American Shared Hospital Services (AMS) 2009 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Second Quarter 2009 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Craig Tagawa. Mr. Tagawa, you may begin.

Thank you, Teresa, and thank you all for joining us for AMS' 2009 second quarter earnings conference call and webcast.

We are pleased with our second quarter results. Patient volume and revenue increased sequentially. The Company returned to profitability, despite $123,000 in additional transaction costs incurred in the quarter. And by the way, all significant transaction costs are now behind us.

Our legacy portfolio of radiosurgical and radiation therapy assets continued to generate positive cash flow. And we expanded our portfolio of next-generation devices for radiation oncology delivery, which is the heart of our growth strategy.

In the second quarter, AMS entered into a contract to supply a Leksell Gamma Knife Perfexion system to Smilow Cancer Hospital at Yale-New Haven in New Haven, Connecticut. This new Perfexion system will replace an existing Gamma Knife supplied by AMS and is expected to begin treating patients in the fourth quarter of 2009 or in early 2010, pending regulatory approval.

Today, AMS owns more radiosurgical assets than any other company. Our portfolio of assets now treating patients at hospitals throughout the United States includes five Leksell Gamma Knife Perfexion systems, Yale will be the sixth when it goes on line later this year, 14 Gamma Knife systems, and an IMRT system and related equipment.

Since 1991, AMS' creative financing solutions have enabled our clinical partners to make the latest advances in radiation oncology available to patients at an affordable price. Now we are applying this successful and time-tested business model to the next growth -- great growth opportunity in radiation oncology, proton beam radiation therapy or PBRT, which is widely viewed as the next evolutionary step in the radiation treatment of cancer. We believe that PBRT is an enormous untapped growth opportunity for AMS.

We already have entered into contracts to place three Monarch 250 single-treatment-room PBRT devices, and we are negotiating to place additional systems. The Monarch 250 is an affordable, precise and compact proton therapy system for cancer treatment under development by Still River Systems, in which AMS owns an equity interest. AMS also is developing a three-treatment-room PBRT facility in the San Francisco Bay area with proton therapy equipment to be provided by Varian Medical Systems.

Our goal is for AMS to be the one-stop shop that hospitals and radiation oncology groups turn to first to meet their PBRT requirements, whether for single-treatment-room or multi-treatment-room facilities depending on their patient volume.

Construction of the facilities that will house the first Still River proton beam device is underway at Barnes-Jewish Hospital in St. Louis. And we are told that the actual PB -- Monarch 250 Compact high energy cyclotron is scheduled to be installed on site around the end of this year. This is not one of our three contracted sites, but it's important for us because it will serve as a site to develop the data required for FDA clearance.

As we have said repeatedly on prior calls, based on what we were told by many groups with which we are negotiating contracts to supply a Monarch 250, we are confident that the pace of activity in our PBRT business will pick up substantially once FDA clearance has been received.

Regarding the multi-treatment-room PBRT project we are developing in San Francisco with Varian Medical, we continue to negotiate with the hospitals who are likely to participate with us on the project. These are complex negotiations involving financing and other sensitive issues that take time to work through.

In the meantime, Varian has already received CE Mark approval in Europe for its multi-treatment-room PBRT system. The first installation of this system is up and running and treating patients in Germany.

Now, I'm going to turn the call over to Norm to review our financial results. Norm?

Yes, thanks Craig. Please note that various remarks that we may make on this conference call about future expectations, plans and prospects for the Company constitute forward-looking statements for the purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may vary materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Company's filing with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2008, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, and the definitive Proxy Statement for the Annual Meeting of Shareholders held on May 28, 2009. The Company assumes no obligation to update the information contained in this conference call.

For the three months ended June 30, 2009, revenue decreased to $4,583,000 compared to $5,102,000 for the second quarter of 2008. This primarily reflected lower patient volume at one Gamma Knife Center and downtime associated with the upgrade of another center to the Leksell Gamma Knife Perfexion System that was completed in late April.

