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

Good morning to 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 am 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. Brian Ellacott, Ken Galbraith, Cynthia Lavoie, Murielle Lortie, Jean-Francois Pariseau and Arthur Rosenthal. Some members of our management team are also present today, and I would like to introduce them to you as well. Aaron Davidson and Rashed Dewan. These are unprecedented times. Given our current environment and in consideration of the health and safety of our shareholders, team members 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 broadcast 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 the 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'm pleased to advise that Profound Medical received proxies representing 58% of our outstanding shares. Shareholders listening to this broadcast will not be able to participate during the formal part of today's meeting. However, you will be able to ask questions after the formal part concludes if you're joining telephonically. In addition, management will make a short presentation following questions, if any. In order to view the slides that will be referred to, you will need to sign to log into the webcast URL, which was included in the proxy materials. That said, to facilitate the timely 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 appreciate your understanding. In accordance with the bylaws of Profound Medical, Aaron Davidson, Chief Financial Officer and Senior Vice President of Corporate Development, will act as the secretary for today's meeting, and I appoint [ Rosa Garofalo ] 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 9, 2021. The declaration of mailing is available for inspection by any shareholder. I've been advised by the secretary 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 2020 audited financial statements of Profound Medical and the auditor's report thereon. The financial statements are available on our website. No action need to be taken by shareholders with respect to such statements. The next item of business is the appointment of auditor of -- appointment of the auditors 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 at 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? [Voting]

I declare the motion carried. The next item of business is the election of the 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, Kenneth Galbraith, Cynthia Lavoie, Murielle Lortie and 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 secretary that based on the proxies received in advance of this meeting, each director nominee has received at least 97% or greater 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 for -- on all director nominees. Is there any discussion? All those in favor of this resolution, please signify by raising your hand. [Voting]

Contrary? [Voting]

I declare the motion carried. That 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'm happy to take and respond to any questions from either registered shareholders or proxy holders. [Operator Instructions] Steve, if we have not received any questions and if there are no more questions, I would like to now switch and present to you the corporate status of Profound Medical.

Arun, there are no questions.

Thank you. Steve, to be listening to the corporate presentation, the listeners need to be on the webcast. And assuming all that is in place, I'm going to go ahead and get started.

Yes, that's right. They can listen to it on the phone, but they won't be able to view the slides unless they're on the webcast.

