Telesis Bio Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 10, 2023

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Profound Medical First Quarter 2023 Financial Results Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised.

Operator

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.

Speaker 1

Thank you. Good afternoon, everyone. Let me start by pointing out that this conference call We'll 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.

Speaker 1

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 For the benefit of those who are new to this PreFOUND story, I would also like to take a moment to summarize our business. PreFOUND develops and markets customizable and vision free therapies 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 Customizable and predictable radiation free ablation of insertion defined prostate volume, while actively protecting the urethra and rectum to help preserve the patient's natural functional ability.

Speaker 1

TulsaPro is CE marked, Health Canada approved and 510 cleared by the FDA. In the U. S, we employ a pure Recurring revenue model for TulsaPro, whereby we charge customers on a per procedure basis for TulsaPro consumables, lease of medical devices and services associated with extended warranties. Outside of the United States, we primarily deploy a capital and consumable sales and service model separately as the situation warrants that. We are also commercializing SONALIEV, an innovative therapeutic platform that is being marked for the treatment of uterine fibroids and palate pain treatment of bone necessities.

Speaker 1

SONALIEV has also been approved by the China National Medical Products Administration for the noninvasive treatment of uterine fibroids and has recently obtained FDA approval under a humanitarian device exemption for the treatment of osteoarthritis, osteoma. The business model for Sonaeleap Systems is currently a one time sale of the capital equipment. On the call today representing the company Doctor. Arun Manawat, Profound's Chief Executive Officer and Rishad Dhawan, the Company's Chief Financial Officer. With that said, I'll now turn the call over to Rishad.

Speaker 2

Good afternoon, everyone, and welcome to our Q1 2023 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 would like to provide a brief update On our Q1 2023 financial results, to streamline things, All of the numbers we will refer to have been rounded, so they are approximate.

Speaker 2

For the 3 months period ended March 31, 2023, The company recorded revenue of $1,900,000 representing an increase of 36% from $1,400,000 in the same period of 2022. Recurring revenue Increased 43 percent to $1,500,000 while the one time sale of capital equipment increased 16% to $400,000 Total operating expenses in the 2023 1st quarter, which consists of R and D, G and A and selling and distribution expenses were $8,100,000 An increase of 4% compared with $7,700,000 in the Q1 of 2022. Breaking that down further. Expenditures for R and D were 3,800,000 An increase of 21% compared to the Q1 of 2022. G and A expenses decreased by 4% to $2,100,000 Net finance income for the 2023 Q1 was $145,000 compared with net final cost of 892,000 in the same 3 month period of 2022.

Speaker 2

Overall, the company recorded a 1st quarter 2023 net loss of $6,800,000 or $0.32 per common share, compared with a net loss of $10,500,000 or $0.40 per common share For the same 3 months period in 2022. As at March 31, 2023, ProFound had cash of $43,000,000 With that, I will now turn the call over to Arun.

Speaker 3

Thank you, Ushad. Beginning with our financial performance, our recurring revenue continued its upward trend, increasing 43% to $1,500,000 compared to Q1 2022. In the quarter, our focus Our pipeline remains strong. Based on this, we expect to see an increase in the number of sites As the year progresses, with the achievement of 50 systems in the United States by the end of 2023 remaining very possible. We're also confident that we will continue to see an increase in recurring revenue Going forward, while capital sales from all U.

Speaker 3

S. Markets will remain lumpy. As I have indicated before, our main focus now is driving adoption of TELSA in the United States. I would now like to turn to the very well attended AUA 2023 Annual Meeting That took place from April 28 to May 1 in Chicago. Although Robotic prostatectomy and radiation are seen as the current mainstream technologies.

Speaker 3

It was very clear at the meeting that urologists are starting to view Our new ablative therapy, TALSA, as a potential alternative or a third major option. We performed live demonstrations to show how Tulsa employs real time MRI imaging and thermometry as well as directional ultrasound from inside the prostate, gently heating tissue to kill temperature without causing unnecessary cell charring or boiling that can result from other types of ablative therapies. Many urologists explicitly indicated that they're ready to lead the implementation of Telstra at their sites and that based on our demonstration, They clearly understand the clinical value of our gentle and fast ablation technology as well as its customization capabilities. They also indicated that they are more comfortable using MR even without a radiologic. Telstra is of particular interest Because of its ability to treat a large variety of patients, including oral gland or subgland or Focal and can thereby become a mainstream technology.

