Executive Summary / Key Takeaways

• Strategic Pivot Driving Growth: EDAP TMS is successfully executing a strategic transformation, divesting from legacy ESWL and distribution businesses to focus entirely on its high-growth Focal One Robotic HIFU platform, positioning itself as a leader in focal therapy for prostate cancer and expanding into new indications.
• Technological Leadership and Clinical Validation: The Focal One platform, including the new Focal One i, offers best-in-class robotic HIFU technology with advanced imaging, AI integration, and remote capabilities, backed by strong clinical evidence from landmark studies like HIFI and FARP demonstrating comparable oncologic control and superior functional outcomes versus radical prostatectomy.
• Accelerating Financial Performance: The core HIFU business is experiencing significant momentum, with Q2 2025 global HIFU revenues up 89% year-over-year and 12 system placements, leading to an upward revision of 2025 HIFU revenue growth guidance to 26-34%.
• Expanding Market Opportunities and Favorable Reimbursement: EDAP is leveraging its HIFU technology for large, underserved markets beyond prostate cancer, including deep infiltrating endometriosis (CE Mark received) and benign prostatic hyperplasia (BPH) (new CPT code and clinical studies underway), supported by increasing and favorable CMS reimbursement rates.
• Enhanced Liquidity and U.S. Market Commitment: A EUR 36 million credit facility from the European Investment Bank is set to bolster the balance sheet and fund strategic expansion, while the planned transition to a U.S. domestic filer underscores a long-term commitment to transparency and attracting institutional investors.

EDAP's Strategic Evolution and the Rise of Focal Therapy

EDAP TMS S.A. (NASDAQ:EDAP), a company incorporated in 1979, has undergone a significant strategic transformation, evolving from a diversified medical device provider in urology to a focused leader in High-Intensity Focused Ultrasound (HIFU) robotic therapies. This pivot centers on its proprietary Focal One platform, which is designed to address an unmet clinical need in cancer treatment by offering a non-invasive, tissue-sparing alternative to traditional whole-gland therapies. The company's overarching strategy is to become the global market leader in robotic HIFU focal therapy, leveraging its technological edge in a rapidly expanding market.

The market for urological cancer treatments, particularly prostate cancer, presents a substantial opportunity. Prostate cancer is the most common cancer among men in the U.S., affecting 3.30 million American men, with 313,780 new cases diagnosed annually. Globally, 1.50 million new cases are reported each year. Projections from the Lancet Commission on prostate cancer indicate that diagnosed cases are expected to double to 2.9 million by 2040, with annual deaths rising to 700,000. This growing burden underscores the critical need for effective and less invasive treatment options. Focal therapy, with HIFU at its forefront, is emerging as a paradigm shift, offering a middle ground between active surveillance and radical treatments like surgery or radiation, and is noted as the fastest-growing treatment option based on Medicare claims.

EDAP's strategic response to this market dynamic involves a deliberate reduction of investment in its legacy Extracorporeal Shockwave Lithotripsy (ESWL) and distribution businesses. The company has decided to cease selling the Sonolith i-move lithotripsy product line, with final system sales scheduled for the second half of 2025, while continuing to support the existing customer base. Similarly, investments in the non-core distribution business are being reduced. This strategic redirection allows EDAP to reallocate resources and focus on the high-growth opportunities presented by the Focal One platform, aiming for increased agility and efficiency as a "pure play" market leader in therapeutic HIFU.

Technological Edge: The Power of Focal One HIFU

At the heart of EDAP's investment thesis is its Focal One Robotic HIFU technology, described as "The Global Leader in Therapeutic Ultrasound" and "The Leading Focal Therapy Technology." This platform is designed for precise, robotic-delivered ablation, offering significant advantages over traditional treatments. Its core technologies integrate advanced imaging, artificial intelligence (AI), and remote connectivity.

