Profound Medical Corp. Q4 FY2021 Earnings Call

Hello. Thank you for standing by. Welcome to the Profound Medical Q4 and Full Year 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker 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 within the meaning of applicable Securities Laws in the United States and Canada. All forward-looking statements are based on Profound’s current beliefs, assumptions and expectations, and relate to, among other things, expectations regarding the efficacy of the Company’s treatment technologies, results of future clinical trials, the ability to obtain coding and/or reimbursement from third-party payers, anticipated financial performance, business prospects, strategies, regulatory developments, market acceptance and future commitments. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. No forward-looking statement can be guaranteed. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. 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 also 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 commercialized 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. In the U.S. we employ a pure recurring revenue model for TULSA-PRO, whereby we charge customers around $8,000 on a per procedure basis for TULSA-PRO consumables, lease of medical devices, and services associated with extended warranties. Outside of the United States, we also primarily deploy a procedure model, but we also sell capital and consumable separately if the situation warrants that. We’re 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 the FDA approval under Humanitarian Device Exemption for the treatment of osteoid osteoma. The business model for Sonalleve systems is currently a one-time sale capital equipment. On the call today representing the company are Dr. Arun Menawat, Profound’s Chief Executive Officer, and Rashed Dewan, the Company’s Chief Financial Officer. With that said, I’ll now turn the call over to Rashed.

Good afternoon, everyone. And welcome to our fourth quarter and full year 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 activity. However, before I do, I would like to provide a brief update on our fourth quarter 2021 financial results. To streamline things, all of the numbers we will refer to have been rounded, so they are approximate. For the three-month period ended December 31, 2021, the Company recorded revenue of $1 million down from $2.9 million in the fourth quarter of 2020. Despite COVID challenges, recurring revenue increased 67% from $600,000 in Q4 2020, reflecting the success of our ongoing rollout of TULSA-PRO in the United States. However, that was more than offset by the fact that there were no one-time capital equipment sales in Q4 2021 compared to $2.3 million recorded in Q4 2020. Total operating expenses in the 2021 fourth quarter, which consists of R&D, G&A, and selling and distribution expenses were $10.2 million, an increase of 69% compared with approximately $6.1 million in the fourth quarter of 2020. Breaking that down further, expenditures for R&D increased 87% on a year-over-year basis to $4.7 million. This was primarily driven by increased spending on R&D initiatives for new designs, technology improvements, and different magnet compatibility, options awarded to employees, additional headcount and increased travel for offsite MRI testing. G&A expenses increased by 80% to $3.2 million due to options awarded to employees, increased insurance costs, increased legal and accounting fees, increased license costs for enterprise resource planning, and customer relationship management software, and an overall increase in general expenses as offices continued to reopen from COVID-19 restrictions. Finally, selling and distribution expenses increased by 32% to approximately $2.3 million. Overall, the Company recorded a fourth quarter 2021 net loss of $10.2 million, or $0.49 per common share, compared with a net loss of $7.5 million, or $0.38 per common share for the same three months period in 2020. As at December 31, 2021, Profound had cash of $67.2 million. With that, I will now turn the call over to Arun.