While patient volume and revenue were down versus prior year, volume and revenue increased nearly 10% in this year's second quarter compared to the first quarter, an uptick we predicted in our last quarter conference call. As we reported to you at that time, one center accounted for most of the decrease in patient volume. The reason is that in the first quarter this center added a total body radio surgery device in addition to the Gamma Knife that has been operating there for a number of years. The physicians are reviewing the capability of this new device in relation to the Gamma Knife.

Net income for the second quarter of 2009 was $26,000 or $0.01 per diluted share, which included transaction costs of $123,000, which is $63,000 on an after-tax basis or $0.01 per share incurred during the quarter. This compares to net income of $213,000 or $0.04 per diluted share for the second quarter of 2008.

As previously disclosed, earlier this year the Company engaged in discussions concerning the possible sale of its 81% interest in GKF, the operating subsidiary for the Company's Gamma Knife business. These discussions were terminated on May 28, 2009. Under applicable accounting rules, the Company is required to expense the legal, accounting, investment banking and other costs incurred for these activities, which are classified separately as transaction costs.

We continue to hold the line on costs with the result that selling and administrative expenses decreased more than 11% to just over $1 million in this year's second quarter compared to the second quarter of 2008. Other income and expense decreased primarily due to the substantial reduction in interest rates since last year.

For the six months ended June 30, 2009, revenue decreased to $8,750,000 compared to $9,827,000 for the first six months of 2008. The net loss for this year's first half was $68,000 or $0.01 per share, which included transaction costs of $320,000, $163,000 on an after-tax basis or $0.03 per share. This compares to net income for the first half of 2008 of $369,000 or $0.07 per diluted share.

I note that last year's first half income also included a gain on the sale of equipment of about $56,000. There were no such gains for this year's first half.

Cash flow, as measured by earnings before interest, taxes, depreciation and amortization, EBITDA, was $2,231,000 for the second quarter and $4,140,000 for the first six months of 2009, compared to EBITDA of $2,657,000 for the second quarter and $5,025,000 for the first six months of 2008.

At June 30, 2009, AMS reported cash, cash equivalents and short and long-term securities of $9,861,000. This compares to cash, cash equivalents and short and long-term securities of $10,286,000 at December 31, 2008.

Shareholders' equity at June 30, 2009 was $22,972,000, or $4.92 per outstanding share. This compares to shareholders' equity at December 31, 2008 of $22,938,000, or $4.87 per outstanding share.

The Company repurchased 22,505 of its common shares during the second quarter of 2009 for an average purchase price of $2.13 per share. This is in addition to the 21,245 common shares repurchased during the first quarter of 2009 for an average purchase price of $2.13 per share. As a result, the number of common shares outstanding at June 30, 2009 decreased to 4,669,933 compared to 4,712,183 at December 31, 2008.

The Company still has about 158,000 shares left on the stock repurchase authorization originally approved by our Board of Directors in 2001 and reaffirmed in 2008.

Craig?

Thank you, Norm. Before we turn the call over for your questions, I want to say a few words about how we see proton therapy fitting into the debate over healthcare reform. A recent column published in The New York Times pointed to cancer treatment as the key to the success or failure of any reform proposal. The author Economic Scene columnist, David Leonhardt, said that prostate cancer was the litmus test that would determine whether President Obama and Congress put together a bill that begins to fix the fundamental problem with our medical system, the tradeoff between efficacy and cost. His point that there is no consensus among doctors on the most appropriate of five different courses of treatment for prostate cancer in widespread use today. He notes that no therapy has been shown superior to any other, even though the cost of treatment can range from $2,500 for watchful waiting to $100,000 for proton beam treatment.

What Leonhardt misses is that radiation oncologists generally agree that for advanced prostate cancer, the kind that can kill you, higher doses of radiation are associated with a lower risk of biochemical failure and a higher level of local recurrence-free survival. High-dose conventional photon radiation, that is non-proton beam radiation therapy, can result in unacceptable toxicity to tissues near the prostate. On the other hand, high-dose proton therapy achieves the same cancer-free survival rates without the toxicity. This highlights -- this really highlights the importance of bringing down the cost of proton therapy with new devices such as Still River's Monarch 250 and by more widespread adoption of this exciting technology. AMS is helping to make this happen.

