All right. All right, go forward. All right, everyone, we are right on time here. Thank you, everyone, for joining me. For those of you I haven't met yet, my name is Brandon Vazquez. I am the analyst at William Blair covering PROCEPT BioRobotics. We are excited to have with us Reza Zadno, the CEO, and Kevin Waters, the CFO. Reza is going to take us through a little bit of a presentation, and then we may have a little bit of time for questions here, and then we'll go to the breakout session after that. So with that, I'll turn it over to Reza.
Okay. Thank you very much. Good afternoon. My name is Reza Zadno. I'm President and CEO at PROCEPT. We are a surgical robotic company in urology, and our initial focus is to become the treatment of choice for resective procedure in BPH. Please review our safe harbor and non-GAAP financial, use of non-GAAP financials. So benign prostatic hyperplasia, or BPH, is a condition that affects most men above the age of 50 years old. It has major impact on the quality of life of these patients, and the survey shows 99% of these men complain about the impact on their quality of life. It's the number one reason men go see a urologist, and it affects one in two men above the age of 50 years old.
In the United States, there are 40 million men with BPH, and this number is expected to increase in the next few years, as the number of men with above the age of 65 is expected to increase. When you look at the market, those 40 million, 12 million of them are being actively managed for their BPH. 3.8 million men are sitting on the sidelines and do not take medication and do not opt for any surgical procedure. 6.7 million men are on medication, and there is a high dropout rate in these men who are taking medication. 1.1 million men have failed medication, and in 2019, there were about 400,000 procedures that were performed.
300,000 of them were resective, and 100,000 of those procedures were non-resective. The reason that many of these men sit on the sidelines, if you look at the prostate size, there's a variation in the prostate size and shapes of in these men, and according to the prostate size and prostate shape, there are various treatments for them. In general, the treatments are either non-resective, that have good safety profile, but the efficacy and durability do not match the efficacy of the resective procedure. On the other hand, resective procedures have good efficacy and durability, but the safety profile, as I will show in the next slide, do not match the non-resective. That's why men are have difficulty making a decision to opt for a solution.
The prostate size and shapes are from very small, let's call it in the 30-gram prostate, all the way to very large, with various shapes, and depending on the prostate size and shape, there is different techniques. So as you can imagine, a practice that wants to establish a successful practice needs to have to offer all these technologies. And the clinical outcomes, as you see with these resective procedures, high incidence of incontinence, high incidence of erectile dysfunction, and again, for as you look at the. These are publications for various treatment, TURP being the standard of care in the resective, the safety and efficacy and durability of these procedures are shown in this slide.
The opportunity here is to have a procedure that works on all these prostate size and shapes and in hands of all , physicians, and we believe our technology, Aquablation, has the opportunity to become the standard of care, because of, number one, the features that are in the technology, and I will talk with that, and starts with image guidance. The safety and efficacy of our technology is supported by compelling clinical data. We are the only company that conducted a randomized study against TURP in FDA study in the U.S., and that's what allowed us to obtain approval. And, we have been able to obtain, reimbursement coverage.
95%+ of these patients have access, target patients, to our technology, and we have implemented a very proven commercial strategy by focusing on high-volume hospitals with a very effective sales team. If you look at the technology, the ultrasound that we provide allows a multidimensional image of the prostate that none of these other technologies offer during the procedure. The image to the right is the real ultrasound image of a prostate, that in the middle diagram, you see that the image to the right is what we offer, as well as the image to the left of the screen is that axial view that you obtain with the scope.
This allows the surgeon to precisely decide which parts of the prostate they want to resect and which parts of the prostate they want to spare. And once that planning is conducted, then the robot performs the procedure. The physician pushes on a pedal, and the robot conducts the procedure. The safety and efficacy, as I mentioned, of our technology has been supported by compelling clinical data. We conducted a randomized study in the United States against TURP in the prostate sizes between 30 and 80 grams. In the range of 30-50 gram, we showed similar efficacy to TURP, but in the 50-80 gram, we showed better results in efficacy, and across all the ranges from 30-80 gram, we showed better safety profile.
