You got me? Okay. Amazing. Thank you so much. Welcome, everybody. Patrick on the UBS MedTech team. Delighted to have Ryan of the FocalTherics team here to go through what should be an awesome intro to the company. I think, Ryan, you were planning on doing a little bit of a presentation first. I think there was some slides to go through, and then we can do some Q&A, if that works?
Yeah.
Amazing. Do we have the slides up? Just hit next. Thank you.
Thank you. So real quick, just by name, FocalTherics, focal to target, therapeutics is to treat and heal. We are the global leader in therapeutic ultrasound for both the treatment of cancer and benign disease, and we accomplish this by leaving the organ in place, treating only the disease. We spare the organ and thus preserve the functional outcomes of that organ and for the patient. If you look here, we have an ongoing commitment to growth of focal therapy, and as noted, not only growth, but momentum building here. EUR 16 million in revenue up to EUR 26 million through calendar year 2024. What is exciting is our growth is extending as we look at last year and, of course, our growth model for this year. 38% year-over-year growth is our target, revenue of approximately EUR 55 million.
We see growth, but we also see momentum building in our business. We are a platform technology that integrates all kinds of unique proprietary sub-technologies. So advanced imaging, we can bring imaging into our Focal One system from any source, whether it is an MRI that is marked up or a biopsy map, PSMA PET. We are current to all standards of imaging. Remote connectivity, we can tele-mentor doctors remotely, have the potential of doing teleservice or remote service, and we have even been able to treat patients remotely. We put out a press release a number of months ago.
We treated a patient from Cleveland Clinic, Ohio, remotely, who is in Cleveland Clinic Abu Dhabi in the Middle East, 7,000 mi away. We believe our technology sets up very well for that, and we are excited about a branded product we will be launching called Focal Connect. We are also an AI-driven treatment.
We have AI solutions for how we deliver our treatment. We have advanced robotics. We have a five-axis robotic positioning system, which is very robust, a key component of our platform. Then importantly to understand, we've been in sound-based therapy for well over 30 years. We were a formidable player in extracorporeal shockwave lithotripsy, sound-based therapy to break up kidney stones. We then developed all the unique technologies we offer today in HIFU. Because of our sound-based therapy and because it's part of our DNA, we're working on histotripsy. That was a key mention at our June Investor Day conference in New York. We filed some very important proprietary patents, and we're really exciting about that because that could give us an opportunity to not only treat with Focal One as a system with HIFU, but have in the future the potential for delivering histotripsy.
We're a unique platform that encompasses these technologies, but it also plays really well into the growth of new indications. Prostate cancer is the most common cancer diagnosed in men. This is a core focus for the company. As referenced, over 1.4 million men are diagnosed annually with prostate cancer. Within that subset, 300,000+ are just diagnosed in the U.S. What's exciting or interesting to really understand is we have 3.5 million men walking around and living with their disease today. So it's a large market, a growing market, but a market that will double by calendar year 2040, and that's based on data from The Lancet consensus on prostate cancer. A large market, but a market that will double in the next 14 years. If you think of prostate cancer, it is a heterogeneous cancer. It's not one cancer, it's millions of cancers.
At time of diagnosis, you're risk stratified by the type of cancer you have. As shown, low risk, intermediate risk, and high risk. If you have low-risk prostate cancer, you might be commonly prescribed active surveillance or monitoring. If you have high-risk disease, you may be prescribed more aggressive therapy, surgery, and/or radiation. But what do you do for this large bolus of patients that fall into intermediate risk, which is about 50% of the newly diagnosed cases? Well, this is what we solve with Focal One Robotic HIFU, shown in the blue bar or blue arrow. Really, there's been historically no good suitable treatment options, and there's a gap between these low-risk patients and high-risk patients. How do we categorically think of treating them? That's really one of the key theses of what problem we solve.
We're also a technology that's currently written into the NCCN, National Comprehensive Cancer Network, hospital guidelines as a salvage treatment for failed primary radiation therapy. In the clinical literature, radiation failures are cited anywhere from 15%-30%. Men who fail radiation don't have a lot of good options. Commonly, they'll be prescribed ADT or androgen deprivation therapy or hormone therapy. We're going to turn off your testosterone, technically chemically castrate you to lower your PSA. Though that may be effective, the side effects are drastic for a man to go through that, and they're refractive to treatment, meaning they have to cycle off of it. That's a very important thing to understand, and salvage surgery never typically leads to a very good outcome, especially when you think of functional outcomes, operating on a radiated pelvis.
