Profound Medical Corp. Q2 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Profound Medical Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen Kilmer, Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call will include forward-looking statements regarding Profound and its business, which may include, but is not limited to, expectations regarding the efficacy of Profound’s technology in the treatment of prostate cancer, BPH, uterine fibroids, palliative pain and osteoid osteoma. Often, but not always, forward-looking statements can be identified by the use of words such as plans, is expected, expects, scheduled, intends, contemplates, anticipates, believes, proposes or variations, including negative variations of such words and phrases, or state that certain actions, events or results may, could, would, might or will be taken, occur or be achieved. Such statements are based on the current expectations of management. The forward-looking events and circumstances discussed in this conference call may not occur by certain specified dates or at all, and could differ materially as a result of known and unknown risk factors and uncertainties affecting the company, including risks regarding the medical device industry, economic factors, the equity markets generally, and risks associated with growth and competition. Although Profound has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from most anticipated, estimated or intended. No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and Profound undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise other than as required by law. For the benefit of those who are new to the Profound story, I would like to take a moment to summarize our business. Profound develops and markets customizable, incision-free therapies for the ablation of diseased tissue. We are currently commercializing TULSA-PRO, a technology that combines real-time MRI, robotically-driven, transurethral ultrasound and closed-loop temperature feedback control. The technology is designed to provide customizable and predictable radiation-free ablation of a surgeon-defined prostate volume, while actively protecting the urethra and rectum to help preserve the patient’s natural functional abilities. TULSA-PRO is CE marked, Health Canada approved, and 510(k) cleared by the FDA. We are also commercializing Sonalleve, an innovative therapeutic platform that is CE marked for the treatment of uterine fibroids and palliative pain treatment of bone metastases. Sonalleve has also been approved by the China National Medical Products Administration for the non-invasive treatment of uterine fibroids, and has recently obtained FDA approval under a Humanitarian Device Exemption for the treatment of osteoid osteoma. While we do not expect this FDA HDE approval to have a material impact on revenues in the near-term, it is a significant milestone for our company and we are making preparations for its U.S. commercial launch later in 2021. On the call today representing the company are Dr. Arun Menawat, Profound’s Chief Executive Officer; and Aaron Davidson, the company’s Senior Vice President of Corporate Development. With that said, I will now turn the call over to Aaron.

Good afternoon, everyone. And welcome to our second quarter 2021 conference call. On behalf of the management team and everyone at Profound, I would like to thank you for your ongoing interest in our company. For those of you who are shareholders, we appreciate your continued interest and support. I will turn the call over to Arun in a moment for an update on our commercial activities. However, before I do, I’d like to provide a brief update on our second quarter 2021 financial results. As a reminder, we have changed our presentation currency from the Canadian to the U.S. dollar to streamline things; all of the numbers we referred to have been rounded and are approximate. For the three-month period ended June 30, 2021, the company recorded revenue of $2.6 million, up 156% from $1 million in the second quarter of 2020. As we mentioned in today’s press release, the U.S. TULSA-PRO business rebound that started in March continued through the second quarter, driving a 145% sequential increase in recurring revenue. Total operating expenses in the 2021 second quarter, which consists of R&D, G&A and selling and distribution expenses were $7.6 million, an increase of 74% compared with approximately $4.4 million in the second quarter of 2020. Breaking that down further, expenditures for R&D increased 99% on a year-over-year basis to $3.4 million. This was primarily driven by increased new and existing clinical trials, increased spending for R&D initiatives and projects, travel restrictions being removed, options awarded to employees, additional headcount and overall increases to general expenses, partially offset by decreased consulting fees. G&A expenses increased by 49% to $2.5 million due to additional headcount, increased salaries and directors' fees, higher NASDAQ and TSX listings fees, increased legal and accounting fees and options awarded to employees. Finally, selling and distribution expenses increased by 74% to approximately $1.7 million. Overall, the company recorded a second quarter 2021 net loss of $7 million or $0.35 per common share, compared with a net loss of $5.3 million or $0.33 per common share for the same three-month period in 2020. As of June 30, 2021, Profound had cash of $73.8 million. With that, I will now turn the call over to Arun.

