Profound Medical Q1 2024 Earnings Call Transcript

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May 9, 2024

Key Takeaways

  • Profound reported Q1 2024 revenue of $1.9 M (up 3% YoY) with a 66% gross margin, a $6.2 M net loss, $41.2 M in cash, and issued full-year guidance of $11–12 M revenue (53–67% growth).
  • Clinical momentum accelerated with 25 TulsaPro presentations so far in 2024, including Mayo Clinic data showing 92% PSA reduction and Turku University Phase III BPH results demonstrating a 75% IPSS improvement.
  • Usage trends grew in double digits despite fluctuating consumable inventory, and treatment mix (71% primary cancer, 21% hybrid, 6% salvage, 2% BPH) underpins an expected 60%+ recurring revenue growth.
  • The AMA created three Category I CPT codes for TulsaPro, with CMS proposals due in July, finalization in November, and an effective January 2025 start under a 0-day global reimbursement model.
  • Innovation continues with FDA review of the Contouring Assistant AI module to streamline treatment planning and ongoing development of the next TULSA AI enhancement to boost procedural efficiency.
AI Generated. May Contain Errors.
Earnings Conference Call
Profound Medical Q1 2024
00:00 / 00:00

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Operator

Good day, and thank you for standing by. Welcome to the Profound Medical First Quarter 2024 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Stephen Kilmer, Investor Relations.

Stephen Kilmer
Stephen Kilmer
Head of Investor Relations at Profound Medical

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's current beliefs, assumptions, and expectations, and relate to, among other things, any express or implied statements or guidance regarding current or future financial performance and position, including the company's year 2024 financial guidance and related assumptions, the expectations regarding the efficacy of Profound's technology in the treatment of prostate cancer, BPH, uterine fibroids, palliative pain treatments, and osteoid osteoma, and its future revenues, financial results. Such statements involve known and unknown risks and 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.

Stephen Kilmer
Stephen Kilmer
Head of Investor Relations at Profound Medical

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 statement, whether as a result of new information, future events, or otherwise, other than as required by law. Representing the company today are Dr. Arun Menawat, Profound's Chief Executive Officer, Rashed Dewan, the company's Chief Financial Officer, and Dr. Mathieu Burtnyk, Profound's Chief Operating Officer. With that said, I'll now turn the call over to Rashed.

Rashed Dewan
Rashed Dewan
CFO at Profound Medical

Good afternoon, everyone, and welcome to our first quarter 2024 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 Mathieu in a moment to provide updates on TULSA clinical publications, utilization trends, and the CAPTAIN clinical trial. However, before I do, I would like to provide a brief summary of our first quarter 2024 financial results and our revenue guidance for the year. To streamline things, all of the numbers I'll refer to have been rounded, so they are approximate.

Rashed Dewan
Rashed Dewan
CFO at Profound Medical

For the three-month period ended March 31, 2024, the company recorded revenue of $1.91 million, with $1.48 million from recurring revenue and $428,000 from one-time sale of capital equipment. First quarter 2024 revenue increased 3% from $1.86 million from the same period in 2023. Actual usage during the quarter grew at double digits, but there was a reduction in TULSA-PRO consumable inventory at some install sites. While we anticipate that user inventory levels will continue to vary throughout the year, we still expect recurring revenue will grow at 60% or more. Gross margin in Q1 2024 was 66% compared to 65% in Q1 2023 and up 53% sequentially from the previous fourth quarter.

Rashed Dewan
Rashed Dewan
CFO at Profound Medical

Similar to recurring revenue, we expect gross margin to vary some quarter-over-quarter, but just as we delivered about 60% margin in 2023, we expect to deliver that or better in 2024. Total operating expenses in 2024 first quarter, which consist of R&D, G&A, and selling and distribution expenses, were $8.8 million, an increase of 9% compared with $8.1 million in the first quarter of 2023. Breaking that down further. Expenditures for R&D increased 2% on a year-over-year basis to $3.9 million. G&A expenses increased by 13% to $2.4 million, and selling and distribution expenses increased by 15% to $2.4 million.

Rashed Dewan
Rashed Dewan
CFO at Profound Medical

Net finance income for the 2024 first quarter was $1.3 million, compared to $145,000 for the same three-month period of 2023. Overall, the company recorded a first quarter 2024 net loss of $6.2 million, or $0.26 per common share, down from a net loss of $6.7 million, or $0.32 per common share, for the same three-month period in 2023. As of March 31, 2024, Profound had cash of $41.2 million. Finally, as you may have seen in our press release, we are providing annual revenue guidance for the first time, as we believe we now have sufficient visibility into the pace of TULSA adoption ahead of the start of reimbursement in January.

