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Executives

Josh Levine - President and CEO

Kelly Londy - EVP and CCO

Alex Muacevic - European CyberKnife Center

Eric Lartigau - Centre Oscar Lambret

Analysts

Steve Beuchaw - Morgan Stanley

Jason Wittes - Brean Capital

Anthony Petrone - Jefferies

Tycho Peterson - JPMorgan

Brooks O'Neil - Dougherty & Company

Accuray Incorporated (ARAY) Annual Analyst/Investor Meeting at ASTRO 2013 Conference Call September 16, 2013 7:00 AM ET

Josh Levine

Good morning. I would like to welcome everyone to the Accuray Investor Event this morning. What a difference a year makes. We have good weather this morning for those of you that were in Boston last year at this time. We had the unthinkable that never could have occurred in our life time, a force 4 hurricane blowing through Boston, Massachusetts.

I am really excited about this morning's session. We have a company in big transition, positive transition. We have a very, very different capability as a business. We've got terrific new products to sell and I think that if you talk to the people on the floor of the show, you will see and hear the excitement in customer’s minds about what they are seeing from Accuray.

Our intent this morning is to give you a little bit better insight into the things we're doing from a commercial strategy standpoint and the changes we've made in the business commercially and also really as a center piece for this morning's discussion to hear directly from some of our more important customer about their direct experiences with our two new products and platforms.

So with no further ado I just would like to call out the fact that during the presentation we'll be making forward-looking statements. You have seen our safe harbor language before. Today's agenda basically is going to involve again updates from a commercial perspective from Kelly Londy, our Chief Commercial Officer. We have from European CyberKnife Center, Dr. Alex Muacevic from the European CyberKnife Center in Munich. We have Prof. Eric Lartigau from Centre Oscar Lambret, in Lille, France. And then we’re going to turn it open for Q&A session at the end of the presentation this morning.

Before I start I would like to take a chance, just a minute to introduce my entire team. To my left is Kelly Londy, our Chief Commercial Officer; to Kelly's left is Dr. Alex Muacevic from the European CyberKnife Center; Prof. Lartigau from Centre Oscar Lambret; our new Chief Financial Officer, Greg Lichtwardt; Bob Ragusa is our Chief Operations and Global Service and R&D Executive. In the front row in following order [indiscernible] who runs our International Business; Theresa Dadone, who is our VP of HR; Calvin Maurer our Chief Technology Officer; Don Morlin who runs RAQA; Olly [ph] Nicholson who is our Chief Information Officer.

Wrapping around to the next table behind them, Darren Milliken our General Counsel; Andy Kirkpatrick our Senior VP of Business Development and next to Andy is Susan Hopkins our VP of Marketing. So I want to give the group a chance to see the team, and I guess at this point I will turn it over to Kelly.

Kelly Londy

Thank you Josh. So with our company overview, nothing new that you don't already know. We're moving forward with our principal location being in Sunnyvale, California. We also have locations in Madison, Wisconsin; Morges , Switzerland; Tokyo, Japan; and Hong Kong, China. As we look forward, we now have about 700 systems globally installed between the CyberKnife and the TomoTherapy, and we now have about 1,000 employees globally.

The global market for radiation therapy systems, the new system revenue right now is running almost $2 billion or $1.98 billion, and you can see here the breakout for where the market trends are. The Americas are still running at about 39%, EMEA 34% and APAC and Japan are growing rapidly. As we look for the new system revenue to increase over the next few years, this is actually helping to drive our commercial strategy.

As we move into our new products, on the show forward today you will see that we have our two new products that were actually introduced and launched last year. The TomoTherapy HDA system is versatile and efficient enabling delivery of highly effective treatments with a wide range of patient capabilities offering the most wide range of solutions to our patients and to the customers. We will have the physicians talking in depth about what they are seeing from the HDA in a few minutes, so I am not going to cover that in detail yet.

And then with our CyberKnife M6 series. The CyberKnife M6 is a superb radiation oncology solution for treating, tracking, and delivering precise radiation therapy with extreme, intense dose precision and accuracy. One of the benefits that we have been talking about over the last year is our improvements in reliability. Accuray continues to be the gold standard in reliability across the CyberKnife and TomoTherapy platforms.

As we look across, in August real data for the TomoTherapy system, we actually had a 99.04% uptime globally, and with the CyberKnife last August was actually 99.2% globally. We are very confident that our Reliability and clinical capabilities of the new system will provide our customers with the solutions they need to have the confidence to deliver the exact treatment for each of their patient needs as the patients are going through the process of dealing with radiation therapy as we move forward.

The Accuray product benefits are really focused around two main areas; clinical excellence which we are going to cover in great detail in a few minutes, but really improved economics as well. As we have been moving forward, are really taking the input from the voice of the customers into our business. We are really focused on attaching a new wider range of clinical capabilities, being able to allow our customers to collect more information to have wider treatments with maximum use of throughput, so most of our new enhancements really focused around the customers being able to have wider applications, improved throughput, and improved flexibility. This is a compelling argument to payers and to healthcare systems.

We have had a lot of catalysts for change. We all know what the past is, what is the future? We have had a change in CEO, so this is actually Josh’s one year anniversary; Astro last year we welcomed him on to the team. As we look forward, this has been a year of change in general. Astro represents my second year anniversary, so this is my second Astro with Accuray, but in that time, we also have had a wide change in our global leadership. So, we have new global commercial leaders in EMEA , in Accuray International, in Asia Pacific, and in marketing. This is a big deal as we are moving forward to look at the change that we are driving in the efficiency and business practice within our company.

As we are going through reorganization of our priorities to look at how we are improving throughput and efficiency within our process, we are really focused on several things. First is voice of customer, making sure that we are really getting the voice of customer into our indoor company, into the more fabric of what we are doing to drive engineering, product design, and new features and functionality moving forward.

Our new go-to-market strategy is really focused around providing solutions to customers that they really need to drive and enhance business ROI, and then finally is to grow profitably and that is the big thing that we have changed in our team and is really driving a lot of the process improvements that we are using internally that you don’t actually have benefit of seeing, but is really causing change within the company.

So, driving our order growth was really focused around three main pillars, improving sales execution, strategic marketing [initiative] (ph), changing how our go-to-market strategies are being brought to the market, and clearly product innovation.

Our strategy to support improved sales is focused on three main areas. Enabling a go-to-market execution that really focuses on how we are bringing brand awareness, company awareness, and product capabilities with clear product positioning to the market where we have established new reference sites for all our products. So, as we are looking for customer to customer interaction on the benefits of the product, we have reference sites now in each of our major regions for customers to go see the products, experience firsthand what the benefits are for their throughput and their patient/clinical capabilities.

We really are going to be maximizing the synergy between the brands. We have seen a big increase in customer awareness and the availability for them to purchase both systems. Tahbt is something that we have really seen of pretty good increase in our funnel of customers looking to have both solutions in their systems at the same time.

Finally, we are really working on leveraging our consumer awareness for both brands. If you fly on American Airlines in December, you will see the Accuray Commercial campaign. We actually will be showing all 70,000 flights for the month of December will feature Accuray Commercial campaign as part of the technology and innovation that is shown on every American flight. So, it’s not just going after what we are doing for physician decision with continuing education, driving the uptake in clinical capabilities, but also a brand and patient awareness campaign that we are kicking off.

The sustainability of our sales teams globally. As I mentioned, we have had a pretty significant change in the leadership of the sales team globally. We are now seeing traction that is really helping to support that these were the wide changes that are driving improvements in our market visibility, our funnel and pipeline, and how we are going to be driving the go-to-market strategy from sales execution as we move forward.

And finally, we are spending a lot of time on driving our sales team’s effectiveness and execution. So as we look to how to create and improve the sales tools, the customer’s need to deliver our new strategy to the market, this is something we are spending a lot of time. We have got new tools, new techniques, and new training that all of our global sales and commercial teams have been going through. Right now, the key focus for our sales execution and effectiveness; focus around the pipeline, market visibility, and the speed and urgency of which our customers are expecting us to reply and to support them, and these are big initiatives that we’re working with.