Speaker 3

As an example Of the increasing interest, Doctor. Dohr, the lead author of the Telcel Level 2A review article was specifically recognized by the Journal of Endourology on April 30 for his authorship as it was the most downloaded article over the last 12 months, further illustrating The medical community's interest in Telstra. Telstra was the subject of 4 posters at the AUA Meeting's Scientific program, one of which covered the pivotal TACT trial's 4 year follow-up data that was first shared in September. The second poster covered a real world outcome study of 180 men with recurrent prostate cancer and a subgroup with BPH, the largest single cohort presented to date. The results demonstrated That lesion targeted telcosa is associated with promising midterm Oncological outcomes and a minimal functional side effect profile with the flexibility To treat localized prostate cancer in primary, salvage or recurrent settings of DPH through a patient tailored whole gland or lesion targeted approach.

Speaker 3

The 3rd poster assessed 1 year complications in 206 patients, where 131 received treatment from focal ablation, either Tulsa or high school, and 75 received treatment with robotic assisted laparoscopic prostatectomy or RALP. This landmark study is one of the first to establish a head to head comparison between radical prostatectomy and minimally invasive therapies as well as the first source of Level 1 evidence that includes Tulsa. The study showed that Tulsa had lower complications compared to RALP and no Grade 4 complications like the 2 seen with RALP or IL-two. The final poster assessed the safety and efficacy of Telstra in men with BPH. Outcomes for the 27 treated in the study demonstrated that early symptom relief As 3 months was durable to 24 months, at 12 months international prostate symptoms, quality of life, Urinary symptom and urothelometry scores improved despite 23 of the 27 men discontinuing symptom management medication.

Speaker 3

These presentations Reiterated Telstra's safety, efficacy, durability and flexibility, which we believe will further drive Telstra towards becoming a mainstream treatment for a broad spectrum of patients with prostate disease. In that regard, if you haven't already done so, I encourage you to look at the current investor presentation on our website and Slide 16 entitled This is not just theoretical anymore. We're seeing it in the data from patients that have been treated in the commercial setting. While that slide includes all commercial patients since FDA clearance of telesopro, Let me provide some metrics for just those treated so far in 2023. With respect to indication, approximately 72% were treated for prostate cancer, 23% were hybrid patients suffering from both cancer and BPH and 5% are salvage.

Speaker 3

We're seeing a trend that Halsa is increasingly becoming used In patients who are on active surveillance or diagnosed with low grade cancer, but also have Symptoms of BPH. We believe that TELSA is the only minimally invasive option for such patients. For cancer grade, approximately 13% were Grade Group 1, 58% were Grade Group 2, 19% were Grade Group 3 and 10% were Grade Group 4 and 5. In terms of ablation, around 56% were homeland, 26% We're greater than 50%, but less than 100% of the gland and 18% were focal therapy, again demonstrating the versatility of our technology. For prostate size, Approximately 2% were less than 20 cc, 39% were between 20% to 40 cc, 34% were between 40% to 60 cc, 23% were between 60 to 100 cc and 2% were over 100 cc.

Speaker 3

Going forward, these are some of utilization metrics that we will be reporting on a quarterly basis. This real world data demonstrates Telxai's unique flexibility, which we believe Translate into an unrivaled TAM for us. Turning to our reimbursement strategy. I'm pleased to share that our CPT Category 1 application for Tulsa, which was sponsored by the Society of Interventional Radiology or FIR and strongly supported by American Urological Association as well as by several users who added positive comments to the application was considered by the AMA CPT editorial panel on May 4th. We're very satisfied with the discussion that took place and remain optimistic about the panel's decision and eagerly await The CPT application that was filed requests 3 codes.

Speaker 3

The first code It's for a procedure performed by a specialist such as a urologist without assistance from another specialist. The other two codes are for a procedure Performed by 2 physicians such as a urologist and a radiologist, We believe having multiple codes gives our physician users the flexibility to either do the whole procedure or collaborate and get reimbursed for their part of the service. The next step of the CPT application process involves the Relative Value Scale Update Committee or RUC sending questionnaires to Telcel users To determine the physician mark relative value unit or RVU Associated with the TELSA procedure, both the SIR and the AUA We'll be very involved in this process, which along with reviewers by the Center of Medicare and Medicaid Services or CMS will ultimately determine the Telstra procedure payment amount. The proposed recommendations are expected to be published in the federal register in August 2024, Finalized in October 2024 and come into effect as of January 2025. By that time, assuming our CPT application is approved and the preliminary results On this Level 1 CAPTAIN trial are positive, we anticipate a large installed base of 75 or more sites across the United States.

