Edap Tms SA (EDAP) 2009 Q3 法說會逐字稿

Greetings and welcome to the Edap Third Quarter 2009 Financial Results. At this time, all participates are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce Carol Ruth of The Ruth Group. Thank you, Ms. Ruth. You may begin.

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.

Before we begin, I'd like to remind everyone that management's remarks today may contain forward-looking statements. These 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 uncertainties and risks that could cause actual results to differ materially from those described in these 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. Now I'd like to turn the call over to Mr. Philippe Chauveau. Philippe?

Good morning, all. As usual, I will share with you some brief opening remarks before handing over to our CEO.

I would like to point out three highlights from Q3 2009, all of which continue to position Edap for future success. One is revenue growth, two is RPP HIFU, and third is cash management.

Revenue growth in terms of revenue, it was matched by a long and very heavy sales pipeline for Q4. Secondly, the number of RPP treatments in Europe continues its growth, and is tracking at a 30% plus increase. And finally, cash management, we have a robust cash position which is conservatively managed and with a well controlled burn. Finally, Edap's Board, which is by the way 50% American, met in Lyon yesterday, Monday, and is very engaged and fully committed to Edap's success. Marc?

Thank you, Philippe and thank you everyone for joining us on our Third Quarter 2009 Earnings Call. I will begin the call by reviewing our fourth quarter 2009 outlook, comment on our strong nine month financial performance and update our recent accomplishments including the US Sonolith I-Sys FDA approval and first sales contract. I will wrap up with a brief update on our US clinical trial.

Before I turn to our third quarter 2009 performance, I would like to note that we are experiencing strong order flow midway through the fourth quarter, which positions us for a solid full year 2009. Our current pipeline of orders includes two Ablataherm-HIFU units and ten lithotripsy devices, in addition to sales activity across our entire product mix.

During the nine months ended September 30, 2009 our lithotripsy revenue increased 26.9% versus the prior year period. The Sonolith I-Sys, our next generation lithotripter, was the growth driver for this business segment as it continues to penetrate the European market.

Revenues for the three month period ended September 30, 2009 reflected historical seasonality. Yes, we are expecting a solid finish to 2009 based on our year-to-date revenue performance, our robust pipeline of orders of ten units, including four Sonolith I-Sys and geographic expansion of Sonolith I-Sys.

During the third quarter 2009, our most significant achievement was the US FDA approval of Sonolith I-Sys confirming our regulatory capabilities and further validating the versatility of, and need for, our technology in one of the largest global markets for lithotripsy.

Our next generation high range integrated lithotripter has been designed to match the needs and expectations of the American market. And initial adoption gives us confidence that consolidated IVs can benefit patients and physicians in the US.

Less than two months after FDA clearance, we have secured our first sales contract with HealthTronics, a major US lithotripsy player with one of the largest installed bases. In addition to directly offering Sonolith I-Sys to major groups and partnerships, we are actively building a suitable and effective network and carefully evaluating marketing options to optimize our US sales opportunities.

Regarding our HIFU division, Ablatherm continues to gain broader recognition and expand into new markets as a safe, proven and non-invasive treatment option for localized prostate cancer. We are particularly pleased with the progress and continued RPP revenue per procedure sales momentum, which contributed to a 10.4% total revenue increase for the HIFU division including a 22.7% increase in RPP revenue during the third quarter 2009 compared to the year ago period.

Our total number of RPP treatments for the first nine months of the year, continues to show robust growth of 36.7% as compared with the first nine months of 2008. Our revenue [per procedure] marketing program continues to gain significant traction across Europe. And our customers have been [conceived] to the flexibility offered under this sales offering. In Germany, France and Italy in particular, our greatest sales and marketing efforts have contributed to a steady increase in RPP activity.

Outside of Europe, we are experiencing excellent initial uptick at our recently launched RPP sites, which reflects the full commitment of our dedicated sales force and distribution partners in further penetrating new markets.

Initial ramp has been encouraging in the Netherlands, India and Mexico. And we have already secured our first sale in Bolivia following the recent approval of Ablatherm-HIFU in several South American countries, including Brazil.