We're, as mentioned in those guidelines, and that's another market opportunity for us. When you think of what the patient wants today, this two-by-two, quality of life preservation against proven efficacy, we know active surveillance is not a treatment. It's a monitoring protocol, so it's going to score very high on quality of life preservation. We're not really doing anything. We're just monitoring you. But obviously, scores very low on proven efficacy. Surgery and radiation, however, score very high on efficacy. As treatments, they've been around for arguably close to 100 years, but quality of life preservation is always in question, how that patient will be after their surgery or multiple cycles of radiation. Really, what a patient wants is a highly efficacious procedure or treatment that preserves their quality of life, and that's what we accomplish with Focal One Robotic HIFU.
When we think of data today, in prostate cancer, it's all based around the trifecta outcomes. That is, cancer control being number one, followed by preservation of urinary continence, and followed by preservation of sexual function. There's also a notion of patient burden. When you look at the literature today and you go through all the literature, how do these different treatments stack up? The good news is, with the data that's come out, the end of 2024, we have the HIFI study, which was 3,200 men across 46 centers, 80 urologists, and is a prospective multicenter study that was sponsored by the French government to look at efficacy-based outcomes to award reimbursement. You look at that study, landmark study, we'll never see a study likely of that size, at least in my lifetime, and that is a powerful data point.
We also know there's new studies coming out, FARP, Focal Ablation versus Radical Prostatectomy, which is a randomized control trial that will publish out soon, in the coming months. That's Level 1 evidence, but it proves exactly what we saw with the HIFI study. When you add up all the different endpoints in the published data, what you see here is Focal One Robotic HIFU is not inferior to the gold standard treatments of surgery and radiation, but patients typically do far better on the quality of life outcomes, as shown by that two-by-two matrix I just showed earlier. Of course, the patient burden is low. We're talking about a short outpatient procedure that's typically delivered in a time of 40-60 minutes with optimal workflow and choreography, meaning patient in, patient out, arguably 90 minutes to one hour and 40 minutes.
We have the data now that proves the efficacy and reinforces the patient benefits in terms of preservation of quality of life. The market is moving now in this category shift to focal therapy. The traditional market, as referenced, is active surveillance, surgery, and radiation. We're now in this new emerging market in the middle, that pie chart in the middle. But at market maturity, focal therapy will represent a very large subset of this market, as shown here. I've had doctors argue with me that it'll be larger because we're advancing on multiple fronts. Imaging is advancing. We're also looking at combining therapies, HIFU with immunotherapy, such as a study that we're embarking on at Mount Sinai Hospital in New York. That's another important directive of where we're going with these new emerging non-invasive focal therapy technologies. We know the market is moving.
This is Medicare data in the category of focal therapy published out through calendar year 2025. As shown here, HIFU is the fastest-growing focal therapy treatment, and it has become the number one ablation technology for prostate cancer. We will likely see the continued momentum building as we get data here that will publish out next year on calendar year 2026. HIFU is growing. The reimbursement is strong to reinforce this growth. CPT code 55880 is a Category 1 CPT code. We are really excited because last week, the final rule was published by Medicare, by CMS, and HIFU will go up double digits to an increase of 10.5%. That will be effective January 1st. Bear in mind, this number, 10,688, is a national average. It is adjusted based on wage labor index at point of care, where that hospital is located.
We happen to have an office in the San Francisco Bay Area. When we run an analysis like this, the payments are up around $14,000, even $15,000. Same would be in other major metropolitan markets. What does that all mean? It means that hospitals can invest in Focal One and build a durable, sustaining, high-growth focal therapy program. When you look at the physician reimbursement, what is important to understand is we award or is awarded HIFU 17.29 work RVUs, which is the highest of any physician-delivered focal therapy for prostate cancer. On the very bottom is surgery. I spent nearly 14 years of my career at Intuitive Surgical. It is only a $200 difference than surgery. Surgery arguably takes longer, has more staffing demands, more supply cost, more burden on the surgeon in delivering that surgery.
We think we are in an optimal position for both the physician payment and the hospital payment for use of Focal One Robotic HIFU. We are growing as a company. We are growing both in academic centers and leading community hospitals. As shown here, we are in Mayo Clinic, Cleveland Clinic. In fact, Cleveland Clinic now has five Focal One systems. Kaiser has multiple Focal One systems, four, and adding more likely in the future. We have major academic programs, as mentioned, Memorial Sloan Kettering, MD Anderson. We are in every University of California teaching hospital is running Focal One now. Of those 16 IDNs, 16 IDNs have two or more Focal One systems today.
