Good afternoon. I'm Josh Chang from the TD Cowen Medical Devices team, and we are kicking off the afternoon sessions here down the medical devices track. We are excited to have once again the executive team from PROCEPT BioRobotics, CEO Reza Zadno and CFO Kevin Waters. Gentlemen, made it all the way out East. Appreciate your participation, and good to see you for the first time in person in 2025.
See you writing this.
Absolutely. So you guys had some headwinds to navigate through in the fourth quarter, still presented some really strong results, and not just for the fourth quarter, but for the entire year. And you guys are executing on your game plan to drive penetration of AquaBeam, now HYDROS, and the Aquablation treatment into the resective BPH opportunity. But maybe we just review the saline shortage impact. I know I think you have done a great job on the fourth quarter call laying all this, but just maybe help us fully understand, just to reiterate that headwind is in the rearview mirror, and how you guys are confident that as we are now in March and on the go-forward basis, that saline shortage impact is not a headwind.
Yeah, so we did spend some time on our call going through that impact in the fourth quarter. So we did estimate that up to 2,000 procedures, as you heard us talk about. And we did a pretty thorough analysis, both qualitatively in surveying accounts, surveying our reps. We're currently in every case. We have a high degree of visibility into lost procedures. And then we also looked at it quantitatively, where we understand our Q4 normal ordering patterns. We understand seasonality. And that's where we did see kind of up to 2,000 procedures being impacted in the fourth quarter. The third part of that equation is really the growth due to lost accounts as well. So we did not launch as many accounts in the fourth quarter than we would have anticipated. And we're now seeing that come to fruition in the first quarter, particularly in February and March.
So, to get to Q1, we did see this impact linger in January, but we had a very strong February. It feels like we're back to normal. March looks very strong, both on procedures per account and with account launches. And we feel that that impact is definitely in our rearview mirror at this point.
Importantly, that supply constraint by Baxter and the whole industry is alleviated.
Also, you know, as a background, BPH is a procedure that uses a lot of saline, about 10 liters, compared to other procedures in cardiology. And that was because it was also considered an elective procedure, was impacting all BPH procedures.
Great. Not just Aquablation.
In fact, we use less saline than other resective procedures, but overall, especially after the procedure to wash the bladder, that's where they use a lot of saline.
Thanks for that. And you guys have had a strong launch of the HYDROS robotic system, the next generation platform. 95% of the 4Q systems ordered were HYDROS. Was that a little bit faster than internal expectations, or was that what you guys expected? And maybe just help us think through the benefit in the fourth quarter.
On the mix, so as Josh pointed out, 95% of all of our sales in the U.S. in the fourth quarter were HYDROS. I think the mix was what we were expecting, so we did a hard launch, so in mid Q3, we basically looked to convert our full pipeline. And frankly, we're not terribly interested in selling AquaBeam any further in the U.S., so it wasn't a bifurcated strategy, so we did a hard cutover, so having 95% plus HYDROS in Q4 was expected. I think what wasn't expected is just the velocity around the absolute number of HYDROS sales in the fourth quarter here. It's very difficult to launch a new robotic system and convert sales within a given quarter, even within a given 3-6 months.
And I think the execution of our commercial team of converting all of AquaBeam to HYDROS really supports the value proposition there. Not only did we see higher absolute numbers, but just the average selling prices that we're seeing around HYDROS. We were right around $460,000 ASP in the U.S., which is almost $100,000 more than our previous generation. So it was good to see, and we see that momentum continuing into 2025.
Seems like, as you just described, there was some pent-up demand for HYDROS to a degree. And maybe that's still in play as we're moving into the early parts of 2025. Maybe just, you know, I heard, I think from your team over the past couple of years and from some urologists, that the AquaBeam system was still kind of the clinical system is the same system used in the clinical trials and that didn't slow your roll by any means. But there may have been some anticipation, especially from your high-volume users, that the next generation system was around the corner. But one, maybe talk about any pent-up demand and if that's still lingering as we move into 2025 for HYDROS.
And then, too, you know, just what's next in terms of evolution of the system from here even, and why is HYDROS. Our understanding is that the platform will continue to evolve and HYDROS makes it easier for software upgrades, etc., and to add features and capabilities.
