All systems are go for Profound Medical (Profound Medical Stock Quote, Chart, News TSX:PRN), according to Raymond James analyst Rahul Sarugaser, who reviewed PRN’s third quarter earnings in a report to clients on Thursday. The analyst says he likes the company’s turn to recurring revenue as its primary driver and recommends that investors buy the stock on any dip resulting from the quarterly numbers.
Profound Medical is commercializing its non-invasive, image-guided therapeutic technologies including the TULSA-PRO for the ablation of prostate tissue and the Sonalleve platform for the treatment of uterine fibroids and palliative pain treatment of bone metastases.
The company released its third quarter financials on Thursday for the period ended September 30, 2019, with a number of corporate highlights over the Q3, including its first TULSA-PRO sale in Japan, its receipt of 510(k) clearance from the US Food and Drug Administration to market TULSA-PRO for ablation of prostate tissue, the closing of a share offering for proceeds of $11.5 million as well as a ten-for-one share consolidation and subsequent listing on the Nasdaq Exchange.
“The compelling TACT pivotal trial data announced earlier in the year continues to drive TULSA-PRO adoption in Europe, as reflected by higher third quarter 2019 recurring revenues,” said CEO Arun Menawa in a press release. “Since the recent receipt of FDA clearance to market TULSA-PRO in the United States, our main focus has been on commercialization and we have already visited some 75 US institutions. We are very encouraged by the resounding interest in adopting the technology, such that we expect to have a first commercial TULSA-PRO site operational and treating patients before year-end.”
For the quarter, PRN recorded revenue of $682,000 and a net loss of $6.3 million or $0.57 per share compared to a net loss of $5.1 million or $0.48 per share a year earlier.
Sarugaser says that while the revenue came in lower than his $1.4-million estimate, since recurring revenue is the key for Profound Medical.
“In our earnings preview, we highlighted that in these early days of commercialization revenues are and will continue to be lumpy. Whether total revenue was $0.7 million or $1.9 million we’re not concerned because we have our eye on the prize: recurring revenue,” Sarugaser said.
“We note that all of PRN’s revenue this quarter was in the form of recurring revenue, up 17 per cent from last quarter: a strong signal that utilization of PRN’s existing installed base of TULSA-PRO is ticking up. As such, any weakness in PRN’s stock as a result of this perceived revenue miss, we would see as an opportunity to add to positions,” he added.
Sarugaser says he likes the company’s move toward a pure-play recurring revenue model where medical facilities will be charged a rental and user fee for the TULSA-PRO rather than being charged for the capital equipment.
He also likes management’s planned reimbursement strategy, which involves the aim of submitting by the end of 2019 an application for a “C-Code” which would provide reimbursement for patients treated with TULSA-PRO over a period of three years before PRN secures a full CPT code, a move that is likely to motivate strong adoption, the analyst says, along with increase patient-pay market penetration.
Sarugaser thinks PRN will generate full fiscal 2019 revenue and EPS of $3 million and negative $0.21 per share, respectively, and fiscal 2020 revenue and EPS of $5 million and negative $0.30 per share, respectively.
The analyst is maintaining his “Outperform” rating and $35.00 target for PRN, which translated to a return of 181.6 per cent at the time of publication.