So the strategic marketing, really bringing in the voice of customers. We are recently getting the results back from a global study we did on voice of customer. This will be driving how we’re setting up moving forward with advisory boards in three main areas: so technical advisory boards from our customers to us, business advisory boards on what do they need to make sure that the ROI is something that they can live with, and the technical and clinical advisory boards, both disease focused and process focused as they are treating their specific patients. And of course, we continue to be dedicated to production innovation.

This year has been a great year for us in our service excellence. Accuray is clearly the gold standard in product performance and system delivery when you are above 99% up time that gives customers the confidence that you’re the right solution for the clinical and reliability throughput that they need to run their practices. We’re very pleased that we have recently won the new award for service excellence. A nice part of our business is the second time in row we’ve won this award for service excellence. So, customers are giving us great ratings on our service dependability, the reliability of our field team, and the value that they get from our service contracts. So, we’re very proud of this and think it really holds well for what the future is for our profitability and growth.

So product innovation, today in the booth, you’ll see lots of products innovation as we are committed to driving products and technologies that meet the customer needs. Our new products are catalysts for growth. We are seeing customers making the switch in all regions looking to move from what they have installed to the newest, latest, and greatest platforms, which are delivering speed, efficiency, versatility, and new possibilities as they’re continuing to drive their practice.

So in summary, from the commercial strategy we recognize that we need to continue to execute. Any two or three quarters in a row we’re getting progress and we’re trending in the right direction. Our strategy is clear, succinct and our field teams understand it. We need to grow new orders, we need to convert those orders into revenue with increasing gross profit and we need to be making sure that we’re running with an operating discipline that can help keep us profitable for the long run.

We are successfully executing the strategy and we’re seeing the progress in every way that we’re measuring the business. So we are very confident that the commercial transition that we went through in fiscal year ’13 is completed and fiscal year ’14 we’re now executing to the way that we had involved in the strategy. Okay, Josh?

Josh Levine

Kelly thanks. So, I’d like now to introduce Dr. Alex Muacevic, who runs the European CyberKnife Center in Munich their facility was the first of the new CyberKnife M6 installations and Dr. Muacevic and his staff had the most experience with actual patient treatment activity and patient volumes over time. So Alex, please come up.

Alex Muacevic

Thank you, Josh. Good morning, everybody. It’s pleasure for me to be here with you and share a couple of ideas about the new CyberKnife M6 system. You have to slide up. So we started CyberKnife program back in 2005 and since then we have treated 4,600 patients with a focus on intracranial and spinal radiosurgery and just recent was with the new system definitely the body indications rising and I will show you that very soon.

In our center we are really stick to the old dogma [ph] of pure radiosurgery developed back in the 60s. So most of our cases really are treated with one fraction. So this doesn't matter if this is in the brain or spine or the lung or the liver and I think CyberKnife is uniquely suited to do exactly that and is probably the radiosurgery system which can accomplish that. So most of the cases I show you here and I have a couple of examples will be treated just in one treatment cycle.

The M6 was installed December last year and we started treatment end of January this year. Just for those of you who are not so much quintet with Accuray radiosurgery on the daily business there is a typical indication. On the left hand side you see a tumor of the hearing nerve so called this tubulo glotinoma or acoustic neurinoma. This would by my neurosurgery colleagues would claim this is a good idea for brain surgery, which would be a four to five hours procedure, probably ICU one week on the ward eight weeks on rehab and then back to work but we think this is the right indication nowadays for Accuray radiosurgery.

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So this patient was treated with the old system in 2006. This is nowadays a 35 single procedure, outpatient procedure and patient can return to work on the next day and you see here the result after seven years, there is the confirmation that the tumor is completely gone. There is a little bit tradition just briefly. As I said in 2005 we started with the old G3 system upgrade to a G4, then the M6 beginning of the year. We began also with IRIS collimator in March and are looking forward to the implementation of the new MLC collimator.

So, the difference how it looks like on the left hand side you see the old system and on the right hand side the new configuration, which is now also equipped with a rubber couch. This is the transition in between, so if you want to switch from a G4 to an M6 you have to do some severe construction work. This is just a pick of our banker doing the construction. You have to put in the new floor frame and that’s quite a bit of a work but we could manage to do the whole shift and from the old system to the new system in only eight weeks and I think that’s pretty fast. So, these are the system components which you’re probably aware of, the 1000 MU LINAC , the robot, there is a new robot from KUKA from Germany, it has shorter arms and has some technical advantages compared to the old system.

So, there are still these tracking modalities, you’re probably aware of. So skull tracking, fiducial-free spine tracking, fiducial-free, backup based fiducial throughout body are still possible. There is a new software from Xsight lung which enables you to track also lung tumors without additional fiducials. Also this not working so far in each and every situation.

This just a pick, how it looks like during treatment. So no patient is in his normal clothes lying there on the couch and the robot is cruising around them. That’s picture from our physics team. That’s a precision end-to-end test. It shows that still with the system, the precision is very high for all kind of tracking capabilities, fiducials, skull tracking, spine tracking. Total tracking is beneath 0.5 millimeters and this is I think extra ordinary accurate and it could be more accurate actually.

Another clinical example, that’s something we are looking into and unique quite a bit, this dark spot about here is a real cell carcinoma in a patient who had removed his contralateral renal gland already. So there was just one single renal unit and there is another tumor. So, if you would remove this tumor you also would have to remove the whole renal gland and then obviously you end up with dialysis which is a very divesting thing. So, we treated this tumor together with our urology colleagues in July 2011, and this is just a follow up here June 2013, so just recently and you see here a little dark spot that is just the remaining scar. The tumor is completely gone and the renal gland still has its normal function, and I think these are kind of extraordinary cases and it is very hard to do something alike with another technology. I would claim, it’s not possible. This was also needless to say a single fraction procedure of about 40 minutes time frame. This is just little chart of the body treatments, so you can acknowledge that really is skipping up quite a bit and we expect this will be even more climbing in the following years.

That’s another interesting example you probably haven’t seen so often. That’s melanoma of eye globe, so called melanoma here, pretty large tumor. This would in 99% of the cases mean that you have to remove the eye which is really not a nice thing for patient and we treat these tumors together with our termalogy [ph] colleagues of the university hospital and you see here the result of the one year, the tumor standards basically remaining scar tissue and it doesn’t mean that the division can be kept of course in this situation but at least you can keep your eye, which is already a big thing in these situations.

With the new system, there are definitely advantages. In system geometry, you see here that the system is now positioned up at the head of the treatment couch before it was more lateral and this gives you optimized geometry for your beams coming in and you see here that this is better distribution of the notes compared to the old system.

It seems to be quite a bit more efficient. Even though these numbers you see here are all most of them are gathered with fixed cones, so a little bit of a IRIS and not MLC treatments so far but still because of these optimized factors there is a bit of increase in treatment time.

So the new product we are waiting for and probably we will discuss this a little bit later. It will be the MLC, you would have probably read and heard a lot about that. I am not going to talk too much about it but that’s definitely something we are looking for and really very interesting to bring this into clinical practice. To get an idea what this will achieve, we did together with Accuray and our physics team, a software simulation study of extra cases we already treated and simulated them, how would the treatment go if we would have treated this with the new MLC. And I just wanted to share these all a little bit with you.

That’s an AVM, ateriovenous malformation. So that’s basically vessels accumulated in the brain which are good indication for radiosurgery since 30 years. This is a very deep located AVM, on a very crucial part of the brain in the basal ganglia. So this is not operable. And due to this patient, some time ago, with single fraction of 16 Gy. And that we plan this with the new MLC, and you see that here on the right side. Actually the plan, if you look to the isodoses, so the lines here, they are really exactly the same. There is no difference.

