Edap Tms SA (EDAP) 2008 Q1 法說會逐字稿

Good morning, my name is Dennis and I will be your conference operator today. At this time I would like to welcome everyone to the Edap First Quarter 2008 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

(OPERATOR INSTRUCTIONS)

I will now turn the call over to Mr. R.J. Pellegrino. Please go ahead, sir.

Thank you, Operator. With us today from management are Philippe Chauveau, Chairman of the Board, Marc Oczachowski, Chief Executive Officer, and Eric Soyer, Chief Financial Officer. By now you should have received a copy of the earnings press release. If you have not received a copy, please call [Zach Qubois] at 646-536-7020 and he will fax or email you a copy.

Before we begin, I would like to remind everyone that Management's remarks today may contain certain forward-looking statements. Complete details of factors affecting forward-looking statements can be found in the Company's SEC filings available on the Company's website at www.edap-tms.com and are incorporated by reference for all remarks made during the course of this call. With that, I will now turn the call over to Philippe Chauveau, Edap's Chairman of the Board.

Thank you, R.J. Thank you, all, for joining us on today's call. I will start the call with a few opening remarks. I will then turn the line over to Marc Oczachowski, our Chief Executive Officer, who will review recent corporate developments. Thereafter, Marc will pass the line to Eric Soyer, our CFO, who will discuss our first quarter 2008 financial results. We will then open the line for questions.

My opening remarks today will focus on three topics. One, our progress in advancing the U.S. ENLIGHT clinical trial for Ablatherm. Two, the further adoption of HIFU technology in Europe; and three, the strength of our leading IP portfolio.

First in the U.S.; we are pleased with the continued progress in attracting high quality and well respected academic centers and private practices to participate in the ENLIGHT trial. Over the past six weeks, we have achieved 25% enrollment growth, indicative of the momentum for our patient awareness trial program and accrual efforts.

The high quality of participating centers adds credibility to our technology and highlights the unmet need of an un-invasive approach to treating localized prostrate cancer. Second, in Europe; our overall HIFU performance in the first quarter was solid, driven by the growth of capital equipment sales. Ablatherm HIFU continues to be a recognized and valid option for localized prostrate cancer as absolute total treatments now exceed 16,000.

Third, our IP leadership; as HIFU continues to emerge as a minimally invasive and effective treatment option, we believe this technology is positioned to become the next standard of care for the treatment in not only prostrate cancer, but across multitude of indications. With the strongest worldwide IP and experience, we are committed to future HIFU innovation aimed at improving therapeutic treatments for patients. With that, I will turn the line over to Marc.

Thank you, Philippe, and thank you, everyone, for joining us for our first quarter 2008 call. We are very pleased with the robust revenue growth that our HIFU business generated in the first quarter of 2008. As outlined in our release, HIFU quarterly total revenue increased 38.6% year-over-year and was driven by strong growth in HIFU hospital equipment sales. During the quarter, we sold two HIFU machines, reflecting the growing adoption of our technology and the flexibility of our business model.

After reviewing our operations outside the U.S., I will outline the substantial progress made on our U.S. clinical development program during the first quarter as we continue to drive forward with our patient recruitment efforts. Outside of the U.S., we remain focused on increasing the awareness and adoption of our products through aggressive sales and marketing initiatives.

During the quarter, we continued to be successfully driving demand for our minimally invasive solution for prostrate cancer by achieving extensive clinical results, peer-to-peer interactions among urologists, ENLIGHT demonstrations of other semi-proven technology at the annual European Association of Urology Congress. Strong physician interest and attendance at ENLIGHT Ablatherm demonstrations further validated the proven track record of the product and heightened its visibility to potential new users.

During the first quarter, we added eight new HIFU centers. As anticipated, revenue per procedure or RPP revenue for the first quarter of 2008 was impacted by the transition of two large hospitals to direct ownership of our capital equipment and a slower start in treatment volumes in January and February. As we stated in our last earnings call, in the first quarter of 2007, these centers generated strong RPP revenues, while during the first quarter of 2008 we only recorded revenue from the Ablapak [disposal], a one-time use consumable.

As centers continue to increase the volume of patient treatment, the [color mix] for the hospital will favor direct ownership. As the business matures, this transition will have less of an overall impact on the revenue model. We continue to see strong volume of patients at new centers as our sales and marketing initiatives drive product for awareness and adoption.

Clinical interests focused on Ablatherm's minimally invasive technology and benefits have driven patient recruitment and volume at both existing and new centers. We expect this positive trend to continue as Ablatherm HIFU technology is further validated as a consistent, solid and effective option as the growing number of patients experience favorable treatment outcomes.

