Profound Medical Corp. (PRN) Earnings Call Transcript & Summary

Greetings, and welcome to Profound Medical Annual General Meeting. [Operator Instructions] Please note, this conference and webcast is being recorded. I would now like to turn the conference over to your host, Dr. Arun Menawat. Thank you. You may begin.

Good morning, everyone. It is now 10:00 a.m., and I would like to ask that this meeting come to order. My name is Arun Menawat. I'm the Chief Executive Officer of Profound Medical, and I would like to act as the Chair for today's meeting. On behalf of Profound Medical, I'm pleased to welcome you to this meeting of shareholders. Before we proceed with the formal business of today's meeting, I would like to introduce the directors of Profound Medical, who are present via conference call today. I would ask that each director say hello, as I call their name. Brian Ellacott. Brian? I'm sure there is some sort of...

Or not -- if they didn't dial in as a presenter, they won't be able to respond. So you can maybe -- this won't work out.

Okay. I'm just going to go ahead and call out the names of the directors. Brian Ellacott, Steve Forte, Ken Galbraith, Linda Maxwell, Jean-François Pariseau and Art Rosenthal. Some members of our management team are also present today, and I would like to introduce them as well. I would like to ask that each officer say hello, as I call their name. Aaron Davidson.

Hello.

And Rashed Dewan.

Hello.

Welcome. These are unprecedented times, given our current environment and in consideration of the health and safety of our shareholders, team members and the border community -- and the broader community as well as restrictions on mass gatherings implemented by the government of Ontario, we have resorted to limiting access to today's meeting and having the meeting broadcasted by way of webcast and conference call instead. Other than select members of management, there are no shareholders or proxy holders physically present at the meeting today. For those shareholders, listening to this broadcast by way of the webcast or conference call, you need not take any action during the formal part of today's meeting, and we wish to thank you for submitting your proxies in advance of today's meeting. Your votes will be recorded as you have instructed. And again, you need not take any action during the formal part of the meeting. I am pleased to advise that Profound Medical received proxies representing over 50% of our outstanding shares and that the proxies voted overwhelmingly in favor of all resolutions to be considered today. While shareholders listening to this broadcast will not be able to participate during the formal part of today's meeting, we will be able to ask -- to address questions after the formal part concludes. That said, to facilitate the timing completion of the formal business, arrangements have been made with those management shareholders physically present today to move and second the resolutions to be considered. I will call on such shareholders at the appropriate time. We look forward to returning to our regular meeting format next year and with appropriate -- appreciate your understanding. In accordance with the bylaws of Profound Medical, Aaron Davidson, Chief Financial Officer and SVP of Corporate Development, will act as the Secretary for today's meeting. And I appoint Rashed Dewan to act as the Scrutineer. The notice calling this meeting, the information circular and a form of proxy were mailed to all registered shareholders on record as of April 13, 2020. The declaration of mailing is available for inspection by any shareholder. I have been advised by the Scrutineer that quorum has been met for the meeting. The Scrutineer's report is available for inspection by any shareholder. With that said, I declare this meeting regularly called and properly constituted for the transaction of business. All votes today will be conducted by way of show of hands, and I remind those shareholders listening to this broadcast, you need not take any action during this formal part of the meeting. I will now proceed with the formal business of the meeting. The first item of business is the presentation of 2019 audited financial statements of Profound Medical and the auditors' report thereof. The financial statements are available on our website and SEDAR. The next item of business is the appointment of the auditor of Profound Medical. Mr. Tinaz, may I have a motion for such business?

Mr. Chair, I move that PricewaterhouseCoopers LLP be appointed as the auditor of Profound Medical to hold office until the close of the next annual meeting or until its successor is duly appointed as such remuneration as may be determined by the Board of Directors.

Thank you, Levant. Mr. Burtnyk, would you please second the motion?

Mr. Chair, I second the motion.

Thank you, Mr. Burtnyk. Any discussion? All those in favor of this resolution, please signify by raising your hand. [Voting]

Contrary. I declare the motion carried. The next item of business is the election of directors of Profound Medical. Profound Medical has nominated 7 directors for election and did not receive any other nominations from shareholders in accordance with our bylaws. Accordingly, Mr. Tinaz, would you please nominate Profound Medical's Director nominations?

