Edap Tms SA (EDAP) 2011 Q4 法說會逐字稿

Good morning, and welcome to the EDAP TMS fourth quarter 2011 conference call. All participants will be in a 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. And 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 those 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 not are limited to, to those described in the Company's filings with the Securities and Exchange Commission. Now I would like to turn the call over to Philippe Chauveau. Philippe?

Morning, everyone. Year 2011, EDAP held its ground in an incredibly difficult environment, while competition did not. In 2011, EDAP took out EUR2 million of costs. Additionally, EDAP is now starting to compete in the US market.

In our Q3 conference call, I shared three comments with you. First, that we were pleased with our backlog. In Q4, we sold 16 lithotripters and one Ablatherm, and I'm particularly pleased with the start of litho sales in the US.

Second, I said we are strongly managing cash. At the end of Q4, we recorded a cash position of EUR6.5 million; an increase of EUR1 million on Q3, and higher than Q1 last year, 2011.

Thirdly, and most critically, I emphasized management's focus on opportunities to finance EDAP's $10.5 million convertible bond to be reimbursed in October 2012, this year. I am pleased to announce the streamlining of EDAP's capital structure with a $10 million non-convertible note now due in June 2014.

Overall, Q4 was a good quarter for EDAP. Now, I'll hand over to Marc.

Thank you, Philippe, and thank you, everyone, for joining us on the fourth quarter and full year 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.

Over the past year we have significantly strengthened our Lithotripsy business. We posted our fifth consecutive year of Lithotripsy revenue growth, and generated full-year revenues of EUR16.4 million, or $23 million.

In 2011 we sold 40 lithotripsy devices at a higher average selling price based on our enhanced and innovative product portfolio.

In line with historical seasonality and typical hospital capital equipment purchasing patterns, EDAP's device sales were weighted towards the second half of the year. As expected, capital equipment purchasing has continued to face a very challenging economic environment, especially in Europe. We are pleased with our performance in the second half of the year, with 14 devices sold in the third quarter, and 16 devices sold in the fourth quarter.

Our global Lithotripsy business benefited in 2011 from the achievement of two key approval milestones.

First, EDAP received in June 2011 Japanese marketing approval for its Sonolith i-move. Japan is the world's largest lithotripsy market, with the largest installed base. It has now offered its complete range of innovative lithotripters, ranging from its compact modular and flexible Sonolith i-move, to a fully integrated robotized high end Sonolith i-sys.

EDAP's dedicated and experienced direct sales force is fully committed to address the Japanese market, where there is a strong orientation towards innovation and state of the art technology.

Second, we received US FDA 510(k) clearance for the Sonolith i-move in August 2011. We have accelerated our US sales initiatives, including our presence at the AUA last May, and conducted several product demonstrations to leading urology groups around the country.

With our FDA clearance in hand, and our aggressive marketing program under way, we successfully completed, before the end of 2011, two lithotripsy sales to well-respected urology groups; one on the East Coast and one on the West Coast. The first was to Empire Litho, based in New York City metropolitan area, and the second Sonolith i-move was purchased by a group of urologists at USC Medical Center in Los Angeles and UC San Diego.

We have received a confirmed purchase order for a third device in the New York City area from one of the largest and strongest partnerships in the region, with over 300 urologists. We are on track to deliver and install the third device during the first half of 2012.

These sales demonstrate the growing interest that our Sonolith i-move is receiving from the US urology community, as it brings new specificities and innovation.

Our Sonolith i-move device is a modular real-time 3D lithotripter that is well suited for urology practices that are seeking a modular machine with significant power to treat urinary tract stones.

We are continuing to conduct product demonstrations across the country and are maintaining an active sales presence at medical meetings, including the upcoming American Urology Association annual meeting that will be held in May in Atlanta.

We are confident that we are well positioned to continue taking significant market share in the US market. There are approximately 700 installed machines, with an annual estimated replacement volume of approximately 50 to 60 machines.

Leveraging our renewed product range and the strength of our sales team, we are well positioned to rapidly become a major player in the US lithotripsy market.

Our lithotripsy innovation is leading to significant market interest from around the world. Our devices were well received at the Annual European Association of Urology Congress held in Paris in late February. They were showcased in our booth and drew strong interest from international urology community.