We are pleased to report that we experienced a return to stronger RPP treatment volumes in March and we are confident in the adoption of our RPP business model. We are very [favorable] start of 2008 with two machines sold as well as higher disposable Ablapak sales. We are enthusiastic about the [appeal] of RPP revenues in March and will continue to further define the role of HIFU as a proven and valid technology to both current and potential European users.

Overall progress of the U.S. ENLIGHT trial is very positive. During the quarter, we received IRB approval for additional participating sites including the world-renowned centers M.D. Anderson and Memorial Sloan Kettering, who are participating in the Ablatherm arm and Atlantic Urology in Daytona Beach Florida, who is enrolling patients in the cryotherapy arm for the trial.

We currently have IRB approval of 85%, 11 out of 13, of the trial HIFU sites and 62%, eight of the [13], trial sites. Of the 11 HIFU centers, seven have received approval in the last three months, while three of the eight trial received approval during April. We are pleased to report that we currently have two HIFU and three cryo-sites in the process of being fully activated.

By the end of May, we are expecting a number of sites with activated marketing programs to increase by 50%. These leading centers of innovative therapy, along with our practice patient awareness program, have been instrumental in raising the visibility for Ablatherm HIFU.

With this momentum driving the ENLIGHT trials, we have seen an increase in the pace of enrollment, which we believe is a reflection of the unmet need for a minimally invasive treatment approach to prostrate cancer. A total of 36 patients have been enrolled in the trial, of which nine enrolled in the past six weeks alone.

These efforts are in line with our goal to complete this trial in the most timely matter possible. We believe patient enrollment is gaining traction, as in the past six weeks we have enrolled 25% of the existing patients, which demonstrates the growing recognition of Ablatherm HIFU as a viable therapeutic approach to prostrate cancer.

We are extremely pleased with the progress our ENLIGHT patient awareness program continues to make and expect the program to continue facilitating enrollment. The program that consists of patient websites, a centralized call center and site for treatment toolkits that provide detailed information for both patients and physicians have been instrumental in our accrual efforts.

The website, www.pcaresearch.com, which provides a patient pre-screener that is closely based on the trials including an exclusion criteria has led to the successful referral of 36 patients, 23 of which were referred in April alone. We are pleased to report pre-qualified referrals almost doubled between March and April. Although in the beginning stages, our local media, at which has been successfully increasing patient awareness in Aurora Colarado, and Fort Worth, Texas. We believe this growth is reflective of the program's increasing momentum.

As a reminder, we have received IRB approval for the following 11 HIFU centers -- Duke University in North Carolina; Florida Foundation for Healthcare Research, Florida; Virginia Urology, Virginia; Thomas Jefferson in Pennsylvania; Vanderbilt University, Tennessee; University of Colorado, Colorado; University Urology Associates of North Texas, Texas; Maple Leaf HIFU, Ontario, Canada; Hackensack University Medical Center in New Jersey; Memorial Sloan Kettering, New York; and MD Anderson Cancer Center in Texas.

We are very excited these world-premier centers are participating in the ENLIGHT trial, reflecting our strategy of building of credibility of HIFU through reference centers, university hospitals and key opinion leaders. We believe this is an asset for the technology and our progress towards U.S. (inaudible).

As mentioned in our earnings release, we sold five Lithotripsy machines during the first quarter, following a record fourth quarter of 30 machine sales, which outpaced traditional trends. While year-over-year Lithotripsy revenue declined, we are pleased to report the Company has current backload of seven machines, including two of our new Sonolith I-Sys devices. While the sale of Lithotripsy machine may fluctuate on a quarterly basis, over an annual period, we are on pace to sustain our average historical level of machines sold in a quarter.

The strength of our current backlog at the mid-point of the second quarter leaves us well positioned for a return to historical levels of machine sales. Initial feedback from the Urology marketplace continues to indicate that EDAP has produced another device with our Sonolith I-Sys that is regarded as the new benchmark for the comparative assessment of next generation lithotripters.

As stated on our last conference call, we remain on track to file a 510-K for the Sonolith I-Sys by the end of 2008. We believe that the advanced features of this device will enable us to effectively position our product within the [IN] segment of the competitive U.S. marketplace. HIFU is an emerging minimal invasive treatment approach that is continuing to be recognized among the medical community as an effective treatment option with multiple potential applications.

We are seeing the [course] in the eruption of HIFU technology highlighted by the growing research of the International Society of Therapeutic Ultrasound. As existing medical and scientific literature continues to increase, it's alerting the clinical outcome and unique characteristic of HIFU, we believe the technology is positioned to become the next standard of care in not only prostrate cancer, but other indications as well.