The Focal One system provides image-guided treatment planning, compatible with various diagnostic modalities including MRI and PSMA PET scans. It utilizes dynamic focusing probes and multi-axis, sub-millimeter robotic movements for auto-adjusting, pinpoint delivery of HIFU energy. The tangible benefits are compelling: clinical evidence from the HIFI study, a prospective, multi-centric, non-inferiority trial, demonstrated comparable cancer control (90% salvage treatment-free survival for HIFU vs. 86% for radical prostatectomy) and superior functional outcomes for HIFU, including significantly better urinary continence and less impaired erectile function. The FARP Randomized Controlled Trial, a Level 1 evidence study, further reinforced these findings, showing non-inferior oncologic control and superior functional outcomes for focal ablation compared to radical prostatectomy at three years.

Innovation continues with the launch of the new Focal One i Robotic HIFU System in April 2025. This advanced system expands HIFUsion® patient-specific imaging compatibility to include PSMA PET, ExactVu™ Micro-Ultrasound, and AI-driven algorithms such as Unfold AI™ and OnQ™ Prostate. It also integrates Koelis® 3D biopsy maps and DynaCAD Urology datasets, streamlining treatment workflows and enabling personalized procedures. The Focal One i system is designed for future capabilities, including treatment streaming and recording, remote proctoring, and remote collaborative procedures, as demonstrated by the world's first transatlantic Focal One Robotic HIFU procedure between Cleveland Clinic Ohio and Abu Dhabi. This capability not only enhances training and mentoring but also broadens patient access to expert care. EDAP is also exploring nonthermal noninvasive histotripsy energy delivery using the Focal One system, marking an important step in expanding its ultrasound energy-based therapy platform. These technological differentiators contribute significantly to EDAP's competitive moat, enabling higher average selling prices, potentially lower treatment costs for patients, and better margins, thereby strengthening its market positioning and long-term growth strategy.

Financial Performance and Operational Momentum

EDAP's strategic pivot is translating into accelerating financial performance within its core HIFU segment. In the second quarter of 2025, global HIFU revenues surged by 89% year-over-year to USD 9.7 million (EUR 8.5 million), driven by the net placement of 12 Focal One systems, a 140% increase compared to Q2 2024. These placements included nine capital sales and operating leases at four large hospital systems, with several existing hospital networks purchasing second systems to expand their focal therapy programs. For the first half of 2025, HIFU revenue reached EUR 14.7 million, marking a 38.5% increase over the same period in 2024.

Procedure growth, a key indicator of adoption and recurring revenue, also showed positive trends. U.S. Focal One procedures grew approximately 4.8% in Q2 2025 over Q2 2024, and worldwide HIFU disposable revenue increased by 23.9% year-over-year. The company's focus on its high-margin HIFU business significantly improved overall profitability, with gross margin rising to 42.5% in Q2 2025 from 37.5% in Q2 2024. This trend was also evident in Q4 2024, where gross margin reached 44.8%, up from 43.7% in Q4 2023, primarily due to higher HIFU revenue and system sales, including operating lease conversions.

Conversely, the non-core ESWL and distribution businesses experienced expected declines. In Q2 2025, the combined revenue from these segments decreased by 31.2% year-over-year. While this impacts total revenue, the strategic rationale is to improve overall profitability and focus resources on the higher-growth, higher-margin HIFU segment. Operating expenses saw a modest increase to EUR 12.6 million in Q2 2025, primarily due to focused investments in the HIFU business, with management expecting to reallocate labor costs from the declining non-core businesses to support HIFU growth without major new investments.

Liquidity and Capital Allocation

EDAP's liquidity position is being actively managed to support its growth initiatives. Total cash and cash equivalents stood at EUR 16.3 million at the end of Q2 2025, a decrease from EUR 22.8 million at the end of Q1 2025, primarily due to cash used in operating activities to fund strategic HIFU investments. To bolster its financial flexibility, EDAP has secured a letter of intent for a EUR 36 million (approximately USD 42 million) credit facility with the European Investment Bank (EIB). This low-interest funding is earmarked for accelerating commercial growth of the HIFU business, investing in new clinical indications, and developing complementary technologies within the HIFU ecosystem. While no funds from this facility had been received as of the Q2 2025 earnings call, its finalization is expected to significantly strengthen the balance sheet.