We will be seeing more accelerated growth in our future in community hospitals because we have penetrated so many of the academic centers, which is really exciting because we are now a breeding ground for the young urologists coming out of these programs who are asking or in some cases demanding Focal One in their future practice as urologists. We are also growing beyond what we are showing today. We have over 300 hospitals that are qualified as leads that we are going after. This by no means is our TAM. Our TAM is significantly larger. We have a lot to go after, and we are still in our infancy of adoption. When we look at outside U.S., we are growing there as well. I mentioned the HIFI study. That HIFI study proved both its primary and secondary endpoints, and reimbursement was awarded in France this year in January.
We are now making active inroads in France and other neighboring countries. As shown here, we have 94 Focal One systems deployed outside the U.S., 316 Focal One treatment clinical sites. The dark blue are fixed sites. The light blue are treatment sites that are moving to fixed system sales. What we are not seeing is some of the OUS markets that we are growing in as well. India, we have now sold multiple systems in India. We are growing in Latin America, Brazil.
Brazil made a guideline change this year, adding HIFU to their guidelines. That is important, where other focal therapies are not referenced in the guidelines. We think that is an advantage. We will be growing in those different markets, and that includes work we are doing in Asia, the Asia-Pacific region. We are not a platform of just one treatment, though, and that is where the story gets exciting.
We are also, with our labeling, FDA labeling, able to go after BPH, meaning we have ablation of prostate tissue on our labeling. We have a Category 3 CPT code in place today for BPH. We know that is a large market state, over 100+ million men living with BPH symptoms on a global basis, and over 13 million men newly diagnosed cases globally around the world. We have three clinical studies going on, one in New York with Mount Sinai Hospital, one in Chile and Latin America, and also a combined phase I/II study in Europe. We will see these studies reading out here toward the end of the year, and we expect to be into a pivotal study next year in 2027 and treating patients next year in 2027. On the other side of the equation is the work we are doing in deep infiltrating endometriosis.
We are a standout focal therapy because we are not only in men's health, we are in women's health. I am proud to say we have CE Mark in endometriosis. We have three clinical sites that are active now treating patients. Why I like this story is women are given another option other than surgical resection or a partial resection of the rectum, and that is what a woman would face with Stage 4 endometriosis. We can use the same technology, the same Focal One platform. We can see with all the advanced imaging where those endometrial implants are on the rectal wall, and we can safely ablate them. We have three centers active in Europe. We have eight centers in our clinical training pathway. Good activity building there in our indication for endometriosis. We will be working on our activities in the U.S. as well.
We have already won a Breakthrough Device Designation award from the FDA in the U.S., so we are going to come back and revisit that this coming year in 2027, move that forward. When you look at the TAMs of prostate cancer on a global basis, combined with BPH, combined with endometriosis, we are looking at a very large market opportunity of excess of 4.3 million procedures, which equates out to about $10 billion of potential revenue. Very exciting things that we are focused on. Our last quarter results are shown here, 26% year-over-year HIFU growth in revenue, 17% growth in Focal One system sales. Our installed base now is at 192. Procedure volumes in the U.S. grew 32% year-over-year, and we had an increase of 482 basis points on our gross margin.
One of the models we showed back in June is the model looking at 2025 last year and where we expect to be end of year 2028. As you can see here, revenue growth with a three-year CAGR of approximately 40%, gross margin at 60% or ideally higher, break-even operating income, a positive EBITDA, and a, again, large, growing, and robust installed base. I will stop there.
It is amazing. Ryan, Ken, thank you for that. I mean, that is a great jumping-off point, I think. You had your Investor Day. Maybe you could frame for people that framework out to 2028, both financially and strategically. What were the biggest topics that you wanted to communicate there and get people caught up on that side?
Yeah. When you look at what we are trying to do as a company, we are really trying to unlock the value of our HIFU technology. Beginning of the year, we became a domestic filer. We rebranded the company with our Investor Day, with really our focus on HIFU, and we took our legacy businesses and put them in discontinued operations. As Ryan really referenced from that model of revenue growth of roughly 40%, getting to 60% gross margins, and operating income break-even and positive EBITDA in 2028 is kind of our long-term benchmarks. Our revenue, I think it is important for everyone to understand, we have three components of our revenue. We sell a system. For every procedure, we sell a disposable, the razor blade, as people like to reference it, and then we have our service business as well.
By holding strong pricing and increasing share, we are going to grow our revenue. When it comes to gross margins, we are really focused on material cost reductions. Looking at our service model right now, we are implementing a new software solution within our service business to really drive the margins. Then when you look at the operating expenses, it is really focused in those areas. How can we build out commercialization for prostate and then getting into those new indications for BPH and endometriosis? So, we feel strongly if we stay on that model and execute. In August, we completed a capital raise where we put approximately $43 million in net dollars onto our balance sheet. We feel we now have the runway to go out and execute.