Thank you, Rashed. Before getting started, I would like to take this opportunity to congratulate Rashed on his promotion to CFO. As referenced in today’s press release, this formalizes the additional responsibilities that he took on when Aaron Davidson transitioned to SVP Corporate Development last spring. Speaking of Aaron, it is bittersweet for me to announce that he will finish his employment with Profound at the end of March, but will be available, as needed, on a consulting basis. I will miss his daily presence and wise counsel, but also wish him well as he begins a well-deserved retirement. With that, there’s a lot to talk about today. We’re all tired of talking about COVID and no one is happier that its impact is finally subsiding than the Profound team. As we analyze our data, our recurring revenues only grew by 37% year-over-year, and that was primarily through utilization at 14 sites that operated throughout the year. Even though we had contractual agreements to install over 30 systems last year, it was not until late in Q4 that we finally were able to put in new installs again in the U.S. This finished the year with 17 sites in the U.S. and 21 worldwide. Our international business that primarily comprised of capital sales in Asia was effectively non-existent as our team was not even able to visit the country. That was 2021, but new installs are continuing in Q1 2022, and we fully expect to achieve an installed base of 25 systems in the U.S. by the end of the current quarter, bringing our worldwide installed base to 29. Similarly, we’re beginning to see more activity in the international market as a few of the capital projects have been revived. Both suggest faster growth in recurring as well as total revenue in 2022. In spite of the macro environment in 2021, there were many positive accomplishments that also bode well for ’22 and beyond. As you know, we are targeting three major types of end users, early adopters, independent imaging center companies, and opinion leading teaching hospitals. That strategy has essentially worked. Most notably, we are already in 7 of the top 16 opinion-lending U.S. hospitals, including the prestigious institution we announced earlier this week. In addition, I’m pleased to share that we now also expect to launch the TULSA program in less populated states, including the southwestern states, and appropriately a TULSA system is being installed in Tulsa, Oklahoma. I’m particularly excited about this one, as they will use the imaging center model of having multiple audits, bringing their patients to one site and driving utilization. Our clinicians continued to utilize the flexibility of TULSA-PRO to treat a variety of patients. In the fourth quarter of 2021, the majority of patients treated with TULSA, about 85% had treatment-naïve localized prostate cancer, with another 12% receiving TULSA after prior radiation failure or failure after other types of therapies and 3% had BPH, but no cancer. Of the patients with prostate cancer, approximately 75% had intermediate-risk localized prostate cancer, another 10% were high risk, and 15% were low risk. In terms of treatment plans, approximately 38% were customized whole gland where physicians targeted 95% of the gland but precisely carved out margins at the splinters to save continence, nerve bundles to save erectile function, or even the ejaculatory duct when possible to save vital fluid. Another 36% had large subtotal ablations covering more than half their prostate, and 26% had more focal ablations. This quarter, the largest prostate treated with TULSA in the U.S. was 130 cc, whereas the smallest was only 15 cc. The simple fact is that no other established or emerging technology can safely and effectively treat as many different prostate disease patients as TULSA does. Based on this and prior data, we believe that TULSA has unique potential to capture a meaningful portion of the overall prostate disease market. In terms of that long-term potential, if one assumes an average price of $8,000 per procedure, and 250,000 prostate cancer cases annually in the U.S., that translates to a total addressable U.S. market of $2 billion. If one were to add a small subset of what we call the extreme BPH cases, patients with very large prostates, who would otherwise need a simple prostatectomy, the market size increases to over $5 billion. Of course, TULSA will not capture this entire market, but these numbers give us an idea of how significant the opportunity is based upon how the product is being used today. For us, 2021 was about establishing that beachhead, a foundation to ultimately capture a meaningful portion of that market opportunity. Although growth in the U.S. has been impeded due to the pandemic, medical technology databases report that in 2021, the number of patients treated with each HIFU and cryoablation was similar to the number of patients treated with TULSA. Based on this data, we believe we have already achieved a treatment rate similar to that of other ablative technologies that have been used for more than a decade. Taken together, we believe that TULSA not only has the potential to become the leading ablative therapy, but given that TULSA has been used to treat patients with such a wide variety of prostate diseases, we see TULSA becoming a primary modality of choice in the future. And that provides a good segue to our sponsored CAPTAIN trial, which treated its first patient in January. We expect CAPTAIN, which stands for a comparison of TULSA procedure versus radical prostatectomy for short, in participants with localized prostate cancer, to be performed at eight or more sites in the United States, and two sites in Canada. To date, six sites have been activated and are currently recruiting patients. Notably, this is the first Level 1 study ever conducted, comparing an emerging technology, TULSA in this case, head-to-head with RP in men with prostate cancer. CAPTAIN will compare the safety and efficacy of the TULSA procedure with RP in men with organ-confined intermediate-risk Gleason Score 7 prostate cancer with the goal of demonstrating that the efficacy of the TULSA procedures is not inferior to RP. The trial also aims to demonstrate TULSA’s superior quality of life outcomes. The post-market CAPTAIN trial will enroll 201 patients with 134 patients randomized to receive one or two TULSA procedures and 67 patients randomized to receive RP. The trial’s primary safety endpoint is the proportion of patients who preserve both, erectile potency and urinary continence at one year after treatment. CAPTAIN’s primary efficacy endpoint is a proportion of patients who are free from any additional treatment for prostate cancer by three years after treatment. Secondary endpoints