Thanks, Aaron. As many of you know, COVID-19’s negative impact in the beginning of 2021 was severe not only for Profound but across the U.S. MedTech space. That was followed by a late March rebound, which as Aaron mentioned, continued through the second quarter. On our last call, I focused my remarks on explaining why the disruption in Q1 had not translated into our being any less bullish on our business. On this call, I would like to reiterate that. In fact, in a few minutes, I will share with you some real-world utilization data that I believe really serves to underscore the tremendous opportunity that TULSA represents. But first, let me update you on our continuing progress in laying the groundwork to drive adoption of TULSA-PRO in the United States. The first pillar of that is building a high-quality U.S. installed base, targeting three major types of end users: early adopters, independent imaging center companies, and opinion-leading teaching hospitals. Each of these are expected to play different roles in supporting both short-term and long-term adoption. Our early adopter TULSA-PRO sites have continued to treat a growing number and an increasing variety of patients. With respect to the imaging center companies, RadNet’s Liberty Pacific West Hill Center in Los Angeles is treating patients using TULSA after initially experiencing delays related to COVID-19. Midway through Q2, we also announced a U.S. multicenter TULSA-PRO agreement with Akumin, which currently has 79 operating clinics in Florida and a total of 134 sites across its network in seven states. We expect to install TULSA-PRO systems in up to 10 Akumin men's health centers across Florida, Texas, and Pennsylvania over the next year or so, with the first site anticipated to be operational in the fourth quarter of 2021. Based upon the success of the first 10 installations, we hope to expand our relationship in the future to include additional Akumin centers. Moving to the third type of end user, as I highlighted in our last call, we now have agreements with renowned institutions like UCLA, Stanford, Johns Hopkins, Yale Cancer Center, WellSpan Advanced Prostate Cancer Center, Mayo Jacksonville, Mayo Rochester, GH Cancer Center, UT Southwestern, Memorial Hermann and Methodist San Antonio. That list continues to grow nicely. In fact, I am pleased to report that in Q2 our team signed six additional new agreements with hospitals for installations later this year. The price point of all agreements remains the same at $7,710 or higher per patient. To summarize, the installed base status of TULSA in the United States, today we have about 14 installs and 10 of those sites treated patients in Q2, plus we have enough contracts on hand for over 20 new installs over the next 12 months. Based upon that, we continue to anticipate approximately 25 installed TULSA-PRO systems in the United States by the end of this year. As we saw previously, doing initial limited commercial launch of TULSA in Europe, as U.S. physicians are becoming more confident with and accustomed to the technology, they are using it in a wide range of patients. We believe this confirms TULSA-PRO’s flexibility and suggests that the available market is as large, if not larger, than what we first envisioned. Based on a utilization analysis, our confidence is growing that TULSA will be adopted as a mainstream technology rather than a highly specialized tool that can only be used in a small subset of patients. Let me share some of the raw patient characteristic data with you all; all of this comes from the U.S. TULSA sites composed of all three end-user types that actively treated patients in the first half of 2021. 86% of patients received ablations of greater than 50% of the prostate, 63% received whole gland, 28% partial gland, 6% BPH only, and 1% salvage. As an aside, as some of you know, I personally make up part of that BPH group having successfully undergone TULSA a few weeks ago. Of the prostate cancer patients treated, 11% were Grade Group 1 or low risk, 53% were Grade Group 2 or low intermediate risk, 28% were Grade Group 3 or high intermediate risk, and 8% were Grade Group 4 to 5, which is considered high or very high risk. With respect to the size of prostate treated, 75% were greater than or equal to 33 cc, and many were greater than 100 cc. To put that in perspective, especially with respect to TULSA’s relative ability to become a mainstream treatment, the vast majority of prostate cancer patients and pretty much all prostates of BPH patients are greater than 30 cc. Summarizing, the analysis shows that TULSA was used in all grades of cancer ranging from low risk to the highest risk patients and the percentages of patients treated in those risk categories roughly corresponded with what we see in the real world with respect to patient population distribution. In addition, recent publication on clinical outcomes of patients who have been treated in the real-world setting continued to show that TULSA patients experienced minimal side effects, such as urinary incontinence or severe erectile dysfunction. Coupling the two, we have increasing confidence that of all the emerging technologies for prostate disease, TULSA is the most flexible. It can be used in the widest variety of prostate disease for customized whole or partial gland treatment with demonstrated superior outcomes. In order to maximize the opportunity that we see ahead of us, there is no question that the successful execution of our reimbursement strategy will be key. To that end, as I mentioned in our last call, we have initiated dialogue with relevant societies, including the American Urological Society and the American College of Radiology to get initial feedback on the requirements to qualify for our CPT-1 application. Based upon their feedback, we continue to believe that the clinical publications on the TULSA procedure and the publications that we anticipate later this year will likely be sufficient to meet the requirements for the application by the end of this year. If the adoption of TULSA usage continues to increase as we anticipate, we may get the support that we need to file in 2022. Our strategy is to not only continue to pursue the CPT-1 application with the combination of clinical data that already exists and that will likely be published by end of this year, but also support a planned level 1 study called CAPTAIN that will run in parallel with the filing of the CPT-1 application. While the CAPTAIN study is not a requirement to obtain the code, it may further support coverage by insurance payers and will also provide additional clinical data to support significant adoption. The planned CAPTAIN trial will enroll 201 prostate cancer patients across approximately 10 to 12 sites. Patients will be randomized to receive the TULSA procedure or a radical prostatectomy. The primary endpoints will include safety and efficacy, including measurements of side effects and non-inferior progression-free survival over time. This trial will primarily be run in the United States and we continue to anticipate patient recruitment to begin before the end of this year. In the meantime, TACT 2.0 continues to progress well and we anticipate that patient recruitment will be completed by the end of this year. We also anticipate that three-year data from the initial TACT trial will be published later this year. In addition, we are aware of one additional level 2a study and two additional level 2b studies that will be submitted for publication later this year. So to summarize, our team has been executing well. We have been signing additional TULSA-PRO site agreements at an increased pace over 2020. We expect to install new TULSA-PRO systems at a rate of four to six per quarter going into 2022. With that accelerating, once COVID is fully behind us, we are continuing to see broader TULSA adoption both in terms of procedure volumes and types of patients treated; utilization data points to TULSA becoming a mainstream treatment in the U.S., providing us with a large market opportunity and we are progressing TULSA-PRO’s reimbursement strategy by conducting additional studies to apply for a specific CPT code and, ultimately, a reimbursement determination. This ends our prepared remarks for today. With that, we are happy to take any questions you might have.

