Profound Medical stock has a 204 per cent upside, says Raymond James

Raymond James analyst Rahul Sarugaser is staying bullish on biotech company Profound Medical Corp (Profound Medical Corp Stock Quote, Chart, News TSX:PRN), which recently closed a $9.4-million funding round.

Profound Medical stock gets target cut by analyst Sarugaser

Sarugaser provided an update to clients on Monday, wherein he reasserted his “Outperform” rating but reduced his target price from $4.00 to $3.50, which represented a projected return of 204 per cent at press time.

Medical device company Profound is commercializing the TULSA-PRO for the ablation of prostate tissue, with the device having just last month received 510(k) clearance from the US Food and Drug Administration to market the TULSA-PRO for that purpose.

Last Friday, Toronto-based Profound announced that it had closed on its previously announced offering of 10,454,546 shares priced at $1.10 per share for net proceeds of $9.4 million. A syndicate of underwriters was led by Canaccord Genuity and Echelon Wealth Partners.

The issue included one half warrant which when exercised at $1.55 would result in 5,227,273 additional shares being issued.

Profound says it intends to use the net proceeds for costs connected to an ongoing TULSA-PRO clinical trial, to expand its infrastructure on a global scale as well as marketing, research and development and general corporate purposes.

Sarugaser says that the funding round adds cash to Profound’s coffers but dilutes its shares nonetheless.
“When we add the $9.4 million in net proceeds to our 3Q19 pro-forma cash, we estimate PRN’s cash position at $25.2 million. So, accounting for PRN’s pro-forma cash and this addition to its fully diluted share count (15,818,319 shares), our discounted cash flow analysis drives an implied share price of $3.56, reduced from $4.02 previously,” Sarugaser writes. “Therefore, we are reducing our target price to $3.50 (rounded from $3.56). We highlight that even this reduced target price represents a 200 per cent
premium to PRN’s current share price—based on Monday’s closing price of $1.15—which is why we continue to be so bullish about PRN’s prospects.”

Sarugaser points out that a recent survey of surgeons in the UK, the US and Germany found that 20 per cent of UK and US surgeons and 15 per cent of German surgeons think that they may need to retire early due to the physical impact of conducting laparoscopic surgery, with back pain being the primary issue.

The analyst says that since the majority of prostatectomy surgeries in the US involve laparoscopic surgery, the contrast is clear with the TULSA-PRO, which requires very limited physical input from the professionals performing the treatment (once the urologist has set the ultrasound applicator in place, they then conduct the surgery seated at a computer console).

“As a result, treatment with the TULSA-PRO is significantly less physically demanding on the urologists, which we note as another key driver of adoption among physicians,” he writes.

“With FDA clearance recently under its belt and myriad strong drivers of adoption, we continue to view PRN’s commercial potential very positively. During 2020, 2021, and 2022, we conservatively estimate revenues of $12 million, $27 million, and $54 million, respectively. Our $3.50 price target is based on a 5-year discounted cash flow analysis of these revenues using a discount rate of 10 per cent, and a terminal rate of 2 per cent,” Sarugaser writes.

On Monday, Profound announced that it will be filing a new registration statement under the Multijurisdictional Disclosure System (MJDS) of the US SEC in connection with the company’s proposed listing on the NASDAQ Stock Market.