Then we conducted a single-arm study for prostate above 80 gram, between 80 and 150 gram, and we showed that similar efficacy results independent of the size for larger prostates. Then OPEN WATER is the study that was in the commercial setting that included prostates between 20 and 150 gram, and we were able to validate the safety in a broader group of surgeons. During the study, we tracked the time that it take for the resection, and we compared to the resection time they were conducting for TURP. Again, many of these surgeons was for the first time they were using our product, and they had experience with TURP. As you can see, the scatter for the time of a given prostate, you see on the upper graph-
Yeah
In TURP, there's a huge scatter. From a practice point of view, this scatter results in inefficiency in, in the practice. If they schedule a case that they think it may take 40 minutes, it may take way above 40 minutes. Whereas as you see, our, in the graph, on the lower graph, is the resection time. Until 80 gram, it was against TURP because that was the randomized study against TURP. Above 80 gram is the single-arm study. It's a very, very tight, band that you see, and that allows the practice to be more efficient. When they schedule the case, they know how long it will take for the procedure. In the real world, we have gathered data on the prostate sizes that have been treated since, for the last three years. This histogram represents the all prostate size that we have treated.
It represents pretty accurately the prostate sizes of men with BPH. The top of the bell curve is about 80 gram. The rectangle of the bell curve is between 60 and 80. As you can see, 70% of our prostates are below a hundred, hundred milliliters or, or grams. So this represents all the prostates as they are using our technology across all prostate size. The tail, of course, it goes very far, but the majority are in that top of the bell curve. That's where they are using the system. And we have made good progress in 2020. By the January of 2021, we had received full Medicare coverage, and in the last two years, we made great progress with commercial payers.
We have now 95% of the target patients have access to this technology, and 50% of the procedures are Medicare patients for BPH. The payment, there is a payment for the facility and the physician payment. The facility payment is about $8,800, and the physician payment is roughly similar to TURP. In order to have as efficient commercial team, we have initially focused on high-volume hospitals that perform 70% of the cases, and although we initially targeted high-volume hospitals, there are 2,700 hospitals in the U.S. 860 of them are high-volume hospitals. High-volume hospitals are hospitals that, on average, they do more than 200 cases per year.
We initially targeted those hospitals to be efficient, but in the last two years, we have also placed our robot in low and mid-volume hospitals. The interesting information that we have seen is the ramp in low and mid-volume hospitals are similar to high-volume hospitals. About 30% of our systems are placed in the low and mid-volume. It's important to remember that the low and mid-volume hospitals are not necessarily small hospitals. Historically, they would refer their patients to other hospitals. Now, with this technology, they have those patients, and they conduct the procedures themselves. We believe we have the foundation to become a global leader in urology, and that is by starting with superior clinical data and with best-in-class Net Promoter Score with our surgeon.
We have high retention, surgeon retention, a growing brand, and we have also started a second indication. We recently announced for a study to... Initially, we did some studies outside the United States to remove the cancer contraindication for the treatment of BPH, and based on that study, we have started two studies: one, PRCT001, that are patients who have BPH and cancer, and then a second study, PRCT002. These are patients who have cancer that may or may not have BPH. And, by being very disciplined on the financials and have a clear path to profitability and focusing on the very large BPH market, we believe we have found a strong foundation for continued success to become a global leader in urology.
In the financial, we, a few weeks ago, we announced our Q1 , $44.5 million revenue on Q1, which was 83% over prior year. At the end of the quarter, we had 354 robots placed. Last quarter, we sold 38 robots in the United States, and also we have made, very good progress outside the United States, with the, up in United-- U.K. and in Japan. We have made great progress in, in these geographies. As far as the revenue in the last few years, that in 2021, we started about $34.5 million. Last year, we finished $136.2 million, and our, guidance for this year is $213.5 million.
And then Q1, we announced our gross margins were 56.2%. And please review our non-GAAP reconciliation, the consolidation on this slide, and thank you very much for your attention.
