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Syneron Medical Ltd., (NASDAQ:ELOS)

FDA Clearance of the UltraShape System Conference Call

April 17, 2014, 8:30 AM ET

Executives

Zack Kubow – Investor Relations The Ruth Group

Shimon Eckhouse – Chairman

Amit Meridor – Chief Executive Officer

Hugo Goldman – Chief Financial Officer

Brian Hayes – Vice President of Sales

Ruthie Amir – Global Vice President of Clinical and Regulatory Affairs

Analyst

Rich S. Newitter – Leerink Partners LLC

Jeremy Feffer – Cantor Fitzgerald

Anthony Vendetti – Maxim Group

Zack R. Ajzenman – Griffin Securities, Inc.

William J. Plovanic – Canaccord Genuity

John A. Baugh – Stifel, Nicolaus & Co., Inc.

Operator

Good day, ladies and gentlemen and welcome to the Syneron Medical Ltd., Conference Event. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this call maybe recorded.

I’ll now introduce your host for today’s conference, Zack Kubow of Ruth Group. You may begin.

Zack Kubow

Thank you, operator. I would like to welcome you to Syneron Medical’s conference call and webcast to discuss the FDA Clearance of the UltraShape System.

Statements on this call may be forward-looking within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, relating to the company’s future events or future performance, including statements with respect to Syneron’s expectations regarding, but not limited to prospects for the UltraShape System and business strategy. Syneron’s products and strategy to address the body contouring, the financial forecast for 2014 the launch of new products and the maintenance of a leadership position in core and non-core markets.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in any forward-looking statements. These risks may include, but are not limited to the risk factors set forth under the heading Risk Factors in Syneron’s Annual Report on Form 20-F filed with the SEC.

These factors are updated from time-to-time through the filing of reports and registration statements with the Securities and Exchange Commission. These statements are only predictions and Syneron cannot guarantee that they will in fact occur. The company does not assume any obligation to update the forward-looking statements discussed in today’s conference call and webcast.

Finally, the presentation slide of the company in this conference call are available through the webcast of the call available on Syneron’s investor relations website. We encourage listeners to log into the webcast in order to view the slides.

Participants on the call today our Syneron’s Chairman, Shimon Eckhouse, Syneron’s CEO, Amit Meridor and Syneron’s CFO, Hugo Goldman. Also on the call our Brian Hayes, VP of Sales and Dr. Ruthie Amir, Global VP of Clinical and Regulatory Affairs.

Now I would like to turn the call over to Shimon.

Shimon Eckhouse

Thank you very much Zack and good morning everybody, it’s a real pleasure to have all with us. On Slide number two you can see the safe harbor for forward-looking statements and let’s move to Slide number three which outlines what we want to discuss with you today.

What we’ll do is I’ll talk in some detail about UltraShape Technology and what it means; we will go through a summary of the clinical work that has been done on UltraShape over the last few years. And then I will turn the call over to Amit to talk about fat treatment and body shaping market opportunity, about the business model highlight and about specifically what we call our practice marketing program which are essential part of our strategy and I will take the call back to talk a little bit about growth opportunities and financial implication and at the end we’ll open up the call for questions and answers.

On Slide number 4, you can see a short summary out of the formal document that is always created when FDA gives you a clearance for device or technology. You can of course really be of certain there that really the main point which I would like to emphasize is that in device description we talk about the fact that our UltraShape device which we call the Contour I V3.1 selectively targets subcutaneous adipose tissue, which turns of course of fat tissue, using focused ultrasound for the purpose of non-invasive body contouring for aesthetic purposes, the intended use again in the formal language of the FDA is for non-invasive reduction in abdominal circumference.

The next slide. Slide number 5, is a short summary that gives you a little bit of a feel for what we mean by this unique pulse ultrasound technology that we usually the pursue [ph]. Essentially what we do is we use an applicator that is applied to the surface of the skin by the doctor; the applicator has inside a joy for the surface of the skin by the doctor. The applicator has inside it appears as a electric element in the form of spherical lenses that focuses the ultrasound and into depths of about 1.5cm or 0.6 inches down from the skin surface, which is essentially being little of the top layer of human being.

What this focus does is by applying the ultrasound energy to the surface and focusing it at the depths, at the top layer we create very high pressure oscillation, which have of course a pure mechanical effect. The most sensitive elements in this layer, in this top layer of the fat cells themselves, because fat cells are built out of mostly fat fluid triglycerides surrounded by a very thin membrane, which is very sound in mechanical.

