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Good day, ladies and gentlemen, and welcome to your Profound Medical Second Quarter 2020 Financial Results Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Stephen Kilmer, Investor Relations. Sir, the floor is yours.
Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call will include forward-looking statements regarding Profound and its business, which may include, but is not limited to, expectations regarding the efficacy of Profound's technology in the treatment of prostate cancer, BPH, uterine fibroids and palliative pain. Often, but not always, forward-looking statements can be identified by the use of words such as plans, is expected, expects, scheduled, intends, contemplates, anticipates, believes, proposes or variations, including negative variations, of such words and phrases or state that certain actions, events or results, may, could, would, might or will be taken, occur or be achieved. Such statements are based on the current expectations of management. The forward-looking events and circumstances discussed in this conference call may not occur by certain specified dates or at all and could differ materially as a result of unknown and known risk factors and uncertainties affecting the company including risks regarding the medical device industry, economic factors, the equity markets generally and risks associated with growth in competition. Although Profound has attempted to identify important factors that could cause actual results, actions, events to differ materially from those described in these forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements can be guaranteed -- cannot be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made, and 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. On the call today representing the company are Dr. Arun Menawat, Profound's Chief Executive Officer; and Aaron Davidson, the company's Chief Financial Officer and Senior Vice President of Corporate Development. With that said, I'll now turn the call over to Aaron.
Thanks, Steve. Good afternoon, everyone, and welcome to our second quarter 2020 conference call. On behalf of the management team at Profound, I would like to thank you for your ongoing interest in our company. Those of you who are our shareholders, we appreciate your continued support. I will turn the call over to Arun in a moment for an update on our commercial activities. However, before I do, I'd like to provide a brief update on our second quarter 2020 financial results. To streamline things, all of the numbers I will speak to have been rounded and are therefore approximate. For the 3-month period ended June 30, 2020, the company recorded revenue of CAD 1.4 million, an increase of 148% from $574,000 in the second quarter of 2019. Expenditures for research and development decreased $802,000 for the 3 months ended June 30, 2020, compared to the same period in 2019. The decrease was attributed to lower spending on materials and R&D projects due to the impact of COVID-19 as hospitals and testing facilities are not accessible. Lower travel due to COVID-19 restrictions decreased R&D personnel and lower software and hardware costs. This was offset by increased spending to pursue reimbursement for TULSA-PRO, market research and options awarded to employees. General and administrative expenses for the second quarter of 2020 were higher by $689,000 compared to the 3 months ended June 30, 2019. The increase was attributed to higher costs associated with being a NASDAQ-listed company, options awarded to employees, options vested during the period, increased insurance costs associated with being NASDAQ-listed and increased software cost for cybersecurity. This was offset by decreased salaries and benefits and travel due to lower personnel costs as well as the Canadian Emergency Wage Subsidy and COVID-19 travel restrictions. Overall, the company recorded a second quarter 2020 net loss of $7.3 million or 46% -- $0.46 per common share compared with a net loss of $5.8 million or 40 -- sorry, $0.54 per common share for the same 3-month period in 2019. Subsequent to the end of the second quarter of 2020, we closed an underwritten offering of common shares including the full exercise of the underwriters' overallotment option, resulting in aggregate gross proceeds of approximately USD 46 million. Net proceeds will be used to fund the commercial launch of TULSA-PRO in the U.S. and on the continued commercialization of TULSA-PRO and Sonalleve globally. As of June 30, 2020, Profound had cash of $56 million. As a result of the aforementioned offering, the company had cash of approximately $112 million as of July 31, 2020. With that, I'll now turn the call over to Arun.