And in terms of treatment time we saw that we needed in the past, 1 hour 45, which is a pretty long treatment. But this is also a very difficult lesion. So I think it is worthwhile spending this time. With the MLC we would have needed one hour less and that’s obviously significant faster treatment then. That’s another example what I have showed before. Kidney tumor, this was treated with one fraction of 25 Gy. You see here again there is no difference in the isodose configuration. But again you see the treatment time would have been much enlarged.

Next is a glomus tumor. That’s a very special tumor at the skull base. This tumor is pretty large. We treated this with 5x5 Gy. So on five days, following, and it’s almost the same. Here the fixed cone plan was slightly better but you see this significant time saving here from 1 hour 25 to only 25 minutes. This obviously is the most interesting plan that with the prostate treatment, I guess the new M6 is ideally suited in the future particularly for prostate treatments. This is again a compliant comparison. The left hand side you see fixed cones, on the right hand side you see MLC plan and that’s actually very interesting because the MLC plan is in fact better.

If you look to the rectum here compared to the fixed cone plan and this is a treatment plan for so called fuller protocol, so this patient would be treated on for four days, one day after the other. And this is a time gain here from 55 minutes to 35 minutes per day. So I like to conclude. So far the first seven months, where are I think, very positive. We have done 420 patient treatments in this time. That’s an increase of 25% in our center. We can confirm that there is high system availability. Precision is still very high. Good suited for full body radiosurgery, reduced average treatment time and we see a lot of potential for the new tool coming up. Thank you very much.

Josh Levine

Alex, thank you. I would now like to call up Professor Eric Lartigau of the Centre Oscar Lambret in Lille.

Eric Lartigau

Thank you very much. Good morning everybody. I am trying to get - this was Alex’s slide. It’s not mine, I must say, my pleasure Alex. Okay, so my first one. It’s a nice introduction for what I am going to be talking today on. I am Eric Lartigau. I am the Chairman of The Radiation Oncology Department in Lille in North France and I am working in an academic center which is one of the 20 regional cancer centers in France and I will come back on that because I think it’s virtually important on the subject today.

So I am going to be talking on TomoTherapy and mostly why we went to the TomoTherapy HDA and by the way we have the chance to have the first worldwide TomoTherapy HDA in my department in May this year. So we have the philosophy in the cancer centers in France which our academic departments as I said, and academic hospitals, and the philosophy of modern radiotherapy for us is to be precise and to get the optimal therapeutic ratio. And I would strongly emphasize the fact that radiotherapy today is really based on what is best therapeutic ratio. You have to cure and you all know that radiotherapy is very efficient to kill cancer. But you have to be able to do that without toxicity, without mobility.

And for those in the room, who know radiotherapy or who have been looking after radiotherapy systems and equipment’s in the last years, you know that most of the developments are today around the fact that we do deliver radiotherapy with much less acute and late toxicity as we did in the past. This is true for most of oncology and for chemotherapy drugs and for surgeons much better with much less toxicity, but it is very true for radiotherapy and the point is precision and you should talk about precision, you have to be very precise because lot of people are talking about that, but what is very important is to adapt the machine to patient and not to adapt the patient to the machine, and if you’re comparing the system then I will show you why the most therapies are key system in that field, it is because you may adapt really the machine to patients need and you don’t have to do any compromise to be adapting the patient to the patient, and this is very-very important in the field of radiotherapy whatever is the technique.

So in my department and its second key message, we have very different tools and the points for you today maybe to see on that slide that you may run very different machines on the same day on the same department with different patients need. Once again, I have different systems in my department and this is true for the 17 on 20 Academic Radiation Oncology Department in the 20 cancer centers in France, 17 on 20 have some Accuray Systems and are running different systems at the same time. I have two Varian Clinac, I have three Tomos, one Cyber, one Gam, and it works, and it’s together; so there is no way in saying that such a system some systems are not able to cope with other systems. You may run on a daily basis in a very busy European Department different system for the best of the patients.

We started with the Cyber in 2007 G4 and its still running and we have treated around 2000 patients mostly extracranial fractionated treatment, but I here today to talk about the TomoTherapy System. We started in 2009 and we went to third machine this year 2013 with an HDA System and at the same time we have been upgrading the two old IR Systems in order to have three HDA, so we brought new one and two upgraded systems why? What is plus of Tomo is to bring patients, doctors, physicist, nurses, technicians in the field of IGRT/IMRT? What is IGRT/IMRT? It’s not only bringing IMRT intensity modulation, in treatment delivery it’s to bring IMRT combined to daily IGRT image guided, it means that with the system you can’t you just can’t treat patients. If you don’t get the reposition in issue, if you don’t get images and if you don’t get the best of repositioning of the patient with some systems and I’m not here to promote I here to be a clinician.

What is very important with image guidance is that on a daily basis - where is the target and you’re treating according to what has been your initial plan. Image guidance means -- you know where is the target and you shoot at the target on a daily basis. If you do IMRT without checking at everyday where is the target, you may miss dramatically the target and that’s why combination of IG, image guidance, and IMRT, intensity modulation, is a key issue for modern radiotherapy. If you don’t do the two please don’t go to IMRT. That’s very important to keep in mind.

Sorry the system is not really smooth, should be coming, yes. Let’s get into clinical indications, it is a nice picture but it’s just to make the point that and you’ll see in three clinical examples that it’s possible today to treat most to tumors with a TomoTherapy machine. This machine made really a breakthrough in some clinical situation back to few years ago and you must know that in France in 2006, it was officially accepted by the National Regulatory Authority for such a clinical indication, craniospinal irradiation. Even if at the time we have no real clinical evidence of the benefit of using the system for craniospinal irradiation. The difference with traditional radiotherapy was such that the system was promoted to be accepted for that treatment.

So it’s a very interesting system you can see on the left that you can single role treat all brain and spin for patients with some cranial tumors like medulloblastomas mostly kids and if you do that with classical system, you have to take make difficult compromises making junctions in between field which makes in some cases very tricky situations to be sure that the dose will be nicely delivered and you have to divide the field in for example that clinical situation in three big fields. With the Tomo you can treat every single role without making junctions and with a very nice precision and this is very classical example on how the machine is giving is plus, but all together the big plus on how the dosage is delivered that’s a principle of IMRT.

You’re able to decrease the dose when the dose is not needed in some specific critical organ and if you do decrease dose in critical organs you do increase the tolerance for the patients and you increase the tolerance during delivery which takes some weeks then you can end up with a treatment without breaking the treatment without any stop and you all know that biologically speaking and medically speaking not stopping the treatment delivery is very-very important, it brings a big plus and you can really I think easily understand why on that screen, on the left you have a classical delivery for an anal canal cancer and you can see on the green that’s everything which is above 45 gray is green on the screen. So you have a large amount of normal tissues getting a 55 grade dose, which means bringing some kind of acute intolerance, acute toxicity. And you will see in a minute that this is key issue for aging patients who are very important patient today and the future in U.S. and Europe. And if you use such equipment you can see that the green is going down and you only keep high dose where it's needed, anal canal and surrounding tissues and inguinal lymph nodes growing lymph nodes. so that's exactly the kind of difference you can get with IMRT and of course as I said this is important only if you check it every day because if you remember the previous slide if you are not precise enough the high dose will not be in the anal canal or in the lymph nodes. The lymph nodes maybe out of this. So that's why bringing the two concept together is a key issue, checking every day.

Image guidance is very, very important. On that slide you have two images. You have engraved the reference image, the one which was chosen at start to make the dosimetry and in blue the image which is taken every day by the system and you make the fusion of the two, and you automatically reposition the target, the patient the table where it has to be to deliver the right dose at the right place. And if you go around, if you have two people how often you are doing these kind of repositioning you will see that lot of system are not doing this repositioning daily. If you don't do daily you save time, but if you don't do daily you may dramatically miss the targets and that's a key issue.