As a result of that what this mechanical energy does is it breaks down the membranes, and once the membrane of the top layer is broken down, this fat layer is actually dead. The beauty of the technology is the fact that while top layer cells are very sensitive to it other parts of tissue are much less sensitive and as a result of that while we apply this energy, skin, nerves, blood vessels, connected tissue are essentially unharmed by the influence of this energy.

Combined with that we also designed the system in such a way that while we apply this mechanical energy, we have a very minimal heating of the tissue we had to focus part and as well as the other parts and the increase in temperature is about 1degreee Fahrenheit or 0.5 degree centigrade. As a result of that there is very little or no pain involved with the treatment, because we’re doing a pure mechanical effect.

Slide number 6 actually talks about a study that was done in the year 2009, this is a study performed on pigs by a research at the University of Texas Southwestern Medical Center where what they have done there is to apply the same kind of treatment that we do to human patients to the skin of pigs and what you can see here is a very nice demonstration of what we mean by destruction of fat cells both microscopically and macroscopically.

If you look on the two left hand side columns, you can see on the untreated biopsy that you do in fact it looks very typical, and what you see in it is the membranes of the fat layers with the fat cells inside the tissue, the way live or vital substance look. When you look on the treated area what you see is large bars and these large bars is actually the treatment has destructed the membranes of the fat layers and once that happens these fat layers are dead, they will never appear again, the fat layers the body will actually get rid of them.

What you can also see on this slide, and we have many more that’s demonstrated very clearly is that other part of the subcutaneous tissue such as blood vessels, connected tissue even nerve are unharmed by this mechanical energy. The right hand side two pictures in yellow are actually a microscopic picture of exactly the same effect where you can see the untreated side where you see a very continuous fat layer which is typical to subcutaneous tissue of pigs. In the untreated area and in the treated area we actually see microscopic voice [ph].

These are areas where the effect of the ultrasound was to breakdown the fat layers actually emulsify itself, actually liquefy it and of course this liquefied fat is fat that is not alive anymore and will be retrieved by the body. This study was b by the way published in the journal of Plastic And Reconstructive Surgery in July 2009.

Let me move now to even more exciting part of what we do, which is our clinical study and I’ll start out by a quick summary of what we have done in FDA, IDE study, this study was multi-center, Prospective, Randomized, Blinded, with the Controlled design. We did in four sites, three in the United States, one in Israel. In the U.S. the three sites were for Dr. Robert Weiss and very well known researcher and practicing doctor in the area of laser and other energy based devices in dermatology.

Professor William Coleman, from the Tulane University, again well know in the area of energy device for clinical dermatology and two plastic surgeons, one was professor Jeffrey Kenkel, again well known in the area of research and plastic surgery in general from the University of Texas and professor Dina Abdel who is the Chairman of the department of plastic surgery endurance center in one of the largest medical centers in Israel.

A total of a 150 subjects who are treated with follow-ups of up to four months and the endpoint as it was defined by the FDA was to measure the abdominal circumference of these patient and I’ll not go into all the details of how these measurements were done. The endpoint that the FDA acquired was to see a reduction in circumference minus whatever we have done in the control ended treated of at least 1.5 centimeters, what we have seen is actually a 2 centimeter reduction. And not only did we see it well beyond the endpoint defined by the FDA, what we have seen is with a very high statistical significance because of the large number of patients that we are included in this study.

In parallel with that of course and this measure is important, we didn’t see – our researchers didn’t see any adverse events, they didn’t use any kind of anesthesia or any other preparation for pain of the patients and it was very well tolerated by subject. And really the summary of that of course is the fact that we got FDA clearance, but it clearly demonstrates both the safety and the efficacy of this technology for non-invasive treatment.

Slide number 8 is actually a summary of not all but many of the clinical studies that had been done over the last 10 years with UltraShape Technology. Some of them have been done before we acquired the company, some of them had been done after, and really the way this slide is built you can see on the left hand column there the principle investigator, then you see the year and then you see the patient population of participated in the study. And column number four is really like the most important business end of the study which is the hour of circumference reduction that all we have seen.