Teresa, we are now ready for the first question.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from Tony Cammann from Eastwood Partners. Please go ahead.

Okay. Hi, Craig.

Hi, how are you doing?

Good. You sort of anticipated my first question with your last comments, but maybe if you could explain a little further. Obviously, one of the big issues that people are concerned about is government and insurance reimbursement and oversight. And I've seen a lot of articles lately talking about Medicare cuts, particularly around CyberKnife. Would that also apply to your Gamma Knife and does the Company -- is the Company seeing anything in terms of current cuts or proposals?

Tony, I think what you're seeing is that there is proposed reimbursement rate reductions for freestanding facilities. And I believe the CyberKnife also was included in that with a slight reduction. But the Gamma Knife is a hospital-based system. And actually from a CMS standpoint, it's schedule to go up just a little bit about 1.5% in the coming year. But we're seeing that the proposal for freestanding cancer centers, the cuts are quite significant, especially if they get imposed in terms of IMRT is roughly a 40% cut for freestanding cancer centers in IMRT.

Okay. The second question I had in -- I noticed that Still River -- well that a hospital in Shreveport last week announced that they had bought a machine and they didn't identify the manufacturer, but they said it was embossed and affiliated with MIT and expecting approval in 2010. So it certainly would appear that it's Still River. I question I had was it looks like Still River is continuing on their own to sign contracts. Can you -- do you a sense sort of the waiting lists and the queue that may be there? And are you concerned at all in terms of once you get approval being able to get machines on a timely basis? And what can you say in terms of Still River's plans to ramp production once they get approval?

I think Still River is right now -- they're concentrating on getting that -- getting the first system operational at Barnes and getting FDA approval. And we all wish that would happen as soon as possible. And as I said before, they are looking to deliver that towards the end of this year, early next year. We have several systems that are earlier in the queue that we can take possession of. I think we all share the concern as to whether they will be able to ramp up quickly and manufacture these at a pace that will meet what we think will be demand as soon as they get FDA approval. And it is their intent to be able to ramp up manufacturing as soon as they get the first one manufactured, but this will probably take some time and we'll have to see how fast -- how many they can actually produce in a given year.

This is Dr. Bates. I just want to add to that is that, at this point Still River is being supported by some major institutions, the Caxton Group, Winrock and CHI and we really don't expect that they will have any difficulties once they are FDA approved providing -- getting the financing to grow the company. I think it's quite exciting what they are doing and we are not anticipating any major difficulties after FDA approval. And I really -- they are really on track to get FDA approval. The issue is what part of next year will they get it. But Craig was just recently on the phone with Barnes and I think they told them that they roll up -- they are gearing up to accept that first machine by the end of this year.

Great. That's very helpful. On the multi-treatment side, you updated in terms of the San Francisco negotiations, which is very understandable. Is there any -- are you seeing any other activity that the Company is working on in early stages in other cities or is San Francisco the main focus at the moment?

No. We've actually seen significant activity in other parts of the United States, one on the East Coast, one on the -- in the Mid West, there are several others that we are looking at. And I think we are pursuing them all. I think it would be -- we are pursuing both multi-room systems as well as single room systems, it's up to what the facilities think they can generate in terms of patient volume.

Great. That's great. Nice quarter by the way. Thank you for the answers.

Thank you.

And thank you. Our next question comes from Lenny Dunn from Freedom Investors. Please go ahead.

Good morning guys.

Good morning, Lenny. How are you?

