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Executives

Marc Oczachowski - CEO

Eric Soyer - CFO

EDAP TMS S.A. (EDAP) Wall Street Analyst Forum September 9, 2008 12:30 PM ET

Moderator

Good afternoon, ladies and gentlemen. In our ongoing attempt to adhere to the published schedule for both the physical attendees as well as the webcast attendees, I would like to introduce the next company in today's healthcare program.

As I have mentioned a couple of times already today, the company presentations are also webcast. They are live. They are retrievable. It is audio. It is PowerPoint. If you missed the meeting or you want to re-attend the meeting, to access the Q&A session or see some of the slides you might have missed, then they will be retrievable for 30 days.

Beyond that, seekingalpha.com also does a transcript of the presentation, including the Q&A session, in writing, and those are web-searchable on Google and Yahoo! Finance six hours after each company's presentation. So, there is two new media ways to access contents and the conference.

I would like to introduce the next company in this afternoon's program, EDAP TMS S.A. They developed and market Ablatherm, which is the most advanced and clinically proven choice for high-intensity focused ultrasound, HIFU, treatment of localized prostate cancer.

HIFU treatment is shown to be a minimally invasive, the second treatment option with a low occurrence of side effects. Ablatherm-HIFU is generally recommended for patients with localized prostate cancer stages T1 and T2, who are not candidates for surgery or who prefer an alternative option or for patients who have failed radiotherapy treatment.

Approved in Europe as a treatment for prostate cancer, Ablatherm-HIFU is currently undergoing evaluation in a multi-center U.S. Phase II/III clinical trial under an investigational device exemption granted by the FDA. The company is also developing this technology for the potential treatment of certain other types of tumors.

EDAP also produces and commercializes medical equipment for treatment of urinary tract stones using Extracorporeal Shock Wave Lithotripsy, ESWL.

In any case, I would like to introduce the management, Eric Soyer, our Chief Financial Officer; and so is Marc Oczachowski, Chief Executive Officer. Thanks.

Marc Oczachowski

Thank you very much and good afternoon, ladies and gentlemen. Thank you for being here today with us. So, we will go through the presentation of the company.

So, EDAP TMS is and has always been a global leader in therapeutic ultrasound, and we have been developing, manufacturing, distributing and servicing new innovative technology and minimally invasive solution mainly in the field of Urology.

We today are currently addressing two major indications in Urology. One is the pathology of kidney stone that is treated by Extracorporeal Shock Wave Lithotripsy. We have a strong position in this segment. We have an established technology that is patented. This division of Lithotripsy brings to the company solid revenue and profitability, and it is a very good financial base for growth and development of the company.

Under the other division, which is called the high intensity focused ultrasound division; it is to address localized prostate cancer, which is the first and most important male specific cancer today in the world. This is an innovative technology that was pioneered and launched by EDAP. This is the driver for growth for the group EDAP TMS.

We are providing, and we will see that in the presentation, a great efficacy that is comparable to existing techniques. This technology is bringing huge advantage for both the patients and the urologists and that it is preserving quality of life of patients.

We have built over the past 25 years a very strong and global presence worldwide with a complete network of subsidiaries and agents through whom we are distributing our products and additional products. We are providing professional supply sales training and services to our customer to whom we try to be extremely close and have a very good proximity to a lot of practitioner as they will be using our devices and technologies for several years.

Lithotripsy is our historical business that we started with back in the late 80s. The treatment of kidney stone by Lithotripsy is today the goal center for this pathology, and it is treating approximately 60% to 70% of the urinary tract stones. It is using a shockwave source combined with a dual imaging system, including Ultrasound and X-Ray. It is not painful for the patient. It does not require any anesthesia, and this is an ambulatory treatment.

I will show you a quick video on that to show you the latest model that we have just launched at the end of last year and that we will probably submit the 510(k) before the end of this year.

So, it is made of patients' reports. We have the shockwave source, and as I said, a dual imaging system made of X-Ray, C-arm and Ultrasound probe that we can see on the video. The interface of the machine is made of a touch screen on which we can see both, the ultrasound image and the X-Ray image, on which you can see the black point, which is the stone that has been diagnosed and that has been seen on the X-Ray.

By touching the touch screen, we will position automatically the device on the motorized and robotized movement towards the focal point of the shockwave source. So, once the stone has been seen, it is automatically positioned by the machine on the focus point and it will be then blasted by providing shockwave. The technology that is patented by EDAP, the Electroconductive Technology, has one of the specificity to have a very fine fragmentation that will bring extremely higher results and then easy evacuation of the powder.

