Edap Tms SA (EDAP) 2011 Q3 法說會逐字稿

Good morning and welcome to EDAP third quarter 2011 conference call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Stephanie Carrington. 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.

Before we begin I'd like to remind everyone that management's remarks today may contain forward-looking statements. These statements 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. These factors 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 would like to turn the call over to Mr. Philippe Chauveau. Philippe?

Good morning, everyone. Thank you for joining us on our third quarter investor conference call. Let me share some opening comments.

First, EDAP device sales picked up considerably in the third quarter of 2011, with 15 devices sold, and revenues up 61% on a sequential quarterly basis. We are pleased that the device backlog is continuing to be replenished, as orders are coming in from all around the world. With current backlog of 14 devices, we are on track to have a second strong fourth quarter.

Secondly, while continuously and strongly managing cash, EDAP management, in team work with the EDAP Board, is also focusing on strategic opportunities to finance its $10.5 million October 2012 bond reimbursement.

Finally, as we said in our last quarterly conference call, we felt good about Q4. And we still do. Marc, over to you.

Thank you, Philippe, and thank you, everyone, for joining us on our third quarter 2011 earnings call. During today's call I will touch upon some of the highlights from our quarterly results. And then we'll discuss recent developments across both our Lithotripsy and HIFU businesses.

As we announced just over a month ago, our third quarter 2011 revenues rose 61% on a sequential quarter basis, with EUR6.1 million or $8.5 million. These strong top line results were driven by the sale of 14 lithotripsy devices and one Ablatherm-HIFU device. This represents a record high third quarter revenues.

Now that we reached this point of the fourth quarter, we are very pleased to convey that our sales backlog continues to build and currently is comprised of 12 lithotripsy devices and 2 HIFU devices; up twofold from the levels that we announced on October 13.

As such, we are well positioned to have a robust fourth quarter and have a strong second half as compared with the first half of 2011; that was rather light from a device sales standpoint.

Receiving US FDA 510(k) clearance for our innovative compact Sonolith i-move lithotripter in August was a very significant accomplishment for EDAP. We stayed in close communications with the regulators for several months, and worked diligently to address their requests.

(inaudible) at the AUA annual meeting in DC last May, and through [steps set up a forced] from approval, our sales team has successfully introduced the Sonolith i-move to the American urologists' community and is continuing to build awareness of the (inaudible) features and treatment advantages afforded by our revolutionary device.

Just three months from approval we completed the first device sales in the US with partnership of 12 respected urologists at six hospitals in the New York metro area. It is important to note that this sale was completed in a significantly condensed timeframe that contrasts with the typical medical device sales cycle of 12 months to 24 months.

The main reason for such a fast sales deal was that we have been spreading the word about EDAP's device portfolio in the US market ever since we launched our Sonolith i-Sys at the end of 2009 and since we submitted our 510(k) filings for the Sonolith i-move in August 2010.

We have hired a VP Sales and Marketing in 2010 with the objective of [setting] the market and generating visibility for EDAP's technologically advanced devices within the competitive landscape of the US [lithotripsy] market. We are now starting to see a return on our investment, thanks to our very attractive and innovative range of lithotripters.

As a reminder, EDAP is the only lithotripter manufacturer that has completely renewed its range of devices, bringing new features and innovations that are answering the modern needs and requests for the international urology community. These developed innovation and market responsiveness is unique to the world, and clearly differentiates EDAP.

In addition to completing our first sale earlier this month, we have built, and are continuing to replenish, a strong pipeline of lithotripters (inaudible) in the US amongst some of the most prestigious groups of urologists and service providers in the country. We look forward to receiving more purchase orders in the US in the coming quarters.

We are continuing to expand the global footprint for our lithotripsy devices building up the Sonolith i-move approvals obtained in Europe, Japan and the US. We received the approvals from the Russian Federal Healthcare Department just over a month ago. And we expect to officially receive approvals from Taiwan in the next few days.

Our sales and marketing team is stepping up its sales efforts around the world, and maintains a very active scale of showcasing our best-in-class ESWL device line at medical meetings and (inaudible) device demonstrations.