Pretty good, Dr. Bates. Just couple of questions unrelated because a lot of these are -- have been answered and I understand Still River and look forward to the huge opportunity that this presents, but obviously this is not a 2009 story. Then in the interim I would like to see a buyback of few more shares than your buying, if you can buy them for less than half of book value. I mean obviously it enhances our -- all of our shares and I understand because of the thin trading on the exchange that you do have some limitation as to how many shares you can buy on a given day and you can only bid for them and not during the first and last half hours so that it does restrict you quite a bit. But I'd love to see people were aware of the fact that similarly to what you did in the fourth quarter of last year, if somebody has a lot of shares to sell they can call you directly, sell them to you and that removes the restrictions that you would have. So I don't know you're saying so on this call will help facilitate that, but I would love to see the share count shrink if you can buy them at these prices because it certainly makes everybody else's more valuable.

I can answer that. We have been looking for blocks that just have not been available.

Somebody frequently seems to be selling on the exchange and I think that you're just not aware that you are doing it, but I am glad that you are. And obviously if you can buy shares with a book value of almost $5.00, just under $5.00, for $2.10 or $2.20, we all win. So anyhow I appreciate that. That's just the financial thing, but the rest of it, you are profitable and huge cash flows and stock should be trading anywhere near these levels, but obviously right now you're the tree that's falling in the forest and nobody is watching it. I think appreciate the execution on what you are doing and we patiently await the eventual -- I am sure successful Still River Systems.

Thank you, Lenny.

And thank you. Our next question comes from Benjamin Sexson from First Wilshire Securities. Please go ahead.

Hi, good afternoon.

Good afternoon.

We're a little bit new to story and I was just wondering if you could sort of walk me through sort of what I guess the EBITDA per machine or how we should kind of think about the potential of these machines in terms of what we can expect?

Is that Gamma Knifes or proton beam machines?

From the proton beam machine?

In terms of the Still River Systems, I think what we've said in the past is that we believe that once these are up and running, they will generate between $3 million and $4 million of EBITDA based on the business model that we're running. And we specifically haven't given too much information because we don't want to give away too much to our competitors, but we have said that. And what we've done so far is made these, what we call our revenue sharing arrangements, much like we've used in our Gamma Knife contracts over the years.

Do you expect to be moving away from the fee-for-service?

No, we don't. I think one of the things that -- one of the reasons why we've gone to revenue sharing is because the protons are a little ways out there from the time that you sign a contract at the time where you actually treat the first patient. And there is that reimbursement risk on both sides as whether it's going to up or down, whereas the fee-per-use takes care of the volume fluctuations, it doesn't really address if there is a fluctuation in the reimbursement rate. So it really make it so that both the hospital and American Shared is mutually either benefiting or negatively impacted. We have done revenue sharing arrangements so that we're going both in terms of the reimbursement rate and the volume fluctuations.

So what -- when you say $3 million to $4 million of EBITDA, would $3 million -- will that represent sort of what would that -- how do we think about in terms of reimbursement rates? I mean there is an upside and the downside like a max range?

We are looking at in the reimbursement rate range of about $1,200.

Okay. And going back to sort of your, I guess, the cash cow right now. What's the market right now for the Perfexion units? Is there other lot of hospitals that need to upgrade or what can we expect as far as growth from that area going forward?

Yes, there are a lot of hospitals that are looking for upgrades in the Perfexion, many of them not ours. So there is an opportunity that we can perform upgrades at sites that want to partner now. So we are actively looking at three to four to five sites that want to upgrade in addition to our own.

This is Dr. Bates. I might want to add that we're also seeing a lot of international interest in the Perfexion, and we are right now negotiating with sites in Peru and in the United Kingdom and in Israel.

Okay. So we can potentially see some growth out of that line?

Yes, we believe so.

Right now, there are probably about 90 are so Gamma Knifes of the old model that are in United States and we think eventually at least half of those or even more will be upgraded to Perfexions and we think we have great opportunity to take advantage of that market.

Okay. What's going on with the -- your other business, the image guided radiation therapy?

We are still looking at doing additional sites. We are working with a couple of centers now and seeing how we might be able to partner with them. So we hope that in not too distant future we'll be able to announce some activity in that space.

Interesting. Okay, well, thanks a lot for your time.