If you don't look at what you do, you are very good. If you start looking at what you do, you start to be not as good as you thought you were and then you make correct, and that's exactly it, and for patients it's of course a key issue. If you don't look at, you think everything is nice and you can carry on. If you start looking at you see that there are differences, patients are losing weight, tumors are moving around and that's the start of real precision in radiotherapy delivery.

A very classical example is head and neck. In head and neck tumors you have a very critical normal tissue which is the parotid gland, and if you give too high dose to the parotid gland you may decrease the quality of life of your patients. They will get what we call xerostomia, which means dry mouth and if you have a dry mouth you are not able to speak as quickly as possible as I the today for you to be able to get my message and of course on a daily basis it's very, very difficult. You can't phone, you can't talk for a long time. And this reality for head and neck patients in the last decade.

We can today really see when we start talking to a patient, if the patient was treated without IMRT or with IMRT, because in one way he has difficult to speak and in the other way he can speak just like me and you, and that’s very, very clearly demonstrated and we've randomized studies and this is a randomized study on the role of IMRT and it's coming from UK demonstrating that if you use that kind of technology real IG-IMRTs who are precise enough, you decrease toxicity.

A very key issue today is our of these systems and mostly are able to drive most of the treatments and of course a key point for radiotherapy is breast. You know that when we do breast conserving surgery, we have to deliver post operated therapy and this is a very important role of course for radiotherapy when we conserve the breast and when we want to have good clinical outcome.

This is maybe a too busy slide but the title only is important. If you don't do rightly radiotherapy you get toxicity, you get morbidity and in that case it's risk of ischemic heart disease in women after radiotherapy. This is not old data. This was published in the New England Journal in March this year. So still if you are not careful, you may bring toxicity. This of course is going back to some relatively old data published in the 90s and early 20s but still if you are not careful you can bring toxicity.

In this way is Tomo a plus? Yes Tomo is a plus, because what you can achieve with IG-IMRT with a system like Tomo compared to other systems, and that's a comparison of 3D, IMRT and TomoTherapy, Elico [ph] or TomoDirect is that indeed you improve dramatically the dose distribution and the dose opportunity. You have a better dose opportunity at the breast which means less toxicity, less skin toxicity and you decrease the dose to the critical organs lung and heart.

And in some tricky clinical situation like this patient with bilateral breast cancer, it's a patient from my department, this young lady had bilateral breast cancer. We had to treat two breasts, at the same time avoiding irradiating as much as possible the heart the lungs and delivering a high curative dose to the two breasts, this was typical of something we're able to do in a row by using Elico [ph] delivery and treating the two breasts at the same time.

We have been starting in my department comparing with the new HDA system. If there is a plus when we compare this TomoDirect system with classical 3D and the answer is yes. To put it very straight forward, using Tomo you are able to treat any clinical situation for breast. What we call simple is never simple, but what we call simple bilateral tension breasts, Tomo direct gives a better dose distribution compared to 3D and complicated cases with lymph node irradiation.

In U.S. lymph node irradiation in breast is not too much of an issue for, I would say a scientific and clinical reason. It’s still something we do in Europe but it’s something which may be coming back because I think there is also some clinical studies will be published soon, demonstrating that in some clinical situations, we have to irradiate lymph nodes and in that clinical situation using such equipments will be a very interesting issue. So in my department, we call the Tomo the Pink One because we have these kind of very strong program on breast radiotherapy demonstrating that using IG-IMRT with a system like Tomo is definitely a plus in most, most, most, most of clinical situations.

My last point will be to enter the field of adaptive radiotherapy, how to adapt. When you treat patients for weeks, the shape of the patient is changing, they are losing weight, their organs are more defined. So can we follow that and this is a very nice example coming from my department. On grey day one, on yellow day 22 you see the patient lost weight and you see that the rectum is not as simple as it was of course on the first day.

Once again, if you don’t look at, you don’t get that information and you don’t treat at the right place and if you look at you are able to see what is on the screen. This is big tumor at start and this is big tumor at week four. If you keep on keeping these volumes all along the treatment, you will end at week four delivering a high dose to the bladder which is not necessary because the tumor went down and you can try to avoid irradiating the bladder at some point. It was normal to do so at start, big tumor, it’s normal to avoid after a few weeks because the tumor is shrinking down. This is tumor, I mean adaptive radiotherapy, you adapt your treatment to what is the tumor during the delivery any day and on the long run and this is very important and to demonstrate that I am chairing a big national program in France which is called Termogene [ph]. It’s a phase III randomized study and we are looking at a comparison in between IG-IMRT and 3D in aging patients.

I do insist on aging patients. At least in U.S. and western Europe in the next decade half of the patients we would be treating will be over 70 and you may know that in this clinical situation first, we have very few scientific data because most of this aging patients have been excluded mostly in clinical research in the last decades, they were excluded due to age and due to poor tolerance of treatment. So having systems, we are able to demonstrate the benefit of radiotherapy in that population and being able to run a full treatment without toxicity is a key issue and that’s why we are starting to demonstrate in France by choosing IG-IMRT with Tomo brings a big, big difference in the tolerance and efficacy for these patients.

So you got it that’s why we strongly believe that IG-IMRT is a big plus and we strongly believe in my department and in most of the other departments in the Cancer Center in France that Tomo is bringing daily routine capacity, capability of delivering IG-IMRT for the doctors, for the physicist and of course for the patients.

So, I was very pleased with my two initial Tomo while getting an HDA because there are some plus in the HDA, three plus. First and we are really, we were really concerned about that and maybe some of you were concerned in the room, which was reliability. It’s very difficult to say for a Frenchman in English, RE-LI-ABILITY so I do it slowly for you to get it, sorry. I don’t know why but it’s quite a difficult word but still very important.

The new system is much more good at that than the old one, new target, new [indiscernible]. So, first you saw with Kelly the figures, it’s true. Nowadays these systems are running just like Linux, very strong, no issue. Second, there is a very, very, very good optimization tool. It could be maybe too difficult to spend time on that but what is an optimization system, it’s just to make a straight comparison when you have different options on different dose distribution to get what the best, how long it takes and what’s the best compromise? Are we spending hours on treatment, minutes and what will be the best delivery because you know the system has different kind of leads, small ones, large ones from 1cm to 5cm to 2.5. So you may design and define what the best compromise to have the best delivery and not to spend too much time on the machine for the patient and the new value system is delivering a very, very, very nice optimization.

And then last but not least, there are all the dynamic jaws and the EDGE which is interesting when you have a long fields to cut at the level of the critical organs and not to deliver on too much dose on the edge of longitudinal fields, which is very interesting in pelvic tumors and in adenoid tumors. So it was for us very logical to go from the systems we had to a new HDA and to upgrade the too old air heart [ph] we had, not so old but the two air hearts [ph] we had and this did work.

So as a conclusion, once again whatever will be your radiotherapy, patients will request personalized treatment, individualized treatment. I think it’s very true in U.S., it start to be very true in Europe and it would be a very true in the next 10 years anywhere. All patients on the planet will request to have adaptive personalized treatment to deliver and get the best of the treatment with as few intolerance, as few acute reactions as possible and that’s the field of IG-IMRT, whatever you say, whatever you want, whatever you do, this is the trend and nobody will go back on that trend. Future of radiotherapy will be IG-IMRT based and that’s for sure.

And my slide is a very positive one, it was on April this year, 2nd of April in my department in Lille. And you see how people can be happier on the system. On the left you have one of the Accuray engineers, were the guy who was at the department for putting the first HDA worldwide. This is the first HDA worldwide. At the time the light was green, now it’s pink and on the right you have the feduri [ph] with the physicist in my department and they spend a lot of time putting everything together and making everything working. So it’s nice to have some people of your group when you talk in front of such an audience and don’t forget physicists are key people in this and that’s where the system is interesting for them too.

So thank you very much for being with us today. Thanks.

Josh Levine

Thank you, Eric. So, we would like to turn this open now to Q&A session. I think that Lynn and Rebecca have handheld mics. If you just raise your hand and direct a question, we’ll get a mic to you.