Thanks, Aaron. Today, I will provide an update on our TULSA-PRO U.S. commercialization strategy. The first 2 operational sites, the Scionti Center in Florida and the Busch Center in Georgia, are continuing to treat a steady number and an increasing variety of patients. We're seeing that at these sites, that they what we observed during our commercial launch in Europe, where physicians began using TULSA-PRO to treat intermediate risk patients then to treat low and high-risk patients and then those with BPH. Prior to the COVID-19 pandemic, we estimated that after the first 6 to 12 months of being operational, the average run rate will be 40 procedures per year, eventually growing to 100 procedures or more after that, based on the numbers of procedures these centers are conducting. Despite the dynamic, we still believe this target is attainable and that these sites may actually slightly exceed the target. Our first multisite agreement with RadNet is delayed as Los Angeles region has been particularly hard hit by the pandemic. RadNet plans to be operational and treating patients at its first site by the fourth quarter of this year, followed by its second and third sites by the first quarter of next year. RadNet is currently recruiting additional staff and is reaching the final stages of our first systems installation. Of course, teaching hospitals or centers of excellence, as we often refer to them, also remain an important channel for Profound, one that we will continue to pursue. I'm pleased to report that we completed the first TULSA-PRO installation at a teaching hospital, the world-renowned Mayo Clinic in Jacksonville, Florida, in early July. We're looking forward to receiving feedback from physicians and patients treated at this site as more procedures are performed, and we will be happy to share this feedback with you on our next call. In terms of 2020 site number expectations, I noted during our year-end call that the time to achieve our original expectation of 20 site agreements with 15 operational sites by the end of 2020 might be delayed by a quarter, perhaps 2 quarters, due to the COVID-19 pandemic. We still believe that this revised expectation is accurate. That said, the revenue impact from these potential U.S. placement delays may well be somewhat offset by higher-than-anticipated per-system utilization, should that continue as it did in the first half of the year. Our operational sites are reporting that patients are responding well to the procedure. Physicians report that because of imaging and the ability to customize treatment, they're able to have a more engaging dialogue with their patients in terms of the treatment design. Post-treatment, patients are reporting minimal pain. In fact, patients are reporting even less pain in the commercial setting than what we observed in the TACT clinical trial in addition to quick recovery times with respect to erectile function.Also, as I briefly touched on earlier, TULSA-PRO sites are increasingly treating a variety of prostate patients, ranging from those with BPH to those with low to high-risk, high-volume disease and even advanced cases. As physicians become more confident with and more accustomed to the technology, they're using it in a wide range of patients. We believe this confirms TULSA-PRO's flexibility and, even though we're still early in the commercialization stage, suggests that available market is indeed as large as we envisioned. We also believe that patients want to adopt a mainstream tool that can be used to treat a variety of patients rather than a highly specialized tool that can only be used in a small subset of patients. These observations, although still at an early stage, do speak to the adoption potential of the technology. BPH continues to be an important part of Profound's strategy. Every year, in the U.S., there are 300,000 to 400,000 extreme BPH cases that require surgical intervention. The overall BPH market is large, up to 10 million patients, but most can be treated with either drugs or office-based interventional procedures that has become available in the last few years. Our target segment of this large market is only those patients who are not candidates for drugs or office interventions but require one or more surgical procedures that are associated with significant side effects. We believe that treating those patients with TULSA, which is a onetime infusion-free procedure, can fulfill a significant unmet need and complements other interventions that are typically used to treat other segments of the same disease. Although the number of patients treated with TULSA-PRO today is relatively limited, our clinical observations, combined with the TACT trial demonstrating that the procedure shrinks prostates to 10% of their original size, speaks to the durability of the treatment. I'd also like to point out that while other BPH treatment methods aim to widen the urethra to alleviate BPH symptoms, which is particularly difficult with large prostates, TULSA relieves BPH symptoms by removing excess prostate tissue, alleviating pressure on the urethra and even the bladder, to reduce the symptoms. In collaboration with our partners, we're continuing to gather data on the use of TULSA-PRO to treat BPH to further evaluate what we believe is a significant opportunity in addition to the prostate cancer opportunity. Before I open the call to questions, I would like to provide a brief update on our tulsaprocedure.com website, which represents the beginning of our strategy to increase awareness of the procedure among patients. We continue to gather positive patient feedback and plan to augment the site with the launch of a patient form in the fall. We are also working to initiate both surgeon-to-surgeon and patient-to-patient education programs and look forward to updating you on our progress. To summarize what we are looking forward to in the near term, one, additional TULSA-PRO site agreements; two, expanding TULSA adoption, both in terms of procedure volumes and types of patients treated; and three, enhancing our website, marketing and education programs to provide even more comprehensive resources for patients and physicians. This ends our prepared remarks today. With that, we're happy to take any questions you might have. Operator?