The goal is really, how can we do things faster so we can hit the revenue accelerator and really propel the business?
If we were to pivot and talk a little bit more about prostate cancer and that side of the market, there is a lot of different modalities, many drawbacks, as you have highlighted as well. Equally, there are new modalities coming into the market. Some of your med tech peers are trying to move into that space. How do you view that competitive environment from a product perspective, and how do you feel like FocalTherics fits within that?
Yeah, that is a great question. Clearly, focal therapy is young in its adoption, but arguably the fastest-growing treatment category within prostate cancer. So, we are in a real strong position as a company, and it has a lot to do with really two things. One is that we have had a legacy business commercially in urology, dating back many years, based on the work we did in lithotripsy. So, we have our sales channels built out, especially when you look at Europe and some of the extended OUS markets. The other is on the technology front. Again, we have treated many thousands of patients, and before Focal One, we had our prior platform, Ablatherm. So, we have learned a lot in that process, and if you look at our technology today, one would not argue against us that it is the most advanced platform of its kind.
It is not just the robotics, it is the integrated fusion platform. It is all the other proprietary technologies that we built into Focal One, which is part of our innovation scale as a company. We will continue to build on our innovation. We are both a hardware company, but we are also a software company, so AI and all the things that are tied to how Focal One is deployed. I think when we think of us versus other technologies, one common reference we hear from a lot of hospitals, and I showed you the install map, is that if you are going to invest in focal therapy, the first investment you should make is you should acquire Focal One and build a program around Focal One. That has a lot to do with the fact that our technology is the easiest to learn and use.
We have the shortest treatment times. We've made a lot of advances in the platform, so it's easily adoptable. We're a non-invasive procedure. There is no needles involved. There is no entry through tissue, through incisions or any of that. We hear a lot about incisionless surgery, which is a hot buzzword today. We are absolutely incisionless. We're transrectal. So we're a non-invasive procedure, not minimally invasive. We're actually non-invasive. We can deploy our procedures in any outpatient setting. We have optimal choreography and workflow, our treatment times being short. The clinical outcomes and data, based on my reference of the HIFI study and other studies that are going to be coming out, which are really exciting when we think about it, because we're going to see a plethora of new data coming out.
The HIFI study showed arguably that we're not inferior to the gold standard treatment, but patients will do far better in functional outcomes. So I think we have an advantage with data. I think we have an advantage with technology. We have the legacy commercial channels built as a company, and we're investing, as referenced in these new indications, BPH and endometriosis, meaning that you could offer these three distinct treatments with the same machine. Not including the work that we're doing beyond that in things like histotripsy. So, I think when you add it up, I think we're in a position of strength, and we've got really strong reimbursement as shown on the slide I referenced earlier.
Because a lot of the benefits beyond the clinical are quality of life, sexual health, that whole side of things, who do you see as the educator of the patient on that side? Is that the KOL and the doc, or is that a coordination between you guys and the KOL and the doc, word of mouth? How do you see that evolving with the patients?
Yeah, that's a really good question. I always say that you got to create awareness first before you can create demand, right? So, I think we're in that phase where we're creating a lot of awareness with the hope of creating more patient demand. Yeah, we do some of that ourselves. We have a website, myfocaltherapytreatment.com, that is patient-facing. We've just done a lot of events and activities during Prostate Cancer Awareness Month in September. But I remind everyone, prostate cancer is not one month a year. Sadly, men every day will be diagnosed with the disease, every day, every week, every month, every year. But I think to answer your question, I think it's a combination of both. I think what I see today was we're leaving the era of overtreatment with aggressive therapy. We're leaving that era today.
When I was at Intuitive, we were arguably focused on surgery. That is what we did. But we knew, and more importantly, clinicians knew that there was probably quite a bit of overtreatment going on. As I referenced, prostate cancer being a heterogeneous cancer, not everyone needs aggressive therapy. I think the message is an important message, but we as a company will be highly responsible with that in our patient activation strategies. I think it is also important that the urologist and the physician community, even the primary care physician, because your primary care physician will most commonly prescribe you a PSA test. If your test comes back positive, who they reference or hand you off to, that is urologist, or what they say in that conversation may influence that patient.
The good news is I think we are on a great journey of where we need to go. We are leaving the era of overtreatment, and the future is bright in terms of opportunity.
