Good morning, everybody listening. I'd like to welcome you to day two of the Stifel Healthcare Conference. My name is Rick Wise. I cover medical technology for Stifel, one of a larger group of folks covering med tech. Excuse me. I'd like to welcome our 2 first speakers this morning. I'd like to welcome Profound Medical, specifically to my left, Arun Menawat, Chairman and Chief Executive Officer at Profound, and to his left, Rashed Dewan, Chief Financial Officer. Thank you, gentlemen both for joining us today. I've had the great good fortune to know Arun since, I should have asked you again, 2008, 2010, somewhere in there, when he was chairman of Novadaq.
You may recall in the mid-2017, 2018, Stryker bought Novadaq, and I was just at the Stryker analyst meeting. Just to set the stage for all this, I was just at the Stryker analyst meeting last week, and they were talking about their 1788 latest iteration of their really superb endoscopy division. It was clear as they talked about the technology, that the foundation of that technology, the foundation of 20%+ growth in this product line for a decade or more, and all their share gains was really totally predicated on the foundational technology that Arun sweat, blood and tears over and developed and brought to the world. So I was thinking of you, Arun, and congratulations-
Thank you.
On that. Today, Profound. Tell us all about it.
Perfect. Thank you. Thank you so much, Rick, and I'm so excited to be here, actually. Profound is another game-changing technology, and I'm going to go through this, some of the details. But very quickly, you know, robotics is here, and everyone talks about how robotics has penetrated maybe 5, maybe 10% of the total potential market. You see today, Medtronic, J&J, they are all looking to have their own robot, and they're coming out with these robots. You know, my message to you is that this is actually the next wave. What we are working on is actually the next wave, because what we're bringing in is incision-free robotics. When you read our tagline, with vision, we use a real-time MRI to treat our patients.
The fundamental message that I have for you is that, you know, when patients, and, and prostate, obviously, is our first application, but when patients undergo diagnosis for cancer, for prostate cancer, and generally any cancer, they always undergo an MRI, and MRI is treated as a, one of the, most important testing to diagnose the patient. If you're using the MRI to diagnose the patient, why would you not use the MRI to actually treat the patient, help the surgeon see where the disease is, help the surgeon understand the boundaries of the disease, and really treat with far more effectiveness than you can with the robot? Robot is always going to have to drill holes. With this technology, there is no—there are no drilling holes.
It is completely incision-free, and I'm going to show you how it really, really changes the game in terms of what really matters. So just to help you see what the disease we're focusing on, the schematic at the top right is the prostate, sort of a little bit blown up, but there's a bladder, and then the prostate sits between the bladder and the urethra. And the urine flows right through the center of the prostate, and the ejaculatory ducts, they merge with the prostate in the middle of the prostate. And the nerve bundles that control the erectile function or incontinence, so on, are underneath the prostate, very close to it, and in a very congested space. And then the muscles that control the urination are right at the apex edge or the outer edge of that prostate.
So it's a congested area. And when men get prostate cancer, there are really two ways of treating. One is to simply surgically remove the prostate and pull the urethra all the way to the bladder. And you can see the congested area. You automatically then remove those ejaculatory ducts. You're pulling all this. You're completely changing the way urination happens. And those nerve bundles that are underneath, more often than not, are cut, and thereby the patients lose their functions. So the second method is to kill the prostate in its place, and there you use radiation. And as we all know, radiation is not the most precise energy source, and so you end up with multimillion-dollar robotic equipment that all sort of moves the radiation all around in multiple places, and thereby, you know, you kill it.
But the problem, again, is you're really killing that whole region, and after a couple of years, people end up with even more difficulties related to incontinence or erectile dysfunction. So the current treatments are most certainly not adequate. And there are other methods like active surveillance, which is basically designed that if the patient has earlier-stage disease, you know, don't do anything because they'll actually die from some other thing, and these treatments are so invasive today that it's not worth doing, which is kind of sad. This is just very quickly, the data that's one of the most seminal publications on the current technologies, that basically shows that 20% of the patients have urinary incontinence if they do prostatectomy, and about 50% have erectile dysfunction, and radiation is sort of in the same boat.
