Edap Tms SA (EDAP) 2010 Q1 法說會逐字稿

Greetings, and welcome to the EDAP first quarter 2010 conference call. At this time all participants 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 your host, Ms. 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 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, everyone. I will be very brief in my opening remarks. In 2010 EDAP experienced a modest Q1, as predicted. Year 2010 will be a tough year in Europe due to economic issues. More than ever EDAP was, and is, focusing on its strong management of cash, the key fundamental to its success. That being said, I will now hand over the call to Marc.

Thank you, Philippe. And thank you, everyone, for joining us on our first quarter 2010 earnings call. During today's call I will review our second quarter 2010 outlook, discuss our recent accomplishments, including the European approval and launch of Sonolith i-move, and then update you on our US ENLIGHT clinical trial evaluating Ablatherm-HIFU.

Before I turn to our first quarter 2010 performance I would like to comment on the solid order flow we have experienced thus far in the second quarter. While revenue for the first quarter of 2010 reflected anticipated seasonality following a strong fourth quarter 2009, we are confident in the growth of our business, with continued penetration of our expanding portfolio in key markets.

We are encouraged by the robust pipeline of projects, positioning us for a strong return on capital equipment sales. Our current backlog includes six lithotripsy systems, including four Sonolith i-sys devices and one recently launched Sonolith i-move system, as well as one other Ablatherm device.

During the first quarter 2010 we made a significant achievement with the European approval of our new compact and modular lithotripter, the Sonolith i-move. With its various modular configurations the compact device targets the largest lithotripsy market segment, offering a wide range of treatment procedures for mid-size clinical sites and hospitals.

The launch of the device at this year's European Association of Urology conference in April has extended the depth of our product portfolio and further validated our leadership in the development and innovation of high-end technology. Importantly, the EU approval highlights our ability to obtain approvals for multiple devices in major global markets.

With the addition of Sonolith i-move, EDAP is the only Company in the extracorporeal shock wave lithotripsy market covering all market segments to have fully renewed its full and wide range of lithotripters, from standard compact devices to high-end, fully integrated lithotripters like the Sonolith i-move. As part of our focus to increase market penetration we took several steps during the first quarter 2010 to increase physician awareness and drive further adoption of our technology.

Although the Icelandic volcano kept attendance lower than expected at EAU, EDAP officially launched the Sonolith i-move to a receptive audience of urologists at the conference in Barcelona, Spain, from April 17 to 20. Sonolith i-move was clearly the highlight device of the conference, making the EDAP booth among the busiest, if not the most crowded, booth of the meeting.

And now to HIFU. We also leveraged the meeting to highlight the growing clinical results and physician experiences with Ablatherm-HIFU, with key opinion leaders and long-term Ablatherm users from Europe presenting updated patient data from EDAP's @-Registry centralized database.

This comprehensive registry compiles valuable long-term data on Ablatherm-HIFU, that continues to demonstrate treatment benefits and validate the technology as a minimally invasive solution for localized prostate cancer. Our Registry is a key tool as we approach 10-year data of [growth and] experience with Ablatherm-HIFU in Europe.

On the database registry we will be able to compile extensive results and publish significant clinical papers on long-term follow-up for Ablatherm-HIFU. We also experienced a significant endorsement of HIFU from updated EAU guidelines that integrate the use of HIFU into a recommended treatment option for the management of prostate cancer in patients with recurrence of cancer after radiation therapy.

This is a major step forward for the technology, as more than 30% of patients treated with radiotherapy show a recurrence of their cancer, and are unable to undergo additional radiotherapy sessions. (Inaudible) urologists agreed that HIFU offers a valuable solution that addresses the recurrence of cancer and can be a repeated treatment. In addition, EAU also acknowledged that HIFU's focal therapeutic approach strongly positions the therapy for broader management of localized prostate cancer.

Supported by our growing presence in the Urological community, we believe there are additional promising niche markets where Ablatherm-HIFU can provide exclusive features, such as salvage treatment after radiation as well as focal therapy.