Thank you. Our next question comes from Michael Potter from Monarch Capital. Please go ahead.

Hi guys.

Hi.

Hi Michael.

Just want to kind of stay on the last caller's theme as far as our core business, which is still the Gamma Knife business, which is still a great business. Looking out, what does our pipeline look like? You said there was three to five that were looking to upgrade, but with -- can you breakout machines that are or opportunities -- upgrade opportunities versus new facilities and new joint ventures?

The three to five are potential new ventures for us. We are also looking to upgrade our existing fleet. There are probably about another three that we are actively looking at right now to upgrade to Perfexion.

So three of our current facilities that were looking to upgrade?

Correct. And there is probably three to five that are not in our portfolio that we were looking to assist in the upgrade process.

So those would be existing Gamma facilities that would be also looking to upgrade?

Correct, but not our own.

Okay. And what about opportunities for new Gamma Knife machines, a greenfield or taking over existing facilities?

We have not seen too many of those whether just new de novo sites where they haven't -- they don't have a Gamma Knife at all.

Okay. So the growth opportunity or at least the market is mature currently for the Gamma Knife machines in the United States?

I don't think that's the case. I just say we would -- we have not seen any of the new ones. I know Elekta is working on completely new customers and they signed recently memorial, the M.D. Anderson in Houston to Perfexion, which is a completely new customer. So I think there are some, but we have not run across any at this point.

Okay, okay. And if we go -- I know our volume was down, but what was our total volume number procedures -- number of Gamma Knife procedures for the quarter?

Norm, do you want to get that for Michael?

Sure. We did 467 procedures in the quarter.

Q2. And then how does that compare to Q2 of the last year?

Well, we did 501 in the second quarter last year, but we are up from 431 in the first quarter this year, so and we knew we had a little bit of a down quarter in the first quarter, so we are just pleased to see it increase.

Okay, great.

I might add Michael that one of the reasons that was a down quarter was one site which we had in Florida, which it really was our busiest site and the machine was placed there, which is Novalis unit that is owned by the radiation oncologist and the hospital. Unexpectedly our numbers went down dramatically because patients were then referred from our machine to that machine. And we do believe that there have been some violations of our contract and we're now approaching that legally. And I think there is a good chance that that will be corrected.

Can you say that again Ernie, I'm a little confused?

The confusion is that we have a contract and as we read the contract, the contract says that a fraction -- only fractionated heads can be done in their unit, anything that's a single fraction has to be done on our unit and that's the way the contract reads. And now we are having our lawyers look at that contract. In fact they are in negotiations with our lawyers. It appears that there is a good chance that that situation will be corrected.

So what the operator -- the current operator is referring our business to a competing facility?

It's referring to their own machine?

To their own machine, which they own a 100% of versus...?

They own it with the doctors.

Got it.

It's something we just hadn't expected. We usually cover ourselves from the contract and we thought the language is pretty clear that those outside machines that are brought in, bodies can only be done on that machine or fractionated heads. So that means if you have a very large tumor that really is too large for the Gamma Knife then it's appropriate to do that on a machine that you can fractionate. But it appears that there were treatments done that were single fractions and so we are now investigating in that.

And where does that -- where does it currently stand that issue?

I think where does it stand, I mean the negotiations?

Well, have we filed suit against the (inaudible)?

No, no. Obviously we are trying to avoid that.

Okay.

Try to settle it out of court.

Okay. And so far you are almost halfway through the third quarter, how has the volume been trending?

I think we are still tabulating July. Summer months have historically been some of the lighter months. So I think we are just waiting, but we usually get the pickup in the latter part of August and September.

Okay. And I know as the cash went down, what was our CapEx for the quarter?

Norm, do you want to give Michael what we spend on CapEx?

We spent about -- well, we did spend the $500,000. We placed the deposit on a new Gamma Knife unit during the quarter.

Yes, this is a new Gamma Knife that hopefully will be placed in hospital, a major hospital in United Kingdom that says those negotiations have not been finalized.

