ICAD Inc (ICAD) 2009 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter and year end 2009 iCAD Inc.

earnings conference call.

My name is Shamika and I will be your operator for today.

At this time all participants are in listen-only mode.

We will conduct a question and answer session towards the end of today's conference.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms.

Ann Marie Fields with Lippert/Heilshorn.

Please proceed.

Thank you.

Good morning.

This is Anne Marie Fields with Lippert/Heilshorn & Associates.

Thank you all for participating in today's call.

Joining me from iCAD are Ken Ferry, Chief Executive Officer and Darlene Deptula-Hicks, Executive Vice President and Chief Financial Officer.

After yesterday's market closed, iCAD announced financial results for the fourth quarter and year end of 2009.

If you have not received this news release or would like to be added to the Company's distribution list, please call Lippert/Heilshorn in New York at 212-838-3777 and speak with Cheryl Palazzo.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of iCAD.

I encourage you to review the Company's filings with the Securities and Exchange Commission, including without limitation its forms 10-K and 10-Q which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 23, 2010.

iCAD undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this conference call.

With that said, I would like to turn the call over to Ken Ferry.

Ken?

Thanks Anne Marie.

Good morning everyone and thank you for joining us for our year end conference call.

Looking back on 2009, it was obvious that the macroeconomic environment that our customers faced had a significant impact on our business.

Yet, what stood out in my review of 2009 was how well we real-time managed our business through this challenging period.

And while we were not able to make the strong year-over-year progress that experienced in 2007 and 2008, we did achieve some significant financial milestones.

We were cash flow positive for the full year and profitable throughout the second half of the year and achieved record gross margin for the full year.

Our confidence as we enter 2010 is supported by two quarters of sequential revenue growth, the strongest balance sheet in the Company's history, a highly competitive and broader product line and the prospects of a strengthening economy.

We continue to believe that we are well positioned to capitalize on the business opportunity inherent with the continued global transition from film based to digital technology in the mammography market and in the ongoing need for more advanced image analysis and workflow solutions to improve the diagnosis and treatment paradigms for leading cancers such as breast, prostate and colon.

Our fourth quarter results were the strongest of the year.

We posted a profit in the quarter, maintained record gross margins and increased our cash position all while investing in our product pipeline to broaden our footprint in cancer detection.

In taking a closer look at the results, our core digital CAD business showed solid sequential growth over Q3 but was down 12% compared with Q4 of last year.

This can be attributed to the approximate 20% decline in US digital mammography system placements during the fourth quarter compared to the year prior.

This was somewhat offset by stronger international demand for digital CAD and increasing MRI sales.

As we move forward we believe MRI to have significant growth potential.

I'll comment on this topic in more detail later in the call.

Looking at the digital mammography market, approximately 50% of the global install base has yet to convert from film based mammography systems to digital systems, resulting in a significant global mammography CAD opportunity over time.

We believe this will come from new system placements and upgrades for the o-US digital install base not using CAD today.

Our international sales continued strong in the fourth quarter with significant growth versus last year's fourth quarter and for the full year comparison as well.

The o-US markets where there is significant government funded healthcare have not been as severely affected by the economic downturn as the United States market.

We remain confident of the potential for continued growth in the overseas markets for digital mammography CAD and for our newest MRI and CT-based image analysis and workflow solutions.

Sales of film based products declined during the quarter.

The decline can be attributed to continued slowing demand for analog CAD systems combined with softer demand for digital mammography as the majority of film based revenues are derived from the sale of TotalLook MammoAdvantage.

TotalLook MammoAdvantage, a digitized comparative reading solution is typically sold to further optimize workflow in a digital mammography environment.

During the fourth quarter of 2009 our service and supply revenue increased substantially compared with the fourth quarter of 2008.

This substantial growth is a consequence of our growing install base of systems that continue to transition from warranty to service agreements and agreement renewals.

With an install base of nearly 3,000 digital mammography CAD systems worldwide and nearly 500 TotalLook systems, we anticipate there will be significant opportunities for growth in this customer base as we plan to introduce new products and upgrades and enhancements over the coming years.

Now shifting topics from our performance, I'd like to provide an update on our progress with products for the MRI imaging market.

Since the introduction and launch of SpectraLook and CADvue approximately a year ago, our two new breast MRI products, and VividLook, our prostate MRI product, we've generated considerable interest from our customers and see this momentum continuing in 2010.

As we continue investments in developing these markets, we are expanding the awareness of MRI CAD particularly for prostate and it is reflected in the growing sales funnel.

As part of these efforts, we are increasing our presence with MRI through active participation at specialized MRI medical meetings worldwide as well as through our direct MRI sales efforts.