I call your attention to the fact that the first trial was a single treatment and there they have seen a 2 centimeter circumferential reduction and all the others other than the one before the last, there were three treatments, all-in-all if you look at all the picture, you will see that we see very consistently significant circumference reduction in a very significant number of patients.

The last call and the very interesting one because in all of these case studies the investigators also gave a picture of what percentage of patients responded to the treatment and what you can see both on the response as well as the level of the satisfaction is that you get very high level of responders we are seeing a perfect medicine, it really a critical and essential element and the doctor being successful in telling this treatment to patient.

Slide number 10 is a study that was published down a year go, this is a group in Taiwan that as acquired one of our devices and did the study on their own, this was a study sponsored by us. They have done 32 Asian patients and they have done combined treatment of using our UltraShape technology together with VelaShape RF pre-heating which is an interesting way of doing it.

What they have seen is again a very similar results what I have just shown you, average circumference reduction was 2.9 plus or minus 1.8 centimeter which is almost to two pen sizes if you want to do it an American sizes, but what they have also done which is very interesting is they also imaged their patients using MRI technology which enables a very accurate measurement of the fat layer thickness and what they have seen is that on the upper abdomen they have 25% reduction in fat layer thickness and on the lower abdomen they have seen 21% reduction. This is very consistent of course with circumferential reduction that we are talking about and it’s a very direct expression of the fact that we actually dissolve fat or destruct fat by using this technology.

All-in-all when we summarize all of this over the years, there have been more than 20 clinical study published all the way from abstracts and conferences and presentation as well as many peer reviewed journals, more than 600 subjects participated in these studies, and this is not counting what we have done in the pre-IDE clinical studies. And again, what all of them showed very consistently is a very high safety profile, the fat that you see result as early as two week of post treatment and of course, direct evidence that you can dissolve fat using this technology.

The next five Slide are actually some sample pictures of what can be done with this technology, the first one if from Dr. Arie Benchetrit, this is one of our heavy users in Montreal, Canada for the last few years. The real interesting part of this slide is very the large area that had been treated with the device with this specific case, this is a three treatment result, you can see that there is a dramatic reduction in circumference, but you will see that there is much more than what you see in circumference.

We actually removed a significant amount of fat and this is four week post treatment. One of the beauties of UltraShape technology is the – that the applicator doesn’t need any kind of adjustment, it’s very easy to use it on any part of the body.

The next slide in the event of a very similar nature, this is a little bit older patient and again, you see the same kind of dramatic effect of significant amounts of fat which were removed non-invasively. Dr. Benchetrit by the way is a plastic surgeon that really loves this technology and using this very – has been using it very intensively over the last three, four years.

In the next slide, we show actually another patient, just again a doctor in Canada from Calgary, and what we show here in addition of course to the circumferential reduction that all these doctors measure in these treatment is the dramatic effect that you can see visibly in this case on the (indiscernible) we don’t show here the abdominal area itself. And it’s clearly visible, I mean it’s very clear that this is very dramatic effect and of course when we do it non-invasively it’s very exciting.

The next slide is again a male patient, and you see very similar results towards what we have shown before, but I want to call your attention to the little note shown under the picture on the right hand side, which is two weeks post-treatment. So not only can you get very dramatic results, but we can get it very quickly, which again is a unique advantage of UltraShape technology. Similarly the following slide is a female patient again very similar result what I’ve shown but the important factor here is the fact that this is two weeks post-treatment.

So to summarize what I have just said, UltraShape treatment truly brings a very unique and exciting value of proposition, the fast response for the treatment is visible fat reduction is extremely important. Both the patients as well as the doctors and really makes the marketing experience of the doctor much more attractive.

As I’ve shown you, we have a very intensive clinically documented set of data that shows the kind of reductions that we said that we can get with this treatment. The treatment itself is very flexible because of the design of the (indiscernible), we’ll see by the way which I’ve been mentioned on the machine itself that was shown in this slide is the upper part as you see is actually an optical tracking system, which helps the doctor in tracking areas that has treated this makes the treatment itself very easy to learn and, again, it’s very important in the business model of this device. The treatment itself is quick. It takes about one hour. Then of course the comfort, the patients and the lack of (indiscernible) is extremely important. And we conferred this technology to competing technology that got FDA clearance for cell destruction. We’re showing the shape on the right hand side and the other one on the – looking for shape on the left hand side and the other one is on the right hand side.

