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

Okay. Well, let's get started. So good morning, everyone. Thanks so much for joining us. I am very pleased to have the team here from Profound Medical Corp. We've got Arun Menawat, CEO. And I think Arun would go back a ways, which we could talk. We could flow through this 25 minutes in no time.

But on the subject of Profound, maybe for those folks who are a little less familiar, talk a little bit about there's a couple of different platforms coming at this new technology, you're coming at it from the position of prostate. Maybe talk a little bit about where you're at and what the benefits of your platform is over some of the other standards of care.

Yes. Well, Matt, thank you for inviting me first. It's great to be here, actually. So let me kind of share with you what Profound is all about and what our platform is as you said. So the idea is that we are bringing what we call incision-free surgery to market. And if you look at history, you will see surgery has been done open surgeries, minimally invasive and robotic surgery is very big today. And so we're taking that to the next step, where although our mind when we think about surgery goes to blood and hospitals stay and cutting and pasting, we're removing all of that, and we're basically saying future of surgery is about incision-free surgery. So we picked prostate as our first and the primary application because, number one, it is one of the largest cancers. It's after skin cancer is the largest cancer and it has tremendous side effect related issues to the point where patients who have early-stage disease are not really treated because they're more likely to have the side effects and they're not going to necessarily die quickly because it's slow moving cancer. So over the last 5 years, there has been a lot of dialogue about how do you measure the cancer properly? How do you biopsy the cancer properly and how do you treat to really rethink the whole pathway of taking care of the patients. And so today, when a patient -- normally, there's a PSA test. And if the PSA test shows that they are above their normal range, -- today, a patient undergoes a diagnostic MRI. And the diagnostic MRI, the data basically showing that if the cancer is visible on diagnostic MRI, then patients need to be treated. And today, then also, then they do a biopsy and MRI is used to biopsy the patients. So what we are doing is we're using that MRI, and we're now using it to actually treat the patient. The idea being that if you can have pixel-by-pixel accuracy and phenomenal ability to see the cancer, why would you not then just treat it using the same imaging technology. Now in our case, not only that we can visualize the cancer properly, we can visualize the -- we can also measure temperature in real time. And so we have a unique ultrasound technology. And it is -- actually, there is no other company that has this technology where we actually insert a catheter into the prostate. And we dentally send sound waves and the absorption of that sound wave creates degree by degree heat. So we gently heat the tissue to kill temperature, which is typically 55 degrees. And that's really important because we are not charring, we're not boiling this tissue, which can create side effects or other reactions. But by gently heating the tissue, it's dead, on MRI, they can see it, it's completely dead before they pull the patient out of the MRI. And so it's unique in the sense that it's -- we call it incision-free and incision-free to me [indiscernible]. It means freedom from hospital stay. It means freedom from blood loss. There is no blood loss. It means freedom from maintaining your quality of life before and after the procedure. It's means won and done, and you don't have to worry about it for the rest of your life. So it's a very [indiscernible]. It's a big game changing technology. And we're quite excited to bring it to the market.

That's great. So ablation at an energy level that sort of reduces adjacent trauma, but achieves what's your...

The desired effect [indiscernible] cancer.

Exactly. so maybe talk a little bit about where the technology stands in terms of reimbursement and commercialization.

Yes. So Matt, as you know, this is such a game-changing technology that we deployed a very disciplined approach to get to market. So with respect to commercialization, our primary strategy was to get a beachhead first with leading institutions in the United States. And we're really proud of the fact that we have actually achieved that. So today, you go from around the country, we are in [ bringing ] women MGH, Johns Hopkins, West Coast. We're at Stanford, UCLA. We're at Mayo Clinic, Cleveland Clinic, we just signed a corporate agreement with them. We're at University of Washington. We're in MD Anderson, all the main teaching hospitals. And I think it's an important point because that strategy means opinion leaders are now supporting what we're doing. Another strategy that we took on was educating the patients. And we're also very proud of the fact we have amazing number of extremely happy patients, and we're not getting that word of mouth to help drive more patient population. So that initial market entry strategy overall has worked. Simultaneous with that, we worked with the societies. And quite frankly, we received new CPT code approval faster than any company like [indiscernible] I have seen, and it was because it was supported by 6 societies. It was never like -- Profound was never a signatory to the application and went through with no questions asked. And that was last year. And so since that time, to the extent that we can, we have worked with the rep committees and the physicians to define what the workload is, what the RVUs need to be. And so all that is now with CMS. We've met with CMS already twice this year. And so the actual payment against these approved CPT codes will be public by end of July this year as a proposal and finalized end of October and then effective next year.