This technology area could be a significant opportunity because sales of MRI CAD are not dependent on the sales of new imaging systems but rather are marketed largely to the install base of approximately 8,000 MRI systems in the United States alone.

The November Radiology Society of North America meeting, the RSNA, was a successful event for iCAD as we highlighted our new technologies for image analysis and workflow improvements for hospitals and free standing imaging centers.

We were delighted to showcase innovative enhancements to our MRI solutions for both breast and prostate cancer.

Our over-subscribed symposium at the RSNA demonstrated how quantitative image analysis and MRI play an integral role in prostate cancer programs including pre-op -- pre-biopsy guidance, treatment planning, active surveillance and therapy response monitoring.

Specifically turning to VividLook, our MRI prostate product, prostate cancer diagnostics today can be compared with mammography 20 years ago before there was public and private funding to support the innovative research and clinical testing of promising imaging technologies.

Early detection is critical for finding a cure, saving lives and improving the quality of life for men with prostate cancer.

Imaging technologies provide information on cancer location, extent of aggressiveness, which is critical for individualized patient care.

As many of you know, prostate cancer is the second most deadly cancer in men.

The commonly used PSA blood test has been shown to have a high false-positive and negative rate.

This can cause unnecessary biopsies or not performed at all as the PSA level may be normal at times where prostate cancer is still present.

It is currently estimated that 1.2 million biopsies are performed in the United States alone each year.

We believe that a contrast enhanced MRI study of the prostate should be performed before a final decision to perform a biopsy is made.

This key step may help to avoid unnecessary biopsies as well as assist with the identification of regions of interest to focus biopsies to better quantify the extent of cancers.

The use of this technology is in its early stages of adoption where awareness and education are critical to driving widespread use.

Towards this end, during the quarter we hosted a series of educational events designed for the full gamut of professionals who diagnose and treat patients with prostate cancer.

Each of these was overwhelmingly successful and oftentimes oversubscribed.

We will continue to build iCAD's position as a leader in customer education in 2010 as we've established a formal relationship with ICPME, the International Center for Postgraduate Medical Education, a nationally accredited medical education company, to offer numerous CME accredited programs for existing and prospective customers.

For more information regarding these events, I encourage you to go to our website at WWW.ICADMED.COM where each program is outlined in greater detail.

During the quarter we also announced a strategic partnership with AdMeTech Foundation, a not-for-profit organization with a mission to eliminate blind prostate cancer care and promote the development of image guided, precisely targeted, minimally invasive and cost effective patient care.

iCAD has joined the industrial liaison board of AdMeTech International Prostate MRI working group which is modeled on the breast cancer MRI working group with a goal to expedite advancement of MRI and magnetic resonance spectroscopy technologies and their integration with the treatment of prostate cancer.

We are providing access to our VividLook prostate analysis software.

We expect that the MRI working group will develop and implement strategies to make MRI an industry standard helping more men receive accurate diagnoses and treatment plans which ultimately saves lives and reduces healthcare costs.

While we continue to support such programs and expect that they will keep iCAD at the forefront of advances in prostate imaging while enhancing our efforts to build momentum for VividLook in prostate cancer management.

We believe these seminars will provide clinicians with a better understanding of how this imaging capability supports better patient care as well as how to incorporate it into their own practices.

Our target market here is well defined and manageable as the radiology departments that have MRI machines of at least 1.5 Tesla.

We believe the combination of awareness, education and our direct MRI sales force will help us to penetrate these markets and leverage this growing opportunity.

Shifting gears, I'd like to give you an update on our CT program.

In late May of 2009 we filed our 510(k) application with the FDA for clearance to market VeraLook for the use in CT colonography or virtual colonoscopy.

Ordinarily the FDA responds to 510(k) submissions within 90 days.

In our case, the agency has admittedly been late in response to us.

I'm pleased to report that after a face to face meeting with the FDA in December, we've experienced a noticeable increase in communication on our submission.

We received a letter with additional questions in early January and we submitted a response to them in early February.

The questions mostly centered on providing additional explanation of the data we submitted from our Reader study in product labeling.

While we were quite confident as to the thoroughness of our response and the increased level of communication, it is difficult to predict an approval time frame.

We should have a better sense of timing after we receive a response to the letter we submitted in early February.

CTC as you may recall employs cutting edge technology to produce three dimensional images that permit a thoroughly yet minimally invasive evaluation of the entire colorectal structure.

CTC requires no sedation so patients receiving a CTC exam are able to return to normal activities immediately following the exam.