During the quarter, we received HIFU approval in Taiwan, which has been followed by our first sales contract in this new market. We expect the Ablatherm unit to be delivered during the fourth quarter 2009. These recent approvals, and a growing number of HIFU treatment volumes, represent a clear milestone for Ablatherm and confirm our ability to bring devices from regulatory review to market in new territories.

We are especially pleased to have a second purchase order confirmed for another therm machine from one of the largest and most prestigious hospitals in Paris, La Pitie-Salpetriere. We expect the device to be delivered within the next few days, and be recognized as part of our fourth quarter revenue.

As part of our efforts to increase market penetration for HIFU, we took several steps during the third quarter 2009 to increase position awareness and drive further adoption of our technology. At the annual German Society of Urology, the [DDU Congress], we organized a dedicated HIFU training course along with seven HIFU workshops for current Ablatherm-HIFU experts to present clinical results and share experiences utilizing HIFU.

We believe that our well-attended workshops demonstrate the growing interest for our Ablatherm-HIFU technology. We increase recognition among broader audiences Edap in collaboration with [Institut Mutualiste Monsouris] in Paris, organized a press conference in September where Germany observed a live Ablatherm-HIFU treatment followed by a question-and-answer session with Professor Guy Vallancien, Head of the Urology Department at [Institute Monsouris], and 14 year Ablatherm user.

He spoke of HIFU as a clinically superior, safe, and proven treatment option for the highest potential to effectively provide focal treatment by targeting the malignant areas of the prostate.

Professor Pascal Rishman, President of the French Association of Urology, AFU, and Head of the Urology Department at Rangueil University Hospital in Toulouse, also participated in the press meeting. He confirmed the particular benefits of Ablatherm-HIFU for patients unable and unwilling to undergo surgery, or who have failed radiotherapy.

At the meeting, he officially announced that the AFU has launched a clinical study on Ablatherm-HIFU as a focal treatment for localized prostate cancer that will evaluate the benefits, side effects and patient preservation of quality of life after HIFU treatment.

In addition to the AFU study, French regulatory organization assessed and authorized a Phase I clinical study to evaluate the potential of HIFU technology to assist with liver ablations and reduce surgical bleeding in patients with metastatic liver cancer.

Over the next six months, 20 patients with hepatic metastasis or liver cancer tumors are expected to receive treatment with a HIFU-based device designed to help [vitro] malignancies while preserving surrounding tissues and organs. These investigative [ponsort] studies demonstrate the medical communities continuing recognition of HIFU as an emerging minimally invasive treatment approach with the potential to address multiple pathologies.

As a result of (inaudible) full cooperation among academic, clinical and industrial players, we have the potential to afford the benefits of HIFU technology to a broader set of patients with additional types of cancer. We also view this collaborative relationship as confirmation of Edap's leadership and expertise in HIFU as well as our dedication to leverage the technology across multiple pathologies.

As part of our development efforts to expand HIFU use around the globe, we are focused on advancing our US ENLIGHT clinical trial to support FDA approval of HIFU. At the end of September 2009, we organized an investigative meeting in New York. The attendance by all of our prestigious participating HIFU sites, confirmed their commitment to successfully complete the trial.

Our investigators are clearly motivated to provide patients with a non-invasive treatment option that preserves quality of life. We are actively leveraging this enthusiasm to increase awareness and drive additional patient recruitment.

As part of our US commitment, we are extremely excited that Dr. Gill, a premier US urologist, has recently joined Edap's team to lead the FDA HIFU clinical trial. He will obviously support patient enrollments, treatment and follow up at all US investigational sites.

The addition of Dr. Inderbir Gill to our US clinical team is a significant milestone for Edap and our US clinical development strategy. His leadership, direct and relevant experience, will be instrumental to the executing our US clinical trial and regulatory pathways.

Our clinical investigators, led by Dr. Gill, have recently implemented an aggressive action program to raise patient awareness and drive recruitment in the Ablatherm-HIFU US FDA trial. Our promotion campaign will focus on educating both patients and physicians. We are confident that these initiatives, along with our regular discussions with the FDA, would improve our trial protocol by broadening the patient population eligible for enrollment, and facilitating trial enrollment completion by the end of first half of 2010.

In summary, we are pleased with our year-to-date 2009 performance. The US FA approval and initial sales contract for Sonolith I-Sys has further validated our technology as one of the largest global markets for lithotripsy. Ablatherm-HIFU continues to gain broader recognition in both new and existing markets. We are also pleased that our US ENLIGHT clinical trial is gearing up to gain momentum in the coming months.

