Three Medical Device stocks for your portfolio

The medical device space promises big rewards for the right picks as companies look to develop best-in-class tech with lucrative applications. The hurdles can be many, however, with regulatory hoops to jump through, clinical trials to carry out and only then companies need to come through with effective marketing campaigns for commercialization. All of which can make the task of picking names in the space a difficult prospect, so to that end, here are three med tech companies trading on Canadian exchanges with strong prospects according to recent analyst assessments.

To start, Perimeter Medical Imaging (Perimeter Medical Imaging Stock Quote, Charts, News, Analysts, Financials TSXV:PINK) is a Toronto-based company with headquarters in Dallas, Texas, and a US FDA-cleared point-of-care imaging system, the S-Series OCT, for cross-sectional, real-time margin visualization of excised tissue. The optical coherence tomography (OCT) device allows physicians the ability to ensure that they can reach all cancerous tissue at the time of surgery, lowering the rate of reoperation. Perimeter’s B-Series OCT with ImgAssist AI was granted Breakthrough Designation by the FDA earlier this year. 

Earlier this week, Perimeter announced that the FDA approved its Investigational Device Exemption (IDE) application for the company to use its AI-enabled B-Series OCT system in its breast conserving surgery study comparing its system with the current standard of care for tumour margin assessment. 

Commenting on the announcement, Raymond James analyst Rahul Sarugaser said Perimeter’s ImgAssist OCT is gaining significant interest and support from a number of key opinion leaders in the industry, with Sarugaser saying a marketing launch could come by mid-2023.

“The ImgAssist AI development program (the ATLAS AI project) has previously demonstrated its ability to accurately identify suspicious features on breast OCT images, yielding 94 per cent predictivity (materially higher accuracy—and much faster—than manual pathohistology). We believe PINK’s ImgAssist AI-coupled OCT system will ultimately enhance the efficiency and accuracy of intraoperative positive margin detection by surgeons: a gamechanger for patients and surgeons,” Sarugaser wrote in a November 2 update to clients.

With his update, Sarugaser reiterated his “Outperform 2” rating for Perimeter Medical.

Next up is LexaGene (LexaGene Stock Quote, Charts, News, Analysts, Financials TSXV:LXG), a Massachusetts-based molecular diagnostics company focused on pathogen detection and genetic testing. LexaGene’s targets include veterinary and human diagnostics, water quality monitoring and aquaculture pathogen surveillance. The company recently reported its quarterly financials with the company reporting two sales of its MiQLab unit to veterinary hospitals in June along with LexaGene having completed a study of the MiQLab for the accuracy of its veterinary test panel, coming in with what iA Capital Markets analyst Chelsea Stellick called stellar results: 100 per cent and 99.1 per cent overall agreement for pathogen identification and 96.2 per cent and 92.5 per cent overall agreement for antimicrobial resistance. 

Stellick said in an October 27 report that Lexagene’s product offering is “increasingly robust,” although sales have been getting behind schedule.

“As the Company approaches the end of its cash runway, our continued belief in the value proposition of the MiQLab instrument is offset by anemic sales and upcoming dilution to fund R&D, manufacturing, and promotion. We maintain our Buy recommendation on the strength of the underlying technology,” Stellick wrote.

With the Buy rating, Stellick maintained a $1.00 target price, which at the time her report was published translated to a projected one-year return of 100 per cent.

Finally, we have Profound Medical (Profound Medical Stock Quote, Charts, News, Analysts, Financials TSX:PRN), which is currently commercializing the TULSA-PRO, its non-invasive, image-guided therapeutic technology for the ablation of pathologic prostate tissue. The TULSA-PRO received its 510(k) marketing authorization by the US FDA in 2019 and is now selling units across the US.

Profound has had up and down quarters recently as the company has faced headwinds in getting the TULSA-PRO installed during COVID-19. The company, which delivers its third quarter 2021 results on Thursday, is also initiating a clinical trial to compare the TULSA-PRO to robotic radical prostatectomy (RP), with Sarugaser saying the trial’s outcome (with data expected in 12 and 24 months time) will be monumental for PRN.

“We cannot overstate how important this study is, as it is very likely to engender broad awareness of TULSA throughout the urologist community, driving shorter-term adoption. More importantly, should TULSA show superiority to RP—which, given a recent AUA presentation showing significant superiority of HIFU over RP (Ex. 5, 6), combined with our analysis that TULSA is objectively superior to HIFU—we have very high confidence TULSA will show superiority over RP, which in turn will redefine TULSA as the standard of care in prostate cancer,” Sarugaser wrote in an October 26 update to clients.

With his update, Sarugaser maintained his “Strong Buy 1” rating for Profound Medical while lowering his target price from $36.00 to $30.00 on softer projected sales. At the time of publication, Sarugaser’s new target implied a return of 108 per cent.