So shortly after we launched AquaBeam in 2021 in the U.S., we started doing focus group surveys from the users, KOLs, to see where we should take the AquaBeam to. AquaBeam, as you mentioned, showed great clinical results. We still placed a few hundred of AquaBeam, and the clinical outcomes were great. Where we saw the need was to make the system to improve the workflow because you still had two towers, so we had to reduce the footprint. There was a one step of they had to re-sterilize the scope, so we used a single-use scope. Adding the First Assist AI was a big, big step there. And also, HYDROS is now a platform on which we can build the upgrades for the future. I mean, we are not definitely, we have not talked about what next generation will be.
As you can imagine, we don't want to disrupt our current system that we are, even HYDROS. We announced it just a week before we launched it even to our own sales team. So as you can imagine, our goal is to make the procedure simpler, whether in the setup, whether it is the upgrades. All of those will be on HYDROS. So as you can imagine, future upgrades could be making even the procedure even simpler.
Great. And it doesn't seem like there's been any pushback to the premium price for HYDROS based on the fourth quarter results and the guidance for 2025, but maybe just talk about the reception to the premium. It's still under $500,000, which kind of puts capital sales into a different category. But any pushback at all, or has it been smooth?
No, I mean, look, selling capital isn't easy, right, in any environment or at any price. But at the same time, I think the receptivity around HYDROS selling prices has been fine. I mean, there's been very limited pushback. With that said, our guidance for 2025, we guided a 430-440 range. We're coming off a quarter of 460. I think that gives us some flexibility there, Josh, if we were to run into any headwinds. But at this time, we have good visibility into the funnel. I can see what's out there in terms of selling prices. And we feel really good about our ability to kind of meet or exceed guidance there on pricing and are not getting a lot of pushback.
I think that's really just a testament to the features that Reza pointed out around workflow, around efficiency, and around ultimately the ability to treat more patients than they otherwise could.
Thinking about the handpiece, you have in the disposables for the procedure. You guys have introduced a single-use digital cystoscope for the procedure, which eliminates need for reprocessing, maybe some cost savings. I'd love to just hear about the cost savings element, if there's any way to quantify that, and just the stability of the handpiece, ASP, or just all disposables in the procedure. My understanding is that pricing is a parity to what you were offering with the AquaBeam, now with the HYDROS.
Besides the price, I'll let Kevin talk about the price. Just the fact that you are reusing a piece in the surgery, sometimes you don't know when that's going to fail. You use it until it fails. So that by itself is one less step they don't need to worry about. Reusing of it, single piece. Kevin, do you want to talk about?
Yeah, I mean, just pricing in general for handpieces. So you just heard me comment that we're pretty flexible on capital. There's a range. It can be variable quarter to quarter. We're very inflexible on the consumable part of the business. And we don't do a lot of discounting there. We don't do a lot of volume rebate type of arrangements. And HYDROS ASP, kind of apples to apples, is higher. Think of it $100-$200 higher than the AquaBeam system handpiece. But at the same time, we need to work through some of these larger pricing arrangements with our IDN partners and things of that nature. And we understand that's a recurring part of the business. We don't want to discount there. And we're going to continue to be very disciplined there with handpiece pricing.
Just my last point on handpiece pricing, and perhaps if HYDROS is $100-$200 higher, why are we guiding to flat ASPs year-over-year, right? The reality is the majority of all procedures being performed in 2025, 80-plus% will still be on the AquaBeam system. I mean, we're exiting 2024 with over 400 AquaBeams. Our plan is to sell over 200 HYDROS, but those accounts take time to ramp. As we've said consistently, they take two to three quarters to get to that corporate average. And therefore, handpiece ASPs are really being dragged down in 2025 due to the legacy system. And you'll start to see improvements there as we get into 2026.
That makes sense, and I know you've described this well over the last since you've become a public company, but just as you've increased utilization per system, that rate, that metric has been, I think, outpacing mostly in every quarter. The expectation is clearly Q4 was a different story because of the saline shortage headwind, but just what's driving that? Because it does take these new customers time to ramp up to full productivity, but I guess you're seeing from the customer base just accelerating utilization every quarter, but maybe you can help us work through that and talk about expectations for utilization per system in 2025.