Thank you. Our first question comes from the line of Rahul Sarugaser with Raymond James. Your line is open. Please go ahead.

Thank you very much, Operator. Arun and Aaron, thanks so much for taking my questions. Congratulations on strong results today.

Thank you.

My first question is about the details regarding the new sites you mentioned. You noted that there are 14 installed and 10 treating, and I see that there are about nine sites on the TULSA-PRO website. How should we view the visibility of these sites being installed, those coming online, and the total of 25 you expect to be installed for the rest of the year?

Yes, Rahul. So I think that what we put on the TULSA-PRO procedure website are really those sites where we have permission from the hospital or the imaging center to be able to provide the name in public domain and so there are certain sites which we do not have permission yet. So in some cases, it can be a leading indicator, because some sites would like to put their name out, so they can start recruiting prior to even installation. To be honest, in some sites, they have a pretty good start and they tend to sort of want to wait until they have treated a few patients before they go there. So, I would suggest that we not look at that site only as a leading indicator, but as a site where full commercial activity is taking place at this point. I did mention a couple of new names when I listed the number of leading hospitals that are either signed up or are using the technology. And to be honest, I think that it’s a very impressive list, at this early stage of our company and I think what I can tell you is in the second half of this year, you will continue to see and we will be announcing as these hospitals come on stream, other big name hospitals, big name cancer centers. So, as you know, we sort of talked about those three channels. It’s important for us to not just have only the leading hospitals, but these imaging center channels where we get off to a good start with the two companies that we have signed up with and with early adopters and you will see additional early adopters also and you will see more sites coming on stream with the imaging center companies. So, to be honest, clearly, I hate to use the word excited all the time or anything. I almost never use it, but I am pretty excited about the fact that we are really marching through the strategy that we have put together. And I think you will continue to see four to six new sites every quarter and that they will be representing the full range of the three channels that we talk about.