Speaker 3

With this major milestone now on the horizon, We're working to build a larger national sales team to close on our strong pipeline of prospects. In the meantime, we will stay focused on the CAPTAIN trial, which is the first ever Level 1, prospective, randomized clinical trial comparing the clinical outcomes of Tulsa with radical prostatectomy. Recruitment continues to progress as planned such that we expect to report preliminary results and particularly functional side effects such as EV and urinary incontinence in Q1 2025. To summarize, Urologists are looking for superior technology to treat prostate disease, and we believe that Telxai's ability to treat such a wide range of patients Safely and effectively will solidify as a mainstream treatment. We are very encouraged by the discussion at the AMA's editorial panel meeting That took place last week and look forward to the publication of the panel's Final decision regarding our CPT Category 1 code application in the coming weeks.

Speaker 3

Assuming the permanent code is approved, we believe that this combined with initial data From our ongoing CAPTAIN clinical trial, we'll be a significant catalyst for telco adoption in the United States beginning in the Q1 of 2025. At the start of that quarter, we expect to have 75 or more This ends our prepared remarks for today. With that, Rishet and I are happy to take any questions you might have. Operator?

Operator

Thank you. At this time, we will conduct a question and answer session. And wait for your name to be announced. Our first question comes from the line of Raul Sverangasser from Raymond James. Your line is now open.

Speaker 4

Good afternoon, everyone, Rishad, Steve. Thanks so much for taking the questions and congrats on the strong quarter. So my first question is that the CBD code that was considered by the AMA, assuming it is granted, Would it be applicable to BPH as well as sort of specifically given the broadening utility of Telfer that you talked about around?

Speaker 3

Yes. Good question, actually. So the way our Application written, they are for ablation of prostate tissue. So They do not specify whether the ablation is for cancer or for BPH reasons. That is for the physician or the surgeon to decide.

Speaker 3

And so our the advice that we have received So far from our legal experts who specialize in reimbursement is that these codes Are very likely to apply for both types of diseases. Now we will We work with insurance companies and so on as we go, but most certainly the codes at the moment, we believe that these Codes do not have to be revised.

Speaker 4

Great. That's very helpful. And then a follow on question from that You previously indicated that the temporary C code found is looking to expand to Ambulatory centers, could you perhaps give us an update on that, what the process is like and any sort of timelines associated with it?

Speaker 3

Yes, Arul, I didn't cover that in the prepared remarks. But we have Separate from this CPT activity, we have applied directly with CMS To expand the use of the C code at ASCs, as you know, there are over 5,000 of those In the United States, many of them already have MRs. And based upon the clinical data and the commercial data That we submitted to the CMS, it clearly shows that it is a daytime procedure. And because there is no incision in this procedure, the risk of needing a hospital in emergency is Very low. And so the meeting did take place in March.

Speaker 3

It From our perspective, did go well. The CMS will publish their proposed remarks By end of July or early August this year and finalize them by October this year. And if indeed they accept that our recommendation, that will actually become applicable as of January 2024. So the idea is that we are majority of our patients today are cash patients, But I think that we could be transitioning to using the C code more effectively As of January 2024 and then by 2025, if the AMA accepted the application, then The permanent code will be coming effective. So I think that's sort of the series of events that we're looking forward to.

Speaker 4

Great. That's very helpful and it's good to understand that sequence of reimbursement. And if you

Speaker 2

want to know just one last question.

Speaker 4

Of course, there is the balance My back of the envelope is about 15%. So could you give us a sense for the rate of increase quarter over quarter And how we should be thinking about that recurring revenue escalating, particularly given your guidance that you expect it to continue growing?

Speaker 3

Yes. I think that as if you remember from Q4 to Q1, the number of sites increased. And I think what you're seeing is increased usage. So definitely the number of patients being treated is increasing. And I think that going forward, the recurring revenue will increase due to 2 factors.

Speaker 3

One is that as the sites gain, the newer sites as they gain more and more experience, they will use the device more. Just like we saw a couple of years ago when we started, the sites that are 2 years or longer are certainly using the device more today. So I think you will see an increase partly because the sites will get more experience and they'll increase utilization. But We do expect that we will have additional sites coming on in the stream. We did sign, For example, with these 4 new contracts, we already had some existing contracts, so that we will be placing more systems in Q3, Q4 timeframe and that will increase the utilization as well.

Speaker 3

So I think the combination of the 2 Is the reason why I remain fairly comfortable that we will you will continue to see increase in usage and recurring revenue even in the 2023 year.