And, again, what is unique about UltraShape is that they use a mechanical effect. It’s non-thermal. Because of the effect you can be very selective. It’s very hard to be selective when we read this up or when included down because everything will be either heated up or cooled down. So by definition it is less selective.

The quick outcome, as I mentioned, is extremely important and when we compare to a thermal effect, this takes a much longer time. We know this very well because in most of our other devices we use thermal energy to do treatment. In there you really rely on the heating process of the tissue such as damage and these are very long hidden processes. They can take all the way from two to four, even five months until we see the final results. The treatments and process is very fast and really there is nothing, but same during the treatment and no post treatment discomfort, which is of course very important.

I want to turn over the call now to Amit Meridor, our CEO. He’ll talk about market potential.

Amit Meridor

Thank you, Shimon on the (indiscernible). I will begin on Slide 20. The global market for body shaping was estimated to reach $640 million in 2013. The device platforms driving $472 million or about three quarters of the research and the balance is $168 million coming from platform related disposable. It is encouraging that recurring revenue from disposable already represent one quarter of this sales generating and body shaping as we believe we are still early in the development of the consumable model, a significant upside to remind.

Global market for body shaping is expected to grow 13.3% per year through 2018. In 2013, it is estimated that there were more than 6 million procedures and generating more than $3.5 billion in fees of practitioners.

North America is one of the largest market opportunities for body shaping. The North American core market includes nearly 12,000 dermatologists and nearly 8,000 plastic surgeons or prime candidates that acquired this system. In the non-core market, there are around 44,000 OB/GYN, nearly 100,000 Family & General practitioners and around 10,000 EMP that could be potential UltraShape customers.

Slide 21 highlights the results for Medical Insight Annual Global Survey covering 186 strategic practice; the survey indicated that 45% of the practice that plan to purchase new equipment in 2014, stated that they would acquire body shaping devices and over 35% stated that they will purchase skin tightening systems.

Now we will transfer to a review of the UltraShape business model. Slide 23, UltraShape provides significant value for physicians, on slide 23 we have summarized some of these key value propositions. First UltraShape computer guided treatment is easy to learn and use. In international market, our customers have reported high level of staff acceptance of this system.

Second, UltraShape is the first and the only focused ultrasound system acceptance for the fat destruction in the U.S. equally important in an environment where practice are looking for ways of differentiating themselves from the competition. It is structurally important for high demand treatment such as non-invasive fat destruction and body shaping.

Third, because Syneron offers a broad range of body (indiscernible) technology, physician cannot only track new patients, but they can cross sell other complimentary treatment to enhance the patient’s experience and outcomes. Four, there are strong economics for their physician with the UltraShape, we estimated that the practice will UltraShape volume of 30 treatments per month would generate $220,000 to $250,000 per year with an incremental revenue excluding any cross selling. These are powerful value proposition for physicians which we believe position UltraShape for success.

Moving to Slide 24. We are excited to launch the new customer partnership model with relative to UltraShape System in the U.S.; we will have the provision of capital equipment systems sales where we expect UltraShape to be prices around $100,000 in the U.S. which would be inline with the competitive comparative systems. Along with this system we are introducing a new consumable model in which physician or practice will purchase Focal Treatment Zones or FTZ based on their patient volumes. We will sell the FTZ on secure USB key to practice for $25 each. Another treatment maybe equivalent to 10 FTZ, we expect the FTZ’s cost to be approximately 25% to 33% of the treatment revenue, providing our customer with an attractive modeling profile.

Moving to Slide 25, in order to support this new business model of capital equipment and FTZ sales. We plan to digitize our sales force focus zones, UltraShape to include territory manager responsible for capital sales and practice development partners or PDP to provide local support and drive utilization as pictures on Slide 25. The PDPs will focus on educating physician on this part on the UltraShape technology on system and providing practice marketing support.

The ultimate goal of the practice development partners is to drive utilization of the FTZs as outlined on Slide number 26. They will achieve this by providing practice, marketing support, education and best practice, hospital patient event and providing ongoing training. A key element of this strategy our co-marketing program in which we partner with our customers to help them with marketing campaign to drive UltraShape utilization by both existing and new patients. A portion of the $25 FTZ keys is allocated for reinvestment and marketing support for our customers.

