Profound Medical has a huge upside, says Paradigm Capital

In its Tulsa-Pro device for the treatment of prostate cancer, Toronto-based Profound Medical (TSX:PRN) has a technology that could redefine the market, says Rahul Sarugaser, analyst for Paradigm Capital, who in a note to clients on Monday reiterated his “Buy” rating and $4.00 target for PRN.

Sarugaser reports that he recently spent the day with CFO Aaron Davidson of Profound Medical (which recently graduated to the TSX from the Venture exchange) and came away from the meeting feeling that PRN was executing a strong adoption strategy with its Tulsa-Pro.

“In February, PRN completed enrolment in its Phase 3 (TACT) trial and presented strong interim data, showing it met its primary efficacy endpoint, at the American Urological Association meeting in May,” he writes. “With final data expected in late Q1/19, and FDA submission in mid-Q2/19, we expect TULSA-PRO to be approved and on market by mid-H2/29.”

Sarugasser says that the Tulsa-Pro will be well-suited to meet the needs of patients in the Intermediate Risk category for prostate cancer.

“Intermediate Risk patients represent a market of ~100,000 patients per year in the United States, and it is this market that PRN’s management has identified as its beachhead,” he says. “By adopting the TULSA-PRO for treatment of Intermediate Risk patients, a urologist can provide patients with a treatment option that is less prone to life-altering side effects of surgery or radiation. Also, should the cancer reoccur, the urologist retains the options of re- treating the patient with TULSA or undertaking the more aggressive treatments of surgery or radiation. We see this as a robust opportunity for PRN to address the significant unmet needs of this clearly defined market.”

The analyst sees PRN generating an EBITDA loss of $8.3 million in 2018 on revenue of $13.6 million. He says that CEO Dr. Arun Menawat has stated that once PRN reaches 40,000 treatments per year with the Tulsa-Pro device, his company should expect to generate $100 million per year in revenue.

Sarugaser says, “We believe a 20 per cent penetration rate is quite attainable, particularly once PRN secures a reimbursement code for use of TULSA in the treatment of prostate cancer, which we believe it should receive within three years of market launch.”

The analyst’s 12-month target of $4.00 represents a projected return of 335 per cent at the time of publication.