Speaker 4

Great. Thank you. That's all for me today, and we'll certainly be looking forward to that AMA decision on June 2.

Speaker 3

Sounds good, Andy. Thank you.

Operator

Thank you. One moment as I prepare for the next question. Our next question comes from the line of Michael Sarcone from Jefferies. Your line is now open.

Speaker 5

Thanks. Good afternoon, Arun, Rashid and Steven, and thanks for taking my questions. So do you think you could just give a little more color on the Tulsa system funnel And how you think installations could trend through the course of 2023? I think for Raul, you just mentioned placing some more systems in 3Q and 4Q, but would love to just get some more color on how you view the cadence through the year to get to that 50 systems that is still possible?

Speaker 3

Yes. Michael, I mean, we have a number of contracts. As I said, even in Q1, We signed additional at least 4 additional contracts. I think we will continue to sign those contracts. But I would say Part of the reason we've remained pretty comfortable with the number is that, as I mentioned, AUA this year Was particularly very well attended and we walked away with leads that are in triple digits.

Speaker 3

And so I think that given that new leads is a very large number, given that we already have pretty good Line of sight of what where those 50 systems are going to be installed, which includes a number of existing Contracts and we're just basically in the process of putting them in. That's kind of where the confidence is coming from. I think, Michael, the main theme, I guess, is that And ablative therapy as an alternative to existing therapies is now here to stay. And our technology is the most versatile of all of those. And as I mentioned in the Prepared remarks, certain types of cases such as those hybrid cases where they have Low grade cancer and their own active surveillance and they also have BPH, those patients really have very limited sizes.

Speaker 3

And so I think in this quarter, we saw an increase in the usage in that category or subset of patients. And so I think it's the trend is starting to sort of flow in our direction That certain types of patients will get treated more and more with this technology. More and more sites Are going to have to have an ablative option. I think that door is opening and I think The existing contracts and the pipeline is what's giving us the confidence, Michael.

Speaker 5

I got it. That's helpful and that makes sense and congrats triple digit leads. That's pretty impressive. And I guess just one more for me. I think last quarter you mentioned, one of the initiatives you have is kind of teaching existing sites, How to optimize reimbursement encoding and I think you might have mentioned 12 or 13 teaching sites that we're now Appropriately using your temporary C code to get reimbursement.

Speaker 5

Do you have any updates on how things there Are trending?

Speaker 3

I think that what I said last time still holds. At the AUA, there were a couple of sites that indicated in fact that Their administration has basically given them green light to treat particularly Medicare patients that where C code can be used. So I would say that statement still holds And the reimbursement itself seems to be sufficient that the sites Our administration doesn't feel that they are in any difficulty with the amount that they are receiving and they're We're, as I said, starting to see some of these administrations giving green light to their urologists to treat the Medicare patients with the CECL. So overall, I think, study movement.

Speaker 6

Okay. Thanks a lot, Arun.

Speaker 3

Sounds good, Michael.

Operator

Thank you. One moment please. Our next question comes from the line of Ben Haynor from Alliance Global Partners. Your line is now open.

Speaker 2

Good afternoon,

Speaker 6

gentlemen. Thanks for taking the question. Just a couple of few for me. On the CPT code applications, applying for 3 codes and kind of having the mix between The urologist, a single specialist doing it

Speaker 5

and then

Speaker 6

performing with assistance of another specialist. What's your expectation in terms of how often each of those codes as They've been applied for might be used, presuming that you ultimately get all of them?

Speaker 3

Yes. Ben, that's a great question actually. One of the things that at the AUA We heard repeatedly was that the urologists are increasingly comfortable and really want to take charge Doing Telstra all by themselves, they don't feel they need the Varyologics anymore, particularly those who have done maybe 20 to 30 cases are seeing that they're pretty comfortable with being able to read the images. And they are Very clear in terms of what their role is versus what is the role of the realist in terms of diagnosing the patient. And when you're diagnosing the patient, you're looking at the cellular structure versus when you're treating the patient, you're looking at the boundaries of the prostate, You're looking at the vital organs, where is the urethra, where is the nerve bundles, where is the ejaculatory ducts and how do you save those And how and where is the cancer compared to those?

Speaker 3

So they are really addressing entirely different set of Questions in the treatment process as compared to the diagnostician who is really looking at whether or not there is cancer and if there is cancer, What grade of cancer it is, they're less concerned about where it's located. So number 1, I think that The urologists are really, really ready to take charge. And so on that basis, our thinking is that As this product goes more and more into community hospitals and suburban hospitals and so on, outside of teaching facilities, Our expectation is that urologists will do this procedure all by themselves. And in that case, they will use that code all for themselves. Now in teaching sites, what we have seen so far is that they love collaborating because their models, they are different.