Excellent. Okay. Well, congrats on that. And then in terms of centers, as you would expect, I mean, that's a long list of academic centers currently up and running. Assuming that we remain on track, CPT level 1 is clicks into place, Jan of next year. What's your expectation and plans for rolling out beyond those academic side?

Yes. That's a great question, Matt. So the CPT codes that were approved are among the broadest approval. So it will be effective in ASCs. It will be effective, in fact, even at a physician office setting. There is no other quote that has that broad utility. So at the moment, in 2024, our focus is still primarily in hospitals. These -- the key thing is that getting to the opinion-leading hospital was a market entry strategy. I don't expect that those will be the highest volume users, right? So what we're doing this year is going more towards the higher volume sites so that we can install the systems and thereby, they're all ready to go. They're fully trained. And we think that by end of this year, we should be able to get to at least 75 sites and then that will then help drive utilization growth. But then later this year and early next year, we're also going to be working with ASCs and so on. As the numbers come out, it will be much easier to be able to show them with the economic models that it will actually be a pro procedure that they want to do. And again, part of what's driving me is that they're already using MRI for diagnosing and biopsy. So to be able to say, here's the value proposition where you can combine all of this into what we call the modern treatment workflow that can be economically viable.

Okay. And then that was a question around moving to a smaller center sort of outreach center in the community. Is that something that a lot of these large networks. So I'm sure a lot of the high-volume sites have those networks attached.

Yes, exactly. So the -- I think it's a general trend that the number of urology practices are consolidating. So that perhaps 5, 10 years ago, it was not necessarily an idea where they could actually own their own MRI. But today, that idea is quite feasible because they have sufficient number of people and they have enough patient population to be able to justify. And that was one of the reasons why I think you will see, and we've put the first one in place in public domain, where we've created a relationship with Siemens, where we can, in fact, combine the MRI with TULSA and be able to provide the whole solution for these practices going forward. And we think as time goes on, we'll work with the other MR companies to give the practices a choice of which MR they want to use.

Okay. And then -- so then it comes to the question of degree of difficulty sort of training level as you move to more clinicians at the larger sites and other clinicians potentially at outpatient sites.

Yes. So the -- in terms of the actual procedure and the difficulty of training. If you break it apart, the catheter that they put in, the ultrasound catheter like that's second nature to them. They do that every day. And the diameter and the shape and the size is the same as what the normal system score base. So there's really no real training required for that. The procedure itself, they sit in the control room, and everything is on the screen for them. And so the part that is new is the treatment planning part where they literally draw the boundaries of the prostate that they want to kill. Not very hard, but we have been working on our own AI initiative for the last 3 years. We've submitted it to the FDA. The studies that we did to support it have met the endpoint. And so what we are expecting is that sometime in June this year that we hope that FDA will agree with our assessment and we'll get clearance for that. And so basically, what will happen is that training will become very straightforward. They click a button and it recommended design shows up. And that recommended design is based upon successfully treated patients that we have done so far. And we'll just -- we have database that we'll just continue to add to it. And so it not only gives them confidence that, hey, this is based upon experience, but it will be much easier for them to make that change. And then the treatment part is -- quite frankly, it's autonomous robotics. So they are watching the screen. It has its own safety, support and so on. But if they see, hey, there's 1 pixel they wanted to kill and it didn't kill properly, they can quickly go back and do that. So that is pretty natural to them. And the other thing is that it's so visual that at the end of the procedure, they see the dark prostate that they tell -- that immediately tells them that it's dead. They can see it. And so even though it is very different, and we do spend a lot of time on patient selection. We spend a lot of time on educating on all this. But really, to be honest, the procedure itself, like I can teach you in 30 minutes.