In order to capture additional market share we plan to implement aggressive sales and marketing programs targeting these niche opportunities and that of revenue per [procidil], or RPP model. We see the potential for significant expansion, particularly with RPP sales, even the recent excitement around focal therapy for localized prostate cancer and HIFU's problem solution for radiation therapy (inaudible).

Our sales and marketing campaign will center on HIFU as the leading therapeutic option in this niche market. We plan to focus our efforts on driving increased educational and marketing programs targeted at patients and physicians in each of our key European markets in order to drive RPP sales to the next level and continue to grow beyond.

As of today, Ablatherm-HIFU has been used to successfully perform more than 22,000 treatments in about 250 training sites worldwide. The increasing support from the medical community and the growing adoption of HIFU to address prostate cancer gives us confidence that our marketing actions will drive more patients to benefit from our technology.

Turning to first quarter 2010 sales, total revenue of EUR4.3m reflected traditional seasonality following a very strong fourth quarter 2009 for HIFU and Lithotripsy divisions. The most recent quarter, particularly our RPP business, was also impacted by the economic uncertainty in Europe as our customers remained conservative in their use of capital, and patients attempted to postpone the signing related to such treatments.

As mentioned in our press release, HIFU division sales for the first quarter 2010 reflect the sale of one previously-owned Ablatherm-HIFU machine at the lower price compared to the new machine sales in the year-ago period. As we progress through the second quarter of the year we are very encouraged by our -- that our active pipeline development and current matching sales will have a positive impact on the remainder of 2010.

Our sales team has been active in building solid Lithotripsy pipeline and working on maturing this deal. Entering the second quarter of 2010 we expect these efforts to generate a higher return of capital equipment sales. Our current backlog consists of an impressive six Lithotripsy systems, including four Sonolith i-sys devices and one recently launched Sonolith i-move system. This is also reflecting the continued penetration of our expanded product portfolio in the key markets.

Before I turn over the call to Eric, I would like to address the status of our Ablatherm US ENLIGHT clinical trial. As previously announced, we thoroughly evaluated all options based on input from our clinical and regulatory advisors and Board of Directors. We have decided to discontinue involvement in the Ablatherm-HIFU study in the coming weeks and actively begin the second phase of the trial, executing the required two-year follow up for all patients treated in the study.

The resulting datasets will include outcomes from more than 100 patients and will form the conditions of the submission to the FDA, which we expect to occur in 2012. We believe that the data from US ENLIGHT trials, combined with the strong long-term data in Europe from several thousand Ablatherm-HIFU treatments, will provide a compelling IDE submission compared to the clinical data on other therapies.

As a Company, we believe this strategy is the most practical option to move forward with our US ENLIGHT clinical trial, allowing us to complete the study in the timeliest possible manner. We believe the US datasets for Ablatherm-HIFU will represent a valuable asset to combine with our [Ablatherm] 10-year European data for a strong IDE submission. Our US clinical strategy not only positions us to [get] the approval in a timely and efficient manner, but also optimizes the Company's financial resources.

I will now turn the call over to Eric who will review our first quarter 2010 financials.

Thank you, Marc, and good morning, everybody. I will now take a few minutes to discuss our first quarter 2010 financial results. Our first quarter 2010 financial results reflected anticipated seasonality and a challenging economic environment in Europe. Moving into the second quarter we are confident in the growth of our business and our prospects for the remainder of 2010.

Total revenue for the first quarter 2010 was EUR4.3m, or $5.9m, compared to EUR5.4m, or $6.9m, in the same period of 2009. As expected, total revenue for the first quarter 2010 reflected seasonal device sales fluctuations following a strong fourth quarter 2009.

During the first quarter 2010 total HIFU division revenue was EUR1.6m, or $2.2m, compared to EUR2m, or $2.6m, for the first quarter 2009. We sold one previously owned Ablatherm-HIFU machine, compared to the one device sold in the same prior-year period. As Marc mentioned, we have one Ablatherm machine in backlog as well as an active development pipeline of sales into the second quarter, and we expect future quarters to reflect these transactions.

First quarter 2010 net sales for the Lithotripsy division were EUR2.7m, or $3.8m, compared to EUR3.3m, or $4.3m, in the year-ago period. During the most recent quarter we sold six machines, including one Sonolith i-sys device, compared to seven machines, including three i-sys devices, sold in the prior-year period.

