Profound Medical is a Strong Buy, says Raymond James

Raymond James analyst Rahul Sarugaser remains positive about the potential of medical device company Profound Medical (Profound Medical Stock Quote, Chart, News TSX:PRN), maintaining a “Strong Buy 1” rating and target price of $36.00/share for a projected return of 130 per cent in an update to clients on September 28.

With its headquarters in Mississauga, Ont., Profound Medical is commercializing a therapeutics platform called the TULSA-PRO that provides the precision of real-time Magnetic Resonance Imaging combined with the safety and ablation power of directional and focused ultrasound technology for the incision-free ablation of diseased tissue. 

Sarugaser’s latest analysis comes after PROCEPT BioRobotics, whose FDA-cleared device, AQUABEAM, is cleared for treatment of benign prostatic hyperplasia (BPH). Sarugaser said investors have been asking whether Profound Medical can be used as a direct competitive comparable thanks to its image-guided therapeutic technology, TULSA-PRO, a notion Sarugaser disagrees with.

“We summarize PRCT’s clinical data and find that its AQUABEAM treatment is contraindicated for treatment of prostate cancer,” Sarugaser said. “As such, AQUABEAM and TULSA operate in separate indications – non-prostate cancer BPH (prostates 20-150cc; 8.2 million TAM), vs. prostate cancer + severe BPH (prostates >100cc; ~4 million TAM), respectively – so, do not compete with one another.”

In comparing and contrasting the two procedures, Sarugaser noted that, while AQUABEAM is specifically indicated for “resection and removal of prostate tissue in males suffering from lower urinary tract symptoms (LUTS) due to benign prostatic hyperplasia” (BPH), its label specifically excludes patients “diagnosed or suspected cancer of the prostate,” meaning a majority of the 3.2 million prostate cancers also have BPH, meaning the TULSA device, which has demonstrated broadened utility in severe cases of BPH (prostates > 100cc), and can treat prostates well in excess of AQUABEAM’s 150cc limit, is the preferred treatment.

Sarugaser also notes that AQUABEAM is equivalent to surgical transurethral resection of the prostate (TURP) in terms of efficacy and safety, though the clinical data did note 10 patients requiring blood transfusions as a result of the procedure. Meanwhile, Sarugaser also notes that TULSA’s efficacy is equivalent to standard of care prostatectomy/radiation, and it has also demonstrated superior safety to standard of care by reducing incontinence and erectile dysfunction to 20 per cent compared to 80 per cent.

Sarugaser also notes that the TULSA treatment typically results in patients being discharged on the same day, while AQUABEAM patients required a mean hospital stay of 1.6 days for large (80-150cc) prostates.

Profound’s most recent financial results addressed the second quarter of 2021, which was headlined by $2.6 million in revenue, with $1.4 million from the one-time sale of capital equipment and $1.2 million from recurring revenue (non-capital), which consists of the sale of consumables, lease of medical devices, procedures and services associated with extended warranties.

“The U.S. TULSA-PRO business rebound that started in March continued through the second quarter, driving a 145 per cent sequential increase in recurring revenues over the previous quarter,” said Arun Menawat, Profound’s CEO in the company’s August 4 press release. “Moving forward, while we remain cautious about the continuing impact of COVID-19, particularly in select international markets such as China and Japan, we believe that our overall Q2 financial performance bodes well for the second half of 2021.”

Sarugaser’s financial projections show a company on the ascent, as he projects revenue of $15 million for 2021 for a potential year-over-year growth of 114 per cent, followed by a spike to a projected $35 million in 2022, which would represent a year-over-year increase of 133 per cent based on current projections. Accordingly, Sarugaser’s EV/Revenue multiple projections forecast a drop from the reported 26.8x in 2020 to a projected 13.5x in 2021, then to a projected 5.5x in 2022.

Meanwhile, Sarugaser forecasts continued EBITDA losses, with loss projections of $20 million in both 2021 and 2022 after reporting a $14 million loss in 2020. Consequently, the EV/EBITDA multiple projections continue to be negative, moving from a reported (13.7)x in 2020 to a projected (9.4)x in 2021, then shifting to a projected (10)x in 2022.

While Sarugaser does not see Profound and PROCEPT as being in direct competition with its technologies, he does see an opportunity for Profound to capitalize in the market based on PROCEPT’s success.

“We see the enthusiasm by which the market has received PRCT ($1.6 billlion market cap) as evidence of its appreciation for the potential value of incision-free image-guided robotic surgery, so we expect said value will be reflected in PROF’s stock price as it continues to execute well against its commercial strategy,” Sarugaser said.

Overall, Profound Medical’s stock price has dropped 34.9 per cent over the course of 2021, falling after reaching a high point of $35.63/share on February 5.