So when this publication came out about three years ago, and the title of the publication was "Robotic Prostatectomy Is Better Than Open Surgical Non-Robotic Prostatectomy," you can see the large number of patients. But what is interesting is you saw that 20% and 50% that I mentioned before. But the reason the article said it was better is because it was lower blood loss, less blood loss using robotics, and there was about a day less hospital stay. So that was the reason they used to sort of say, "Hey, this is a better way of doing it." Not clinical value, not side effect value. But with the technology that we've developed, we're basically taking it from low blood loss to no blood loss. We're taking it from less hospital stay to a daytime procedure.
So it's not just about robotics or the fact that we're to the vision part of this, it's really the point is, this is going to affect things where it really, really matters, and that's why I'm so excited about this technology. And so not just that we are moving the ball to this next level, but we're also, with our clinical data, demonstrating that we're significantly improving those side effects, that our urinary incontinence is 1%, our erectile dysfunction is, in fact, severe dysfunction is zero, minor dysfunction is about in the 13%-14% range, but those patients actually respond to drug therapies. So we're making a significant change.
Another thing that we're that I'm really, really positive about is, at the end of the procedure, you have an image of what you have actually killed, the prostate that you've killed. So the physician who, or the surgeon who's doing the treatment can literally take that image, talk to the patient, and tell them, "Hey, 95% confidence that this prostate has been treated properly." So that level of predictability you cannot get with today's any of these today's surgeries. So the point I'm making is, we're not competing with these big robotics things. We are really moving it to the next level. And so what is the technology? So of course, as I mentioned before, we use an MRI. So we actually place the patient in the MRI to do the procedure.
We insert a catheter that you can see, it's called the ultrasound applicator, right through the urethra into the center of the prostate. We also insert a tube in the rectal cavity, and both of these tubes have water flowing through it during the procedure. So the urethra that I showed you before, that epithelial layer of the urethra is completely maintained to be the same. It's completely natural. So one of the things we hear from our patients is, "You know, my natural urination is completely natural, no change." The rectum, we keep it cold just to keep it safe, and we have zero rectal issues in thousands of patients we have treated so far. The way our technology works is that it gently heats the tissue. It's kind of like a thermostat.
You heat, you measure the temperature from the MRI, so we know real-time temperature from the MRI. We send sound waves. This is not some kind of a focused wave or anything. This is just different frequencies of sound, very intelligently go in, and as the sound travels through the prostate tissue, it gets absorbed by the prostate tissue, and that absorption creates the heat. So there's nothing else in terms of technology like that in the market. And that gentle heating is such that we have automatic, autonomous robotics, where the software kind of drives everything, and when the temperature hits kill temperature, which is typically 55 degrees centigrade, it automatically stops. So the surgeon's role here is to insert those tubes. The surgeon's role is to design what prostate needs to be killed.
So they look at on the MRI, they can see the boundaries, they can draw those boundaries. Once the boundaries are drawn, it's all autonomous robotics. And when the procedure is done, 2-3 hours later, you take the tubes out, the patient goes home. And many of them... You might know, I was one of the early patients of this technology, so I know how easy this is. People go home in the afternoon. Majority of patients will have fine dinner with their family that evening, and they're up and about the next day. So obviously, it's very game-changing, so we did a big trial to get FDA clearance, which happened in 2019. We started marketing in 2020, and we have now been established.
The AMA has approved the CPT Category I codes, which will become effective January 2025. So during this interim period, we are marketing. Majority of our patients, over 70% of our patients, are cash pay, and they're paying, believe it or not, $35,000 now to get the treatment done. And we have many sites running. I'll talk about that. So just to give you a quick idea of how the workflow happens, patients come in to the MR suite, we insert the tubes, we put the patient in the MR. They are sleeping. They're anesthetized. The treatment planning phase is really the main phase for the urologist, where they draw these lines. You see that as red lines here.... And then once they have done that, they will do that in these cross-sectional images.
