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

Good morning. My name is Josh Jennings from the medical devices team here at Cowen, representing Ianin Kennedy, Neil Chatterji and Eric Anderson. We're going to start off the medical devices track on day 4 of the 41st Annual Cowen Healthcare Conference with the Chairman and CEO of Profound Medical, Arun Menawat. Arun, thanks so much for joining the conference again this year, and it's great to see you virtually.

Thank you so much, Josh. It's great to be here.

Well so, the TULSA-PRO is in launch mode now. I mean, with many other launches across the med tech sector, the pandemic has caused some headwinds, and those headwinds hopefully will be temporary and not last too much longer. But a disruptive technology in the urology field, treat prostate cancer and BPH. And maybe we could just start on just learning a little bit more about some of the challenges that Profound is facing during the pandemic during this launch. I mean, for us, as a research team, we've thought about 20 -- launches in 2020 being stub launches. There's a lot of work and foundational work, introductions of the technology that have been done. And you just pushed that launch out to 2021. And when you think about the launch trajectory, it could be even stronger once the environment normalizes. But just wanted to hear about some of the challenges and then how you feel kind of the sales funnel has evolved, despite the pandemic being in play.

Josh, thank you. Yes. It's -- the first patient that we treated commercially was in January 2020. So you're absolutely right. Our initiation into the U.S. market, we started with headwinds from COVID very, very quickly. But I do feel actually pretty good overall because our market entry strategy was pretty comprehensive, and we focused on early adopter channels, as you know. And the early adopter channel just continue to work and continue to do more cases than we anticipated. We saw nothing. And in some ways, it sort of energized us because, in spite of the pandemic, it worked. So it kind of showed the potential of what's possible. The second channel, with respect to imaging centers, with the exception of the large one, which was the RadNet, where they really were affected in Los Angeles area quite a bit. The smaller imaging centers continue to work also, and patients did not have difficulty going to these centers because they're standalone units. There is no incision, and there's no big hospital traffic and so on. And these are private centers, so they didn't have those restrictions. And so that channel worked also well for us. But the second half of the year, we really began to focus more on the hospitals because it was part of our long-term strategy to be able to really garner the support of the teaching hospitals. And we got Mayo Clinic and we got the University of Texas and we got installs at Johns Hopkins and now UCLA. And -- but I think we did have a number of contracts that got delayed during that time. And most certainly, start-ups at places like Yale and WellSpan got delayed because of this. So the hospital end really did get affected by it. And it was also interesting to find out it wasn't that anybody didn't want to do this. They all -- the bottlenecks were in different places in different hospitals. And so I think, all in all, we feel that, as you said, I think, as the pandemic issues begin to dissipate, I think the hospital channel will come back, and I think we'll do well there.

Excellent. Now that makes a lot of sense. Can you just talk about, share any high level or as detailed as you want to go, but just about the kind of that sales funnel? Being able to introduce TULSA-PRO to -- within all 3 of those channels, clearly, the pandemic delays decisions, but even getting those introductory meetings, introducing the technology, having them digest the data and the value proposition. Where do you stand now in the early days of 2021 versus where you stood in 2020? Clearly, there's advancements, but just want to hear about that process.

Yes. So I think that you're right. Without giving specific numbers, our pipeline is certainly stronger than what it was in the winter last year or the last -- Q4 last year. It continues to increase? I think that what you will see in 2021 is a number of leading hospitals will adopt this technology. And again, the questions that you, as analysts, are asking or our investors are asking, and us as management are asking, are actually the same, right? We're looking to figure out how long would it take to drive adoption, how big the adoption can be. And I think that -- the fact that the teaching hospitals are gravitating to this new disruptive technology is, it's -- early on, it does give us some confidence and bodes well for us. One of the things that we adopted very well and our customers adopted very well is the meetings have basically been virtual. And so from the perspective of continuing to increase awareness with the urology community, that has not stopped. In fact, it actually is more productive because we can bring our clinical people, marketing people, all of us together in one meeting. And they can have 3 or 4 people from their end in 1 meeting. And within 2 hours, we can go over all of the things. And normally, the last thing we hear at the meeting -- at the end of the meeting is, "Yes, this looks interesting. It may take us some time through the pandemic, but let's keep moving forward." So I do anticipate that we will have more installs in 2021 as compared to 2020.

Excellent. And just as you guys transitioned, as most companies do not want to transition, but pivoted to a per click or per procedure revenue model -- sales model, I mean, how is that resonating with these centers that you're making these product introduction or technology introduction meetings with or having technology introduction meetings with?