Speaker 3

They Typically on salaries, the hospital actually likes that collaboration these days. And so There, we've sort of divided that up. And so I think that's the best expectation that we have is that in those teaching hospitals, they will be able to use both codes and collaborate and do unique cases and so on. By doing so, whereas in the Community or suburban hospitals or private practices, I think urologists will do the whole thing in the future.

Speaker 6

Okay. So it kind of depends on sort of the

Speaker 2

type of possible facility. Yes.

Speaker 3

Exactly. Yes, the type of facility. I think you've probably seen that. I know I've seen that in my past in other And Vardance, when there is a new technology, they will bring a second specialties to help them with certain unique aspects. And I think having these separate codes Makes it easier for them to invite the 2nd specialty to do that.

Speaker 3

And I think if anything, it will help During the early phase of the Tulsa development.

Speaker 6

Okay. So I mean, it makes sense and Why they would do it the way that they do it and hopefully you get all of them so there isn't anyone that feels left out. And secondly for me, look at obviously you had a great a lot of great data at the AUA that got presented. I noticed the Alta Clinic real world data, at least for the side effects, it looks Better than CAC does in a lot of ways. Is that mainly just attributable to Not doing the whole plan or is there more to it there?

Speaker 3

There is. There is a lot more to it. And this is The Constant team and this is why I'm beginning to feel fairly comfortable that this technology should go into the mainstream. Because when we did the TAC trial, we were governed by the FDA requirement to do whole grand therapy versus in the real world, we are seeing constantly that They are making the decision on what's best for the patient. And in some cases, they have they are doing whole brand, which is over 50% of the time.

Speaker 3

And then they're doing between 50% to 100% in some cases and then they're doing truly focal clarity, which is very small portion of the blend and small percentage of patients. And I think that flexibility is the reason why You're seeing actually better outcomes in commercial settings as compared to the clinical trial because those were all whole gland Therapies that when you get to that whole gland, you end up in a higher risk situation, whereas with these partial glands, you can Saved a lot of functions even more carefully. So, and I mean, part of why I feel really good about this that if you Think about radical prostatectomy. The only choice that that surgeon has is to remove the whole gland versus with Telstra, they have the choice of killing the whole gram or killing the partial gram, whichever is best for the patient. So I fully expect that over time that theme will become stronger And I think that's what the patients want and I think that's what's resonating with the urologist community.

Speaker 6

Okay. Got it. And then lastly for me, I know at a recent conference you kind of mentioned, how docs are going The families after a procedure and saying, look, I've taken care of the cancer because I can see it on the imaging, so I'm real confident that I got it. Is that something that most docs are going to the families right away on? Or do they have to do a handful of occasions before they're comfortable and saying, Yes, I'm real confident I got it.

Speaker 6

Or what's the right way to the behavior change that happens there? How

Speaker 3

Yes. Ben, that's another very important point actually. They do that right away.

Speaker 2

Okay. Well

Speaker 3

One of the things that we have not talked about is the fact that at the end of the procedure, Because they're dealing with the MRI, they know exactly what tissue they have killed, because they can see it on the images and they can make a printout of that image. So any tissue that no longer has blood flowing will show up as dark And it is not only that they immediately know the quality of the work they've done. The other part of this is that in case they did miss and they feel like, hey, I need to kill another layer of cells because I missed it, They can actually do that before they wake up the patient. So that Feature is starting to also become really important to them that gives them confidence to say, okay, I know I have done this or Hey, I left something and I'm going to fix it before I wake up the patient. And they can then easily go to the family and say, here's the image.

Speaker 3

Here before the procedure, you can see this large prostate and here is dark prostate and they can actually start projecting The rate with which that prostate will start to shrink and how the patient will if it's both hybrid like PPH plus Cancer, how they will start to actually gain their urinary symptoms back pretty quickly and certainly they will do an Image later to confirm the cancer, but they certainly would give the patient pretty good confidence. And I think that's a driving factor for patients.

Speaker 2

Yes. I mean,

Speaker 6

it makes sense that they would do that. I

Speaker 3

just wanted

Speaker 2

to add some color there. Like I mean, what Wurm was talking about, Holstapro actually has a very robust reporting tool that we don't talk about. But once the procedure is done, The physician can actually out a very good before that can begin to the physician that shows what was done And what is the outcome? Okay, great.

Speaker 6

Well, thanks for the color guys and appreciate taking the questions gentlemen.

