bone metastases.

Sonalleve has also been approved by the China National Medical Products Administration for the non-invasive treatment of uterine fibroids and has recently obtained FDA approval under Humanitarian Device Exemption for the treatment of osteoid osteoma. The business model for Sonalleve Systems is currently a one-time sale capital equipment. On the call today, representing the company are Dr. Arun Menawat, Profound’s Chief Executive Officer and Chairman; and Rashed Dewan, the company’s Chief Financial Officer. With that said, I’ll now turn the call over to Rashed.

Rashed Dewan: Good afternoon everyone and welcome to our first quarter 2023 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 Arun in a moment for an update on our commercial activities. However, before I do, I would like to provide a brief update on our first quarter 2023 financial results. To streamline things, all of the numbers we’ll refer to have been rounded, so they are approximate. For the three-month period ended March 31, 2023, the company recorded revenue of $1.9 million, representing an increase of 36% from $1.4 million in the same period of 2022.

Recurring revenue increased 43% to $1.5 million, while the one-time sale of capital equipment increased 16% to $400,000. Total operating expenses in the 2023 first quarter, which consists of R&D, G&A, and selling and distribution expenses were $8.1 million, an increase of 4% compared with $7.7 million in the first quarter of 2022. Breaking that down farther. Expenditures for R&D were $3.8 million, an increase of 21% compared to the first quarter of 2022. G&A expenses decreased by 10% to $2.1 million and selling and distribution expenses decreased by 4% to $2.1 million. Net finance income for the 2023 first quarter was $145,000 compared with net final cost of $892,000 in the same three-month period of 2022. Overall, the company recorded a first quarter 2023 net loss of $6.8 million or $0.32 per common share compared with a net loss of $10.5 million or $0.40 per common share for the same three-month period in 2022.

As at March 31, 2023, Profound had cash of $43 million. With that, I will now turn the call over to Arun.

Arun Menawat: Thank you, Rashed. Beginning with our financial performance, our recurring revenue continued its upward trend increasing 43% to $1.5 million compared to Q1 2022. In the quarter, our focus was on getting our new sites operational and while we did not add any new sites, our pipeline remains strong. Based on this, we expect to see an increase in the number of sites as the year progresses with the achievement of 50 systems in the United States by the end of 2023 remaining very possible. We’re also confident that we will continue to see an increase in recurring revenue going forward, while capital sales from OUS markets will remain lumpy. As I’ve indicated before, our main focus now is driving adoption of TULSA in the United States.

I would now like to turn to the very well attended AUA 2023 Annual Meeting that took place from April 28th to May 1st in Chicago. Although robotic prostatectomy and radiation are seen as the current mainstream technology, it was very clear at the meeting that urologists are starting to view our new ablative therapy, TULSA, as a potential alternative or a third major option. We performed live demonstrations to show how TULSA employs real-time MRI imaging and thermometry as well as directional ultrasound from inside the prostate, gently heating tissue to kill temperature without causing unnecessary cell charring or boiling that can result from other types of ablative therapies. Many urologists explicitly indicated that they’re ready to lead the implementation of TULSA at their sites and that based on our demonstration, they clearly understand the clinical value of our gentle and fast ablation technology as well as its customization capabilities.

They also indicated that they are more comfortable using MR even without a radiologist. TULSA is of particular interest because of its ability to treat a large variety of patients, including whole gland or sub-gland or focal and can thereby become a mainstream technology. As an example of the increasing interest, Dr. Dora, the lead author of the TULSA Level 2A review article was specifically recognized by the Journal of Endourology on April 30th for his authorship as it was the most downloaded article over the last 12 months further illustrating the medical community’s interest in TULSA. TULSA was the subject of four posters at the AUA Meeting Scientific Program, one of which covered the Pivotal TACT trial’s four-year follow-up data that was first shared in September.

The second poster covered a real-world outcome study of 180 men with recurrent prostate cancer and a subgroup with VPH, the largest single cohort presented to-date. The results demonstrated that lesion-targeted TULSA is associated with promising midterm oncological outcomes and a minimal functional side effect profile with the flexibility to treat localized prostate cancer in primary, salvage, or recurrent settings of BPH through a patient-tailored, whole gland or lesion-targeted approach. The third poster assessed one-year complication in 206 patients where 131 received treatment from focal ablation, either TULSA or [Indiscernible] and 75 received treatment with Robotic-Assisted Laparoscopic Prostatectomy or RALP. This landmark study is one of the first to established a head-to-head comparison between radical prostatectomy and minimally invasive therapies as well as the first source of level 1 evidence that includes TULSA.

The study showed that TULSA had lower complications compared to RALP and no Grade 4 complications like the two seen with RALP or [Indiscernible]. The final poster assessed the safety and efficacy of TULSA in men with DPH, outcomes for the 27 treated in the study demonstrated that early system relief as three months was durable to 24 months. At 12 months, International Prostate Symptom Quality of Life Urinary Symptom and uroflowmetry scores improved despite 23 of the 27 men discontinuing symptom management medication. These presentations reiterated, TULSA’s safety, efficacy, durability, and flexibility, which we believe will further drive TULSA towards becoming a mainstream treatment for a broad spectrum of patients with prostate disease. In that regard, if you haven’t already done so, I encourage you to look at the current investor presentation on our website and slide 16 entitled TULSA-PRO Utilization Trend, commercially-treated patients, in particular.

