EdgarFiling
Exhibit 99.3
PROFOUND MEDICAL CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 2022
PRESENTED IN US DOLLARS (000s)
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
The following Management’s Discussion and Analysis (“MD&A”)
prepared as of November 3, 2022, should be read in conjunction with the September 30, 2022, unaudited interim condensed consolidated financial
statements and related notes of Profound Medical Corp. (“Profound” or the “Company”). The unaudited
interim condensed consolidated financial statements of Profound and related notes were prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) applicable to the preparation
of interim financial statements, including International Accounting Standard 34, Interim Financial Reporting. Unless stated otherwise,
all references to “$” are to United States dollars and all references to “C$” are to Canadian dollars. In this
MD&A, unless the context requires otherwise, references to “Profound”, “the Company”, “we”, “us”
or “our” are references to Profound Medical Corp. and its subsidiaries.
FORWARD-LOOKING STATEMENTS
This MD&A contains “forward-looking statements” within
the meaning of Section 27A of the US Securities Act and Section 21E of the Exchange Act pursuant to the “safe harbor” provisions
of the United States Private Securities Litigation Reform Act of 1995, and “forward-looking information” within the meaning
of applicable Canadian securities laws, which include all statements other than statements of historical fact contained in this MD&A,
such as statements that relate to the Company’s current expectations and views of future events. Often, but not always, forward-looking
statements can be identified by the use of words such as “may”, “will”, “expect”, “anticipate”,
“predict”, “aim”, “estimate”, “intend”, “plan”, “seek”, “believe”,
“potential”, “continue”, “is/are likely to”, “is/are projected to” or the negative of
these terms, or other similar expressions intended to identify forward-looking statements. These forward-looking statements include, among
other things, statements relating to:
| · | our expectations regarding commercializing our approved products (particularly the TULSA-PRO®
system following US Food and Drug Administration (“FDA”) clearance) and our ability to generate revenues and achieve
profitability; |
| · | our expectations regarding the safety, efficacy and advantages of our products over our competitors and
alternative treatment options; |
| · | our expectations regarding our products fulfilling unmet clinical needs and achieving market acceptance
among patients, physicians and clinicians; |
| · | our expectations regarding reimbursement for our approved products from third-party payors; |
| · | our expectations regarding an out-of-pocket market for the Company’s products; |
| · | our expectations regarding our relationships with Koninklijke Philips N.V. (“Philips”),
Siemens Healthcare GmBH (“Siemens”) and GE Healthcare (“GE”), and our ability to achieve compatibility
of our systems with magnetic resonance imaging (“MRI”) scanners produced by other manufacturers; |
| · | our expectations regarding our ability to expand the installation of TULSA-PRO® systems in Akumin
Centres outside of the State of Florida pursuant to our multi-site imaging agreement (the “Akumin Agreement”) with
Akumin Inc. (“Akumin”); |
| · | our ability to attract, develop and maintain relationships with other suppliers, manufacturers, distributors
and strategic partners; |
| · | our expectations regarding our pipeline of product development, including expanding the clinical application
of our products to cover additional indications; |
| · | our expectations regarding current and future clinical trials, including the timing, enrollment and results
thereof; |
| · | our expectations regarding maintenance of the current regulatory approvals we have received, including
our compliance with the conditions under such approvals, and the receipt of additional regulatory approvals for our products and future
product candidates; |
| · | our mission and future growth plans; |
| · | our ability to attract and retain personnel; |
| · | our expectations regarding our competitive position for each of our products in the jurisdictions where
they are approved; |
| · | our expectations regarding the impact of COVID-19 on the Company’s business, affairs, operations,
financial condition, liquidity, availability of credit and results of operations; |
| · | our ability to manage our working capital and our ongoing ability to satisfy our cash requirements and
any future commitments and contingencies; |
| · | our ability to raise debt and equity capital to fund future product development, pursue regulatory approvals
and commercialize our approved products; |
| · | our remediation plan with respect to our internal controls over financial reporting; and |
| · | anticipated trends and challenges in our business and the markets in which we operate. |
Forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or achievements of Profound to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed in the
section entitled “Risk Factors” in the Company’s Annual Information Form prepared as of March 3, 2022, for the year
ended December 31, 2021 (the “AIF”), available on SEDAR at www.sedar.com and filed as an exhibit to the Company’s
annual report on Form 40-F, filed on March 3, 2022 (the “40-F”), available on EDGAR at www.sec.gov, such as:
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
| · | risks related to our limited operating history and history of net losses; |
| · | risks related to our liquidity and financing needs; |
| · | risks related to our ability to commercialize our approved products, including realizing the anticipated
benefits of the Akumin Agreement and our co-development agreement with GE (the “GE Agreement”), expanding our sales
and marketing capabilities, increasing our manufacturing and distribution capacity, increasing reimbursement coverage for our approved
products and achieving and maintaining market acceptance for our products; |
| · | risks related to the regulation of our products, including in connection with obtaining regulatory approvals
as well as post-marketing regulation; |
| · | risks related to our successful completion of clinical trials with respect to our products and future
product candidates; |
| · | risks related to managing growth, including in respect of obtaining additional funding and establishing
and maintaining collaborative partnerships, to achieve our goals; |
| · | risks related to competition that may impact market acceptance of our products and limit our growth; |
| · | risks relating to fluctuating input prices and currency exchange rates; |
| · | risks related to the reimbursement models in relevant jurisdictions that may not be advantageous; |
| · | risks related to reliance on third parties, including our collaborative partners, manufacturers, distributors
and suppliers, and increasing the compatibility of our systems with MRI scanners; |
| · | risks related to intellectual property, including license rights that are key to our business; |
| · | risks related to product liability; |
| · | the extent and impact of COVID-19 and the related response from the Company, government (federal, provincial,
municipal and state) and regulatory authorities; and |
| · | risks related to the loss of key personnel. |
Forward-looking statements contained herein are made as of the date of
this MD&A and Profound disclaims any obligation to update any forward-looking statements, whether as a result of new information,
future events or results or otherwise, unless required by applicable laws. There can be no assurance that forward-looking statements will
prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking statements due to the inherent uncertainty in them. Readers are cautioned that
while Profound believes it has accurately summarized all clinical studies cited in this MD&A, readers should review the full publications
of the studies prior to making an investment decision in the Company.
COVID-19
The global economy has significantly changed since the beginning of the
COVID-19 pandemic. The spread of the COVID-19 virus, declared as a pandemic on March 11, 2020, by the World Health Organization (WHO),
has led many governments to adopt exceptional measures to slow the advancement of COVID-19, such measures which remain in place and continue
to have significant impact in Asia. These events cause significant uncertainties and material disruptions to businesses globally, resulting
in an economic slowdown that could damage the Company’s activities. At the current time, it is not possible to reliably estimate
the duration and impact of these events on the Company’s future financial results because of the uncertainties about future developments.
Thus far, the Company has experienced volatility in demand for systems and one-time-use devices, which has resulted in a reduction in
anticipated sales and Profound’s ability to collect certain payments, particularly in Asia. For more information on COVID-19 and
its impact on Profound’s business, please refer to the section “Business Update and Sales Strategy”.
BUSINESS OVERVIEW
Profound (NASDAQ: PROF; TSX: PRN) is a commercial-stage medical device
company focused on the development and marketing of customizable, incision-free therapeutic systems for the image guided ablation of diseased
tissue utilizing its platform technologies and leveraging the healthcare system’s existing imaging infrastructure. Profound’s
lead product (the “TULSA-PRO® system”) combines real-time MRI, robotically driven transurethral
sweeping-action thermal ultrasound with closed-loop temperature feedback control for the ablation of prostate tissue. The product is comprised
of one-time-use devices and durable equipment that are used in conjunction with a customer’s existing MRI scanner.
In August 2019, the TULSA-PRO® system received FDA clearance
as a Class II device in the United States of America (“United States” or “US”) for thermal ablation
of prescribed prostate tissue, using transurethral ultrasound ablation (“TULSA®”) based on the Company
sponsored (“TACT”) whole gland ablation pivotal clinical study. It is also CE marked in the European Union (“EU”)
for ablation of targeted prostate tissue (benign or malignant). The TULSA-PRO® system was approved by Health Canada in
November 2019.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Profound believes that, based on the Company’s TACT clinical data
and additional studies conducted in the EU, physicians may elect to use TULSA-PRO® to ablate benign or malignant prostate
tissue in patients with a variety of prostate diseases. Prostate diseases include prostate cancer and benign prostatic hyperplasia (“BPH”).
Prostate cancer is one of the most common types of cancer affecting men. The annual incidence of newly diagnosed cases in 2022 is estimated
to reach 268,490 in the United States according to the American Cancer Society and in 2020 there were approximately 475,000 newly diagnosed
cases of prostate cancer in Europe, according to the International Agency for Research on Cancer. The American Cancer Society further
estimates that there are currently 5.8 million men living with prostate cancer in these two geographic regions. Although ten-year survival
outcomes for prostate cancer remain favorable, it is still one of most common causes of cancer deaths among men. BPH is a histologic diagnosis
that refers to the proliferation of smooth muscle and epithelial cells within the prostatic transition zone. According to the American
Urological Association, BPH is nearly ubiquitous in the aging male population with worldwide autopsy proven histological prevalence increases
starting at ages 40 to 45 years, reaching 60% at age 60 and 80% at age 80.
Profound initiated the commercial launch of its lead product, the TULSA-PRO®
system in the United States in Q4 2019, treating the first patient in a non-trial setting in January 2020. In addition, Profound continues
to support additional clinical trials in the United States and abroad to further increase the body of clinical evidence that may be needed
particularly for reimbursement and coverage of its technologies by private and government healthcare providers. The Company continues
to expand the compatibility of its TULSA-PRO® system with additional MRI brands to broaden its ability to utilize the global
MRI installed base and seek regulatory approvals of its products in additional international jurisdictions.
Profound’s second product, the Sonalleve® system,
is CE marked in the EU for the treatment of uterine fibroids and palliative pain relief associated with metastases in bone and has also
been approved by the National Medical Products Association, the regulatory body in China, for non-invasive treatment of uterine fibroids.
In late 2020, Sonalleve® received Humanitarian Device Exemption (HDE) approval from the FDA for the treatment of Osteoid
Osteoma in the United States. The Sonalleve® system is only compatible with certain Philips MRIs.