By incorporating CAD with virtual coloscopy, radiologists have the option of using an image analysis tool that will aid them in detecting early stage polyps as they are provided a list of CAD marks with potential polyp locations clearly marked for their inspection.

VeraLook has the potential to reduce oversight errors during a virtual colonoscopy study review due to the large number of images generated by the CT system, often exceeding 1,000 images for a single patient.

Once cleared by the FDA, we will work with our OEM partners to finalize the integration of VeraLook into their advanced visualization software programs which will be marketed for use on more than 30,000 multislice CT systems installed on a global basis today.

Reimbursement remains a key driver for the widespread adoption of virtual coloscopy.

Last quarter we were pleased to report that new payment codes had been established for CTC, and while they were not CMS reimbursement codes, they continue to make getting paid for CTC by third party payers easier.

Also as we have previously reported, many of the major private payers are already covering CTC for colorectal cancer screening including United Healthcare, Cigna, numerous Blue Cross/Blue Shield affiliates and others.

In addition, the American Cancer Society, The American College of Radiology and the MultiSociety Task Force for colorectal cancer all have added guidelines for CTC versus optical colonoscopy and are strong supporters of its reimbursement.

We are confident that over time these efforts will result in broad-based reimbursement for CTC as it makes sense both clinically and economically.

So with these updates of our key product programs completed, I would like to turn things over to Darlene who will give you more detail and review of our financials for the fourth quarter and the full year 2009.

Thank you Ken and good morning everyone.

We were pleased with our overall financial performance during the fourth quarter and for the full year 2009, especially in light of operating in a very challenging business environment.

We are also pleased to report that despite year-over-year negative top line growth, we posted two consecutive quarters of sequential revenue growth and continue to demonstrate operational excellence that allowed us to attain profitability again for the second half of the year.

Additionally, we achieved record growth margins.

We continue to generate cash and we ended the year with what we believe is the strongest balance sheet in the Company's history.

To that end, we entered 2010 in a much stronger position from which to grow the business and we are confident of our ability to leverage the expected improvements in both the economy and in the markets we serve.

Now turning to our fourth quarter financial results, the 13% decline in total revenue to $8.1 million from $9.3 million in the fourth quarter of 2008 was primarily due to the challenging economic environment and the impact of hospital purchasing delays for digital mammography systems.

It's important to note though that total revenue in the fourth quarter improved over the third quarter by 14%.

Breaking that down further, digital CAD and MRI revenue declined 12% to $5.6 million from $6.3 million in the 2008 fourth quarter.

This can be attributed to an approximate 20% decline in the US digital mammography placement in the fourth quarter compared to the prior year fourth quarter.

Our film based products were off by about 44% to $1.2 million from $2.2 million in the fourth quarter of the previous year.

This correlates pretty closely to the decrease in digital CAD sales which is not surprising as our TotalLook MammoAdvantage compared to reading products is typically sold to sites that are preparing to go digital.

We expect demand for this product to pick up as the market improves and the ongoing transition to digital mammography continues.

Fourth quarter service and supply revenue increased 69% to $1.3 million from $798,000 in the same quarter the previous year.

This is primarily the result of increased service contract agreements, which continue to grow as our expanding install base of customers migrate from warranty to service contracts.

Service contract revenue particularly was up nicely, increasing 50% over the same period last year and representing 89% of our total service and supply revenue for the fourth quarter.

This increasing customer base of over 3,300 placements offers significant opportunities for growth, not only from new service contracts but also from potential sales of future new CAD product upgrades.

International sales for the quarter increased 42% to $948,000 from $669,000 in the final quarter of 2008.

Importantly when looked at for the full year of 2009, international sales of $3.7 million showed annual growth of 26% and represented 13% of total overall sales.

We remain confident in the potential of overseas markets particularly due to CAD being -- the CAD market being less penetrated outside the US.

Additionally, we expect to continue to leverage international opportunities with new partners, programs and products.

For the quarter, we maintained record growth margins of 84.8% versus 83.7% a year ago.

This is primarily due to optimizing, product pricing and costs.

Operating expenses for the fourth quarter of 2009 decreased by $883,000 to $6.6 million from $7.5 million the prior year quarter.

This decrease is primarily due to reduced clinical trial expenses associated with the completion of our colon CAD reader study, marketing and trade show expenses, compensation related expenses, travel expenses and depreciation and amortization expense, offset by increased professional fees.

For the fourth quarter of 2009 we reported net income of $317,000 or $0.01 per diluted share which includes stock based compensation expense of $499,000.

This compares with net income of $321,000 or $0.01 per diluted share including stock based compensation expense of $508,000 for the fourth quarter of 2008.