On the topic of opportunity, you obviously flagged BPH and endometriosis as other areas to push into. How do you view those markets as different from the oncology side of things? What is it about, from your perspective, FocalTherics that gives it as a platform such a ubiquitous offering across a whole bunch of different conditions?
Yeah. One thing about BPH is it is a crowded space. I think we are uniquely positioned for a couple of reasons. One is, our procedure will be bloodless. It does not violate the integrity of the prostatic urethra. As we have treated patients for prostate cancer, one of the common comments that come back from patients is that their urinary symptom scores improve. That would make sense. We are ablating within the prostate gland. We are relaxing that pressure that is around the prostatic urethra, which leads to these BPH symptoms. But the fact that we can deliver a short outpatient procedure that does not violate the integrity of the prostatic urethra, that involves no bleeding, no surgery, no use of needles, or other modalities, I think, again, presents well for us.
I say that because approximately 30%, upwards to 40% of men seeking BPH therapy are commonly prescribed anticoagulant therapy concurrently. They have comorbidities of heart disease and may be on blood thinners or other forms of anticoagulant therapy. They have to come off of those drugs commonly to be treated for the majority of the BPH treatments that are out there today. That holds a lot of promise that is somewhat unique for us in our offering. I think that will present an opportunity and be able to differentiate our technology amongst others out there. I am really excited for the work we are doing in this area. Again, it is a large TAM, as we know, but we are excited for where we are going with our studies and again, getting an on-label indication in an outward date.
I had not thought about the effect of having a TURP and things like that if you are on blood thinners and all that.
Yes.
That is really interesting. I guess, Ken, and for both of you got a lot of programs running at the same time, a lot of different areas to expand. How are you thinking of allocation of financial resources and from strategic internal time? How do you make sure you are spending the appropriate amount of time on each of these areas?
I will answer that part, then Ken can answer the other part. Our real focus right now is accelerated commercial growth, expanding into new indications, as referenced, BPH and endometriosis. Third is just on the technology front, that we are continuing the innovation cycles around the Focal One platform to include the work we are doing in histotripsy. There is a lot in each of those areas, and I will turn to Ken and ask him—
Yeah.
—what he thinks.
So—
How we allocate our investment.
Yeah. It's a fun time to be the finance leader of the company right now as we enter our budget season, right? We've got a lot to do, and we're kind of looking at two buckets. Number one, where we spend our money today. As I mentioned earlier, we're really looking at everything we're doing as a company. We put things in discontinued operations, so that's one bucket. The second bucket is, how can we do things more quickly and efficiently as possible? I'm hoping with some of our run rate spending, we can get more efficient and then allocate some of those dollars to the areas we've talked about throughout this presentation, BPH, endometriosis, histotripsy, other R&D functions with our current prostate product. Then, obviously, we do need to invest some new dollars.
I think when you look at it in those three buckets, we're really taking a holistic approach to our spend profile as we move forward. That's on the operating expenses. Obviously, we want to have good cash management as well, and then look at the margin drivers that can drive incremental gross margin and get us over that 60% plateau.
I was going to say, Ken, as an addendum to that, and maybe as a final question, what gives you confidence that you guys can hit break-even and then positive EBITDA that you put out at the Investor Day? What gives you that confidence?
Yeah. The confidence we see inside is we're seeing acceleration in the U.S., as you've seen the last couple years. There's definitely opportunity to grow. When you look in the OUS market, we're seeing good, solid execution there this year. There's continued untapped markets out there. Then when you sell the system, obviously you get the advantage of getting all the procedure volumes to grow incrementally as we move forward to really help propel the business, especially from a margin perspective.
One final one, [audio distortion]. How long did it take you to animate the slides where all the little hospital beds drop down? Because that looks like that took a long time.
Well, we have help with our marketing team.
Absolutely.
That's a good point. Just in reference to Ken's answer, what's exciting for me is that when we really look at the role of focal therapy, again, as I said earlier, we're really in this early adoption life cycle. I was in the adoption life cycle of robotic surgery, and I feel like there's a lot of similar parallels. We're on a similar kind of growth trajectory in some means. The market opportunity out there is real for us to capitalize on, and we're in a good, strong position. The other is, focal therapy as described will not be limited just to prostate. There are other organs, even some I haven't referenced today, that we're looking at or considering, and I think it's a convergence of opportunity with technology. The field of imaging is disrupting very quickly today, which plays directly in our story.
I was told by an academic, "Ryan, if I can see better, I can treat better or I can treat differently." I think that's really key to our story.
Ryan, Ken, thank you so much. Really appreciate it.
Thank you.
Thank you.