The global lithotripsy installed base is mature and mainly driven by replacements. But it is also quite dynamic and driven by technology and innovation. It is clear that EDAP has been the only lithotripsy manufacturer that has invested and focused on research and development. As a result, EDAP is the only player in that market who has a fully renewed and newly design device range.

With increasing recognition from the market and users, EDAP has grown its ESWL revenues outside of the US by more than 30% over the four, five years and is well positioned to further increase its US revenues as both our Sonolith i-move and Sonolith i-sys are fully commercialized.

Turning now to our Ablatherm-HIFU division, we are seeing expanding interest from across the international urology community in our (inaudible) treatment option for localized prostate cancer.

Over the past three years, the prostate cancer treatment paradigm has shifted away from radical options, such as surgery and radiation therapy, towards watchful waiting. In recent years, the decline in our device sales and RPP usage has been attributable, in part, to the prostate cancer paradigm shift and to patients delaying elective procedures, given the challenging global economic climate.

Concurrently, thanks to improved diagnostics, the patient profile has shifted to include those at younger age and at earlier stage of disease progression.

This recent evolution of the prostate cancer management, coupled with the strong patient profile, is generating some confusion amongst urologists and patients and leads to challenges for most therapies available on the localized prostate cancer market. It is possible that we may see significant changes in treatment strategies and technologies used.

The difficult and changing economic environment has also affected the rules in standard of care. For example, in the US, after purchasing more than 1,400 robot devices to perform robot surgery for prostate cancer, we could see a strong shift towards radiation therapies, such as IMRT.

Traditional radical surgery of prostate has declined in the US and robotic surgery, the new standard of care in prostate surgery, is also declining as patients and urologists are choosing radiation therapy because of its minimal invasiveness and its level of reimbursement.

There are certainly other examples of similar treatment paradigm shifts and the standard of care has gravitated towards minimally invasive treatment options.

As a matter of fact, we have seen situations where the existing standard of care did not answer the new needs of new patient populations. Today, prostate cancer patients are diagnosed earlier in their age and earlier in their disease stage. The treatment strategy can no longer be efficacy at any price, given that most patients will now live for one or two decades after being diagnosed.

Radical standard techniques, such as surgery and radiation therapy, were answering the previous need for efficacy but they no longer satisfy the growing needs of the patient population that is looking for control of their disease with a high level of quality of life preservation.

The growing number of patients that are now placed under active surveillance confirms the need for new tools to address the treatment demands of this new patient population.

Moreover, watchful waiting has shown its limits, as it is very hard for diagnosed patients to receive no treatment in the hope that the disease will not progress. This is why the international urology community now unanimously recognizes that radical treatment, in many cases, is the equivalent of other treatments.

As a result, there is a need for a new treatment strategy that will be based on treating only part of the prostate where cancer cells are detected. This is the new era of what is called focal treatment of prostate cancer.

To answer that new need and bring a solution to this growing population of patients, two things are needed. First, the device needs an amazing capability to accurately detect each and every cancer cell in the prostate. And second, it must be a therapeutic tool that is non-invasive, accurate, precise and repeatable.

Ablatherm-HIFU is the best positioned technology to address these two points and bring a high level of proven efficacy in ablating prostate tissue with precision, non-invasiveness and without burning bridges with any other type of pre-treatment modalities.

On the imaging side, there is still some research work to be done to obtain more accuracy to detect each and every cancer cell. Thanks to ultrasound and MRI available today, and with the established prevalence of HIFU, this new strategy is being used and provides innovative treatment solutions to the growing population of younger and low-risk patients.

As a confirmation of this shift, we are seeing several urologists that are long-term users of Ablatherm-HIFU doing more and more focal cases. Even more interesting, some of the pioneers and champions of robotic laparoscopic surgery have added HIFU in their practice to answer the need for treating this new patient population that is no longer indicated for radical treatments.

This is a new market and, as always, it will take some time to transition the standard of care. We, at EDAP, strongly believe that this is certainly a great opportunity for HIFU to become the first part of care treatment in this new therapeutic approach of prostate cancer treatment.

This is also a clear opportunity for HIFU, as, for the first time in its history, that it is well positioned in a market where both surgery and radiation are no longer answering the treatment specifications and, thus, will not be viewed as the competition.

In addition to the evolution of the primary care patients' market, we can see recently an increase in numbers of patients needing a salvage treatment.

