PROCEPT BioRobotics Corporation (PRCT) Earnings Call Transcript & Summary

Good morning, everyone. Welcome back to the 41st Annual J.P. Morgan Healthcare Conference. Great to see everyone's faces in the flesh this year. My name is Lisa Cohen. I am an associate out in San Francisco, with our healthcare investment banking team. So I'm very excited to introduce today PROCEPT BioRobotics. We have 3 wonderful speakers here with us. Reza Zadno, the CEO; Kevin Waters, the CFO; and Matt Bacso, the VP of Investor Relations. So with that, I will pass it off to Reza to show their story.

Thanks, Lisa. Good morning, everyone. Reza Zadno, CEO at PROCEPT, very excited to be here to present our company. We are a surgical robotic company, and our vision is to become the standard of care in treatment of BPH, which is the #1 reason patients, men, see a urologist, massive market. Please review our safe harbor statement. Today with me, our Chief Financial Officer, we have an experienced management team from high-growth companies and multiple public companies. BPH, as I mentioned, is the #1 reason men see a urologist. More than 50% of men at the age of 50 years old and above have BPH. And this has a huge impact on their quality of life, and 99% complain about this impact on their quality of life. In the United States, there are 40 million men with BPH, and this number is expected to increase in the next 10 years because of the increasing population of age in the U.S. When we dig down in that 40 million, 12 million of them are seeking -- seeing physicians, 4.3 million of them are sitting on the sideline, watchful waiters, 6.7 million are taking medication, 1.1 million have failed to medication. And in 2019, there were about 400,000 men who had some intervention. 300,000 of them were resective procedures. 100,000 of them were nonreceptive. The market numbers that I put on the right-hand side is roughly the price of our hand piece, just the disposable part, I'm not putting the price of our robot here times that market. So you can see this is a massive market. If you look at the prostate size and shape of men, this roughly represents from very small, let's call it, 30 milliliter or gram all the way to above 150. And it's not just a uniform shape. The shape could be different. And because of this size and shape of the prostate, physicians offer different procedures, so they have multiple algorithm when they select the procedure for a patient. So generally, the treatments are either in their resective, in which they remove tissue from prostate to allow the patient to empty bladder. Again, these patients, they wake up multiple times at night or during the day to empty their bladder. So resective the advantage is by removing tissue. There is good efficacy and symptom relief. But the current techniques, the side effects of resective procedures are what give pause to patients to choose those options. On the other hand, you have nonresective procedures in which side effects are good, but the symptom relief and durability is not there. What we have offered and we show is a very good combination of the efficacy and durability along with the side effect for safety profile of this procedure. And that is due to features that we have implemented in our technology. It starts with image guidance, I'm going to show in the next slide how the procedure is performed. Image -- then contour planning. So once the physician actually sees the prostate, they decide which parts of the prostate they want to cut and which parts they want to spare. And then the cutting and the resection is done by the robot. And it's the same, whether it's the first case of a young doctor or case #100 of an experienced doctor, the outcomes are the same. It takes the surgeon skill out of the picture. And during cutting it uses water, so it doesn't generate heat. The safety and efficacy of our technology is supported by compelling clinical data that I will show shortly. And we have favorable reimbursement, we'll talk about it in a -- reimbursement. And we have a very efficient salesforce because we have a targeted customer. Initially, we are targeting hospitals where most resective procedures are performed, that allows us to have a very efficient sales force. This slide outlines the procedure. We give the prostate image you see to the right, that's with ultrasound that no other technology -- generally, what you see on the left side, the cystoscopic view of the view, that's generally procedures like TURP and other provide. We provide that image and the image to the right, which is the side view of the prostate. In the diagram in the middle, you see our hand piece that basically -- water jet comes out of it -- push going from right to left at the tip is inside the bladder as you see, it's inside the prostate. So once the physician now sees the prostate, they put those yellow dots where they want to cut. They do their contour -- that's called the contour planning, once the contour planning is performed, then the robot cuts exactly where the physician has decided to perform the procedure. This -- as I mentioned, safety and efficacy have been supported by compelling clinical data with the WATER Study, which was the only randomized study against TURP in the United States. In the WATER Study, that was done in the prostate between 30 and 80 milliliter. And then between 80 milliliter and 150 milliliter that's a prospective single-arm study. And then the OPEN WATER is after the FDA approval, is in the real-world data. And we have shown good efficacy, durability and -- but more importantly, the consistency in this -- during this study, we have selected some of the top TURP surgeon. TURP still is the gold standard for the treatment of the prostate in the resective market. The graph on top shows -- again, these are surgeons who have done thousands of TURP procedures, you can see the variation for the time it takes to do a procedure for a doctor, whether it's a 50-gram prostate or 70-gram prostate. The graph at the bottom, some of -- our procedure shows the resection time. This is not the total procedure time. The resection time, whether it's a 30-gram all the way to 150, is pretty tight. And some of these, they were their first procedure that they were doing, and this is how tight. And as we see it in the subsequent slide, this is one of the reasons we are seeing accounts are standardizing the procedure, whether it's a 30-gram prostate or 150-gram prostate, whether it's their experienced surgeon or a younger surgeon, they are using this because they can predict exactly how long the procedure is going to take and what the outcomes are. This is the graph on durability of the procedure. I have to give some background on this. The Aquablation, of course, is our technology. The TURP is the data from the TURP in the WATER Study. This is -- and then the other ones are the published that on [ Rezum ] and UroLift. It's very important to see the presence of obstructive median lobe. Again, as I mentioned, there is the size, there is the shape and the anatomy. In our study, many of the patients had obstructive median lobe. The presence of obstructive median lobe has impact on durability of the procedure. We see at 6% surgical and medical retreatment. And this is the WATER, which was 30 to 80 gram. In a separate, on the right-hand side, we are showing WATER [indiscernible]. We see that durability is still there, even when we are treating patients all the way to 150 grams, very good safety and efficacy and durability of the technology. Where this technology is used? Definitely for the large prostates, this is a very obvious solution for patients. But when we looked at patients that have been treated in the last 18 months or more, is a histogram. And this histogram pretty mimics the prostate shape and size of patients. Physicians are using this technology for all prostates, whether it is 30 gram all the way -- you can see the tail end goes very far, above 300 gram. But the majority of the cases are done in the 60 to 80 gram, with the top of the bell curve at 70 gram. So we are very happy to see that we are on our path to become standard of care, and they are using this technology on all prostate size and shapes. On the reimbursement side, I'm happy to say that we have coverage from -- full coverage from Medicare, which represents about 50% of the old men with BPH. Those are patients, of course, above 65. And on the commercial side, we have many of the commercial payers covering the procedure. And we have a code dedicated to our technology at [ Category 3 ] code. And on the payment, this is marked at APC Level 6, which is about $8,500 paying to the hospital. And the physician is paid roughly about the same as a TURP. On the commercial side, majority of the resective procedures done in the hospital setting. In the U.S., there are 2,700 hospitals, 860 of them are considered high-volume hospitals, and average high -- hospital does about 200 cases per year. And so our initial target are those 860 hospitals. This allows us to have a very efficient salesforce to target those high-volume hospitals. I'm very happy to show our revenue, which roughly -- [ above ] $7 million in 2020, just [ above ] $34 million in 2022. And we just yesterday announced our preliminary results for 2022 in the $74.8 million to $75 million, those are preliminary results. And this is the -- reconsolidated our financials. You can review them. Thank you very much.