All right. I'll lead us in a little bit of Q&A now. Thank you, Reza, for that, that overview. Maybe Kevin, since you haven't been able to talk yet, let me throw one to you. You know, you, you guys had a strong Q1, and you raised your guidance for the year. It's still a healthy, nearly 60% growth rate. Talk to us a little bit about what's baked into that number and how confident you guys feel in that trajectory through the year.
Yeah. No, I appreciate the question, and our business, at the end of the day, is fairly simple. It's a razor, razor blade. We sell capital, as Reza alluded to, and then we have a single-use disposable, and then, to a lesser extent, we have international sales, which is about 10% of our total. And really, coming off of Q1, we see strength across all of those metrics. And starting with capital, you know, the capital environment itself, you know, we do feel it is stable to improving compared to what we have seen historically. We're starting to see now the corporate funding from IDNs come to fruition, where we did have a few multi-unit orders in the Q1 that were placed through some of our large strategic IDN partners, which was good to see.
And we feel really good kind of about the capital progression throughout the year and the macro environment in general. Another point on capital is our sales force itself. So we had added about 10-15 new sales reps in the back half of 2023. To put that in perspective, we currently have about 40 capital reps today. Those reps, we're not seeing any diminishing kind of returns with what they're putting into the funnel. Close rates are remaining the same, and just in general, we feel good about capital at the price point we're participating in and our ability to do that. And then kind of the second leg of the stool for us is utilization.
Obviously, I would argue longer term, the more important leg of the stool, but you have to sell a robot first to kind of be able to earn the right to sell the disposable. And if you look at our utilization, a few things there. We are adding a significant number of new accounts each quarter, which have a natural dilutive effect on utilization. Many accounts, most accounts that we sell in any given quarter, they don't even do procedures until the subsequent quarter. But even in that with that dynamic, we're expanding utilization sequentially. An average account is doing about 7 procedures per month per account, which is, I would suggest, ahead of where we thought we were gonna be when we went public in September of 2021. We have new accounts today coming up the curve faster than accounts historically.
Some of that we just attribute to general market awareness. I think we're much more mainstream today than we were three years ago. The acceptance around our technology is much greater today than it was three years ago, and to that, we're seeing acceleration faster with new accounts. At the same time, we're being very purposeful in our strategy in current accounts, so we have made significant investments in both our utilization and clinical team to drive physician utilization within a given account. So even with physicians that have been a customer for two, three years, we're still seeing those folks do more procedures on a quarterly basis. And on top of that, within those existing hospitals, we're still seeing new physicians being trained on the Aquablation system, which obviously contributes to overall account utilization. So again, we feel really good about the metrics around utilization.
I'll mention pricing as well. We had, you know, good ASPs on both our robot and our handpieces in the Q1 that we expect to continue throughout the year. On international, Reza alluded to it a bit, it's about 10% of our business. Our guidance assumes about $18.5 million international, and we're being very methodical internationally. The growth lever for us in the near term is the U.S., but the long-term opportunity in international, we're not ignoring. And while we're starting to see some early success in the U.K., which is fantastic, we've invested some direct sales force there at pricing that's very comparable to the U.S.
We're also starting to make some inroads now in Japan, where we're seeing some interest from some of our key opinion leader sites on the other side of the post-market approval study, and kind of more to come as we move forward as a business internationally in different markets. But we're being very focused and disciplined. In my experience, you know, one of the worst things a company our size can do is try and be everywhere at, you know, too early in commercialization. So we're being thoughtful and really making investments where we feel we can become the standard of care within that market.
Okay. And, a couple of weeks ago, maybe a month ago now, I feel like every time is flying, but you guys were at the AUA meeting. Big, urology meeting every year for you guys. You know, talk to us a little bit about what your kind of sentiment was coming out of that? What were any surprises, any updates, any incremental demand that you felt like you guys were generating coming out of there?