Mr. Chair, I nominate the following: Arun Menawat, Brian Ellacott, Steve Forte, Kenneth Galbraith, Linda Maxwell, Jean-Francois Pariseau and Arthur Rosenthal.

Thank you, Mr. Tinaz. May I have a motion to elect those nominated?

Mr. Chair, I move that the Corporation's director nominees be elected as directors of Profound Medical to hold office until the close of the next annual meeting or until their successors are elected or appointed.

Thank you, Levant. Mr. Burtnyk, would you please second the motion?

Mr. Chair, I second the motion.

Thank you, Mr. Burtnyk. I have been advised by the scrutineer that based on the proxies received in advance of this meeting, each director nominated has received at least 99.9% of the total votes in favor of their election. Accordingly, for purposes of today's meeting, we will forgo individual director voting and proceed with a vote on all director nominees. Is there any discussion? All those in favor of this resolution, please signify by raising your hand. [Voting]

Contrary. I declare the motion carried. The last item of business is the approval of the new long-term incentive plan of Profound Medical. Mr. Tinaz, may I please have a motion for such business?

Mr. Chair, I move that the resolution set forth as Appendix C of the information circular be approved.

Thank you, Levant. Mr. Burtnyk, would you please second the motion?

Mr. Chair, I second the motion.

Thank you, Mr. Burtnyk. Any discussion? All those in favor of this resolution, please signify by raising your hand. [Voting]