Now looking at our full year results, for the year ended December 31, 2009, total revenues were $28.1 million, off about 25% compared with $37.5 million in revenue in 2008.

Again, this is largely due to the impact in our core CAD business by capital budgets purchasing delays brought on by the current economic conditions.

Full year sales of our digital and MRI CAD solutions decreased 32% over 2008 to $18.3 million from $26.7 million.

Film based products sales for 2009 of $5.8 million decreased 22% and service and supply revenue of $4 million increased 21% when compared with 2008.

Total gross margin for the full year 2009 was 83.6%, compared with 83.5% in 2008.

Operating expenses for the full year 2009 decreased by $941,000 to $25.6 million from $26.5 million in 2008.

This decrease was primarily due to reduced compensation related expenses, reduced clinical trial expense associated again with the completion of our colon CAD reader study, marketing and trade show expenses, travel expenses, depreciation and amortization offset by increases in professional and consulting fees.

The net loss for fiscal 2009 including stock based compensation expense of $2 million was $2 million or $0.04 per share compared with net income including stock based compensation expense of $1.9 million, up $4.4 million or $0.10 per diluted share for '08.

We exited 2009 with product backlog excluding service and supplies of $958,000 compared with $1.1 million as of December 31, '08.

We have deferred revenue of $3.5 million at December 31, '09 representing future service contract revenue and representing an increase of $1.6 million over the prior year end.

I remind you again that a significant amount of our products are booked and shipped within the same quarter so backlog should not be translated into revenue for any future period.

Turning to our balance sheet, we are pleased to report that through disciplined cash management, tight expense control and strong supply chain management, we ended the year with what we believe to be the strongest balance sheet in iCAD's history.

In addition to generating $3.1 million in cash for the year, we reduced inventory by 24%, reduced accounts payable by 38% and increased deferred revenue by 80%, all compared with 2008.

We continue to remain debt free and ended the year with $16.2 in cash and equivalents compared with $13.1 million at the close of 2008.

We are confident that iCAD is well positioned to benefit from improving market conditions.

And finally let me address 2010 financial guidance.

Although we are becoming more optimistic about the Company's prospects in 2010, due to the continued economic environment and associated uncertainty in the healthcare markets we serve, we will continue to defer providing guidance at this time.

This decision will be reviewed mid-year and we will provide an update then.

With that financial update, let me open up the call for questions.

Operator?

Thank you.

(OPERATOR INSTRUCTIONS)

Do we have a question?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Jonathan Block of SunTrust Robinson Humphrey.

Please proceed.

Thanks and good morning guys.

Maybe just a handful of small ones, the first one, can I -- I realize you don't want to give timing on CAD, excuse me, on colon CAD.

It certainly seems like a positive, that the interaction's been picking up with the FDA, but could you maybe remind us when you do get the approval what that product will look like from an ASP and maybe Morgan standpoint?

Well Jonathan, to kind of maybe round out the update, as I said in my opening comments, we submitted in May and we really had almost seven months go by where things were really quiet with the FDA and I think we were somewhat caught up in this whole CAD validation process, the white paper and the guidance documents and the panel meetings and so forth, and so we've really had probably a challenging time frame just based on all the things they're trying to do to put more structure around CAD approvals.

So what I would say is that we're really enthused because when we finally met with them in December, we really were able to find the recipe so to speak to really start to accelerate the communication and dialogue.

And they did promise us a written response by the end of the calendar year to early January.

They did achieve that in I think it was January 8 we heard from them and then in under 30 days we put a really strong and detailed response back answering a lot of the important questions that they asked for.

So we're gaining I guess confidence and enthusiasm based on the quality of our reader study as well as the nature of our dialogue that we will get this thing approved in a reasonable time period, so we're gaining confidence.

With that said, the FDA as you know has been a touch environment to predict time frames particularly.

As it relates to your comments on the go-to-market strategy, we're working closely with all of what I call the potential OEMs that are in the 3D advance visualization space, and that would include the big imaging companies that we have relationships with today in mammography and everybody knows who they are, as well as the smaller independent advanced visualization companies, some public, some private, really trying to provide for the proper interface to our product so that as a customer buys advanced visualization software that allows you to visualize the entire colorectal structure, CAD would go hand in hand with that from a user interface standpoint.

We have not finalized pricing.

It is going to be largely a software based solution so you can imagine the margins on this would easily be north of 90%, but we have not finalized pricing with our partners, so it's a software based product.

Typically software based products have very high gross margins and really what we're trying to understand is, in a pricing sense, is there an opportunity for this to become a standard of care and shipped with every single workstation with all of our partners when they ship an advanced visualization application for colorectal screening.

