Edap Tms SA (EDAP) 2008 Q2 法說會逐字稿

Good morning. My name is Christie and I will be your conference operator today. At this time I would like to welcome everyone to the EDAP Second 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 of Ruth Group. Sir, please go ahead.

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 Zack Kubow at (646) 536-7020 and he will fax or e-mail 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.

Good morning, all. As usual, I would like to share some opening remarks. First, HIFU. HIFU, despite a flat first half of the year, EDAP's HIFU as a standard of care is outstanding, and Q3 and Q4 will continue to show this with our RPP aggressive growth program, which is up and running in the four major European countries.

Further in the US the future of Ablatherm robotic HIFU, as evident in the progress of our patient enrollment, is unquestionably strong. Additionally, our new HIFU product pipeline is also excitingly promising.

Second, lithotripsy. The success of our next generation Sonolith I-Sys is now proven with robust revenue growth in Q2.

Third, Chinamed. I'm also pleased that our partnership with Chinamed in Europe is firmly on track and doing well.

Finally, I would like to reemphasize that our first half of 2008 bears no reflection on EDAP's strength and bright future. Over to Marc.

Thank you, Philippe, and thank you everyone for joining us on our second quarter 2008 earnings call. We are encouraged by our lithotripsy sales growth during the second quarter that was driven by the continued penetration of our next generation Sonolith I-Sys device. As outlined in our release, quarterly total lithotripsy revenue increased 47.9% sequentially, reflecting the anticipated higher number of machine sales, consistent with our first quarter guidance.

After reviewing our strong performance in lithotripsy, I will outline some of our sales and marketing initiatives that we believe will stimulate growth of HIFU sales. And then, I'll discuss our progress on patient enrollment in the US ENLIGHT trial as we advance towards pre-market approval submission to the FDA for our Ablatherm robotic HIFU device.

Let me start with lithotripsy. During the second quarter, we experienced strong revenue growth in our lithotripsy division highlighted by a 47.9% sequential increase in sales. As mentioned in our earnings release, we sold ten machines, including two Sonolith I-Sys devices. As anticipated, we converted much of our first quarter 2008 backlog into revenue during the second quarter.

At the beginning of the third quarter, we have a backlog of eight machines, including five Sonolith I-Sys devices. The strength of our current backlog at the mid-point of the third quarter leaves us very well positioned to continue capitalizing on this momentum, and drives robust lithotripsy sales in the third and fourth quarter of 2008.

The enthusiasm for Sonolith I-Sys from our customers is unanimous, as the device provides superior imaging and software systems, as well as user friendly features associated with high efficacy treatments offering the best standards for the benefits of both the patient and the hospital.

Outside of the US, we remain focused on increasing the awareness and adoption of our products through aggressive sales and marketing initiatives. During the quarter, we capitalized on the opportunity to further demonstrate the advantages of HIFU as a proven therapeutic option by attending several events with the world's most renowned national and international opinion leaders in urology.

EDAP had a very strong presence at both the American Urological Association and the British Association of Urological Surgeons annual meeting, in addition to other European national urological congresses.

Our presence at these events focused on increasing physician awareness and further clarifying the unique capabilities of EDAP's therapeutic ultrasound solution, as well as the advantages of HIFU as a safe and proven treatment option for localized prostate cancer.

Both current and potential new users had the opportunity to assess the technology and robotized approach while discussing Ablatherm HIFU's clinical superiority. These events provided us with an excellent forum to showcase the advantages of our non-invasive ultrasound treatments.

We continue to be successful in increasing the awareness and adoption of our products by presenting extensive clinical results, peer-to-peer interactions among urologists, and live demonstrations of Ablatherm HIFU's proven technology.

Throughout the second quarter the safety and efficacy of Ablatherm HIFU's technology has been highlighted and published in several influential medical journals that were selected for review and presented at major medical conferences.

We are extremely pleased that one such placement in the French Association of Urology has designated HIFU as a standard of care for salvage and primary care treatments for localized prostate cancer. This marks a clear milestone for our technology and serves as a clear recognition of HIFU's clinical superiority and treatment potential.

We plan to leverage this study and other scientific publications, in addition to specialized and focused media placements throughout Europe, to drive increased awareness of HIFU as a viable treatment option among current and potential users.

During the quarter, we also officially presented our @-Registry program, Ablatherm treatment registry, a centralized database that collects follow-up data on patients who have undergone Ablatherm HIFU treatment. We believe the program launch will serve to further demonstrate the long-term effectiveness of primary and salvage HIFU treatment. We expect physicians to leverage this database for more convenience and wider access to the robust clinical data that supports the use of Ablatherm HIFU.

