Still more upside to Perimeter Medical, says Leede Jones Gable

Douglas Loe of Leede Jones Gable is feeling confident about Perimeter Medical Imaging AI (Perimeter Medical Stock Quote, Chart, News, Analysts, Financials CVX:PINK), maintaining a “Speculative Buy” rating and target price of $6.75/share for a projected return of 43 per cent in an update to clients on Friday.

Headquartered in Toronto with its American operations in Dallas, Perimeter Medical’s OTIS imaging system evaluates excised tissue microstructure.

Loe’s updated analysis comes after Perimeter Medical provided further company updates off the heels of the release of its quarterly financial reports two weeks ago.

“One update greatly mitigated financial risk via new strategic investment,” Loe said. “The other update signalled that clinical testing for its OCT/ImgAssist AI platform is advancing to our expectations and now actively enrolling patients in a 300-patient breast tumour margin assessment trial for which the firm received formal IDE permission to proceed last month.”

Perimeter hit the Leede Jones Gable expectation by initiating patient enrollment on its ImgAssist AI, with the trial beginning at the Margaret West Comprehensive Breast Center near Memphis, though Loe expects the majority of the patients will be based in Texas, where the company has received US$7.4 million in grant capital, and also home to the Baylor College of Medicine, where principal investigator Dr. Alastair Thompson practices.

According to Loe, Perimeter believes the trial could conclude by the end of its 2022 fiscal year, likely with a focus on re-operation rate in comparison to standard-of-care breast tumor margin assessment.

Since Loe’s report was released, the company has also announced the first commercial installation of its Perimeter S-Series OCT system at a North Texas hospital.

“Our sales and marketing team continues to expand its market development activities to support the adoption of our flagship, commercially available Perimeter S-Series OCT technology by oncoplastic surgeons who recognize that our innovative medical imaging technology could potentially represent the next ‘game changer’ in margin visualization,” said Jeremy Sobotta, CEO of Perimeter Medical in the company’s November 29 press release.

“As we reach out to physicians, we consistently hear about the great medical need for tools in the OR to help surgeons identify if they have adequately removed cancerous tissue ‘real time’ during a procedure. Perimeter S-Series delivers 2mm subsurface imaging of excised tissue margins, allowing surgeons to identify and annotate microscopic tissue structures and make more informed decisions during a tissue excision procedure,” he said.

In other news, Perimeter also announced an infusion of equity capital from California-based Social Capital, with the five-year share-and-full warrant deal (warrants issued at $3.99/share and $4.50/share) projected to bring an additional $43.4 million to the company’s balance sheet.

Loe forecasts the company turning in its first revenue in 2022 at a projection of $1.4 million, the beginning of a steep ramp that has Perimeter projected to reach $233.6 million in revenue by 2030, with particularly big leaps expected in 2024 ($25.6 million, 284 per cent potential year-over-year increase) and 2027 ($102.3 million, 57.2 per cent potential year-over-year increase).

From a gross margin standpoint, Loe projects total gross profit of $735,000 for 2022 for a margin of 37.5 per cent, which he expects to grow at a rate of 2.5 per cent per year before settling in at 45 per cent from 2025 onward, culminating in a 2030 projection of $162.2 million in gross profit.

Meanwhile, after projecting losses of $5.5 million, $5.3 million and $2.8 million from 2021 through 2023, Loe forecasts Perimeter’s EBITDA to turn positive in 2024 at $8.5 million for a margin of 33.3 per cent, which he expects to grow to a projected $151.6 million in 2030, good for a margin of 64.9 per cent.

Overall, Loe believes the company has taken positive strides to move forward.

“Commencing the 300-patient ImgAssist AI trial is clearly more of a logistical milestone than a clinical one at this point in its evolution, but we are nonetheless encouraged that Perimeter continues to focus on generating clinical evidence that could in time support the utility of its OCT-based Series-B breast tumour margin assessment platform, and in the utility of AIbased informatics to improve its surgical power even further,” Loe said. 

“As importantly, the infusion of a transformative amount of equity capital from a tech-savvy strategic investor like Social Capital provides the firm not just with risk-mitigating capital to fund OCT development and marketing, it also provides us with an independent view consistent with our own on the medical prospects for this technology for improving surgical outcomes in a flagship oncology indication,” he added.

Perimeter Medical has proven profitable for its investors through 2021, so far yielding a return of about 62 per cent.