Okay. Perfect. I'd like to go ahead and start. So we introduced TULSA to the U.S. market about a year ago. And though it was a difficult year for game-changing, new technologies to get attention during a pandemic, we believe overall our market entry strategies are working. And over the last few days, we've had an opportunity to talk about our business strategies with many investors. Today, I want to talk about the capability of TULSA to address the questions that pertain more to the potential of our technology. This question relates to how big the potential TULSA opportunity can be and why a patient or a surgeon might get more interested in TULSA as compared to any other technology, commercial or on the horizon, today. But before I start, I certainly would like to encourage every listener to our forward -- to read our forward-looking statements and certainly review all of our documents on SEDAR. Now Steve, I'd like to start on Page 5. The 2 technologies that are used mostly today for prostate cancer or prostate disease are robotic prostatectomies and radiation. Both technologies were game changing when they were introduced. When we look at the direction of their evolution, what we see is that robotics increasingly is about imaging and looking to reduce the number of incisions, and radiation is also moving towards imaging to increase the precision and reduce the number of treatment sessions since radiation is generally difficult to control and does not discriminate between healthy or unhealthy tissue. Well, TULSA is foundationally about imaging and the best soft tissue imaging technology, the MRI, where we can see details, and TULSA uses heat to impart the kill effect, which is one of the safest way to do so to avoid any long-term effect on healthy tissue. And these 2 technologies, coupled with advanced software-controlled robotics, gives us the capability to precisely deliver treatment where it is needed and spare vital parts where that is important. So on Page 6, you're used to hearing me talk about this, that the current technologies are either removing the prostate, if you look at that anatomy, or they are effectively killing the whole prostate. And you can see the image towards our left hand here that the nerve bundles to the congestion, the urinary pathways, they're all influenced and attached to the prostate. And no one really talks about the inside of the prostate, which is quite intricate, the schematic on the right. And you can see the prostate has multiple zones: the peripheral zone, the transition zone, the central zone. It has ejaculation coming into the prostate where it merges with the urethral pathway and then it relates to going out. It has what they call sphincter muscles, which are -- which control the urination and obviously continence of a person. And so for the first time, we can actually talk about what's inside because we think that we can, through our technology, in fact, manage to keep the vital parts intact and ablate the parts or kill the parts that are unhealthy or cancerous. And for the last 2, 3 years, you've seen my -- on Page 7, we have talked about the fact that we can do whole-gland therapy. That is what our original technology was designed to do. But then through our European experience, we learned that we could also treat really a recurrent cancer patient, and we could do all kinds of partial gland therapies for patients. And thereby, we've talked about the flexibility of our technology. Today, I want to actually go to the next level and talk about using some example patients from the U.S. since we've introduced the product about a year ago and talk about what data and what are these vital [indiscernible] and what exactly has been done in the U.S. So Page 8. Just very quickly, our technology is imparted at an imaging center, whether it's a hospital base center or it's an independent imaging center. It is typically an outpatient procedure. We have physicians who are using general anesthesia. But more interestingly, we've also done close to 100 cases where they've been doing sedate -- conscious sedations. So no longer need to do a full anesthesia, but conscious sedation of some form is sufficient to be able to use our technology. And we do need catheterization, which is either suprapubic so that the urinary pathway can be completely safe during the recovery phase, or, in majority of the cases, it's a Foley which is in there for maybe anywhere from 2 to 10 days. But that itself is overall relatively simple. There's no incision in any of that. And the typical feedback that we get is that the patients tend to have more consciousness of or grogginess from the anesthesia or have more consciousness about the catheter that is stuck in them but really don't feel any pain from the procedure itself, the TULSA itself. So let's start with some of the case studies on Page 9. So this is one of the earlier cases that was done in the United States. It's whole-gland therapy, and you can see the uniqueness of the dialogue. In this case, this is a Dr. Scionti case where you draw a picture for the patient, and he showed the patient how there is a pretty severe cancer in one part of the prostate and that he really would not be able to save the nerve bundles in that region. But at the same time, he wanted to save the nerve bundles on the other side of this patient. And what -- the theory is that if he could save the nerve bundles on one side of the patient prostate, the chances are they will maintain their erectile function. And if you look at the inset image, what you will find a yellow color is the amount of thermal energy or heat that we have provided to provide the kill. But if you look carefully to follow the red arrows, you will find that he, on purpose, went beyond the prostate to make sure that beside that half a tumor is completely -- has enough energy to create the kill. But the other side, you can see that blue color. The blue color represents the patient's body temperature. He was able to keep that blue and maintain that nerve bundle in that region. So you can see vividly how precisely and how much he can customize. So he was able to save the nerve bundles of this patient on one side, thereby maintain the erectile function. He was able to create a phenomenal kill in the side that has the tumor, and he was able to preserve the bladder neck also to preserve and maintain the continence of this patient. And so you can see the design of the treatment. You can see the precision and the direct impact that he can have from the design that they create. Page 10 is another very interesting example. This one comes from RadNet, from Dr. Princenthal at RadNet. As most of you know, they just started in March. And this is, again, a high-grade