Profound deploys a recurring revenue business model in the United States
to market TULSA-PRO®, charging a one-time payment that includes a supply of its one-time-use devices, use of the system,
as well as the Company’s customer and technological support (“Genius”) services that support each TULSA center
with clinical and patient recruitment. The Sonalleve® product is marketed primarily outside North America in European and
Asian countries, deploying a capital sales model. Outside of North America, Profound generates most of its revenues from its system sales
in Europe and Asia, where the Company deploys a more traditional hybrid business model, charging for the system separately as a capital
sale and an additional per patient charge for the one-time-use devices and associated Genius services.
Profound’s Technology
TULSA-PRO® and Sonalleve® share the common
technological concept of using MRI to enable visualization by the surgeon of desired tissue in real time. Both products also use thermal
ultrasound technology to gently heat and ablate tissue using the real-time thermometry capability of the MRI.
TULSA-PRO® delivers its ultrasound energy through a transurethral
catheter, a one-time-use device that is placed in the patient’s prostate through a natural orifice. Focused ultrasound energy is
then delivered by the catheter in the shape of a blade. Externally the catheter is connected to a software controlled robotic manipulator
that rotates up to 360-degree in a sweeping action to impart thermal energy and thus ablation of tissue. The real time temperature measurement
of the prostate is coupled with closed loop process control that meters the appropriate amount of ultrasound energy to gently heat the
physician-prescribed region of prostate tissue to the target temperature to achieve cell kill without boiling or charring the tissue.
As a measure to keep the urethra within the prostate viable, the temperature of the transurethral catheter is maintained at an appropriate
level by circulating water inside the catheter. Similarly, a water-cooled specially designed catheter is placed in the patient’s
rectum during the ablation process to keep it protected from thermal damage during the procedure. Profound believes that TULSA-PRO®’s
controlled and relatively gentle heating process may result in lower post procedural pain, reduced potential of life affecting side effects
and in significantly desirable shrinkage of the prostate via resorption of the dead tissue over time, which may provide a longer-term
durable benefit.
Sonalleve® delivers its ultrasound energy via a disc located
outside the patient. Its ultrasound energy is focused to create small cylindrical hot spots a certain distance into the patient. Overlapping
cylinders create ablation of the physician-prescribed desired tissue. Similar to TULSA-PRO, Sonalleve® also provides for
controlled temperature increases to achieve cell kill.
The physician is in charge of using the Profound devices and decides which
tissue needs to be ablated to impart therapeutic effect. Profound believes that in the hands of trained physicians, its systems have the
ability to provide customizable, incision-free ablative therapies with the precision of real-time MRI visualization and thermometry, focused
ultrasound and closed-loop temperature feedback control. Profound believes that its technology offers clinicians and appropriate patients
a better alternative to traditional surgical or radiation therapies, with respect to clinical outcomes, side effects and recovery time.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
TULSA-PRO®
The TULSA-PRO® system is designed to provide customizable
and predictable ablation of a surgeon defined region of prostate while actively protecting the urethra and rectum to help preserve the
patient’s natural functional abilities. To date, over 2,000 global TULSA-PRO® procedures have been performed
by more than 100 physicians at over 30 commercial and 20 clinical research sites.
Clinical Studies
In March 2014, Profound completed enrollment and treatment of 30 patients
in the Phase I TULSA multi-jurisdictional safety and precision study. Based on the Phase I clinical trial results, in April 2016, Profound
received a CE Certificate of Conformity for the TULSA-PRO® system from its notified body in the EU, and in the fourth quarter
of 2016, Profound initiated a pilot commercial launch of TULSA-PRO® in key European markets where the CE mark is accepted.
Profound received FDA clearance for the TULSA-PRO® system
in August 2019 for transurethral ultrasound ablation of prostate tissue, based on the Company’s TACT Pivotal Clinical Trial. The
TACT Pivotal Clinical Trial is a prospective, open-label, single-arm pivotal clinical study, of 115 treatment-naïve localized prostate
cancer patients across 13 research sites in the United States, Canada and Europe, which enrolled patients between August 2016 and February
2018.
Localized Prostate Cancer, Ablation Safety and Efficacy: TACT Pivotal
Study
The TACT Pivotal Clinical Trial demonstrates that MRI-guided TULSA is a
minimally invasive procedure for effective prostate cancer ablation with a favorable side effect profile, minimal impact on quality of
life and low rates of residual disease1. In the large, multi-center prospective study in men with predominately intermediate-risk
prostate cancer, whole gland ablation sparing the urethra and apical sphincter with the TULSA-PRO® met its primary regulatory
endpoint of prostate-specific antigen (“PSA”) reduction in 96% of men to a median nadir of 0.34 ng/ml and 0.5 ng/ml
at 12 months. Median decrease in perfused prostate volume as assessed by a central radiologist using 12-month MRI was 91%, from a median
37 cc to 2.8 cc. At 12 months, extensive biopsy sampling of the markedly reduced prostate volume demonstrated a benefit for nearly 80%
of men. There was no evidence of cancer in 65% of men and 14% had low-volume clinically-insignificant disease. The authors, however, noted
that thermally-fixed non-viable cells can retain their apparently-malignant tissue morphology, confounding Gleason grading and potentially
introducing false positives2. By two years, 7% of men sought additional treatment for their prostate cancer (prostatectomy,
radiation). The study patient population, with two-thirds of those with Gleason Grade Group (GGG) ≥ 2 having either bilateral disease
or at least five positive cores, allowed for evaluation of oncologically relevant secondary outcomes including PSA stability, post-treatment
biopsy, and salvage treatment. Notwithstanding the limitations of comparisons between ablative and extirpative therapies, the 7% rate
of salvage treatment and 20% rate of residual clinically significant prostate cancer in intermediate-risk patients are in line with accepted
rates of early failure or additional intervention after standard treatments and goals for retreatment after ablative therapies. By four
years, the median PSA nadir further reduced to 0.28 ng/ml. PSA reduction was durable over the extended follow-up period, from 0.53 ng/ml
at one year to 0.86 ng/ml at four years.
TULSA was associated with a high degree of safety and maintenance of quality-of-life,
comparing favorably to radical prostatectomy and other whole-gland ablation techniques. At 12 months, 96% of men returned to baseline
urinary continence, and 75% of potent men maintained or returned to erections sufficient for penetration. A total of 12 grade 3 adverse
events occurred in 8% of men, including genitourinary infection (4%), urethral stricture (2%), urinary retention (1.7%), urethral calculus
and pain (1%), and urinoma (1%), all resolved by 12 months. There were no grade 4 events, rectal injuries, severe incontinence requiring
surgical intervention, or severe erectile dysfunction unresponsive to medication.
Localized Prostate Cancer, Durability of Outcomes: Phase I Safety and
Precision Study
The Phase I Clinical Trial demonstrates that MRI-guided TULSA is safe and
precise for ablation in patients with localized prostate cancer, providing spatial ablation precision of ± 1.3 mm with a well-tolerated
side-effect profile and minor or no impact on urinary, erectile and bowel function at 12 months3. There were no grade 4 or
higher adverse events, one transient attributable grade 3 event (epididymitis), and notably no injury to rectal or periprostatic structures.
Functional outcomes, International Prostate Symptom Score (“IPSS”) and IIEF-15, both showed a favorable anticipated
trend of initial deterioration with subsequent gradual improvement toward baseline levels. Consistent with the conservative whole-gland
treatment plan which included a 3 mm circumferential margin expected to spare 10% viable prostate at the gland periphery, intra-operative
MRI thermometry measured 90% thermal ablation of the prostate gland, median PSA decreased 90% from 5.8 ng/ml to nadir of 0.6 ng/ml, and
median prostate volume reduced by 88% on 1-year MRI. Prostate biopsy at one year identified decreased cancer burden with 61% reduction
in cancer length; however, attributable to the circumferential safety margin, clinically significant cancer in 9 of 29 men (31%), and
any cancer in 16 of 29 (55%).
___________________________
1 Klotz et al, “MRI-guided transurethral ultrasound ablation of prostate
cancer,” The Journal of Urology, 2020
2 Anttinen et al, “Histopathological evaluation of prostate specimens after
thermal ablation may be confounded by the presence of thermally-fixed cells,” International Journal of Hyperthermia, 2019
3 Chin et al, “Magnetic Resonance Imaging-Guided Transurethral Ultrasound
Ablation of Prostate Tissue in Patients with Localized Prostate Cancer: A Prospective Phase 1 Clinical Trial,” European Urology,
2016; Bonekamp et al, “Twelve-month prostate volume reduction after MRI-guided transurethral ultrasound ablation of the prostate,”
European Radiology, 2018
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Follow-up data to three and five years demonstrate durability of the outcomes,
with continued treatment safety and stable quality of life, as well as predictable PSA and biopsy oncological outcomes based on treatment-day
imaging and early PSA follow-up, without precluding any potential salvage therapy options4. Repeat prostate biopsy at three
years demonstrated durable histological outcomes, with only one subject upgrading to GGG 1 from negative at 12 months, and one subject
upgrading to GGG 2 from GGG 1 at 12 months. Between one and five years, there were no new serious adverse events. By five years, 16 men
completed protocol follow-up, three withdrew with PSA <0.4 ng/ml, 10 had salvage therapy without complications (six prostatectomy,
three radiation and one laser ablation), and one died of an unrelated cause. Of 16 men with complete follow-up data, five-year median
PSA remained at 0.55 ng/ml. Median IPSS of 6 at baseline returned to 5 by three months, and 6.5 at five years. At baseline, 9 of 16 had
erections sufficient for penetration, 11 of 16 at one year, and 7 of 16 at five years. All 16 subjects had leak-free, pad-free continence
at one and five years. Predictors of salvage therapy included lower ablation coverage and higher PSA nadir. At five years after TULSA,
cancer specific survival is 100%, and overall survival 97%.