Looking forward, our current backlog of six lithotripsy machines, including four i-sys devices and one recently launched Sonolith i-move system, leaves us well-positioned to convert this backlog into 2010 revenue.

Our gross profit for the first quarter 2010 was EUR1.7m, or $2.3m, compared to EUR2.1m, or $2.7m, in the first quarter 2009. Gross profit margin was 39.6% in the first quarter 2010, very stable when compared to 39.7% in the year-ago period.

First quarter 2010 operating expenses decreased to EUR3.1m, or $4.2m, compared to EUR3.4m, or $4.4m, in the first quarter 2009. First quarter 2010 operating expenses, including EUR0.6m related to the US FDA ENLIGHT clinical trial to support Ablatherm-HIFU approval in the US. Following our recent announcements on the ENLIGHT study, we expect operating expenses to gradually decrease in the second half of 2010, upon completion of enrolment in the second quarter of 2010.

Operating loss for the first quarter 2010 was EUR1.4m, or $1.9m, compared to EUR1.3m, or $1.6m, during the year-ago period. Excluding the US FDA trial expenses, first quarter 2010 operating loss narrowed to EUR0.8m.

Net loss during the first quarter 2010 was EUR2.6m, or $3.5m, or EUR0.24 per diluted share, compared to a net loss of EUR3.1m, or $4m, or EUR0.32 per diluted share in the same period of 2009. As stated in our press release, and regularly discussed since the inception of our convertible debt, the first quarter 2010 net loss included a non-cash interest expense of EUR1m to reflect adjustments of our convertible debt and outstanding warrants to fair value, compared to a EUR1.2m non-cash expense during the year-ago period.

Today we remain very encouraged by our strong cash position. At March 31, 2010 we had cash and cash equivalents, including short-term treasury investments, totaling EUR11.3m, or $15.3m. During the first quarter 2010 our cash burn was EUR1.4m, including EUR0.6m for the US FDA trials. Our current cash position leaves us well funded to pursue strategic development projects, both in the US and in Europe.

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

Thank you, sir. Ladies and gentlemen, at this time we will be conducting a question and answer session. (Operator Instructions). Our first question today comes from the line of Matt Dolan with Roth Capital Partners. Please proceed with your question.

Hi, guys. Good morning, it's Matt Pommer in for Matt Dolan.

Hi, Matt.

Good morning, Matt.

Good morning, thanks for taking the questions. Let's see, so, the first quarter, it looks like you guys had a strong fourth quarter and there was some seasonality. And I'm wondering is the year-over-year decline just due to those factors, or did you see any fallout from the economic environment impacting the first quarter revenues alone?

Well, Matt, as we just say in the call, is that it's a combination of both. Again, we've had a very strong quarter in Q4, like usual, even though it was a little bit lower than the Q4 in 2008, anticipating a tougher economical situation in Europe starting at the end of 2009, and being even stronger at the early days of 2010 and today. So that's -- I would say that's a combination of both a quarter that follows a very strong one and also a very tough economic situation.

Okay, so do you think there's more to come from the tough economic situation? Do you think you've just seen the beginning, or do you think the first quarter results are truly reflecting of this resetting of the bar?

Well, that's difficult to say. And I would say, which is clear, is that we are facing a type of -- uncertainties and a lack of visibility in a though environment.

Okay. And turning to the ENLIGHT trial, with this new strategy to go forward can you discuss your level of confidence that you will receive approval from FDA for the data that you plan to submit?

Well, like always in an FDA approval process, it's very difficult to give probabilities and that type of information. But what is true is that we've taken that decision, that strategic decision, after several meetings at the FDA and a lot of discussions and meetings with our team of experts, including our lawyers, our CROs and advisors, to get the file submitted again in 2012 and keeping the maximum chances of success for the trial to go through.

Okay. And, finally, on the gradual decline that you expect in operating expenses throughout second half, is that entirely due to the lower trial spend or is there some underlying operating expense decline that you are expecting in that?

