Profound Medical is a Strong Buy, according to Raymond James

Raymond James analyst Rahul Sarugaser is rallying behind Profound Medical (Profound Medical Stock Quote, Chart, News TSX:PRN), maintaining a “Strong Buy 1” rating and target price of $28.00/share in an update to clients on Wednesday.

Profound Medical is a medical technology company that develops magnetic resonance guided ablation procedures for treatment of prostate disease, uterine fibroids and palliative pain treatment in Canada, Germany, the United States and Finland.

Sarugaser’s latest analysis comes after the company announced it has treated the first patients enrolled in its Level-1 ‘CAPTAIN’ (A Comparison of TULSA Procedure and Radical Prostatectomy in Participants with Localized Prostate Cancer) trial being conducted in eight sites in Canada and the United States. The trial is designed to compare the safety and efficacy of Profound Medical’s TULSA procedure against the present standard of radical prostatectomy in men with prostate cancer.

“CAPTAIN is designed to demonstrate that TULSA efficacy is non-inferior to radical RP, while demonstrating superior safety, i.e. superior quality of life (QoL) outcomes,” Sarugaser said. “The trial has the potential to prove for the first time that TULSA’s precise ablation technology enables it to avoid RP’s well-known side effects: about 80 per cent rate of incontinence and/or erectile dysfunction.”

According to Sarugaser, this particular trial, which is not mandatory in the regulation process, is meant to put the TULSA procedure head-to-head against radical prostatectomy with the aim of getting support for full CPT reimbursement from the American Medical Association, which Profound expects to decide on by the end of 2022.

“Rarely do patients, physicians, and payors have the opportunity to see new treatments compared directly with the reigning standard-of-care (versus comparing historical data); these bold trials are typically carried out by large, mature med-tech companies,” Sarugaser said. “We applaud PROF’s conviction and foresight: definitive results showing TULSA’s superiority over RP has the potential to force the hand of urologists globally.”

According to Sarugaser, the trial is important because it can engender broad awareness of TULSA through the urologist community to encourage adoption in the name of demonstrating TULSA’s superiority as a treatment.

The CAPTAIN trial has a number of endpoints, including the proportion of patients that preserve both erectile potency and urinary incontinence one year post-treatment (primary safety endpoint) and three years post-treatment (primary efficacy endpoint).

Meanwhile, secondary endpoints for the trial include rates of complications, cost-effectiveness, time to return to baseline activity, while the long-term endpoint will consist of follow-up data gathered up to 10 years post-treatment.

“CAPTAIN is a post-market study intended to support coverage by payors,” said Arun Menawat, Profound’s CEO and Chairman in the company’s January 18 press release. “Notably, this will be the first Level 1 study ever conducted comparing an emerging technology head-to-head with RP in men with prostate cancer. So, if successful, in addition to helping advance our reimbursement strategy, we believe the data generated from CAPTAIN has the potential to drive much broader awareness and adoption of TULSA-PRO.”

After a reset on financial projections late in 2021, Sarugaser’s estimates remain unchanged this time around, expecting revenue of $3 million in the final quarter to produce a year-end projection of approximately $9 million to imply a year-over-year increase of 28.6 per cent. He then projects Profound to reach another level in 2022 with a forecasted jump to $21 million for potential year-over-year growth of 133.3 per cent. Sarugaser’s EV/Revenue multiple projections also show Profound in a positive position, as he forecasts a drop from 27.9x in 2020 to 23.8x in 2021, with a further drop to 9.8x in 2022.

Meanwhile, Sarugaser continues to forecast EBITDA losses, with loss projections of $21 million in 2021 and $27 million in 2022 after the company reported a $14 million loss in 2020. Consequently, the EV/EBITDA multiple projections continue to be negative, moving from a reported -14.3x in 2020 to a projected -9.6 in 2021, then moving to a projected -7.6x in 2022.

Ultimately, when factoring in data from the Oslo FARP Trial putting TULSA and RP head to head, Sarugaser is confident TULSA will prevail as the new prostate cancer treatment standard.

“Positive data (int.: ~2Q23; full: ~3Q24) here would—in our view—redefine TULSA as the standard of care in the treatment of early-intermediate prostate cancer,” Sarugaser said. “So, as we see it, this trial puts marketers of surgical robots on notice; PROF’s TULSA may just eat their lunch in the prostate business.”

Overall, Profound Medical’s stock price has dropped 60.4 per cent over the last 12 months and 9.2 per cent in 2022 alone, dropping off after reaching a high point of $35.63/share on February 5, and is presently at a 52-week low of $12.36/share. At press time, Sarugaser’s $28.00 target represented an implied 12-month return of 179 per cent.