Terrific. Thanks, Arun. That’s great clarity. I guess my next question is, this is the first time you have really been talking about really broad utility of the device you would initially talked about of course the prostate cancer and then BPH and then salvage patients. But you really are talking about a much broader workhorse type scenario here. So with those numbers you talked about 60% whole, 28% partial, et cetera, et cetera. When should we expect to see some of the data coming out of this to illustrate everything that you were just talking about?

Yes. We analyze everything to confirm that what we are doing is actually producing the results we anticipated, and if not, we adjust to enhance our execution. To directly answer your first question, you will see additional publications coming out within the next six months that will include a broader variety of patient usage. In addition to the CAPTAIN trial, we will announce additional smaller trials focused on these subsets of patients. We are pleased to note that we are not only treating a wide range of patients, but we are also finding that our patient population tends to be on the larger prostate side, which represents more challenging cases. If we can treat the more difficult patients, we can certainly treat the average diseased patient. Our analysis of the last 18 months gives us confidence that we can address the full range of the cancer population and a significant subset of the BPH population. We also find reassurance in the fact that patients with more complicated cases—specifically those with larger prostates—often require more complex procedures. Analyzing larger prostates reveals that side effects become even more critical; however, we are achieving impressive results with minimal side effects for these patients. This is where our confidence stems from, and you will definitely see this reflected in our publications. As we continue to analyze more data, we will support additional specific trials to ensure that the urology community has everything they need to encourage adoption.

Great. Thanks, Arun. If you could entertain one last question, considering the broad utility and the fact that you now have ten treatment sites, with the initial four installations coming online very soon, could you discuss the utilization rates you are experiencing, particularly in light of the variety of applications?

Of the applications? Yes, that's a good question, and I didn't cover that in my prepared remarks. Initially, we anticipated a run rate of 40 among early adopters, but we have actually seen it stabilize around 60, and that number is increasing at those sites. Six months from now, I expect to provide a figure indicating a higher run rate than 60. Regarding teaching hospitals, I’ve mentioned before that they adhere to certain guidelines provided by their urology departments. For TULSA installations, they set specific initial criteria for patient treatments, but they are beginning to expand those criteria. Consequently, while we initially expected utilization in teaching hospitals to be around 30 in the first year, possibly reaching 40 or 50 in the second year, I now foresee growth at a somewhat faster rate in these hospitals. Some teaching hospitals are already conducting three procedures a day, with our long-term target being four per day. We're already observing two teaching hospitals accomplishing three procedures per day within the first six months. Altogether, I want to remain cautious and avoid overestimating, but overall, the utilization trend appears to be improving or at least meeting our expectations, as evidenced by a noticeable increase in recurring revenue between Q1 and Q2.

Great. Thank you so much, Arun, and congratulations on the quarter. I will get back in the queue.

Thank you. Thank you. Thank you so much, Rahul.

Thank you. And our next question comes from the line of Josh Jennings with Cowen. Your line is open. Please go ahead.

Sorry about that, I was on mute. This is actually Neil on for Josh. Thanks for taking the questions.

Good afternoon, Neil.

How are you and congratulations on the quarter. You talked a little bit about the 60 reimbursement path. Can you maybe just provide a little more detail in terms of what the process looks like with those societies you are talking about?

Absolutely. It's important to note that we feel we've made a solid start with the current situation; however, securing that CPT-1 is a key priority for us. We have been actively engaging with both the American Urological Association and the RSNA, a related radiology association. We have additional meetings scheduled, including one at the upcoming annual American Urological Meeting in September in Las Vegas. Our objective is to keep both associations informed about the progress of our clinical data. So far, both societies have responded positively to the information and clinical data we've presented. We believe they will be supportive as we prepare our application in the first half of 2022. This support is critical because once a society endorses a new technology, the AMA ultimately makes the decision, relying on these endorsements. While I can't guarantee their support, our current discussions suggest a favorable outlook. The societies may either issue a support letter or possibly co-sponsor our efforts, and we'll have to see how that unfolds. Typically, we expect to receive a support letter, which would enable us to file for the June AMA meeting. A decision is expected in the fourth quarter of 2022, and if it's positive, it will be forwarded to the appropriate committees to determine RVUs and so forth, a process that usually takes about a year. If assigned, the effective codes will be in place for treatment by January 2024, meaning that the analysis will happen in 2023. In summary, this is about a two-and-a-half-year process from today.