Thank you, Reza. So I want to start off with -- you had a preread of Q4 '22 earlier this week, and you placed 28 AquaBeam Systems. So I'd love to just hear a little bit more about your expectations and kind of how you're thinking about the CapEx in the hospital setting.

Yes, I'm very happy with the performance, our strong commercial performance and results in 2022. And there are multiple factors helping with that result, starting with the clinical data. And again, as I mentioned, this is the massive market. There is a -- first of all, on the patient side, there are 12 million patients, and then -- you saw all the numbers. And then the provider side, there are 2,700 hospitals. We're just scratching the surface. So we have a high -- long runway ahead of us. And patients are now asking for this procedure because they want both efficacy, safety and durability. And also, hospitals are standardizing the procedure because they don't need to have this multiple algorithms to see if the prostate is small or is the experienced doctors today here. The combination of these factors and our salesforce becoming more experienced and their increased productivity allowed us to deliver what we delivered in 2022. And also in 2022, we were able to sign multiple contracts with IDNs, and we have national contracts with those. So those are -- and although it was a tough environment, we are very happy to have signed many of those IDNs. And basically, we delivered on utilization that consistently increased [ efforts ] throughout the year. The capital placement was above the consensus and what we were expecting. More importantly, our plan has always been to deliver on clinical outcomes, utilization and robot placement. And we have always -- because our ultimate goal is to become a standard of care. So utilization has always been one of our areas of focus, and we are very happy to deliver on all of those. As far as CapEx is concerned, we are very happy because, as I mentioned, we are still very early in our journey. If we are 160-plus accounts, they are 2,700. And the fact that the price of the robot, the reimbursement in place, and hospitals do not want to lose patients because they don't want to refer these difficult cases to other hospitals. All these parameters have helped us not only for our results, but also on the CapEx.

Congratulations, as it was clearly a great quarter. I know you didn't provide '23 revenue guidance, but can you tell us how we can think about capital placements this year?