Rashed Dewan
Rashed Dewan
CFO at Profound Medical

Based on our business planning and budgeting activities, we currently expect total revenue for the full year 2024 to be in the range of $11 million-$12 million, which represents 53%-67% growth compared to revenue in 2023. With that, I will now turn the call over to Mathieu.

Mathieu Burtnyk
Mathieu Burtnyk
COO at Profound Medical

Thank you, Rashed, and hello, everyone. Since the start of the year, there have been many conference presentations featuring TULSA that continue to demonstrate the unique pixel-by-pixel precision of the technology, the flexibility to treat a variety of patients with customized treatment plans, as well as the durability of efficacy and safety treatment outcomes. As announced earlier this week, 25 TULSA-related scientific research presentations have been delivered at major international medical meetings so far in 2024. Of which, eight were from leading urologists at the recent American Urological Association meeting in San Antonio, Texas. I would like to take a few minutes to highlight a couple of these. The first is a presentation by Dr. Ethan Wajswol from the Mayo Clinic, Florida, on their initial experience with the TULSA-PRO in men with localized prostate cancer.

Mathieu Burtnyk
Mathieu Burtnyk
COO at Profound Medical

They reported oncologic and safety outcomes from 60 patients, including 47% whole gland, 33% subtotal, and 21% focal ablations. With a PSA reduction of 92% to a nadir of 0.5 nanograms per milliliter and a 4% rate of clinically significant histological failure on one year follow-up biopsies, the authors conclude that their early post-market experience treating Grade Group two and three prostate cancer with focal through whole gland ablation plans demonstrates comparable safety and efficacy to that reported in the TACT FDA registration study. The second is a presentation by Professor Peter Boström, chair of the Department of Urology at Turku University Hospital in Finland, who reported the complete 12-month outcomes of the prospective single center phase I/II study of TULSA in men with BPH. The treatment plan targeted the entire transition zone, including median lobe, if present, in 30 men.

Mathieu Burtnyk
Mathieu Burtnyk
COO at Profound Medical

The primary measure of treatment efficacy, the IPSS score, improved significantly from 16.5 to four. Of note, the 75% reduction in IPSS is similar or better than that reported in the pivotal FDA studies of all modern, minimally invasive BPH devices. Additionally, the quality of life index, called EPIC, improved in both the sexual and urinary incontinence domains from 54 to 67 and from 85 to 100, respectively, possibly related to the reduced prostate volume and pressure on surrounding nerves. With the completion of this phase I/II prospective clinical study, the TULSA-PRO is the only incision-free device with safe and effective clinical evidence in patients with primary prostate cancer, radio-recurrent disease, and now also BPH.

Mathieu Burtnyk
Mathieu Burtnyk
COO at Profound Medical

The growing body of clinical evidence demonstrating the ability of the TULSA procedure to treat patients with an unrivaled variety of prostate disease is reflected in real-world utilization trends from TULSA providers in this quarter, as highlighted in today's press release. With respect to indications, approximately 71% were treated for primary prostate cancer, 21% were hybrid patients suffering from both cancer and BPH, 6% were salvage treatments, and 2% were men with BPH only. TULSA procedures were performed across a spectrum of treatment plans, with approximately half or 53% whole gland, 26% subtotal, but more than half the gland, 10% hemi ablations, and 12% focal therapy. This continuum of treatment plans matches what we could expect from the general prevalence of prostate cancer, whether diffuse or bilateral disease, multifocal cancer, and a smaller proportion of unifocal prostate tumors.

Mathieu Burtnyk
Mathieu Burtnyk
COO at Profound Medical

Prostate cancer patients across all grades of disease were treated, primarily intermediate-risk patients, with 74% being Grade Group two and three, 15% low risk Grade Group one, and 13% high risk Grade Group four or five cancer. Similarly, patients with all prostate shapes and sizes continued to be treated with TULSA from less than 20 cc to over 100 cc. This quarter, about one-third had prostate volumes under 40 cc. Another 40% had prostate volumes between 40 and 60 cc, and the remaining 27% had larger prostates over 60 cc. We continue to see TULSA as the only treatment modality which can be used across the entire spectrum of prostate volumes and disease, with clinical evidence in patients with cancer or BPH, as well as the only option for hybrid patients who have both prostate cancer and BPH.