Once they've done that, the treatment part is completely automated. They watch the screen, but the reality is, they have the ability to, quite frankly, drink coffee or have their lunch or answer email while the treatment is going on. Because, as I said, once you go from low incision to no incision, there is no scrubbing. If something goes wrong, you can turn the MRI off, you can remove the tubes, and you can wake up the patient, and they can come back the next day or whatever. So it's a huge change in terms of the value to the workflow, to the patient, to the physician. Very comfortable procedure. And then, as I said before, the last step being the confirmation step, which is a another critical thing, that they know exactly what have they ablated or killed.
If something, if they've left a cell or two, they're able to actually go back and fix it before they wake up the patient. Sure.
What setting is this performed in?
It's in terms of setting, meaning MRI or-
Yeah. Is this in a hospital? Is this in a surgery hospital?
That's a great question. So the question is: Is it in the hospital or so on? So at the moment, we have a number of leading hospitals that are using it at the MRIs of the hospitals. But because it's a day procedure, I think once the CPT code is in place, our expectation is it's gonna be in outpatient places. The physicians can buy these MRIs, they can install them in their own practices. But imaging centers, where there are only outpatients, a number of our systems are actually at imaging centers. So, and they are all over. I mean, there are 5-10,000 of these in the country. So very easy for people to go and get it done. So this is just an example.
You can see the top line is where the cross-sectional images are. The yellow colors are, lines are where the boundaries are, the surgeon has defined, and the yellow color in the middle is the, that 55 degrees. The blue color is the body temperature, and you see the little bit of that red, which is the, just a little bit of gradient. But what's interesting about this absorption technology is the gradient in temperature is actually very small, and the center where the sound is coming out of is actually at room temperature. So it's, it's very different heating mechanism than anything that is in the market. And at the bottom, you can see all the dark colors, which is, which tells you it's all dead. So we can now basically define exactly what the right treatment is for each patient.
So this particular patient, there was no cancer in the ejaculatory duct region. The surgeon had basically saved the ejaculatory duct. This patient comes out, has no problem with urination, no problem with erectile function, and no problem with ejaculation. It's like, as if nothing ever happened to him, except that there's no more cancer.
Wow, okay.
Right? So that's what we're doing, and it's happening today. This is not a vision. This is real today. Another thing that we learned, because the new technology, that we can treat the whole gland, which is the standard of care today, is to remove the whole prostate, because prostate is a capsule, and cancer may be visible in only parts of it, but there are cancerous stem cells that are in the rest of the prostate. People are more comfortable that it won't come back if they're treating the whole prostate. We can also treat patients who fail radiation, and I didn't realize early on how big an unmet need this is, because those patients who fail radiation, they cannot get a prostatectomy.
A number of the procedures that are used today, they basically virtually almost guarantee that these patients will have all these other side effect problems. So with this, they can insert our tube, again, treat them. Because it's all software driven, the boundaries can be unusual in shape, and our software can manage it. The new idea of using it for sub gland or partial gland or what they call focal, is very possible as well, because if you just draw the lines in that part of the prostate, if it's really an earlier stage disease, we can do quarter gland of the prostate.
And there is some data that suggests that if we can, you know, do quarter gland or half gland, that the likelihood of cancer coming back is little bit less, even though all the data that I've seen is partial gland, you still have high likelihood of cancer coming back in the other parts of the prostate over time. There's another group of patients that, that where this is really resonating, and this is a group of patients that they have enlarged prostates, they have BPH symptoms because of that, but they also have cancer. And so we're actually the only treatment that can treat that type of patient, where we can take care of the transition zone, which is what typically causes the, BPH symptoms.
But we can also, while we're there, make sure that any sign of cancer can also be taken care of. So over the last 3 quarters, we've actually watched a number of the patients, the percentage of patients who are undergoing this treatment, actually growing at a faster pace than other types of patients. We're quite excited about it 'cause we can actually give them confidence on both of these diseases in one shot. There's a large group of these people who've been sitting for years, and they are looking for a treatment like this because there is nothing else like this. Then we also find that because we're in the center of the prostate, we can treat these prostates, whether they're large or small. So we don't have the limitations.