include comparison of rate of complications, cost effectiveness, and timing of the return to baseline activity with long-term follow-up data gathered for up to 10 years after treatment. We are conducting the CAPTAIN trial to increase awareness and adoption of TULSA-PRO and to support coverage by payers. As I mentioned in our last call, we are awaiting full data in the FARP trial, a single site Level 1 study conducted at Oslo University Hospital that compared whole gland RP to focal therapy using either HIFU or TULSA. The robotic RP arm of this study is similar to that of our CAPTAIN trial. And we are very encouraged by the initial results of that trial as well as by the fact that Oslo University Hospital purchased the TULSA system from us for commercial use, identifying it as the clear technology of choice. Should the RP outcomes in CAPTAIN match what was seen in FARP, we believe there is potential to demonstrate clear superiority even though the CAPTAIN trial has been designed for a non-inferiority endpoint. Another feature of TULSA-PRO that we believe will significantly increase with adoption is the system’s compatibility with the U.S. installed base of MRI machines. To date, we have been working with two MRI manufacturer partners, Siemens and Philips, to commercialize TULSA-PRO. Just this week, we were pleased to confirm TULSA-PRO’s compatibility with GE, the remaining of the big three medical technology companies in the global MRI space and the biggest of the big three in the United States. Together, Siemens, Philips, and GE comprise more than 90% of the installed base of MRIs in the U.S. This is an important achievement that has already yielded exciting results. Shortly after confirming TULSA-PRO’s compatibility with GE, we signed the first agreement for a TULSA-PRO system interfaced with a GE scanner with Boston’s renowned Brigham and Women’s Hospital. The second agreement has been signed since then with an imaging center in Florida. I’ll now turn to our ongoing reimbursement strategy, which is a critical priority for Profound. I’m very excited to share that our TULSA systematic review paper has been published online by the Journal of Endourology. It is available on our website, or you can ask Steve Kilmer to send it to you after this call. Publication of this paper is a key milestone, as it completes the clinical requirements to qualify to file a CPT-1 application. We have met with the relevant societies since the publication and we remain on track to be able to file our application this summer for consideration by the AMA during their fall 2022 meeting. Although there’s no guarantee of approval, should the AMA approve our application at their fall meeting, this would be an incredible accomplishment as the CPT code would be effective by January 2024. Another reason this paper is one of Profound’s most important publications to date is that it generates the highest level of evidence available in support of TULSA, in this case Level 2A. The paper systematically consolidates all of the available evidence on TULSA-PRO into a single peer-reviewed manuscript and supports that TULSA is safe and effective for treating primary prostate cancer. The evidence also supports the use of TULSA to treat recurrent prostate cancer and locally advanced prostate cancer, as well as the system’s ability to simultaneously treat prostate cancer and alleviate lower urinary tract symptoms normally caused by BPH. In addition, the paper confirms that TULSA is customizable, offering a treatment plan that can be tailored to match individual disease characteristics and patient preferences. Importantly, this represents a shift from the focal versus whole gland paradigm established by other ablative modalities. Finally, the paper concludes that TULSA is a single flexible tool that can treat multiple indications, including those where minimally invasive alternatives are limited. In addition to its real-time MRI visibility and thermometry that differentiates TULSA from other ablative modalities, we believe the system’s customizability will enable patients to achieve better outcomes in the real world. We’re looking forward to using this paper as a tool to support system launches and utilization initiatives, and to initiate and inform conversations with physicians and patients so they can decide on treatment options and plans. And last, but certainly not least, you know how proud I am of the Profound team. Abbey and Hartmut are leading sales, and Mathieu and Golddy are leading product management. Mike has advanced reimbursement efforts significantly. And Jacques has developed the relationships with MRI companies. All-in-all, this is a world-class team. And now, I’d like to extend a warm welcome to Ken Knudson, our new Chief Commercial Officer who will be leading initiatives for Profound’s worldwide sales, marketing, and reimbursement activities for both TULSA and Sonalleve. Ken’s executive management career spans more than 25 years, during which he has accelerated growth for emerging startups and Fortune 500 companies alike. Ken joins us from Perineologic, a company pioneering a new and disruptive approach to prostate cancer biopsy, where he served as CEO. He previously served as Executive Vice President of Global Sales and Marketing for Boston Scientific Corporation where he helped drive annual sales of SpaceOAR Hydrogel, a biodegradable material that is injected between the rectum and prostate to decrease patients’ exposure to rectal radiation. Ken has an extensive and demonstrable record of accomplishments in helping to commercialize new medical technologies in urology and has an in-depth knowledge of the men’s and women’s health markets. Please join me in welcoming Ken to the team where he will be invaluable as we continue to execute our commercial strategy. To summarize, although our growth was hampered by COVID, we believe we are on the verge of accelerated growth with our installed base expected to increase significantly by quarter’s end. Not only does the TULSA opportunity remain intact, but the substantive number of complex and unique cases build our confidence in capturing a broad portion of the total prostate cancer cases as well as a material segment of BPH cases. We are thrilled that TULSA is now compatible with all three major manufacturers of MRI scanners, GE, Siemens, and Philips, increasing the span of our market access. Our reimbursement strategy is working, and we are excited about the expected filing of the CPT-1 application in 2022. We are pleased to have initiated our sponsored CAPTAIN clinical trial, which should produce initial results in Q4 2023. This ends our prepared remarks for today. With that, Rashed, Aaron, and I are happy to take any questions you might have.