First is being sold kind of stand alone if you will, and obviously for the partners that are willing to ship this as a standard with all of their workstations, obviously our pricing would be more attractive because of the volumes that that represents.

To those that would want to only offer it somewhat ala cart, pricing would probably be not as aggressive.

So I guess at this point, in fairness, I can only give you that sort of approach and philosophy on this particular product and we're really hopeful there will be some revenue maybe in the second half of the year from this product if we continue to make progress with the FDA, but again, it's kind of a challenging environment and very hard to predict.

Okay, great, and then shifting over to the FFDM market, obviously we can all track MQSA and get those numbers that come out on a monthly basis.

I would love your thoughts on a couple of things.

One, in terms of the replacement market, where do you think that's shaking out in terms of sort of the number of units out there that are coming from the replacement market?

And then second would just be if you can maybe spell out for us if a current user replaces their FFDM, do you see anything on the CAD front or is your opportunity just strictly on the heels of a software upgrade?

Thanks.

Sure.

The replacement market from what we can tell is relatively small still.

I think that probably 5% of the systems that are being installed today are replacements from the early digital placements and when you think about it, it was really 2006 to 2008 that we saw the real burst of installations which really would tell you that probably 2012 to 2015 is really a window where people will have this kind of seven-year, eight-year cycle where they've owned a system and that's probably where the majority of this market in terms of when it's going to start to turn is going to occur, so that's a couple years out at a minimum, Jon.

I think that certainly as each company introduces new technology there will be the opportunity to upgrade or to replace systems and those could be both 2D digital or 3D.

Obviously tomosynthesis should be available in the market in that window that I just spoke about relative to the older digital systems.

We will have the opportunity to sell an upgrade of both the 2D and the 3D opportunities, so if a customer buys a new system relative to digital mammography in a 2D, it will depend on the age of the CAD system that they have whether they would have a hardware and a software upgrade or just the software upgrade.

So there will be good revenue for us under all scenarios where customers buy a new 2D digital system and at the same time we're preparing to offer CAD for tomosynthesis or 3D, which would obviously be a brand new product for every customer that goes to tomosynthesis with our various partners.

So it's a good solid opportunity.

I think as you look at the mammography market, certainly the new system placements in the US have tapered off both the economy and a certain amount of market penetration, but I think that the recurring revenue opportunity is going to be a very strong one because you will have the ability to bring new innovative CAD in a 2D form into the market and a 3D form into the market.

You're also going to have the opportunity in this very growing install base to offer service agreements and value-added capabilities within those agreements.

And then probably, let's just say in the two to five year time window, quite a bit of replacement is going to occur both in the 2D market as well as establishing the 3D market, so this is going to be a robust market for a long time to come.

But I think the mix of revenues is clearly going to change pretty significantly from what we saw in the 2006 to 2008 time frame as you maybe look out as far as say 2015.

Okay, great.

And then just maybe one or two more.

Darlene, a quick one for you - deferred revenue, I mean cash balance was up nicely sequentially, deferred revenue's growing.

A couple things there, can you remind me where the deferred revenue's coming from and then maybe just speak to the timeline in which that deferred revenue should be recognized?

Sure.

Deferred revenue represents service contract commitments so where we've got service contracts for single or multi year agreements from customers and what -- you'll see the breakdown on the balance sheet.

Anything outside one year time frame is in long term deferred revenue and that's about $300,000 to $350,000.

The majority of it is in this 12-month time frame.

Okay and one last one I'll slip in and just get back in queue, specific to TOMO and actually o-US, Ken, I mean clearly o-US double reader protocol in many countries, the CAD attach rates are much lower for 2D.

Would love your thoughts when we look out to 3D TOMO just due to the wealth of information that TOMO provides, do you think that's something that eventually tips the scale on attach rates for CAD, where literally there's just too much information to process even under a double reading protocol, so that at the end of the day much higher CAD attach rates will accompany TOMO in international markets?

That's a great question Jon.

I guess the way I would start is to stay that we think there will be a growing opportunity for CAD in the, call it, aftermarket, after you've sold a digital mammography system in Europe, over time, and I think that there's growing recognition that CAD clinically, whether it be through work flow or the number of studies that are being published, I think we're starting to see more and more interest internationally and that is reflected obviously in our performance.

Our biggest partners of course internationally is GE and we've seen probably an increasing attachment rate of CAD for their o-US shipments, which to me indicates, since they're clearly a market leader o-US, that there is a stronger demand and interest.

And I do think the double-read protocol eventually is going to be retired as studies continue to prove that single read with CAD is the more effective and more efficient solution.