In the past, these patients that failed radiation were old and late in their failure diagnostic. They were then given some hormonal treatment as a palliative solution. Because of the patient population change, and increasing resistance to hormone treatment after a few years, there is a need for curative solution to treat patients with radiation failures.

As exemplified by the recent publication on large numbers of patients and with long-term follow up, Ablatherm-HIFU has proven its efficacy and performance in bringing a curative solution as a salvage treatment.

In the past decade, a lot of patients were treated with radiation therapies and we're already seeing a significant increase in the population of patients with radiation failures.

This is another significant opportunity for Ablatherm-HIFU to expand its positioning on this segment where there is almost no competition and no presence from the traditional standard of care treatments for primary care patients, i.e., surgery and radiation. Based on recent experience, many Ablatherm-HIFU users treating more and more radiation failures.

At the annual European Association of Urology Congress held in Paris in late February, the Ablatherm-HIFU device was featured in a seven posters presentation. Two of the posters were recognized as Best Posters at this world's prestigious medical meeting. This recognition confirms that HIFU is considered as one of the hot topics in modern urology.

The data supported our device's ability to precisely control prostate cancer disease through a robotized non-invasive technique that targets the cancerous cells within the prostate gland as compared to radical treatment options.

To bring you up to date, we are nearing the completion of the two-year follow-up phase for our US FDA end-life trial that is just over three months away at the end of June 2012. We will then collect and analyze the final datasets. We plan to submit the final data and analysis to the FDA during the fourth quarter 2012. A response from the FDA is anticipated in the 2013 timeframe.

As you may recall, the first data from this trial was presented at the medical meeting in October last year and showed the lack of any serious morbidity post treatment and encouraging [seeing] signs of incontinence and sexual function recovery, which is in line with Ablatherm-HIFU capabilities of preserving quality of life of patients.

At the beginning of this year, we regained the distribution rights for Ablatherm-HIFU in Canada, Mexico and the Caribbean. This will certainly increase the Ablatherm-HIFU dynamism in the Western hemisphere.

Before turning the call to Eric, who will review our fourth quarter and full year 2011 financials and details, I would like to highlight the fact that, in 2011, we continued our cost reduction program and control and we achieved a great performance that made us save EUR2 million in expenses over the year, and it helped us improving our operating results in a difficult environment with a decreased level of volume.

Eric?

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

Total revenue for the fourth quarter 2011 was EUR7.5 million, or $10.1 million; a 6% decrease compared to EUR8 million, or $10.8 million, for the fourth quarter 2010 and a 23% increase compared to EUR6.1 million, or $8.6 million, for the third quarter 2011.

Total revenue for the HIFU division was EUR1.8 million, or $2.4 million, for the fourth quarter 2011 compared to EUR2 million, or $2.6 million, for the same period last year.

Results for the fourth quarter 2011 reflected the sale of one Ablatherm-HIFU device as compared to two devices sold in the same period last year.

Total revenue for the Lithotripsy division was EUR5.8 million, or $7.8 million, for the fourth quarter 2011 compared to EUR6.1 million, or $8.1 million, during the year-ago period.

During the fourth quarter 2011, the Company recorded sales of 16 lithotripsy machines, comprised of seven Sonolith i-move devices, five Sonolith i-sys devices and four Sonolith Praktis devices, compared to a total of 20 devices sold in the fourth quarter of 2010.

Gross profit for the fourth quarter 2011 was EUR2.8 million, or $3.8 million, compared to EUR3 million, or $4 million, for the year-ago period. Gross profit margin was 37.2% in the fourth quarter of 2011; stable from 37.6% in the year-ago period.

Operating expenses were EUR3.2 million, or $4.3 million, for the fourth quarter 2011, down 7% from EUR3.4 million, or $4.6 million, for the same period of 2010.

Operating loss was EUR371,000, or $499,000, for the fourth quarter 2011 and was flat compared to the fourth quarter of 2010.

Excluding operating expenses of EUR154,000, or $207,000, associated with the US FDA ENLIGHT clinical trial for Ablatherm-HIFU, fourth quarter 2011 operating loss was EUR217,000, or $292,000.

Net loss for the fourth quarter 2011 was EUR579,000, or $779,000, or EUR0.04 per diluted share as compared to net loss for the fourth quarter of 2010 of EUR7.2 million, or $9.7 million, or EUR0.56 per diluted share.