Our first question comes from Brent Thill with Jefferies.

You mentioned that installs have increased significantly this quarter. Can you provide more detail on that? Was there a faster conversion process? Additionally, with capital being lower this quarter, was that primarily a result of COVID? How is that trend currently? Are you experiencing an increase in COVID-related challenges or are they starting to stabilize as we move further into 2022? I have a follow-up question as well, and I apologize for bringing up COVID.

No problem. I appreciate your questions. To your first question, yes, we are seeing an accelerated installation rate. We noticed it a little in Q4, but it is certainly more evident in Q1. Unless there is another resurgence of the pandemic, I believe based on our pipeline that we will continue to increase our installed base this year. This gives us much more confidence about our direction this year compared to the uncertainty we experienced last year. Generally, while I want to remain cautious, all the installed bases will be significant and will take time to grow, but things are definitely progressing faster than they did in Q1. Regarding your second question, in Q4, there were no capital revenues at all. This is mainly because we have identified certain countries in Asia, particularly China and Japan, where we believe we can build scalable models to generate profitable revenue and foster long-term growth. Unfortunately, we have not been able to visit those countries, which has caused delays. However, as I mentioned earlier, we do see signs of revival. It may be slow, but I expect to see some capital revenues gradually coming in. In the second half of 2022, we anticipate that some of the initiatives delayed in 2021 will resume, and we are optimistic that this will contribute to top-line growth from capital revenue. Please feel free to ask the next question.

Thank you for that, Arun. I want to follow up on the regional aspect you mentioned during the call regarding your expansion within the U.S. Could you elaborate on which regions you're currently focusing on? Additionally, how do you envision this strategy evolving over the next year or two? Also, just a quick request for a data point: could you provide some insight on the volumes during the quarter? I appreciate your help.

Yes, definitely. First, regarding the geographic presence within the United States, we are focused on two aspects. One is increasing utilization, as that directly impacts our revenue, and the other is qualifying for CPT application. The AMA looks at how widely the product is used and who the users are. On one side, our product is adopted by leading hospitals, which is a crucial criterion. On the other side, they're interested in its use in mainstream settings, even in rural areas. Therefore, we aim to meet these requirements. Interestingly, Abbey and the team have partnered with a new group called the Paragon group in the Southern Midwest, and I'm thrilled about this collaboration. They will be placing systems in Louisiana, Missouri, certain rural parts of Texas, and also in Tulsa, Oklahoma. We now have a presence in both the upper and lower Northeast, and as you know, we have a significant presence in Florida. We are also expanding in Texas, Arizona, and California, along with new placements in the lower Midwestern states. Additionally, we have plans for the upper Midwest. This strategy is carefully planned to help increase utilization while reducing patient travel. We analyzed last year where our patients are located, and the installed base now reflects their demographics. In 2020 and 2021, over 75% of our patients traveled more than four hours to access the Tulsa sites, and this new presence can alleviate that burden. Regarding utilization figures, we saw October and November performing relatively well, similar to September, but December was challenging due to significant delays mainly caused by a shortage of anesthesia. Our numbers have improved compared to Q3, as recurring revenues in Q3 and Q4 are up considerably, but overall, they are still lower. A 37% growth in early stages is not satisfactory, and we aim to improve significantly in 2022.