Mathieu Burtnyk
Mathieu Burtnyk
COO at Profound Medical

Now, I will turn the call over to Arun.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Thank you, Mathieu, and good afternoon, everyone. As you can see from what Mathieu just reviewed, our message is clear: Regardless of prostate disease, state, or prostate size, TULSA is being used to treat a wide variety of patients safely, effectively, and efficiently. In fact, no other modality even has the clinical publications that demonstrate applicability in such a full spectrum of patient population, ranging from BPH to any stage of organ-confined prostate cancer, to even salvage cases. In addition, TULSA is incision and radiation-free, one-and-done procedure performed in a single session. No hospital stay is required, and most TULSA patients report quick recovery to their normal routine. The TULSA procedure is done with real-time imaging in the MR bore, which allows for phenomenal pixel-by-pixel accuracy and real-time temperature measurement and automated control.

Arun Menawat
Arun Menawat
CEO at Profound Medical

The use of MR is now growing in urology as clinical evidence continues to point to the benefits of MR imaging, from early patient screening to diagnosing and treating with TULSA. We believe that MR will continue to gain acceptance in urology. Indeed, there are growing signs that MR is poised to become a mainstream imaging modality for urology. Here are just a couple of data points. AUA has been holding education programs to teach reading MR images at the annual conference every year for the last 4 years. This year, the course was fully booked with a waiting list. Urologists are getting the message that they need to learn to read MR imaging. As of this year, AUA is requiring that all residents be educated on learning how to read biparametric MRI as part of their residency training.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Tomorrow's urologist will be comfortable with MR imaging, and TULSA is purposefully MR-centric. It looks like the world is now moving in the direction of where we are. Accordingly, we have started to forge even closer relationships with the three major MR companies to go beyond compatibility of our respective technologies, and to help maximize the tremendous opportunity that we see ahead for both us and them. Recognizing the increasing use of MR in urology, manufacturers are looking to develop interventional MRs that can fulfill that growing need. A few of the leading teaching hospitals have already expressed a desire to install interventional MRs. In February, we announced a collaboration with Siemens Healthineers to work towards bringing a complete therapeutics solution to urology by combining our TULSA-PRO system with their newly announced interventional MR solution, the MAGNETOM Free.Max MR scanner.

Arun Menawat
Arun Menawat
CEO at Profound Medical

This arrangement is non-exclusive, and we will also continue to market TULSA-PRO as a standalone offering, providing our customers with the flexibility to leverage the use of existing MRs or acquire an entirely new system with the MR hardware of their choice. The aim of the collaboration with Siemens Healthineers is to create and market a total solution capable of providing images from patient screening to diagnostics, and then TULSA treatment, with a streamlined and efficient workflow at an optimized cost of care. This complete solution can also be used in additional outpatient settings, such as urology clinics, ASCs, and hospital surgical departments that may not have previously been suitable sites. We look to be able to announce additional collaborations in the future. Moving on to the execution of our U.S. reimbursement strategy for TULSA, there isn't much to update you on since our last call.

Arun Menawat
Arun Menawat
CEO at Profound Medical

As you know, the American Medical Association established three CPT Category I codes for TULSA in mid-2023. Since then, as part of the process, the Relative Value Unit Scale Update Committee sent questionnaires to TULSA users to determine the physician work-related value units associated with the TULSA procedure. Based on the user feedback, the Centers for Medicare and Medicaid Services is working with the societies that sponsored the CPT Category I code application, to determine the TULSA procedure payment amount that will be attached to the permanent codes. The proposed recommendations are expected to be published in the Federal Register at the end of July, finalized in November, and come into effect as of January 2025.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Finally, I would like to reiterate our continuing commitment to innovation, with the overall goal of increasing treatment efficacy, improving workflow efficacy, and expanding technology access to deliver an even better TULSA treatment experience for urologists and their patients. On that front, our submitted application for the second TULSA AI module, called Contouring Assistant, to the FDA, is under review. This TULSA AI module uses past treatment designs and recommends a design in a new procedure based upon that knowledge. We believe that the Contouring Assistant will not only increase urologists' confidence in their treatment designs, but will also increase their procedural efficiency. In addition, we have begun development work on the next planned module, TULSA BPH. More details on that will be provided later this year.