Inventory management has also been a focus, with inventory decreasing to EUR 15.5 million in Q2 2025 from EUR 18 million in Q1 2025, reflecting efforts in just-in-time management and higher turnover due to increased Focal One demand. This proactive approach to working capital management is crucial for unlocking the full potential of the HIFU business.

Expanding Horizons: New Indications and Reimbursement Tailwinds

Beyond prostate cancer, EDAP is strategically expanding the Focal One platform into other large, underserved markets, supported by favorable reimbursement trends.

For Deep Infiltrating Endometriosis (DIE), Focal One received CE Mark certification in March 2025 for the treatment of posterior deep endometriosis infiltrating the rectum. This regulatory milestone enables a controlled market entry in Europe. Clinical evidence from a multicenter retrospective comparative trial showed that Focal One HIFU achieved similar pain relief and quality of life improvements as surgery, but with reduced complication rates, avoidance of typical morbidity from major pelvic surgery, shorter recovery times, and a lower risk of functional side effects. Furthermore, in a Phase III double-blinded study, 85% of sham group patients opted to cross over and receive HIFU treatment after unblinding, as their pain symptoms returned to high baseline levels, while HIFU-treated patients maintained pain improvement, consistent with significant lesion volume reduction. The Focal One platform also holds FDA Breakthrough Device Designation for DIE, highlighting the recognized need for new treatment options.

In Benign Prostatic Hyperplasia (BPH), a new CPT Category III code for transurethral ultrasound ablation became effective on July 1, 2025. This code is assigned to urology APC Level VI, with a payment rate similar to prostate cancer HIFU, enabling reimbursement for investigational BPH studies. This is a significant development, as BPH affects 94 million men globally and 15 million in the U.S. A combined Phase I/II study evaluating Focal One Robotic HIFU for BPH is currently recruiting patients in France, with a U.S. clinical study planned for early 2026. Focal One's precision and non-invasive approach offer a differentiated treatment option for BPH, potentially avoiding side effects of standard surgical treatments.

Additionally, EDAP initiated the PULS trial in January 2025, a combined Phase I/II multi-center study evaluating HIFU technology for locally advanced and unresectable pancreatic tumors, demonstrating its commitment to exploring new applications for its ultrasound technology in areas of high unmet medical need.

Reimbursement for HIFU procedures remains strong and is improving. CMS announced a proposed hospital payment for the Focal One HIFU procedure in 2026 at $9,765, a 5.6% increase over the 2025 rate. The 2025 Medicare hospital outpatient payment rate is $9,247, a 5.4% increase over 2024. Physician reimbursement is also favorable, with proposed 2026 RVUs for HIFU significantly higher than for competitive procedures like irreversible electroporation (IRE) or waterjet resection, and more than 80% of the payment for robotic radical prostatectomy. These favorable reimbursement levels provide a strong economic incentive for hospitals and physicians to adopt Focal One, enhancing patient access and driving procedure growth.

Competitive Landscape and Strategic Differentiation

EDAP operates in a competitive medical device landscape, primarily as a specialized player in urological focal therapy. Its direct competitors include diversified medical technology giants like Boston Scientific Corporation , Medtronic plc , Johnson & Johnson through its subsidiaries, and Stryker Corporation (SYK).

EDAP's primary competitive advantage lies in its proprietary Focal One HIFU technology, which offers enhanced precision in targeted ablation. This technological edge, particularly with its ultrasound-guided features and fusion capabilities, allows for superior targeting accuracy compared to more generalized urological devices offered by competitors. For instance, while Boston Scientific (BSX) offers a broad range of urological tools, EDAP's focused expertise in HIFU provides a specialized solution that can achieve better functional outcomes for prostate cancer patients, as demonstrated by clinical trials. This precision fosters customer loyalty and recurring revenue from disposables and maintenance services, contributing to EDAP's pricing power and margins.