I will now turn the call back to Shimon for review of the growth and financial implication of the UltraShape FDA clearance and our new business model. Shimon

Shimon Eckhouse

Thank you Amit, and hello everybody again. As we you see on Slide 28 we believe that the FDA approval of selective fat destruction that Syneron has got the very unique milestone that opens up very important opportunity for us. This together was our very strong current position in the area of body shaping and skin tightening actually brought us to the conclusion that it is time to establish a dedicated body shaping business groups, that will be focused on the unique features that we have with UltraShape it will have a dedicated sales force.

And as Amit pointed out it will also have a dedicated group of PDPs their main focus will be practice support and meeting its wide utilization of FTZs or their current revenue part of this business. We plan to really leverage our existing installed base and of course a very large footprint in international market gives us additional opportunity to the trends and technology and consumable following this very unique FDA approval.

We plan the basic strategy is to partner and to grow together with our customers, because at the end of the day their success is our success and the combination of technology that we have given us a really unique position in the market.

In terms of our timing as you can see on Slide 29, we are sizing our controlled launch in this quarter in Q2 of 2014. We plan to limit our sales to key opinion leaders and other high-end doctors and do it in a very consoled manner. The main focus will be not only on those are sound but also practice satisfaction and financial outcome for the practice it sells which in order of buying would enable us very strong future growth in this business area.

But we plan a broader full commercial launch in the early part of 2015, again, using our installed base of 7,000 VelaShape systems around of the world. And not only those but really addressed other practices that used body shaping their technology from competitors or some others. And, again, the worldwide market gives us a very unique opportunity.

Our end goal is to reach a market share of 20% to 30% of this market within three years up to-date. Of course, our focus operational implication that Amit already pointed out too. In practical terms we are planning to over the next 12 months until mid-2015 to build up their dedicated body shaping sales force which will have 25 reps in the United States.

And the PDP group of course, was essentially part of that to drive our recurring revenue as well as the partnership with the doctors. And, of course, we plan to be very aggressive in driving the awareness of this unique technology that now has FDA clearance.

Slide 31 is really a little bit of a snapshot of what in assets that we have in body shaping. Actually all of them are result of many, many years of clinical and technological research. And this combination of VelaShape III, UltraShape, as well as our very recent acquisition of CoolTouch, which gives us a Cool Lipo system that can be used for laser-assisted lipo section really puts us a in a very unique position in this body shaping and fat destruction area.

So to summarize our non-invasive UltraShape technology gives us the unique opportunity to be instant, selective, and very effective and, of course, very safe fat cell destruction.

With this slide, I’d like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Rich Newitter of Leerink Partners. Your line is open.

Rich S. Newitter – Leerink Partners LLC

Hi, thanks for taking the question and then congratulations on the UltraShape approval. May be just I wanted to start off, can you – I don’t know if you mentioned about the actual FDA label is? Is this going to be non-invasive? What can you market this as?

Amit Meridor

Okay. Actually we have a quote of the intended of use and the device description and it talks about the reflection effect for the purpose of abdominal circumferential reduction. Is this accurate (indiscernible).

Shimon Eckhouse

Okay.

Rich S. Newitter – Leerink Partners LLC

Yes. Okay, thanks. That’s helpful. And I wanted to – so, one, you said that you think you can get to 30% of the global market, so whatever between let’s just say $250 million and $300 million over the next three years, is that a number that you think I mean three years, starting 2014 is the first year or and then it’s just going to be extremely backend loaded, that’s a big number and if we are not really expecting much contribution in 2014, I am just trying to get a feel for the cadence there and when we can really expect that to may be begin to inflect.

Shimon Eckhouse

Yes. As we pointed out, we plan full commercial launch beginning of 2015, so three years and the end of 2013. So at –

Hugo Goldman

2017.

Shimon Eckhouse

Thank you, Hugo. That was very helpful. So this is what we plan to see in three years. The exact figures as for what’s called the body shaping market has sometimes confusing, not everybody defines it in exactly the same manner, but we believe that was the unique feature that we have here as well as the footprint what we have, we tend to use this market share by the end of 2017.

Rich S. Newitter – Leerink Partners LLC

Terrific. And then may be if I could just get one more in, so UltraShape is a product that’s been around for quite some time in U.S. market. I think you said you had over 600 treatments so far.

Shimon Eckhouse

Units, we meant units.

