PRCT - Procept BioRobotics Has Resources To Ramp Up Commercialization

Summary

• Procept BioRobotics went public in September 2021, raising approximately $164 million in an IPO.
• The firm is commercializing a water-based ablation device to treat benign prostatic hyperplasia, a common condition in older men.
• PRCT is ramping up commercialization of its device, growing its installed base and seeing increased reimbursement coverage.
• My outlook is a Buy for PRCT at around $40 per share.

A Quick Take On Procept BioRobotics

Procept BioRobotics ( PRCT ) went public in September 2021, raising approximately $164 million in gross proceeds from an IPO that priced at $25.00 per share.

The firm sells the AquaBeam Robotic System, with an initial focus on the treatment of benign prostatic hyperplasia.

The company has several years' worth of cash to cover its current usage run rate as it ramps up its commercialization efforts.

My outlook is a Buy for PRCT at around $40.00 per share.

Procept BioRobotics Overview

Redwood City, California-based Procept was founded to develop advanced surgical robotic devices for use in minimally invasive procedures.

Management is headed by president and CEO Reza Zadno, Ph.D., who has been with the firm since February 2020 and was previously president and CEO of Avedro, a healthcare company.

The company's first instrument is the AquaBeam Robotic System for use in urologic surgery with an initial focus on treating benign prostate hyperplasia.

Procept sells its product to hospitals who in turn to various third party payers for each service rendered.

PRCT is targeting 860 high-volume hospitals which account for 70% of all hospital-based resective procedures.

Procept’s Market & Competition

According to a 2018 market research report by Allied Market Research, the global market for treating benign prostatic hyperplasia was an estimated $10.7 billion in 2017 and is forecast to reach $20.1 billion by 2025.

This represents a forecast CAGR of 8.1% from 2018 to 2025.

The main drivers for this expected growth are an increase in disease incidence to the aging of the global population of males.

Also, alpha-blocker drugs are likely to be a major competitor, as they help in relaxing the muscle of the prostate and the bladder neck, allowing urination to occur more easily.

Major competitive or other industry participants include:

• Boehringer Ingelheim

• Allergan

• GlaxoSmithKline

• Merck

• Teleflex

• Boston Scientific

• Others

Procept’s Recent Financial Performance

• Total revenue by quarter has risen sharply in recent quarters:

• Gross profit by quarter has followed a similar trajectory to that of total revenue:

• Selling, G&A expenses as a percentage of total revenue by quarter have remained high over the past five quarters:

• Operating income by quarter has continued to be heavily negative, with no move toward operating breakeven in recent quarters:

• Earnings per share (Diluted) have remained significantly negative, as the chart shows below:

(All data in above charts is GAAP)

In the past 12 months, PRCT’s stock price has dropped 2.5% vs. the U.S. S&P 500 index’s fall of around 13.4%, as the chart below indicates:

Valuation And Other Metrics For Procept

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

Compared to the Seeking Alpha Health Care Equipment industry average EV/Revenue multiple of 15.5x, the firm is currently being valued by the market at more than double the average of that basket at 32x.

Commentary On Procept

In its last earnings call (Source - Seeking Alpha ), covering Q2 2022’s results, management highlighted sales growth of its robotic systems, primarily driven by high-volume BPH hospitals.

Also, the company has seen increased utilization from its installed customer base by virtue of increasing handpieces sold per account, with utilization per account growing by 90% year-over-year.

However, the company continues to be challenged with supply chain disruptions. In response, it has increased inventory levels for key components to maintain delivery requirements.

As to its financial results, total revenue rose 97% year-over-year and 18% sequentially, with the company selling 23 of its AquaBeam Robotic Systems for a total of 114 installed systems..

Operating losses continued to increase as the firm spent on ramping up its sales and support organizations.

For the balance sheet, the firm finished the quarter with $269.8 million in cash and equivalents and $52.1 million in long-term debt.

Over the trailing twelve month period, PRCT has used free cash flow of $65.3 million.

Looking ahead, management increased its full year revenue guidance to $67 million at the midpoint of the range and adjusted EBITDA to negative $61.5 million at the midpoint.

Regarding valuation, since the firm’s IPO, its EV/Sales multiple has dropped to its current level of 32x, which is still quite high.

The primary risk to the company’s outlook is an economic slowdown which may slow hospital purchasing plans.

An additional risk would be a return of COVID-19 variants or a difficult flu season, which may slow BPH procedures, although these possibilities are likely small.

While I was cautious on the firm’s valuation at IPO at 45x EV/Sales, now that PRCT is trading at 32x and its revenue ramp provides more visibility combined with increasing payer coverage and installed base, I’m more positive on the stock.

The company has several years' worth of cash to cover its current usage run rate as it ramps up its commercialization efforts.

My outlook is a Buy on PRCT at around $40.00 per share.

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