Great. Great. Thanks for that detail. Just one follow-up, in terms of your visibility into the sales funnel for the imaging center site, any updates there in terms of your partnerships with Akumin and RadNet?

I believe, as I mentioned in the last quarter, our pipeline remains strong, and we're receiving positive feedback from leading hospitals. Urologists tend to discuss with their peers, and I'm seeing that discussion starting to happen, even though my coverage is still relatively small. More urologists are expressing interest in becoming authorized users, meaning they want training to use the technology at existing sites, even if it requires some travel initially to gain firsthand experience. They aim to work with their hospital systems to adopt the technology. Overall, the pipeline is improving, and our sales approach is stronger than it was six months ago. I expect that more urologists will begin using the technology in imaging centers, supporting the long-term goal of driving adoption without significantly increasing the number of sites. Over the next six months, I believe this will become a reality. Additionally, some early adopters who have previously used other specialized technologies may start to prefer TULSA. I apologize for providing a general response, but that reflects our perspective on the situation.

No. That’s helpful. I will jump back in queue. Thank you.

Thank you.

Thank you. And our next question comes from the line of Anthony Petrone with Jefferies. Your line is open. Please go ahead.

Great. Thanks. And Arun, glad to hear that everything is going well with your health and good luck and glad to hear all went well with the procedure a few weeks ago.

Thank you. Thank you.

A question on our end would just be regarding the total of 14 TULSAs installed, with a little over half the year gone and 11 more to go in the second half. How should we think about installations between the third and fourth quarters? I would assume that they would be more concentrated in the fourth quarter. Additionally, considering the eight to nine contracts you mentioned last quarter, which could represent a multiple of units over several years, how should we expect that funnel to evolve in the second half of the year? I have one follow-up as well.

Sure, Anthony, those are very good questions. One of our goals is to reach the target of 25, and our team has detailed plans to achieve that. We have sufficient resources and six months left to meet this goal. I want to emphasize that the significant impact of COVID is mostly behind us regarding the utilization of operational sites. However, we are still experiencing some effects on the new installed base. For instance, one of our MR vendors has a backlog on some routers we need to install the site with TULSA, which has caused a six-week delay in the installation. We are also noticing some supply-related delays and a bit of sluggishness in hospitals regarding the labor needed for modifications. This is why I believe 25 is a reasonable goal, even though we expect to secure many more contracts by the year's end. For the next two quarters, we estimate that four to six installations per quarter is a realistic target. In 2022, we aim to increase our resources to potentially achieve seven or eight per quarter, and eventually, we would like to reach ten per quarter. I can't provide specific timing at the moment, but we believe there is strong demand, as there remains a robust patient population interested in the procedure, which suggests we will be able to expand our capacity in 2022.

That’s helpful. And then two quick follow-ups and I may have missed this between calls, but the TACT 2 extension study enrollment, it looks like you may have completed enrollment. Just wondering if we should still expect the publication by year end? And then anything of note on the GE collaboration, how should we expect that collaboration to sort of play out over the next couple of years?

Thanks for the questions, Anthony. The TACT 2 trial has been progressing well in terms of recruitment. The reason we haven't closed it yet is that we've included a few additional sites, like Yale, which we believe will enhance the study. They have started recruiting, so we now anticipate closing recruitment in Q4 instead of the earlier timeline we had in mind. As for the publication, there will be an important paper presented at the AUA in September featuring three-year data for TACT. This data will be a significant milestone, focusing on side effects and progression-free survival, which are the key points we are looking to highlight. Additionally, the CAPTAIN trial, which is our phase 1 trial, is also progressing well with most sites identified and IRBs in a favorable position. We are confident that we will start recruiting for the CAPTAIN trial in Q4 as well.

Thanks, again.

Thank you.

Thank you. And our next question comes from the line of Frank Takkinen with Lake Street Capital Markets. Your line is open. Please go ahead.

Thank you, Operator. Arun, Aaron, congrats on the progress in the quarter. Couple from me, I will start with first thinking about the mix of procedures in the quarter. Do you by chance on hand have the mix of patients that were purely cash pay versus those who had utilized the C-code successfully and whether or not those were partial reimbursement cases and full reimbursement cases? Just trying to get a feel for the procedures that happened in the quarter?