Rich S. Newitter – Leerink Partners LLC

Units okay units sorry. May be just help me understand so, the ramp there has been somewhat disappointing I think even before you acquire the technology. What’s different about the latest version of this technology or what can give us confidence that now that your FDA approved the trajectory is going to meaningfully change on a global basis. What is the different now to kind of get UltraShape to take-off in a way that you hope it will?

Shimon Eckhouse

Okay, so first of all and in a way the answer is in the question. We’ve seen lots of rejection typically encouraged by competitor of the technology in international market, excuse me in international market because of the fact that the technology has been approved.

This was a big drawback that we suffered from in many markets and here the company decided that for us the really most important focus once UltraShape became product of Syneron is to make sure that we take this out of the way. And this is what we have done over the last two years since we acquired the company.

So the first element is the fact that we didn’t have the FDA Clearance really to put it in a number of statements it didn’t help us. Because of that fact we also decided that it doesn’t make much sense to try and push it too hard in international market before this cloud or this question mark is removed.

And when we combine that with what we know about this technology and how successful it is and how unique it is in terms of its clinical outcome, we feel very confident that we do much better of course in the U.S. but also in international markets.

Rich S. Newitter – Leerink Partners LLC

Thanks.

Operator

Thank you. Our next question comes from Jeremy Feffer of Cantor Fitzgerald. Your line is open.

Jeremy Feffer – Cantor Fitzgerald

Hi, good morning guys, thanks for taking my questions. First on the new – sir if you perhaps clarify the 25 reps you are adding that’s going to be in addition to the sales force additions you’ve already made?

Shimon Eckhouse

Yes, the 25 stems for a combination of new reps that is own capital equipment as well as PDP, which means that all-in-all when we look 12 months down the road we are expecting to have a total sales force of the order of 80 to nearly 95 people in the U.S.

Jeremy Feffer – Cantor Fitzgerald

Okay and those are people you are starting to hire now hence the limited early launch?

Shimon Eckhouse

Correct, correct.

Jeremy Feffer – Cantor Fitzgerald

Okay and…

Shimon Eckhouse

And we have learned from practical terms that the learning period until a new sales rep becomes effective takes typically two to three quarters. So we want to be very conservative perhaps.

Jeremy Feffer – Cantor Fitzgerald

No that make sense. I know you guys were or you held some events up in Canada with some key opinion leaders, are these some of the same physicians you will be – who will be involved in the early launch?

Shimon Eckhouse

Yes, yes.

Jeremy Feffer – Cantor Fitzgerald

And what kind of feedback if you gotten from them, even if there were some constructive criticism, any sort of things that they notice that you are trying to improve upon?

Shimon Eckhouse

Well, the main criticism we got was how come we don’t have FDA clearance yet. So we took care of that problem, we took us a while, but they are happy with the end result, and its pulse was extremely positive, because what we have done there is really share with them in very intimate on both the science and the clinical part and the work that we have done all the way from many animal trials and of course in a clinical trials that we discussed in this call. Going to less of detail there which really was very well expected.

Jeremy Feffer – Cantor Fitzgerald

Okay and then last one for me, when you we talk about this 25% to 30% global share in three years. Roughly how much of that do you think will come from core versus non-core accounts. I’m trying to get a sense of how big this opportunity can be among non-core accounts.

Shimon Eckhouse

Yes, I believe that should be around 50% at the end of the day, not at the beginning of course, but this technology is very user friendly and once its well established and we have all the opportunity in place it can be done by non-core (indiscernible).

Jeremy Feffer – Cantor Fitzgerald

Okay. thank you very much. Appreciate it.

Shimon Eckhouse

Thank you.

Amit Meridor

Thank you.

Operator

Thank you, again. (Operator Instructions) Our next question comes from Anthony Vendetti of Maxim Group. Your line is open.

Anthony Vendetti – Maxim Group

Thank you. Just Shimon or Amit on the costs, you said its going to be about 100,000 is the list and then $25 per disposable. Did you say that the average treatment to get a full abdomen which I’m guessing would include the flanks as well as the abdomen would be about 10 of those cycles or 10 of those disposables?

Amit Meridor

Yes, this is Amit. Yes absolutely and we average around 10 FTZs for treatment.

Shimon Eckhouse

But we reduce the treat…

Amit Meridor

But we need three treatments to complete the whole cycle.