Question-and-Answer Session

Steve Beuchaw - Morgan Stanley

It’s Steve Beuchaw from Morgan Stanley, I have a question that I would apply for both clinicians, though in slightly different ways. First, in Munich, could you speak to how you would imagine your use of the machine changing when you have the MLC available? You mentioned that it could be applicable for a wider range of cases. Could you elaborate on that, how many more? And in Lille on Tomo, I wonder if you could give us more of a sense for how you’re seeing the throughput on the machine, how many more patients per day can you treat based on your current experience? And then, I’ll throw one in for Kelly. Sorry about that.

Kelly Londy

Three for one.

Steve Beuchaw - Morgan Stanley

We’re really efficient . Could you give us a sense for what you’re seeing out in the field in competitive bidding situations when you’re head to head with the variance and the electives of the world, what are you seeing, what are you hearing from your customers, and when you make the comment that you’re comfortable with where you are with your commercial organization now, and does that mean that you’re seeing evidence that you’re winning in these competitive situations? Thanks.

Alex Muacevic

I think if we can shift, like 30% to 40% of the cases we currently treat with Iris of fixed cones to the MLC planning, we definitely should be able to have like 20% to 30% more throughput in our center compared to the current status, if we then also get these cases, but that probably is not a discussion. In theory, I think that is possible but just for your information, we still do not treat in Munich kind of these more standard indications like for example the biggest indication which is prostate, and if one would imagine that we could open up a prostate program together with our urology colleagues, this would be definitely many more, but we would probably wait to open the prostate program until the MLC is in place. Does that answer your question?

Eric Lartigau

Okay, for the Tomo, we need the patient’s workflow and with the whole optimization process we have been through a straightforward comparison, and we go down on 20% average on beam output. So first we go down on beam output which is an issue, and we have to work on the imaging acquisition, and then I think we could go to a 20% to 25% increase in patient’s workflow but still we have three machines, and we have to work in a very different way to how we’re working before. We’re trying to make the three -- the triplet comparable machines.

So we try to increase the patient’s workflow by being able to use the three machines, our very comparable machines not to have one patient on one machine, but to put patients on any of these three machines according to the daily workflow, according to whatever is the time of the patients’ arrival, so what we are doing and something very important is to make these three machines comparable and they are on this technical issue, and then to make the connectivity in between the three systems efficient enough to be able to go from one machine to the other, and that’s the real breakthrough. The real breakthrough will be within the connectivity in between the three systems, and that’s where I think we can gain 20% to 25% increase in patient’s workflow without too much of an issue.

Kelly Londy

And then for your question on how are we winning in competitive situations and what are we seeing in competitive bidding situations. As we have put together a new go-to-market strategy from our sales execution, new sales people, new territory designs both in the U.S. and in Europe specifically, and then enhanced by adding additional headcount in the emerging markets, we are actually seeing an increase of the market. In general, we win more than our share in the deals that we plan. So, with the new systems and having them installed now, having proof points to point to, to say that our new systems are actually able to deliver, that’s the one thing we didn’t have last year when we were at this show, and so we actually are doing a fairly good job of taking more competitive sockets than we ever have in the past. So, with our targeted approach to replacing competitive systems on upgrade and winning in competitive deals, I routinely hear competitors saying their system is just like a CyberKnife or just like a Tomo. Now that we have the proof points, we’ve definitely expanded the gap again in our technology leadership and innovation versus some of the competitors. Did I answer your question?

Jason Wittes - Brean Capital

Jason Wittes from Brean Capital. I guess, I’ll take three related questions here. First, last conference call you mentioned a renewed focused or a burgeoning focus on national accounts which really wasn’t in place before. I’d love to get a status of what’s going on there and whether that’s starting to impact the numbers.

Secondly, in the past you’ve talked about specific TomoTherapy -- or specifically TomoTherapy, how you’d like to focus it more on the smaller less than 3 LINAC centers and I’d also like to know how that outlook is going, and then I’d follow that with a question to the doctors who use the new TomoTherapy platform, is it really setup to be both the high end and a work horse machine, the way it sounds now , and I’d note that for some of the less complex cases, there is a question about what do you image, especially since you do radiate the patient when you image. So, if I could ask those three.

Josh Levine

So Jason, I’ll take the first one. We’ve identified that strategic accounts, national account focus on increasing the opportunities that we can compete for is a part of our thought process -- an active part of the thought process, and we’ve actually allocated more resources coming into our new fiscal cycle to that selling effort. We’ve had had, I’d say a skeleton crew of people coming into fiscal 2014. I think Kelly has added two people, has plans to add two people in that area.

Again, the focus there is on key strategic accounts, GPOs, both from a hospital system perspective as well as free standing centers that are focused on delivering cancer treatment and radiation therapy. So, people like U.S. oncology, the vantage oncologies of the world, if you understand that the national account type of selling activity, you recognize it’s a little bit of a longer developing discussion, the good news for us, I think, today is we are showing up. If I go back a year ago, maybe back to the time a year and a half ago when Kelly first joined the company, we really did not have any active selling activity taking place in those discussions. One of the things that having that visibility and getting on the radar screen does for you is it gives you early visibility to deal flow. You have a better understanding about when bunkers are coming up, you’re in the game from a discussion standpoint earlier.

But from just a process standpoint, the selling process and the contracting process there is a longer developing discussion, and then once you have the contract, you have a license to hunt, you need to basically be able to start to do the market development work within that system or that group to be able to make the contract have value for both them and yourself.

So, it’s a longer developing process in terms of from endpoint-to-endpoint, but it already gives us a chance to be more of a presence in those segments of the market that we hadn’t been in the past, and quite frankly to get a better understanding from a deal visibility in terms of early visibility timing.

So, question number two was -- So, I think the reality is this. One of the things that we had prophesied about and it was a hypothesis early on. So, when I landed last year was that when we look specifically at the TomoTherapy HDA device, we really thought that you had a product that could provide a clinical capability across the more standard cases more routine (inaudible) cases but also gave you the benefit of very complex - the complex dosimetry and dose contouring capabilities to treat the more complex cases and the assumption that we made upfront was that we might have now a single vault solution type of device.

I think that that possibility quite frankly exists. I think the likelihood at this point is that that develops over a little bit longer period of time. I think that probably the most natural place for our TomoHDA targeting is dual vault centers today, and the places where we’ve been strongest over time which is the three plus vault centers that tend to be associated with academic teaching facilities.

So, we’ve seen, I think, a very strong interest in our strongest historical base of customers and new accounts inside of that three plus vault configuration, and I think a fair amount of activity and interest in dual vault locations as well. I think we have to prove ourselves probably in the dual vault settings before we get the right to move forward into really driving the kind of customer market confidence that you could put a TomoHDA in a single vault location.

And that something that I would actually ask Eric Lartigau to address as well, if in fact in your experience Eric it would be - you would see, especially with the HDA capability the possibility of the decision to put that in the single vault type setting. Just to be clear, Eric’s - the footprint of center Centre Oscar Lambret is a remarkable place, when he’s got nine vaults, he saw the range of equipment he has got. So this capability is very, very advanced. It would not be typical of what you find in most customer locations but his experience with the equipment I think speaks for itself and it’s probably appropriate have him answer some of that.

Eric Lartigau

Thank you Josh. I think I can come back to your question because your question is about the profile of the system. And I think there is maybe a misunderstanding in the field. Tomo is not a complex machine. Tomo is a machine which is about to treat very complex cases. But, honestly speaking, and I am not going to be answering that question.

But ask the question to physicist who know different systems, whatever are the systems. And ask them just a straight question, what is the most easy machine to run for a QA, we call it check runs process. And what’s the best machine to run quick and nice dose optimization, just ask the question. Ask to one hundred physicists and you will get, if they really know, that everything which is existing, all systems, you will get the straight answer. And you will get what’s the straight answer is.

