Greetings. Welcome to EDAP TMS Second Quarter 2022 Earnings Conference Call. This time, all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to John Fraunces, Managing Director of LifeSci Advisors. John, you may now begin.
Good morning, and thank you for joining us for EDAP TMS's 2nd quarter 2022 financial and operating results conference call. On today's call, we will hear from Marc Oczachowski, Chief Executive Officer and Chairman of the Board, Ryan Rhodes, Chief Executive Officer of EDAP U.S., and François Dietsch, Chief Financial Officer. Before we begin, I would like to remind everyone that management's remarks today may contain forward-looking statements, which include statements regarding the company's growth and expansion plans. Such statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in such forward-looking statements. Factors that may cause such a difference include, but are not limited to those described in the company's filings with the Securities and Exchange Commission. I would now like to turn the call over to EDAP's Chairman and Chief Executive Officer, Marc Oczachowski. Marc?
Thank you, John, and good morning, everyone. As is our custom, I will start by providing a brief operational update before turning the call over to Ryan Rhodes, our EDAP U.S. Chief Executive Officer, for a review of the U.S. business and strategy. François Dietsch, our CFO, will present our financial performance. Let me begin by recapping a few of the highlights. For the quarter, we generated total revenue of EUR 14.2 million, or $15 million, representing an increase of 36.7% over the 2nd quarter of 2021. The increase was driven by contributions from all of our business segments, HIFU, lithotripsy, and distribution. Notably, and for the 1st half of 2022, our HIFU revenue increased nearly 80% over the prior year period, reflecting a combination of a higher average selling price and growth in treatment volumes.
We sold one Focal One machine during the quarter, which is equal to what we sold in the 2nd quarter of last year. We sold eight lithotripsy units compared to three in the year ago period, and 15 ExactVu units compared to nine in the year ago period. Ryan will cover this in more detail in a moment. We recently learned that the Centers for Medicare & Medicaid Services, which sets reimbursement rates for medical procedures performed on Medicare beneficiaries, released its preliminary outpatient prospective payment system rule for calendar year 2023, with the proposal of upgrading from level five to level six the payment of the HIFU procedure for malignant prostate tissue ablation. This is great news for HIFU technology, and if maintained in the final rule, would be a positive catalyst for our business.
Our 2nd quarter and year-to-date results, together with this proposed increase in reimbursement, gives us a high degree of confidence that our growth will continue as our HIFU technology is increasingly recognized as an essential offering in all urology practices which treat prostate cancer patients. At this point, I would like to provide an update on our clinical expansion activities, where we believe HIFU can have added clinical utility in indications outside of prostate cancer. This continues to drive the urgent need for new, more effective treatment options. These areas of development, and with critical data, further demonstrate the potential effectiveness of HIFU beyond the management of prostate cancer. Further exploration of HIFU in these and other indications remain part of our longer-term R&D plans.
With over $48 million of cash, we are well-financed to continue executing on our current U.S. growth initiatives while in parallel exploring these indications and other clinical expansion opportunities. At this point, I would like to turn the call over to Ryan Rhodes, CEO of EDAP U.S., for an update on our U.S. operations. Ryan?
Thank you, Marc. I would like to begin my remarks today by picking up on the topic of reimbursement. The proposed change in reimbursement reflects the appropriate value of HIFU as an ablative treatment for men diagnosed with prostate cancer. The situation, as stated, is now shaping up quite positively in terms of reimbursement for both the physician and the facility. HIFU procedures have a robust relative value unit rating or RVU rating, which allows physicians to be paid more for a HIFU procedure than for older modalities like cryotherapy. At the higher reimbursement, HIFU is now approaching the level for radical prostatectomy.
With the proposed increase to APC level six, facility payments will now cease to be a barrier for adoption of the HIFU technology. One impact of the reimbursement change is that there have been some facilities that have looked to upgrade their focal therapy approach to be primarily robotic HIFU, thus moving away from cryotherapy. This had been difficult in the past, but with the proposed change, we believe this will help rectify those circumstances. As referenced, the preliminary OPPS rule for calendar year 2023 was recently released, and the proposed rule would increase the reimbursement level to APC level six.
