Edap Tms SA
NASDAQ:EDAP
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Edap Tms SA
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Good day, everyone, and welcome to today's EDAP TMS Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded and I will be standing by if you need any assistance. It is now my pleasure to turn today's program over to John Fraunces of LifeSci Advisors.
Good morning. Thank you for joining us for the EDAP TMS Third Quarter 2024 Financial and Operating Results Conference Call. Joining me on today's call are Ryan Rhodes, Chief Executive Officer; Ken Mobeck, Chief Financial Officer; and Francois Dietsch, Chief Accounting Officer.
Before we begin, I would like to remind everyone that management's remarks today may contain forward-looking statements which include statements regarding the company's growth and expansion plans. Such statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission.
I would now like to turn the call over to EDAP's Chief Executive Officer, Ryan Rhodes. Ryan?
Thank you, John, and good morning, everyone. In the third quarter, we reported total worldwide revenue in U.S. dollars of $14.4 million, representing currency-adjusted growth of 11.6% on a year-over-year basis.
Our core Focal One HIFU business continues to experience strong growth with a 48.2% year-over-year increase in revenues, reflecting continued adoption of Focal One of the global urology community. We placed 3 Focal One systems in the third quarter, which included a system placement, Virginia Commonwealth University, as well as placements in Italy and Spain. All 3 placements were cash sales, and the Focal One sale to Virginia Commonwealth University was our first placement in the State of Virginia.
Virginia Commonwealth University is also 1 of only 2 National Cancer Institute-designated comprehensive cancer centers in Virginia. As noted on our second quarter earnings call, a growing number of leading U.S. cancer treatment centers are now using Focal One based on our technology's proprietary robotic platform that targets cancer cells in the prostate while sparing the surrounding healthy tissue.
As a remainder, last year in the third quarter, we saw several engage customers delay their purchase of Focal One to the fourth quarter. We are experiencing a similar pattern of purchasing behavior this year. And as such, we expect to finish 2024 with a strong fourth quarter performance. As positively noted, we have already closed a Focal One sale in the U.S. early in the fourth quarter with St. David's Hospital in Austin, Texas. St. David's is part of HCA Healthcare, the nation's leading provider of health care services, comprising of 186 hospitals and approximately 2,400 care sites in 20 states and in the United Kingdom.
The cash sale at St. David's Hospital came at the conclusion of a successful evaluation period that demonstrated positive clinical outcomes, high procedure volumes and favorable reimbursement while also meeting the hospital's strategic business objectives. This first sale in an HCA hospital has the potential to facilitate and accelerate the closing of future sales as we are currently in discussions with multiple hospitals within the HCA Group. We also continue to experience strong growth in U.S. Focal One HIFU procedures.
During the quarter, U.S. procedures grew 34% on a year-over-year basis, which reflects continued adoption by urologists who see Focal One as an important treatment option for delivering targeted focal therapy in earlier-stage prostate cancer patients. As mentioned during our last call, we believe that as the results from the groundbreaking HIFI study become more widely disseminated, demand for the Focal One platform will continue to grow. The HIFI study presents clear and compelling evidence that robotic HIFU therapy delivered by EDAP's proprietary technology is as effective as radical prostatectomy as a frontline treatment for the management of localized prostate cancer while additionally offering patients better functional outcomes with respect to preservation of urinary continence and sexual function.
As a reminder, EDAP technology was used exclusively to treat all patients receiving HIFU therapy in this study, including 90% with the Focal One platform. We anticipate the publication of the HIFI study results in a high-impact, peer-reviewed medical journal, which will provide Focal One HIFU with important visibility to aid in accelerating market adoption. I will now provide a brief update on Focal One reimbursement.
The Center for Medicare and Medicaid Services, CMS, just released the final payment rules for 2025 on November 2. The HIFU procedure continues to be supported with favorable reimbursement with CMS finalizing a Medicare hospital payment rate of $9,247 as a national average per the adjusted corresponding local wage index factor. This rate will become effective on January 1, 2025, and represents a 5.4% increase over the 2024 payment. These reimbursement levels continue to support the favorable strategic business case for hospitals to both and invest and integrate Focal One HIFU while providing greater patient access to this valuable noninvasive treatment option.
CMS also released the physician fee schedule for 2025 continues to provide strong physician reimbursement for HIFU with 17.73 work relative value units or work RVUs and 29.41 total RVUs. These figures are significantly higher than any other prostate ablation procedure. Additionally, it provides physicians with a level of reimbursement that is more than 80% of the payment for performing surgery, including robotic radical prostatectomy.