I'll talk about the benefits, and Kevin talks about the actual utilization. You know, this is a procedure that standardizes BPH at the hospital. Surgeons do not need to worry about the prostate size. They don't need to know which procedure they're going to use. It's the same procedure independent of prostate size and shape. They can predict the total amount of procedure time. When they schedule it, they know every procedure is just about an hour. So they can schedule, make the practice more efficient. And of course, we have shown on the clinical outcomes, you know, from a clinical outcome for the patient. You know, in the randomized study, we showed better safety outcome, even long-term, great efficacy outcome. I don't know, Kevin, you want to talk about that?
Yeah, so maybe I'll frame it in terms of kind of our progression through 2025 and what that looks like. And we haven't guided specifically to any quarter outside of the first quarter in full year guidance. But you know, we've now had an opportunity to kind of go through consensus models and see what people are expecting in Q2 and Q3. And that would suggest that utilization growth on a per account level is somewhere in the low to mid single digits in Q2 and Q3. The great aspect there is coming off of February and March, given January was impacted by saline, to achieve kind of expectations in Q2 and Q3, you really don't need meaningful improvements in utilization from February and March run rates.
So I think we're starting at a place where we're not relying on any type of impact, both internally or externally, to kind of hit the guidance we put out there. And then you exit the year in Q4 kind of north of 20% growth in utilization, given the easy comparable. And when you kind of put that all together, it basically assumes that utilization is up about 10% year-over-year. And we are doing some things to try and help that in terms of programs we're running internally. You'll hear us talk a lot about just efficiency with our sales team. We're currently, in every case, in the U.S. I've said that already here. And with that, doing a single case on a single day is not terribly efficient. Having one surgeon within an account, not terribly efficient.
And so as we've progressed through kind of our commercial development here, we're looking at stacking cases, doing multiple cases on a given day. Given, I would say, much more awareness and adoption, we're able now to recruit two to three surgeons when we launch an account, not just one. And all of these are things that we think can help us drive increased utilization. But at the same time, our guidance for 2025 assumes relative status quo in terms of utilization growth.
Yes, you're going to beat me to the punch to one of my next questions just on this kind of stacking guidance to your centers. And I think maybe we were just assuming incorrectly that that may have already been in play for a while. But maybe just talk about, I guess, on average, where were most of your centers kind of doing onesies, twosies, and now you guys are helping them, well, all of the momentum and data accrual, etc., etc., as these centers are ramping up their utilization rates. But this stacking phenomenon, how new is it? And I guess, where are you exiting 2024 in terms of number of accounts that are stacking?
Yeah, sorry, Reza cut you off. I mean, we're not going to give percents. I'll say that, Josh, unfortunately. But I think it is something that is increasing over time. I think we really started to focus on that, I would say, probably mid-2024 in terms of really looking at our team, understanding that as we have this path towards profitability, getting efficiencies out of that commercial organization, it felt like the right time to start thinking about those things, and I mean, the low-hanging fruit is stacking cases. I mean, if you have a rep to cover one case on a Tuesday, I mean, that probably takes them out of pocket for two full days, right? So our ability to now have that rep spend the day at the hospital doing multiple cases is something we think is helpful and beneficial.
It's where we want this business to go longer term in terms of efficiency.
You know, in a high-volume center, there are 10 - 12 doctors. As Kevin mentioned, it's important that more of those 10, 12 perform the procedure so that if during the day there are two or three of them doing surgeries, you don't want to, because some of these doctors may not do BPH in a given month. So if more of them use Aquablation, the more chance you can stack all of them rather than just focusing on one or two who are there. Because we initially focused on the top high-volume surgeons in a high-volume center, but there are the other 10. So that's what Kevin is saying.
Yeah, great point. I wanted to ask about the international business, and seems to be inflecting demand, escalating. You guys have had great success already in the UK, but maybe just review the roadmap for international growth in 2025 and just some keys to sustainability into the out years. I think regional expansion seems to be a low-hanging fruit what you guys are doing strategically, and just love to review the roadmap there.
Yeah, so international. I let Kevin talk about the revenue. But our initial focus in every geography we went to was to market development. And by that, we mostly mean getting into guidelines, improve reimbursement. We made good progress in the U.K. That's where NICE had the endorsement. They gave us the highest level of endorsement with the reimbursement. So since then, we are seeing good progress in the U.K. And in Japan, after approval, we did a post-market surveillance. And so we are seeing good progress in the U.K. So in Japan, these are the first two. And in other geographies, it's the same. So for example, at EAU, coming EAU, we're going to. There's a physician-sponsored randomized study that was done with Aquablation against enucleation. And those results will be presented. And those will allow further data to get into guidelines for the international.