We're very happy at the AUA. Multiple factors. One, definitely logistically, we had a great booth location. It was a good booth traffic, so we had the robots at the booth. A physician would come and get experience. We also had, at the conference, in a separate location, a place where they had a workshop, so physician would go and work on the robot. The traffic was high, and the level of awareness that we saw at this conference was definitely much higher. We see now surgeons start talking to each other. There were one evening, there was a poster presentation. There were a number of poster presentation. These were physicians that on their own, they were sharing their experience, very enthusiastic.
So the level of enthusiasm that physicians came to learn about the technology, and also when we announced that last year that we are starting a clinical study on cancer, that had also increased the enthusiasm in the physicians to come and learn more about the technology. So a combination of presentation, the booth traffic, and awareness, we were very happy with that.
Okay, and on that last point, on prostate cancer, maybe let's touch on that for a second, in part because, there's kind of a lot of numbers, admittedly, within that prostate cancer market opportunity. So maybe, you know, talk a little bit about how you size that opportunity up, where you want to play within that market. We obviously have an existing prostatectomy market, then there's watchful waiters, and then there's some overlap of BPH and prostate cancer. So talk to some of those numbers for us to see, so we can size them up relative to BPH and where you think you can play in there.
Yeah. There are about 3 million men with prostate cancer. About 2 million of them are in the low and intermediate risk. Every year, there is about 300,000 new patients who enter this pool. In that group, about two-thirds, 210,000 are in the local cancer, and in that, again, local, half of them are intermediate, and the other quarter and quarter are the low risk and high risk. The low and intermediate considered the Grade Group 1, Grade Group 2, and Grade Group 3. Majority of these millions of patients, they wait. They are under surveillance, and they wait for the later stage to opt for a treatment, whether it's a focal therapy or radical prostatectomy or radiation.
The main reasons these men sit on the sidelines is the, for example, the published information on focal therapy is for incontinence, is in about 4%. The ED in the focal therapy is in the 10%-25%. In radical prostatectomy, these numbers are even higher for incontinence, to only about 21% and ED in the excess of 80%. So these are the reasons where men forgo treatment and wait for a later stage. So our hope is by having a procedure that if we can show the. So, stepping back, we when we received FDA approval, cancer was a contraindication, and for us to remove that contraindication, we had to show that by cutting a prostate tissue that has cancer, we are not spreading cancer.
So we did some studies outside the United States and showed that data to the FDA, that we were not spreading cancer, so FDA removed that contraindication. So today, if a patient has BPH and cancer, they can treat that patient's BPH. So when we did that study, we saw a good signal in those patients, and that results was shown at AUA, that in this patient, none of them at six months had progressed to a higher grade group. None of them had shown any new MRI image of new lesions or any progression of those. So these are the results that allowed us to start two studies. One is the PRCT001.
That is, 125 patients who have BPH and cancer, and PRCT002, that are patients who have cancer and may or may not have BPH. So the size of the market is millions of patients, and the hope is to start with the safer procedure that get near zero incontinence and erectile dysfunction and has some efficacy results. So this is the opportunity.
It's interesting with prostate cancer because while our BPH strategy initially is market cannibalization, if we just take share from TURP and GreenLight over the next 2-3 years, the company will be able to maintain the growth rate we're at today.
Mm-hmm.
But with prostate cancer, it really comes into leveraging our existing install base at the time we would have approval, to do incremental procedures and expand that market. So it's not going after kind of the worst of the worst, that perhaps other technologies are more suitable for. It's really going after the millions of men sitting on the sideline that are forgoing treatment because alternatives aren't great.
Yeah.
Yeah, Grade Group 1, 2, and 3, those are-
Okay. What's... You know, at AUA, when you talked about the prostate cancer opportunity, you alluded to kind of like discussions with the FDA, and that there's a little bit of, it sounds like maybe my word, is urgency from the agency to put better therapy options on the market. What does that mean for your pathway into the prostate cancer market?