This move would result in an increase in reimbursement to a hospital performing a HIFU procedure on a Medicare patient to $8,711 per procedure as a national average, adjusted locally based on the wage index as compared to the current national average of $4,506. CMS is accepting comments on the proposed rule in submissions to ensure that CMS understands the true value that HIFU brings to. There are many prostate cancer patients from more expense overstate the positive impact this would have on expanding patient access. Reimbursement often translates into higher commercial reimbursement, as many commercial payers typically follow CMS's lead on such decisions. We've been successful in driving adoption and sales growth under existing reimbursement, and the financial return on investment for hospitals to purchase Focal One has been very positive.
We believe the classification to APC level six will significantly improve access to the treatment for many more patients seeking the benefits of focal therapy. As mentioned, this is only a proposed rule at this point, and things could certainly change. We remain optimistic, and if implemented, securing APC level six reimbursement from CMS would be among the most significant positive catalysts since Focal One was approved by the FDA in 2018. Now turning to the quarter. We generated strong revenue growth of 36.7%, driven by capital sales contribution from all our businesses. With regards to Focal One, we previously announced sales to NewYork-Presbyterian/Weill Cornell Medical Center, Beth Israel Lahey Health, an affiliate of Harvard Medical School, and University of California, Davis Medical Center in Sacramento.
In the 2nd quarter, we added MD Anderson to the centers that are adopting Focal One. MD Anderson is one of the most prestigious cancer centers in the world, and their selection of Focal One is further encouragement that robotic focal HIFU will be a part of the treatment paradigm at major comprehensive cancer programs. EDAP now has a significant commercial team on the ground in the U.S., and we are having a very positive impact on our continued sales pipeline growth. We anticipate converting many of these prospects into sales and placements in the back half of the year. The Focal One sales cycle can be quite long with the necessity of working through hospital budgetary cycles, but the awareness of HIFU as a viable treatment for the management of prostate cancer is growing at an accelerating pace.
As we have said last quarter and still holds true, our pipeline is comprised of a healthy mix of community hospitals in addition to academic medical centers. This is key, as greater than 80% of hospitals across the United States are community hospitals and therefore represent fertile ground for future sales. At this point, I want to briefly recap the American Urological Association meeting, which is the largest annual gathering of urologists worldwide. We exhibited and prominently showcased Focal One, and it was a featured topic during both plenary presentations and instructional courses. In addition, several leading academic medical centers delivered presentations on the growing acceptance of focal therapy in the management of prostate cancer.
We supported an accredited AUA course with hands-on skills training, which taught urologists how to implement focal treatments in their practice while allowing them to utilize Focal One under the guidance of expert faculty. ExactVu Micro-Ultrasound was also featured in three of these sessions. This year's meeting was the most significant presence that we as a company have ever had at AUA, and we believe it is a function not only of the growing acceptance of focal therapy as an important part of a comprehensive prostate cancer treatment program, but also as a reflection of our technological leadership position.
In addition to AUA, we also had meaningful participation at several other related conferences, including the 21st International Symposium on Therapeutic Ultrasound held in Toronto, the 6th European Endometriosis Congress held in France, the Society of Robotic Surgery, which took place in Orlando, Florida, and the recent European Association of Urology Congress held in Amsterdam. As noted, we have several more important meetings and scientific programs that we will be attending to in the fall. These medical meetings give us an opportunity to showcase our state-of-the-art technology to large and diverse audiences around the world. In closing, we've made significant strides in driving results and building the U.S. organization. We are executing on the tremendous opportunity to bring robotic focal HIFU as a mainstream treatment option to men throughout the United States. Now our CFO, François Dietsch will provide some details on our financial results. François?
Thank you, Ryan, and good morning, everyone. Please note that all figures except for percentages are in euros. For conversion purposes, our average euro dollar exchange rate was EUR 1.0579 for the 2nd quarter of 2022. Total revenue for the 2nd quarter of 2022 was EUR 14.2 million, a 36.7% increase as compared to a total revenue of EUR 10.4 million in Q2 2021. Looking at revenue by division, total revenue in the HIFU business for the 2nd quarter of 2022 was EUR 3 million, as compared to EUR 2 million for the 2nd quarter of 2021. We sold one Focal One unit in the 2nd quarter of 2022 and one unit in the 2nd quarter of 2021.