Turning to our Ablatherm-HIFU business, the first data from our US FDA ENLIGHT trials was presented on October 19 at the 31st International Congress of the Societe Internationale d'Urologie held in Berlin, Germany. In a podium session, Dr. Robertson from Duke University, and primary investigator for the ENLIGHT trials, presented data from the US FDA trials, indicating that HIFU has low morbidity at 1, 6, 12 and 24 months post treatment.

The investigators concluded that the lack of any serious morbidity, specifically fistula, is encouraging, as is the recovering of both sexual function and continence with time. This was a very solid presentation, and this is quite encouraging as we have completed 15 months of our two-year follow-up period. This means that we have already reached two-thirds point of the total follow-up time, according to our approved [HIFU] protocol. And we keep on track for submission to the FDA late in 2012.

In the meantime, we continue our strategy of repositioning Ablatherm-HIFU in Europe and in the rest of the world. More than ever a strong plan towards focal approach in the treatment of prostate cancer exists.

This is a new strategy being designed by the Internationale d'Urologie community. We believe that this growing trend represents a (inaudible) unique opportunity for HIFU.

The focal therapy treatment trend was initiated by the growing recognition around the world of the lack of the (inaudible) that surgery represents another treatment for prostate cancer in many cases as patients are now being diagnosed earlier in their age and at earlier stages in their prostate cancer progression.

The high rate of adverse events and risks associated with radical surgery are no longer addressing the needs and expectations of a significant portion of this new generation of patients. They are, indeed, looking for an effective treatment control of their disease, but, most importantly, they want to preserve their quality of life by avoiding the most severe side effects, such as impotency and incontinence. Ablatherm-HIFU, thanks to its unique features, such as precision and accuracy, repeatability, non-invasive (inaudible), combined with its unique ability to not compete with but to complement any other therapies, would allow urologists utilizing our device to perform focal or partial treatments and to achieve the dual role of controlling the disease and preserving patients' quality of life.

This is a new era in the treatment and management of localized prostate cancer. We believe this approach has the potential to cover upwards of at least 25% to 30% of the localized prostate cancer patients diagnosed in the coming years.

Another key niche market for Ablatherm-HIFU is to establish its expertise and exclusive position as the salvage treatment after radiation therapies.

A lot of patients who have been treated during the past decade with radiotherapy and thousands of patients have been classified as (inaudible); approximately 30% to 40%, depending on the reports and sources. These patients are not candidates for surgery, as the (inaudible) of little changes and [the effective position] of significance. Moreover, they are prevented from further radiation, as they have reached maximum (inaudible).

In most of the cases, these patients are put on hormonal treatment that is known to be a palliative option, along with being very expensive and with limited duration, as most patients become hormone resistant after two or three years of treatment.

Ablatherm-HIFU, thanks to its unique features, such as real time and (inaudible), high degree of accuracy and non-invasiveness, provides a very attractive and valuable curative option to patients.

It has been shown by several publications and in papers to have a higher degree of efficacy when addressing radiation failures.

Some very encouraging long-term data, based on the last crop of patients, approximately 1,000, will be presented at an upcoming medical meeting. This is very encouraging data from patients and practitioners, as it brings them unique and promising curative treatment options.

Moreover, it will delay the palliative options, which makes again a lot of sense considering the new patients' profile. We strike earlier, younger men at earlier stages of prostate cancer progression.

These two growing and important niche markets have led us to repositioning Ablatherm-HIFU as the must-have complement to surgery and leveraging the international urology communities, including recognition of the use of HIFU technology, to deploy a focal therapy approach to prostate cancer treatment.

As a matter of fact, we are seeing some of the world champions of robotic surgery starting to utilize Ablatherm-HIFU to treat patients with the focal approach or to perform some salvage treatment after radiation periods. This is a huge signal to the international urology community, as these robotic surgeons traditionally stayed away from HIFU and considered Ablatherm-HIFU as a threat to their surgical practice, or as a competitor to their surgical skill set.

Now it is clear in the minds of few of the most prestigious robotic surgeons that Ablatherm-HIFU is the must-have complement to their surgical practice and is the non-invasive tool that will enable them to stay at the forefront of the surgical management of localized prostate cancer.