So we are seeing good momentum. Again, that's what we call market development. Kevin, do you want to?
Yeah, no, I think I'd point out, and we've been consistent ever since we went public. We believe the valuation of this business is supportable just by the U.S. alone, and we did not want to be relying on new markets, on international, to kind of get to where we need to get to in the next three to five years, but it's a very, I would say at this time, underappreciated opportunity for us and with a lot of room for upside there.
We'll touch on just the path to profitability a little bit later in the discussion. But just in the international business, you guys are launching in markets. I think you've talked about this where you can achieve some strong selling prices in the European or international business, not being a headwind to the margin expansion trajectory.
Yeah, there's no shortage, but having done this for over 20 years and in five different companies, and Reza's very similar, diluting focus and trying to be in too many places for a company our size, given the opportunity in the U.S., given the opportunity in the U.K., given the opportunity in Japan, we don't need to be everywhere right now, and we say no internationally a lot more than we say yes in a lot of different regions, and we're going to stick with that approach as we move forward.
Great. And I missed this question earlier before moving on to international, but just for the U.S. commercial effort, and you guys built out an IDN team last year. And maybe just talk about the positioning there and how you're thinking about the potential for bulk system orders from IDNs in 2025?
I guess I'll start. So first, I'd say our guidance doesn't imply that we need any type of large bulk orders from IDNs. But at the same time, we've built a strategic accounts team. And what we mean by that is historically, we always start, and we still do start like bottoms up with the surgeon, right? And that's how we've operated. But we feel now, given the general acceptance and awareness that kind of working both from the bottoms up and tops down, that's what our strategic accounts team is really focused on. It's having those relationships with the IDN CEO, the IDN CEO, CFO, excuse me, to really kind of work tops down. And ultimately, where we would like this company to get to is where we know at the beginning of any given year what that IDN is going to purchase within their hospital network.
We're not there yet. And I don't think we get there in 2025. But that's what this team is here to do. And I will say this, there is a tremendous amount of support from the top down at some of these large IDNs. And you're going to start to hear us talk more and more about this as we progress through 2025.
Okay, one other channel in the United States, the Ambulatory Surgical Center channel. Just talk about kind of the pilot system that was placed and how you guys are viewing this ASC opportunity going forward in 2025 and beyond.
The ASC pilot study that we started was, again, that demand that was from the ASC. We still have such a long runway in the hospitals, 2,700 hospitals in the U.S., that our goal was really to see the patient outcomes, the centers, profitability, utilization, and all of that is going well. We may do a few more, but our focus is still hospitals.
Understood. Indication expansion is a big opportunity for PROCEPT as well. Localized prostate cancer could increase the TAM significantly or will increase the TAM. We've heard that there's already urologists that are very comfortable treating concomitant BPH and localized prostate cancer cases. And maybe to start there, are you seeing utilization in those types of cases that concomitant BPH, localized prostate cancer scenario? Is that driving volumes at all, or is it still just too early in terms of the evolution of clinical evidence in prostate cancer?
We do not promote our product to be used for prostate cancer, and the primary goal for that is we want to generate clinical data. That's why we started PRCT001, PRCT002, and the WATER IV PCa. The first step over there was removing the contraindication that when we cut prostate cancer tissue, we don't spread cancer. We did a study outside the U.S., measured the circulating tumor cells prior to surgery, during, and after, and along with literature data submitted to the FDA to remove that contraindication. I think the halo effect is more on excitement about some of the urologists who are cancer specialists at the center to purchase the robot for the future. We do not promote for cancer because we want to generate the data first.
Makes sense. Excuse me. PRCT002, the IDE feasibility study results will be presented at AUA next month. Maybe just outside of those data, just talk about the early signal for Aquablation treatment of localized prostate cancer that's getting your team so enthused. And I think you reviewed some of this last year at the AUA Investor Day and over the course of 2024. But I'd love to just review that.
Yes, so our goal initially was to remove the contraindication. We did a handful of patients outside the United States. In those patients, the data was presented last AUA. Those patients, none of them had progressed from the grade group they were in after six months to a higher grade group. And all the tumor cells that we removed, they were not visible at six months. So those were the early signal that gave us the encouragement to start PRCT001, PRCT002. So at AUA, the data on 001, 002 will be presented. They will pool also because 001 was patients who had BPH and cancer. 002 was they had cancer, may or may not have BPH. But they pool 70 patients from the two groups with three months follow-up and 50 patients with six months follow-up. There's a center that will present their own data.