Our [expectations] derived from 20 years experience in HIFU and over 16,000 treatments performed, coupled with our strong IP position, allows for the potential to participate in the growth of this innovative technology across multiple pathologies. Validating our approach to our HIFU innovation, we have collaborated with INSERM and [it be] target to explore HIFU and its applicability in [lithosome] activation and optimal drug delivery.

We will continue to leverage our expertise and participate in medical projects with the aim of delivering improved therapeutic treatments. I will now turn the line over to Eric, who will review our first quarter 2008 financials.

Thank you, Marc, and hello, everyone. I will now discuss our first quarter 2008 financial results. Our first quarter financial results reflecting strong revenue growth across the HIFU business, driven by capital equipment machine sales. Total revenue for the first quarter of 2008 was EUR4.5 million compared to EUR4.7 million for the same period in 2007. This figure was a result of an increase in HIFU total revenues of 38.6% year-over-year, primarily based on expanding machine sales and partially offset by lower Lithotripsy sales.

Total revenues for the Lithotripsy division were EUR2.3 million in the first quarter of 2008, compared to EUR3 million versus a year ago. The decrease reflected lower machine sales following a record fourth quarter, which outpaced traditional levels. As Marc noted, the Company is very well positioned for a return to historical levels of machine sales with a current backlog of seven devices, including two Sonolith I-Sys machines.

Our gross profit remains stable at EUR2 million. The gross profit margin increased to 44.1% in Q1 2008 due to healthy sales of HIFU equipment, partially offset again by lower Lithotripsy sales. As we continue to progress with our U.S. ENLIGHT clinical trials, we indicated a portion of our resources to the FDA clinical trials for Ablatherm HIFU. These programs resulted in the plan's increase in operating expenses to EUR3.5 million in the first quarter of 2008, up from EUR3.1 million in the year-ago period.

Operating loss for the first quarter of 2008 was EUR1.5 million, versus EUR1.1 million in the year-ago period, related to our U.S. operations for the advancements of our Ablatherm HIFU clinical trials (inaudible). Net income was EUR1.1 million or EUR0.11 for diluted share compared to a first quarter of 2007 net loss of EUR1.2 million or EUR0.14 for diluted share.

Net income for the most recent quarter reflected a EUR2.7 million non-cash financial gain related to the accounting adjustments of a convertible debt and outstanding warrants to fair value and EUR1 million currency change gain due to the weakening of the U.S. dollar against the Euro. As a reminder, these adjustments of debt for value are primarily linked with variation in stock price and the U.S. dollar exchange rate, and thus vary from one quarter to the other.

At March 31, 2008, cash and cash equivalents, including short-term treasury investments totaled EUR15.5 million or $24.6 million U.S. During the first quarter of operational cash burn was EUR1.4 million including EUR500,000 for U.S. FDA trials. An additional EUR600,000 was used to pay down short-term credit facilities and EUR1 million reflects the translation to Euro of our U.S. dollar cash. The translation is necessary for consolidation and accounting purposes, but we actually maintain our cash in U.S. dollar, where it is being utilized in connection with our ENLIGHT clinical trials.

We thus remain in excellent position to fully fund our U.S. clinical trials, which continue on track and we are again most pleased with enrollment of patients to date and the quality of participating centers. With that, I would now like to turn the call over to the operator for the Q and A session.

(OPERATOR INSTRUCTIONS)

Your first question will come from the line of [Donald Collins] with NTB Incorporated.

Good morning. I have a question concerning the French reimbursement. Are you seeing any progress in that area?

Actually, we are. As we've been doing for the past month and years, we are continuously working with the French Urology Association and with all the authorities to progress on that, but we have currently no further feedback to give on that.

Okay, you said that you were seeing stronger RPP treatments in March, is that continuing on in this current quarter?

Actually, we are at the [height] of the second quarter and I would say that RPP treatments and enrollment of patients with the RPP model is going well and that we continue to be convinced and to get the proof that the model is solid and is completely answering the need of covering [most] hospitals treating with prostrate cancer patients.

Okay, third question; how many physicians are you training each month in Europe and is this number growing sequentially?

This is a number that is growing as we are increasing a number of sites using the Ablatherm HIFU, and as I mentioned earlier, we have recruited eight new additional sites during the first quarter. And in general, we have an average of two to three urologists per site that are trained.

Okay, thank you.

You're welcome.

(OPERATOR INSTRUCTIONS)

There are no further questions at this time. Do you have any closing remarks?

No, except to say thank you, all, for joining us on this call and each of us individually are available to respond on our telephone lines to single investor or analyst questions that may come up during the quarter. Thank you very much for joining us.

Ladies and gentlemen, this concludes the EDAP First Quarter 2008 Financial Results Conference Call. You may now disconnect.