Typically, the larger the prostate, the harder it is to treat by almost any technology. But because, again, as I said, we're in the center of it, so we can treat them pretty, pretty, pretty easily. So I'm gonna go through some of the clinical data relatively quickly, since I've already talked about it. But really, our TACT Trial was our first main trial, and our data is fantastic. Five years, our outcomes are similar to robotic prostatectomy outcomes, but our incontinence and erectile dysfunction data is an order of magnitude better. But the other thing that we learned was that because of that gentle heating, and heating tissue only to kill temperature, the prostates effectively get they shrink. So the body doesn't kind of feel like something unusual happened, and so it just reabsorbs that dead tissue over time.
So the TACT data showed that the median shrinkage of the prostate was 92%, which means that effectively, we've done a prostatectomy, you remove the prostate over time, and if you look at the last image in the bright color in the center, that's the bladder behind the prostate. So the only part of the prostate that remained in this particular patient was the urethra, which is the functional part. The rest of it is gone. So it gives people confidence about the durability because they can actually see what's going on here. This is another very important page for us because this shows the real data, commercial data, of the few thousand patients that we've treated, what type of patients are being treated right now. And it sort of helps us understand the potential of our company.
And what was interesting is that majority of our initial data was an intermediate-risk patient. But if you look at the bottom line, the grade, where you can see Grade Three, Grade Four, Grade Five, Grade Group four, five, these are late-stage diseases, and the surgeons here chose to still use TULSA as the technology. And when we talked to them, we've actually upgraded a few things to make sure that this grade of cancer is enabled even more, and that is very interesting to us because we want this to be a general-purpose tool for everyone. Same thing on prostate size. We can treat very small prostate to very large, the largest prostates. Another interesting thing we found was that ablation, because we give them that flexibility, that prostatectomy or radiation typically doesn't, because you have to do only whole gland.
In our case, 60% of our patients are whole gland, about 25% are 50%-95%, and then we do have a few small percentage of patients that are focal or quarter gland or less than half of a gland. So that flexibility basically says, you know, if I'm a urologist, I can kind of use this as my main tool, and I can treat a large variety of patients. And in the top line, you can see under indication, prostate cancers are number one, treatment that we do, but that the other part, types of diseases is, that section is growing at the moment.
I'm really very pleased to see this, and as I said, we don't, we don't go to the urologist and we say, "Do whole gland or do partial gland or do high risk or low risk." We educate them on technology. That's what our job is. This is what they're choosing to do, and that's what sort of gives me more confidence about driving adoption of this technology. And so we've sat down with our advisory group. We've put together... You know, we've asked the question, "What's your sweet spot? Where is this going to be used?" And I won't go through the details, but it's actually a pretty broad variety of patients that they think they can treat with this technology.
So on the basis of this, which is real commercial data, and the fact that we charge on a per-patient basis, $8,000, we think that our TAM is as high as $4.8 billion. And I realize that's a very large number, and I realize we're at early stage, but the point that I think is interesting is if we could be treating 10- 20,000 patients, you know, this company can scale quite rapidly because $8,000 per patient is a fantastic price point. And so 20,000 patients means $150 million+ revenue, and our margins are already pretty good. So our business model is to sell the disposable, those catheters that I showed you earlier. The hardware is actually fairly straightforward.
We have a motor that is MRI compatible, that is basically robot, so everybody wants to use the word robot, so that's good. But the real trick in our technology is in the software. So the hardware costs about $60,000 to manufacture, and we place the hardware 'cause the payback on that is typically 10 patients, and we really don't place anything unless we have pretty good visibility of 10 patients. That's not hard to do. But what we have done so far is we basically provide what we call complete services, meaning we place the hardware, we educate the whole staff, we provide the disposable, we provide all the upgrades, because technologies like ours, they move. We learn a lot. We change the user interface. We've made quite a few changes.
