GMP starts Profound Medical at speculative buy

GMP Securities has initiated coverage of Profound Medical (TSX-V:PRN) with a “speculative buy” rating and price target of $2. The stock closed at $1.50 on Monday.

The company is focused on developing and commercializing an innovative therapy for the ablation of prostate cancer tissue, using real-time MRI to greatly improve accuracy, while reducing side effects.

Yesterday, Profound received CE Mark approval in about 30 European countries, with commercialization expected to begin immediately. During 2016 and 2017, the company will conduct a 110-patient clinical trial to support its application with the FDA, which is expected in 2018.

Analyst Martin Landry writes that Profound’s current cash should be enough to fund its clinical trial for the U.S. approval and daily operations until mid-2017. “We forecast the company to become cash flow positive in mid-2018,” he added.

Mr. Landry said his positive outlook on Profound is based on its innovative prostate cancer therapy resulting in lower complication rates, including erectile dysfunction, and prostate cancer’s addressable market valued at $20-billion to $40-billion a year.

In addition, he said Profound’s current enterprise value of about $45-million is low and would imply a price-to-sales ratio of two times based on 2018 sales expectations.

“This represents a significant discount to peers, which are trading at more than three times sales. We would expect this discount to narrow over time as the company executes its growth strategy,” he added.