In conclusion, our current order book and strong pipeline of projects leave us well-positioned for the fourth quarter of 2009.

I will now turn the call over to Eric, who will review our third quarter 2009 financials. Eric?

Thank you, Marc, and good morning, everybody. I will now discuss our financial results.

Total revenue for the nine months ended September 30, 2009 increased 19.8% to EUR16.8 million or USD23 million, up from EUR14 million or USD21.3 million in the same period of 2008.

Total revenue for the first nine months of 2009 was driven by continued rapid revenue per procedure, RPP, treatment volumes and a more favorable mix in lithotripsy machine sales. Third quarter 2009 total revenue was EUR4.6 million or USD6.7 million reflecting strong HIFU RPP sales, somewhat offset by third quarter seasonality in lithotripsy sales.

As Marc mentioned in his remarks, we're very encouraged by increasing order flow and the backlog of two Ablatherm systems and ten lithotripsy devices midway through the fourth quarter 2009. During the first nine months of 2009, total revenue for the HIFU division was EUR6.3 million or USD8.7 million, an increase of 9.5% compared to EUR5.8 million or USD8.8 million for the same period last year.

During the first nine months of 2009, we sold three Ablatherm-HIFU machines compared to three devices sold in the same period of last year. HIFU RPP sales continued to pick up momentum totaling EUR3.1 million or USD4.2 million.

Third quarter 2009 total revenue for the HIFU division increased 10.4% to EUR2.1 million or USD3 million compared to EUR1.9 million or USD2.8 million in the third quarter 2008. A number of HIFU RPP treatments was up 35.1% year-over-year. And 36.7% over the most recent nine month period, as the customers continued to be responsive to a more flexible sales offering.

At the nine months ended September 30, 2009, we sold 23 lithotripsy machines, including ten Sonolith I-Sys devices for total revenue of EUR10.5 million or USD14.4 million, an increase of 26.9% from the first nine months of 2008, when we sold 23 machines, including four I-Sys devices, for total lithotripsy revenue of EUR8.3 million or USD12.6 million.

First quarter 2009 total revenue for the lithotripsy division was EUR2.5 million or USD3.6 million. In the third quarter 2009, we sold five lithotripsy machines; including two high range Sonolith I-Sys devices. The revenue growth in both the HIFU and Lithotripsy business segments resulted in a 20.4% increase in gross profits for the first nine months of 2009.

Gross profits during the period increased to EUR7 million or USD9.6 million up from EUR5.8 million or USD8.9 million reported in the year ago period. Gross profit margin was stable at 41.7% for the first nine months of 2009 compared to 41.8% in the prior year. During the third quarter 2009, gross profit was EUR1.7 million or USD2.4 million and gross profit margin was 36.7%.

Operating expenses were EUR3.2 million or USD4.6 million in the third quarter 2009, compared to EUR3.3 million or USD4.9 million for the same period of 2008. Third quarter 2009 operating expenses included EUR0.5 million related to the ongoing FDA clinical trial to support Ablatherm-HIFU approval in the US.

For the first nine months ended September 30, 2009 our operating loss narrowed to EUR3.3 million or USD4.5 million from EUR4.3 million or USD6.5 million during the year ago period. The narrower operating loss reflected a more favorable product mix of lithotripsy device sales and higher HIFU-RPP sales. During the third quarter 2009, operating loss was EUR1.5 million or USD2.2 million.

Third quarter 2009 net loss was EUR5.8 million or USD8.3 million or EUR0.50 (sic - see press release) per diluted share compared to a net loss of EUR4 million or USD5.9 million or EUR0.53 (sic - see press release) per diluted share in the same period of 2008.

As stated in the press release, the net loss for the most recent quarter included a non-cash interest expense of EUR4 million to reflect adjustment of our convertible debt and outstanding warrants to fair value, plus the USD2.9 million conversion of debt into equity that occurred this summer, compared to a EUR2.5 million non-cash expense during the same period of last year.

We remain very encouraged by our strong cash position in today's still changing environment. At September 30, 2009 we had cash and cash equivalents, including short-term treasury investments, totaling EUR12.8 million or USD18.7 million. Over the last nine months, the EUR2.2 million cash burn was mainly attributable to the US FDA trial and related disbursements.