At December 31, 2011, cash and cash equivalents, including short-term treasury investments, were EUR6.5 million, or $8.4 million, which reflected the stabilization of the Company's cash position. The Company was cash flow positive during the fourth quarter 2011 and generated EUR1 million as a result of strong cash management.

Now, a few words on full year 2011 results.

EDAP'S total consolidated revenue for the full year 2011 was EUR22.3 million, or $31.2 million, as compared to EUR23.7 million, or $31.3 million, for the full year 2010. The 2011 revenue included the sale of 40 lithotripsy devices that featured a higher average selling price due to product innovation.

Gross profit for the full year 2011 was EUR8.9 million and operating loss was EUR2.5 million compared to EUR9.5 million and EUR3.8 million respectively for the same period of 2010.

The revenue shift was reflected in the lower gross profit, but that was more than offset by the EUR1.9 million reduction in operating expenses, which were EUR11.4 million for the full year 2011 compared to EUR13.3 million for the same period of 2010.

Net loss for the full year 2011 was EUR939,000, or $1.3 million, or EUR0.07 per diluted share. The full year 2011 net loss included a non-cash interest income of EUR2.4 million to adjust the Company's convertible debt and outstanding warrants to fair value and to reduce the outstanding convertible debt.

Finally, and following the end of our reporting year for 2011, we achieved the major milestones by streamlining our capital structure and removing the short-term debt burden for the Company.

The transaction exchanged the outstanding convertible debt and warrants for term notes with extended maturity and also eliminated the potential dilution connected with our former 2007 convertible bonds.

We believe the restructuring strengthened the financial profile and therefore, it's in the best interest of all EDAP's shareholders.

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

We will now begin the question-and-answer session. (Operator Instructions). [Jonathan Schwartz, Fairfield Limited].

Congratulations, gentlemen, on the quarter. Can you give us some information on backlog, what that looks like, both in Lithotripsy and in the HIFU area?

As usual, after a very strong end of the year, beginning of the year is always a little bit slower than the end of the year.

But we still have, as of today, a quite strong backlog of projects and orders -- well, a strong pipeline sorry, of projects, and we have a strong backlog of orders, that is approximately around eight lithotripsy machines.

We also have recorded a strong start in the RPP pipeline of projects and backlog as well, for the HIFU Division.

Right. And can you give me some idea of where focal cases are actually being done, Marc? Are they being done primarily in Europe? Or -- if somebody wants to have focal treatment, can they get it in North America?

Well, they are done, of course, primarily in Europe, as this is where most of the installed base of Ablatherm-HIFU machines are. Now, in North -- in the US, of course, not, because we are not yet approved, but around the US, I have not heard too much about focal treatment yet.

Right. And what's the status of Maple Leaf HIFU, then, since they're no longer exclusive? Are they just continuing as the same operation as before? Have they given up? Do we have to replace them? What's the status of Ablatherm-HIFU in Toronto?

Well, my belief is they've not given up, and they are -- they had some rights to use and distribute our Ablatherm-HIFU in the surrounding countries around the US.

This right is now over, since end of last year, but they continued to be a customer and a user of EDAP and they use Ablatherm-HIFU today, mainly in Toronto, where they continue treating patients, and in the Dominican Republic, where they continue as well, to treat patients. So we have the normal customer relation and we have a good relation.

Right. So essentially, from a customer relations standpoint, nothing's changed?

Not at all.

No. What is the -- the new treatment center in Cancun sounded interesting. What's our per-treatment fee, for treatments in Cancun? I assume they're pretty much the same as they would be in Munich, is that right?

I don't exactly understand your question, Jonathan.

Well, when a treatment is done, we sell the disposables, if they own the machine. So what's the fee for that, assuming -- well, first of all, I guess I should ask you, is that an RPP location or is it a machine?

RPP location.

It is an RPP, right. So I guess, I'm sure I have this in my notes and I knew it once, and my memory's lousy. What's our RPPC then, per treatment?

It depends to whom we sell it, and where, so -- and these are some kind of confidential commercial information that I --

I understand.

-- [like] the competition to hear about that, and --

No, no, say no more.