The 49.3% increase was driven by both higher average selling price and equipment sale, and a 42.7% growth in treatment-driven revenues. Total revenues in the Litho business for the 2nd quarter of 2022 was EUR 3.6 million, as compared to EUR 2.3 million for the 2nd quarter of 2021. We sold eight lithotripsy devices during the 2nd quarter of 2022 versus three in the year ago period. Total revenue in the distribution business for the 2nd quarter of 2022 was EUR 7.6 million , as compared to EUR 6.1 million for the 2nd quarter of 2021. The 25.5% increase was primarily driven by 16 ExactVu units sold during the 2nd quarter of 2022, as compared to nine units during the 2nd quarter of 2021.
Gross profit for the 2nd quarter of 2022 was EUR 6.2 million, compared to EUR 4.2 million for the year-ago period. Gross profit margin on net sales was 43.8% in the 2nd quarter of 2022, compared to 40.7% in the year-ago period. The increase in gross profit year-over-year was driven by the higher sales effect on landed cost. Operating expenses were EUR 6.6 million for the 2nd quarter of 2022, compared to EUR 4.6 million for the same period in 2021. The increase was driven by the ongoing build-out of our U.S. team and commercial infrastructure and included EUR 0.2 million of non-cash impact related to share-based compensation programs.
Operating loss for the 2nd quarter of 2022 was EUR 0.4 million, compared to an operating loss of EUR 0.4 million in the 2nd quarter of 2021. Excluding the impact of non-cash share-based compensation, operating loss for Q2 2022 would have been EUR 0.1 million, compared to an operating loss of EUR 0.3 million in Q2 2021. Net income for the 2nd quarter of 2022 was EUR 1.8 million, or EUR 0.05 per diluted share, as compared to a net loss of EUR 0.4 million, or EUR 0.01 per diluted share in the year ago period. As of June 30, 2022, the company had cash and cash equivalents of EUR 46.3 million, or $48.5 million, compared to EUR 47.2 million, or $63.4 million at the end of December 2021. I will now turn the call back to Marc.
Thank you, François. In summary, we are very pleased with our performance in the 2nd quarter and year to date, and I believe this sets us up for a very successful 2nd half of the year. Both U.S. capital placements, treatment volumes, and pipeline growth continue to reflect the efforts of Ryan and his team, and I believe they are just scratching the surface in what is clearly our most important markets. One final item before we open the call to questions. We are planning a Focal One expert user event for Thursday, September 29 in New York. We will release more details soon, but we hope that you can set aside some time and participate in what is sure to be a very informative session. We will now open the call to your questions. Operator?
Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Once again, that's star one. Thank you. Thank you. Our 1st question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.
Hey, great. Thanks for taking my questions and congrats on all the progress. Wanted to start with a follow-up around some of Ryan's comments around commercial reimbursement. I think what you stated is typically the commercial reimbursement will follow suit around Medicare reimbursement, and that could tick up higher as the APC level six goes into effect. Maybe just go a little bit deeper into that and how we should be thinking about commercial reimbursement and how that could progress over the next couple years.
Frank, the best way to, I think, look at that is again, you know, everyone looks at CMS and of course, if we have the final rule, which we anticipate coming out in November, supports the move to APC6, which would go into effect January. We'll be in a process of educating the commercial payers. Today, we have a number of commercial payers that pay for HIFU procedures. I think what you'll see is, you know, it'll be over a course of time. You know, it doesn't happen immediately. We have an outside team of consultants. We have an 800 number that helps our customers work through the appeal process if there is a needed appeal.
Typically, as noted, most of the commercial payers obviously look at CMS and they pay a multiple, sometimes 2x, of what CMS will pay. It really, I would say, helps overall when you look at the pro forma analysis that are done at the hospital level, especially in community hospitals. We're excited about it. Again, it is a process. Commercial payers kinda turn on over time, and we've seen this pattern before in some of the other companies I've worked for.