In conclusion, we are pleased with the continued support of the defined reimbursement levels for the use of HIFU, which provides a financially sound and sustainable economic offering for both the hospital and the physician. I would now like to briefly discuss some of our recent strategic collaborative activities.
On September 19, we announced a very exciting collaboration with Avenda Health for the purpose of launching the world's first AI-assisted Focal One robotic HIFU procedures. Avenda's FDA-cleared un-full AI technology builds 3D patient-specific cancer maps that reveal the extent of the tumor boundaries while enabling physicians to deliver more precise and tailored treatments.
By leveraging unfold AI's planning with the Focal One robotic HIFU platform, we believe that urologists can provide a more customized, patient-specific HIFU ablation procedure for treating prostate cancer. The first series of these Focal One AI-assisted procedures have already been conducted by Dr. Wayne Brisbane, Assistant Professor of Urology at the University of California Los Angeles David Geffen School of Medicine.
Thus far, we have received overwhelmingly positive feedback with respect to the combination of these 2 groundbreaking technologies. AI represents an important and strategic next step in the evolution of the Focal One platform and will help us remain at the forefront of delivering the most advanced focal therapy treatment solutions for patients diagnosed with prostate cancer.
During the quarter, we had a notable presence at several strategically important urology-focused scientific meetings. We conducted numerous Focal One simulated procedures at the 2024 joint meeting of the Focal Therapy Society and Society of Urologic Robotic Surgeons, which took place from September 19 through the 21st in Washington, D.C.
During this scientific meeting, there was significant interest surrounding our Focal One technology, and this meeting serves as an important venue for building our relationships with the leading urologists in the United States. We also had a major presence at the 2024 Focal Plus Annual Meeting, which took place from October 17 through the 19th in San Diego, California.
The Focal Plus meeting is particularly relevant to our business as the majority of attendees have a growing interest in utilizing focal therapy for prostate cancer. There were numerous presentations highlighting Focal One HIFU at the meeting, and we continue to see strong interest amongst urologists who recognize the need to offer a suitable treatment option between active surveillance and radical therapy.
Early in the third quarter, we attended the 41st World Congress of Endourology in Uro-Technology meeting, which took place in Seoul, South Korea from August 12 through the 16. During this meeting, we provided dozens of hands-on Focal One simulations, which garnered strong engagement from the attending urologists.
To quote Dr. Inderbir Gill addressing a large audience of urologists at the meeting. Going forward, if you don't offer focal therapy, your prostate cancer practice will start shrinking. Dr. Gill is a pioneer in robotic surgery and world-renowned expert on urological disease and Chairman of Urology at the University of Southern California Keck School of Medicine.
The WCET scientific meeting also featured a semi-live moderated Focal One clinical procedure conducted by Dr. Tarik Benidir, Clinical Assistant Professor at the University of Florida, which demonstrated numerous benefits of the Focal One robotic platform. I will now briefly touch on our clinical development programs in BPH and endometriosis.
On October 1, we announced that the first patients were treated in our combined Phase I/II study evaluating Focal One robotic HIFU for the treatment of benign prostatic hyperplasia or BPH. As a reminder, BPH represents an enormous market opportunity for Focal One.
Globally, 94 million prevalent cases of BPH were estimated in 2019 and in the U.S. alone, as many as 15 million men currently have BPH symptoms. The Phase I/II study is a company-sponsored prospective multicenter clinical trial and is designed in 2 parts.
The first part of the study is taking place at 3 leading institutions in France with a recognized expertise in the treatment of BPH as well as in the use of Focal One HIFU technology. Part 1 is designed to define the treatment parameters per protocol to effectively treat BPH with the goal of achieving optimal patient outcomes. Part 2 of the study will expand patient enrollment across a larger number of clinical sites in order to validate the safety and efficacy of the parameters as defined in part 1 of the study.
We are particularly excited about this program as the Focal One approach, when compared to other treatment options, has the potential to better protect the integrity of the urethra and other critical structures. We believe that Focal One could become an important effective and less invasive treatment approach for addressing BPH.
The ongoing Phase I/II study will also serve as a foundation for initiating a clinical trial in the United States next year. I'll now provide a brief update on our endometriosis program.
As previously announced in July, interim results from our Phase III study evaluating robotic HIFU technology for the treatment of deep infiltrating endometriosis showed that robotic HIFU therapy maintained an excellent safety profile while demonstrating greater reductions in endomitosis lesion volumes as compared to patients in the Sham arm of the study. Both arms of the study also showed significant improvements in pelvic pain reduction at 3 months from baseline as measured by the standardized visual analog scale.