So I think, Josh, this is a very subtle, but a very important difference. We really see ourselves as providing a service, and the disposables is just part of that service. And so our offering is not such that we don't say to them that here is a device -- medical device, and this is the cost of our disposable. And by the way, we do a lot of clinical support. We start by saying that we don't make money until you make money. That's our motto, that's our first tagline. And that builds instant credibility and partnership in the real sense when they hear that we are really committed with them. And then we have -- we continue to -- our services called Profound Genius Services, and it has a number of pillars that support those services. And among those pillars are, we have a strong marketing program, where we help with recruitment of patients. We have a strong program where we sort of upfront sit down with them and talk about how we will start the practice, what type of patients we will do first, how we will grow the type of patients they can do, not only how we'll grow those, but how we will increase their -- the variety of patients, and get them to the productivity that we expect to deliver. So we have people who continuously watch the workflow. We do control meetings where we retrospectively go back to the first 10 patient experience and we discuss what are the differences that have -- that need to be changed to get to the goals that we have set up. So our conversation is rarely about here's a device. It's really about how do we make you a productive user of our technology. And on the technology side, having this service is so important because one of the commitments we make to them is that we are early-stage company. And thereby, we anticipate that our software will have new features and benefits to them. Our hardware will, over time, also have productivity-based improvements, and that we will keep the site up to speed as a result of this. And so they know that we are a full-service organization that gives them everything that they need to provide productivity. And might as well add one more line. I mean, we have not a whole lot of sites, but every site that we have operational in United States has done more cases than what we expected. So it wasn't just 1 or 2. Every site has done more cases than we expected. And every site, whether it's new or older, 1 year older, is looking to do more cases in the future, right? So I think that is a really big differentiator for our company.

I think you -- I was going to lead in, you just -- I think you beat me to the punch there by just talking about the utilization levels in the pandemic, particularly at the entrepreneurial urologic kind of early adopter sites. It sounds like Profound's efforts, all those other things you just described in terms of helping centers become more productive are -- all of that work is bearing fruit. But maybe you could just help us understand, there was a little bit more detail if there is just to bound that acceleration and utilization and the outperformance relative to, I think, you initially thought that there'd be 40 -- on average, 40 cases per year per site, and that's gone up a lot based on your early experience, and so that's meaningful. But anyway, any further details you can provide on what's driving that acceleration on utilization at the early adopter sites?

Yes. Josh, I'm very happy to. So a urologist typically, their mindset is, "Okay, this patient has Gleason 7 or higher disease. I need to take the prostate out." Now for the first time, they can actually see the images live. And so it is an eye-opening experience as they get involved in this because the initial reaction is, "Okay. Well, I can see the boundaries of the prostate. I need to do whole gland. I'm going to do the boundaries and that's the end of that." Well, now they're saying, "Well, I can see the ejaculatory ducts. I know where the nerve bundles are. I know there is no cancer in that region." So what happens is that once they get involved and get to feel more comfortable, and as I said before, the presence of our team, scientists from our company makes a huge difference to them in terms of giving them the support and understanding of those images. So what happens is that now their mindset goes from, "Okay. I can just kill the whole prostate" to "I can actually talk to the patient and say I can give you a choices. I can be really conservative and only kill a small region, which is the cancerous region" or "I can kill a larger portion and -- that reduces the risk for you in the future." And what's amazing is that the number of patients that are urologists are seeing who have both cancer in a confined region of prostate and have BPH also. And so those hybrid patients, they don't have the choices that any other technology are going to give to them. And you're going to see a publication on that later this year, in fact. And so I think that ability to be able to have that dialogue with the patient and thereby customize the treatment and then not only be able to do intermediate risk, but higher risk, and be able to save their vital functions that are important, that's what's driving this.

Excellent. You did kind of hook me with the publication statement there. Any further details you can share about what that -- the setup of that investigation? And what we'll learn on the -- during the publication?

Sure. So Josh, we are most certainly very committed to strong clinical efforts, and I think you will see publications, at least 3 publications coming out this year. One of them is indeed focused on real-world experience and these type of hybrid cases. It should be coming out in the next 2, 3 months or so. I think you will continue to see additional publications that will demonstrate the breadth of this technology. And then you will see us -- TACT 2, as you already know, is recruiting again, so that we will have majority of patients will be U.S. patients. It's doing very well in recruiting. And then you will see us announce level 1 studies in prostate cancer and, ultimately, also in BPH.

That's actually -- we've been impressed with your team's commitment to build out the clinical evidence library and the -- just the evidence behind TULSA-PRO. And the TACT 2 12-month data was recently published. I think in the March version of The Urology Journal -- major urology journal. Is -- how impactful could that be? As -- I mean, have some centers been waiting for -- I mean, anytime you have a publication, peer-reviewed journal, it's a big deal. But you've created this demand already. But I mean, how big of an impact could the publication have in your hands as you're going around marketing the technology and then looking for new adopters?