At this stage of our company, we don't want to go out and charge $5,000-$10,000 here and there. We, we basically say, "You pay us $8,000 per patient, everything else is covered." We have a great services on clinical side, where we work hand in hand in educating them and working with them to make sure that every patient that is treated is treated well, and that is why we have amazing number of patients who are thrilled. We're number one on social media because these patients blog about our technology, which we're very pleased to see.... So for the long-term scaling of the company, we have been working on reimbursement.
We're very lucky in the sense that, CMS provided a temporary code that is paying about $13,000, not heavily used because physicians do not get paid when C- codes are used, but that some of the teaching hospitals are using the code and they are getting paid. You may have seen recently, even that expansion has happened to ASCs, which are day procedures, to your question, that just happened a week or so ago. But majority of our patients are, in fact, cash pay, and we don't find that that's a major limitation, in fact. But the CPT codes have been established, and they'll become effective in January 2025. So our market entry strategy was: let's go to the early adopters, which we have accomplished. Let's go to top-tier hospitals, which we have accomplished.
And then we've also made partnerships with large companies like RadNet and HALO. These large companies like RadNet have, they have 300 centers that, where they can be treating. They have put in a couple of systems because they want to make sure that they're fully educated, and, and all the new workflow, they can work through it. But once the CPT code comes in, then I think you can start to see scaling at these sites. So the commercial agreements are in place to be able to start scaling in 2025. The number of sites is increasing. Our recurring revenues QoQ are increasing. You can argue the rate. We think we're in the 50%-60% rate.
At the moment, the numbers are, you know, just below $2 million, but we think we'll exit the year with that $7-$8 million run rate. Next year should be better. Our gross margins have already stabilized at just over 60% already. We think as the company scales, we'll get to 75%+ margin business, and we think over the long haul, outpatient centers, where this can be done in a day procedure instead of hospitals, is where this is going to scale. Our costs are generally well managed. You'll be able to see that with our numbers. So our focus at this point is, number one, on growing the install base, 'cause the far bigger the install base, the more ready we will be as the permanent codes come in.
We're continuing to work with the CMS and drug committees and so on, and our physicians to make sure everything comes along well on the reimbursement codes. We are also sponsoring a trial called CAPTAIN. This CAPTAIN trial is about directly comparing TULSA procedure to robotic prostatectomy or radical prostatectomy, which will provide the surgeons phenomenal, direct level one evidence to drive utilization. And then we've embarked upon what we call TULSA- AI initiative. So, as I mentioned, we're more about software. This is just very quickly one of the things that, to the question you asked, our CPT code is going to be applicable at all kinds of different settings, more than any other technology is allowed today.
And we also have qualified mobile MRI, where we can use mobile devices for those who want to use it, you know, one week, a month or so. So that flexibility is really designed to help drive utilization over time. This is just quickly the CAPTAIN Trial, but the AI initiative. So the idea is that today, the surgeons are drawing these images with their experience, but we have been collecting all this data, and automatic recommended treatment plan is underway. The work is done. We are in FDA. We're looking to get full approval sometime in the second quarter next year. And that will not only give the surgeons more confidence that this treatment can be done, but also reduce, we expect that it will reduce the time of the procedure.
I mentioned before that some of our surgeons are using this technology for late-stage disease, which is why we just got FDA clearance for what we call Thermal Boost, so they can go better to the edges for those late-stage patients that may need this technology. And then this is just an example of that, automatic contouring. We also think we can easily design a BPH treatment that's specific to that. A number of our physicians have asked for it, which is why we're working on it. We'll describe more of this sometime next summer. And finally, the whole idea, as I mentioned at the beginning, is about using that MR. So there's a lot of drive to use the MR for screening. It's already being used for diagnosis, already used for biopsy.
We're bringing the treatment part to this, and then certainly, it's already used for post-treatment work. So this is the new workflow. It's not so difficult to think about the possibility that MR, indeed, is the way prostate disease will be managed in the future. Thank you so much.
Arun, thank you, and I mean the story continues to evolve and very exciting.
Thank you.
Congratulations on all you've accomplished.
Thank you so much.
Yeah. Thank you for being here. And with that, we've got to move on to the next session. Wish there was more time. It deserves it.