[Operator Instructions] We'll take our first question from Josh Jennings with Cowen.
Arun, I just had a couple for you. Just first on the RadNet agreement. I understand COVID's pushed out that first site. There are some other sites that are going to come on board. After those initial, I think, 3 or 4 sites, do you have any line of sight for incremental centers that could be sites for TULSA-PRO installations within that RadNet agreement down the line?
Sure, Josh. Yes. So the RadNet site, I think as I mentioned, this is, at the moment, designed to be 3 sites. I think I would -- certainly, we're in conversation that, in the longer term, they can be the seed sites to proliferate adoption at other RadNet sites. That is certainly not in a written contract at the moment but certainly something we will look at. What I can -- certainly, I think we've talked about this in our public forum, that we do see a good pipeline in place for the second half of this year anyway. So I do anticipate that you will see, over the long haul, additional RadNet sites and certainly, this year, some good new sites increasing our installed base.
Excellent. And we do get a bunch of questions just on the path to reimbursement. I know that there are a couple of different channels. But is there anything you can provide incrementally on this call just in terms of codes that centers can use that are already in place versus the potential for pursuit of a C-code in front of full-out CPT code in a couple of years?
Yes. Absolutely, Josh. So the first thing with respect to the C-code, we have a fantastic law firm out of Washington supporting us with the council that is former CMS Council. We're very comfortable with the kind of support we have. The latest update is that they are converting the idea that we have -- we talked about at the Q1 call into a specific coding guide that the hospitals can begin to use. That guide should be available within a few weeks, and we are certainly in dialogue with a number of hospital systems, where they are reviewing these recommendations as well. So I do anticipate that if the things that if the things that we've -- I've talked about continue to look the way they do, by Q4 this year, a few of these hospitals will be, in fact, using the code, and then we'll see what progress we make. I think the other part of this is that if the existing codes do have some issues that -- we think it should work, but if there is a probability that it doesn't, there is always a little bit of it, that we are -- we've had enough communications with CMS that our confidence level is higher, that a new code can be established relatively quickly. So I do think that in the end, a C-code strategy could begin to have an impact on our company's revenues in 2021. Again, I would like to be cautious in the rate with which it happens, but I think it is still meeting or beating our expectations. With respect to the longer term, the C-code -- sorry, the CPT code, what we have said publicly is that we have reviewed the guidelines from the AMA. And we think that engaging with additional patients that are now starting with respect to what we are calling TACT 2.0, which will effectively increase recruitment in our TACT trial, and mostly, these will be U.S.-based patients, but it will, in fact, achieve one of the qualifications that we need to be able to file for the CPT code. In addition to that, we do anticipate additional publications that there is a reasonable expectation that by end of next year, that we may reach the point where we will qualify to apply for the CPT code. And from that moment on, it's typically about an 18-month process. So I think the point that we've made is we are quite comfortable today with the cash pay model, particularly seeing that even during the pandemic, that our sites are treating patients with the cash pay model. We do have a pipeline of patients lined up at the 3 sites. Even RadNet has patients lined up. The pipeline of hospitals that we do anticipate closing later this year have patients lined up. And so our confidence that the patient pay or the cash pay model is real continues to be high. And then we will go into this intermediate strategy with the C-code, perhaps sometime next year could begin to impact. And typically, it's good for at least 3 years, and that we think we're on track to be able to apply for the CPT code within that time frame and then thereby have the long term. So these are the 3 buckets that we see, and we think that we have reasonable plans and as the progress -- as we make progress, we will certainly update. So I hope I've kind of answered it comprehensively for you.
That was great. Thanks for all the details, that was super helpful. And just one last question. I may get a little bit ahead of myself here. But just the TULSA-PRO pipeline, anything you can share? Any details or updates on design enhancements or iterations of TULSA-PRO perhaps potentially to speed up the procedure or any other design changes that could be in the works?