Okay. So, it's $500K.

Right.

Yes.

Okay. So Ernie, what else do we -- do we make another investment or add to our investment in Still River?

We did not.

Okay. So what was the total CapEx for the quarter?

CapEx for the quarter was about $600,000 Norm in total I believe.

We had -- it's a little difficult to put a figure to the quarter because we got some money back from -- on some financing of site that turned out to be a capital lease that we originally had paid cash for. So the main thing, aside from all that, was really the $500,000 for the deposit.

All right, I'll get back in queue. Thank guys.

Thank you.

Thank you. Our next question comes from Tony Polak from Maxim Group. Please go ahead.

Good afternoon. I am a little new to the situation also. I wanted to know if you can explain to me what is the difference between the Still River PBRT and the Varian that you are doing, is the Varian approved already in the US?

It is not. It has a CE mark, the European equivalent.

Right.

But it is not FDA approved yet as well.

Okay.

The main differences are is that the Still River System is a single treatment room system. Everything can be contained within that one room.

All right.

The cyclotron is actually mounted on the gantry of the Still River System as opposed to the Varian Systems and at the other large systems where the cyclotron or the synchrotron is in a separate room and then there is a beam line that takes the protons to each individual room that setup whether it's a gantry or a fixed beam line. So the larger systems are made to go from anywhere from three to five treatment rooms.

And what is difference in cost, Craig?

Yes, the costs are significantly different. The Still River System is I think somewhere in the $17 million range and the larger systems go $70 million on up depending on how many rooms or for three rooms and it could be significantly higher for the additional rooms.

All right. So, I am assuming that Varian is trying to get approval in the US, and when that happens, you will hopefully install in the San Francisco Bay area?

Yes, there is a number of opportunities for us and I think everybody is waiting for FDA approval on both the devices so that the products become financeable.

Right.

It's our understanding that Varian has submitted most of the data that's required for FDA approval, so we are assuming that's going to happen in the near future.

Who have--?

I might add though there has never been a (inaudible) machine that's not been approved by the FDA, so it's highly unlikely that Varian or Still River will have any major difficulties.

Who has the six or seven that are out there in the US now, who manufactures those?

The sites are the one in Boston is an IBA system, the system in Jacksonville is an IBA system. The one in Houston is a Hitachi system. The system at Loma Linda is a Optiva System built with [Ifirmy] lab originally. And the system that is opening up in Oklahoma City is a IBA system.

Craig, would you just say a word about the volumes that we know that are now being done at Jacksonville and at Loma Linda?

We are told that the volumes fluctuate between 120 -- 110, 120 on up to about 150 at some of the more established centers. That's a day.

That's pretty quick throughput.

Correct, they work long hours, but they also run very efficiently after a period of time.

And Craig, what's the average reimbursement on those two sites?

I can't be sure, but it's -- what we are seeing is that people are looking at about 120 overall not just these sites, but what we are hearing within the --

No, average reimburse per fraction.

Yes, between $1,200 to about $1,500, it depends on the mix and what not.

Okay. I assume -- I mean, is there some -- I don't know how to say that, are there some people that travel to these cities to get this?

Correct.

Okay. And thus I assume there are a lot of people that are not traveling and you hope to get those in the cities that you will install these?

Currently, the -- a lot of people are coming from outside their traditional catchment area, mainly because there are so few within the United States, there aren't very many options if you need proton therapy. So people are traveling the distance and generally it's anywhere from 20 to 40 fractions that are required, so people have to stay over. So people are doing that currently.

Sure. I assume your confidence in them getting approved is because -- I mean there are a few other manufacturers of the big systems, they've all been approved. Is there anything that says Still River's is different from theirs except for the costs, I mean --?

The difference is it's gantry -- the cyclotron is gantry-mounted. But we also have seen that there is a system where there is a cyclotron already mounted on a gantry. We believe that Still River has done the due diligence. They've -- we have had our physics people review what they've done and what their progress is and we feel very comfortable that they're on the right track and it's a matter of time before that first system is up and running.