As previously reported, the primary endpoint of superior reduction in acute pelvic pain in the HIFU arm compared to the Sham arm was not reached. However, upon further review by the clinical investigators, this outcome was likely attributed to comparing differences in pain scores between the 2 arms of the study after only 3 months following the procedure.
In our view, a therapeutic benefit favoring robotic HIFU is more likely to be confirmed over a longer period of time post procedure as suggested by the stabilization of pain scores at 6 and 12 months from our published peer-reviewed Phase II study.
At present, the study is now unblinded and patients have been allowed to cross over to the HIFU arm protocol. I'm pleased to report now that 85% of the patients from Sham arm have already elected to cross over into open-label extension arm of the study and thus receive treatment with robotic HIFU. This is not surprising as the pain symptoms for these Sham patients returned back to their high baseline levels after 1 year post procedure.
In contrast, the patients from the HIFU arm who were evaluated 1 year following robotic HIFU treatment maintained a similar level of improvement over their baseline pain symptoms as measured at 3 months post procedure. Importantly, these findings are consistent with the significant reduction in lesion volume as measured by MRI, which was observed in the HIFU arm, only following the unblinding of the study. This additional data continues to suggest that HIFU therapy is a safe, noninvasive treatment that has significant potential to reduce pain for women suffering from this debilitating condition.
Between now and year-end, we anticipate meeting with the FDA to discuss this additional data while determining the next steps for this program. Before handing the call over to Ken to review our third quarter financial results, I want to briefly mention a change to our Board of Directors.
Following the departure of Marc Oczachowski, we appointed our existing Board member, Dr. Lance Willsey, to serve as Interim Board Chair effective September 30. Dr. Willsey is playing an active role assisting the executive team while we continue to search for a permanent replacement. Dr. Willsey was first appointed to the EDAP Board of Directors in December of 2023 and has since made valuable contributions to help guide our strategic planning as we expand the Focal One platform across the global urology market.
Dr. Willsey is a trained urologist who has over 35 years of private and public board experience focused in the area of cancer diagnostics and therapeutics. He completed his surgical and urology training at the Massachusetts General Hospital and additional postgraduate training in the Steele Lab at Harvard University and the Dana-Farber Cancer Institute.
I will now turn the call over to Ken to review our third quarter financial results.
Thanks, Ryan, and good morning, everyone. Please note that all figures except for percentages are in euros. For conversion purposes, our average euro-dollar exchange rate was 1.101 for the third quarter of 2024.
Total worldwide revenue for the third quarter of 2024 was EUR 13.1 million, an increase of 11.6% as compared to total worldwide revenue of EUR 11.7 million for the comparable period of 2023. This was a record for third quarter revenue performance.
Looking at revenue by division, total revenue in the HIFU business for the third quarter of 2024 was EUR 4.5 million as compared to EUR 3 million for the third quarter of 2023, which represents growth of 48.2% year-over-year. We placed 3 Focal One systems in the third quarter, and all 3 placements were cash sales.
Third quarter worldwide HIFU disposable revenue grew 35.3% on a year-over-year basis, reflecting strong U.S. procedure growth. Total revenue in the distribution business for the third quarter of 2024 was EUR 6.6 million as compared to EUR 6 million for the third quarter of 2023. Distribution revenue was driven primarily by recurring revenues from laser sales.
Total revenue in the LITHO business for the third quarter of 2024 was EUR 2 million as compared to EUR 2.7 million for the same period in 2023. The decrease in LITHO revenue was due to selling 3 lithotripsy units in the third quarter as compared to 7 units sold in the third quarter of 2023.
Gross profit for the third quarter of 2024 was EUR 5.2 million compared to EUR 4.2 million for the year ago period. Gross profit margin on net sales was 39.4% in the third quarter compared to 35.5% in the year-ago period. The increase in gross profit margin year-over-year was due to a favorable shift in Focal One product mix and positive absorption in the factory.
Operating expenses were EUR 11 million for the third quarter compared to EUR 9.7 million for the same period in 2023. Operating expenses increased primarily due to investments made to support Focal One commercial operations globally. Operating loss for the third quarter of 2024 was EUR 5.8 million, which was relatively flat compared to an operating loss of EUR 5.6 million in the third quarter of 2023.
Net loss for the third quarter of 2024 was EUR 6.4 million or EUR 0.17 per diluted share, as compared to net loss of EUR 3.9 million or EUR 0.11 per diluted share in the year ago period.