Arun Menawat
Arun Menawat
CEO at Profound Medical

To summarize, there is a large and growing body of evidence from clinical trials, as well as from commercially treated patients, that TULSA is on its way to becoming a mainstream treatment modality across the entire prostate disease spectrum. We hope to receive FDA 510(k) clearance of the Contouring Assistant TULSA AI module in the coming days and weeks. We also eagerly await a CMS decision regarding the TULSA proposed reimbursement rate at the end of July. We are excited by the increasing use of MR in the care continuum of prostate disease management, and we continue to work with Siemens and the other two leading MR manufacturers, Philips and GE, to further support this modern treatment pathway. And finally, we now have sufficient visibility into the pace of TULSA adoption, both in terms of existing system utilization and installed base growth, to initiate full year revenue guidance.

Arun Menawat
Arun Menawat
CEO at Profound Medical

That guidance is $11 million-$12 million revenue for 2024. This ends our prepared remarks for today. With that, we're happy to take any questions you might have. Operator?

Operator

Thank you. At this time, we will conduct our Q&A session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we create our Q&A roster. Our first question will come from Rick Wise with Stifel. Go ahead, Rick.

Analyst at Stifel

Hi, Arun, the rest of the team. This is John on for Rick today. I just wanted to maybe start off on guidance and kind of how to read through performance this quarter to the rest of the year. So if I'm just sort of looking at the recurring base, it grew roughly 1%, year-over-year. And the guidance sort of implies, and as you talked about, 60%+ recurring revenue growth, implies a pretty steep ramp for the second half. So I just hope you could talk a little more about the key drivers there and your visibility to seeing that strong 2H growth.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Well, you know, it's not as, as steep a ramp as the numbers imply. We placed a number of new systems in Q4 last year and Q1 this year, and so those systems are, you know, they purchased the recurring revenue model one kits in Q4, and we just didn't want to put more until they use all of these up. And so it's more about, I think, as we've said that before, it's about leveling and making sure there's not too much inventory at customer site. But the number of sites has increased, and these sites have come up on stream now. So I think as we've talked about before, quarter-over-quarter, we still have some variability, things like that.

Arun Menawat
Arun Menawat
CEO at Profound Medical

But for the year, we are very confident in terms of increasing the utilization and thereby the revenue associated with that. So again, I would chalk this up to quarter-over-quarter variability, but we don't see it as a, you know, steep hill.

Analyst at Stifel

Thanks. That's helpful. And maybe just another question here. I remember on the last earnings call, you discussed potential changes to the business model, in the sense that you might actually sell the capital versus sort of using this recurring structure. Just sort of a few months later, I just wanted to get your updated thoughts. How are you thinking about the Profound business model today? Have you learned anything in the past few months, or, or have your recent negotiations and conversations with CMS influenced your thoughts on what the Profound business model is going to be going forward?

Arun Menawat
Arun Menawat
CEO at Profound Medical

Yes, that's a great question also. I think, again, part of the reason why we felt comfortable providing guidance is because I think we do have a lot more visibility at this point than we did last year. I think to your question, we do think that we have a fairly good idea of what the business model is going to be. I think that we will go to a bit of a hybrid model. That is not to say that we will not place systems only on recurring revenue basis. But I think what you will see is that probably there will be a bit of a 70/30 mix, where the recurring revenues are probably gonna be in the range of about 70%, and 30% revenues will come from, from, capital revenues, capital side of the equation.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Primarily, we will remain a recurring revenue company. So for new sites, they will have a choice. They can pay us full amount and use it on a per-use basis. And then what we will also see is that sites who will start with recurring revenue will start to maybe acquire based upon usage, and we may convert it into a capital, and we're comfortable with that also. And so I think in overall terms, you know, we think we will remain a primarily a recurring revenue company, and we also are pretty comfortable that as the volumes increase, our gross margins will also continue to increase, and we think we are on track to deliver better than 70% margin over time.

Arun Menawat
Arun Menawat
CEO at Profound Medical

As we go to this hybrid model, you know, we may reduce the recurring revenue per patient price from, let's say, around $8,000 to maybe. We don't expect that to go down significantly. And then capital revenues are also high margin revenue. Answered all of your questions in sufficient detail?

Analyst at Stifel

Yeah, thanks. That was really helpful.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Perfect.

Operator

Thank you. One moment for our next question. Our next question is from Rahul with Raymond James. Go ahead.