Benign Prostatic Hyperplasia (BPH), Relief of Lower Urinary Tract Symptoms
(LUTS): Phase I Studies
Promising safety and feasibility of the TULSA-PRO® to relieve
Lower Urinary Tract Symptoms (“LUTS”) associated with BPH has been demonstrated in two Phase I studies showing improvements
in IPSS comparable to modern minimally invasive surgical therapies5. A retrospective analysis of a sub-group of nine men
from a localized prostate cancer study who also had LUTS (baseline IPSS ≥ 12) demonstrated significant IPSS improvement of 58% from
16.1 to 6.3 at 12 months (p=0.003), with at least a moderate (≥ 6 points) symptom reduction in eight of nine patients. IPSS Quality
of Life (“QoL”) improved in eight of nine patients. Erectile function (IIEF-EF) remained stable from 14.6 at baseline
to 15.7 at 12 months. The proportion of patients with erections sufficient for penetration was unchanged. Full urinary continence (pad-free,
leak-free) was achieved at 12 months in all patients. In five men who suffered from more severe symptoms (baseline IPSS ≥ 12 and Qmax
< 15 ml/s), peak urine flow rate (“Qmax”) increased from 11.6 ml/s to 22.5 ml/s at 12 months. All adverse events
were mild to moderate with no serious events reported.
A prospective study of TULSA-PRO® for BPH has been conducted
with early outcomes presented at the 2020 European Association of Urology Annual Conference. Urinary function improved during the initial
three-month follow up among the first seven patients treated, while no adverse effects were seen on sexual and bowel functions: average
IPSS decreased from 17.7 to 4.6, IPSS QoL decreased from 4.3 to 1.0, and Qmax increased from 11.5 ml/s to 26.8 ml/s, among several other
improved urinary measures. A single adverse event had occurred, abscess of the epididymis requiring drainage at two weeks post therapy.
Radio-recurrent localized prostate cancer, Salvage TULSA (sTULSA): Phase
I Study
Salvage ablation of radio-recurrent localized prostate cancer has been
evaluated in a prospective study of TULSA-PRO® with early outcomes presented at the 2020 EAU Annual Conference6.
Ten patients were successfully treated, with a median hospitalization time of 24 hours and catheterization time of four days. Four subjects
have completed 12-month follow-up, with average PSA decreased from 4.6 ng/ml to 0.6 ng/ml, and all with no evidence of recurrence on biopsy
and imaging (MRI and PSMA-PET). Four patients had prolonged catheterization and subsequent urinary tract infection, and one of these patients
had upper urinary tract dilation treated with double-J-stents.
Palliation of symptomatic locally advanced prostate cancer, Palliative
TULSA (pTULSA): Phase I Study
Patients with symptomatic locally advanced prostate cancer can suffer from
severe urinary retention due to bladder outlet obstruction, intractable hematuria and frequent hospitalization. While these complications
are commonly treated by palliative transurethral resection of the prostate (“TURP”), the improvement is often insufficient
and may exclude patients who cannot discontinue anticoagulants. The safety and feasibility of MRI-guided TULSA was evaluated as an alternative
palliative treatment option for men suffering from symptomatic locally advanced prostate cancer7. Ten patients with locally
advanced prostate cancer were enrolled, half with clinical stage T4 disease and half with clinical T3. Prior to TULSA, all patients had
continuous indwelling catheterization due to urinary retention, and 90% had history of recurrent and/or ongoing gross hematuria. Three
patients had palliative TURP performed six months prior to receiving palliative TULSA, all of which were unsuccessful. One week after
palliative TULSA, 50% of men were catheter-free. At last follow-up, 100% of men were free of gross hematuria, and 80% had an improvement
in catheterization, with 70% completely catheter-free. Notably, the average hospitalization time from local complications reduced from
7.3 to 1.4 days in the six-month period before and after palliative TULSA. All adverse events were related to urinary tract infections,
with two patients requiring intravenous administration of antibiotics and three patients resolved with oral antibiotics alone. No other
treatment related adverse events were recorded, with no rectal injury or fistula. Further, there was no need for blood transfusions and
there was no perioperative mortality.
___________________________________
4 Nair et al, “MRI-Guided Transurethral Ultrasound Ablation in Patients with
Localized Prostate Cancer: Three Year Outcomes of a Prospective Phase I Study”, BJU International, 2020; Nair et al, “PD17-03
Five-Year Outcomes from a Prospective Phase I Study of MRI-Guided Transurethral Ultrasound Ablation in Men with Localized Prostate Cancer”,
AUA 2020 Virtual Experience, Abstract in The Journal of Urology, 2020
5 Elterman et al, “Relief of Lower Urinary Tract Symptoms after MRI-Guided
Transurethral Ultrasound Ablation (TULSA) for localized prostate cancer: Subgroup Analyses in Patients with concurrent cancer and Benign
Prostatic Hyperplasia,” Journal of Endourology, 2020; Anttinen et al, “Transurethral ultrasound therapy for benign prostatic
obstruction in humans,” EAU 2020 Conference Presentation
6 Anttinen et al, “Early experience of salvage MRI-guided transurethral ultrasound
ablation (TULSA) for local prostate cancer recurrence after radiotherapy,” EAU 2020 Conference Presentation
7 Anttinen et al, “Palliative MRI-guided transurethral ultrasound ablation
for symptomatic locally advanced prostate cancer,” Scandinavian Journal of Urology, 2020
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
CAPTAIN Trial
CAPTAIN (A Comparison of TULSA Procedure vs. Radical Prostatectomy in Participants
with Localized Prostate Cancer) is a prospective, multi-centre randomized controlled trial of 201 patients aimed at comparing the safety
and efficacy of the TULSA procedure (performed with the TULSA-PRO® system) with radical prostatectomy (“RP”)
in men with organ-confined, intermediate-risk, Gleason Score 7 (Grade Group 2 and 3) prostate cancer. In the CAPTAIN trial, 134 patients
will be randomized to receive one or two TULSA procedures and 67 patients will be randomized to receive RP. The trial is expected to take
place at eight or more sites in the United States and two in Canada. Of those, six sites have been activated to date and are currently
recruiting patients.
RP is currently the gold-standard surgical treatment for intermediate-risk
prostate cancer. RP effectively controls disease but carries risk of significant side effects such as long-term erectile dysfunction and
urinary incontinence. The TULSA procedure combines transurethral, robotically-driven therapeutic ultrasound with real-time visualization
of temperature and automated control of heating from magnetic resonance thermometry. The high spatial, thermal, and anatomic resolution
of the target volume enables precise ablation of prostate tissue while sparing functionally important structures, potentially reducing
the risk of side effects relative to RP.
The goal of the CAPTAIN trial is to demonstrate that the efficacy of the
TULSA procedure is not inferior to RP, while demonstrating superior quality of life outcomes in patients receiving the TULSA procedure
as compared to those patients receiving RP. The primary safety endpoint is the proportion of patients who preserve both erectile potency
and urinary continence at one year after treatment. The primary efficacy endpoint is the proportion of patients who are free from any
additional treatment for prostate cancer by three years after treatment. Secondary endpoints include comparison of rates of complications,
cost effectiveness, and timing of the return to baseline activity. Long-term follow-up will be gathered for up to 10 years after treatment.
Sonalleve®
Profound’s Sonalleve® system combines real-time MRI
and thermometry with focused ultrasound delivered from the outside of the patient to enable customized incision-free ablation of diseased
tissue. Profound acquired the Sonalleve® technology from Philips in 2017.
The Sonalleve® system is CE marked in the EU for the treatment
of uterine fibroids and palliative pain treatment of bone metastases. The uterine fibroids application is also available for sale in Canada.
In 2018, the Sonalleve® system was also approved in China by the National Medical Products Administration for the non-invasive
treatment of uterine fibroids. Philips Oy registered Sonalleve® in several Middle East, North African, and South Asian
countries. In 2020, Sonalleve® also received HDE from the US FDA for treatment of Osteoid Osteoma.
Sonalleve® Clinical Applications
Uterine Fibroids and Adenomyosis
Uterine fibroids are the most common non-cancerous tumors in women of childbearing
age. Both surgical and medical treatments are available, and the choice depends on number, size, and location of uterine fibroids, patient’s
age and preferences, and pregnancy expectations. To date, symptomatic uterine fibroids have been mostly treated with radical surgery (hysterectomy)
in women who have completed childbearing, or conservative surgery (myomectomy and endometrial ablation) in women who wish to preserve
fertility. Today, the radiologist also has interventional options available. Minimally or non-invasive interventional radiology procedures
include uterine artery embolization.
There is currently no ideal treatment for adenomyosis, and new options
are needed. Drawing on experience of treatment of uterine fibroids, MR-High Intensity Focused Ultrasound (“MR-HIFU”)
has been explored as a potential new conservative treatment and MR-HIFU is an early-stage, non-invasive, therapeutic technology with the
potential to improve the QoL and decrease the cost of care for patients with adenomyosis.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
To achieve its current regulatory clearances, the Sonalleve®
MR-HIFU System has undergone several studies and clinical trials for uterine applications at Sunnybrook Health Sciences Center (Toronto,
Ontario), University Medical Center Utrecht (Utrecht, the Netherlands), University Hospital St. André (Bordeaux, France), Samsung
Medical Center (Seoul, Korea), Peking University First Hospital Beijing (Beijing, China), First Affiliated Hospital of Medical College
of Xi’an Jiaotong University (Xi’an, China), Turku University Hospital (Turku, Finland), National Institutes of Health (Bethesda,
MD, USA), St. Luke’s Episcopal Hospital (Houston, TX, USA), amongst others.
In addition, a comprehensive literature review provides supportive evidence
showcasing the beneficial action of MR-HIFU in uterine fibroid and adenomyosis therapy. These studies include the Verpalen et al. 2020,
Nguyen 2020, Yeo et al. 2017, Kim et al. 2017, and Hocquelet et al. 2017 that utilized the Sonalleve® MR-HIFU System. Specifically,
the studies show impressive performance in terms of ablation efficiency, therapeutic efficacy, symptom reduction, and/or QoL improvement.
There were no treatment-related serious adverse events in any of these studies, although Browne et al. 2020 describes a procedure-related
major complication in the form of deep vein thrombosis that was noted in one patient (0.8%) and subsequently and successfully treated
with anticoagulation therapy. Minor adverse events, when present, typically include 1st and 2nd degree skin burns, local swelling, cramps,
leg pain, abdominal pain, buttock pain, and back pain, which are all known and anticipated adverse events of MR-HIFU therapy.
Palliative Bone Pain Treatment
Pain caused by bone metastases is common in the event of malignancy and
is inevitably associated with serious complications that may deteriorate the QoL of patients and become life threatening.
For patients with bone metastases, clinical evaluation reports were completed
in October 2020, showing significant decrease in pain score, dosage of medication, or QoL are to be expected with MR-HIFU bone therapy.
The randomized controlled Phase III study by Hurwitz et al. represents some of the most important clinical data that has been reported.