Anthony Vendetti – Maxim Group

So it’s 10 treatments per visit and you need – are you saying you need about three visits to get the full 2.5 centimeter reduction, is that correct?

Amit Meridor

Yes, yes, you believe by the way the number will be lesser than that in terms of production, but in terms of what the current protocol is, we use three treatment two weeks apart so it’s like four week deal for the doctor and for the patient. In each treatment we estimate about 10 FTZs to be used by the doctor. So all-in-all when you add all of this up the cost of the doctor will be around $700 for these three treatments and we estimate this to be between 25% to 33% of the revenue that a doctor can generate out of a treatment like that and this is like an average U.S. number, of course there will be duration and so on and so forth and we have lots of data from Canada, where these systems are used quite extensively. So these are the numbers we’re talking about.

Anthony Vendetti – Maxim Group

And in terms of the time of the treatment so those 10 cycles in one visit or one treatment, full treatment cycle, those 10 cycles take approximately how long?

Amit Meridor

About one hour, a little bit less than one hour. And its not cycles it FTZ, don’t confuse things.

Anthony Vendetti – Maxim Group

Okay, FTZ and then – so right now you’re going to be rolling this out to the key opinion leaders and luminaries for the remainder of this year and you are going to – I just want to emphasize – just clarify actually the sales number. So, you’re going to grow your body shaping sales force to 25 in approximately 12 months and is that going to include I think it’s a PDPs, I don’t know are those product development specialist or people that are going to help?

Amit Meridor

Product development specialist, yes.

Anthony Vendetti – Maxim Group

Okay, and so the 25 includes the sales people as well as that or is it 25 sales people plus some products?

Amit Meridor

For the next 12 months that the total dedicated sales force for that yes.

Anthony Vendetti – Maxim Group

We’ll be 25 in total sales plus the product development specialists.

Amit Meridor

Correct, correct.

Anthony Vendetti – Maxim Group

Okay, okay, great. All right thanks very much. I’ll hop back in the queue.

Amit Meridor

Thank you, Anthony.

Operator

Thank you. Our next question comes from Zack Ajzenman of Griffin Securities, Inc. Your line is open.

Zack R. Ajzenman – Griffin Securities, Inc.

Thanks. Good afternoon over there gentlemen. First question can you talk about maybe the gross margin profile for UltraShape, ultra to corporate gross margin level?

Shimon Eckhouse

Yes, we will found the capital equipment side and on the current revenue side you will be very close to what we see in Syneron which is actually better than that, which is 80% plus.

Zack R. Ajzenman – Griffin Securities, Inc.

Okay. And so I just thinking that value with some of the market share gains and projections that were thinking it about now for the body shaping market UltraShape, but is it fair to say that we will now imply total revenues top line at the 2014 beyond going double-digit range?

Shimon Eckhouse

2014

Zack R. Ajzenman – Griffin Securities, Inc.

Yes, I am sorry, 2015 when the full launch event..

Shimon Eckhouse

Yes, yes

Zack R. Ajzenman – Griffin Securities, Inc.

Okay, great. Thank that’s it from me.

Shimon Eckhouse

Thank you.

Amit Meridor

Thank you.

Operator

Thank you. Our next question comes from Bill Plovanic of Canaccord Genuity. Your line is open.

William J. Plovanic – Canaccord Genuity

Great, thank you. Good morning.

Shimon Eckhouse

Hi, Bill.

Amit Meridor

Good morning.

William J. Plovanic – Canaccord Genuity

Just a couple of questions, with the commercial rollout you are taking your time on this in methodically doing it. Are you waiting for FDA clearance of any other like yield in next generation products. So I guess the question I am coming at is with the current generation that your commercializing is that the same generation you have globally or you waiting for some refinements in the U.S. before fully rolled out?

Shimon Eckhouse

Well as you know whatever we do to keep on improving queue for this technology as well. We have pipeline specifically here as well as with other products and we will keep on doing it, but what we are rolling out is effects with enough to very competitive in the U.S. market.

William J. Plovanic – Canaccord Genuity

Okay. And then the disposable reps that you talked about or the PDP’s are they going to be focused only on the Fat products you have the body shaping products or will they also help with the rest of our product line?

Shimon Eckhouse

They will helpful everything that as to do in body shaping which include Velashape III and Cool Lipo.

William J. Plovanic – Canaccord Genuity

Okay so the PDPs also only body shaping products.