So we're counting, maybe starting out in the 2012-ish time frame, that the install base of 2D digital mammography without CAD o-US will be a rich market opportunity for us to pursue, so that's one dimension.

To your point on 3D and tomosynthesis, I would agree that the data sets, very similar to a CT scan.

You're looking at a three-dimensional image in the CT world where in a particular CT study there's over 1,000 frames.

So having the ability in mammography with a similar data rich exam, to use CAD I think will be extremely important.

The challenge of course is the timing as the US market and the FDA has been a real challenging environment.

I did take a look at comments that Hologic made on their last earnings call and they're now looking at tomosynthesis probably I think in the 2012 time frame.

So it's really difficult to figure out whether the adoption and timing in the United States and then use of CAD will, similar to the 2D scenario, drive tomosynthesis CAD adoption internationally.

Clearly in the US what we've done is the standard of care in 2D in CAD has started to increase the level of adoption rate for CAD o-US.

What's a bit of a wild card is with the FDA environment, the tomosynthesis, will tomosynthesis become almost more available internationally before it would be in the United States would be the inverse of the 2D scenario and then how CAD is played out there is hard to say, but I would say is clearly the data sets to your point are very, very large.

The need for CAD we think is ever more critical in tomosynthesis and we think the CAD market o-US will have some strong demand relative to 2D but also for tomosynthesis as it becomes adopted.

Great.

Thanks guys.

Your next question comes from the line of Matthew Scalo of Canaccord Adams.

Please proceed.

Hi guys.

Hi Matt.

I wanted to ask you just could you break out for us what VividLook sales were in the quarter.

Is that something you're -- that was material I assume for fourth quarter?

Yes, Matt, unfortunately that's not something that we do do.

We look at all the CAD revenue, digital CAD revenue together so we don't really break that out.

Okay.

Matt, what I would be willing to say though is that we were surprised that our revenues across the two major products was pretty even, which to us was an indication of the potential in prostate.

You think about it, the breast MRI market is a much more established market.

There's established companies that have been there for some time and prostate is an emerging technology in an emerging market.

What was pretty I think exciting to us was that the revenue split between the two was roughly 50/50, which tells you in a really small market, meaning prostate, the interest and the demand is starting to be more evident so that was exciting for us, and I think in an indication of a market opportunity over time that could get pretty exciting.

Okay.

And so if I understand it correctly going forward, the main tool you'll use to kind of ramp radiologists up on this technology is through educational events or is there some way to address treatment guidelines through I guess addressing societies or thought leaders, what have you?

I think it's all of the above.

I think clearly educational symposiums kind of get down to the clinical level with the clinicians in practice and that's certainly an important way from the ground up to build demand.

But organizations like AdMeTech, which are a nonprofit global organization can clearly help to start the drive treatment guidelines.

We would also certainly hope the American College of Radiology and all of the different organizations that really look across these treatment paradigms, the American Cancer Society - you go through all the different organizations I mentioned that are active and I just think that in a general sense there's an opportunity really to create I'll call it 'bottoms up and top down' education.

And I think it's a challenging one because of the paradigms that are so entrenched today.

So today a man goes in and gets a PSA blood test.

Their internist, primary care physician maybe refers him to the urologist.

If there's any symptoms, obviously go do immediate biopsy.

If there isn't, they have sometimes kind of a watch and wait philosophy on the PSA level.

And it's a very entrenched paradigm and I think that we're really hoping that the education of the importance of putting a contrast enhanced MRI study in between either a symptomatic or asymptomatic patients prior to any biopsy being conducted is really that educational component that we think will provide for the ultimate situation here, which is you eliminate unnecessary biopsies and you really target the biopsies to the most suspicious areas of interest.

And I think that that's really what we're hoping that this educational process accomplishes.

And it'll take time because these are well entrenched kind of creatures of habit situations.

But we're very encouraged by the clinical outcomes we're seeing and it's really all of those entities that we really need to help get the word out and get the education out to change these treatment paradigms.

That's great.

I guess just the last question on the applications for VividLook then as far as right now it's going for as an adjunct screen or also this image guided biopsy type application.

Initially it's really adjunct to screening and it can be certainly used in both cases but I think what we're saying is that there's 1.2 million biopsies estimated being done in the United States each year.

And as a step prior to that decision, which is really in the screening / diagnostic workup process that this contrast enhanced study should be performed, which really should give much more quantitative analysis to the decision of biopsy.

And when you think about it, on the breast side with MRI, there's an estimate that we're in the range of about a million breast MRI procedures a year, plus or minus, with some pretty solid growth over the last five or six years.

That has created a sizable market opportunity for breast MRI CAD and if we were to get to the point of let's say a million procedures a year in prostate prior to this biopsy decision, it would create a sizable opportunity for prostate MRI CAD software.