The EDAP device is now considered to be a strong complementary tool that allows these leading urologists to maintain their leadership position in providing best-in-class treatment options to address the patient's needs as the profile is changing, given increasing earlier detection.

Before turning the call to Eric, I would like to highlight again our strong third quarter results and the very encouraging backlog of sales for the remaining Q4 2011.

I will now turn the call over to Eric, who will review our third quarter 2011 financials in greater detail. Eric?

Thank you, Marc, and good morning, everyone. I will now take a few minutes to review our third quarter 2011 financial results.

Total revenue for the third quarter 2011 rose by 61% on a sequential quarter basis to EUR6.1 million, or $8.6 million, compared to EUR3.8 million, or $5.5 million, for the second quarter 2011. Year over year it increased by 14% compared to EUR5.3 million, or $7 million, for the third quarter 2010.

Total revenue for the HIFU division was EUR1.4 million, or $1.9 million, for the third quarter 2011, compared to EUR1.9 million, or $2.4 million, for the same period last year. Results of the third quarter 2011 reflected the sale of one Ablatherm-HIFU device.

Total revenue for the Lithotripsy division was EUR4.7 million, or $6.7 million, for the third quarter 2011, compared to EUR3.9 million, or $5.2 million, during the year-ago period.

During the third quarter 2011, the Company recorded sales of 14 lithotripsy machines, comprised of nine Sonolith i-move devices, three Sonolith i-sys devices and two Sonolith Praktis devices, compared to a total of 10 devices sold in the third quarter of 2010.

Gross profit for the third quarter 2011 was EUR2.6 million, or $3.6 million, compared to EUR2.2 million, or $2.9 million, for the year-ago period. Gross profit margin was 41.8% in the third quarter of 2011, compared to 41.6% in the year-ago period.

Operating expenses were EUR2.8 million, or $3.9 million, for the third quarter 2011, down 9% from EUR3 million, or $4 million, for the same period of 2010. Operating loss was EUR195,000, or $275,000, for the third quarter 2011, compared to EUR797,000, or $1 million, in the third quarter of 2010.

Excluding operating expenses of EUR247,000, or $348,000, associated with the US FDA ENLIGHT clinical trial for Ablatherm-HIFU, the third quarter 2011 operating income was EUR52,000, or $73,000.

Net income for the third quarter of 2011 was EUR871,000, or $1.2 million, or EUR0.07 per diluted share, as compared to net loss from the third quarter of 2010 of EUR1.9 million, or $2.5 million, or EUR0.17 per diluted share.

Net income for the third quarter 2011 included a non-cash interest income of EUR779,000 to adjust the Company's outstanding convertible debt and warrants to fair market value.

At September 30, 2011, cash and cash equivalents, including short-term treasury investments, were EUR5.5 million, or $7.4 million, which reflected the stabilization of the Company's cash position. The cash utilization during the third quarter of 2011 was reduced to EUR52,000 as a result of strong cash management.

Finally, I would like to reiterate that we are pleased by the robust backlog of 14 devices, as we have reached the middle of the fourth quarter. As both Philippe and Marc touched upon, we are on track to have favorable sales levels in this quarter.

With that, I will turn the call back to the operator, who will open the line for questions. Operator?

Thank you, Mr. Soyer. We will now begin the question and answer session. (Operator Instructions). Suraj Kalia, Rodman & Renshaw.

Congratulations on an excellent quarter. Marc, forgive me, I have a very bad phone connection, so I missed parts of the prepared remarks earlier. But can you shed some color on -- obviously, you saw a very nice sequential jump. How is the environment, or rather the selling environment in Europe, given everything that we know on the macro landscape? Are you seeing any change specifically in Europe? Can you shed some color on the selling cycle for lithotripsy machines, or, in general, what you're seeing?

Well, I don't think we can speak about real changes. But, as a matter of fact, and that's what we've seen between Q2 and Q3, it may take a little bit of more time before concluding deals. And we have seen and experienced some delay in closing some deals in Q2, that were pushed on to the Q3 sales. So that's one of the reasons why Q2 was quite low and Q3 was quite high.

So, basically, people are taking a little bit longer, and are considering a little more, I would say, different details, investments, and they will take a bit of more time.