Speaker 3

Thank you. Thank you.

Operator

Thank you. One moment as I prepare the next questions. Our next question comes from the line of Joshua Jennings from TD Cowen. Your line is now open.

Speaker 7

Hi, good afternoon. Thanks for taking the questions. I wanted to follow-up on the last one of your last answers, Arun, in just about The building of patient demand, I mean, I think we're getting closer and closer to early 2025, we will have CAPTAIN data under your belt, you'll have reimbursement in place. And there'll be a lot of advantages for Tulsa Pro treatment, but you'll be going up against behemoths Radiation oncology and prostatect, we particularly robotic prostatect. But patient demand could be an X factor in terms of allowing you to capture a bunch of share.

Speaker 7

Maybe Sure. With us, where do you are you seeing a lot of just patient direct patient inquiries from word-of-mouth? And how does your team plan to build, I guess this patient demand aspect of as we head out towards that 2025 period.

Speaker 3

Yes. Josh, you're absolutely right. We are very, very aware of the market that we are playing in. And we do we have a very strong direct to marketing strategy that is playing out very well. In fact, about what we are hearing from many sites that at least a third of the patients that they We asked for Telstra Biden name already.

Speaker 3

And I think As we get to the official word on the CPT and so on, we think that that Course will certainly become louder because there are certainly most patients who are Able to pay the $30,000 plus they are doing it, but I think there are a number of patients who are basically waiting for the insurance Or the CMS, the Medicare plans to kick in. So I do think that the patient education is a large Part of how we plan to gain adoption. The other side of this, I think there are 2 other factors that I think are also equally important, if not more important. And those factors are that we're also giving The urologist, a tool that they don't have today. It is not like having one type of robot and Another type of robot that they can buy is still a robot and it still will do whole blend removal.

Speaker 3

But in our case, we're giving them a choice that if the patient does not need whole Gland So they can actually treat partial Gwen also. In fact, they can make that decision on the fly. They typically do in fact make that decision on the fly of how much of the prostate and which part of the prostate should they be taking out. So I think that flexibility has no competition, quite frankly. And as I mentioned in the prepared remarks, there are well over a 1000000 patients that are on active surveillance in the United States.

Speaker 3

So these are patients who have been diagnosed with Low grade prostate cancer, they're not being treated because of the side effects of the current treatments, but those patients also have BPH. And that patient population, as I said, have very limited choices today. None of them are good. And so I think it's a combination of the flexibility and being able to treat certain subset of patients. I think even if we just get that, I think we will be one of the 3 mainstream technologies.

Speaker 3

So I hope that addresses your question.

Speaker 7

Absolutely. And I wanted to just one follow-up. Sorry, if you've spoken about this already on this call, but Just thinking about the TAC data, the CAPTAIN trial data, but just overall efficacy of Tulsa Pro and how BOOST could Improve efficacy on the margin. Is that something we should be thinking about and our clinicians thinking about

Speaker 1

that as well? Thanks a lot.

Speaker 3

Yes, most certainly. We did not talk about it today, because we had talked about it in the last quarter. But the thermal boost capability that allows them to make sure that the margins are clean. Basically, that's the bottom line. The margins are clean by doing so.

Speaker 3

And that itself Gives them assurance and again, because they're using the MRI, they can actually see that as they're performing the procedure versus if you're doing robotic surgery, it is well accepted that 20% margins Are not clean, but the physicians don't know that when they're doing a procedure, unless they take sample of the margin and they send it to the lab and it takes So in our case, if the suspect that the margins Are involved, thermal boost is a great way to do it. In Europe, where thermal boost is Available has been for about a year already. What we find is that about half of the cases being done In Europe, are actually using the thermal boost capability of our product. So it is we already know it is being It is very useful. We already know that it will be give the urologist a lot of confidence and we already know From the data that was presented at the AUA that because of these capabilities that the Commercial patient clinical outcomes are actually superior to that of CAT.

Speaker 3

So We are in FDA process. I think that we will get it done by end of this year, this thermal boost as well as The AI capabilities that we announced in the last quarter, and I think those in the 2024, 2025 timeframe We'll also help with adoption terms.

Speaker 7

Excellent. Thanks for that Arun.

Speaker 3

Thank you, Josh.

Operator

Thank you. One moment please. Our next question comes from the line of Frank Tekkenin from Lake Street Capital Markets. Your line is now open.