Sure. Sure, Josh. So I think that we -- as you know, we did a recent financing. One of the things that we have said is that we do see that our physicians are using the technology on a variety of patients. And as you also know, we have what we call our Profound Genius Services that are in place that do a pretty rigorous and comprehensive analysis of how the treatment is coming along and benchmark things and pluses and minuses. So one of the things that we are looking to do is simply certainly increase some of our investments in our R&D and our manufacturing sites that will allow us to evaluate the current technologies and continue to enhance the technology, with the goal that we want to be able to treat a minimum of 4 patients per day consistently. And that would allow our sites to schedule for patients, they -- which is something that our physicians have said to us, is that they can be confident that a procedure will not go longer, they then don't have to build in some contingency times, then they can start scheduling. So I think that I won't go into the details of what enhancements and so on. But our high, overarching goal is to continue to make the procedures consistent, easier to use, and the way we want to measure our success is the number of patients treated per day because that throughput ultimately drops to the bottom line for our customers.
We'll take our next question from Rahul Sarugaser with Raymond James.
So as we think about revenue increasing over this year and then, of course, next year and then how that would be impacted by C-code, et cetera. There's really 2 parts of the equation that we think about: one is the installed base and, of course, second is the utilization rate of the existing installed base. So focusing first on the installed base. Arun, you referred to a relatively strong pipeline. We saw 2 sites up and running, Florida and Georgia, by the end of Q2. And then since then, quite rapidly, Mayo and then RadNet coming online, as you mentioned, although it's not starting until Q4. Are there any sort of benchmark yardstick that we can use to look out for between -- the balance between radiation clinics and/or teaching hospitals for Q3 and Q4?
Rahul, I would -- to be honest, I would like to sort of come back to our market entry strategy. I think beyond the fact that I do want to share that we feel good about our pipeline, obviously, it's kind of early to share numbers and so on until it happens. And particularly because of the COVID, I think it's always unpredictable exactly when the deal closes and so on. But what I can tell you is that there is no hospital that has said no. Hospitals are generally saying, we are reengaging. They're reengaging with us. And they do see TULSA as a revenue story and thereby -- and the way Aaron and Abbey -- they sort of put together a phenomenal recurring revenue model, the hurdles that relate to capital allocation and so on are minimal with our model. So I think that part, certainly, I feel good in terms of how we're positioned. But to answer your broader question, I wanted to just go back to the original market entry strategy. One of the things that we felt a year ago when we were just starting this process was that imaging centers will play a strong role, and that our goal was to first find a few sites that were already experts in ablation or already sold on idea that alternative therapies were needed. And then the next group was the emerging center group. And then the third group is really the teaching hospitals. And even though we felt that the teaching hospitals might not necessarily be the highest volume users in the early stage, we felt that we needed this triad of these 3 nodes of users in order to gain broad credibility for the long-term adoption of the technology. So that's how we're looking at this. So our priority when we quickly got the attention of the early adopter users or the experts and when we quickly got the attention of the imaging centers, I actually suggested to our sales team that we should focus more on the teaching hospitals earlier in the year. And so I do think that you will hear more about these excellence centers and the bigger-name hospitals in the second half of this year, but they are more part of our strategic agenda. And I do think that once we establish the beachhead in all 3 of these nodes, then it will become a lot easier to drive broader adoption. So I apologize if -- I don't know if I've really answered your question, I try to be more sharing in terms of our strategy of how we're going about driving the broad adoption.
I think that was actually a very fair answer. And you just gave me more color than I probably deserved, so thank you. Maybe then coming back to the second part of that equation, and this is probably where I'll probably need a little bit from you, Arun, is the utilization rate. And I see in the income statement, and maybe it was there last quarter, but I'm noticing it for the first time, this revenue line of pay per procedure and a significant ramp from -- between Q1 and Q2 from 41,000 to 98,000. Of course, we can't really correlate that with a utilization rate per site. But is that something that we could be using as a proxy for recurring revenue, particularly given that this is fundamental to your model? And maybe I can ask another cheeky question is sort of what average rate, I think we've been using around $2,500 per procedure, can be used for our modeling as we try to project your recurring revenue going forward?