Okay. And Marc, in terms of the HIFU machines, obviously, you've sold one in the quarter. And forgive me if you've already mentioned this, what is the expectation, let's say, for Q4? I thought I heard there is a backlog of 12 or 14 units. How many of them are for HIFU? Or how many do you all expect you could sell in Q4?

As we've seen in the past years, we have usually a very strong Q4, in terms of selling machines. And, as we announced today on the call, we have 12 machines in the Lithotripsy backlog, and we have two in the HIFU backlog.

Two in HIFU?

(Multiple speakers) two orders confirmed for HIFU. And we are continuing to work on the pipeline of projects and leads to get more.

And finally, Marc, you'll have 12 Lithotripsy machines, two HIFUs in backlog. Please correct me if I misinterpret this. So when you'll ship it, you'll obviously recognize it at revenues, sometime during Q4. Would it be fair for me to say that, since we are somewhat in the middle of the fourth quarter, we are potentially looking at a relatively higher level of units from Q3, especially given the backlog that we are seeing right now?

Probably, yes, even though it's difficult to say, because it's not linear. And what we call backlog is confirmed purchase orders that we have in hand. So we'll do everything, of course, to deliver the backlog during the quarter.

And we -- as you said, we are only at the middle of the last and fourth quarter of the year, so we expect to get more purchase orders as we reach the end of the year. And we expect to be able to deliver these orders as well on the quarter. So that's what I can comment on that.

Fair enough. And Eric, finally for you. How should we look at gross margins, given that you're selling HIFU now here? And I'm not asking for guidance, but if you were to look out four quarters ahead, how should we be thinking about gross margins, on a global basis? Thank you.

I will not give you figures. And one of the reasons is that it will definitely depend on the mix of machines that we actually sell in the quarter. And, as you noted, Suraj, the HIFU machines and HIFU business, in general, has generally a much better margin than the Lithotripsy business.

Yet, all that together, another thing that has a very good and positive impact on the gross margins, is the global sales volume. And the higher the volume, the better the coverage of fixed expenses that we have in the cost of sales and, hence, the better the gross margin. That's it, that's what we have seen in Q3 this year. And if we have, as expected, good sales volumes in Q4, we should have a decent gross margin as well.

Jonathan Schwartz, Deerfield Limited.

Congratulations on such a good quarter. A couple of questions. Has there been any movement on reimbursement in France, on codifying that, and determining what the levels will be?

Well, no. And if we would have got any news, and official new numbers, we would have communicated to the market, indeed. But we are continuously working with the Ministry of Health, as they are now the deciding hands, since it was transferred from the Health Authority to the Ministry of Health.

So we are following that very closely, and meeting on a regular basis with them. And, hopefully, we can get some announcement and news very soon.

Yes, I guess French bureaucracies don't work particularly fast; not that any do. Could you give a little more color on that study of 1,000 patients? My phone was a little bad at that point, and it wasn't clear to me what that was about. Was that about focal therapy, the one -- ?

Actually, this is a paper and publication that we are working on, on radiation failures. We have launched and designed a registry to collect data from the different users and sites, and HIFU sites, in the world. And we are extracting from this registry, different data that will be able to be published.

And we have got, in the registry, up to now, approximately 1,000 patients that were treated on radiation failures, and we have submitted, and I cannot give too much of details, because it's in the middle of submission, to international congresses these papers, so that we can present it, and have some urologists presenting it in sessions during these congresses.

Basically, it gives a very good impression, and is able to feed back on the capabilities and the advantages of HIFU on patients that have failed radiation therapies. And this is very impressive, because it is based, again, on a very large number of patients, approximately 1,000; and it will give results up to very long term.

Right. Well, yes, wonderful. Thank you. And, let's see, are the robotics -- the physicians that use robotic techniques, what countries are they in, the ones that are now using HIFU complement -- as a complementary? Is that primarily in Germany, in France?

It's primarily in France and Germany, indeed. And that, again, is very -- something which is very new, and which is very interesting as well, because these are people that have usually we've been following for the past 10 years, and they are now calling us, asking for information and trial of HIFU, as they really feel they have this need in their practice, again, to maintain the leadership into their surgical practice, and in the community, the need to address radiation-failure patients and focal approach of prostate cancer management.