Speaker 8

Hey, thanks for taking the questions. Last quarter, I think you were speaking to a backlog building for some of your users of up to 3 to 4 months. Can you speak to that dynamic and if that continues to be the case and if there are any specific bottlenecks to Working through that backlog or if you think it's going to be kind of a rolling backlog on a go forward basis?

Speaker 3

Hi, Frank. Yes, I think that in some of the teaching sites that backlog continues And a couple of sites since that quarter have gone through administration and They have been allotted additional MR time because in at least one of the hospitals they have grown to 6 months and so they have been Able to add MR time and reduce that backlog to about 3 months. And I think there's another hospital that just got Agreement with administration to add an extra day to kill that backlog. I think that dynamic Certainly, it's one of the reasons why we're starting to see increased usage in the existing sites. So yes, for sure.

Speaker 8

Okay. That's helpful. And then just wanted to ask for kind of a broad characterization of the broader environment. I know there's Some elements over the last couple of years, macro related that have made installations challenging or at least predicting the timing of those installations Challenging. Can you maybe speak to how you feel the environment is right now and how that's playing into your Cadence of quarterly placements throughout 2023?

Speaker 3

Yes, Frank. Good question. So we do have maybe 3 sites where they have ordered MRIs and the Timing of delivery of those MRIs have been in question. And at this point, We are certainly getting the feedback that there is there are that our customers are getting definitive answers. And I think all those three sites are likely to be operational well before the end of this year, more likely than not in Q3 this year.

Speaker 3

So I do think the environment is getting better and we are getting much better feedback in the U. S. I think the environment in All U. S. Is still a little bit unpredictable, particularly in Asia, but I think certainly the U.

Speaker 3

S. Is starting to get on stream.

Speaker 8

Okay. And then maybe last one, I think last quarter you mentioned Captain was about 25% enrolled. Can you update us on that figure?

Speaker 3

Frank, I don't have the exact number. It could be on purpose try to keep that inside the Clinical team, but I think that certainly we are recruiting at a reasonable pace and the number of sites We'll actually increase by about 4 to 5 sites by end of this year. So we are getting more and more into that and we will probably be in the neighborhood of about 14 to 15 sites in the next 3 to 4 months. So I think the recruitment will Actually continue to improve, Rick and Maria will continue to improve. So I'm sorry, I don't have the exact number, But I think that the recruitment, I mean, I do think that we will be able to finish recruitment sometime by middle of next year.

Speaker 1

Okay, got it. I'll stop there.

Speaker 8

Thanks for taking the questions.

Speaker 2

Thank you.

Operator

Thank you. One minute please for our last question. Our next question comes from the line of Bhavan Ghajan from Gaggen Securities. Your line is now open.

Speaker 9

Well, that was close. Hey, Arun. I missed The beginning and part of it, so I just want to make sure I get this correct. Your burn was $3,500,000

Speaker 2

for the quarter of cash.

Speaker 3

Is that right? It was a little bit higher than that. I think the burn yes, go ahead, Rishabh.

Speaker 2

I could say it's actually about $5,500,000 but we took in $2,400,000 from Wiretex or Sons, Brian.

Speaker 9

Okay, got it. And you said that you signed at least 4 new contracts in the Q1?

Speaker 3

Yes,

Speaker 9

Okay. So it seems to me and actually last thing before I ask a real question. The gross margin in this quarter, did I have this right that it's 65%?

Speaker 2

Yes.

Speaker 9

Is that a normalized number going forward or was there something special in there that made this quarter look terrific?

Speaker 2

In the product mix, Brian, so like we do have capital revenue from Tulsa Pro sales this quarter And that one is fairly high margin as our cost is low for that one. But average, our recurring revenue is between 50%. And as we said before, we will continue to see that going better as the volume increases.

Speaker 9

Okay. All right. So my real question is, you guys are a small company and it seems like all roads are marching to 1125 To get reimbursement and possibly 1124 if you get reimbursement in the ASCs, How do you structure yourselves to be able to handle the installation bolus that I suspect you'll see If you get these reimbursement, because docs are going to want to be trained not when you get the code approved, but ahead of time, so that they're not doing the first patient and saying I've done one, they want to have 40 or 50 done before January of 2025. So how are you guys thinking about Growing your installation team, your sales team, your clinical team to really drive towards having a Big installed base and big user base by the time you get there.

Speaker 3

Brian, 80% of my time right now is spent on that question, because I think we have to be ready for this. And so I think a couple of things. One is that Given that this has been a game changing product, quite frankly, it took us some time, what is the best way to structure Our sales team, how do we what's our messaging? How do we present the clinical data in a very comfortable way? How do we educate Our sales team and prepare them to make sure that they provide the proper information to our Customers and potential customers.