I think, certainly, for -- when we get to mass adoption, it will have an impact, no doubt about it. I think having significant body of evidence. And it's not just that TACT trial, but also real-world experience also because once we get to mass adoption, it's kind of a check box to say, "Okay. Do you have enough clinical data? Do you have support of the societies and so on." But it also becomes the mass adopters are always saying, "Well, okay, now I see that, but what's the real-world group telling us? What are they doing? And -- because that's what I'm going to be doing." So yes, absolutely, that will be part of it. I think, a year ago, when we started, most certainly, the majority of the conversation was show me your clinical data. And there always was also a little bit of a bias that people started with, and the bias was, "Well, you're an ablative technology, so more than likely, you're about focal therapy." And we did have to spend some time helping them understand that this is an entirely different implementation of ablation and that whole gland therapy is, in fact, where we lead from. And that, certainly, we can do focal therapy, but it's about customizing. And whole gland is a fixed part for us. So I think that is actually already starting to become secondary. I think a lot of them are convinced that the technology works. And I think, as the teaching hospitals begin to adopt, I think that part will continue to become accepted.

Excellent, excellent. I wanted to move back. We're talking about some of the utilization rates that had accelerated in the early adopter urologic practices, and I wanted to ask a couple of questions on the medical imaging center channel. And I guess, the first one is just the relationship with RadNet. The first center is up and running. Can you remind us of just when the -- I think there are 2 more that will come on board in 2021 potentially. And any potential for announcements of continued adoption within the RadNet network?

So RadNet is now fully engaged. I think being in Los Angeles and the large organization, they really went through a period where they really needed to focus on their short term. It was very understandable, and they never -- they've never shied away from the commitment that they've made. And the first center is now operational, and I continue to see continuous commitment from their marketing team, their clinical team. So I think that, certainly, later, you will see additional sites from RadNet coming on stream.

Excellent, excellent. And then just a follow-up, I'm trying to digest a recent publication in JAMA Oncology just about population-based prostate cancer screening with MRI. And there are some positive implications that MRI screening was just as good as PSA. Just thinking about if there are more screenings, there's already MRI-based biopsy-ing for prostate cancer, I mean, does this kind of increase the kind of partnership or relationship between urologic practices and imaging centers and then potentially catalyze more demand from that channel for TULSA-PRO?

Yes. I absolutely think so, Josh. I think that the -- this is one of the places where the imaging centers all get it also, that -- and the MR companies get it. And there's an analogy here with breast cancer that there is screening that takes place in breast cancer. And if you recall, artificial intelligence was first implemented in breast cancer. And I think you will see from MR companies and some of the leading hospitals that are working on artificial intelligence software to be able to use MR images to improve the diagnosis. I think that is likely to happen, and I think that the demography obviously is in favor that the number of prostate cancer continues to increase as the population increases or ages. So the MR companies get it. The imaging companies get it. And most certainly, the fact that we can treat using MR, I think, fulfills that whole workflow from beginning to the end. And that is, in fact, one of the things we talk about with every imaging center company because the imaging centers are looking at this and saying, "I'll make money on TULSA. But the reality is, I'm going to make money on diagnosing that patient. I'm going to make money when they're doing biopsy. I'm going to make money on the TULSA. And I'm going to make money on post follow-up MRs as well." So they look at this say, "Well, there's this workflow, and there is a pretty strong workflow-based business model for them." So I have -- I'm quite actually excited about that long term. I mean, to be very honest, that will completely turn the prostate care on its head because, today, what we do is we delay treatment, right? Everybody has anxiety. And quite frankly, I know urologists or radiologists who have prostate cancer who are nervous because they are on active surveillance. So these are the most knowledgeable people who are nervous. They're on active surveillance and checking routinely. And so if we can start using MR and we have this flexibility to be able to treat patients early, that whole thing will go from delay all the patients to let's treat them before it becomes very big. And I think that would be an amazing change.

Thanks for helping me sort through that. Thinking about academics, this academic center channel and the increasing demand, as you mentioned, in the back half of last year. I was just hoping to understand more. I mean, are you marketing TULSA-PRO to the combined team of the urologists at the academic centers as well as the radiologists? And how does that all work? Can they -- I mean, I imagine that with being in an academic center, you have the imaging and you have the urologists right there. And the other 2 channels, there's a little bit of incremental work to align the imaging centers and the urology practices. But just wanted to hear about that channel and then how you're marketing it there. Clearly, you're having success.