Yes. Unfortunately, I'm going to make things a little more opaque rather than clear for a second, and let me clarify. So we went out to the market initially with offering a couple of options. You could buy a device and pay for disposables in conjunction, you could rent a device and buy disposables or you could just buy disposables and pay per click. As we've seen patient demand be strong, as we've seen COVID-19 and other things be problems, we've -- just between last quarter and this quarter, we've said forget about selling devices. We really don't want to sell them. We really want to own them. We really want to maintain -- rather than securing more dollars upfront and giving up more on the back end, we really just don't want to sell it anymore. And renting is sort of similar. You rent and lock in a fixed number, but we believe we can drive higher volumes on the devices. So we really don't want to rent devices anymore. We really just want to sell procedures. And so as of about midway through last quarter, we actually changed our model a little bit more, and this is the evolution of launching a product. We said, we actually don't even want pay per click, which appears there, and disposable separately. We just want to sell procedures, and we're signing agreements with $7,710 per patient. Now there will be a few who are grandfathered in here through the first year when we had a rental, and we had some other things where you will have the separation of pay per click and rental and -- but what you'll see quickly is as we add sites, those other ones are going to become rounding errors, and it will all be pay per procedure in the U.S. for the -- from what we know today, and things change every day. From what we know today, it will be -- become procedure -- revenue procedures, and it will be $7,710 per procedure. So I apologize that maybe doesn't make it easy today, but it will get easier in time, quarter-over-quarter.
Right. That's okay. Totally get that, and we'll definitely look forward to seeing that sort of emerging from the numbers in future quarters. But just for the short term and to help us elucidate the separation between Europe and the U.S., my assumption is that the installed base in Europe is quite a different model because those were installed under the previous sales model. So how do we -- how should we think about revenue in Europe relative to the newer model that's in the U.S.? And of course, that will -- the impact of those numbers will moderate over time as you increase the installed base in the U.S., but at least for the short term, how should we think about revenue and recurring revenue in Europe?
Yes. So Europe does have recurring revenue because we sell disposables in Europe. And we actually -- the last 2 sites we installed in Europe were all per-procedure revenue. So there's a blend there too, Rahul. So unfortunately, it's not an easy answer. But what I will tell you is a couple of quarters from now, it will get -- assuming what we know today stays, which I hope it will, it will start getting clearer and clearer. But today, in Europe, we have some rental income, we have some pay per click, we have some disposable income. What I would say -- no, go ahead.
No, that was it. I was just going to say thank you. I think -- I'm sorry to be a pain, but yes, I think that the numbers you shared today really do provide lights, and I think the higher-level numbers that Arun shared in his opening comments, particularly on BPH, are quite exciting. And so we'll definitely look forward to seeing the impact of that. So thank you for taking my questions and all thought off there.
We'll take our next question from Cecilia Furlong with Canaccord.
Arun and Aaron, it's [ John ] on for Cecilia tonight. I just want to start out by asking what are you seeing in terms of access to imaging centers versus large hospitals. Any thoughts on longer-term trends that you think COVID could have in terms of where patients are treated? And perhaps you could compare and contrast what you've seen in Europe versus the United States?