So that's very strong, and that's very new, again. And we -- mainly, it's happening in countries HIFU is well spread, which is France and Germany.

So presumably, they certainly could use HIFU in a complementary way, in the case of salvage; that's obvious. But if they're using it for focal therapy, then, in effect, they're saying -- they're substituting HIFU for robotics with some of their patients, which would be very good news. Is that actually happening?

Yes, and this is -- again, this is the trend, because surgery -- robotic surgery, or, I would say, classic surgery, can't provide any solutions for partial treatment, for focal treatment. And that's a new need. So they have no answer for that new need, except using HIFU. And that's why they are now coming to us, asking us for that.

And, again, it's in Germany and France, but also, as a reminder, it's --even though the technology's not approved yet in the US, we are having champions that have joined the team, first, in the FDA trial, because, as you'll remember, most of the sites are among the most prestigious and most respected, in terms of prostate cancer treatment, in the US. And they are participating into the Ablatherm trial.

And we have a study coordinator that is in the [field], who is very well known as a surgical champion, and rather a champion in the US. And he is showing also a very strong interest in HIFU as being the coordinator of the trial. And he believes strongly in the interest and the future of focal approach for prostate cancer.

Right. All good news. And last, in reading, I think it was a release or something from Epitarget, they said that they were at the stage where they were discussing the possibility of getting a joint venture, or some sort of association, with a pharmaceutical company. And I just wondered if there'd been any movement on that, or any other movement on that front, in the Epitarget joint venture?

Well, nothing significant on the business point of view, because that drug-delivery project with Epitarget, it's still at pre-clinical stage. So that's still early development.

Right, fine. Well, thank you very much. Thanks Marc, thanks Eric.

(Operator Instructions). William Lightfoot, private investor.

I have one question. Some time ago, there was a news release that a company in China, the Shaw Han Biomedical Company, had formed an agreement with EDAP, where they were going to get approval of EDAP -- of the HIFU in China, and then would have a distribution contract for four years after that. I was wondering if you could tell us what the status is on that situation?

Well, actually, we are partnering with Shaw Han Medical for the Chinese market, and for the first stage, which is going through the approval process. And we are progressing in the approval process, as some testing we are doing on the device (inaudible) there. And we continue to work closely with the regulations and authorities in China, progressing on the approval process. But still, we have not been approved. And, again, we expect to get approval as soon as possible. And we are progressing on that with our partner.

Okay. Thank you very much.

Peter Cardillo, Rockwell Global Capital.

Congratulations on a very good quarter. I just have one concern, and that is I believe that the Company's communication with the market is not all that great. And I think you have a very capable individual handling your IR needs, Mrs. Carrington, who I have spoken to several times, but I think that she's probably lacking the tools from the Company as to go out and, perhaps, spread the story. Do you have any intentions of better communicating with the market?

Well, Peter, I'm not sure I fully understand what you mean by better communicating. And we have a very regular and quite clear, I hope, communication on any significant movement and development for the Company. We've been issuing press releases on a very regular basis; and quite often, I would say, on the developments we've made on the different fronts.

So, of course, we aim at improving as much as we can, but well, if you have any suggestions, please go ahead.

Well, basically, one of the things that I was getting at is, are you on road shows for the institutions to brokerage houses, things of that nature? I think that's important. Obviously, you can see the volume in your stock, and I'm well aware of the fact that it's a very small market cap, and very few shares outstanding. But you can see that there is very little trading, and it just seems to me that it's a story that's not being told to Wall Street.

Yes. We -- either Marc or myself go very regularly in the US, and participate either at investor conferences or in different -- various -- either institutional or retail meetings, to spread the story and explain what EDAP does, and try to market the stock, basically.

It's true that the market has been quite difficult in these days. We just hope that, with the logic that the good operational result that we are delivering now, we have a good Q3, we hope to have a good Q4 as well, that should ultimately reflect in the market.

Okay. Thank you.

And, ladies and gentlemen, that will conclude our question-and-answer session at this time. I would like to turn the conference back over to Philippe Chauveau, Chairman. Please go ahead, sir.

Thank you, everyone, for participating on today's conference call. This concludes today's call. Thank you, and goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.