Niche Product-line to drive Business prospects: Profound Medical Corp. is a commercial-stage medical device company specialized on the advancement and marketing of customizable, incision-free therapeutic systems, primarily used for the ablation of diseased tissue. The primary products of the company include TULSA-PRO® and Sonalleve®.

Q1FY20 Financial Highlights: For the period ended March 31, 2020, PRN posted revenue of CAD 1.56 million, higher than CAD 1.47 million recorded in the previous corresponding quarter. The group reported a substantial increase in the cost of sales, resulting in a lower gross profit of CAD 0.59 million, as compared to CAD 0.94 million in pcp. Operating loss for the company widened to CAD 6.55 million, from existing CAD 2.72 million in the previous corresponding quarter. The decline in profitability was due to the higher research and development expense, general and administrative and selling & distribution costs. However, the company’s bottom line was supported by a net finance income amounting CAD 3.068 million. The group reported a net loss of CAD 3.61 million, as compared to CAD 2.92 million in Q1FY20. The company exited the quarter with a cash balance of CAD 61.9 million and total assets of CAD 82.667 million.

Q1FY20 Income Statement highlights (Source: Company Reports)

Stock Recommendation: The stock of PRN has generated an exuberant return of ~56% and ~111% in the last six months and one year respectively. During the first quarter of FY20, the company made major progress in the commercialization of its TULSA-PRO® in the U.S. market through a multi-site imaging center agreement with RadNet. Radnet has 340 imaging centers across the U.S. The Group further reported installations TULSA-PRO® at Vituro Health’s center in Sarasota, FL and the Busch Center in Alpharetta, GA. During the quarter, the company reported a higher operating expense due to an increase in marketing expense and research & development expenses, which was partially offset by lower staff salary. The group also has approval from the China National Medical Products Administration for Sonalleve® for the non-invasive treatment of uterine fibroids. The company is exploring potential markets for Sonalleve® where the technology has been shown to have clinical application. Currently, the stock is trading above its 20 days and 50-days simple moving average (SMA) of CAD 17.68 and CAD 15.77, respectively. The stock is trading at a forward EV/Sales multiple of 14x against the industry (Healthcare Equipment and Supply) average of 20.6x. Hence, we recommend a ‘Speculative Buy’ on the stock at the closing price of CAD 19.00, up 3.88% as on May 08, 2020.

PRN One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

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