On the Lithotripsy business, it is a replacement market with approximately 300 units sold per year. On the market we are covering approximately 12% to 15% market share, and we have very large installed base equipment, which is about more than 470 equipments worldwide, which represents also 12% to 15% market share. This is based on a very strong IP portfolio with more than 16 patents on the electroconductive shockwave principles. This business is bringing us through the strong install base, a very good and predictable revenue out of service and consumables.

On the other division which is the High Intensity Focused Ultrasound for the treatment of prostate cancer, we have also here built and developed a robotic device, which is the Ablatherm-HIFU machine for the treatment of localized prostate cancer using an [under rectal] approach. So we see here as well, a quick movie explaining the principle of the machine and the technology.

So the device is made of two modules, the first one being the treatment module. The second one is the control module from where the operator will execute the treatment of prostate cancer. The patient will be positioned on the under rectal probe for the disposition on the support on the treatment module. The probe is made of two transistor; one is the localizing transistor, the imaging transistor, and the other one the treatment transistor.

It is supported by a C-port, which is completely motorized and robotized. It will follow the instruction and the strategy of treatment given by the urologist to completely target and treat the prostate. The patient is positioned on the decubitus lateral position into the patient C-port, and then the probe will be inserted into the rectum via the anus, and this is the best approach for prostate cancer since the rectum is just positioned beyond the prostate.

Then the first phase of the treatment will start by a complete scanning of the prostate by Ultrasound Imaging System with the transistor that is integrated into the probe. Then we will have a re-constriction in three dimension of the prostates volume on the monitor of the control station. So that the urologist could target and define the volume of prostate to be fitted, and then stop positioning the lesions that will be created by the HIFU beam.

Then we will start the second phase, which is the shooting phase, and we will create some elementary lesion into the prostate. Lesion size that are 90 millimeters to 26 millimeter long with a diameter of 1.7 millimeter, these lesions will be repeated hundreds of times into the prostate so that we can recover the complete gland to get a full radical treatment of the prostate.

This treatment will be lasting between 1.5 hours to 2.5 hours depending on the prostate size. It is operated under final or general anesthesia and it can be performed on an outpatient basis.

These are some clinical results based on the efficacy of the treatment with Ablatherm-HIFU and compared with the other techniques to treat prostate cancer, including surgery external beam radiation, cryosurgery, brachytherapy and HIFU.

We can see here that in terms of efficacy in the average, most of the techniques are comparable, and what is interesting in these slides is to see that HIFU is predictable table, stable, and repeatable in its outcome as it has the range of results that have been show in the [researcher] are consistent and stable, which is extremely important because that means that thanks to the voltage capability of the machine, the result of the treatment I have seen that from one center to the other, or from one urologist to the other, and the machine is not operator dependent which is a good outcome, a good long-term of the outcome for the patients.

In terms of side effects which is one of the main advantage of the technique as compared with the other, we can see that the rate of incontinence, impotence and recurrence actually are lower than the other, and again we can see here the repeatability and stability of the treatment in terms of outcomes.

To summarize the different advantages and benefit for the different parties that are involved in the treatment of the prostrate cancer starting with patient other than HIFU again brings the capability of preserving quality of lack of patients and that is one of the main concern of the patients that are as in prostrate cancer today as they are depicted earlier and they are alike and they are looking for very effective treatment, but also another treatment that is minimally invasive and that could preserve the quality of life.

So HIFU was bringing that to the patient. It is bringing a proven efficacy. We have now treated more than 17,000 patients in Europe over the next eight years. We have clinical evidence and clinical results that are proving that. The technique is minimally invasive on an outpatient basis, so it will give a very quick return to normal activity to patients. Again it is a reputable treatment, so the patients will be warranted of the results and it is not depending on the center or the urologist they go.

For surgeons, what we know surgeons here are the urologists, the treatment brings by HIFU, really brings a minimal invasive solution to urologist. Most of the non-invasive alternatives to treat prostate cancer were radiation based like, external beam radiation and brachytherapy that were not in the hand of the urologist but more mainly in the hands of the radiotherapist.

HIFU based on ultrasound, transrectal ultrasound is really a urology tool. It will also help the urologists to recapture the market share they were losing against the radiation therapist in the treatment and management of prostate cancer and obviously it will help them promoting the department by using high technology and non-invasive technology which is already appealing to patients.