Got it. That's helpful color. Maybe just on the commercial organization in front of APC level six, assuming it goes into effect at the beginning of the year, do you anticipate hiring a little bit more aggressively to be ready to hit the ground running once that goes into effect? Do you think the current sales force you have in place is sufficient to cater to what could be the increased demand coming at the start of the new year?
Yeah. We had a plan already in place to scale our sales organization. We have been making notable hires throughout the year. We are accelerating that process now. This allows us to have even a deeper and wider coverage model. I think making the investments now obviously sets us up well for next year. Again, we're looking for top talent, and I'm impressed with some of the people we've been able to hire into the company. Yes, we are accelerating that process. It also has a lot to do with the fact that customers see us as a technology leader. We have best-in-class technology, and when we engage with hospitals, they typically choose Focal One as their lead technology for focal therapy.
Okay, that's great. Last one for Marc, maybe, following up on your comments around endometriosis trial. I think I heard you say follow-up concludes at the end of September. Can you lay out just timelines what we should be expecting after that readout, approval processes after that? Do we need to initiate phase three, or how should we be thinking about the process after that readout occurs on the endometriosis side?
Yeah, we will. I mean, the follow-up period will conclude at the end of September. We need to work on data and get everything done. We should be ready with everything by the end of the year. We have started already to discuss regulatory processes. That includes the MDR changes in Europe as well. It's difficult to have a concrete timeline, but yeah, we'll certainly go to the next step. We'll certainly also work on having some phase III studies starting as well. These are the next steps.
Perfect. I'll stop there. Thanks for taking my questions and, congrats again on all the progress.
Thanks, Frank.
The next question comes from the line of Jason Bednar with Piper Sandler. Please proceed with your questions.
Hey, everyone. Congrats on the results here. Maybe to start with a follow-up on the proposed reimbursement increase. You know, has the upcoding to APC level six or the proposed upcoding, has that influenced discussions with potential Focal One customers over the past couple of months? I know it's early, but just curious if there's been any early change in behavior, or again, the talk track you've seen from customers that are in your funnel.
Yeah, Jason, I would say it has. We've been able to go back to some of the hospitals that we had spoken to over the many months, who were engaged. They were looking at the technology and really looking at acquiring it at some future date. Having this in front of us is obviously very positive. We're not, you know, we're socializing this, as noted, the final rule is not out yet. As you can imagine, with the anticipation of the final rule being positive, centers would want to get their programs ideally up and running before the beginning of the year. It has helped in the short term with some of the conversations we've had with a number of our accounts. We will continue to engage appropriately.
Bear in mind, we have sold effectively with the current reimbursement APC level five. I think this helps us really in getting deeper into the community hospitals, where they do typically a deeper pro forma analysis, and they look very importantly at the economics around reimbursement. It has been favorable, and we're continuing to engage conversations with many of these hospitals.
All right. That's super helpful, Ryan. Maybe looking beyond reimbursement, you know, could you talk about, you know, what it means for EDAP and Focal One to have the major medical meetings like AUA that you mentioned, you know, back to being conducted in person? How critical has that in-person engagement and education been, in terms of, you know, creating awareness or spreading awareness of Focal One and HIFU?
Yeah, it's been a real benefit to us, as you can imagine, because part of the process, not only being in front of our customers face to face, has been our ability, as in the case of AUA, to do hands-on demonstrations of how the technology works. When we talk about robotic focal HIFU and the platform, you know, we can talk about it, describe it. When they have the ability to sit down and test drive the system on a simulated procedure, then, you know, kind of the bells and whistles happen, the lights go on, and they really have kind of that aha moment. We were able to do that this year in May at AUA, and that's been a real help to us, you know, getting back together in person. We'll be doing more of those activities throughout the year.
We have other meetings coming in the fall, as mentioned, and we're excited to be back in front of customers where we can talk to them face to face and interact with them.
All right, great. Then Marc, if I could just ask one here as a final question. You mentioned the pancreatic program in your prepared remarks. Just maybe could you talk just a little bit more about your plans for that indication and really what we might see from EDAP, you know, in addressing pancreatic cancer here over the next few years? Just how does that unfold? Thank you.