Yes. We are -- we request a whole group. We request groups, urology and radiology joined our meetings. And the radiologists actually get excited very, very quickly because they can certainly see that imaging can help. And they -- the urologists now get very excited very quickly also. In the beginning, one of the questions the urologists were asking is, "Well, okay, I'm not an expert in reading MR images. So if you're asking me to do something with the MR, how does -- what training do I need to get to do this?" And the answer actually is very simple. We're not asking them to become diagnosticians. We're not asking them to take the place of the radiologist. The radiologist is pretty good at diagnosing the -- using MR images. Thank you very much. Keep doing that. But the urologist, all they are really looking to do is find the boundaries of the prostate. And so one of the things we said to them is, "Okay. Can you see the prostate?" "Of course, I can see it." "Can you see the boundaries?" "Yes." "Do you know what -- from the biopsies which zone you think is the risk zone where the cancer is?" "Yes." Well, that's really all they really need to do. So once they got understanding that they're not really the diagnostician, they're still the treatment people, they're treating the patient. And so that got them over very, very quickly. And so I'm actually quite impressed particularly in the academic sites where the groups are working very well together.

Excellent. Reimbursement, you guys are making progress there. The clinical development will help. I think you've laid this out nicely on your earnings call just about the path there. There have been some questions as well on the earnings call about just a pre-existing code that's in place for MRI imaging plus treatment. And there's been some early success in hospitals getting or centers getting reimbursed and, I believe, hospitals. But correct me if I'm wrong, if the urologic practices can do so as well or if it is the academic center channel that's using these currently in place reimbursement codes and then having success, any further details you can share? I know you went through this on the earnings call, but I just want to help understand a little bit more.

Well, I think -- Josh, I think the only new thing I would add is that we are most certainly satisfied with where we are. We're most certainly comfortable with the strategy. We believe it is working. The only reason I have -- we have been sort of very nondetail or sort of opaque is because the whole nature of reimbursement is an opaque process. And so we've worked really hard last year to talk to a number of consultants because we wanted to make sure that we do the right thing, and I think that hard work is paying off. There's no doubt that it is paying off, that our hospitals are very happy with the support they're getting on the reimbursement side. And so I think my message really is that there is a reason why we're being opaque because that is what the process is. But I don't think, at the moment, that we're concerned about any issue.

Great. I appreciate that. I wanted to take a couple of minutes here and talk about the BPH opportunity because the TULSA-PRO offers a unique treatment modality for BPH patients. There's clearly a massive reduction in prostate volume when you're treating prostate cancer patients with TULSA-PRO, and there's been success when you're treating BPH patients as well. The low-hanging fruit is our understanding is the very oversized prostates that potentially will have to have open prostatectomy. But can you just talk about your vision for the BPH indication from that -- going from that kind of very large oversized prostates and down? And how you -- where does TULSA-PRO ultimately sit in the kind of the treatment paradigm for BPH?

Yes. So Josh, first of all, you're absolutely right. Our focus is on those cases where the prostates are so large, that these patients are -- can only be treated through surgical intervention. So comparing our intervention to a surgical intervention, we are always favored, and that segment is about 400,000 to 500,000 patients. And it's actually twice as big as prostate, so I think it is a pretty good opportunity for us, and that's where we will focus our clinical efforts on at the moment. But yes, we are starting to see patients asking the question. First thing we hear is, "Well, these interventions are 15 minutes, 20 minutes, 30 minutes, go to the office and you get it done and your results are instantaneous." But number of patients that we're talking to are saying, "This is a lifelong disease for me. If you can shrink my prostate down and you can talk to me about the durability and the potential that, hey, if my prostate has gone, I'm not going to worry as much about other disease risk and so on, do I want to be able to spend 4 hours instead of half hour to take care of that durability." I think a lot of people are sort of saying that seems like a very interesting proposition. So -- and I'm actually quite impressed with a number of people who have said that to us. So where we're going in the long term, I'm not looking to make any projection at the moment. But I think that this is not a disease that says your equivalent outcomes from 30 minutes versus 4 hours. I think you have a disease where people want to be able to save their ejaculatory ducts. People want to be able to shrink that prostate and really have fantastic results. They want to be confident that they won't have incontinence. We serve all of that for them.

Excellent. Just one last question, running up into the half hour here. Just you mentioned earlier about just innovation of the TULSA-PRO system. I think, from a high level, you talk about procedural efficiency. Anything else you can share about where the TULSA-PRO system can evolve to and then when you may make some announcements to investors about progress on those pipeline developments?

Absolutely. We -- I mean, you guys know me well from my past. Innovation is a key part of what we do, we will continue to do. One of the new feature we just introduced in Europe, and we'll bring to U.S. later in the year is what we call thermal boost, which is that if there is a prostate where the cancer has gone a millimeter or 2 into the muscle of the tissue, the urologist will now be able to include that into our treatment process. And so by doing so, they can expand into some of those patients that are higher risk patients, and they can have confidence that the margins will also be ablated properly. So you will continue to see those kinds of developments from us.

Outstanding. I think that's a great place to stop. I think we're right on time with the end of the half hour here, Arun. Pleasure to catch up with you. Thanks so much for taking the time, and I really enjoy having you at the Cowen Healthcare Conference.

Thank you so much, Josh. And we look forward to seeing you soon.