In 112 subjects receiving MR-HIFU compared against 35 subjects receiving sham treatment, significant pain reduction at three months (decrease
in worst NRS pain ≥ 2 without increase in pain medication) was 64.3% vs. 20.0% (p<0.001), with mean Numeric Pain Scale (“NRS”)
reduction of 3.6 ± 3.1 vs. 0.7 ± 2.4 from an initial median NRS score of 7.0 in both groups. Improvement in average Brief
Pain Inventory-Quality of Life at three months was 2.4 points superior in the MR-HIFU group (p<0.001), representing a clinically important
reduction in impairment caused by bone metastasis pain.
The clinical data above shows that patients with bone metastases can expect
a statistically significant decrease in pain scores and/or in medication dosage and increase in quality of life with MR-HIFU bone metastasis
therapy.
Osteoid Osteoma Treatment
Osteoid osteoma is a relatively rare, painful bone tumor that typically
occurs in the cortex of long bones, especially in children and adolescents, and accounts for approximately 10% of all benign bone tumors.
Current osteoid osteoma treatment options include surgery and radiofrequency
ablation (“RFA”), which is a less invasive option than surgical resection. Although RFA can have a high success rate,
the treatment is invasive and can potentially cause minor and major complications. It also exposes patients and operators to ionizing
radiation associated with the CT imaging guidance.
Sonalleve® MR-HIFU provides an optimal therapy choice for
osteoid osteoma which is a precise, completely non-invasive, and free from ionizing radiation treatment. The recent studies have assessed
the use of Sonalleve® MR-HIFU in treatment of osteoid osteoma, showing a high clinical success rate and complete symptom
resolution without any serious adverse effects and only few minor adverse effects that promptly resolve. The Sonalleve® MR-HIFU
device offers a novel, minimally invasive, MRI-guided method to treat osteoid osteoma safely and effectively.
Business Update and Sales Strategy
During the nine months ended September 30, 2022, the key impact experienced
by the Company related to COVID-19 was the delay of customer payments due to Profound’s inability to install systems because of
hospital restrictions, particularly in Asia.
While the adverse impacts of COVID-19 regulations on the Company have lessened
in both Canada and the US alongside the loosening of restrictions, the Company has still seen a negative financial impact from COVID-19
during the nine months ended September 30, 2022, due to lockdowns and hospital restrictions in Asia. The lockdowns and restrictions have
impacted Profound’s ability to collect certain payments in these countries, which have impeded the Company’s efforts to install
its systems and has delayed its collections. Profound continues to work with local authorities and team members located within these countries
to help expedite the process. Despite the challenging and uncertain economic environment created by the ongoing impact of the COVID-19
pandemic, Profound’s business continues to operate normally, and the Company believes its business demonstrates resilience because
of its preparation and strong relationships. Through the implementation of Profound’s detailed business continuity plan, the Company
transitioned a significant portion of its employee base to work from home. Throughout these challenging circumstances, the Company has
continued to serve its customers, quickly adapting to the current environment.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Profound initiated its launch of the TULSA-PRO® system in the United
States in Q4 2019 and the first patient was treated in the United States in a non-clinical trial setting in January 2020. Since then,
Profound’s business model has evolved to a recurring revenue model that includes durable hardware usage, one-time-use devices and
Profound’s Genius services, which includes necessary support for a productive start-up of the practice.
Profound has generated revenues from capital sales, one-time-use devices
and related services, in the EU (principally in Germany) and Asia. For the nine months ended September 30, 2022, approximately 45%, 26%
and 29% of revenues were generated in the United States, Asia and EU, respectively, compared to approximately 25%, 42% and 33% of revenues
which were generated in the United States, EU and Asia, respectively for the nine months ended September 30, 2021. Revenue on a quarter
over quarter basis is expected to fluctuate given the Company maintaining a limited European commercial effort and remains primarily focused
on the US market.
Profound’s TULSA-PRO system is primarily marketed to early adopter
physicians who specialize in treatment of prostate disease including urologists and radiologists at opinion leading hospitals. TULSA-PRO
services are available at either independent imaging centers or at hospital-based imaging centers.
Historically, treatment of conditions such as localized prostate disease
and uterine fibroids have included surgical intervention. Over time, surgery has evolved from an ‘open’ technique, to laparoscopic,
to robotic surgery. The motivation of surgeons behind this evolution has been to perform procedures that reduce invasiveness, improve
clinical outcomes and reduce recovery times. Profound is now taking this concept to the next level by enabling customizable, incision-free
therapies for the MRI-guided ablation of diseased tissue with the TULSA-PRO® and Sonalleve® systems. These
incision-free and radiation-free procedures offer surgeons the option of providing predictable and customizable procedures that eliminate
invasiveness, offer the potential to improve clinical outcomes and further reduce hospital stays and patient recovery times.
Profound is establishing its own direct sales and marketing teams for sales
of TULSA-PRO® systems and the one-time-use devices related thereto, as well as for Sonalleve® systems in
the jurisdictions where it is approved. The primary focus of Profound’s direct sales team is to cultivate adoption of the TULSA-PRO®
technology, support clinical customers with the TULSA-PRO® procedures and increase the utilization of the systems and one-time-use
devices. Profound expects to generate recurring revenues from the use of the system, one-time-use devices, clinical support and service
maintenance.
Profound also collaborates with its strategic partners Philips and Siemens
for lead generation and distribution of durable equipment, which are currently available through the Philips and Siemens sales catalogs.
On January 21, 2021, the Company entered into a new agreement with Siemens
(the “Siemens Agreement”). Under the Siemens Agreement, there is a one-time fixed license fee and per annum payments
calculated based on annual volume of Profound’s systems that are interfaced to a Siemens MRI scanner. The initial term of the Siemens
Agreement is five years and will be automatically extended for successive one-year terms thereafter unless terminated earlier. The Company
also obtained a non-exclusive license to Siemens Access I interface software and reasonable support for the term of the Siemens Agreement.
On December 21, 2020, Profound signed the GE Agreement to expand provider
access to TULSA-PRO®. Pursuant to the terms of the GE Agreement, Profound has been supplied with additional information
to utilize the ExSI interface, which has allowed Profound to interface with GE MRI scanners and GE is helping support the development
efforts of Profound to achieve compatibility with its GE MRI scanners which was achieved on March 1, 2022.
On May 6, 2021, Profound signed the Akumin Agreement. Pursuant to the Akumin
Agreement, Profound expects to install TULSA-PRO® systems at up to 10 Akumin centers to be outfitted with diagnostic and
therapeutic imaging services specifically dedicated towards men’s health. The initial geographic focus of the relationship will
be in the State of Florida, with Texas and Pennsylvania expected to follow.
Competition
TULSA-PRO®
The TULSA-PRO® system is intended to ablate benign and malignant
prostate tissue, however there are other treatment options for prostate disease. There are currently no marketed devices indicated for
the treatment of prostate diseases or prostate cancer and Profound’s FDA indication and CE mark in the EU also do not include treatment
of any particular disease or condition. However, there are a number of devices indicated for the destruction or removal of prostate tissue
and devices indicated for use in performing surgical procedures that physicians and surgeons currently utilize when treating patients
with prostate disease, including prostate cancer. Approaches that physicians and surgeons currently use to address prostate disease include:
(1) watchful waiting/active surveillance; (2) simple prostectomy; (3) radical prostatectomy (includes open, laparoscopic and robotic procedures);
(4) radiation therapies including, external beam radiation therapy, brachytherapy and high dose radiation; (5) cryoablation; and (6) trans-rectal
high intensity focused ultrasound (“HIFU”). In addition, certain adjunct or less common procedures are used or are
under development to address prostate disease, such as androgen deprivation therapy and proton beam therapy.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Each of the foregoing competing options have their own limitations and
benefits and may only be appropriate for limited patient populations. For example, active surveillance is generally recommended for patients
who have been diagnosed with earlier stage, lower risk, disease where the possibility of side effects from intervention may outweigh the
expected benefit of the chosen procedure. For clinicians and patients, the gap between active surveillance and the most commonly utilized
options of surgery or radiation therapy imposes the possibility of substantial side effects, creating a need for a less invasive methodology
to remove diseased prostate tissue that is both radiation and incision-free and provides a more favorable side-effect profile.
Profound believes that the flexibility of the TULSA-PRO® system may
allow the Company to demonstrate its use as a tool for ablating benign and malignant diseased prostate tissue with greater speed and precision
than current options while minimizing potential side effects. Profound believes that the TULSA-PRO® system may overcome certain limitations
of other devices and methodologies for removing or addressing diseased prostate tissue including HIFU, such as complications associated
with trans-rectal delivery and limitations relating to prostate size. Profound believes that a transurethral (inside out) ablation approach
with millimeter accuracy has advantages over HIFU in ablating the whole gland safely.
Sonalleve®
The treatment choices for uterine fibroids usually depend
on the symptoms of the patient, size of the fibroid, desire for future pregnancy and preference of the treating gynecologist. The
most common treatment options for uterine fibroids include: (1) hormonal medications including gonadotrophin releasing hormone agonists;
(2) progesterone releasing intra-uterine devices; (3) surgical procedures such as hysterectomy and myomectomy; and (4) uterine artery
embolization. Profound believes that the Sonalleve® system may provide a treatment option that is more convenient and comfortable
with fewer side effects than hormonal medications or surgical procedures, such as hysterectomy or myomectomy.
Reimbursement
Profound’s ability to successfully commercialize
the Company’s products depends in large part on the extent to which coverage and adequate reimbursement for such products and related
treatments or procedures will be available from government health administration authorities, government and private health insurers,
and other organizations or third-party payors. Pricing and reimbursement procedures and decisions vary from country to country. Many government
health authorities and private payors condition payment on the cost-effectiveness of the product. Even if a device is FDA cleared or CE
marked or has received other regulatory clearance or approval, there is no guarantee that third-party payors will reimburse providers
or patients for the cost of the device and related procedures or that the amount of such reimbursement will be adequate to cover the cost
of the device. The availability of coverage and adequate reimbursement to hospitals and clinicians using Profound’s products therefore
is important to its ability to generate revenue and Profound plans to pursue coverage and reimbursement for the Company’s products
in the key markets where the Company has regulatory approvals. Successful commercialization of the Company’s approved products will
also depend on the cost of the system and the availability of coverage and adequate reimbursement from third-party payors.