Analyst at Raymond James

Thank you, operator. Good afternoon, Arun and Rashed. Thanks so much for taking our questions. So I just wanted to follow on from John's last question around the recurring revenue versus capital and the 70/30. I assume that irrespective of whether a customer is capital equipment versus recurring revenue, you're setting pricing such that the lifetime value per user is effectively equivalent. Are you able to sort of comment a little bit on that?

Arun Menawat
Arun Menawat
CEO at Profound Medical

Yeah. I think that that is certainly the principle that we're using. And I think as you heard from Mathieu's comments, also, we think that TULSA is a very efficient procedure, and that efficiency will continue to grow. And so we think that on, you know, use per unit time basis, we will continue to show productivity, and that could, over time, be a reason to maintain our prices and maybe, you know, improve upon those. But you're right, in general, the principle really is that we will convert to a model that will be more suitable to the hospitals as the reimbursement comes in, and at the same time, we want to be sure that we, you know, get the value that we provide in terms of the efficiency of our product.

Analyst at Raymond James

Thanks, Arun. That's very helpful. So, now, you'd indicated that you're quite new on the reimbursement, and so I won't push on that. However, I wanted to ask if you could perhaps orient us in terms of, how, you know, CMS should be looking at pricing, given that, surgery lands around $17,000, your interim code is currently around $13,000. There's significant benefit to TULSA, given the, you know, essentially long term to patients not having to go through surgery. So again, without prognosticating on where, you know, what number you will land at, are you able to sort of orient us in terms of how CMS will be driving towards, a pinpointed number?

Arun Menawat
Arun Menawat
CEO at Profound Medical

I'm happy to, Rahul. So I think there are a number of things that are already visible. And one of them is, clearly we are a prostate cancer treatment, and I think that we would be classified into a category close proximity to where radical prostatectomy or robotic prostatectomy is. And because the cost numbers are sort of in line with that, given that we have been highly disciplined about making sure that we charge the patients correctly at the same amount, and there are no hidden discounts and so on. I think CMS was quite appreciative of the fact that we ran a very clean market entry strategy.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Another thing that is already clear is that the work that the committees have done, and that's in public domain, if you look into the public documents, is that we are, codes are zero-day global at this point. Now, there is always a chance that CMS could change that, because until they publish, there is no guarantee. But at the moment, they are slated to be the way the recommendation works was done, was based upon the zero-day global. And that's an important point because it's an, it's a procedure that's a daytime procedure, so the physician gets paid only for the day of the procedure.

Arun Menawat
Arun Menawat
CEO at Profound Medical

What that means is that they will pre-procedure and post-procedure visits of the patients will be paid separately, as compared to robotic prostatectomy or other procedures within prostate cancer that are paid on a 90-day global basis, which means that for the first 90 days after the procedure, the follow-ups are included. So I think what our expectation is, putting all things together, apples to apples, that we will have a financial model that will be quite viable for the hospitals. Is that helpful?

Analyst at Raymond James

That's very helpful. Thank you very much, Arun. And one last quick question. I know Mathieu talked about the recent clinical data. You've indicated in your press release that recruitment in the CAPTAIN trial is on track to be completed at the end of this year. So are you still looking at interim, potential interim data at some point? When should we be? Could you orient us as to when we could potentially expect some data on the CAPTAIN trial? And that'll be it for me today. Thank you.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Sure. Yeah, Rahul, we are, as we've said before, we're on track to produce interim data in the first half of next year. As soon as You know, because this is a level one randomized study, we cannot publish anything because of biases until all patients are treated, and we may have to wait 90 days for them, for that early results to come in. But we do think that in the first half of next year, as we've talked about before, we will be able to produce the interim results.

Analyst at Raymond James

Thanks very much. I'll get back in the queue.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Thank you.

Operator

Thank you. As a reminder, to ask a question, please press star one one on your telephone. Please stand by while we compile our Q&A roster. I am showing no further questions at this time. I would now like to turn it back to Dr. Menawat. Go ahead, Doctor.

Arun Menawat
Arun Menawat
CEO at Profound Medical

Thank you so much. Look forward to updating you at the next quarter and hopefully with some good regarding the CMS payment amounts. Thank you.

Operator

Thank you everyone for your participation in today's conference call. This does now conclude the program. You may now disconnect.

Executives
    • Arun Menawat
      Arun Menawat
      CEO
    • Mathieu Burtnyk
      Mathieu Burtnyk
      COO
    • Rashed Dewan
      Rashed Dewan
      CFO
    • Stephen Kilmer
      Stephen Kilmer
      Head of Investor Relations
Analysts
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