But the thing is that we have an RPP agreement with PanAm HIFU, and they have a commitment on minimum number of cases to be done on a yearly basis, so that they can access the machine.

Right. And presumably they're in a position to send patients because they have a practice in -- on the West Coast of Florida?

Absolutely, and they are a group that is very well experienced on HIFU, as they already treat it. They were trained in Munich, and they treated several patients in the UK on Ablatherm-HIFU, and they have also experience on the other HIFU device. So it's a very well experienced group of urologists, [leaded] by the group in Florida.

They do. So they've actually had experience with the Sonablate as well?

Absolutely, absolutely. When they discovered Ablatherm-HIFU, and they realized the differences in terms of efficacy and safety, they decided to change.

Right, interesting. Any word on French reimbursement? Is that still in the process, in the bureaucracy?

Yes, it's still in the process, and we are in very active and constant discussions with Ministry of Health to see how can we move forward in the innovation and innovative devices program that they are launching with us, to the past few weeks.

Right. Has there been -- yes, the other thing is, in terms of MRI-guided HIFU, is that in our research stage, Marc? We don't do that at the moment. If somebody wants to go and have MRI-guided Ablatherm-HIFU, that's not available commercially, I presume? Is that right?

Right.

But is that something that's being researched? I thought I remember something like that, from an earlier call.

Yes. We do quite a lot of research, not only in MRI, but in other imaging possibilities, so that we can really be more accurate in, again, diagnosing cancer cells in the prostate, as, again, prostate cancer is a multi-focal disease. So one of the key points is to really be able to diagnose all the focuses of cancer.

We do work on the research, on MRI, not only on MRI guided, but also on fusion of the image between MRI and ultrasound. So there are several programs. And as you may recall, we've got a loan from the European and French government, end of last year, to pursue research in that specific field as well.

Yes, that's what I recall. And has there been any breakthroughs in that area, in imaging, by some of the big guys who make that equipment?

Not -- there are a lot of research work done in this area, and by several players in several ways. So we expect this to really progress very quickly in the next short term.

That would have a very big impact, I would think. It would make HIFU much more attractive if you had really, essentially, perfect imaging, right?

Absolutely, absolutely. Even though, with the imaging capabilities available today, a partial or focal treatment is already starting to make sense, using HIFU, as, again, you can repeat the treatment. So if there are focuses that you didn't see for the first treatment, and then after two, three, four, five years, you have the local recurrence on new focuses, then you can repeat the treatment, which is one of the huge strengths of HIFU, in this new approach.

Yes. And in terms of, let's say that Philips or GE or Siemens or somebody came out with superb imaging tomorrow, is that compatible? Could you use that in connection with Ablatherm technology, as it stands right now? Or would we have to adapt something? I'm just not sure, mechanically, how that would work. Because after all, right now, we use our own imaging, right.

Well today, the solution doesn't exist yet, but what we do, and what we really focus on doing, is to make sure that we can adapt ourselves to any and every new imaging system from whoever it comes. We don't want to be dependent on one specific solution or player.

Right, so we could basically adapt to whatever was available along those lines?

Most probably.

Great, thank you, Marc. Thank you, Eric.

(Operator Instructions). Richard (inaudible), Private Investor.

Thank you. Congratulations on a great quarter, and it's great to see the positive cash flow in the fourth quarter.

Just a question, would you please explain more -- I remember, maybe about a year and a half, two years ago, the comment and research that was started in looking at HIFU to treat other forms of cancer. Can you please provide an update on the progress on those efforts?

Yes. We have, as we announced in previous press releases, that we are conducting a Phase I trial on liver metastasis cancer. So we are moving forward in that specific trial. And we also continue our research program for drug delivery, again under a consortium of companies.

Is there anything you can share on upcoming milestones and targets on that Phase I trial? What's next?

Well, this is a monocentric trial. That's to treat liver metastasis. We have very promising results to date. The monocentric study will last approximately 12 to 18 months. Then, well, depending on the outcomes, we should be in a position to move forward, hopefully get it CE marked.

Great, terrific, thank you. And I heard the piece, it sounds like the HIFU application in the US will go in later this year, and we expect -- hope [for] a response in 2013, is that correct?

Yes.

Okay, great. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Philippe Chauveau for any closing remarks.

Thank you everyone for sharing our questions and comments on today's call. And I now will close the call, and talk to you next time.

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