It's a very high center with a very high volume of patients on surveillance. They will present their own data, and we will also present an update on the WATER IV at AUA.
Great. On the WATER IV IDE design?
Yes.
Yep. Excellent. Nice segue into my next question. Obviously, the FDA is enthused about the early clinical signal as well because they've approved the IDE. And I think your team, I think you relayed on the fourth quarter earnings call that PROCEPT believes Aquablation therapy could become a first-line surgical treatment for localized prostate cancer. And I mean, how many years of follow-up results from the WATER IV trial do you think will be required for Aquablation to move to first line? And what is required for the urology community to view WATER IV results as that level one evidence that will get you to first line?
I think it's important to remember that the reason we are enthusiastic and the reason we believe FDA gave us this fast-track review is because current procedures have very high incidence of incontinence and erectile dysfunction. And that's why, I mean, in the U.S., let's call it about 3 million men with prostate cancer, only 100,000 or so do the surgery is because they worry about the side effects. And the good news with incontinence and erectile dysfunction is the results are acute. You see them within six months. And that's why we were able to work with the FDA to get the primary endpoint at six months. As far as so that we believe if patients see a safe procedure, particularly many of these patients, most of them also have BPH because they are about 50 years old.
But if you look last year when there was some data that was presented, a lot of these patients that are diagnosed with prostate cancer, within six to 12 months, more than 30% of them grow to a higher Grade Group when they are initially diagnosed. So we believe after six months to one year, if we show similar safety profile and show the efficacy results, I think people will start. But the study is designed for 10 years. And we will follow these patients for 10 years.
Excellent. So there could be some early adopters that look at that six-month, one-month, one-year data, and then others look at for two.
Just to be clear on that, though, I mean, we do not believe that 10-year data is necessary for us to go after what we're trying to go after. And I mean, our study is already FDA approved. The endpoints are already defined. And we're dealing with prostate cancer as opposed to other types of cancers to where the FDA is looking for something to come into this space and be a first-line treatment.
After six months, our primary endpoint is safety.
Excellent. And you're making investments to accelerate enrollment in the WATER IV trial. Maybe just help us think through what type of investments they are and how that can accelerate the enrollment pace.
Site initiation is the first. So as soon as we had to go ahead with the FDA with the trial, the first step is the site initiation. All the IRB, all the signatures, that takes a lot of effort from our part. So that's the investment in personnel to go and make sure the hospitals have the research team and they're willing to go through this trial. Next step is patient enrollment. Again, having all the proper information for the patients to know how the trial is designed, what are the chances of them getting into our group or the other group. So these were the costs that we had to add in order to accelerate. Do you want to talk about the?
Yeah. So what we're trying to influence is the timeline, right? And we think by kind of using some of our capital to help with enrollment and personnel costs, we can help improve that. So to put that in perspective, I think unencumbered enrolling this trial for 280 patients in 24 months would be very reasonable. I think that could be viewed as a success. But for us, we wanted to try and bring this in quicker. So the investments we're making are to try and get this enrollment completed in a 12-18-month time period. And assuming the six-month endpoints that Reza mentioned, you could kind of assume an 18-month enrollment, and then you could walk through what that could look like for potential revenue for prostate cancer.
Great. I'm going to sneak one last question in here as the shot clock is ringing. Just on the path of profitability has become a focus for investors. And you guys laid out guidance for 2025. Didn't give explicit details, but I think relayed that by as we move into the back half of the year, investors and analysts will be able to see that clear path of profitability. But anything to expand on your comments from the fourth quarter call?
No, I think it's fair, right? And we haven't guided any quarter in particular. But consensus right now has Q4 EBITDA right around break-even. I think that's consistent with remarks we've made. We're planning to exit the year around 65%-66% gross margins. Top-line revenue growth in the mid-40s and OpEx leverage, that's pretty good where a lot drops through the bottom line. And I don't think we're done there on margin expansion. We've talked a lot about getting this business to 70% gross margins. But at the same time, I think you'll find, like a lot of other razor or razor blade companies, that you can be highly profitable in the mid-60s.
All right. Let's stop there. Thank you guys so much and looking forward to seeing you in the.