Although Profound expects there to be an out-of-pocket
market for the Company’s approved products, an out-of-pocket market alone is unlikely to be sufficient to support successful commercialization
of the Company’s products. To date, the Company’s products do not have significant coverage or reimbursement from government
or third-party payers in the jurisdictions where they are approved. In September 2022, Profound announced that the Current Procedural
Terminology Category 1 application for TULSA has been withdrawn. The Company currently expects to submit an updated application, including
2022 utilization data, at an appropriate time in 2023. In the meantime, U.S. hospitals performing the TULSA procedure on Medicare patients
are generally utilizing an existing temporary C-Code, which is a unique temporary product code established by Centers for Medicare &
Medicaid Services for the Hospital Outpatient Prospective Payment System (“OPPS”) to promote the adoption of new medical
technology that otherwise had no codes to facilitate payment. C-Codes are used on Medicare OPPS claims but may also be recognized on claims
from other providers or by other payment systems.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Q3 2022 HIGHLIGHTS
| § | On September 2, 2022, Profound announced that it had withdrawn its Current Procedural Terminology (“CPT®”)
Category 1 application for Transurethral Ultrasound Ablation (“TULSA”) from the September 2022 CPT® Editorial
Panel Meeting, and the Company anticipates an updated application, which will include 2022 utilization data. |
| § | On September 15, 2022, Profound announced changes to its commercial organization to support continued
growth which includes the appointment of two new Chief Commercial Officers to the Company’s management team. |
| § | On September 26, 2022, four year follow-up data from Profound’s TACT pivotal clinical trial confirmed
durable and stable positive trends following treatment with TULSA PRO® of men with localized prostate cancer. |
SELECTED FINANCIAL INFORMATION
The following selected financial information as at and for the nine months
ended September 30, 2022 and 2021, has been derived from the interim unaudited condensed consolidated financial statements and should
be read in conjunction with those interim condensed consolidated financial statements and related notes.
| | |
For the nine months ended September 30,
2022 2021 | |
| | |
$ | | |
$ | |
| Revenue | |
| 5,424 | | |
| 5,875 | |
| Operating expenses | |
| 25,766 | | |
| 23,018 | |
| Finance income | |
| 4,243 | | |
| 161 | |
| Net loss for the period | |
| 19,142 | | |
| 20,538 | |
| Basic and diluted loss per share | |
| 0.92 | | |
| 1.01 | |
| | |
| | | |
| | |
| Total assets | |
| 64,084 | | |
| 93,565 | |
| Total non-current liabilities | |
| 1,649 | | |
| 1,954 | |
Revenue has decreased slightly for the nine months ended September 30,
2022, compared to the nine months ended September 30, 2021, due to lower one-time capital equipment sales, as discussed under “Results
of Operations—Revenue” below.
Operating expenses increased for the nine months ended September 30, 2022,
compared to the nine months ended September 30, 2021, due to increased personnel, research and development expenses and selling and distribution
expenses.
The Company reported total assets of $64,084 as at September 30, 2022,
as compared to $93,565 as at September 30, 2021. The decrease in the 2022 period was a result of an increase in general expenditures throughout
the nine-month period ended September 30, 2022.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
RESULTS OF OPERATIONS
| | |
Three months ended
September 30 | | |
| | |
| | |
Nine months ended
September 30 | | |
| | |
| |
| | |
2022 | | |
2021 | | |
Change | | |
2022 | | |
2021 | | |
Change | |
| | |
$ | | |
$ | | |
$ | | |
% | | |
$ | | |
$ | | |
$ | | |
% | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Revenue | |
| 2,035 | | |
| 2,537 | | |
| (502 | ) | |
| -20 | % | |
| 5,424 | | |
| 5,875 | | |
| (451 | ) | |
| -8 | % |
| Cost of sales | |
| 945 | | |
| 1,550 | | |
| (605 | ) | |
| -39 | % | |
| 2,962 | | |
| 3,420 | | |
| (458 | ) | |
| -13 | % |
| Gross profit | |
| 1,090 | | |
| 987 | | |
| 103 | | |
| 10 | % | |
| 2,462 | | |
| 2,455 | | |
| 7 | | |
| 0 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Research and development | |
| 4,733 | | |
| 4,054 | | |
| 679 | | |
| 17 | % | |
| 11,601 | | |
| 10,578 | | |
| 1,023 | | |
| 10 | % |
| General and administrative | |
| 2,393 | | |
| 2,506 | | |
| (113 | ) | |
| -5 | % | |
| 7,371 | | |
| 7,091 | | |
| 280 | | |
| 4 | % |
| Selling and distribution | |
| 2,198 | | |
| 2,034 | | |
| 164 | | |
| 8 | % | |
| 6,794 | | |
| 5,349 | | |
| 1,445 | | |
| 27 | % |
| Total operating expenses | |
| 9,324 | | |
| 8,594 | | |
| 730 | | |
| 8 | % | |
| 25,766 | | |
| 23,018 | | |
| 2,748 | | |
| 12 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net finance (income)/costs | |
| (3,271 | ) | |
| (1,663 | ) | |
| (1,608 | ) | |
| 97 | % | |
| (4,243 | ) | |
| (161 | ) | |
| (4,082 | ) | |
| 2,535 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss before income taxes | |
| 4,963 | | |
| 5,944 | | |
| (981 | ) | |
| -17 | % | |
| 19,061 | | |
| 20,402 | | |
| (1,341 | ) | |
| -7 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Income taxes | |
| 34 | | |
| 52 | | |
| (18 | ) | |
| -35 | % | |
| 81 | | |
| 136 | | |
| (55 | ) | |
| -40 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss attributed to shareholders for the period | |
| 4,997 | | |
| 5,996 | | |
| (999 | ) | |
| -17 | % | |
| 19,142 | | |
| 20,538 | | |
| (1,396 | ) | |
| -7 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other comprehensive loss (income) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Item that may be reclassified to profit or loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Foreign currency translation adjustment | |
| 11,103 | | |
| 3,931 | | |
| 7,172 | | |
| 182 | % | |
| 14,992 | | |
| 1,016 | | |
| 13,976 | | |
| 1,376 | % |
| Net loss/(gain) and comprehensive loss/(gain) for the period | |
| (6,106 | ) | |
| 2,065 | | |
| (8,171 | ) | |
| -396 | % | |
| 4,150 | | |
| 19,522 | | |
| (15,372 | ) | |
| -79 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss per share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted net loss per Common Share | |
| 0.24 | | |
| 0.29 | | |
| (0.05 | ) | |
| -17 | % | |
| 0.92 | | |
| 1.01 | | |
| (0.09 | ) | |
| -9 | % |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Revenue
Profound deploys a recurring revenue business model in the United States
to market TULSA-PRO®, charging a one-time payment that includes a supply of its one-time-use device, use of the system
as well as Company’s Genius services that support each TULSA center with clinical and patient recruitment. The Sonalleve®
product is marketed primarily outside North America in European and Asian countries deploying a capital model. Outside of North America,
Profound generates most of its revenues from its system sales (both TULSA-PRO® and Sonalleve®) in Europe
and Asia where the Company deploys a more traditional hybrid business model, charging for the system separately as capital and an additional
per patient charge for the one-time-use devices and associated Genius services.
Sales of Sonalleve® systems are primarily one-time capital
sales with limited recurring service revenue. As the Company expands its commercialization efforts, it anticipates generating revenues
through in-house sales and marketing efforts, as well as from collaborative partnerships. In August 2019, the Company received FDA clearance
for the TULSA-PRO® system in the United States.
For the three months ended September 30, 2022, the Company recorded revenue
totaling $2,035 with $800 from the one-time sale of capital equipment and $1,235 from recurring – non-capital revenue, which consists
of the sale of one-time-use devices, lease of medical devices, procedures and services associated with extended warranties. For the three
months ended September 30, 2021, the Company recorded revenue totaling $2,537 with $1,457 from the one-time sale of capital equipment
and $1,080 from recurring – non-capital revenue. The decrease in revenue for the three months ended September 30, 2022, was primarily
the result of lower one-time sales of capital equipment, for the reasons discussed in the last paragraph of this section.
For the nine months ended September 30, 2022, the Company recorded revenue
totaling $5,424 with $2,004 from the one-time sale of capital equipment and $3,420 from recurring – non-capital revenue, which consists
of the sale of one-time-use devices, lease of medical devices, procedures and services associated with extended warranties. For the nine
months ended September 30, 2021, the Company recorded revenue totaling $5,875 with $3,150 from the one-time sale of capital equipment
and $2,725 from recurring – non-capital revenue. The decrease in revenue for the nine months ended September 30, 2022, was the result
of lower one-time sales of capital equipment, for the reasons discussed in the paragraph below. This decrease in revenue was partially
offset by higher recurring – non-capital revenue.
Revenue on a quarter over quarter basis is expected to fluctuate in the
near term given the Company is maintaining a limited European commercial effort and remains focused primarily on the US market. Profound
continues to experience the effects of COVID-19 as they continue to be significant in Asia. This has resulted in a reduction in anticipated
sales and led to delays in the Company’s expectations regarding the rate at which agreements for new TULSA-PRO® user
sites will be entered into and when user sites will become operational for the initiation of patient treatments. Despite the COVID-19
pandemic, patient treatments are continuing and Profound continues to identify potential new TULSA-PRO® user sites. It
continues to be very challenging to gauge the magnitude of the impact expected from the virus’ outbreak on Profound’s future
sales.
Cost of sales
Cost of sales include cost of finished goods, inventory provisions, warranty,
freight and manufacturing overhead expenses.
For the three months ended September 30, 2022, the Company recorded a cost
of sales of $945, related to the sale of medical devices, capital and non-capital, which reflects a 54% gross margin. For the three months
ended September 30, 2021, the Company recorded a cost of sales of $1,550, related to the sale of medical devices, capital and non-capital,
which reflects a 39% gross margin. The gross margin was higher in 2022 due to the revenue product mix and improved efficiencies.
For the nine months ended September 30, 2022, the Company recorded a cost
of sales of $2,962, related to the sale of medical devices, capital and non-capital, which reflects a 45% gross margin. For the nine months
ended September 30, 2021, the Company recorded a cost of sales of $3,420, related to the sale of medical devices, capital and non-capital,
which reflects a 42% gross margin. The gross margin was higher in 2022 due to the revenue product mix and improved efficiencies.