Yeah. So, I mean, there is no product currently with indication for doing surgery on prostate cancer. Other technologies, they have a tool claim, not necessarily a claim to treat cancer. So that's why we received the expedited review from the FDA. So the advantage of expedited review is when there is a disease that FDA is looking for a company to obtain an approval, is they will give you more meetings. So when you have discussions, we can schedule those meetings faster, and hopefully, when we complete the study, when submit, the review time is faster. But working together collaboratively with FDA on this, with an expedited review, makes the whole process so much easier.
Okay. Is there... And maybe tell me if it's too early, but is there a sense that the studies you're running today are going to be ones adequate enough to start to move into this market, PRCT001 and PRCT002?
So we PRCT001, 002, quite frankly, it's for us. We want to know, because we did handful of patients outside the United States. We were very encouraged with the results, but they are just handful. We need to replicate to see if we do in a larger study. This is not for an FDA approval.
Okay.
Even if the studies are perfect, we are not gonna get an approval.
Okay.
In order to do that, you need to run a study. We could start that study, but before we do that, we want to get an indication of where we are, and are we replicating what we did?
Okay
... outside the U.S.
Just on timing, 'cause we've gotten this question a lot, a lot today, right? We're not being specific on timing, but what we have pointed folks towards is, even if we were to run a randomized controlled trial against something-
Mm-hmm
... that timeline, and people think of cancer, they think of 10 years, 20 years. I mean, in prostate cancer, we think safety, the endpoints are acute, so we would know immediately. Then even efficacy, we'd be looking at a 6-month, a 12-month, an 18-month, something like that.
Mm.
This isn't, you know, initiative that's 10 years down the road.
Yeah. Okay. Kevin, maybe switching gears a little bit on P&L. I'm sure another question you've probably gotten a lot today as well, profitability.
Right.
When does this business start to kinda flip and show us the potential? It's highly recurring revenue, but stream should continue to grow. Maybe start us even at gross margins. You have a new facility, and how that flows down to the bottom line.
Yeah, so we are obviously in this environment, rightfully so, are talking a lot more about profitability. It's in the focus of investors, and frankly, it's a focus of the executive team here at PROCEPT, right? I mean, the first years of commercialization, you're in survival mode and just proving to the market that you have a viable technology, and I think we've kinda crossed that chasm to where internally, we're starting to focus a lot more on profitability. And 2024, I think, is a pivotal moment, a proof point for us to show folks that if you believe in the revenue growth of this business, it's a business that will get to profitability. So not only is it a fantastic product with great clinical results, it's a great business.
And I say that due to the recurring nature of the revenue, given the margin profile of the business, even today, I mean, reporting 56% margins in Q1, I think we're gonna be able to show nice, steady progression to 60%+ by Q4. And then, when I think about the leverage that we're already demonstrating on OpEx, we're already, I would say, at levels that you would expect for a much lower growth company. And what I mean by that is, our revenue guidance this year is about 60% growth. Our operating expenses are growing 30%, so roughly half the rate of growth in revenues. And over time, you're gonna see things like R&D. R&D is currently 30% of sales.
Mm.
At scale, that should be 10%-15% for a business like ours. Sales and marketing, you're gonna see a lot of leverage there as we increase utilization, perhaps as we can get greater productivity out of our capital team as the market matures a bit. So this is a business that we haven't been specific as to when it will be profitable, but if you believe in the revenue, again, you'll find in any model, it gets there with the cash we have on hand by a sufficient margin. And that was kinda the promise we made to folks when we did the follow-on last August, was raise enough funds to be able to get to the business to profitability with a reasonable cushion in investors' minds. And I think we're starting to prove that out in Q1. It's one quarter; we do appreciate that.
The mentality of the company, I'll say, has shifted to where we are scrutinizing things to a much greater extent than we were 2-3 years ago.
Yep, okay. We're under 1 minute left, so instead of squeezing one in, I'll give us all 30 seconds extra to try to get the elevator up to the breakout room.
Okay.
We are going now to the Burnham A room for our breakout.
Thank you.
Thank you.
Thank you.