Thank you. Our next question comes from Rahul Sarugaser with Raymond James. You may proceed with your question.

Good afternoon, Arun, Steve, Rashed. And Rashed, congratulations on your appointment as CFO. Arun, my first question is just a little bit further on the deployment and utilization rates. So, you talked about 25 at the end of this quarter, which I believe is quite well lined up with the pipeline you had talked about in previous quarterly calls. Can you give us a little bit more visibility into sort of how the pipeline is shaping up sort of beyond Q1 for deployment? And how should we also be looking at the annualized utilization rate? I believe it was around 60 procedures per year per installed device. Given that a bulk of devices now coming online, how should we be thinking about that average rate?

Yes, we have a strong pipeline that we expect to continue growing, especially now that we have established compatibility with GE. Although we haven't provided a specific number, it's significantly larger than our current installed base, which gives you a rough idea of its size. The substantial clinical information I've shared indicates that existing sites are using this product across a diverse range of patients, which suggests that our pipeline is solid. Surgeons are eager to use this product. Regarding utilization, I believe this is a crucial question. The utilization at sites that were active in 2021 is likely to persist, and there may even be some increases. As the quarters progress, we will gain greater insight into the extent of these increases, since every site is looking to enhance their utilization. However, I'm not yet comfortable disclosing the expected rate of increase due to the lingering impact of COVID. I hope to provide more clarity on this by the second quarter. As for new sites, as reflected in our numbers, about half of the sites in Q2 will be new. It’s important to note that reaching 60 utilizations won’t happen in just one quarter; it typically takes about six to nine months for sites to effectively train and utilize the product across various patient types to understand its full potential. Therefore, in the short term, it’s likely that average utilization per site will be lower in Q1 and Q2. However, in the long run, we expect it to be significantly higher. Once our installed base and number of new installs increase, the ratio will decrease, leading to a resolution of this situation. I hope this provides a clearer picture of how we view our progress.

Great. That’s helpful and should hopefully assist with our models. I want to switch gears a bit to data. You already mentioned data, and we have seen some recent information from Meridian, particularly the Phase 2 data they presented at ASCO. Do you have any thoughts on that, especially since they are also moving into localized prostate cancer?

Yes. We are certainly attentive and closely following all clinical information available. It's noteworthy that you mentioned this because there are strategic elements involved, and I want to share some insights on the data. Currently, there are a few companies marketing MRI real-time imaging guided radiation treatments, known as SBRT. This aligns with our stance that real-time MRI is beneficial. When studies suggest that real-time MRI outperforms real-time CT for radiation treatment, it highlights the advantages of the imaging technique we utilize. This principle of employing MRI imaging also applies to us. Looking at the data being published, it indicates that their measured GU toxicity decreased from 47% to 22% with MRI. This represents a significant reduction compared to SBRT. However, considering these figures, the TACT data reveals their toxicity level dropped to 6%. While it’s encouraging to see the use of MRI, the TACT data, especially in light of this new study, clearly demonstrates a substantial difference when TACT or TULSA, which does not involve radiation and instead uses heat, is utilized. I hope this provides a concise summary of our interpretation of that data.

That’s really helpful. Thank you. Thank you, Arun. And if you would indulge just one more question, since we talked about radiation and we can switch it, but to comparison to surge rate that you’ve referred to the CAPTAIN trial, we know that the FARP trial should be reading out sometime this summer. So just for us, you know, how should we be thinking about interim readouts? When should we be expecting data from these trials, particularly given sort of the interplay between FARP and CAPTAIN?

Yes. So I think, so first of all, you’re right. FARP, we hope to see full data this summer. For CAPTAIN, at this point our expectation is that our RSNA 2023, which is typically in November, is when we will have the first set of data, because we’re treating patients now. So, the patients who are being treated this year and by time, by RSNA 2023, we should be able to complete full recruitment. So, there should not be any biases and all that. That’s all behind us, and we’re just monitoring the patient. But by that time, we should be able to show 6 to 12 months data. And, if the statistics hold similar to FARP, we should be able to start to see differences as early as that.