Resulting publications will be used to consolidate and more precisely define the true role of HIFU as a proven and valid technology in the modern urologic practice.

Most importantly, the launch of our @-Registry addresses the treatment and funding of UK prostate cancer patients in conformity with NICE guidelines. Thus the UK, after a confusing message, NICE reconfirms its support of Ablatherm HIFU with the @-Registry.

Turning to sales for the quarter, our RPP revnue, our revenues per procedure business was relatively flat quarter-over-quarter. In response to the stabilization of our RPP sales over the past two quarters, the management team, supported by the board of directors, has implemented an aggressive RPP action program to increase sales efforts in the second half of 2008. This sales and marketing campaign, partly based on the French Association of Urology's designation of HIFU as a standard of care, will focus on driving increased educational and marketing programs, targeted at patients and physicians, in each of our key European markets.

In addition to our more active and aggressive sales and marketing initiatives, we have instituted more flexible and open sales programs. We are confident our actions then will drive RPP sales to the next level, and continue to grow beyond. Our efforts in Germany have already resulted in EDAP entering into new RPP contracts with St. Barbara Hospital in Gladbeck, and a longer-term fixed RPP contract with the well-renowned urological clinic of the University of Heidelberg, effective July 1.

Turning to our HIFU equipment sales, while we faced a challenging year-over-year revenue comparison in our HIFU division, HIFU equipment sales remained flat on a six-month comparable basis in terms of units sold. The challenging comparison was due to the no sales of Ablatherm HIFU devices during the quarter versus two in the second quarter of 2007, which included one high-priced system. As we have stated in the past, quarterly revenues may be impacted by fluctuating capital equipment sales from time to time.

For the first six months of 2008, we have sold a total of two Ablatherm units, equal to the number of HIFU devices sold during the same period last year. We are positively enthusiastic entering the third quarter, by the sale of one additional device to Russia in early August, which is expected to drive capital equipment and total HIFU revenue in the back half of 2008, and assist in our efforts to increase penetration in Europe.

We have high expectation for the second half of the year, and are confident in the return of capital equipment sales due to our strong pipeline of projects.

We are also seeing a positive trend in disposable Ablapak sales. For the first six months ending June 30 2008, sales are up 15% over the same period of 2007. While this is simply a trend, it does show our existing centers have ordered more Ablapaks on a six-month basis, and are thus experiencing a higher recruitment of patients.

We continued to make progress this quarter with ENLIGHT, our US clinical trial, notably with the MD Anderson Cancer Center treating its first localized cancer patients with Ablatherm [cryo] HIFU. This world-renowned center's initial treatments mark a significant milestone in our program's development.

ENLIGHT continues to attract patients, and several men are scheduled to receive our minimally-invasive treatment in the coming weeks. We currently have IRB approval of 12 out of 13 HIFU sites and 10 out of 13 trial sites.

We are pleased with the progress of our ENLIGHT patient awareness program. Our marketing initiatives focused on driving patient accrual are being successfully implemented, and this is evidenced by the 68 patients that were referred to participating sites during the second quarter, with certain patients in the first quarter.

The process of screening and then treating patients is gaining traction, which demonstrates the growing momentum of our marketing initiatives. With this momentum driving the ENLIGHT trial, 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 prostate cancer. A total of 45 patients have been enrolled in the trial, and we plan to treat more patients in the coming weeks. In fact, today we have a patient scheduled for a treatment at our clinical site in Hackensack, New Jersey.

We are pleased to announce that two participating centers have treated their first patients in the cryo arm of the ENLIGHT trials, which marks another significant milestone in our [development] program. The treatment of these initial patients also highlights the momentum of our patient awareness program in driving accrual for both arms of the study.

During the second quarter, and into the back half of the year, there are additional patients entering the enrollment screening process, and we expect continued treatment (inaudible). We believe the uptake in enrollment is reflective of our efforts to increase patient awareness through our local media outreach, and recently implemented grassroots programs, targeting patient advocacy and senior groups in cities where our clinical sites are located.

HIFU is an emerging, minimally-invasive treatment approach that is continuing to be recognized among the medical community, and an effective treatment option with multiple potential applications. We are seeing a growth in the adoption of HIFU technology, highlighted by the French Association of Urology's acknowledgement of HIFU as a standard of care for select primary-care patients with localized prostate cancer.

As existing medical and scientific [utilitor] continues to increase, recognizing our long-term data and confirming both the safety and efficacy of Ablatherm, we believe HIFU technology is positioned to become the next standard of care in not only prostate cancer, but across other pathologies as well.

