Profound Medical Corp. (NASDAQ:PROF) Q1 2024 Earnings Call Transcript

Profound Medical Corp. (NASDAQ:PROF) Q1 2024 Earnings Call Transcript May 11, 2024

Profound Medical Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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 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 first speaker, Stephen Kilmer, Investor Relations.

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 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 expressed 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 treatment and Osteoid Osteoma, and it's 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. 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: 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 publication, 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. 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 sales 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 inventories at some install sites. While we anticipate that user inventory levels will continue to vary throughout the year, we still expect recurring revenue with growth 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. 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 consists 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. Net finance income for the 2024 first quarter are $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.

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 to $12 million, which represents 53% to 67% growth compared to revenue in 2023. With that, I will now turn the call over to Mathieu.

Mathieu Burtnyk: 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 the presentation by Dr. Ethan Wajswol from the Mayo Clinic Florida, on their initial experience with the TULSA-PRO in men with localized prostate cancer.

They reported oncologic and CP outcomes from 60 patients, including 47% whole-gland, 33% subtotal and 21% focal ablation. 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 biopsy, the authors conclude that their early post-market experience treating Grade Group 2 and 3 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 1/2 study of TULSA in men with BPH.

The treatment plan targeted the entire transition zone; including median lobe is present in 30 men. The prior measure of treatment efficacy, the IPSS score improved significantly from 16.5 to 4. 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 the Phase 1/2 prospective clinical study, the TULSA-PRO is the only incision-free device with safe and effective clinical evidence in patients with primary prostate cancer, rate of recurrent disease, and now also BPH.

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 treatment 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 of the gland, 10% hemiablation 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, multi-focal cancer and a smaller proportion of unifocal prostate tumors.

Prostate cancer patients across all grades of disease were treated primarily intermediate-risk patients with 74% being Grade Group 2 and 3, 15% low-risk Grade Group 1, and 13% high-risk Grade Group 4 or 5 cancer. Similarly, patients with all prostate shapes and sizes continue 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 60cc. 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.

Now, I will turn the call over to Arun.

Arun Menawat: Thank you, Mathieu, and good afternoon, everyone. As you can see from what Mathieu just reviewed, our message is clear. Regardless of prostate disease states 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.

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 four 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. And as of this year, AUA is requiring that all residents be educated on learning how to read by parametric MRI as part of their residency training.

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.

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 neurology 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. As you know, the American Medical Association established three CPT Category 1 code 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 center for Medicare and Medicaid services is working with the societies that sponsored the CPT Category 1 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.

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 recommend 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. To summarize, there is a large and growing body of evidence from clinical trials as well as from commercially treated patients. The 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. That guidance is $11 million to $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?

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