For the hospital it will by being a high technology and a non-invasive solution it will definitely increment patient traffic in hospitals and we have designed in Europe now different business models, so that this technology can be a very easily profitable on a capital investment basis for large hospitals, but could be also easily accessible and profitable for small and medium size hospital, thanks to a model, that we call RPP "revenue-per-procedure" that we are placing the machine, in the hospital and the hospital are paying us on a data-use-basis.

Then of more hospital we mobilize equipments and share the equipments between hospitals and for hospitals where they could commit on a minimum number of treatments. We will place the machine and they will pay us on a pay-per-use basis. For healthcare systems, thanks to the minimal side effects provided by the technology. It will definitely be interesting for our healthcare system in term of costs.

On the global prostate cancer market, today in Europe there is approximately 250,000 new cases a year, which is about the same in the U.S. There are approximately 70% of this population that are so called localized prostate cancer and this population that could be addressed with HIFU and other techniques.

Currently last year we treated approximately 2% of this population, so we have a really significant growth to be expected on such a treatment that we, as we can see here on the slide exactly answering, the need of the patients that are suffering from localized prostate cancer. Taking into account the patients are more and more educated, they are more and more aware about the different alternatives and their side effects and recurrence rate and they are also extremely receptive to preservation of quality of life.

So, in Europe where we have been C marked in the year 2000, we started our strategy to build the credibility of HIFU that was completely new and innovative technology and we did that by approaching only reference centers, university hospitals. So, we basically invested in building the creditability on the clinical and scientific way during the six plus years until the end of 2006. When we have rate confirmed to change and switch our conservative approach to a much more aggressive strategy based on marketing and sales actions. Those actions are made on two axis, one is to create adoption among the urology community, but also among the rest of the medical community including GPs, oncologist and radiation therapist.

So, that we can create adoption and on the second axis, is to really create awareness among patients. As again this technology is bringing a lot of advantages for patients that are seeking for effective treatment and preserving the quality of life, so we have a lot of actions and campaign in preserving, increasing awareness among patient to create pressure from the patients and on the second axis, create adoption to urologists.

So we have now reached approximately 17,000 treatments in Europe. We have about 200 trained sites worldwide mainly located in Europe. The technology is approved in the European community in Canada, in Russia, Australia and Southeast Asia. It is clinically accepted for primary care patients, but also for salvage treatment after radiation failures.

We recently had a publication of the French Urology Association in the British Journal of Urology recognizing HIFU with other centers as center care treatment for primary care patients and radiation theatres. We have had a lot of publications and posters and abstracts presented in the main Journals as well as in the main International Urology conferences including the American Urology association meeting, the European meeting and most of the Nationals meetings in Europe. The technology is [reimbursed] in Germany, Italy. Privately in the U.K. and in the U.S., we are undergoing a clinical trial to take PMA approval.

So, basically we started few months ago, our clinical trials here in the U.S., this is a comparative study against Cryosurgery, which is already approved in the U.S. and we have to recruit 200 patients on each arm, which we expect to do somewhere in 2009. We should complete the recruitment of patients then the protocol asked us to have a, two years follow-up, which will bring us in 2011 and we expect one year of filing and submission of the file. So, we would reach PMA approval by 2012.

So, we are trying again to decrease the length of the approval process by making enrollment period quicker than possible. So, we have designed a promotional campaign which we call ENLIGHT program to maximize and to go faster in enrollment of patients. So, we have marketing programs, promotion and grass roots and media outrage in order to create awareness among American patients so that they can participate to the trial.

Another important point on the HIFU technology is that we have designed, and we are routinely using HIFU for prostate cancer, but there is a lot of work done on other applications.

At the end of this week in Minneapolis, there will be the next International Society of Therapeutic Ultrasound meeting where a lot of the research work will be shared and presented on different applications such as liver cancer, prostate, uterine fibroid, kidney and others, which most of the time in the year shows that the applications of HIFU to treat pathologies on minimally invasive approach are getting more and more important, and it is now clear that HIFU will play a major role on different pathologies in the years to come.

Today EDAP is one of the best positioned companies on HIFU with a very important, the biggest IP portfolio available today with more than 60 patents issued and few others to come. We have also the greatest experience on the routine use of HIFU since more than 10 years, and we again have a very good expertise on the HIFU parameter and development.

So, that makes EDAP the most prepared company for the bright future of HIFU in prostate cancer, but also in other type of applications.