prostate cancer patient. Technically, this is a Gleason 9 patient, technically considered a high-risk patient. And they -- you can see the prostate cancer in the blue on the top left. They have highlighted the cancers in the lateral corners. You can see in the center bottom with the magenta color their ejaculatory ducts. The patient wanted to save his ejaculatory ducts. And you can see on the right side, the median lobe of this prostate is really protruding down to really impact, sort of imparting on the rectal cavity recovery, which is underneath. So again, I'm sharing the intricate detail, but the whole idea is you can see that the physician was able to design the treatment so they could obliterate the cancerous region, save the ejaculatory ducts and kill the protruding median lobe of this patient. If you look at the black-and-white images at the bottom row, the dark colors in the -- that you see inside the prostate that are surrounded by the light colors. You can see the dark colors immediately at the end of the procedure shows the kill. So the physician not only was able to save what he wanted to save, kill what was needed to be killed, but, before they finished, was completely confident that the tumor was dark and completely obliterated and the nerve bundles that needed to be saved -- I'm sorry, the ejaculatory duct that needed to be saved were safe and that the protruding median lobe had also been killed. This is another example where a -- this is a case where the seminal vesicles -- if you -- the seminal vesicles is where all the ejaculatory fluids and so on flow through the testicle parts of the body. And this is a patient where the seminal vesicles, the physician believes, has been affected by cancer. And he was able to, in fact, go to those seminal vesicles to literally design the treatment to be able to include the vesicles and thereby ablate that prostate as well and the whole prostate in the whole process and thereby provide, again, a precise kill and include the sections that are beyond the prostate and yet need to be killed. On Page 12, this is another very interesting case, so a lot of people ask the question how big prostate can you treat. Very few have asked this question, a few of the investors have: how small can we treat. And this is a patient where there is a -- the prostate is designed, and it is really shallow in that region where it connects with the bladder neck. And the physician was able to really design the treatment down to 14 millimeters, and our technology allows for very high frequency so we can ablate very small sections of the prostate as needed. Now the very unique part of this and the most important part of this is that if he had to go beyond that 14 millimeters, he would have affected the sphincter muscles which control continence. So by controlling it down to 14 millimeters and not going beyond that, he was able to preserve the continence of this patient even though his prostate is rather unique in shape. And finally, I want to share with you -- we've talked about this. This is a -- Page 13. This is a prostate that is 214 cc in size, and the physician was able to literally ablate the prostate. It's a severe case where -- of a LUTS case or BPH case with LUTS symptoms. And again, what you will notice is that even though this is a very large prostate, he was able to save the ejaculatory ducts. So we've talked about can we save the nerve bundles. I've shown you an example related to how intricate our technology allows the physician to be able to manage it. We've talked about that we can treat different types of shapes. We've talked about continence or incontinence. But today, the things that I'm sharing with you is that we can treat patients with the -- with -- where we can save the ejaculatory function. We can treat patients where we can literally, even with those unusual shapes, save their continence function. We can save or we can ablate the seminal vesicles if the cancer of the -- surgeon believes the cancer has gone to those seminal vesicles. So you can see there is really no other technology, whether it's robotics or radiation, that allows the physician to be so intimate and so precise and so customized to treat the individual personalized need of a patient. And that is really what's driving our excitement as part of the Profound team, to -- that we believe this technology has tremendous potential in terms of the wide adoption of the technology. There's no question we have a lot of work to do, and we are very much geared up to do the hard work to drive that adoption. We also understand how long it takes and what it takes to get there. And that brings me to my next page on Page 14. Regardless, number one, to drive adoption, we have to increase awareness. We have to build the installed base, and I've talked about the 3 channels and the independent purpose behind each channel to ultimately -- which we believe will lead to wide adoption of this technology. And then we've talked about the recurring revenue-only model by bundling all of our services together, including our Profound Genius Services, and providing the support for reimbursement not only from the perspective of the process of filing applications and filing paperwork but also from the perspective of running clearly well-defined clinical trials to support the data that is needed to be able to drive reimbursement and coverage together. And so coming on Page 15, the awareness is a very important part of our strategy, both physician awareness and patient awareness. And on the physician side, you can see the kind of images I shared with you. These are the images we're sharing as part of the education for our urology community. And we have -- are continuing with significant clinical trials: TACT 2, which will end up with and equals 150 patients, will be recruitment complete in fourth quarter; and CAPTAIN, which is the next level 1 study, comparative study to radical prostatectomy, which we have announced will have over 200 patients randomized 2:1. We will begin right along the side as we finish TACT 2, and we'll start recruiting in Q4 this year. And then on the awareness side for patients, we have tulsaprocedure.com as one of our website. A number of our partners, RadNet as well as many other partners, are now also starting to have their own digital marketing programs. You have probably seen many of them from hospitals as well as imaging companies. I think you will continue to see all those. To the extent that we would like to see our centers do the education so they can attract patients, we prefer that. University of Texas Southwestern did a patient forum, highly attended with over 300 patients attending that session. We've seen physicians put their