Speaker 3

So that certainly is something that we addressed late last year and we have a Fantastic team that educates our people and we're very, very pleased with the way they have done that. But the other question is not only scaling the sales team and the Service team, but also how do we educate the urologists to make sure that they can get up and running at a good pace. And I think on that front, there are a couple of Urologists who happen to be actually robotic urologists today, but have indicated that they will be Flipping primarily to Tulsa as the reimbursement codes become effective. And so they are actually preparing training programs where they will in fact be able to provide urologist to urologist trainings. And so my expectation is that there will be at least 2 more likely 3 sites, 1 in the West Coast, 1 in the East Coast, both Southern and then 1 in the Midwest or Northeast.

Speaker 3

And that we're quite excited about that because we think that the best type of training For urologists, it has to be from existing urologists who are doing it. And so they will basically invite the urologists to their sites and they will educate them. So that's kind of our plan. We have Structured our sales team for hunter gatherer models. So there is a team that is focused on utilization.

Speaker 3

There's a team focused on new sites. And then we as you know, we have a clinical genius team that will continue to perform and we're looking to scale all of it at the moment. We have quite a few sales positions open, in fact.

Speaker 9

And can you do this without really increasing your burn very much, You guys have been pretty frugal with the money recently.

Speaker 3

We think that In the long run, this is a very efficient business model, because we get over $8,000 per patient. And as you know, the margins are decent already. I think that we think that Sales people in a company like ours will have a return of 12 months or less. So if you look at a 12 month Has visibility? I think so.

Speaker 3

If you look at quarter over quarter, I think, yes, we're adding people right now and we may have Some increase, but I think it will start to come back as the salespeople begin to convert their efforts into revenue.

Speaker 9

They're going to have to, to go chase those triple digit leads from AUA. Last kind of piece for me. Are you still kind of comfortable that you can get to those 50 installs by the end of this year?

Speaker 3

Yes, I think so. Because as I mentioned, we have We signed 4 additional contracts in Q1. We have at least a few more that are only contracts. And then with this lead and even without these leads, we have enough line of sight. So I think 50 is fairly reasonable number to get to this year.

Speaker 9

Okay. And then slightly bigger picture question. Do you have any sense and maybe you said this already during your comments, do you have any sense as to what Type of payment might be made if the CPT is fully approved, like dollar amount?

Speaker 3

Yes, yes, dollar amount. I guess, with respect to what the payment might be, I think the best surrogate, Brian, is the current C code. That C code, Because the analysis is kind of similar in one sense, because it's the payment amounts typically are cost plus And the C code payment is cost plus as well. And if you look at 2022, the C code was paying national average about 12,500 and it went up about 5% to $13,050 And it was only because the primary use of that C code is because of Tulsa and the costs Increase reflected the cost of the TELSA procedure. So if the analysis stays the same And CMS does it the same way they're doing it for the C code.

Speaker 3

That is probably the best surrogate information that I think We can look at it. Based upon what the hospitals are charging and What their conversion codes are and so on, that seems like in the realm of possibilities.

Speaker 1

Okay.

Speaker 9

So can the doctor make more money doing this procedure than he can doing anything else in prostate cancer? I know it's better for the patient and everything, but you

Speaker 3

can't Yes. I definitely think, Brian, that we will be in the competitive range. Is it going to be better Or not. I think we're definitely going to be in competitive range is what I think at least. And Certainly, it's a procedure that is much more comfortable for this surgeon to do.

Speaker 3

There are certain sites like doing 3 Procedure is with large prostate is fairly routinely done today for some of the sites have done for So I think that for them in terms of better scheduling easier on their So that they can actually do more procedures, I think so. If you look at that overall picture, I would guesstimate that we will be compelling.

Speaker 9

Well, because if a doctor is doing prostatectomy or open, he can really only do about 2 of those in a day, correct?

Speaker 3

Yes, exactly. Even robotics, typically they're only doing 2 per day. In some cases, they're doing 3. But yes, I think from that perspective, we will be competitive.

Speaker 9

Good. All right. Thank you very much. Appreciate it.

Speaker 3

Thank you, Brian.

Operator

Thank you. At this time, I'd like to turn it back to Doctor. Menawat for closing remarks.

Speaker 3

Thank you so much. And thank you for the time you spent with us and look forward to reporting on the Q2. Thank you.

Operator

Thank you for your participation in today's conference. This does conclude the

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Earnings Conference Call
Telesis Bio Q1 2023
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