[ John ], that's a great question, actually. We, to be honest, feel a little bit lucky about that because imaging centers tend to be stand-alone places. And I've talked about this a little bit also in the last few weeks, that there are about 2 to 3x more imaging centers in the United States than they are hospitals. And these imaging centers are actually pretty conveniently located because, as citizens, we tend to -- diagnosis is a much bigger part of the business. And thereby, we tend to go get image for pretty much any serious disease. So at those centers, they do not have -- there's no [ infection ]. They are cleaner. They have a large waiting area. They treat 1 -- they image 1 patient at a time. So -- and they really cannot help the hospitals that have been busy with the pandemic patients. And so the imaging centers have turned out to be a place where patients are willing to go. And we think that even after the pandemic, that can be, quite frankly, a positive because people will feel comfortable going to these places. So I think from that perspective, we feel fairly good. The other question that I think you have is what about this use of MR, the availability of MR and so on. And I think that was certainly one of the questions that we had as we were beginning to develop the technology, is the fact that we're using an MR a good thing or a bad thing in terms of commercialization? And I can tell you, at the moment, we think it is a very, very good thing. From -- not only from the perspective that, as I mentioned in the prepared remarks, that the images can be shared between the patient and the urologist, diagnostic images are shared, thereby, they actually have a dialogue. They can say, I see the disease right here. And I can -- your disease is much more aggressive. So I wanted not just treat the section that looks like you have cancer, but I'm going to go beyond that. And by the way, it's going to affect this and this. And if saving ejaculatory ducts is really critical to you, then I'm going to really work hard to save those for you, so you can not only have good erectile function but also have ejaculatory function after the procedure and so on. So I think not only from the perspective that it is creating that, and it allows for that flexible treatment in a variety of patients that we've talked about, but from a pure business point of view, it is a positive. And what I mean by that is -- and you may have seen this even in just the latest proposed CMS guideline that just came out a week ago, diagnostic radiology payments are down 10%. That's what they're holding again for next year. And that trend has been going on for the last 7, 8 years. So when you look at an imaging center as a business, and you ask the question, on a per unit time basis, what will give you more profit? There's no question TULSA will win that. Because anytime you're doing an intervention, it is more intense and requires more attention, and thereby, the reimbursement is higher. So MRI might -- reimbursement might be $500, $600, $800 per hour, for diagnostic, and that's maybe being generous. A TULSA procedure, or if I just generalize it, any intervention, where imaging is used in an interventional procedure, typically is 2 to 3x higher. So I think that per-unit profit sort of gravitates towards TULSA. So in hindsight, sometimes people ask the question, well, is there a shortage of MR and so on. But from that business perspective, not only that we have not seen anything like this, I really think it's going to be a positive.
That's helpful. And then just my follow-up. Any update from Sonalleve, current thoughts around longer-term in the United States?
So [ John ], good question. We talk about TULSA because our -- we internally say to our people, our priority 1, 2, 3 is TULSA because we see significant upside. But indeed, Sonalleve is doing well in the international market. And I would say give us another quarter or 2, and we will provide -- we do have things in the works, but they're too early to be bringing out in public domain. But certainly, we can tell you that things are in the works at the moment.
[Operator Instructions] We'll take our next question from Ben Haynor with Alliance Global Partners.
A couple of real quick ones here for me. Just following up on the payment -- or pay per procedure kind of model adjustment. What -- I guess how many centers right now or how many sites right now are fully on that model, and -- if any? Just I guess kind of a trick question there.
Yes. It's a bit of a trick question. Because yes, what I can tell you is -- well, I have to be careful because there's so few numbers at this point you can identify. But 1 is on a rental, where they rent per month and pay for disposables. Another is on -- and the other 2 are on pay per click and disposable.
Okay. Fair enough -- go ahead.
Which really is -- by the way, pay per click and disposable really is the same as $7,710 per procedure. It's just combining them.
Okay. And then maybe a follow-up. Does that all currently fall under pay per procedure then or does part of that fall under products?
No. So today, some of it falls under pay per click and some falls under disposable.
Okay. But going forward, as site -- as the new accounts come on, new sites come on, it will be in pay per procedure, and only the legacy sites will have some that split off in products?
Correct.
Got it. Okay. Great. And then just looking at the tulsaprocedure.com site. It looks like you've got a Canadian TULSA center, it says coming soon. Just curious on when that install is taking place.
Well, that happened fast. It's probably a little too early to say.
Okay. I just thought I'd sneak that in. That's all I had.
Ben, I'm impressed that you've looked at it. So yes, that should be coming up. I think we will -- we'll certainly announce as it happens. But you can imagine, we have a couple of leading urologists in Canada, and there's been quite a bit of requests from the Canadian community to at least put one site here as well.
Makes sense.
That's all the questions that we have at this time. We'll turn the call back over to Dr. Menawat. Please go ahead, sir.
Thank you so much, and we are looking forward to updating you at the next Q3 call. Thank you for your time.
Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.