I'll take that question. So we didn't provide guidance for 2023. But at the same time, a lot of the points Reza just mentioned, you can assume that the growth that we experienced in 2022, we think we have the ability to continue at kind of above-market growth rates really for the foreseeable future. And it's one of the nice aspects of the market that we're currently in. There's 2,700 hospitals in the U.S. And currently, even with all the success we had this year, we're still very low penetration. We're in 167 hospitals. So we're aware of the numbers that are out there for us next year, and we feel very comfortable in our ability to continue to grow and to meet and exceed kind of expectations that have been set for the company. We've made a lot of investments internally, particularly around the commercial team. We do think at this stage in our development, there's really no diminishing returns with adding new capital sales reps. And we had mentioned on our Q3 call that we had some meaningful additions to that team heading into 2023. And we're really happy with the team we've brought on board with the enthusiasm we're seeing with that new team and really the enthusiasm we see around our physician customers and patients to continue the adoption [ curve broad ].

Awesome. Turning back to Q4. So I know you delivered material upside in terms of hand pieces sold. I think it was 3,000, which equated to about a utilization of 6.5. So can you tell us a little bit more about the quarterly trends and what was really driving that beat?

Yes. So we've spent the beginning of this talk about capital, but really the star of the show for us as a company is really seeing the physician customer utilization in 2022. When we go back to our original guidance that we gave at the beginning of the year, we were forecasting on average, a hospital to do about 4 procedures per month. And what we saw exiting the year is right around 6.5. So we're almost a full year ahead of where we expected to be with the utilization. That's attributable to all the clinical benefits that Reza went through. And just what we are seeing in our accounts, its our older aged accounts that have been with us a longer period of time, are definitely doing more than average, and we attribute that to physician standardizing their treatment algorithm. And at the same time, even accounts that have been with us now even over 2 years, we're still seeing new surgeons start adopting Aquablation within that account, just driving utilization. So that's point one. Point two is our new customers now today. We're seeing a higher number of surgeons initiating Aquablation in their practice than we did a year ago. So we're seeing higher utilization not just from older accounts but also from new accounts that's driving that increase in utilization. And just really pleased on a full-year basis with where our utilization is. I know it's -- systems today, they have a high contribution to our revenue. But at the end of the day, the most important metric to monitor the success of our business is the underlying utilization, we're more than pleased with how that's performing.

And how are you affected by -- were you affected by COVID and the flu and RSV?

For us, given the relative number of procedures, we performed 6.5 per month on average. Given kind of the treatment times and our ability to have predictable scheduling, we really haven't been impacted to the extent some other elective procedures have been impacted. Regarding the flu, COVID, also regarding Q4 seasonality, I think given how early we are in our commercialization, it's really hard to pin down if that did have an impact. I mean like most procedures, you would expect an uptick in Q4, but it's hard to parse that out for us, given where we're at.

I want to pivot a little bit. In your investor presentation, there's -- you show how the prostate sizes have evolved since January 2021. Can you tell us a little bit about that data set and how the surgeons algorithm has evolved with that?

Yes. So the immediate prostate size that some physicians target are larger prostate because there are no viable solutions over there. And that's why we were monitoring -- we have been monitoring all the prostate size and shapes they are treating for various reasons. And as they see the clinical outcomes, whether they use on a large prostate or a small prostate, they start using it on all the way to 30 gram, they have treated above 150 gram, because it really simplifies the algorithm. They don't need to think, even -- because during the procedure, they actually see the prostate, they see how big it is. And right there, they can plan. So that histogram I showed, represents very similar to actually prostate size of a few years ago in one of our accounts, we gather that information for prostate size in patients whether they were planning to get the surgery or they were on drugs, we're -- very similar to that graph. And we are very happy to see, although majority of them are below 100 gram, but that -- if you look at the histogram, the top of the bell curve is between 60 and 80. So they are using it on all -- we see some accounts have converted almost all their resective procedures to us. And yes, we are happy to see that they are using it on all prostate sizes.

Just to add on to that, I mean with the standardization that we're seeing, it really allows hospitals that typically would have had to refer out some of those other procedures. So if you take a prostatectomy or [ Enucleation ] for larger prostates, there's many BPH hospitals that don't have a surgeon that specializes in that modality. And with Aquablation now, it allows a hospital to retain patients they would otherwise lose if they didn't offer Aquablation. And going back to kind of the CapEx environment and our ability to continue to meet capital numbers, allowing hospitals to retain patients in this type of environment really is a nice selling point for our field team when they're out there talking to hospital administrators and CFOs and CEOs.

That's great. I know over the last few quarters, there's been some noise around the U.S. urology visits in general. Can you tell us about -- do you have a sense that we're back to pre-COVID levels? How are you thinking about that?

So we ask that question every time we are in front of a surgeon. And fortunately, our surgeons when we ask that question, their answer is, in fact, if they see more patients and their number of surgeries and patient visit, they say it's back to, in fact, higher than 2019. So that has not affected us. So we ask this question. It does not.