This is about just theoretical any more. We’re seeing it in the data from patients that have been treated in the commercial setting. While that slide includes all commercial patients since FDA clearance of TULSA-PRO, let me provide some metrics for just those treated so far in 2023. With respect to indication, approximately 72% were treated for prostate cancer, 23% were hybrid patients suffering from both cancer and BPH, and 5% for salvage. We’re seeing a trend that TULSA is increasingly becoming used in patients who are on active surveillance or diagnosed with low-grade cancer, but also have symptoms of BPH. We believe that TALSA is the only minimally invasive option for such patients. For cancer-grade approximately 13% were Grade Group 1, a 58% were Grade Group 2, 19% were Grade Group 3%, and 10% were Grade Group 4 and 5.

In terms of ablation, around 56% were whole gland, 26% were greater than 50% but less than 100% of the gland, and 18% were focal therapy, again, demonstrating the versatility of our technology. For prostate size, approximately 2% were less than 20 cc, 39% were between 20 to 40 cc, 34% were between 40 cc to 60 cc, 23% were between 62 to 100 cc, and 2% were over 100 cc. Going forward, these are some of utilization metrics that we will be reporting on a quarterly basis. This real-world data demonstrates TULSA’s unique flexibility, which we believe translate into an unrivaled TAM for us. Turning to our reimbursement strategy. I’m pleased to share that our CPT Category 1 application for TULSA, which was sponsored by the Society of Interventional Radiology or SIR and strongly supported by American Urological Association, as well as by several users who added positive comments to the application was considered by the AMA’s CPT Editorial Panel on May 4th.

We’re very satisfied with the discussion that took place and remain optimistic about the panel’s decision and eagerly await the publication of the meeting minutes on or before June 2nd. The CPT application that was filed, request three codes. The first code is for a procedure performed by a specialist such as a urologist without assistance from another specialist. The other two codes are for a procedure performed by two physicians, such as a urologist and a radiologist. We believe having multiple codes gives our physician users the flexibility to either do the whole procedure or collaborate and get reimbursed for their part of the service. The next step of the CPT application process involves the relative values scale update committee or RUC, sending questionnaires to TULSA users to determine the physician work relative value units or RVUs associated with its TULSA procedure, both the SIR and the AUA will be very involved in this process, which along with reviewers by the Center of Medicare and Medicaid Services or CMS will ultimately determine the TULSA procedure payment amount.

The proposed recommendations are expected to be published in the Federal register in August 2024, finalized in October 2024, and come into effect as of January 2025. By that time, assuming our CPT application is approved and the preliminary result, of this Level 1 CAPTAIN trial are positive, we anticipate a large installed base of 75 or more sites across the United States. With this major milestone now on the horizon, we’re working to build a larger national sales team to close on our strong pipeline of prospects. In the meantime, we will stay focused on the CAPTAIN trial, which is the first ever Level 1 prospective, randomized clinical trial comparing the clinical outcomes of TULSA with radical prostatectomy. Recruitment continues to progress as planned such that we expect to report preliminary results and particularly, functional side effects such as EV and urinary incontinence in Q1 2025.

To summarize, neurologists are looking for superior technology to treat prostate disease and we believe that TULSA’s ability to treat such a wide range of patients safely and effectively will solidify as a mainstream treatment. We are very encouraged by the discussion at the AMA’s Editorial Panel Meeting that took place last week and looked forward to the publication of the panel’s final decision regarding our CPT Category 1 code application in the coming weeks. Assuming the permanent code is approved, we believe that this combined with initial data from our ongoing CAPTAIN clinical trial, will be a significant catalyst for TULSA adoption in the United States beginning in the first quarter of 2025. At the start of that quarter, we expect to have 75 or more US TULSA sites up and running.

This ends our prepared remarks for today. With that, Rashed and I are happy to take any questions you might have. Operator?

Q&A Session

Operator: Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Rahul Sarugaser from Raymond James. Your line is now open.

Operator: Thank you. Our next question comes from the line of Michael Sarcone from Jefferies. Your line is now open.

Operator: Thank you. Our next question comes from the line of Ben Haynor from Alliance Global Partners. Your line is now open.

Operator: Thank you. One moment as I prepare the next question. Our next question comes from the line of Joshua Jennings from TD Cowen. Your line is now open.

Operator: Thank you. One moment, please. Our next question comes from the line of Frank Takkinen from Lake Street Capital Markets. Your line is now open.

Operator: Thank you. One minute, please, for our last question. Our next question comes from the line of Brian Gagnon from Gagnon Securities. Your line is now open.

Operator: Thank you. At this time, I’d like to turn it back to Dr. Menawat for closing remarks.

Arun Menawat : Thank you so much, and thank you for the time you spend with us and look forward to reporting on the second quarter. Thank you.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.