Operating Expenses
Operating expenses consist of three components: research and development
(“R&D”), general and administrative (“G&A”) and selling and distribution expenses. Historically,
R&D expenses have exceeded selling and distribution expenses.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
R&D Expenses
R&D expenses are comprised of costs incurred in performing R&D
activities, including new product development, continuous product improvement, investment in clinical trials and related clinical manufacturing
costs, materials and supplies, salaries and benefits, consulting fees, patent procurement costs, and occupancy costs related to R&D
activity.
For the three months ended September 30, 2022, R&D expenses were higher
by $679 compared to the three months ended September 30, 2021. Materials, travel and salaries and benefits increased by $94, $118 and
$852, respectively. The increases were due to materials for the CAPTAIN trial patient treatments, various quality and cost improvement
projects, traveling for off-site MRI testing and site installation and additional headcount. Offsetting these amounts were a decrease
in share-based compensation of $211 due to employee departures and a decrease in software by $29 due to reduced software license costs.
Amortization expenses decreased by $146 due to certain assets being fully amortized.
For the nine months ended September 30, 2022, R&D expenses were higher
by $1,023 compared to the nine months ended September 30, 2021. Clinical trial costs, travel, salaries and benefits and office supplies
increased by $238, $388, $1,761 and $330, respectively. The increases were due to CAPTAIN trial enrollment and treatment of patients,
traveling for off-site MRI testing and site installation, additional headcount and increased shop supplies. Offsetting these amounts were
a decrease to materials by $958 due to verification and validation testing and completion of GE Project and decrease in share-based compensation
of $533 due to employee departures and fewer awards being granted this year. Amortization expenses decreased by $151 and depreciation
expense decreased by $65 due to certain assets being fully amortized and depreciated.
G&A expenses
G&A expenses are comprised of management costs, including salaries
and benefits, various management and administrative support functions, insurance and other operating and occupancy costs.
G&A expenses for the three months ended September 30, 2022, decreased
by $113 compared to the three months ended September 30, 2021. Salaries and benefits and software increased by $89 and $117, respectively,
due to additional headcount and new license costs for the enterprise resource planning (“ERP”) and customer relationship
management software (“CRM”). Offsetting these amounts were a decrease to share-based compensation of $315 which was
due to fewer awards granted this quarter.
G&A expenses for the nine months ended September 30, 2022, increased
by $280 compared to the nine months ended September 30, 2021. Salaries and benefits, consulting fees and software by $342, $124 and $423,
respectively, due to additional headcount, increased legal, recruitment and accounting fees and new license costs for the ERP and customer
relationship management software. Offsetting these amounts were a decrease to shared based compensation of $611 which was due to retirement
of employees and fewer awards being granted this year.
Selling and distribution expenses
Selling and distribution expenses are comprised of business development
costs related to the market development activities and commercialization of the Company’s systems, including salaries and benefits,
marketing support functions, occupancy costs related to marketing activity and other miscellaneous marketing costs.
Selling and distribution expenses for the three months ended September
30, 2022, were higher by $164 compared to the three months ended September 30, 2021. Salaries and benefits, consulting fees and travel
increased by $285, $25 and $207, respectively, due to increased salesforce hired in the US, additional consulting efforts to support Profound’s
marketing campaigns and increased traveling for conferences and customer sites coupled with the lifting of COVID travel restrictions.
Offsetting these amounts were a decrease to share based compensation of $234 which was due to employee departures, decrease in marketing
and other by $65 and $53, respectively due to timing of marketing campaigns.
Selling and distribution expenses for the nine months ended September 30,
2022, were higher by $1,445 compared to the nine months ended September 30, 2021. Salaries and benefits, marketing and travel increased
by $954, $41 and $459, respectively, due to increased salesforce hired in the US and China, new marketing campaign deployments and increased
traveling for conferences and customer sites.
Finance income/(costs)
Net finance income/(costs) are primarily comprised of the following: (i)
the change in the fair value of the derivative liability warrants; (ii) the lease liability interest expense; (iii) foreign exchange gain
or loss; (iv) interest income; and (v) the interest income on trade and other receivables.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Net finance income for the three months ended September 30, 2022, were
lower by $1,608 compared to the three months ended September 30, 2021, primarily due to a higher foreign exchange gain. During the three
months ended September 30, 2022, the Company recognized $2,981 of foreign exchange gain, $39 interest income on trade and other receivables
and a $56 gain on the change in fair value of the derivative liability warrants. The Company recognized interest income of $209 and lease
liability interest expense of $14.
Net finance income for the nine months ended September 30, 2022, were lower
by $4,082 compared to the nine months ended September 30, 2021, primarily due to a higher foreign exchange gain. During the nine months
ended September 30, 2022, the Company recognized $3,575 of foreign exchange gain, $251 interest income on trade and other receivables
and a $145 gain on the change in fair value of the derivative liability warrants. The Company recognized interest income of $318 and lease
liability interest expense of $46.
Net loss
Net loss for the three months ended September 30, 2022, was $4,997 or $0.24
per Common Share, compared to a net loss of $5,996 or $0.29 per Common Share for the three months ended September 30, 2021. The decrease
in net loss was primarily attributed to a decrease in G&A expense of $113, a decrease in net financing costs of $1,608 and an increase
in gross profit of $103. This was offset by an increase in R&D expense of $679 and an increase in selling and distribution expenses
of $164.
Net loss for the nine months ended September 30, 2022, was $19,142 or $0.92
per Common Share, compared to a net loss of $20,538 or $1.01 per Common Share for the nine months ended September 30, 2021. The decrease
in net loss was primarily attributed to a decrease in net financing costs of $4,082 and an increase in gross profit of $7. This was offset
by an increase in R&D expense of $1,023, an increase in G&A expenses of $280 and an increase in selling and distribution expenses
of $1,445.
SUMMARY OF QUARTERLY FINANCIAL RESULTS
The summary financial information provided below is derived from the Company’s interim
financial statements for each of the last eight quarters that are prepared under IFRS in US dollars.
| | |
2022 | | |
2021 | | |
2020 | |
| | |
Q3 | | |
Q2 | | |
Q1 | | |
Q4 | | |
Q3 | | |
Q2 | | |
Q1 | | |
Q4 | |
| | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | |
| Revenue | |
| 2,035 | | |
| 2,025 | | |
| 1,364 | | |
| 998 | | |
| 2,537 | | |
| 2,627 | | |
| 711 | | |
| 2,880 | |
| Cost of sales | |
| 945 | | |
| 1,089 | | |
| 928 | | |
| 501 | | |
| 1,550 | | |
| 1,411 | | |
| 459 | | |
| 1,737 | |
| Gross profit | |
| 1,090 | | |
| 936 | | |
| 436 | | |
| 497 | | |
| 987 | | |
| 1,216 | | |
| 252 | | |
| 1,143 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Operating expenses | |
| 9,324 | | |
| 8,714 | | |
| 7,728 | | |
| 10,225 | | |
| 8,594 | | |
| 7,600 | | |
| 6,824 | | |
| 6,051 | |
| Net finance income/ (costs) | |
| (3,271 | ) | |
| (1,864 | ) | |
| 892 | | |
| 464 | | |
| (1,663 | ) | |
| 602 | | |
| 900 | | |
| 2,987 | |
| Loss before income taxes | |
| 4,963 | | |
| 5,914 | | |
| 8,184 | | |
| 10,192 | | |
| 5,944 | | |
| 6,986 | | |
| 7,472 | | |
| 7,895 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Income taxes | |
| 34 | | |
| 16 | | |
| 31 | | |
| (31 | ) | |
| 52 | | |
| 57 | | |
| 27 | | |
| (368 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss for the period | |
| 4,997 | | |
| 5,930 | | |
| 8,215 | | |
| 10,161 | | |
| 5,996 | | |
| 7,043 | | |
| 7,499 | | |
| 7,527 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss per common share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted | |
| 0.24 | | |
| 0.28 | | |
| 0.40 | | |
| 0.49 | | |
| 0.29 | | |
| 0.35 | | |
| 0.37 | | |
| 0.38 | |
The fourth quarter of 2020 was impacted by the decrease in the foreign
exchange currency rate, triggering an unrealized foreign exchange loss. Net loss for the period was higher due to these losses.
The first quarter of 2021 was impacted by lower sales and higher operating
costs. These changes were mainly attributed to the impact of COVID-19 and an increase in R&D projects.
The second quarter of 2021 operating expenses were higher due to increased
headcount, material expenditures and stock-based compensation.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
The third quarter of 2021 operating expenses were higher this quarter compared
to prior quarters due to increased headcount, increased travel due to travel restrictions being removed and increased share-based compensation.
In addition, there was also a decrease in finance costs due to the US dollar and Euro foreign currency rate, triggering an unrealized
foreign exchange gain.
The fourth quarter of 2021 revenue was lower compared to prior quarters
due to decreased one-time capital sales. Operating expenses were higher due to the increase in headcount and increased share-based compensation.
In addition, there were minimal financing costs due to the US dollar and Euro foreign currency rate, triggering an unrealized foreign
exchange loss offset by gain on the fair value of the derivative financial instrument.
The first quarter of 2022 revenue increased compared to the prior quarter
as a result of the rise of recurring revenue from US procedures. Operating expenses remained relatively steady with a slight increase
from additional headcount.
The second quarter of 2022 revenue continued to increase compared to the
prior quarter as a result of the rise of recurring revenue from US procedures. Operating expenses were higher due to the increase in headcount
and software fees. In addition, there was also a decrease in finance costs due to the US dollar and Euro foreign currency rate, triggering
an unrealized foreign exchange gain.
The third quarter of 2022 cost of sales decreased as a result of better
yields and product quality. In addition, there was also a decrease in finance costs due to the US dollar and Euro foreign currency rates,
triggering an unrealized foreign exchange gain.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2022, the Company had cash of $46,208 compared to $67,152
at December 31, 2021. The decrease in cash is primarily attributable to sales, marketing and research and development initiatives. The
Company’s cash requirements depend on numerous factors, including market acceptance of the Company’s products, the resources
devoted to developing and supporting the products and other factors. Profound expects to continue to devote substantial resources to expand
procedure adoption and acceptance of the Company’s products.