It's a great question. To be honest, we're also trying to figure out what that ratio is. It's a challenging ratio to determine because, for HIPAA reasons, we don't have access to all cases. My educated guess would be that it's likely in the range of 60% to 65% cash pay and 30% to 40% in the C-code category. Interestingly, we've noticed that patients are willing to travel, and many sites are indicating that they have enough cash pay patients and don't feel the need to use C-codes, which we're trying to change. We do see the overall data and when applications for C-codes or even private insurance with unlisted codes are made, almost everyone is getting paid. One of our plans is to enhance our strategy to educate hospital systems on C-codes and encourage more frequent use of them. However, at this moment, that doesn't appear to be the main issue.

Got it. Okay. That makes sense. Considering the distribution of low to more severe grade prostate cancer, I know this is still early in the process, but could you discuss the trends and patterns you are observing from the start until they become a bit more established? Are you noticing that they begin with the lower grade and then transition to some of the higher grade cases, or is it the other way around? How is that changing with the limited data you have so far?

That’s a great question. We encourage our partners to begin with their specific strengths. For instance, WellSpan initially focused on salvage cases because that was their biggest unmet need, and they are now progressing to intermediate risk cases. Each site tailors its approach based on its patient demographics and the unmet needs they identify. Some doctors have started with a focus on focal therapy, but our recent data analysis shows a shift towards whole gland therapy, which is promising. They are learning to precisely target what to ablate, achieving accuracy within 1 to 1.5 millimeters. Particularly for higher-risk cases, which we didn't expect to emerge this early, they are addressing situations where there is external involvement beyond the prostate capsule. This precision allows them to manage boundaries effectively, leading some practitioners to treat higher-risk patients. Demand from patients is a factor, especially concerning nerve bundles. We’ve observed cases where cancer affects one side of the nerve bundles, prompting ablation, while the other side is preserved to maintain erectile function. This adaptability is driving changes in treatment approaches. We’re seeing numerous cases where treatments are customized to ensure positive cancer outcomes while preserving vital functions. While it may still be early, we are encouraged and anticipate greater focus on this area in the next 12 months.

Got it. Okay. I will cut it off there. Thanks for answering my questions.

Thank you.

Thank you. And our next question comes from the line of Ben Haynor with Alliance Global Partners. Your line is open. Please go ahead.

Good afternoon, gentlemen. Thanks for taking the questions. First off from me is, I guess, more of a kind of housekeeping one. On the capital revenue, what was that comprised of? I mean is that TULSA-PROs in Europe, is that Sonalleve? And then just from thinking about the capital pipeline what is that look like for the remainder of the year?

Yeah. Aaron, you are on the call. Did you want to take this one?

Yeah. Sure. So, Ben, we don’t provide guidance by policy at this point because our revenue is not predictable enough. And as such, we don’t provide the outlook for the remainder of the year on capital sales outside anywhere and to-date we have not provided the breakdown of Sonalleve versus TULSA. Again, when it gets predictable we will do that. At this point, the numbers are too small to be predictable. So we don’t want to get people chasing rabbit down rabbit holes. So we haven’t been doing that and we are not going to start.

Okay. I understand. And then the progress that you have made and obviously there’s publications out there, there’s data out there and more to come. But what have you seen from some of the treatment modalities that are out there? I mean what’s been the reaction from the folks that are doing cryoablations or other types of HIFU or things like that to TULSA-PRO?

Sure. Let’s start with cryo. Cryo is mainly used for salvage patients, and those using TULSA for these patients have generally been quite satisfied. It's a niche area with relatively small volumes, but I believe urologists are increasingly interested in the TULSA procedure for salvage treatment. The major advantage is the control we have; we can design the treatment to accommodate the unique and irregular shapes of prostates, especially those affected by radiation. The ability to draw intricate boundaries while maintaining precision is a significant factor attracting urologists. Regarding HIFU, we are noticing more discussions in that area. I understand that companies offering HIFU have been marketing their products aggressively. Historically, cryo and HIFU technologies have been around for seven to ten years, primarily treating smaller prostates, typically around 30 cc or less. Clinical data supports this focus on smaller prostates, as larger ones face limitations due to the distance that needs to be traveled, which may require a TACT procedure beforehand, complicating things. Moreover, we can perform whole gland treatments at speeds three to four times faster, as we are able to precisely target the center of the prostate. For larger prostates, I believe TULSA is a superior technology compared to many niche options available. The market is evolving, and we’ll see how it progresses. Historically, TULSA has demonstrated the ability to treat large prostates in one fast procedure with gentle heating, avoiding pain and allowing patients to resume activities the same afternoon if treated in the morning. These functional and clinical benefits make TULSA appealing, especially for urologists who prefer versatile tools that can be used frequently rather than infrequently.