Shimon Eckhouse

Your right.

William J. Plovanic – Canaccord Genuity

Okay and then will any of the capital sales be dedicated to body shaping or will the capital – all your capital people will be selling the body shaping?

Shimon Eckhouse

No, our plan right now is to develop a dedicated sales force, we are taking our time to do it properly, we are not planning to over the next two quarter, I mean this quarter and next quarter to roll it out everywhere in the U.S., we want to have it in limited important metropolitan areas. So we will grow this sales force in a very conservative manner. Eventually what we want to have in this and what we are talking about 12 months down the road is a sales force that sells capital equipment and PDPs that give their support.

William J. Plovanic – Canaccord Genuity

Okay and then as we think about the – so I think you have mentioned, you haven’t really pushed this device so far, you are waiting for the FDA clearance to have that kind of credibility so you can drive it on a global basis. How many systems are out in the market today that are active?

Shimon Eckhouse

I cannot give the number off the top of my head, but my estimate is around 500.

William J. Plovanic – Canaccord Genuity

Okay great. That’s all I had. Thank you very much; I appreciate you taking my questions.

Shimon Eckhouse

Thank you. thank you.

Operator

Thank you, our next question comes from John Baugh of Stifel. Your line is open.

John A. Baugh – Stifel, Nicolaus & Co., Inc.

Great guys, thanks. Good morning. I actually just have a quick question fore you. I think it was referenced earlier, some of your market share expectation seem pretty lofty or pretty aggressive, and just our ability to track that going forward, in other words, when you guys report in subsequent quarters will we get the number of units specific to UltraShape III and then also the specifics on the consumable, so that we can do our best to see your market penetration and how that plays out in the coming quarters. Thanks.

Shimon Eckhouse

Yes we plan to do that but we will do it only when we do full commercial launch, which is not in 2014. as I pointed out, we plan to do that in 2015, and of course we know we are giving out our recurring revenue numbers on a continued basis, so that by itself will give a little bit of a feel for what is going on, but since this is so important strategically to us and to our investors we plan to share it once we are fully commercial.

John A. Baugh – Stifel, Nicolaus & Co., Inc.

Okay and just one more question and this was asked previous, but I’ll just take a different attempt at it. At the dermatology show in speaking with some reps it seemed like UltraShape III and you referenced a more aggressive launch next year. Are you awaiting other 510(k) approvals specific to the system before you get more aggressive with the launch in the U.S. I mean I know you referenced other little improvements in/and around the machine, but again are you awaiting other 510(k) approvals before you can get more aggressive with the launch.

Shimon Eckhouse

No, no we want to be aggressive, but we want to do it right. it has nothing to do with the approval.

John A. Baugh – Stifel, Nicolaus & Co., Inc.

Okay great.

Shimon Eckhouse

Okay.

John A. Baugh – Stifel, Nicolaus & Co., Inc.

Thank you.

Shimon Eckhouse

Thank you.

Amit Meridor

Thank you.

Operator

Thank you. We have a next question from Richard Newitter of Leerink Partners. Your line is open.

Rich S. Newitter – Leerink Partners LLC

Hi, thanks for the follow-up. Just quickly going back to the incremental reps that you need to hire, I think you said you want to get 80 to 90 full U.S. sales force, one is that correct that’s a full U.S. sales force that includes 25 incremental reps. Is that right?

Amit Meridor

Yes, yes.

Shimon Eckhouse

Yes.

Rich S. Newitter – Leerink Partners LLC

Okay and all of that is going to be incremental kind of SG&A expenses over the next 12 months kind of ahead of any meaningful sales ramp, correct? So we should probably expect maybe a little bit of the margin hit near-term, but that should leverage nicely in 2015 and beyond. Is that the right way to think about it?

Amit Meridor

Yes, we are making an investment. Yes.

Rich S. Newitter – Leerink Partners LLC

Okay thank you.

Shimon Eckhouse

Thank you.

Amit Meridor

Thank you.

Operator

Thank you. I’m not showing any further questions in the queue. I would like to turn the call back over to management for any further remarks.

Shimon Eckhouse

Well, I want to thank everybody again for being with us and sharing with us this great exciting milestone and hope to see you all soon. Thank you very much.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.

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Source: Syneron Medical's CEO Discusses FDA Clearance of the UltraShape System - Conference Call Transcript

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