Compared to large players like Medtronic , which focuses on integrating digital health and robotics, EDAP's agility in HIFU-specific advancements allows for rapid innovation in its niche. The company's direct marketing and leasing model also provides a unique distribution channel, potentially offering more robust growth and capital efficiency in emerging markets compared to Johnson & Johnson's (JNJ) reliance on extensive partnerships. EDAP's specialized leasing and maintenance services can appeal to budget-constrained clinics, differentiating it from competitors.

However, EDAP's smaller scale presents a competitive disadvantage, potentially leading to higher operating costs and reduced profitability compared to the economies of scale enjoyed by larger rivals. Its supply chain dependencies could also make it more susceptible to disruptions than diversified companies like Medtronic (MDT). Despite these challenges, the high barriers to entry in the medical device industry, such as stringent regulatory approvals and substantial R&D costs, protect EDAP's position, particularly with its proprietary technology and established clinical evidence. The company's strategic positioning is to define and lead the rapidly growing focal therapy market, leveraging its best-in-class technology and expanding clinical indications to attract a growing installed base.

Risks and Challenges

Despite significant progress, EDAP faces several risks and challenges. The company has experienced "longer and more challenging review and procedure approvals," particularly for patients enrolled in Medicare Advantage plans. This issue has impacted procedure growth in certain markets. EDAP is actively mitigating this by collaborating with market access partners to accelerate pre-authorizations and by leveraging compelling clinical evidence from studies like HIFI and FARP to support broader coverage and appeal denials.

U.S. tariff policies also pose a potential risk, with EDAP forecasting a 15% tariff impact for goods transferred between France and the U.S., given that 80-90% of Focal One components and 100% of system assembly occur in France. The company continues to monitor this closely. Furthermore, capital equipment sales cycles remain elongated, requiring EDAP to maintain a strong and growing pipeline and adapt its commercial strategy to navigate varied hospital purchasing processes.

Outlook and Guidance

EDAP's outlook for 2025 reflects strong confidence in its strategic direction and the accelerating adoption of Focal One. The company has updated its 2025 financial guidance for its core HIFU business, now expecting revenue to grow within the range of 26% to 34% year-over-year, an increase from the earlier guidance of 16% to 25%. This upward revision signals management's belief that Q2 2025 marked a "major inflection point" for Focal One adoption, driven by robust clinical data, technological leadership with the Focal One i system, and increasing patient and physician awareness.

Conversely, the combined non-core ESWL and distribution business revenue is expected to decline within the range of 25% to 30% year-over-year for 2025, an accelerated decline from the initial guidance of 20% to 25%. This is a deliberate strategic move to focus resources on the high-growth HIFU segment. Operating expenses are projected to see a modest mid-single-digit increase, with labor cost reallocations from declining non-core businesses supporting HIFU growth. The company anticipates continued strong demand, procedure growth, and an expanding pipeline of new business opportunities, particularly in community hospitals and major metropolitan areas. The planned transition to a U.S. domestic filer by January 1, 2026, further underscores EDAP's commitment to regulatory best practices, transparency, and attracting a broader U.S. institutional investor base.

Conclusion

EDAP TMS is undergoing a profound transformation, strategically shedding legacy businesses to fully embrace its role as a leader in robotic HIFU focal therapy. The company's Focal One platform, bolstered by continuous technological innovation, compelling clinical evidence, and expanding indications beyond prostate cancer, is driving significant growth and market adoption. With a strong and improving reimbursement environment, a robust pipeline, and a clear strategic roadmap, EDAP is well-positioned to capitalize on the growing demand for less invasive, quality-of-life-preserving treatments in urology and women's health. While challenges such as payer hurdles and tariff impacts persist, management's proactive mitigation strategies and commitment to technological leadership suggest a compelling long-term investment thesis. The accelerated growth in the core HIFU business, coupled with strategic capital infusion from the EIB, positions EDAP to define and dominate the emerging focal therapy market, creating substantial value for shareholders.