That makes a lot of sense. Thanks for the information. I'm considering it from the perspective of the imaging center. Many of these facilities are accustomed to conducting numerous imaging studies with relatively low margins. Do they understand the economics of TULSA-PRO procedures, and how does that work? Do you need to guide them, or do they grasp it right away?

That's a great question. You're correct that it represents a paradigm shift for imaging center companies. Historically, their focus has been on volume because they have made substantial investments, as these MRIs are very costly. Volume has been crucial for their profit margins. When we discuss this now, it's important to note that a diagnostic MRI typically takes about 30 to 40 minutes, and the national reimbursement is currently under $500 for such a procedure. So, for 10 patients, that amounts to $5,000. However, if two of those patients also receive a TULSA treatment, which can charge $25,000 per patient, the total revenue increases dramatically from $5,000 to $60,000 for those 10 patients. This illustrates an amazing shift in their business model. They will need to invest in anesthesia, and their focus will need to change from high volume to high quality, working closely with urologists for treatment applications. This approach enables them to establish long-term relationships with patients. Therefore, the long-term outlook for imaging centers is very promising. It's one reason why the top two imaging center companies are collaborating with us; they recognize this opportunity. We believe it won't happen overnight, but from a financial perspective, it is a compelling proposition.

So it changes everything from a transactional mindset to more of a relationship mindset.

Absolutely. That’s exactly right.

Okay. And then just lastly for me, you mentioned that you recently underwent a procedure, and obviously, not to get too personal, but what was your experience as a patient of TULSA-PRO?

So, Ben, I'm glad to discuss this and I can definitely get quite emotional about it. There are a few points that stood out to me. First, I've really heard from patients that they experience no pain and are able to go home the next day or even work in the afternoon. That was my experience as well. When I woke up, there was really no pain, and within five minutes of waking from anesthesia, I was in the car, and ten minutes later we were in the hotel room. It was truly amazing. I did experience a UTI, which occurs in less than 10% of patients, but to be honest, it hasn't bothered me at all. The way I viewed the situation has given me much more confidence in TULSA. The common thinking today is to delay the procedure to avoid side effects, but there’s another perspective: if you can prevent those side effects, it might be better to have the procedure done sooner rather than later. I realized that if I wait another five years, I would be aging, just like everyone else, and could face more serious health issues down the line. So, one key takeaway for me was this realization that I wouldn't suffer from those side effects. Why wait? That shift in thinking from postponing until absolutely necessary to wanting to get it done sooner is the change that excites me.

Right. There’s likely an overall benefit to seeing younger patients achieve better outcomes, which will demonstrate this type of result.

Yeah.

.. it will be good for you guys.

Exactly. Yes.

Thank you. And our next question comes from the line of John Hikey, Private Investor. Your line is open. Please go ahead.

Hi. Thanks. I viewed your video the other week. It’s fantastic. I am a physician and I was an early investor. So I am well aware of how the system works. I have been corresponding with some of my colleagues down in South Texas and they are going nuts calling each other’s hospitals looking for ICU beds. And I reflect that with an aging population, ICU beds were already getting premium before COVID hit. So rather than ask about the system and the installation, I want to ask about the complication rate, because that’s going to be another big selling point to any hospital administrator. So we know that radical prostatectomy and robotic prostatectomy are highly operator dependent and the larger the center they are performed at the lower the complication rate. I wonder if you know ICU admission rate and number of admission days that occur when there is a complication with your system as opposed to the other systems or is that something CAPTAIN hopes to look at in more depth?