So it’s not a complex machine. It’s a very straightforward machine based on very bright knowledge and understanding by physicist at start, to what could be the best deliver in radiotherapy in the next decades. So back on that, it’s not complex. But you can treat and deliver very complex treatments. So if you can treat very complex treatment it’s not an issue to treat very simple.

Once again nothing is ever simple; I don’t know anything which is simple. Some people will say breast radiotherapy is very simple. Come-on, it’s not simple. I don’t know two ladies with same breast, same shape; it’s not simple at all. That’s why if you have system which is ready to be adapted to a wide variety or large group of patients with very different setting, clinical endpoints, that’s exactly what we need. And that’s where it’s not complex machine, but it’s a machine which is able to treat most of clinical situations today. Did I answer your point?

Jason Wittes - Brean Capital

Well, I was actually, some people heard about [indiscernible].

Eric Lartigau

I must be quick. We’re doing radiotherapy, what we call inverse planning. We base that inventory on the images, and we take images on the day before treatment and we base all the treatment on these images. So if you do that kind of those inventories, you need to be able on every day to check that you’re in the same reference system. If you are not in the same reference system, you will be out. So getting images today is just critical and everybody who is doing modern radiotherapy is getting daily images; end of the story.

Anthony Petrone - Jefferies

Good morning everyone. Anthony Petrone from Jefferies. One for the physicians, maybe we could, still in this topic, Alex and Eric; can you walk through the learning curves on each of the new systems? Eric with the new Tomo systems and Alex with the CyberKnife M6, and maybe a follow-up on this topic would be, however each of these systems expanding the practices in terms of addressing new cancer. You were both speaking about treating more complex tumors. Is there a percentage terms in which you can increase the number of patients you can now see with these new systems; now that you’re able to treat these new cancer types? And then I have a follow up for Josh, thanks.

Eric Lartigau

So in terms of learning curve, we are not doing basically different things than last year. So there is not a big technologically named learning curve, I can cite here. It’s just, I think our biggest concern in the beginning was, do we have the same technical stability as we had with the VoLO system? Because this was running particularly nice with these uptime data you heard today and when you got a brand new machine you are kind of concerned but fortunately this went so far quite well. Maybe that’s kind of something we hope to expect, but that’s not immediately a learning curve, but we did not need to learn something new. We hope we will increase and optimize our service with the new technology.

As I showed we could be already a bit faster. We think we can be much faster in the future. And as I answered to the first gentlemen this morning, we will probably open up new field of service, like prostate for example, what we don’t do so far. So there will be a lot of options for the future in terms of more cases to treat.

Back to the learning curve, for us it was easy because we are working on Tomos for some years. So we had to go into the VoLO system which is easy. So learning curve was straightforward. I would suppose for our new users that could be relatively easy because once again, what is difficulty is the optimization pathway in most of IGRT/IMRT, if you go to classical TPS. Optimizing dose delivery is complex. With the Tomo and mostly with the VoLO and that’s the big plus as I said, optimization is very straightforward. So I would suppose for our new users, it would be relatively easy, honestly speaking. Then clinical indications, for that the quick question was breast; because breast radiotherapy does represent 25% to 50% of the patients according to your kind of activity privatively academic nonacademic, so it’s a big lot of your patients, and we’re still working on that and the initial answer is we are quite sure we’ll be able to treat 99% of breast clinical cases with the TomoHDA, had the answer.

Anthony Petrone - Jefferies

Great. And for Josh, I noticed that while ago Accuray started the refurbishment program renew and so can you walk through that program, when it was initiated, what is the price difference between refurbished new machines and how expensive is the pipeline for refurbished machines? Thanks.

Josh Levine

Anthony, I’m going to ask Kelly to field that one.

Kelly Londy

So the renew program was actually launched last year at ASTRO. So it’s one-year old program. The price points vary; it depends on the system, age, and what we’ve actually done to it. So if the systems comes back into Accuray, we see where they’re now versus what the pipeline is for what a customer wants and which country they’re going to. Many of the countries around the world don’t have registration yet to move up to the HDA and M6 series. So therefore refurbishing a system to be adding a lower level, the cost point is significantly lower. We do upgrade them to whatever the maximum software and hardware is at that time. We put in all of the new hardware that is required for the uptime improvement that we made over the last year before we refurb those.

The pipeline is very robust and we are actually seeing the refurbish system going in many countries where we’re quoting those now in mature markets, which is little surprising to me. I thought they would be more of an immature emerging market system, but we’re quoting them in the U.S. and most of the countries in Western Europe. So it is something that we’re having a lot of activity and increased pipeline for customers who know they want the technology, but aren’t quite sure what their patient population is going to get for that. Did I answer your question?

Unidentified Analyst

Thanks. Rushdon Hoyles [ph] with Jefferies. A couple of follow-up question I could. In terms of the MLC data you presented certainly some dramatic improvement in treatment time in you simulations. How fast does it have to be in practical terms when it is finally launched to actually allow you to expand to some of these markets because that you’ve posted 35-minute treatment time for fraction in prostate, is that fast enough? My understanding is some of the other systems have faster fractions in, and also sort of follow-up question in terms of these software models that you’ve done in your experience how reliable are those in terms of what they actually produce in the real world when these machines are actually launched?

Alex Muacevic

Maybe starting with the second question, I think they’re actually the reality because this is the software already ready for the implementation, it’s just the hang up in the hardware part as far as I understood but maybe Accuray engineers can answer this even better than me, but the time calculations I showed you should be very reliable. In terms of speech, that’s a very good question difficult to answer, not the same thing for everybody.

I think you can also be too fast. I think for me emotionally 35 minutes would be the reasonable good time. There are machines out which can treat now days a brain lesion probably in two minutes, but then you get to the point that you can offer a treatment that the patient, human being cannot anticipate anymore, understand anymore.

Try to explain to patient that your tumor will be treated and be finished treatment in one session in two minutes. Most of my patients if I tell them instead of doing brain surgery, we treat you for 45 minutes in an outpatient setting here next week and you go to work the next day, they even don’t believe me that. I think technology also has to adapt a little to the capacity -- maybe that sounds a little bit philosophical, but I believe it’s true to the capacity of the people what they can understand. If this is drifting too far out from each other, you have another problem. The people probably don’t believe you. They think you’re talking nonsense and they might not get to you because don’t believe this can happen.

So this is a complex question. Of course you want to be faster and faster to be more efficient, more efficient, you have to be a little careful. I think you can be too fast of the one reason I said and you can probably also be too fast because of biology. All the models, all we know empirically and from experiments on other timeframes, do we have to get new models now? Do we need to do new research to understand if a 50 minute treatment is the same thing as a 5 minute treatment? We don’t ready answers for that so that’s not easy to answer.

Eric Lartigau

If I maybe just say a word on that. There a third issue which is, we’re doing a lot of extra-cranial indication with CyberKnife we have the G4 and same for the M6. Last but not least is tracking issue. It takes time because if the tracking, because you know real time speaking where is your target? So be a patient and consider first, we get a picture and we just try and grow the highs expecting that the target will not move during the two, three minutes or we take a bit more time and we know at any shoot any time where is the target?

So being a patient I would prefer the guys to take a bit more time but very precisely know at any time where is my target and be sure that they will follow my target and not expecting that my target will not move at any point, because we know it does move, anywhere in the body does, it moves less in the brain but outside of the brain it does moves a lot. So either you track and you really track and you know where it is and only the Cyber does that or you just take a picture and expect it will not be moving during and then there is an issue. So it's a big difference and anytime you should it track it takes time.

Unidentified Analyst

And just one quick follow up in terms of pricing, you mentioned the discussion you are starting to talk to more of these larger centers in more national contracts and things. I am curious you could offer any broad comments as to how pricing looks for systems and how much more flexible relative to your predecessor in terms of actually playing with pricing.

