Profound Medical is a Buy, says Leede Jones Gable

Douglas Loe of Leede Jones Gable is feeling positive regarding the trajectory of Profound Medical (Profound Medical Stock Quote, Chart, News NASDAQ:PRN), maintaining a “Buy” rating and target price of $26.25/share for a projected one-year return of 180 per cent in an update to clients on March 4.

Mississauga-based Profound Medical 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, with its chief offering being the prostate cancer-targeted ultrasound ablation technology TULSA-PRO.

Loe’s latest analysis comes after Profound reported its fourth quarter financial results, along with its 2021 year-end totals.

“Commentary was centered on the firm’s FDA/EMA-approved MR-guided prostate-focused ultrasound ablation platform TULSA-PRO and ongoing marketing/clinical/reimbursement activities to drive adoption,” Loe said. “Momentum is building in early F2022 after predictably sluggish operations in F2021.”

Profound recorded $1 million in revenue, a 65.6 per cent year-over-year drop, with the full amount coming from recurring revenue and nothing from capital equipment sales. However, Loe noted that the company maintained its expectations of 40 new TULSA-PRO installations in 2022, combatting what was a slow end to the fiscal year. (All figures in US dollars.)

The company also posted total operating expenses of approximately $10.2 million, representing a 69 per cent year-over-year increase, a number that Loe expects to go up with the company starting to enroll 201 patients in its CAPTAIN trial.

According to Loe, the company ended the quarter with $67.2 million in cash and equivalents available, which should be enough to support its ongoing clinical and commercial efforts pertaining to TULSA-PRO.

“Despite facing COVID-19 headwinds that impacted the pace of new U.S. TULSA-PRO installations in the first three quarters of 2021, the opportunity that we see for the technology remains intact,” said Arun Menawat, Profound’s CEO and Chairman in the company’s March 3 press release. “Indeed, with many of the leading hospitals in the U.S. being early adaptors of the technology, and clinicians already treating an unrivaled variety of prostate disease patients, we are well ahead of where competing treatment technologies were in their first two years post-launch. TULSA-PRO installations in the United States increased significantly in Q4-2021, and that trend has continued so far in the current quarter. We believe this bodes well for potential higher revenue growth in 2022.”

Despite the company finishing 2021 at a six per cent loss from a revenue perspective, Loe expects tailwinds from TULSA-PRO’s continued progression to help the company’s bottom line sooner rather than later, as he forecasts a 441 per cent jump to $37.2 million in revenue for 2022, with approximately 72.2 per cent of the revenue mix coming from TULSA-PRO capital equipment and accessories. Looking ahead to 2023, Loe forecasts an 85 per cent year-over-year increase to $68.7 million, with the TULSA-PRO categories accounting for 70.9 per cent of the projected revenue mix.

Loe then forecasts the company’s total revenue to jump into nine figures at $108.7 million in 2024 for a 58 per cent year-over-year increase (72.7 per cent coming from the TULSA-PRO categories), beginning a steep revenue curve that culminates in a 2028 projection of $297.9 million in revenue, with TULSA-PRO and its accessories accounting for 81.9 per cent of the revenue mix.

Meanwhile, 2022 sees Loe forecasting positive EBITDA for Profound for the first time, with the $3.04 million projection introducing an eight per cent margin, which he forecasts to jump to 30 per cent ($20.8 million in EBITDA) in 2023. From there, Loe forecasts the margin to continue rising, potentially reaching as high as 57 per cent ($170.3 million in EBITDA) by 2028.

Finally, from 2022 on, Loe forecasts stable gross margins of 45 per cent for capital equipment and 73 per cent for its accessories.

From a valuation perspective, Loe introduces an EV/EBITDA multiple in 2022 at 14.5x, along with a P/E multiple of greater than 30x. 

Overall, Loe notes his investment thesis regarding Profound is relatively unchanged from before.

“Even though topline performance reflected no capital equipment sales in FQ421 owing to pandemic challenges, we believe that retrospective focus on trailing sales data as a baseline for future TULSA-PRO/Sonalleve adoption is to miss the fact that signals of recovering growth trajectory are already apparent, and should be reflected in financial data as early as FQ122,” Loe said.

Profound Medical’s stock price has had a pronounced drop over the last 12 months, reporting a 62.8 per cent loss in that time. Since the release of Loe’s analysis, the stock has dropped a further 12.3 per cent, hitting C$10/share on Tuesday, a long way from the 52-week high of $28.77/share the company saw a year ago.