Turning to the balance sheet. Ending inventory was EUR 21 million in the third quarter of 2024 as compared to EUR 15.1 million at the end of the fourth quarter in 2023. As I mentioned last quarter, we have made advanced purchasing decisions related to ultrasound technology, and we have built additional Focal One and ExactVu inventory in anticipation of higher demand.
Also, as a result of new medical device requirements under CE Mark, multiple ESWL units had to be manufactured in advance of these new requirements becoming effective. We anticipate selling the ESWL inventory down by the first half of calendar year 2025.
Total cash and cash equivalents at the end of the third quarter was EUR 25.5 million as compared to EUR 43.5 million at the end of the fourth quarter of 2023. The EUR 18 million decrease in cash and cash equivalents on a year-to-date basis was attributed to spending on operating activities including inventory investments, as I described earlier, capital investments to help grow the HIFU business and pay down of long-term borrowings.
We remain focused on optimizing our investments from both an operating and cash resource perspective so that we can effectively manage and grow our Focal One business in the long term. Those are our key financial highlights for the third quarter of 2024. And with that, I would like to turn the call back to Ryan.
Thanks, Ken. As we look outward, we are making significant investments to capitalize on the growing focal therapy market opportunity with the most advanced technology platform and a growing installed base of Focal One systems at leading institutions and hospitals.
We are achieving this strategic objective as we build an important new treatment category for prostate cancer that lies between active surveillance and radical therapy. While building a new treatment category takes time and effort, there is no question that this paradigm shift in the treatment of prostate cancer is taking place. And we believe Focal One is fast becoming the leading technology platform that will dominate this new treatment category for years to come.
As we grow, we continue to deploy our talent and capital in a highly strategic manner for the purpose of building relationships across a continuum of stakeholders, including all the urology, major practices, large hospital networks and urology fellowship programs.
Through these efforts, we are creating world-class robotic HIFU treatment programs to ensure that Focal One is being fully utilized and that more urologists are being trained early in their careers to use this important technology.
As discussed in my prior comments, we are also attending the most relevant urology-focused scientific conferences around the world and integrating cutting-edge new technologies such as AI to further extend our market and technology-leading position. These combined efforts are translating into commercial success, as demonstrated not only by our consistently strong year-over-year procedure growth in the U.S., but also by the strong Focal One adoption amongst the most well-recognized cancer treatment centers.
In fact, Focal One is now installed in over 1/3 of the National Cancer Institute-designated comprehensive cancer centers, and we expect that percentage will continue to grow. As more urologists embrace Focal One, higher utilization will lead to more clinical data and this data will gain more attention at upcoming urology meetings. This data will also lead to more peer-review publications, which further validates the technology and will provide a basis for expanding robotic HIFU in the treatment guidelines for prostate cancer.
As urologists' enthusiasm and adoption continues to grow for Focal One, we also see growing demand coming directly from patients, who will increasingly seek less invasive treatment options that fall between active surveillance and radical therapy. Patients and their doctors want to address cancer earlier in the course of the disease while also maximizing quality of life outcomes.
As a noninvasive therapy providing excellent oncologic control, Focal One, therefore, represents an important treatment option for many of these patients. As we have discussed on past earnings calls, I believe we are in the early stages of an important and positive shift and how prostate cancer is being managed.
As noted, we are executing on our strategic goal of establishing Focal One as the premier robotic HIFU therapy for prostate cancer, which we believe will generate significant value for our shareholders.
With that, I would now like to turn the call back over to the operator for questions. Operator?
[Operator Instructions] And we will take our first question from Michael Sarcone with Jefferies.
I guess just to start -- can you elaborate a little more on what you're seeing just in the -- among the hospital customers and the F One pipeline, 3 placements this quarter. I think last quarter, you said you were expecting second half placements to exceed first half. Is that still the case? So yes, basically, the pipeline, what you're seeing in the hospital environment and then 2H versus 1H placement?
Yes, Michael. We saw good activity in the third quarter. Of course, we're always building our pipelines. We had a few sales that slipped into Q4, as noted. We are still planning on having a stronger back half of the year, second half of the year. We continue to see momentum and high-level engagement in many of our pipeline customers.
And again, coming off of a number of very key scientific meetings and some of the engagement we have, there's been very strong clinical interest from many urologists in attendance to those events. So yes, we do continue to see a strong growth in the second half of the year.
Got it. And you're still seeing nice Focal One procedure growth in the U.S. year-over-year. Ryan, I was wondering if you could just maybe elaborate some on how utilization per customer or account has been trending and maybe where that stands today?