That’s terrific. Thank you very much. And I’ll get back in the queue.

Thank you. Our next question comes from Josh Jennings with Cowen. You may proceed with your question.

Arun, I wanted to ask about your comments on the revival of capital projects internationally. Can you provide some insights on how we should view the international channel in 2022? Any additional details would be appreciated.

Yes, Josh, that’s an excellent question. To provide more detail, projects have been delayed, but aside from one or two instances, nothing has been canceled. Many installations, particularly those involving MRIs or hospital upgrades in Asia, have also experienced delays. However, we're hearing that things should improve in the latter half of 2022, which makes us quite optimistic. The fact that projects are delayed rather than canceled is a positive sign. Over the past three to four months, we’ve noticed that sites in Asia, particularly in China and South Korea, have treated a significantly increased number of patients, indicating a revival. While travel restrictions remain in China and Japan, we are hopeful that these will ease in the second quarter. I also plan to visit the region to gather more concrete information, but I believe the second half of this year looks promising.

Thank you for that. As a follow-up on the U.S. reimbursement landscape, are hospitals still successfully submitting payment requests for total cases using the existing code, and is that practice becoming more widespread?

Yes, Josh, we have had at least 10 hospitals that have used the C-code. Almost all of the key hospitals have implemented it, and most are receiving payments. The average payment is about $12,500, which is higher compared to the average payment for radical prostatectomy, currently just below $10,000. Therefore, the $12,500 that hospitals are receiving seems appropriate. We continue to charge a little over $8,000 per patient, and that amount is derived from the $12,500 they receive. Since the treatment is performed in an MR suite, which is less expensive than an operating suite, we believe hospitals are seeing a positive financial outcome. That’s the feedback we’re receiving. Given this, we’re pleased with our results. Additionally, regarding the concierge service, early adopters are paying $30,000 and many are traveling, with over 70% of patients actually flying to these locations for treatment.

Just one last question about the TULSA-PRO system in its current form. What is your team working on regarding this? When can we expect to hear about the next generation system and what enhancements are being pursued? Thanks for answering all the questions.

Sure, that's a good question, Josh. We have already introduced new features commercially in Europe and submitted some of these to the FDA. In the next three to six months, we expect to introduce these features in the U.S. One notable feature is related to radical prostatectomy, which is typically performed on patients with organ-confined disease, meaning the cancer has not spread beyond the prostate. In some cases, cancer can be close to the edges, perhaps involving a millimeter of muscle tissue outside the prostate. With our real-time MRI technology, physicians can identify these boundaries and may choose to treat areas just beyond the prostate capsule. We introduced a concept called thermal boost, allowing physicians to activate treatment in regions where there is slight involvement of muscle tissue. This has been successfully implemented in Europe and is well received. Clinical data shows that over 20% of patients undergoing radical prostatectomy leave cancer behind at the edges. This feature has the potential to address that issue, although we will need more data. Physicians view it as a promising development, which is already commercially available in Europe. We're working with the FDA in the U.S. and hope to launch it later this year. This is just one example; we are working on at least one more interesting technology, which is designed to improve reproducibility and reduce treatment time, building on our already efficient processes.

Our next question comes from Frank Takkinen with Lake Street Capital.

Not sure if I missed it or not, but did you by chance share how many installs have occurred so far in the first quarter? Just trying to get a feel for the lift from that 17 at the end of the year to get to 25 by the end of the quarter. How many of those are left to be installed yet in the last four weeks of the quarter?

Yes, Frank, we didn’t provide too much detail because it varies week to week. However, we feel confident that we will reach 25 by the end of this month. It will take time for these units to begin utilization, but once the installation is complete, you will start to see utilization gradually increase in the second quarter, with some evidence in the first quarter as well. So far, January was a stronger month than any in Q4, and we do anticipate increased usage in Q1. Let's see how the quarter concludes, but we are already noticing slow increases. We are quite confident about reaching 25 and believe that moving forward, barring any unexpected issues, you will continue to see an increase in both utilization and new installations.