So we're really trying to focus on that aspect of the process of screening and diagnostic care as a mechanism to both show the clinical benefit and then ultimately to create a material market for this product.

Okay, that's terrific.

Thank you guys.

Sure.

Your next question comes from the line of Richard Deutsch of Ladenburg Thalmann.

Please proceed.

Yes, thank you.

I have a few questions.

I'll give you a couple and then come back into the line.

You have a growing install base of users, now I guess up to 3,300 as you mentioned.

Some of these users have systems that are now several years old.

Can you speak to the plans and opportunities for a software upgrade in let's say 2011?

Yes, Rick, I guess what I would say is that we are working on a new generation 2D digital CAD product and we've been working on that for some time.

That product we hope will have a combination of better performance in terms of sensitivity, better performance in terms of reduction of false-positives and some additional powerful workflow tools that really help the radiologists navigate through the study and to end with getting the results and the confidence in those results that is appropriate.

We have done quite a bit of stand alone testing with this new product and we've had limited clinical experience with it but we are increasing that experience.

We think that in time that could be a major source of recurring revenue specific to the 3,300 systems that we talked about.

With that said, the go-to-market strategy given the FDA environment is one where we'll probably bring the product out in the international market first, given there will be a lot less barriers to entry.

We will still probably need to do a reader study before we can submit this to the FDA, which means that it could be several years before that product hits the market in the United States, and it's largely gated by a reader study and then a PMA submission.

So while we'd love to have something in say 2011, to your question, it's probably at least a year later in the United States and probably in that time frame as it relates to an international release and the opportunity to either gain recurring revenue from the install base or to sell this as a premium performing product over our existing product internationally where we may consider offering two products at the same time at different performances and price points.

Okay.

Another question is can you speak to the inventory levels at the OEMs that you partner with?

It's hard for us to have a complete grasp on inventory in that it's kind of a mixed bag.

Some of our partners do not really put in inventory, we just drop-ship to the site.

Some of them put in what I'll describe as kind of safety stock for virgin shipments and some put in end of the quarter stocking orders to kind of give themselves some buffer going in to the following quarter.

So what I would say is there was nothing I guess abnormal in that whole environment at year end, nothing unusual or atypical for what our partners typically do and obviously the installation of mammography machines over the course of the quarter will drive their usage.

It's very hard to determine what that is, quite frankly, until you get past the midpoint in the quarter because there is such a backend skewing of installations and revenue recognition.

So we'll have a much better handle as we now approach the end of February and into the March time frame.

I think the best barometer to really understand the dynamic of demand is looking at MQSA data from a trend standpoint and that is probably the best indication.

The data's been a little bit cloudy in the market place and one of the reasons unfortunately for that is one of our partners, Siemens, has had some major issues in supply and we've had a lot of questions come up as to why the MQSA data in the fourth quarter was less performance wise than the third quarter.

And unfortunately in Siemens' case, their ability to ship product has been constrained very significantly starting in the fourth quarter.

They basically have a new detector in front of the FDA and had to do a lifetime buy quite a while ago with their present detector and unfortunately literally run out and are faced with needing to put in the new detector internationally, pull out the older detector, which is FDA based, refurbish and then ship to customers.

And so we believe that the overall MQSA data is a little bit depressed based on that circumstance and hopefully as they project having their product approved sometime in the second quarter, we will start to see some of that pent up demand through their loyal customer base improving the overall performance as it relates to the US and MQSA.

So those are some of the kind of metrics we take a look at relative to the demand as well as the sell-through if you will of our systems, but that's probably a trend that's been fairly consistent throughout 2009 and seems to continue into 2010 in somewhat of a constant demand basis over the course of those four to now five quarters, not seeing really a significant change in demand in the first quarter of 2010 versus all of 2009.

All right.

Thanks for that, Ken.

I'll just do one more and I'll jump back in the queue.

This relates to your virtual colonoscopy product, a two part question.

First of all, do you have any overseas sales that can be generated prior to FDA approval in the United States?

And second, do you have any idea of what costs are for payers for the virtual colonoscopy versus the cost for payers for the CNR optical procedure?

Thank you.

Relative to o-US installations, we do have some beta sites that are running.

We have not actually made commercial shipments but we are continuing to validate the performance of the product in certain sites so we are engaged in continuing to validate products versus actively sell the product.

The reimbursement side of this really is pretty wide.

It can range anywhere from, for the virtual procedure, somewhere in the range of $400 to $700 per exam, the optical anywhere from $1,200 to $2,500 depending on the dynamics of the procedure, so it's a pretty wide range.

