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Profound Medical is catalyst-rich this year, says Raymond James

PROF stock

Don’t expect a lot of topline growth this year from Profound Medical (Profound Medical Stock Quote, Charts, News, Analysts, Financials NASDAQ:PRN), according to analyst Rahul Sarugaser from Raymond James, but investors should nonetheless be on the lookout for some major catalysts for the stock as the company’s commercialization efforts in the US heat up. Sarugaser delivered a company brief to clients on Tuesday where he maintained his $28.00 target price and “Outperform 2” rating on PRN for a projected one-year return of 162 per cent.

Medical device company Profound Medical has a novel non-invasive, image-guided therapeutic technology for the ablation of pathologic prostate tissue. The TULSA-PRO uses real-time magnetic resonance imaging (MRI) and transurethral robotically-driven therapeutic ultrasound along with closed-loop thermal feedback control to provide precise tissue ablation, with Profound currently ramping up its installation of units across the US.

Profound announced on Tuesday that the TULSA-PRO is compatible with GE Healthcare’s 3T MRI scanners, with the news coming a year after Profound signed a co-development agreement with GE Healthcare which enabled PROF to interface its TULSA- PRO system with GE’s suite of scanners, which together currently amount to about half of the MRI installed base in the US.

Profound also announced at the same time a commercial agreement with Brigham &Woman’s Hospital, part of the Harvard University Medical System.

“As demonstrated by our TULSA-PRO site agreement with the prestigious Brigham and Women’s Hospital, this expanded compatibility with GE MR systems will allow us to better leverage the existing MRI scanner installed base, increasing our market access in the United States by approximately 30 to 40 per cent,” said Arun Menawat, Profound’s CEO and Chairman, in a press release. “TULSA-PRO is now the first and only prostate therapeutic platform to have achieved compatibility with MRI scanners supplied by all three of the world’s largest manufacturers.”

Commenting on the news, Sarugaser said it should be “the first important event in what we expect to be a catalyst-filled year for PROF.” Sarugaser pointed to three upcoming events: the escalation of TULSA-PRO deployments and procedures now that Omicron-related hospital capacity constraints are easing; the company’s impending CPT-1 (Current Procedural Terminology) billing code reimbursement, where Profound is expected to put in an application to the American Medical Association mid-year with a decision by the end of the year; and data from the company’s FARP trial on demonstrating the TULSA-Pro’s superior safety over radical prostatectomy, expected in the third quarter.

At the same time, Sarugaser warned investors not to be fixated on the revenue ramp for PROF, saying, “While we do expect 2022 to be chock-full of catalysts, given PROF’s recurring revenue model in which it forfeits short-term capital equipment revenue for long-term per procedure recurring revenue we do not yet expect the company to drive significant incremental revenue this year. “

“These events — an estimated installed base of ~40 units and rapidly growing, full CPT-1 reimbursement and superiority data over surgery, all by end of 2022 — are designed to set PROF up for exponential revenue growth in 2023 and beyond. And so, for 2022, we advise our clients: don’t focus on revenue, watch for catalysts. Exponential revenue growth will, by design, come in 2023,” Sarugaser wrote.

By the numbers, Sarugaser is expecting Profound to generate full 2021 revenue and EBITDA of $8 million and negative $21 million, respectively, and 2022 revenue and EBITDA of $16 million and negative $30 million, respectively. The analyst sees PROF’s EV/Revenue multiple going from 18.9x in 2020 to 16.7x in 2021 to 8.7x in 2022 and the company’s EV/EBITDA going from negative 9.7x in 2020 to negative 6.5x in 2021 to 4.7x in 2022. (All figures in US dollars.)

Ahead of fourth quarter and full year 2021 results due on March 3, Sarugaser is calling for revenue of $2 million from Profound. For the company’s most recently reported quarter, its Q3 2021, delivered in November, PROF recorded revenue of $2.5 million, up 13 per cent from a year earlier, and a net loss of $6.0 million or $0.29 per share compared to a loss of $6.1 million or $0.33 per share a year earlier. 

Divided up, the $2.5 million consisted of $1.4 million coming from the one-time sale of capital equipment and $1.1 million from recurring revenue consisting of the sale of consumables, lease of medical devices, procedures and services associated with extended warranties. 

R&D expenditures for the quarter were about $4.0 million, up 14 per cent year-over-year, G&A expenses were up 35 per cent to $2.5 million and selling and distribution expenses grew by 72 per cent to about $2.0 million, with the company saying these expenses should continue to exceed its R&D spend as the company continues to ramp up commercialization. 

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