Yes. So as we're adding really a new treatment service line when we launch our Focal One program, there's a ramp period. So we look at our accounts objectively as programs. So we build these programs. We launch them, and then there's typically a ramp period. There's a training period and on-boarding period.
We continue to see hospitals increasing their procedures, some faster than others. But the commitment is there. And as noted, we made an announcement in terms of reimbursement. Reimbursement continues to be strong. So there's the economics that support the activity.
But I think the real thing we see is increased clinical value demonstrated back from a number of our installed users. The data that's been presented at some of the local scientific meetings and national meetings has been very positive. We continue to see some hospitals now turning on more marketing activity to attract a broader patient population.
So again, good, healthy growth on procedures. It's something we pay a lot of attention to. We have a bifurcated sales force, meaning, one that focuses on capital and one that focuses on clinical. And we continue to monitor adoption at each account and utilization by each urologist trained on use of Focal One.
[Operator Instructions] We'll take our next question from Sean Lee with H.C. Wainwright.
This is Sean here for RK. I just have 2 quick ones on the clinical programs. So regarding the BPH study, when can we expect the initial results from that? And what kind of data would that entail?
Well, as noted, we're on the journey of a Phase I, Phase II study. So results we would not see until sometime later next year.
Again, we are combining these 2 parts of the study really to accelerate our scientific findings around treatment parameters, et cetera. So we've got a well laid-out plan. As noted, we have 3 sites now that are active, and we have the ability to add additional sites. Once we get through some of the early work we're doing now, we will expand to other sites. So it won't be until later next year. And we'll be excited to obviously present some of that data and those findings accordingly.
Great. One quick follow-up on that. How many patients are expected in the first 2 parts?
Yes. Well, it really -- it's truncated on the protocol. So it's broken down in various numbers. We have a subset of 30 to expand above 30 to 60. It's called out directly in the protocol.
I think the thing to understand in this study is that we've combined both parts of the study, right, the Phase I and Phase II parts. And as we look at that, our goal is to accelerate to more sites. Once we look at treatment parameters, including volume, treatment location and really setting up the procedure for a wider group of participants, we'll be able to play with those numbers in terms of what we would like to see as we move forward and write additional new study protocols. So that's where we're at with that. We're excited about this program, and we have other centers that are very eager to participate.
Great. In the prepared remarks, you mentioned that the company expects to initiate a BPH study in the U.S. next year as well. Would that mirror this French study? Or would you modify it based on what you see in the -- this first study?
Okay. Can you repeat that? I can't -- we can't hear you here. Sorry.
In the prepared remarks, you mentioned -- I think you mentioned that the company expects to start a U.S. clinical study in BPH as well next year. Would that mirror the first French study? Or is it going to -- or are you going to modify it based on what you see in first?
Yes. Yes. So I think what we want to do here is take the results of the combined Phase I/II study to expand to multiple sites. While we're doing that, we'll be looking at protocol design to get in front of the FDA some time next year.
So again, we're accelerating this process and look to expand it to additional sites. And again, we would be working closely with our investigators to develop the right protocol that would suit the needs for the FDA.
And my final question on the endometriosis program. So you mentioned that the longer-term effects are more likely to see a benefit for HIFU. So how long are you continuing to follow these patients for longer? And when do you expect to release these longer-term results sometime down the line?
So we've shown again that we, per protocol, have the ability to continue to follow these patients, and we're -- we have the ability to follow outwards of 12 months and beyond.
So again, we're continuing to monitor these patients closely. I think what we've shown clearly and commented on is that we've shown high safety and use of the technology. We've showed a reduction in the size of the MRI -- under MRI visualization, the reduction of lesion size in the HIFU arm. And then we've shown a crossover rate of 85%, meaning that patients who were followed in the original study upon being unblinded, were turning back to their baseline pain scores. So that represents something we've socialized before and made comment to that the follow-up time at 3 months was probably not adequate to prove the data endpoints that we needed post treatment.
So again, I think, what our goal will be is we've got expected meetings with the FDA here before the end of the year. And we will be using the latest data analysis and follow-up to prepare for that conversation with the FDA. We're excited about some of the findings we've had recently as we've uncovered more of this. But clearly, we have high belief in the procedure, and we will continue to look positively outward.
[Operator Instructions] And it appears we have no further questions on the phone. I will turn the program over to Ryan Rhodes for additional or closing remarks.
I want to thank everyone again for joining us on our today's call, and we look forward to seeing you at the upcoming Jefferies London Healthcare Conference on November 19 and the following month at the Piper Sandler Health Care Conference in New York City. Thank you.
This does conclude today's conference. Thank you for your participation. You may disconnect at any time.