Okay. That’s helpful. And then, I was hoping you provide a little update on Akumin. How are things going there? Do you have any installs mapped out for them in 2022 yet?

Yes, that’s a very good question, Frank, because Akumin is currently experiencing a stall. There have been several changes at Akumin, and the numbers we have shared with you do not include that contract yet. However, we have replaced it with other contracts. One of these is a multi-site agreement with the Paragon Group, which is in the process of installing their first system, and it is actually being shipped now. I believe that Akumin will eventually be replaced by some of these other imaging companies. In the long term, I see Akumin as having strong potential, especially since they now own certain oncology hospitals where this technology would be a great fit. But, I want to ensure they have the necessary time for their integration, and we have plenty of work to do in the meantime.

Okay. That’s helpful. I’ll stop there. Thanks for taking my questions.

Thank you. Thank you, Frank.

Thank you. Our next question comes from Brian Gagnon with Gagnon Securities. You may proceed with your question.

Hi, guys. Can you hear me okay?

Yes, Brian. Good afternoon.

You talked about the pipeline. You talked about the backlog. But, can you give us an idea of how many signed contracts you have that are yet to be installed?

Yes. Very good question. My best guess is that we have over 40 contracts at the moment, and we have a pretty good pipeline in addition to that.

And that doesn’t include Akumin and RadNet.

It includes RadNet. I think you will see the other sites at RadNet will come on stream this summer. But, it does not include Akumin.

Okay. You filed this shelf today. Any plans to use it or is that just corporate housekeeping for replacing the shelf that you have from last year?

Brian, that’s a very good question. We have over $67 million. Let me turn that question over to Rashed to answer.

Thank you, Arun. Brian, thank you for the question. So, as Arun said, we announced that we have over $67 million in the balance sheet as of the end of the year. And this is just pure housekeeping. Our previous shelf expired in November 2021. So, we decided to update the shelf this morning. We just believe it’s a prudent thing to do for the Company, and a lot of other companies maintain a base shelf.

Okay. Got it. Reimbursement, and I think you said $8,000 per procedure? Wasn’t that $7,400 last quarter? What changed? And then, I’ll have a couple of questions about reimbursement.

Sure. So, as you know, when we started the program, we also were learning how to price it properly. So, in 2020 and 2021, there were certain agreements that were in that $7,000 to $7,500 range. But every agreement has been updated and every new agreement is over $8,000 per patient at this point.

That’s great. Okay. So, on reimbursement, congrats. It sounds like you’re making very good progress with the CPT code. And, are you getting good reimbursement from the ones that are in the hospital today? And then, if you would layer into that, any success you’re having from commercial payers and/or other government systems for reimbursement, and what your thoughts are there?

Yes. Brian, regarding the use of the C-code, it has proven effective. The strategies we outlined over a year ago, particularly in 2021, have certainly succeeded. There are at least 10 hospitals currently utilizing it, which provides sufficient volume, and the average payment stands at around $12,500, which we believe is appropriate. We are quite pleased with this outcome. In terms of other payers, there are indeed several private payers, and hospitals often seek preauthorization, which is generally effective. Additionally, I haven't mentioned that a number of our hospitals have received authorization from the Veterans Administration, and they are covering the full amount. For instance, one hospital on the East Coast has been fully authorized by the VA, which typically lags behind other payers. There's also a hospital on the West Coast that is fully operational and serving veteran patients. We have a contract with a prominent veterans hospital in Cincinnati, and that system will be implemented this summer. We are happy that veterans are being prioritized, especially since this affects older men. A few other hospitals are also in the process of obtaining local authorizations, and the fact that we have established some hospitals receiving it gives us optimism. While we haven't discussed veterans before, we are pleased to see this development.

Arun, can you give us a sense as to what the VA will be paying per procedure at these hospitals? And, is that an indication of what reimbursement could look like in the future from other government entities and/or commercial?

Currently, it appears that the VA is paying over $20,000 per patient. Regarding your other question, Brian, the C-code is likely a good comparison, as these codes are typically developed based on relative value units when the CMS works on them. They adjust these numbers each year according to the costs observed at hospitals. This seems to be the most relevant indicator we have. If they are paying $12,500, that is a favorable position.