Josh Levine

So let me try and provide a little bit of insight on this. When I landed a year ago, the Company's traditional point of view really was very threshold, establishing floor thresholds for gross margin around product and hardware sales and I would identify that Kelly has been pushing for some time to be thinking in broader terms about this. I think we left quite frankly the typical discussion about trading pricing volume around equipment sales, we never really got far enough into a lot of conversations and negotiations in terms of deal flow because at certain points we essentially stepped out of the discussions because we bumped up against hard floor margin thresholds on equipment.

We don't get a chance to reinvest gross margin. We can only reinvest gross profit dollars, and one of the things that our view has changed significantly from the Company's approach this in the past is, we want to optimize and maximize gross profit dollars across both hardware and service revenue.

So when we talk about what the range or the universes of opportunities are for us today, we're talking about staying in deals longer, staying in conversations longer and not so repetitiously knocking ourselves out of the game by holding to the floors we held in the past. The bottom line is in competitive bunker takeaway situations, we get a chance where we win, we get a chance to book product revenue and the service contract, recurring revenue stream from a service contract perspective that drives off that equipment.

So we are, I think it's one of the primary reasons why we're staying in conversations longer, we have I think a more competitive stand than we had in the past. We've got quite frankly I think better product and functionality and feature set to talk about today. So I see a lot of really important things Raj lining up for us around product capability, around a renewed mindset and thought process around how we're going to compete and what it takes to compete in the business. And without degrading the quality the profitability stream we want to optimize and maximize gross profit dollars across both hardware and service. And we see I think a direct link to the robustness of the funnel, the opportunities that the scale of the opportunities and the volume of the opportunities are having a chance to compete for, I think has taken a dramatic move forward.

Kelly Londy

Just to add to that, one of the key things that has really helped with our price points configuration of being able to hold our margins higher is the new product or really the first line where we introduced three new product features and functionality price point levels in them. And what that does is allows us to go in and compete at various price points, with the system that's able to be upgraded. So selling the value of the features and functionalities as you move up to the price points, but something that we really didn't do before. We had one product and we kind of configured how it was configured. And so I think we lost value on the ability to position some of the key features and benefits as the customers wanted to add to it.

So I think that's been a big change in the commercial momentum of being able to compete more effectively and to have the product to be positioned. There was some internal debate about whether the customers would actually buy a system that was below the top tier configuration.

I can tell you that from the TomoTherapy and CyberKnife systems customers have purchased the top tier of the system. So we do have some of our new H series, we have two installed actually that are not HDA. And so it not only produces where you hit the right price point now to stay competitive but it gives us an upgrade opportunity in the future which always hardware and software and the feature always come at the higher margin. So I think that it is a good stream that we're building and having a real established value for features and functionality. So it is working so far.

Tycho Peterson - JPMorgan

Hey, its Tycho Peterson, JPMorgan. Just a couple of questions for the physicians, first for Eric. As we think about your mix on HDA, can you talk about what percentage of those you think will be more complex cases and how are you thinking about stereotactic radiosurgery on HDA as well?

Eric Lartigau

I have a chance to operate Cyber so I am not doing radiosurgery with the Tomo. I am doing all my SBRT, SRS with the CyberKnife and for me Tomo is really the IG-IMRT machine, meaning that we treat relatively large volumes and get the best of the dose distribution for relatively large volumes adenoid tumors, pelvic tumors, anal canal and centrally located tumor in the thorax. So once again the question with Tomo is not to get more complex cases because we are already covering the field of very complex cases. The profiling of the system is too good, I would not say down but to widen the scope and be able to treat simple cases which are routinely treated with by LINACs, the two volume LINACs I have.

So the scope is really to enlarge what the Tomos are profiled to at start and be able to treat most of the clinical situations with the Tomo and that’s why I say that today I strongly think that in the department 95%, 96% of all clinical cases IG-IMRT could be treated with Tomo. So to answer your question, my question is to be very straightforward, do I need LINAC in the future? That’s my question as a Chief of Academic Radiotherapy Department because is there a role for classical 3D treatment in some cases in the future I am not sure about that, even in palliative sittings, even in what is considered simple cases the role of IG-IMRT will be there and the patients would request whatever the clinical condition the best of the treatment which is normal. You don’t request a worse surgery because you are in some clinical situation. You request the best of surgery whatever is your clinical condition, same for radiotherapy, no way. So that’s why it’s a widening in the scope more than going from complex to non-complex cases. Was it clear?

Tycho Peterson - JPMorgan

Yes that’s helpful and then may be for Alex, in your decision to purchase the M6, can you may be just talk about whether you look at some of the other stereotactic platforms and any thoughts on how it stacks up versus EDGE or TrueBeam or some of the other systems?

Alex Muacevic

Yes, just want to make a remark to what we have just discussed before with Eric. I think your question went a little bit in the direction of how these different machines compete to each other and I think the Tomo machine, does compete to the conventional LINAC, a lot is probably favorable but you know it’s not my field but the CyberKnife is not a competitor for conventional radiation. It’s not a competitor for IMRT. It’s a dedicated radiosurgery machine and it’s a competitor for surgery.

So we use CyberKnife as a modern surgical tool and in fact in our center, at least the primary education of us, we are also surgeons and additional radiation oncologists but we started as surgeon we have surgeon thinking and I try with my colleagues at the University Hospital you know to approach primary the surgeons. So all these indications we have said together. Of course they are done through the academic tumor boards discussed with the medical oncologists and also the colleagues of the radiation oncology department but the indication givers are the surgeons. So CyberKnife is a surgical tool and I think that’s very important to remember and probably not all of you in this thought process.

I think to your second question, there are not so many dedicated SRS machines. Other vendors they claim, you can do everything with my machine. I have a conventional LINAC and this can do everything. This can do conventional, this can do IMRT and this can do radiosurgery.

I don’t know if this machine who can don’t everything at best level and I think every machine has its particular niche and CyberKnife definitely is a dedicated, as I said before SRS machine. The only competitor I see there for brain is the Gamma Knife what we did 10 years before but clearly that’s, I would say little bit of outdated technology. We don’t need this frame anymore and we would not like to have an SRS technology which is not able to treat throughout the whole body.

Tycho Peterson - JPMorgan

And then just lastly, are there any obvious enhancements you would like to see to the M6 and HDA systems?

Alex Muacevic

Compared to the old machine?

Tycho Peterson - JPMorgan

[Indiscernible]

Alex Muacevic

And the future from now on? Yes, definitely we are looking for the MSC [ph] part and otherwise I think the concept with the robot is a really genius concept. This is the only concept which brings you the flexibility in the whole body to do precise tracking. No other technology can do that and probably the little bit problem of the company that’s already so good, it’s a kind of difficult to pick so many improvements but I think the improvement will be that you force this nice technology more into the medical market; that’s the challenge to approach new fields and medicine via the different disciplines and that’s I think kind of a challenge and also the possibility.

Josh Levine

Tycho, I’m going to add or tack on this just for a second and I’m going obviously at the outset say that the most important part of the messaging is the clinical view of the world. These guys are the people and their teams are the people that are using these devices have had experience with broad-broad range of equipment not just the Accuray portfolio, Eric for this day obviously has many-many other products in his center.

I am going to answer or just add to the thought process around product positioning and market perceptions and this is really more from a marketing strategy strategic positioning perspective than anything else. It seems to me that the market has missed a big aha here around the uniqueness of these product platforms. I’ve a lot of a spec for our competitors they are big. They’ve got a lot of resources. They have been lazy, quite frankly, from a product innovation standpoint good enough has been their mantra and quite frankly it did need to be more than Accuray because they build very, very big business franchises and with good enough strategy.

I think one of the things that wasn’t happening here at Accuray that needed to be happening that is now happening is we’re getting very, very laser locked and very, very diligent at being better at communication what customer benefit and what patient benefit are coming out of the unique qualities and capabilities of our product platforms.