information about TULSA on their websites, on their LinkedIn sites. You'll see -- you will hopefully see Facebook -- a number of our centers are now visible on Facebook as well. So those are 2 big important pillars for us as we go forward as well. Finally, I want to talk a little bit more about the business model on Page 16. So you've seen that image from us. I've had it on our corporate presentation for a while, but I think the relevance to it is becoming more and more important and clear. So first of all, patients who have high PSA or have some -- maybe some blood in urine or some symptoms typically will go to their PCP and will get referred to what we call a referring urologist. So the [indiscernible] get all of the data of the patient. And if they suspect that indeed something needs to be tested, they will send that patient to their local imaging center for diagnostic imaging purpose. And the radiologist at the imaging center will review the images, MR images, and will then diagnose the patient and send the patient back to the urologist with the information on whether or not the patient had cancer. And if they got cancer, they will indicate what type of cancer and what the locations might be and that -- then follow up with a biopsy and, if there is cancer, a treatment procedure. And then typically, there is a follow-up 3 months later or 12 months later. But the point here is that the urologist, the referring physician, is in charge of the patient, and the patient is undergoing all of these procedures and coming back to the referring urologist for final advice and final maintenance over the long haul. Now the imaging center in this whole process today, because they only play on the diagnostic side, average will get about $625 for a diagnostic imaging. And so if they get 2 images, their revenue per patient is about $1,250. That's the current model. Now let's add TULSA to that procedure. And first of all, let's just look at the revenue line cycle here. A typical TULSA procedure today on cash pay is between $25,000 to $30,000. And a majority of that actually goes to the imaging center. And so you can just see the order of magnitude in the revenue potential that exists when an imaging center decides that they want to add the treatment modality to their offering for that referring physician, right? Number two. You can see that relationship becoming even stronger, right? That relationship between the imaging center and the referring physician exists today, but you can see it becoming a lot stronger if they [indiscernible] provider to that urologist, right? And third, for that referring physician, this is a very comfortable procedure. They know that the imaging center is really a provider to them. And so they're not losing that patient. And thereby, they can see that not only they can be managing -- they can be getting management cost as the patient goes through steps 2, 3 and 4, but they're also going to maintain a relationship with their own patient. So not only that this model has revenue by design a very, very significant driver, but it also enhances the workflow of the current system. And so that is one of the things that we continue to talk about. That is what's driving that interest from those imaging centers. Now this model, by the way, works just the same if it's a hospital imaging center because the hospital imaging center is itself a profit center for -- or P&L center for sure for that hospital. So now the hospital may lose some revenue from the robotic or from radiation, but they will maintain it in this case by providing this through their own imaging center also. So now just quickly, I wanted to go over the business model. And so finally, on Page 17, I just wanted to share with you that our -- this whole workflow that you could -- you just saw is a very capital-efficient business model for us, and it -- because it allows us to simply have sales teams who can then communicate with the referring physicians, working with our imaging centers to simply say to the physician, hey, I'm not here to sell you a new piece of equipment, I'm here to educate you on this new technology that is available to you at your local imaging center so that if you want to give it a try, try it with 5 or 10 patients, and then you can monitor your own patients. And thereby, it's a very comfortable way for them to start. And that, in turn, to us is very capital efficient to be able to do it. We don't need thousands of centers. We can simply add centers and have 2 or 3 or more over the long haul more urologists get attached to the same imaging center. And so when we look for future investments, we are most certainly looking to expand our sales team. As we've talked about in our Q1 call, we have pretty good visibility into the number of contracts that we have already signed and to -- and we have a good pipeline, and we need to continue to advance towards additional but -- agreements. But certainly, we need to add the team -- sales team that will be able to provide the education and bring the existing urologists to the imaging centers where we're going to be placing our equipment. We're certainly increasing our manufacturing and service capabilities to support the installed base that we expect to grow. You've already heard me talk about the additional work that we're doing on clinical trials. And Aaron has talked about the fact that we are already spending money in the clinical trial arena and that the CAPTAIN will simply be a continuation. So we do not anticipate that there will be materially higher costs of clinical trial. That's already baked into our current numbers. And finally, we continue to think that our product will have enhancement as we learn more from some of the case studies I have shown to you. Today, you can see the potential. In addition to what we already provide, we will continue to invest in our product enhancements. So this is more of where we are going a little bit more about our technology and, as I said at the beginning of the presentation, more of the capability and the potential of our technology than the short term. But I thought that at an AGM meeting, I would actually present to you the full potential of our company. I know this is a difficult forum for Q&A. If it's possible, Steve, I'm happy to answer any questions. But I turn it over to you.

Hi, Arun. We're not showing any questions. [Operator Instructions] We'll just wait and see if anybody queues up. And if not, we can end the meeting.

Perfect.

Arun, it doesn't appear that there are any questions.

All right. Thank you, everyone. Thank you for joining us. I look forward to our analyst calls, quarterly calls and look forward to fully a face-to-face 2022 AGM. Thank you. Have a wonderful day.