Okay. And last question for me. With over 40 contracts signed, do you have enough people and teams in place to do the installs and get through that group this year? And it’s only early March, and you talked about a very strong pipeline. So, does that mean that you’re going to be trying to catch up with some of these installs and the numbers that we see today for installed, or just very low to where they’ll be 12 months from now?

Yes, we are actively working on that. Brian, we are in the process of adding sales teams. Initially, it was primarily senior teams like Abbey, Mathieu, and myself who handled the initial sales efforts. However, with Ken joining us, he has already started to form a sales and marketing organization, bringing in professionals to support our existing customers and establish a structured approach for new sites. We're expanding our field team and enhancing our service side as well. Additionally, our manufacturing team has been assessing all supply aspects. We had a productive discussion with our board about this earlier today to ensure we have all the necessary supplies, particularly for disposables. Currently, we do not have many inquiries in our system, but we are confident that we will be able to fulfill the agreements we are entering into.

Our next question comes from Ben Haynor with Alliance Global Partners.

I’ll be quick. Just a couple for me. You mentioned, Arun, the utilization of HIFU and cryoablation and how TULSA, if I heard you correctly, has already kind of surpassed that. Do you have an idea of how many HIFU and cryoablation installs are out there at present?

Ben, our future really hinges on the number of patients treated ultimately. While we haven't disclosed a specific number yet, we plan to do so once the figures reach a predictable level. This uncertainty is mainly due to the impact of COVID. As we increase our installed base and the pandemic effects diminish, we expect to achieve that level of predictability and make our numbers public, which will make it easier to track our company's progress. We've analyzed government databases and estimate that the patient numbers are in the 400 to 500 range. Achieving that kind of run rate within the first two pandemic-driven years is a solid outcome. I'm not entirely satisfied with the 37% year-over-year growth, but it's worth noting for perspective. Importantly, our technology's flexibility allows it to be utilized for both high-risk and lower-risk patients. Once the thermal boost receives FDA clearance, we will be able to treat patients with some involvement beyond the prostate. I'm aiming to ensure that we capture everything as we promote the adoption of our technology. Benchmark-wise, we've been performing well, and I believe we will exceed all expectations this year. This positions us to potentially become a mainstream option, as the data suggests, alongside the advancements in reimbursement, clinical data, and alignment with CPT guidelines. These factors indicate that we have a unique technology that is ready to enter the mainstream market.

And also what I was partially getting at there is, the number of HIFU and cryoablation installs that are out there, presumably if there’s X hundred centers that are doing these HIFU or cryoablation cases, they’d obviously be candidates for TULSA-PRO. Do you have an idea of how many folks out there are doing those in terms of center…

Definitely. I think as we begin to see larger numbers, there are some centers that have transitioned from using FLA or laser fiber to TULSA. There are also a few sites that have switched from HIFU to TULSA. It's still in the early stages, so we need to be realistic. However, there is at least one site that continues to use HIFU for patients with very localized cancer, as that technology suits those cases. For other patients, the ability to treat a wider range of conditions with TULSA has expanded their practice, and they are utilizing both technologies.

Okay. That makes sense. And then, just lastly for me, now that you guys have reached the big time of the TULSA-PRO and TULSA, is there any differential that you expect in terms of utilization as more rural centers, what kind of a feeder model versus kind of the centers that you’ve been installed in bar?

I'm really excited about the potential here. I believe that Paragon Group understands our business model. We haven't seen its best implementation yet, but RadNet is starting to make progress, and they plan to install additional systems later this year. I think they will successfully implement it. However, for this specific case, they are seeking utilization over several days, so I want to approach this cautiously and observe how it develops. I remain confident that the concept is sound, and we just need to confirm that with this site. If it proves successful, it will be a significant advantage for us. Thank you so much, Brian.

Thank you. And I’m not showing any further questions at this time. I would now like to turn the call back over to Dr. Menawat for any further remarks.

Thank you. I know Aaron is on the call. Aaron, if you wanted to say something, please go ahead. Aaron? Okay. So, if there are no other questions, thank you so much for listening. Thank you for the questions. And I hope that we’ll be able to have a pretty good Q1, and be able to report on that for you at the Q1 call. Thank you so much. Have a good evening.

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