And I think we were vastly unsuccessful, quite frankly and in effective at a company at communicating those things over time historically, and so the fact that the market has missed it some of the responsibility so that I think lies historically with ourselves. I will tell you that from a marketing standpoint and from a messaging standpoint, and from a sales, strategy and sales execution standpoint, we’ve taken quantum lead from where we have been on that front in terms of getting the market to understand and getting in front of customers with the massage that these are unique products and they -- while other people maybe saying their products can do the same thing the truth is they can I’m not saying that our products are for everybody I think our products have a much broader swap, if you will, of opportunity with a broader piece of the market than they’ve had in the past because we have better functionality and feature set today and quite frankly we’re being much more effective at how we’re communicating that and how we’re competing.

When Accuray shows up today it’s not the same Accuray that the variance and electives were competing against a year ago, or two years ago, or three years ago, and that’s I think a really critical point. One last thought, I find it interesting I’ve gotten a lot of questions in the last month or so about what’s the market opportunity for CyberKnife SRS. It seems to me that we as I understand the way the markets developed and we really were the only voice in the market for a decade almost about the benefits of radiosurgery and the benefits of SBRT and SRS.

And the market obviously has woken up to the fact now that hypofractination, hypofractination is the direction this thing has headed. It’s a small piece of the overall mix right now. I’m not saying every facility and every location around the world is going to be doing SRS or SBRT but it will continue to grow as a component of the broader range of treatment opportunities and cases. And when you start to compare if you want to build the full body radiosurgery practice the only product you can do that with today is CyberKnife, EDGE will not get you there, Gamma Knife will not get you there.

So when people start talking about there is maybe 125 opportunities or the market opportunity in the U.S. market, let’s as a focal point for the discussion, there are 125 locations that might be able to take an EDGE. You’re comparing EDGE against CyberKnife and that’s an apples and oranges comparison, you just can’t compare the two. So…

Brooks O'Neil - Dougherty & Company

Brooks O'Neil at Dougherty and Company. So from the doctors I would just love for you to talk about the selection process and the dynamics around the selection process in terms of who decides, how you decided, how much time, what are the key factors, in terms of buying these new machines in today’s world? Thank you.

Alex Muacevic

Well, our situation was pretty straight forward. So it was the doctors itself who decided what they want to do. We had probably one big competitor which was the Brainlab and they were in the same cities located and back in 2005 we decided for a company, which was 9,000 kilometers away instead of 15,000. And of course this was also question but we never did regret that. The service Accuray is offering is really good. So they’re very fast. We had a very nice experience with our Siemens scanners. On the same day we had a problem with our Siemens CT and with the CyberKnife and we called both of them and I think it was a Thursday and the CyberKnife’s technician with a spare part was there on Friday and the Siemens guy from airlungen [ph], which is I think it’s like 120 kilometers away came next Tuesday.

So, the company there was really always very flexible and fast and that’s very important for the customers. What Eric said, the worst thing for us clinicians is that we cannot finish a treatment. Particularly if you do hypofractionation, we have five days and then on Tuesday you have a problem, you cannot finish the week, this is not good for the patient also not good for you. So, this of absolute critical importance that you trust the Company, that the Company gives you good support there that you have the technical stability for your treatment cycle. So decision process was in the beginning a big thought but we did not regret to this decision finally.

Eric Lartigau

For me it was bit different because I’m an Academy, and I’m Director and the Director decide at the end of the day - he does sign the contract with the company. So, it’s long and difficult process but it’s based on various simple issues. First, it does stress to doctors and if the doctors, consider about if there is one system which could be better on the case mix that we have he just follows then it goes to reimbursement what would be the business case around the patients who’d be treating, how many patients a day, a months, a year and what will the reimbursement issue.

And then it straight forward, if you have a good systems which are able to deliver the best operators whatever will be the future of reimbursement and you know that it’s stands in U.S. and in Europe, whatever would be the future, you will get the best of the reimbursement because you’ll be developing the best of the treatment for the best of the patients end of the story. So, no compromise on systems. If you have the best system delivering the best treatment, you’ll get the best reimbursement.

If you pretend to deliver the best treatment with systems which are not really designed to deliver sophisticated treatments, at the end of the day in French we say [Foreign Language] that you just fall because your foot is in the carpet. You see what I mean? That’s exactly it. So pretending something, at the end of the day if you don’t deliver, it’s worse.

So for my hospital and for most hospital is very straight forward. If you will go and that’s once again I do repeat myself but very clear 17 on 20 of the consistencies were in the same direction because at the end of the day, if you are able to really deliver what you’re pretending to do, you are safe, patients are confident, clinical results are good and you will be getting the best of the reimbursement. So that’s were actually simple system, it’s not as simple as it looks when I say so. It takes a slightly more time but that’s how it goes.

Alex Muacevic

I like probably to add for terms of future expectations what will be an interesting discussion is can modern LINAC machine and maybe particularly modern machines like the new Tomo and also the CyberKnife compete with Proton Facilities. These are facilities where I think now have absurd an higher cost ratio and I doubt that this is really enough beneficial to that it can justified to be installed and I believe maybe Eric will not have the same opinion, I don’t know but I believe the most modern and future IMRT and also robotic technologies will heavily complete with Proton Facilities and I think they will win the race.

Eric Lartigau

I strongly agree, but if we spend one second on Protons, just like classical medical survey, you have to demonstrate that you do better and what is actually happening in U.S. with Protons is prostate, it’s exactly it, when you get the clinical results, you have to get the clinical results you were expecting to get or you were pretending that you would be getting. If you don’t then your foot is back in the carpet.

So, in the field radiation oncology, most of the oncologists are very, very conservative people because the process is slow, toxicity is late in the patients. So we have to demonstrate very carefully that we do better. So, still today the best is Photons and best of delivery Photons. And for Protons it will take quite a long time to demonstrate that they do as good as with Photons, clinically speaking of course, so there is a still a big room there and there are I think there is quite a bright future for very sophisticated Photons machines due to what we know on clinical issues today.

Brooks O'Neil - Dougherty & Company

And this question is for Josh or Kelly. On the direct to consumer campaign that you initially talked about Kelly, can you just give us more details there and what was the thought process behind it? I think you mentioned that you’re going to have some sort of campaign in American Airlines and if you can just say which other mediums you are planning to do the marketing through?

Kelly Londy

As we move forward we are taking a three pronged approach on our corporate branding strategy. So we are going direct to physicians with continuing education, our users meetings, actively participating in shows like this, as being our avenue into physicians. We are going direct to patients. We have Thompson who is sitting in the audience here with our patient reimbursement, patient access, really looking at how do we make sure that patients have access to our technology when they need them, when they want it, with reimbursement and anything that we can do to help support that.

Then we’re going direct to consumers. And as I am talking to customers globally, I am shocked at how educated cancer patients make themselves. And the direct to consumer is really to educate about our products, about our technology, about the advantages that they can receive by seeking out some of these solutions. So as we move forward we are going to continue to invest in those three different campaigns for awareness.

The American Airlines that I mentioned is running the month of December. It is one of our first very public direct-to-consumer. We’ve done print ads before in a variety of magazines. We will continue to do that. But this is one that is really going to be very visible to the market and to the industry about our direct-to-consumer awareness of brand campaign and of the benefits that the patients can seek out related to our products. So don’t want to go into where the rest of them are yet, because they are coming and there will be nice surprises we talk in the future. But this one will be that every single U.S. flight from American Airlines in the month of December will show our corporate Ad, and it’s two minutes of each product, of the features, functionality and benefits from a consumer brand awareness campaign and goes into what our company is driving for from a philosophy in the future investment. Did I answer your question? Okay, excellent.

Josh Levine

Are we done, can we just. Okay, I want to just wrap up, I just say thank you very much for as to our esteemed clinicians. I want to thank the audience for your interest in what we are doing and how we are going about it. And we’re very encouraged about the direction that the business and the company is headed in. So thanks very much for your time and your participation this morning.

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Source: Accuray Incorporated Annual Analyst/Investor Meeting (Transcript)
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