Subsequent to period end, the Company entered into a term loan agreement
with CIBC Innovation Banking (CIBC) to provide a secured loan for total initial gross proceeds of $10,000 CAD maturing 5 years from the
closing date with an interest rate based on prime plus 2.0% on closing. The Company is required to make interest only payments for 12
months after the closing date, followed by 48 equal monthly principal payments, plus accrued interest. All obligations of the Company
under the term loan agreement are guaranteed by current and future subsidiaries of the Company and include security of first priority
interests in the assets of the Company and its subsidiaries.
Cash Flow and Financing Sources
The Company manages liquidity risk by monitoring actual and projected
cash flows. A cash flow forecast is performed regularly to ensure that the Company has sufficient cash to meet operational needs while
maintaining sufficient liquidity. While the Company believes it has sufficient liquidity to meet its existing cash requirements (see
“—Contractual Obligations” below), the Company may require additional capital to fund R&D activities and any significant
expansion of operations. Potential sources of capital could include equity and/or debt financings, development agreements or marketing
agreements, the collection of revenue resulting from future commercialization activities and/or new strategic partnership agreements
to fund some or all costs of development. There can be no assurance that the Company will be able to obtain the capital sufficient to
meet any or all of the Company’s needs. The availability of equity or debt financing will be affected by, among other things, the
results of R&D, the Company’s ability to obtain regulatory approvals, the market acceptance of the Company’s products,
the state of the capital markets generally, strategic alliance agreements and other relevant commercial considerations. In addition,
if the Company raises additional funds by issuing equity securities, existing security holders will likely experience dilution, and any
incurring of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and
financial covenants that would restrict operations. Any failure on the Company’s part to raise additional funds on terms favourable
to the Company or at all may require the Company to significantly change or curtail current or planned operations in order to conserve
cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in the Company not being in a
position to take advantage of business opportunities, in the termination or delay of clinical trials for its products, in curtailment
of product development programs designed to identify new products, in the sale or assignment of rights to technologies, product and/or
an inability to file market approval applications at all or in time to competitively market products.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
| | |
Three months ended September 30, | | |
Nine months ended September 30, | |
| | |
2022
$ | | |
2021
$ | | |
2022
$ | | |
2021
$ | |
| | |
| | |
| | |
| | |
| |
| Cash provided by (used in) operating activities | |
| (5,755 | ) | |
| (5,019 | ) | |
| (19,182 | ) | |
| (17,307 | ) |
| Cash provided by (used in) investing activities | |
| - | | |
| (121 | ) | |
| - | | |
| (466 | ) |
| Cash provided by (used in) financing activities | |
| 89 | | |
| 4,479 | | |
| 23 | | |
| 6,036 | |
| Foreign exchange on cash | |
| (1,361 | ) | |
| (892 | ) | |
| (1,785 | ) | |
| 42 | |
| Net increase (decrease) in cash | |
| (7,027 | ) | |
| (1,553 | ) | |
| (20,944 | ) | |
| (11,695 | ) |
Operating Activities
Net cash provided by (used in) operating activities for the three months
ended September 30, 2022, was $(5,755) versus $(5,019) for the three months ended September 30, 2021. The principal use of the operating
cash flows during this three month period related to employee headcount and software expenditures and higher foreign exchange expense
on cash expenditures.
Net cash provided by (used in) operating activities for the nine months
ended September 30, 2022, was $(19,182) versus $(17,307) for the nine months ended September 30, 2021. Operating cash flows increased
during this nine month period compared to the prior year period due to increased employee headcount, CRM software and increased travel
expenditures and higher foreign exchange expense on cash expenditures.
Investing Activities
Net cash provided by (used in) investing activities for the three months
ended September 30, 2022, were $nil versus $(121) for the three months ended September 30, 2021. The cash flows from 2021 related to ERP
implementation costs.
Net cash provided by (used in) investing activities for the nine months
ended September 30, 2022, were $nil versus $(466) for the nine months ended September 30, 2021. The cash flows from 2021 related to ERP
implementation costs.
Financing Activities
Net cash provided by (used in) financing activities for the three months
ended September 30, 2022, were $89 versus $4,479 for the three months ended September 30, 2021. These cash flows in 2021 related to the
exercise of options and warrants.
Net cash provided by (used in) financing activities for the nine months
ended September 30, 2022, were $23 versus $6,036 for the nine months ended September 30, 2021. These cash flows in 2021 related to the
exercise of options and warrants.
Foreign Exchange on Cash
Cash was impacted by the change in the foreign exchange rates for the
Company’s foreign currency denominated cash (non-USD). The value of the Company’s currencies decreased, resulting in an decrease
in the Company’s cash holdings.
Contractual Obligations
The following table summarizes the Company’s significant contractual obligations:
| |
September 30, 2022 | |
| |
Carrying amount
$ | |
Future cash flows
$ | |
Less than 1 Year
$ | |
Between
1 year and
5 years
$ | |
| |
| |
| |
| |
| |
| Accounts payables and accrued liabilities |
| 2,537 | |
| 2,537 | |
| 2,537 | |
| - | |
| Lease liability1 |
| 1,100 | |
| 1,233 | |
| 291 | |
| 942 | |
| Total |
| 3,637 | |
| 3,770 | |
| 2,828 | |
| 942 | |
1 Present value of the lease payments that are not paid, discounted using the interest
rate implicit in the lease.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Non-IFRS Financial Measures
Non-IFRS measures are not recognized measures under IFRS and do not have
a standardized meaning prescribed by IFRS. These measures are defined with reference to the nearest comparable IFRS measure such that
a reconciliation to the nearest comparable IFRS measure can be completed. Accordingly, these measures may not be comparable to similar
measures presented by other companies. Profound uses non-IFRS measures in order to provide additional financial information to complement
the closest IFRS measures in order to provide investors with a further understanding of the Company’s operations from management’s
perspective. Investors should not consider that these non-IFRS measures are a substitute for analyses of the financial information that
Profound reports under IFRS. Profound uses these non-IFRS measures in order to provide investors with a supplemental measure of Profound’s
operating performance and thus highlight trends in its business that may not otherwise be apparent when relying solely on IFRS measures.
The Company’s working capital (defined as current assets less current
liabilities) is a non-IFRS financial measure. Working capital is used to fund operations and meet short-term obligations. If the
Company has enough working capital, it can continue to pay its employees and suppliers and meet other obligations, such as interest payments
and taxes, even if it runs into cash flow challenges. The working capital as at September 30, 2022, as compared to the Company’s
working capital as at December 31, 2021 is set forth in the table below.
| | |
September 30,
2022
$ | | |
December 31,
2021
$ | |
| | |
| | |
| |
| Current assets | |
| 57,553 | | |
| 77,125 | |
| Less: Current liabilities | |
| 3,316 | | |
| 4,155 | |
| Working capital | |
| 54,237 | | |
| 72,970 | |
Working capital has decreased by $18,733 with a surplus of $54,237 at September
30, 2022, compared to the surplus of $72,970 at December 31, 2021. The change in working capital is due to a decrease in current assets
of $19,572, which was primarily the result of the decreased cash balance of $20,944 which was offset by an increase in current trade and
other receivables of $2,046. Current liabilities decreased by $839 due to the timing of accruals and payments.
COMMITMENTS & CONTINGENCIES
All directors and officers of the Company are indemnified by the Company
for various items including, but not limited to, all costs to settle lawsuits or actions due to their association with the Company, subject
to certain restrictions. The Company has purchased directors’ and officers’ liability insurance to mitigate the cost of any
potential future lawsuits or actions. The term of the indemnification is not explicitly defined but is limited to events for the period
during which the indemnified party served as a director or officer of the Company. The maximum amount of any potential future payment
cannot be reasonably estimated but could have a material adverse effect on the Company.
The Company has also indemnified certain lenders and underwriters in relation
to certain debt and equity offerings and their respective affiliates and directors, officers, employees, shareholders, partners, advisers
and agents and each other person, if any, controlling any of the underwriters or lenders or their affiliates against certain liabilities.
FINANCIAL INSTRUMENTS
The Company’s financial instruments consist of cash, trade and other
receivables, accounts payable and accrued liabilities, lease liabilities and other liabilities. The fair values of these financial instruments
and other liabilities, approximate carrying value because of their short-term nature. For the non-current trade and other receivables,
the fair value is also not significantly different from the carrying amount. Financial assets measured at amortized cost include cash
and trade and other receivables.
The fair value of the Company’s derivative financial instrument is
based on the valuation techniques described and is considered level 2 in the fair value hierarchy.
Financial liabilities measured at amortized cost include accounts payable
and accrued liabilities, lease liabilities and other liabilities.
The Company’s financial instruments are exposed to certain financial
risks including credit risk, liquidity risk, currency risk and interest rate risk. There have been no significant changes to those risks
impacting the Company since December 31, 2021, nor has there been a significant change in the composition of its financial instruments
since December 31, 2021.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
RELATED PARTY TRANSACTIONS
Key management includes the Company’s directors and senior management
team. Additional information on the senior management team can be found in the Company’s AIF. The remuneration of directors and
the senior management team were as follows:
| | |
Three months ended
September 30, | | |
Nine months ended
September 30, | |
| | |
2022
$ | | |
2021
$ | | |
2022
$ | | |
2021
$ | |
| | |
| | |
| | |
| | |
| |
| Salaries and employee benefits | |
| 704 | | |
| 299 | | |
| 1,714 | | |
| 1,435 | |
| Directors’ fees | |
| 81 | | |
| 63 | | |
| 215 | | |
| 171 | |
| Share-based compensation | |
| 735 | | |
| 586 | | |
| 1,614 | | |
| 2,020 | |
| Total | |
| 1,520 | | |
| 948 | | |
| 3,543 | | |
| 3,626 | |
Executive employment agreements allow for additional payments in the event
of a liquidity event, or if the executive is terminated without cause.
OUTSTANDING SHARES
As at November 3, 2022, the date of this MD&A, the Company had the
following securities outstanding:
| | |
Number | |
| Common Shares | |
| 20,876,027 | |
| Share purchase options | |
| 1,627,065 | |
| Warrants | |
| 724,983 | |
| RSUs | |
| 477,261 | |
| DSUs | |
| 60,000 | |
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements in conformity with
IFRS requires management to make estimates and judgements that affect the reported amounts of assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from
these estimates. As additional information becomes available or actual amounts are determinable, the recorded estimates are revised and
reflected in operating results in the period in which they are determined.