I think the encouraging thing for us is that as you look at healthcare reform and you look at the ability to get better outcomes and reduce cost, we think virtual colonoscopy fits very, very nicely in that paradigm and also the fact that the payers are growing with the exception of Medicare, indicates that those for-profit, if you will, insurance companies, they get it.

And the fact that Cigna, United Healthcare and a lot of the Blues are paying for this is an indication that there's a strong interest in moving the colorectal screening paradigm from the optical to the virtual procedure.

So we think since the economics are very attractive, this is going to be a good growth opportunity in light of the pressures we're all seeing today, particularly US around healthcare reform in maximizing clinical utility in reducing costs.

Great, thanks.

I'll step back in.

Thank you.

Your next question comes from the line of [Errol Lefkowitz], private investor.

Please proceed.

Yes, just a few things.

Was there a prior PMA submission for the VividLook?

I gather that you don't have any current regulatory hurdle on that.

And secondly, what are you doing to address the target market with respect to the internist who is the first person who comes -- who confronts an elevated PSA level and has to then decide on further treat -- diagnostic paradigm?

It seems to me that that's the person that you need to target even before the radiologist who I would imagine would be more receptive to this.

And then also is there -- what -- how does the insurance reimbursement look with respect to VividLook?

Sure.

VividLook was a 510(k) approved product when we acquired the assets of a firm called CAD Sciences back in the summer of 2008, so we essentially through an acquisition inherited an FDA approved product.

So that's the process of getting into this market and it was a 510(k) approved product, not a PMA.

So that's how we got into this particular market.

As it relates to your question on education, I think it's a very good one.

We certainly are trying to target, in this case, the urologist as well as the radiologist.

Clearly the incentive here is probably skewed somewhat toward the radiologist but we are certainly trying to reach and educate the urologist as well.

And one of the things that we're trying to encourage is that the urologists of course own the patient and what they do is rather than go from an elevated biopsy to -- elevated PSA to biopsy, is that they farm out the patient, if you will, to the radiologist to get the contrast enhanced MRI study and then send those results back to the urologist so that the urologist still controls the ultimate care plan for the patient.

And that's where we're trying to also reach out to the urologist as part of this entire treatment paradigm.

It's a little bit challenging because they do obviously generate a fair amount of revenue from doing biopsies in their private practice and so there is somewhat of a paradigm shift that has to occur, but we're really hoping that both public awareness, the logical clinical step that makes so much senses and encouraging the urologists to continue to own the patient, not give it up, if you will, from a revenue stream and care planning standpoint, will create more of a collaborative approach between the radiologist and the urologist as it relates to prostate cancer care.

So we are trying to create education there.

At the same time, the level of interest probably is much higher with the radiologists but we do, to your question, have to do a good job reaching the gatekeeper relative to patient care and to a certain extent, that is the internist as well.

And with respect to insurance reimbursement?

They get reimbursed with the MRI.

It's like a whole-body MRI scan and that can be anywhere from $750 to $1,000 so the reimbursement is under like whole-body MRI.

It's not necessarily organ specific and it's a pretty good solid reimbursement so that certainly isn't a -- it's not a hurdle here at all.

Thank you.

There are no further questions at this time.

I would like to turn the call back over to Mr.

Ken Ferry, Chief Executive Officer of iCAD Inc.

Please proceed.

Thanks operator and first of all I'd like to thank everyone on the call today for your interest and support of iCAD.

We certainly did very, very well we believe in 2009 in spite of some very, very challenging dynamics, certainly a number of them that were well outside of our control.

We're really, really proud of our employees who we believe have been extraordinarily dedicated during this difficult year to really helping us to really respond as aggressively and responsibly as possible to our customers and certainly trying to help us to maximize our performance and to create a good, solid growth path for our Company going forward, so we appreciate everyone's effort there.

As we look at 2010, we're more confident, we're more optimistic but there's still a lot of serious macroeconomic dynamics going on, a lot going on with healthcare reform, a lot going on within the FDA, so we are, I guess, cautiously optimistic going forward, having been through maybe the roughest times and still see a need to work our way through what we think is going to be a gradual improving business environment.

We think we've got a very strong, compelling strategy.

Our organic plan really focuses on these most prevalent cancer categories, changing treatment paradigms, being in a position to offer compelling image analysis and workflow solutions for the prevalent cancers where imaging is a key component, and we're also looking in a broader sense for how we can expand the Company's strategies into complementary areas beyond core cancer so we can build a much more stronger addressable market opportunity for the longer term of the Company.

So with that, I thank everyone for their participation and interest and I wish you all a very good day.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.