Contrary. I declare the motion carried. This now concludes the formal business of this meeting. I know that we all look forward to talking to you next year when we intend to return to holding our Annual Meeting in person. I declare the formal part of the meeting terminated, and thank you all for attending. Now that the formalities are completed, I would like to present to you a quick formal corporate presentation of Profound Medical, following which I would like to ask for questions, and we will address questions. Steve, I'm going to move to the corporate presentation of the company. Dear shareholders. So this presentation that I'm about to present to you was updated yesterday. And the primary information that is new in this presentation includes 2 year -- a few snippets of 2-year TACT data. And I'm going to focus on 2 things: the 2-year TACT data and the positioning of our product in the marketplace. So starting with Page 2 and 3, we do have forward-looking statements. All of our filings are certainly on SEDAR. There is a new addition related to COVID-19, and we invite every shareholder to indeed review all of the documents as they make any prior decisions regarding Profound. Let's start the corporate presentation with Page 5. We've talked about this before. As men get older, prostates either become larger, which causes the disease BPH or prostates get cancerous and the cancer needs to be eliminated. If we focus on the U.S., it's about 200,000 patients a year that get prostate cancer. If you look at BPH, it's a larger population, about 10 million men have BPH. But if we only focus on those who have severe cases, based upon CMS data, about 300,000 receive surgical procedures every year. So if we add the non-CMS information, that would be about 400,000 procedure. So we look at, on average, U.S. market to be about 600,000 procedures in all. And the issue with current procedures is that you are either removing that whole prostate or you're killing it in place. And as you do so, you're affecting the urination process, you're affecting the rectum, the fecal matter process or -- and you're affecting the nerve bundles. And that -- all those cause incontinence and erectile dysfunction. And so there have been a number of attempts to come up with a better way of treating patients with prostate disease. And the way Profound has chosen to do it, on Page 6, is using this technology, we call TULSA. So what's unique about this technology is that we're able to literally visualize the prostate during the procedure. So effectively, we have 3 things that we do. We use an MR in real time for both imaging and for temperature measurement of the prostate. We insert a catheter or 2 in the center of the prostate that has ultrasound transducers, which are -- allow us to gently heat the prostate to 55 degrees centigrade without any charring or boiling that allows us to very gently kill the tissue. And all of this is done under robotic and software control, which is all closed-loop control so that it's highly precise and is fairly independent. So it is a completely game changing, a different way of effectively killing the prostate in its place. And I'd like to sort of describe each of these 3 major processes. So on Page 7, you can see these MR images are visible. Patients get diagnosed today with using MR images for their prostate disease. In this particular case, in the case of TULSA technology, they're viewing the same image in real time, and they mark the boundaries, the red color boundaries that you see, they effectively mark the boundaries of the prostate or what we call the zone of ablation. What do they want to ablate or kill? It can be the whole prostate. It can be part of the prostate. It's a decision that the physicians -- sorry, urologists typically will make based upon the disease, the severity of the disease, the location of the disease and the diffusion of the disease. The second step where the catheter goes right into the center of the prostate in the Page 8 is where this transducer goes in. And this transducer actually has water flowing through it. So we do not affect the normal urination process or the anatomy of the patient. We also have a cooling device in the rectal cavity, which also keeps the rectum safe and normal in temperature, which means it is also not affected. And the transducers are right on the catheter that is inside the prostate, and it simply allows the software to gently emit the appropriate sound, which comes out in the form of a blade, and it allows pretty much automated gentle heating to kill the prostate and the software uses the boundaries that are defined by the physician in the first step. And then on Page 9, you see the final step. So the surgeon literally sitting in the MR suite, which is a nonsterile comfortable place to sit in front of the MR console and the TULSA-PRO console. They are -- once they -- the planning is complete, the catheters are in place, they simply initiate the treatment process. The software takes over. It provides continuous real-time guidance on the thermal maps of the prostate, the yellow color that you see reflects the 55-degree temperature range, which indicates to the urologist that, that tissue is dead or dying. And if something changes or they need to make a change or something, they need to adjust for any reason, they can stop, they can restart immediately, they can adjust the boundaries as they see fit, but most of the time, they're basically watching the screen and they're in a regular office sitting environment, they can be literally be drinking coffee or other things while the treatment is actually going on. So it's a -- number one, it's game changing. Number two, you can see the workflow here. The MR is used for the purpose of diagnosing the patient. The MR images are used for the purpose of biopsying the patient to make the final diagnosis. It's used to determine the special region where the prostate cancer happens to be. And then now we're bringing this technology that allows them to treat the patient doing the -- with our TULSA-PRO technology. And then they can do follow-ups and all these images can become one continuum that can be managed all together. And this is -- much, much better decisions can be made in terms of the patient pop. Now we are a full treatment. And so obviously, we did a large clinical trial. Page 10. We treated 115 patients at 13 sites. And since you are all shareholders, you have seen an earlier version of this page, but today, the new information that we want to share with you is that, as you know, we had outstanding PSA, which was the endpoint results. The average PSA at the end of 1 year was down to 0.53. At the end of 2 years, that PSA remains very much in line with expectations at 0.63. We talked about the fact that about -- as a general rule, it was an 80-20 treatment benefit that we saw from the initial trial. And the new information here is