Based on a stronger outlook for its TULSA-PRO medical device, Raymond James analyst Rahul Sarugaser has upped his target price for Profound Medical (Profound Medical Stock Quote, Chart, News TSX:PRN).
In a new report to clients on Thursday, Sarugaser reaffirmed his “Strong Buy 1” rating with the new target of $38.00 (previously $35.00), which at press time represented a projected one-year return of 90.5 per cent.
Profound Medical is commercializing its novel, non-invasive, image-guided therapeutic technology, the TULSA-PRO, for the ablation of prostate tissue, having received last August 510(k) marketing authorization by the US FDA.
Since delivering its first quarter earnings on May 7, Profound has reported positive two-year data for the TULSA-PRO as well as demonstrated broader utility for the technology through two abstracts presented earlier this month at the European Association of Urology, one for benign prostatic obstruction in humans and another for a material reduction in significant disease 12 months post-treatment for salvage-stage prostate cancer patients.
Sarugaser wrote that these development expand the case for stronger adoption of the TULSA-PRO and expansion of its total addressable market up to a potential one million patients.
The news caused Sarugaser to update his revenue projections, he is now calling for 2020 revenue of $10 million (previously $8 million) and 2021 revenue of $26 million (previously $22 million).
“Based on our DCF (11 per cent discount, 2 per cent terminal rates) of net revenues, confirmed by our multiples analysis, we calculate an equity value of $695 million. When divided by the fully-diluted share count of 18.2 million shares, we derive a per share price of $38.00, to which we now update our target. We also maintain our Strong Buy (1) rating and Analyst Current Favourite,” Sarugaser wrote.
On Profound’s attaining a C-Code for reimbursement, Sarugaser wrote that based on management’s commentary on the May 7 earnings and the fact that there already exist codes for MRI-guided procedures that could be applied to the reimbursement of procedures undertaken with the TULSA-PRO, PRN could realize reimbursement as soon as the fourth quarter of 2020 or by Q1 or Q2 of 2021 at the latest.
“Beginning in 2021, as the result of a potential near-term C-Code assignment, we anticipate TULSA installations accelerating by 2x and patients treated per site by 1.5x. This drives an escalation in our revenue estimates to $36.6 million and $96.3 million in 2021 and 2022, respectively; which, when we include in our multiples analysis, derive a theoretical share price of $58.00, a 50 per cent premium to our revised price target of $38.00,” Sarugaser wrote.
“Beyond 2022, we anticipate PRN securing broader reimbursement under a permanent CPT code. This—in our view—would further accelerate adoption and drive sales to an estimated $385 million and $814 million in 2023 and 2024, respectively; implying theoretical per share prices of $180 and $390, respectively,” he said.
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