That means probably it's summary.

Yes, it's pretty -- it's very automated.

Might take a look. Yes, in weeks. But no, that's helpful. So a level of difficulty, familiarity with the with the sort of catheter, all these things are positive for sort of adoption?

I think they are -- I think that the change that is, I would say, has been the tough part for us. Has been on that they need to start thinking about TULSA from the time they're diagnosing the patient because for the first time, we think about robotics as the big high-tech technology in the market. But the reality is you're either removing the whole prostate or you're not. So all of that sophistication is about from the urologist point of view, they're basically, oh, it's got cancer, I'm going to remove the prostate versus in our case, they actually have far more control. They can kill the whole prostate. They can kill part of the prostate. They can look at the size of the prostate. They can make the termination if it's a hybrid patient, they can treat it for BPH and cancer and still leave vital parts. There are some patients where they want to keep their ejaculatory ducts. They can save those. So there are lots of decisions that they can make because of this control that they don't have to think about today. So I think one of the things we've had to do is help them recognize that they now have this new capability, so they should be thinking about it. They should be talking with the patient upfront that, hey, I can do this for you today was I couldn't have done before. And so that is one of the changes that I think is unique. And it's quite frankly, a bit of an outcome change once they get it. The second change is instead of I'm going to the operating room, and I have a fixed time every week. Now because we're in the early stage, they don't have a fixed day to go to the MR suite, they usually have to call ahead to book the MR suite and so on. And they finance [indiscernible] to understand that they can actually make more money doing our procedure than doing a diagnostic procedure. So I think that change has been the bigger change for us.

Interesting. Okay. so changing the sort of treatment algorithm and communication, patient communication algorithm between the clinician and the patient -- and then another thing about this is, I think we've had sort of a parade of BPH and cancer-oriented prostate solutions, all of which involve catheter. But -- is this -- do you anticipate this is going to be -- you understand the difference between marketing and robotic surgery platform in marketing another catheter. So maybe talk a little bit about your plans there.

Absolutely. So Matt, the first -- well, I think you're right, there are a number of these technologies, right? So the way I look at it is that there are 2 big current standards. One of them is robotic prostatectomy. The other one is radiation. And the other key point is that, as you said before, there is a very clear unmet need. So over the last 30, 40 years. There have been a number of companies that have tried to come up with a different way to solve that unmet need. So that's very clear, right? The -- so you have a number of sort of smaller players that have been around for a long time, but none of them actually have been able to really drive mainstream adoption. And I'm very cognizant of that, obviously. So part of the thing is that these smaller, like catheters or technologies that are primarily for BPH and so on, they are applicable to a very small subset of patient population, which is typically not old line therapy. And so the urology community strongly believes that whole gland is the way to treat for durability purposes. And so we're really the one technology where they can treat the whole gland and they can treat partial gland. And that's one of the things we've really focused on early on. And so when we publish our even quarterly reports, we talk about what's the percent of patients that are treating whole gland. And so on that basis, we have determined that we think we can treat up to 80% of the patients, right? And that is why one of the things you keep hearing is from these big opinion leading sites is that, hey, you guys are going to be one of the 3 big options, and we're happy at this point for the next couple of years. I'm happy with that. We'll get to the eye of that curve over time. So that's kind of how I look at this. And the way -- the reason I'm comfortable is that every quarter, we publish this, 60% of the patients we treat are whole gland. About half of the patients we treat are between very high-grade cancer or very low-grade cancer. But the other half is mid-grade cancer. So we're the only new technology that has consistently shown that you could treat that wide variety of patients. And I think your point is right. That's a very big deal in terms of driving adoption. The surgeons, if they can use this one tool to do a majority of the cases, that's what they're going to do.

Sure. And then, of course, the -- one of the big drivers of robotic prostatectomy was the sort of feared side effects of nonrobotic surgery, if you will. So how does -- how do you anticipate that your procedure is going to get positioned against that sort of side effect profile, patient experience?