that at the end of 2 years, 7% of the men have needed a second interventional procedure. I am really, really pleased with that number. Normally, you would see higher number of patients needing a secondary treatment. Number of patients will undergo prostatectomy, and then they will follow that with radiation. In our case, half of these patients needed a prostatectomy and the other half of these patients needed radiation. So it is very much not just in line with expectations from our early results. In fact, I think they are better than what we expected. To me, the sign -- a practical sign of efficacy is when you can say to a patient that after TULSA, 2 years later, that 7% risk of maybe needing a secondary procedure, I think that's fantastic. The second thing that we've talked about that also really pleased because of that gentle heating and closed-loop process control technology, our prostates shrink over time. So you've heard me talk about this before, that I think to me, if the prostate disappears effectively, our clinical data shows a 91% reduction in the volume of the prostate, if the prostate disappears over time, and that sort of is now telling us that long-term outcomes should be pretty good. And certainly, the 2-year data is indicated on that. The next Page 11, also talks about the 2-year data on safety and the quality of life measures. So we already had excellent urinary continence information with close to 99% patients who remain continent. And what we are seeing is that after 2 years, not only that they are in good shape, literally, we have 1% patient that have reported more than 1 leak per day. And I think that just speaks to the quality of this procedure. 7% of patients do wear a pad for security and we've learned over time that, that is in the age group that is very common. So it has nothing to do with anything related to TACT. We also have determined that at 2 years, erectile dysfunction continues to get better. So at the end of 12 months, we were at 23%; at the end of 2 years, we're now 17%. Patients still has some grade 2 erectile dysfunction. Again, 0% severe ED, which would not be helpful with medication. So those 17% that do remain, they technically would be responders to medication. So I think that if you look at 2-year data now, I feel pretty confident that the clinical question about the efficacy and the value in terms of the side effect profile of this, those questions have been answered very well. And in our discussions with you, all of this, I think there are generally very few questions that remain unanswered from the perspective, particularly of early adopters. So I want to spend a good bit of my time on Page 12. This is my favorite page as investors do know about it. So questions that people typically will ask, are you guys like HIFU? How do you compare to radiation? How do you compare to prostatectomy? And so on. And I think this slide, in some big ways, answers that question very well. So when we think about HIFU or other technologies that are specialized, we typically talk about what they call focal therapy or partial treatment of -- or partial gland treatment of the prostate. And some people may consider it to be targeted, some may call it focal and so on. When we talk about prostatectomy, you're talking about basically whole gland ablation or whole gland removal. So it's either you have one procedure that removes the whole gland or you have another procedure that is doing partial glands only, so that the surgeon has to make a decision upfront, which one is appropriate for the patient. If they're doing radiation, it is primarily whole gland. Also, there are certain people who can do some form of limited partial gland there. But it is not precise, I mean. Now enter the world of TULSA. In some ways, if you're thinking sort of mathematical terms, this is more of a continuous variable. So we have whole gland therapy, but we can easily do partial gland. They can do patients as a whole gland. We can treat patients who have some portion of the prostate has cancer, but these are patients who also have BPH. So these are what we call hybrid patients who may have some form of cancer, and then they also have urinary tract issues. And we can treat those patients in one sitting, and we can take large glands, large prostates that have severe form of BPH, and we can do a partial ablation of a certain transition zone in the prostate and we can then shrink those prostate down to significantly lower size, which can relieve the BPH symptoms. So we've converted this whole concept. We're going from this idea that you do one for this type of patient, the other treatment for a third type of patient and so on, into this one technology where the surgeon goes in, reviews the image in real time, makes the decision in real time, which directly automatically becomes a precise decision and they can do full whole-gland therapy. They can do full partial gland. They can design the treatment so that if they are doing those hybrid cases with central image, where they can do ablation of the malignant part of the tissue, and they can do ablation of the transition zone to make sure they can cure both of these disease. So this is what's most exciting to me about this. When you're bringing new technologies to market, the first question becomes, well, will the technology work? We certainly know the technology work. The second question becomes, well, do we have multicenter clinical data that proves? Now the 2-year data, we're pretty comfortable with this. The third question asked, people say, well, can this technology become significant so that the physician would want to use it or a patient would want to have this done? And I think from that perspective, the fact that this technology has this flexibility, I think, is becoming one of our biggest, the most salient point in driving adoption. The other points are obviously really important. The fact that this is incision-free, the fact that this is radiation-free, the fact that patients can get this done in a day procedure is certainly very important. But I think the flexibility of this technology is resonating very well with our surgeon community. So Page 13, we've talked about our market entry strategy. I'll go through the rest of these pages relatively quickly for you since you're shareholders and you're aware of most of this information, we continue to do conferences, we're moved to doing video conferences. There is one coming up in another 10 days. I know a few investors have even signed up for it. We have also created a patient website. We think continuing to increase the awareness, both with the urology community as well as with the patient community is totally part of our strategy. We have talked about the 3 channels, the imaging center, which we are off to a great start with 2 imaging centers already operational. The next one, RadNet, which we have already publicly talked about