Well, that's mostly due to the US clinical trials, obviously, but it's true that we also undergo some cost-cutting programs on every part of the Company to make sure that our operating expenses are kept as minimal as possible.

Okay. And, lastly, is there any update in terms of your initiatives for selling in the US?

Well, we are continuing, and we have brought a second unit of Lithotripsy machine for demonstration purposes and we are actively, again, promoting our Lithotripter machine with some devices that were approved at the end of last year so that we can take a very significant market share in the US. So we are moving forward but, as you know, these type of sales are somehow having some cycles that are a significant period of time and, again, we are very actively promoting and doing, almost every week, a demonstration in new sites and working on deals.

Okay, thanks, guys.

You're welcome, Matt.

Thank you, Matt.

Thank you, ladies and gentlemen, our next question comes from the line of David Lu with Hedgehog Capital. Please proceed with your question.

Yes, hi, guys.

Hi, Dave.

Just one -- it's -- you know, I guess -- obviously it's difficult dealing with the FDA and it sounds like you've got a good strategy going forward here, but the -- obviously, we think the stock is pretty undervalued at this point and one of the reasons that we actually got in to the stock was the -- we see the long-term value.

And one of our friends actually had the HIFU procedure. And I think there are a number of long-term shareholders, people who've had the procedure, who know about it or, perhaps, urologists who might be familiar with the procedure and all, and just people who are believers in the technology and how it can really revolutionize the treatment of prostate cancer.

So I guess my question, or point going forward is, if there is a fundraising at some point, and you have a pretty good cash position right now, it would be great to consider some -- to consider a rights offering of some sort for -- I think there is -- you certainly have two bases where there are some people who are in the stock to trade and some people who are in the stock on a long-term basis and really believe in this. And it's certainly taken longer than expected, but that's just dealing with the FDA and whatnot, that's sort of par for the course in this type of stuff.

But if, when you do go to raise money, it would be great to keep those long-term shareholders in mind and, if possible, a rights offering would be something that I think would help create value for, and attract the right type of investors to the Company, as well as make sure long-term supporters have the ability to continue to fund the Company and see the long-term payoff for their support, without having -- the -- people play games with the stock, or whatnot, that aren't really -- that aren't really related to the long-term type of interest of the Company.

Well, thank you, David. I guess I got your point. Maybe two things. Well, first, in line with your comments, we do believe that the stock price is maybe undervalued and, hopefully, we'll try our best to make sure that the value of the -- especially of the HIFU technology, as you commented, should be recognized and more recognized than it is today and that should eventually reflect in the stock price. That's our goal, obviously.

As for your comment on the fundraising, actually, as you said, we have a strong cash position and we have no active plans to date to raise funds for -- in any kind, so that will depend on the project of the Company and maybe future growth initiatives, but at this time we have no fundraising plans.

Okay, great. You guys have done a great job here and -- but, if and when that does happen, if you consider a rights offering, that would be, I think, beneficial for everyone. Thanks.

Okay, I got your point. Thank you. Thank you, David.

Thank you. (Operator Instructions) Our next question comes from the line of Mark Weindling with Paulson Investment. Please proceed with your question.

Good afternoon, evening, gentlemen.

Good morning, Mark.

Good morning, Mark.

Do you think that -- just following up on the discussion of the stock price, do you think that the stock price may be reflective of the lack of ownership of stock among senior officers and the Board of Directors? Do you think that the stock price may reflect that?

I don't know. Personally, I don't think so, but I don't know. We should ask the market. To follow up on your comments, Mark, as you know, we have a number of stock option plans to actually achieve and fulfill this goal of having management participating in the shareholder piece, but --

And as you know as well, you know that management is very, very cautious and very wary about shareholders' interests and, even though the current ownership is not as big as we could wish, it doesn't deter us to take care of the shareholders' interests.

Well, I'm glad to hear that.

Second question is the ENLIGHT trials. Are you able to talk at all about did you receive any direction from the FDA in helping come up with your final determination on how you were going to approach these trials, that is, adding the European data along the existing data from the ongoing trials that took place? Or was this primarily a decision that was made by management and the Board?