Yeah. Well, thanks, Jason. Yeah, pancreatic project is a very, as you know, early-stage project. We're still in, you know, in the really beginning of that. I mean, we did the animal study and testing, so now the idea is to get to the next steps. Still, we will keep the market posted on that. Again, it's very early stage to be as precise as you may want.
Okay, understood. Thanks, guys.
Thank you.
Thank you. As a reminder, you may press star one to ask a question. Our next question is from the line of Ramakanth Swayampakula with H.C. Wainwright & Co. Please proceed with your question.
Thank you. Congratulations on all the progress, folks. Regarding the APC level six, you know, proposed ruling. Just trying to understand a little bit more. With this ruling, you certainly seem to have expanded within the tier one hospitals. How does this help in your conversations with the community hospitals? And also does the selling method, you know, how different is it with the community hospitals as compared to the tier ones?
We have been very strong in the tier ones as noted. We continue to focus on those hospitals, and that'll be part of our go forward strategy as indicated. We've been engaging with community hospitals. I think what you see at the community level, you know, their payer mix is important to them, whether it's heavily Medicare or a split of Medicare and commercial, which is very typical. I think really where it helps us is when they do their analysis, they look at kind of projections, what subset of patients will be amenable for a Focal One treatment. They obviously look at the components of Medicare reimbursement and some aspect of commercial. Moving up to APC6 really helps in those analyses.
You know, we've gotten very good working alongside our customers, but I think as mentioned, if we have the final rule be what it is, APC6, and goes into implementation in January, this obviously puts us in a much stronger position, having those conversations with the community hospitals. We see a lot more activity coming in the community hospital setting, and our sales team and commercial teams are very focused in this area. I'm excited as to where we can go as we further penetrate both the tier one academic programs, but the regional cancer centers, also the community hospitals.
Thanks, Ryan. Within the tier one hospitals, certainly, you know, you've been expanding. MD Anderson is a big win, I would imagine. Thinking of hospital systems like the MD Anderson, which has multiple locations, not just in Houston, what is, I mean, what's the progress or that you are making in terms of the depth of your relationship, you know, going from placement of one unit to multiple units, you know, just like MD Anderson, as I said, MD Anderson has multiple locations.
Yeah. We're obviously just launching the program at MD Anderson. We're in the process of that now. We will look for other added opportunities at other satellite hospitals that are part of the current tier one hospital systems. We will look at those opportunities. I might add that we're in some of the top centers in the United States. We're in nine of the 32 National Comprehensive Cancer Network hospitals. Those are some of the top cancer centers in the U.S. We're in six out of the 10 ranked U.S. News & World Report hospitals. We still have fertile ground to expand our market share, and we'll focus on that. We will also look for the opportunities as suggested where we have a strong program, if we can expand it to neighboring participating hospitals, that will be part of our strategy as we look outward.
Thank you. Marc, just on the design of the machine itself, as you go from prostate to endometriosis to pancreatic, you know, does the Focal One device need to be readjusted or retooled so that you can use for all these different indications? You know, is there a certain lead time for it or it's pretty much an easy change that you can do them without spending too much time on those changes?
Yeah. As we said in the past, I mean, the study on endometriosis has been conducted with the exact same device, the Focal One, than the one we use for prostate treatment. So there are no changes or no significant changes on the machine as it is the same. Now, for the pancreatic program, as I said, it's a very early stage program. The approach is completely different. As you know, endometriosis and prostate are treated from the rectum, which is not the case of pancreas. So it involves at least a different type of transducer, which is completely different. So that might be some changes. But again, the timeline here, it's more on a long-term basis. The short-term one is the endometriosis. Again, today, treatments are conducted with the exact same device.
Perfect. Thank you. Thank you, gentlemen, for taking my questions.
Thank you.
Thanks, [guess]
Thank you. At this time, we'll turn the floor back to Marc Oczachowski for closing remarks.
Okay. Well, that concludes our call this morning. Thanks again for your interest in EDAP, and I look forward to our next quarterly update in November. Have a wonderful day.
This will conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.