and getting started with them in the very near future and then additional centers in our pipeline. We've talked about the leading urologists who focus on emerging technologies and these leaders gravitating towards TULSA, and we continue to see additional early indicators that, that trend is continuing. We've talked about the importance of having centers of excellence at number of teaching sites, and we expect that we will hear more about them later this year as to which and how many of these sites will be adopting TULSA. Given our early indications both in the U.S. and in Europe, we are continuously moving more and more towards a recurring revenue business model. We have, in fact, not even presented capital model anymore. The utilization at our sites continues to be -- to, in fact, exceed our original expectations. And so recurring revenue model is the best way for our company to go. It not just reduces the barrier to entry, but it also allows us to provide the appropriate support that a new site with a game-changing technology, like ours, really needs to have. Our Profound genius programs are received very well. As I've mentioned to many of you, the first thing that I hear when I visit a urologist or these days through virtual means, the first thing I hear is you have great people. You've great clinical people, you've great salespeople. Even our technical people from engineering and -- are directly in touch with our customers, and we think that serving them from multiple angles is the best way for us to go. So on Page 14, we presented this strategy that imaging center is one place where we can place a single system, multiple urologists who are referring physicians. Those relationships already exist, are able to then bring their patients to the imaging center, and thereby, we can service them better. There is a radiologist on-site, there are radio technologies on-site, anesthesiology can be very well in place in many, many cases. Or if they do need to start a new anesthesia program, they just have one center and it can all be set up with the appropriate hardware and so on. That concept, so far, has been -- certainly been meeting our expectation. The things that we had anticipated in the fall/winter last year, I think, are coming together very nicely for us. And then the excellence center, certainly, you will see the sites that are part of the tech sites adopting the technology's commercial use, but you will most certainly, shortly see those who were not part of the clinical trials also adopting the TULSA technology. As I mentioned, we -- on Page 16, we did initiate our patient website, that was our goal for the early part of the second quarter, and it has been received very well. Patients seem to have given us very positive feedback. And Page 17, just the fact that even though we are only in a few centers in Europe and only a couple of centers in U.S., I think that technologies that get adopted are really accepted by patients and the urologists and/or any of the delivery physician in the end. And I think some of the comments that we are reading from the -- these are totally unsolicited, completely independent comment about fairly low in pain. The fact that there is a desire to be able to use this technology in a variety of patients from GI-7 to even higher patients. The fact that they can be used -- using this technology for BPH patients, I think it is confirming that very quickly the value proposition that we set out to do. And so we're pretty pleased with that progress at the moment. And then on Page 18, the reimbursement status, we talked about the fact that there is -- there are certain reimbursement codes that are C-Code and there are certain other codes that a couple of hospitals have indicated that they would like to review before we ask CMS to provide a new code. CMS has given us the time to get that assessment done with the hospitals. And I think that as we make progress on a quarterly basis, we will certainly continue to update you on this. We think that if the existing codes do get accepted, then certainly, the process will move forward at a faster pace. If they do not get accepted, we have, at this point, given our conversation with CMS reasonably good indication that we will be able to get a new code, if that is the right next step to do, which is, again, different from the message that I presented to you last winter, when we had just filed because I was feeling that we had pushed the pedal pretty quickly and maybe the CMS might ask us to wait. I think the fact that there is a lot of dialogue in multiple circles among hospitals and ASPs and CMS, I think that bodes well for the potential. And then finally, we do have Sonalleve as a good product. I think Page 20, the -- is just one page. I wanted to brief you. It is not only revenue generating in 2020, but I think the pipeline and the development looks quite promising. I think it can become a long-term pipeline for Profound. I think in the near term or at least for the next couple of 3 years, TULSA should be a great revenue driver for us. But I think over the long term, Sonalleve, again, ultimately, with the recurring revenue model and certain diseases that can be -- where we can indeed have game-changing benefit to the patient. It's what we're working on. And I think by end of the year, we will be prepared to discuss further details on that strategy. And finally, on Page 21. As I said at the -- in the middle of this presentation, one of the things that I mentioned, I hear constantly is the value, how much our patients and our urology community and our health care community appreciate our employee. I think the culture of our company is very cooperative. I think people work across the lines to focus on results. We have a very strong results-oriented set of goals internally that pretty much every employee has. We have frequent updates in those to adjust ourselves as we need to in the start-up mode. And I can tell you, I'm very, very proud of this team, and I believe this team has significant potential. So with that, I will close the formal corporate presentation, and I'd like to ask Steve to please verbalize any questions that shareholders might have asked, and so we can respond to that.

Thanks, Arun. At this point, there are no questions. If you do have a question, please use the instant messaging function on the webcast, and we'll just wait a couple of seconds here to see if anything comes through. Arun, there doesn't appear to be any questions. So perhaps, if some people do want to reach out, we're in the office and happy to talk them in.

Excellent. Thank you so much. Thank you, everyone. Thank you for the team that was available today. And we look forward to the next AGM next year, but hopefully, face to face. Thank you. Bye-bye

This concludes today's conference and webcast. You may disconnect your lines at this time, and we thank you for your participation.