Sure, John, thank you for your insights. I can share that the ICU days following TULSA are very minimal, especially in commercial settings, where we haven't received any concerning reports. The occurrence of UTIs in patients ranges from 4% to a maximum of 10%, and these patients typically do not need hospitalization. It's mostly about identifying the bacteria causing the infection and possibly tailoring the antibiotic treatment. Generally, patients recover within five to ten days, and we have not seen a need for them to return to the hospital. During the TACT trial, about 4% of patients required additional care after treatment, but in commercial environments, that just isn't happening. I think it's also important to highlight that the current procedures depend significantly on the physician. Data suggests that physicians who have performed over 1,000 cases tend to achieve better outcomes compared to those with fewer cases. In this case, the surgical planning is crucial; once that's established, the robot operates autonomously, allowing observation during the ablation process. A technology we introduced over a year ago enables on-the-fly adjustments to treatment boundaries, for instance, adapting to any swelling of the prostate caused by heat. This flexibility enhances precision and minimizes variability. Those familiar with my work know that we will keep innovating, aiming to reduce any differences in outcomes among physicians over time. I truly appreciate your question, and you're right that ICU usage is a priority; I believe we can positively influence that, and in the long run, our approach will become more consistent and predictable.

Okay. Thanks.

Thank you, John.

Thank you. And our next question comes from the line of Scott McAuley with Paradigm Capital. Your line is open. Please go ahead.

Hi, Arun and Aaron. Thanks again for taking the call and congrats on the quarter. I just wanted to quickly touch on the process from signing an agreement to installation to operation and kind of how you are seeing that kind of the timing between those processes change and evolve as you get more of these contracts signed and get more of these installations in and hopefully as the COVID impact is kind of potentially lessening or going away and how you see them moving forward?

Thank you for the question, Scott. It's something we consider regularly. When we initially started, back in Q1 of 2020, we expected the time from contract signing to the first patient treatment to be around 90 days. We aimed to reduce that to about 60 days based on our running programs. Currently, however, it's closer to four months due to various minor and mostly transitory factors influenced by COVID, which have caused some unexpected bottlenecks. While this timeline is longer than we anticipated, we are confident in our ability to overcome these challenges, as our team is becoming more skilled at managing them. Looking ahead, we still believe that our original expectation of reducing the timeline to between 60 to 90 days by 2022 is reasonable.

Sure. Just to clarify, when you mention 25 by the end of the year, do you mean 25 installations or 25 operational sites?

I framed it as installations, but to be honest, once we are installed, the time from the installation to treating the first patient is almost never more than a couple of weeks. So we are likely within range on that point.

Got it. Got it. So most of that four months is the process from contract to installation; once installations end it’s a quick turnaround for succession?

Yeah. Typically, physicians are quite interested because they have invested their time. Once they know the timelines and have a firm understanding of when the system will be ready, they begin screening patients about three weeks prior. They usually assign a date for treating the first patient, and this date is significant because it helps focus both the hospital and our team. From that point, we work backward from the date of the first patient treatment.

Perfect. No. That’s wonderful. And then, quickly, I mean, maybe looking a bit into crystal ball, but in terms of kind of the wiles of the Delta variant and especially kind of in the South Texas and Florida. Are you seeing that impact, any procedure kind of a current procedure volumes like July, August or are things kind of tugging along as they were in Q2 when the numbers are relatively low?

You are right, Scott. It's a bit of a prediction. Florida and Texas have significant patient numbers right now, particularly in ICUs and hospitals, with Florida reporting the highest numbers since the start of the epidemic. So far, we've not noticed any major effects. However, this uncertainty makes us cautious. We do have a number of patients willing to travel, which is hopeful. Even if there's a decline in one area, we are also opening sites in other parts of the country, allowing for patient transfers as needed. We are being very diligent about this, and our sales team is improving at managing the situation effectively.

And we have a couple of factors working in our benefit is the demographics so far have shown that men of the age of prostate disease tend to be vaccinated. And then to the states where we operate most like Texas and Florida do not seem like they have government’s intended on shutting down the states again for good or bad.

Yeah. Definitely. No. That’s all for me. Thanks again guys and congrats.

Thank you.

Thank you.

Thank you. And I am showing no further questions at this time and I would like to turn the conference back over to Dr. Menawat for any further remarks.

Thank you so much and thank you for the questions. Our company continues to rise and we are continuing to gain strength from what we see and I look forward to really presenting to you in Q3. Thank you. Have a great evening.

Thank you all.

This concludes today’s conference call. Thank you for participating. You may now disconnect.