Our solid IP portfolio, coupled with the best experience in HIFU, and almost 17,000 treatments performed at more than 190 centers, leaves EDAP strongly positioned to benefit from the expected growth of HIFU in the medical community. We will continue to leverage our expertise and strong pipeline of R&D projects aimed at achieving improved therapeutic solutions. To reiterate Philippe's earlier comment, we are all extremely confident in EDAP's bright future.

I will now turn the line over to Eric, who will review our second quarter 2008 financials. Eric?

Thank you, Marc, and good morning, everyone. I will now discuss our second quarter 2008 financial results. Our second quarter financial results reflected seasonal HIFU device sales fluctuations, partially offset by strong revenue growth across our lithotripsy business, driven by the anticipated increase in machine sales.

Total revenue for the second quarter of 2008 was EUR5 million, compared to EUR5.9 million for the same period in 2007. This figure was primarily impacted by a challenging year-over-year revenue comparison due to no sales of Ablatherm HIFU system, versus two in the second quarter of 2007, including one high-priced unit.

Total revenue for the HIFU division was EUR1.6 million in the second quarter of 2008, compared to EUR2.8 million in the same period last year. On a six-month comparable basis, HIFU capital equipment sales remained flat in terms of units sold, with two machines sold. As Marc noted in his comments, we have implemented an aggressive RPP program, in response to the stabilization of HIFU RPP sales in the first and second quarter of 2008. We are confident our actions then will drive RPP sales in the second half of 2008.

Net sales for the lithotripsy division were EUR3.3 million in the second quarter of 2008, compared to EUR3.1 million in the year ago period. Consistent with our first quarter 2008 statement indicating that seven machines were in backlog, including two Sonolith I-Sys devices, the increase reflected higher machine sales, as we converted much of the backlog into revenue, and sold ten lithotripsy devices during the second quarter of 2008.

As Marc noted, our current backlog of eight machines, including five Sonolith I-Sys devices, strongly positions us to continue driving lithotripsy sales in the third and fourth quarter of 2008. Similar to the patterns we experienced during the second quarter, we expect to convert the majority of our backlog into revenue during the third and fourth quarter of this year.

Our gross profit for the second quarter was EUR1.9 million, compared to EUR2.3 million in the year ago period. Gross profit margin of 37.9% in the second quarter 2008, compared to 39.5% in the year ago period, was based on lower HIFU capital equipment sales. On a six-month comparable basis, gross profit margin remained flat at 41%, while HIFU gross profit margin increased to 62.3% from 59.9% in the first six months of 2007.

During the second quarter, we dedicated a portion of our resources to continue the progress with our US ENLIGHT clinical trial, focused on HIFU, to support FDA approval. These programs resulted in a planned increase in our operating expenses to EUR3.3 million in the second quarter of 2008, up from EUR3.1 million in the year ago period.

Operating loss for the second quarter 2008 was EUR1.4 million versus EUR0.7 million in the year ago period. The wider net loss year-over-year was mainly attributable to lower gross profit on machine sales by EUR0.4 million, and a EUR0.4 million increase in our US operations to advance FDA clinical trials of Ablatherm HIFU.

Net income in the second quarter 2008 was EUR0.9 million, or EUR0.10 per diluted share, compared to net loss of EUR0.7 million, or EUR0.08 per diluted share in the second quarter of last year. Net income for the most recent quarter reflected a EUR3 million non-cash financial gain related to the accounting adjustment of our convertible debt and outstanding warrants to fair value.

At June 30 this year, cash and cash equivalents, including short-term treasury investments, totaled EUR13.4 million, or $21.1 million. As expected, during the second quarter, our cash burn was EUR2.1 million, including EUR0.5 million for our FDA clinical trial, EUR0.2 million for debt and lease repayments, EUR0.2 million for capital expenditures, and EUR1.2 million for current European and Asian operational activities.

Again, our cash position remains strong and consistent with our plans. Our clinical trial is fully funded, and we're especially pleased with the recent momentum of our patient awareness programs, which have continued to drive accrual (inaudible) top quality participating sites.

With that, I will now turn the call back to the operator, to answer any questions you may have. Operator?

(Operator Instructions) There are no questions at this time. I will now turn the conference back over to Mr. Marc Oczachowski for any closing remarks.

In conclusion, we are pleased with the strong sales performance of our lithotripsy division in the quarter, and believe our reduced backlog as of June 30, 2008, leaves us well positioned to drive increased sales growth in the second half of the year.

We have identified a plan of action to increase our RPP sales efforts, and are already encouraged by the sale of one Ablatherm HIFU device in August. We continue to make progress on our US ENLIGHT clinical trial, and expect treatment volumes to ramp up as we move into the third quarter.

Thank you again, all, for attending the call.

This does conclude today's conference call. You may now disconnect.