Critical accounting policies
Revenue
To determine revenue recognition for arrangements the Company performs
the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it
is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the
customer.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
The Company derives its revenues primarily from the lease and sale of medical
devices and the sale of certain one-time-use devices. Capital equipment consists of one-time revenue for the sale of capital equipment
including installation fees. Recurring – non-capital revenue consists of the sale of one-time-use devices, lease of medical devices,
procedures and services associated with extended warranties. Revenue is recognized when a contractual promise to a customer (performance
obligation) has been fulfilled by transferring control over the promised goods or services, generally at the point in time of shipment
to or receipt of the products by the customer or when the services are performed. When contracts contain customer acceptance provisions,
revenue is recognized on the satisfaction of the specific acceptance criteria.
The amount of revenue to be recognized is based on the consideration the
Company expects to receive in exchange for its goods and services. For contracts that contain multiple performance obligations, the Company
allocates the consideration to which it expects to be entitled to each performance obligation based on relative standalone selling prices
and recognizes the related revenue when or as control of each individual performance obligation is transferred to customers.
Service revenue related to installation and training is recognized over
the period in which the services are performed. Service revenue related to extended warranty service is deferred and recognized on a straight-line
basis over the extended warranty period covered by the respective customer contract.
Critical accounting estimates
Impairment of non-financial assets
The Company reviews amortized non-financial assets for impairment whenever
events or changes in circumstances indicate the carrying amount of the assets may be impaired. It also reviews goodwill annually for impairment.
If the recoverable amount of the respective non-financial asset is less than its carrying amount, it is considered to be impaired. In
the process of measuring the recoverable amount, management makes assumptions about future events and circumstances. The actual results
may vary and may cause significant adjustments.
Trade and other receivables
The key judgments and estimates used in determining the amortized cost
for trade and other receivables are the estimated collection period and the discount rate applied to the cash flow projections.
DISCLOSURE CONTROLS AND PROCEDURES
AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
Disclosure controls and procedures have been designed to ensure that information
required to be disclosed by the Company is accumulated and communicated to the Company’s management as appropriate to allow timely
decisions regarding required disclosure.
The Chief Executive Officer and the Chief Financial Officer of the Company
are responsible for establishing and maintaining disclosure controls and procedures (“DC&P”) and internal control
over financial reporting (“ICFR”), as those terms are defined in National Instrument 52-109 Certification of Disclosure
in Issuer’s Annual and Interim Filings, and in applicable SEC rules and regulations, for the Company.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate. These inherent limitations include, but are not limited to, human error and circumvention of controls and as such, there
can be no assurance that the controls will prevent or detect all misstatements due to errors or fraud, if any.
Management concluded that internal control over financial reporting was
not effective as of September 30, 2022, as a result of a material weakness in internal control over financial reporting. See “Control
Environment” and “Status of Remediation Plan” below for a description of the foregoing material weakness
and the Company’s evaluation and remedial activities taken in respect of such.
A material weakness is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the assessment of the
effectiveness of our internal control over financial reporting, management identified a material weakness that existed as of September
30, 2022, in the control environment.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Control Environment
The Company did not design or implement adequate oversight processes and
structures, or an organizational design to support the achievement of the Company’s objectives in relation to internal controls.
The Company identified a deficiency in internal controls, primarily due to the control environment not supporting the increasing complexity
of the share-based compensation arrangements for employees and directors and review of third-party calculations. As a result, an issue
existed within the control environment that impacted the ability of the Company to maintain effective internal control over financial
reporting. This material weakness contributed to the following:
| · | The Company did not design and maintain effective controls over the review of inputs utilized in the calculation
of the share-based compensation expense. Specifically, the Company did not design appropriate controls over the valuation and review of
third-party calculations. |
While there was a material weakness, no restatement for any previous periods
were required as the impact was immaterial in the aggregate and did not have a pervasive impact on ICFR.
Status of Remediation Plan
Management, with the assistance of external consultants, are reviewing
and revising our internal control over financial reporting. Management is committed to implementing changes to our internal control over
financial reporting to ensure that the control deficiencies that contributed to the material weaknesses are remediated. The following
remedial activities are in process:
| · | We have increased the number of finance and accounting personnel and have redesigned financial reporting
structures within the organization to establish clear responsibility and accountability for key financial reporting processes and controls.
We have hired additional financial reporting personnel with an appropriate level of internal controls and accounting knowledge, training
and experience commensurate with our financial reporting requirements, and are actively working to identify additional resources. |
| · | We are continuing to establish an internal audit function and have engaged external consultants to assist
management with designing and implementing internal controls. As a result, a project was commenced to reassess risks related to financial
reporting, understand and document significant financial reporting processes, and to re-assess the design and operation of key controls.
This project is expected to continue until management has determined that deficiencies have been remediated and our internal control over
financial reporting are operating effectively. |
Management believes these actions will remediate the material weaknesses;
however, to date, we have not completed all the corrective processes, procedures and related evaluation or remediation that we believe
are necessary. As we continue to evaluate and work to remediate the material weaknesses, we may need to take additional measures to address
the control deficiencies. Until the remediation steps set forth above, including the efforts to implement any additional control activities
identified through our remediation processes, are fully implemented and concluded to be operating effectively, the material weaknesses
described above will not be considered fully remediated.
Other than disclosed above, there have been no significant changes to the
Company’s ICFR for the three months ended September 30, 2022, which have materially affected, or are reasonably likely to materially
affect the Company’s ICFR.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
Environmental, social and governance (“ESG”) issues
are an integral part of human life. They’ve also become a more conscious and explicit part of business life, especially for public
entities like Profound. The Company believes ESG sensitivities are an integral part of growing a successful, sustainable business. The
importance Profound places on ESG principles stems from its foundation as a Company, whose mission is focused on providing customizable
incision-free therapies that are flexible to treat different types of patients and can treat each patient differently. ESG is embedded
in the Company’s corporate strategy, which seeks to maximize long-term value by taking a disciplined and sustainable approach to
changing the paradigm of prostate cancer treatment.
Through Profound’s ESG plan, the Company
intends to create enduring value for shareholders by:
| · | attracting, retaining and empowering a diverse, engaged workforce to bring unique perspectives and experiences
to strategic decisions; |
| · | ensuring safe and secure workplaces for its employees and contributing to their welfare; |
| · | caring for the environment in which the Company operates; |
| · | strengthening relationships with shareholders by working collaboratively to achieve positive social, economic
and environmental outcomes; and |
| · | operating transparently. |
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
Environmental
To achieve the Company’s ambition, Profound will focus on waste reduction,
waste avoidance, and waste management strategies for all materials, including plastic, metal, and cardboard. To manage the Company’s
waste, it segregates, recycles, and properly disposes of hazardous and non-hazardous materials and where possible, reuses materials such
as alcohol and water through its recycling plan. Profound will continue managing its waste and material use through clear and consistent
communication of best practices throughout the Company.
Across operations, Profound has begun to implement LED lighting retrofits.
Since 2021, Profound has invested in upgrading its lighting in its manufacturing facilities to high-efficiency LED to reduce energy consumption
and enhance the manufacturing facilities work environment for its employees. The Company plans to continue to invest in lighting where
it can have a positive environmental impact and improved working conditions.
Social
As the demand for talent increases, the need for innovative attraction
and retention strategies also increases. The Company recognizes that in a rapidly changing environment, its employees are central to its
business performance. Profound’s workforce is a key driver of its success, which is why providing a superior employee experience
is one of its top priorities. This includes Profound’s commitment to providing a safe and healthy workplace for all employees, consultants,
and business partners. Profound does not simply consider this to be its duty of care but an important business practice as it lowers costs,
reduces absenteeism and turnover, increases productivity and quality and raises employee morale.
Diversity and inclusion is a long-standing core value that Profound embraces
by fostering a respectful workplace where integrity, trust and inclusion are the norm. Profound believes that an inclusive workplace is
one where everyone feels a sense of belonging, has a safe environment in which to work and develop, and shares equal opportunities for
career advancement regardless of gender, skin colour, ethnicity, religion, age, disability or sexual orientation. Profound values diversity
and inclusion because together they enable a highly collaborative and engaging work environment and drive innovation and the development
of new ideas, which in turn directly correlates with improved Company performance.
Governance
Profound’s Board of Directors are responsible
for the stewardship of the Company and for overseeing the conduct of business and the activities of management. The Human Resource and
Corporate Governance Committee is responsible for providing leadership in shaping the governance policies and practices. These Committees
consist of many affluent senior leadership members within the industry that provide meaningful insight and guidance. Strong and effective
governance practices are part of Profound’s organizational culture. This encompasses sound and effective internal processes and
procedures, minimizing risks, continuous enhancement of human resource policies and practices, a cyber security strategy and promoting
efficiency.
The Company holds itself to a high standard of
governance and it is continually taking steps to strengthen its performance and accountability in critical areas. Profound’s Code
of Business Conduct and Ethics provides the standards for ethical behavior throughout Profound’s business activities and reflects
its commitment to conducting a culture of honesty, integrity, and accountability.
As Profound continues to work towards its mission, the Company is committed
to conducting its business in a responsible and sustainable manner by aspiring to develop healthy, resilient communities through its dedication
to social, economic and environmental sustainability. By unlocking value through its core activities, Profound remains focused on execution
on all fronts including in fulfilling its commitment to ESG best practices in the years to come.
RISK FACTORS
For a detailed description of risk factors associated with the Company,
refer to the “Risk Factors” section of the AIF, which is available on SEDAR at www.sedar.com and filed as an exhibit to the
40-F, available on EDGAR at www.sec.gov.
In addition, the Company is exposed to a variety of financial risks in
the normal course of operations, including risks relating to cash flows from operations, liquidity, capital reserves, market rate fluctuations
and internal controls over financial reporting. Profound’s overall risk management program and business practices seek to minimize
any potential adverse effects on its consolidated financial performance. Financial risk management is carried out under practices approved
by Profound’s audit committee. This includes reviewing and making recommendations to the board of directors regarding the adequacy
of Profound’s risk management policies and procedures with regard to identification of the Company’s principal risks, and
implementation of appropriate systems and controls to manage these risks.
Profound Medical Corp.
Management’s Discussion and Analysis
For the three and nine months ended September 30, 2022 and 2021
In USD$ (000s)
ADDITIONAL INFORMATION
Additional information relating to the Company, including the AIF the other
exhibits to the 40-F, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The Common Shares are listed for trading on
the TSX under the symbol “PRN” and on Nasdaq under the symbol “PROF”.
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