We are particularly pleased that our operational achievements resulted in the Company reaching cash flow breakeven outside of the US. This cash position leaves the Company well funded to pursue its strategic development projects both in the US and in Europe.

Finally, the redemption of our convertible debt remains, of course, a subject of close attention by the management team. And we are still very committed to finding the best opportunity in the interest of every stakeholder of the Company.

With that, I would like to hand the call back to the operator to answer any questions you may have. Operator?

Thank you; we'll now be conducting a question-and-answer session. (Operator Instructions). One moment please, while we poll for questions.

Our first question is coming from the line of Matt Dolan with Roth Capital. Please proceed with your question, sir.

Good morning everyone, this is [Matt Pomer] in for Matt Dolan.

Good morning, Matt.

I just wanted to start first with a quick one on your backlog. How many of the ten lithotripsy devices in the pipeline are the high range Sonolith I-Sys devices? And are any of these to be sold in the United States?

In the pipeline folder that we have four out of the 10 are Sonolith I-Sys. And one out of those four I-Sys is to be delivered in the US.

Okay, thank you. And continuing with the Sonolith I-Sys, can you share with us a little bit more about how you intend to market the Sonolith I-Sys product in the United States? And could you comment on the details of the sale to HealthTronics.

Well actually we, as I said earlier in the call, we are continuing to build and to evaluate the market so that we would get the best, and most suitable, sales network in the US to optimize the sales opportunity of that product.

So we are continuing to do that. And we are expecting to come with further news very soon. But it's too early now to disclose any further details for confidential and competition reasons as well.

Now I didn't get your question on the first sale to HealthTronics.

Could you describe -- could you give us any detail on that?

Well, it was a normal sale. I mean, HealthTronics being a regular type of customer using lithotripsy machines. So we just sold a machine to them.

So no further agreement there for additional sales?

No, that was, of course, a contract for one machine. But obviously, HealthTronics being one of the major players in lithotripsy, we may have opportunities in the future which are not yet concrete.

Thank you, that's helpful. And then can you describe the opportunity for the product in the US market; and maybe since you're still evaluating it, just some generalizations about your expectations for US sales in 2010.

Yes, well, there are no real official available information on the market. But from what we see and from what we know, because we've been on the market, even though not very active in the US, but we've been in the market for the past 20 years.

I mean, United States is probably the second largest market in terms of number of equipment for lithotripsy. And most probably the number one market in terms of treatments in lithotripsy.

So therefore, it represents a great opportunity as it is again, one of the largest markets in the world. That's first. And secondly, the market just went through a period of one year of uncertainty as regulations in the US were evaluated and it was made clear, only 2, 3 months ago that Lithotripsy will still be exempted from the stock low, so basically the market has been almost on standby for the past 10 to 12 months, so we believe that there is a type of window of opportunity for the next 12 to 18 months in terms of volume of equipments to be sold.

And again, as we have said several times as well, our Sonolith I-Sys machine is the latest Lithotripsy machine to be approved in the US and therefore it brings a lot of unique exclusive and innovative features to the American market that would probably represent a lot of interest for the urologists.

Okay. That's helpful. And turning to the [N-litrail], I apologize if I missed it in your prepared remarks, but can -- how many patients are currently enrolled in the trial? How many have been treated in both the HIFU and cryoablation arms?

So in the HIFU arm, we've treated 90 patients so far. And we are, again, as I said in the prepared remarks, that we are focusing a lot of efforts.

As you've noticed, we have strengthened our team and we have recently had it on a much more active role, Professor [Indavir Gill] to help and support science and enrolling patients and recruiting patients. So that will help getting freezing and improving the recruitment base for the HIFU arm.

And on the cryo arm, we still remain at two patients enrolled and as we say it again, in the past conference calls and remarks, that we are in current discussions with the FDA on that particular control arm.

Okay. And maybe you can help us understand how the recent changes have increased the rate of enrollment and when do you expect to have the trial fully enrolled?

Well, we are now -- I mean, we are in the middle of implementing and executing -- I mean, most of the actions and plans, so we might see, within the weeks to come, the full presence of all that new actions and new incentives and targets that we've put in place. And as I said earlier, after the investigation and the investigators' meeting we had in New York, where all the sites were represented by their primary investigator, they are all extremely motivated and committed to the trial and they all are fully confident that we might finish the enrollment by -- before the end of the first half next year, as targeted.