Yes. so Matt, that, quite frankly, has been the biggest positive surprise for us. And I talk about this all the time, and you probably already know, I was one of the early patients for TULSA. And it really is true. You go into that MRI, you come out and you wake up and there's no pain. And literally, from the time I woke up to the time I was in the cab leaving was 5 minutes. And there is no pain. I worked that same evening and all day the next day. So the patient response to this procedure is tremendous. The caliber and the number of e-mails that we get from patients, I have actually never seen that before. So I think that the patients have really liked it. We see that on the internet and social media all the time, very positive comments. But we also have very strong clinical data already with respect to the fact that virtually no patient has what we call severe ED. There are about 20% patients who will have minor ED where they can -- they need a drug to be treating, which at that age, people like doing that anyway. We have maybe 1% who will have incontinence. And again, even that as people get more experience, we think that will subside even that. So I think from the side effect perspective, we have a very clear advantage over anybody. And I think the last thing I wanted to share with you is we felt so confident about this that we're the only company and the first one to actually sponsor a full competitive Level 1 trial, and it's called CAPTAIN. It's going on. It's recruiting quite well. We fully expect we'll finish end of this year. It's 201 patients, 2:1 randomized against radical prostatectomy. So once that starts to happen, you can clearly see that it will almost become a requirement for the surgeons to recommend or at least present TULSA as an option to the patients. And that's what we're looking for, ultimately, society guidelines part to say.

And that's radical prostatectomy, robotic prostatectomy or that's either -- or...

So technically, it is robotic prostectomy but we -- but in the journals, they call it, radical prostectomy. Yes, it's all robotic.

Got it, which you'd expect. No, that's exciting. And I expect you say follow-up by the end of the year or present by the end of the year?

So we will finish treatment by end of the year. We will start having interim results by early next year. And the results will go on for 10 years, a pretty comprehensive study. But the part of this is that the early results, I mean, we will be able to extrapolate because we already have multiple trials that have shown that if you can the outcomes at 6 months or 12 months, you can extrapolate those results to 5 years. So a lot of the physicians are saying, "I see the 5-year data, I'm fine with it. but I need this study to be able to make this as part of my regular repertoire. And I don't necessarily need to wait 5 years for it because I'll be able to extrapolate. So for example, when we talk about radical prostatectomy or robotic prostatectomy, if you cut the nerve bundles and they're gone, they're not coming back. So you don't need to wait 5 years to go. They're not coming back. Versus in our case, usually, there is a little bit of a lull period for a month or two, but it comes back within 6 months. So if we can show let's come back, they will be able to strap like that, yes.

Okay. So first data set maybe back half or end of '25.

'25, we should be able to have quite a bit of data.

Great. Good stuff. So maybe just -- we only have a couple of minutes left, but just in a word, funded cash position, burn rate, that sort of thing to support some of the commercial activities you talked about.

Absolutely. So I felt very strongly that we needed to raise some money late last year because to prepare for the growth in '25, I wanted to build the sales team. And we're pleased to have new investors. We were able to raise enough money that now have a fantastic VP of sales came from NOVADAQ. And I have a fantastic Chief Commercial Officer with Abbey, also came from NOVADAQ. And they have hired regional sales managers, and we have about a total group of about 20 people. So relatively new group, but doing very well. And that's one of the key things I wanted to accomplish with that financing. So we are in decent place. We have over $40 million, $45 million.

We have $45.4 million end of January.

At the end of January. I think we have a very clear pathway of where we're going. Our inflection points are the AI technology, hopefully in June approval, which we'll talk more about the economic value of that. Today, we're talking more about the training and the clinical aspects of it. We'll talk about the economic aspects at that point. Then end of July proposed payment amount, which hopefully will become -- which will become permanent at the end of October. And then we are focused primarily on driving additional sites this year to prepare. So we think end of this year, at least 75 sites would be good, and then 25 CAPTAIN will start to recruit. So as I said, quite a disciplined approach, but it's -- that's what you need to do for a game-changing technology, but I think we have a pretty clear pathway to driving adoption.

Awesome. Well, that's exciting, and thanks so much for taking the time.

Thank you so much, Matt.

Thank you.