How much money has been invested in Still River, do you know?

I think probably in excess of $50 million is contemplating being invested based on -- including the Series D.

Series D being the last series.

Right, okay. Thank you.

Thank you.

And thank you. Our next question comes from Anthony Chiarenza from Key Equity Investors. Please go ahead.

Good afternoon. Given that you've terminated the sale of the Gamma business, how does that affect your strategy going forward? We talked about on last conference call that you wanted to focus on the PBRT and the advanced technology and possibly use some of the funds from the sale of the Gamma business to invest in the new business. So how has this strategy now changed? I'm assuming that you're not now in the market to sell that Gamma business any longer?

Well, obviously our strategy has changed. We had expected to -- if that sale had gone through, we would have ended up with about $30 million in cash, and we were going to use that for advance payments on these machines. So now we are looking for other ways of raising that. And our preliminary discussions with investors, including people that are doing project financing, is very encouraging, very encouraging. So we think even though we've been slowed down, we won't be slowed down that much, and that we will get the financing.

In fact, we've been talking with some institutions that are requiring even less equity from the hospitals that we've been in discussions with. And that's been sort of a hold back because as you might expect even major institutions now are having problems putting any debt on their balance sheet, which works out well for us because they're just not buying their own machines. And I think if we can minimize the amount of equity that they put in, these deals will get done quicker and we think that's the direction that we're going in. And I don't think we'll have any difficulty in getting that accomplished.

So it's correct to assume now at this point you are really not marketing that Gamma Knife business anymore or you would still be open to possibilities for that?

Well, we felt that the last -- the last negotiations were very discouraging and took a lot of our time, time that we really should been placed on running our regular business as well as advancing the PBRT. We're not willing to take that time away anymore. Now if someone came and said, "We'll give you what you want and we'll do it all in a week," we would certainly consider that, but that's not likely. But we are really not actively marketing that anymore.

Understood. Thank you very much. Good luck.

Thank you.

And thank you. Our last question comes from Benjamin Sexson from First Wilshire Securities. Please go ahead.

Hi, I just had a follow-up call. I was just wondering with the three Monarch systems that you have contracts to place, will you be placing those at hospitals or will those be in freestanding cancer centers or can you add some more -- give some more detail on who potential users would be?

They will be hospitals.

Okay. So there's really not a lot of reimbursement risk for your proton beam therapy devices?

As it stands now, Medicare is reimbursing hospital-based systems. And in fact, the reimbursement rate is proposed to go up I believe about 10% to 11% in 2010 from 2009. And the -- still the major insurers are also reimbursing adequately for proton therapy.

Okay.

And I want to point out that our strategy has always been to place these machines at hospitals. We have not done any freestanding machines. And everything that we hear that's coming out of Obama administration and the Congress is that there will be no penalties for hospital-based equipment. And if there are any restrictions, it will probably be on freestanding centers.

Okay.

So we are very encouraged by that. And also the other talk we hear is that there might be bundling. Of course, bundling means that you get one diagnosis and you must get all your treatment out of that diagnosis in one facility which speaks well for hospitals and for our being associated with hospitals. If that ends up what the Congress and the administration decides to do, I think we're in good shape.

Okay. That was my question. Thank you.

Thank you. There are no questions at this time. And Mr. Tagawa, I'll turn the back to you for any closing remarks.

I just want to thank everybody for joining us this afternoon. And I'd like to ask Dr. Bates if he'd like to make any closing remarks.

Well, the only thing I want to say is that we are still very encouraged by the Gamma Knife business. It still has a lot of potential. There is still a lot of interest in the Perfexion machine. And the other thing I want to say is that the research we're coming out of Europe and out of Japan, and now some even in the United States, is very exciting about the success of proton beam treatments for neck cancer, for prostate cancer and for lung cancer. Very exciting stuff. And I just don't see any [potential] cancer treatment that will be successful that will not include proton and heavy particles machines. So thank you.

And thank you. And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.