Okay. Thank you very much. I'll hop back in queue.

You're welcome, Matt.

Thank you.

Thank you. (Operator Instructions). Thank you. Our next question is coming from the line of [Jonathan Schwartz] with Deerfield. Please proceed with your question.

Good afternoon, Marc and Eric and congratulations on a strong quarter. What accounted for the small increase in the net loss in the third quarter, after backing out the interest? Was that a product issue, Eric?

Again -- well most of the net cost was due to the adjustments, accounting adjustments, of the convertible debt.

Right.

Remains of it is basically because this is a typical seasonality that we have a very low third quarter and we don't have, in the third quarter, the volumes that are big enough to upset the expenses we have. But it's just a typical seasonality. Again, we were profitable in Q3. We weren't profitable in Q4 last year, it's just a matter of volumes.

Right. Thank you.

And also, can you give us an idea of the number of enrollments that are in the pipeline at this point, in the trial? In other words, what's expected -- what's coming in the next, oh, month or six weeks that's --?

We are now scheduling the treatments that will be done by the end of November and mid-December. And we have already scheduled and confirmed like, about, 5 to 7 cases, but again, this is to -- this is in the process now. And again, we can see the number of patients screened increasing as well, so that's very promising. Again, by the end of the year, and we are expecting, again, all the actions, the motivation and commitments from the investigators to get good results.

And can you give me a quantitative picture, Marc, on number screened? On the increase? Is it a 10% increase in number screened? Is it -- I mean, not in a -- don't be precise, but --

I don't have that level of precision, but we can see and we can see more sites screening more patients.

Right.

That's encouraging as well. Because not only 1 or 2 sites are treating, but most of them are getting patients screened now.

That's great. Thank you. Thank you, gentlemen.

Thank you, Jonathan.

Thank you, Jonathan.

Thank you. Our next question is from the line of [Rod Francis] with [Telemedicine]. Please proceed with your question.

I was wondering, my question was answered in the last caller's question, very similar to what he was asking, so I got the answer from there.

Okay. Good.

Thank you. Our next question is coming from the line of Mark Weindling with Paulson. Please proceed with your questions.

Good afternoon. I was wondering if you could be a bit more specific as to what Dr. Gill's duties, if you will, are going to be? Heading it up, it sounds good, but I don't really know what that means. If you could maybe be a bit more specific as to what it is that he's going to do?

For example, is he going to be the one that is out there asking the physicians to enroll patients? Or exactly what it is that his job is? Thank you.

Actually, his role is to be the clinical monitor of those trials, so he'll be, as the clinical monitor, monitoring the trial in all aspects. And one of those is obviously to be in constant contact with the investigators, besides helping them in their questions, or [daft] for the -- on the trials, and also as Dr. Gill, he's a clear leading urologist and he's a real leader, and he will be here as well to coordinate and motivate all the centers to get everyone always on the top of the enthusiasm and the motivation.

Does that mean the that your current medical director is really stepping back from DOS trials?

Not at all. That's a question, again, that's a team work. That's not a single man mission and the idea is to be extremely strong and sharp in all aspects. So we have now a real full team of experts and professionals and that is bringing a very high level of quality. And again, that's something, which was needed by most of the centers to be supported in all aspects. And John Rewcastle is still our Medical Director and he's in charge of the trial in the US.

Is Dr. Crawford, SCU, still involved in the trials?

Absolutely. Dr. Crawford and (inaudible) in Denver are part of the investigational sites.

Okay. Thank you.

And he did treat patients last week, if I'm not mistaken.

Thanks.

You're welcome.

(Operator Instructions). Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Chauveau for any closing comments.

Well, let me share some closing comments. As mentioned, Dr. [Relock] and Rod Michaels were in Leone yesterday to attend our Q3 Board meeting. Both are significantly and personally involved in all Edap matters and more particularly regarding our US business that is our HIFU FDA trials and growing the litho business within the US. Their enthusiasm and energy in this regard is of an enormous benefit to Edap.

Thank you for joining us on this call today. I will now close the call and look forward to the next get together at our next call. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.