Well, as you know, Mark, the FDA doesn't take decisions along the process and, obviously, we've discussed and we have a lot of meetings with the FDA, asking them questions, but they -- the FDA usually does not give any guidance or directions as such.

There is a process and there is a protocol to go through, and then the FDA will review that protocol at the end of the process, asking a panel of experts to give its opinion and recommendation and, based upon that, they will take a decision to approve or not the technology. So, again, as I said earlier in the call, the decision was made after those several meetings with the FDA and also working with our team of experts and advisors on the project.

Thank you. Ladies and gentlemen, our next question comes from the line of Jonathan Schwartz with Matrix Management. Please proceed with your question.

Good afternoon, Marc and Eric.

Good morning, Jonathan.

Good morning, Jonathan.

I wondered -- my question is, I wonder if you have any thoughts on whether there is a way to explain in a very graphic way, I mean almost with charts, to shareholders and investors the disconnect that many of us see between the stock price and value? It's not just a quantitative thing; it's almost qualitative.

I see a good reason to value the Lithotripsy division at 1.5 times sales, given its R&D leadership. And if you do that, the value of that division is roughly equal to the market cap of the Company. The Company's net debt is approximately zero, so the enterprise value would be right around the market cap of the Company, or somewhere in the $33m range.

And what that says, or what the market then is saying, is that the HIFU division has essentially no value. And the concept that a medical device company that has been as successful as our HIFU division has been, that's treating men, and that's treating cancer and curing cancer, has no value is -- seems so absurd to me, when our competitors have valued Intuitive Surgical at 12 times sales and Dendrion is valued at $4.5b before it got it's approval and raised over $800m.

The graphic difference, just -- there are obviously differences between the companies, I understand that, but to value the HIFU division at zero just seems to me kind of ridiculous. And I wondered if there's just some way with charts, with something on our website -- I don't really have the answer and that's why I'm asking the question. Is there a way to get that across so that some of the shareholders who are, as David said, trading the stock, selling it back and forth, understand what the underlying picture is and understand what they own? Because I suspect that a lot of them don't.

Well, thank you for your comments, Jonathan. I think you're quite accurate in your mathematics and, you're right, the challenge for us is to make sure that the value of the HIFU technology is recognized, not only among the medical community, but also among the financing community.

As you mentioned, it also would require that we have a number of investors and participants with stock that actually relate to the fundamentals of the Company and make sure that -- understand the dynamics of the HIFU technology in the medical market. And, as you know, that's the case for most of our stock participants, but also we have a very volatile behavior of the stock price in the same time since the last six to eight months.

So a challenge is true. The challenge is to make sure that the market as a whole understands the value of the technology and give it a proper value. And that's a question, a good point we take, and we will try and see how we can make that visible as much and as quick as possible, maybe through charts, I don't -- I mean that's a good point. We'll reflect on it. Thank you.

Thank you, Marc. I should -- I could just add one little personal note. I've just had a chance to see the disconnect in a vivid way because the market says the HIFU division's worth $1m or zero, and I have a friend who's been diagnosed with prostate cancer and who's looking at ways of dealing with it. And he is just extremely, extremely anxious to have HIFU.

He happens to be a physician, by the way. He's an American. He has no problem traveling to Germany or Canada for treatment. And he's been in touch with me because he knows I know something about this. And he's very concerned. Is his gland of a sufficiently small size so that it can be treated with Ablatherm-HIFU and so on?

And, to him, you know, right now, this is really the most important thing in the world. And then you have the market saying that this treatment, which is in such demand by this particular individual, and probably by many -- not probably, no doubt, by many others in his position, has no value. And it just really brought it home to me. Anyway, I thought I'd mention that.

You're right, Jonathan, and we'll work on it. Thank you very much for your comments.

I appreciate it, Marc. Thank you. Thanks very much.

Thank you. Ladies and gentlemen, we have no further questions at this time. I'd like to turn the floor back to Mr. Philippe Chauveau for closing comments.

Let me close this Q1 2010 conference call by saying thank you to all those who participated. We look forward to talking to you soon so, over and out, and good bye. Thank you.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.