Let's have a quick look now on the financials. I will let Eric presenting the financial. Eric is our Chief Financial Officer. Thank you very much.

Eric Soyer

Thank you, Marc, and good afternoon, ladies and gentlemen. I am going to have a quick look at the company's business model and financial, starting with the lithotripsy.

Again, this is the historical base of the company. We have a strong installed base of more than 470 lithotripsy machines that allowed us to develop a so called razorblade model with the selling of machine and a significant and recurring revenue stream from maintenance contracts.

It is a stable and mature business on which we have incremental growth, actually 3% last year with some seasonality since it is very typical when we sell to hospitals that we are going to double digit. That is the [trade] to use up this budget by yearend, which is usually yielding a strong Q4 in sales.

The HIFU business model, again, this is the company's growth driver and platform. As Marc explained, essentially it would be RPP business model we launched in late 2006. We had a 22% growth last year in the HIFU business, including close to 40% just for the RPP business alone.

There is, of course, a strong seasonality in this business, which is impacted by unpredictable machine sales from one quarter to the other, but of course the growth of RPP sales will bring gradually more recurrence and stable revenue stream.

This is a divisional P&L, where you can see that lithotripsy still accounts for approximately 55% of the revenues, but HIFU which has a higher growth rate will soon catch up.

Very importantly, HIFU has a better growth rate but also a much better margin rates, about close to 60%. The two operational divisions alone are close to a breakeven situation excluding the corporate cost and of course, the cost of conducting the clinical trials for the U.S. approval.

We have, very importantly, a strong balance sheet with a solid cash position. Thanks to the fundraising we have done in 2006 and 2007. In 2006, we raised US$7.5 million in the common equity pipe to fund and finance the promotion of the RPP business model in Europe, so that we can drive penetration on this market and boost production of HIFU. Last year, in the U.S., we raised a $20 million convertible debt to fully fund the clinical trials and to expected approval by the FDA.

If you permit me this personal comments, I believe that given this very favorable situation, the construct price which is basically trading just close to the amount of cash revenue company is very cheap and that is not fully recognized yet the leading IP assets and portfolio of the company, and also the market position we have both on the HIFU and the Lithotripsy market and finally, the great potential of HIFU on the prostate cancer market and beyond.

As a wrap up, again, the company launched in growing prostate cancer opportunity with the HIFU technique. The HIFU technique is a non-invasive, safe and effective solution to treat localized prostate cancer. We have well defined U.S. Regulatory Pathway to the entry on the U.S. market with a fully funded PMA trials currently under process. This technology has drawn potential for much qualification across, beyond prostate cancer and again the company has a fairly strong IP portfolio and that positions the company as a leader in the HIFU platforms.

We have in the meantime, European revenue, especially with the RPP business model that helps us driving penetration of HIFU for prostate cancer on this market. Finally, we are still in the lithotripsy market with a very stable recurring revenue platform on this lithotripsy business.

Once again, thank you very much ladies and gentlemen. I think we can open the Q&A session. Thank you.

Question-and-Answer Session

Unidentified Audience Member

(Question Inaudible).

Marc Oczachowski

Okay. Yes.

Unidentified Audience Member

(Question Inaudible).

Marc Oczachowski

So the expected reimbursement in the U.S. [location] right? Actually we are working on the clinical trial now and we again are having a pass of about approximately four years before we get the reimbursement and will be definitely working on that question during the process. So that we can make sure that we optimize as much as possible the reimbursement in the U.S. for the technology. That is why also that was one of the reasons why we went through a PMA, so that we could create our own certification for reimbursement in the U.S.

Unidentified Audience Member

(Question Inaudible)

Marc Oczachowski

Your question was where are we trading and what is the average volume. We are only trading on the NASDAQ markets; we are not listed in Europe. The average volume is about 15,000 to 20,000 stocks everyday. Thank you.

Unidentified Audience Member

(Question Inaudible)

Marc Oczachowski

Inside ownership is actually, direct ownership is about 2% of the stock through or for management ownership, it includes the stock option programs that is close to 8%.

Unidentified Audience Member

(Question Inaudible)

Marc Oczachowski

We have 9.4 million shares outstanding, and warrant's we have 1.06 million. Thank you.

Any other question?

Unidentified Audience Member

(Question Inaudible)

Marc Oczachowski

Thank you very much.

Moderator

Thank you very much. EDAP will be available for a break-out session today. I think we will have them stay here if you have any additional questions, you can ask them during the next half hour or so. Thank you very much.

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