PROCEPT BioRobotics Stock: Surgical Robots For Urology
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Breaking news this week. Elizabeth Holmes of Theranos is formulating her “bad man made me do it” defense, and her attorneys are considering whether or not she should take the stand. Having her stare at the jury with those Manson lamps while articulating, in that truck-driver voice, why her behavior wasn’t totally psychopathic makes about as much sense as trying to invade Russia in wintertime.
Theranos was able to dupe some of the world’s most sophisticated investors because early-stage investments are often nothing but exciting stories investors believe in. The only way to demonstrate product-market fit is by showing meaningful revenues, a number we’ve pegged at $10 million annually. You can avoid Theranos types by only investing in firms with meaningful revenues. Today’s company, PROCEPT BioRobotics, just broke through that threshold halfway through this year by selling the first FDA-granted robotic surgery platform for the treatment of enlarged prostates. And now, they’re going public.
About PROCEPT BioRobotics Stock
We first came across PROCEPT BioRobotics around four years ago when we wrote about 8 Types of Robotic Surgery Being Used Today. Since then, the company raised several more rounds of funding bringing their total disclosed funding to $363 million. In order to understand the problem they’re trying to solve, we need to discuss the basics.
A Growing Problem
The prostate is a small gland in the male reproductive system that produces the fluid that protects and gives nutrients to sperm. As men age, the prostate grows larger, doubling in size between the ages of 21 and 50 years, and almost doubling again in size between the ages of 50 and 80 years. As the prostate enlarges, a condition can occur called benign prostatic hyperplasia (BPH). This is when the prostate gland presses against the urethra, which can obstruct or restrict the flow of urine from the bladder.
BPH is the most common prostate disease and impacts approximately 40 million men in the United States. Drug therapy is often the first step in actively treating mild-to-moderate symptoms of BPH, but fails in up to 30% of men within two years. It’s also the more costly treatment option. When drug therapy fails, surgery is often the next alternative with approximately 400,000 BPH surgeries performed in the United States in 2019. Most use heat-based methods to reduce the prostate with three types of surgery accounting for the majority of BHP-related surgeries:
- TransUrethral Resection of the Prostate (TURP) – Uses electrocautery to cut and remove prostate tissue. Used for over a century. (33.75% of 2019 BPH surgeries.)
- Photoselective Vaporization of the Prostate (PVP) – A laser fiber vaporizes prostate tissue sequentially outwards. (20% of 2019 BPH surgeries.)
- Laser Enucleation of the Prostate – Uses a surgical laser to manually resect prostate tissue through the urethra. (7.5% of 2019 BPH surgeries.)
All three types of surgeries have high rates of irreversible complications. Published studies have shown rates of erectile dysfunction as high as 14%, 20%, and 8%, ejaculatory dysfunction as high as 89%, 50%, and 77%, and incontinence as high as 2%, 2%, and 33% for TURP, PVP, and laser enucleation, respectively.
If there’s a one in five chance you’ll experience erectile dysfunction after a procedure, you’d be pretty keen on an alternative. Enter AquaBeam, a platform that doesn’t use heat, and consequently, has had very low complication rates.
AquaBeam Robotic Systems
PROCEPT has developed the first and only image-guided, heat-free robotic therapy for the treatment of lower urinary tract symptoms (LUTS) due to BPH. Here’s what the entire platform looks like.
The AquaBeam Handpiece seen above is a wand that’s inserted in the patient’s urethra and proceeds to cut tissue off the prostate using a pressurized jet of fluid in a procedure that typically takes less than one hour. The surgeon plans the procedure beforehand using real-time imagery, and then the platform executes the procedure while the surgeon looks on.
Nine clinical studies and over 100 peer-reviewed publications. have shown how the process is safer (far fewer complications) while also being more effective (better symptom relief).
TAM and Revenues
The company estimates their total addressable market (TAM) to be around $20 billion “based on the average selling price of our single-use handpiece” which implies a $50,000 consumable cost per procedure. Below, you can see what the consumable looks like (it’s the wand-looking thing):
Since they’re only using the cost of the consumable to calculate TAM, that’s a pretty promising opportunity. If their platform was only used for 10% of all BPH surgeries, that’s still a multi-billion dollar business.
As of June 30, 2021, Aquablation therapy has been utilized in the treatment of more than 5,500 patients. The first six months of this year saw 82% of sales coming from the United States with around 30% of revenues coming from consumables.
Should You Buy PROCEPT BioRobotics stock?
In March 2021, Frederick Moll assumed the role of Chairman of the Board for PROCEPT. He’s the man who founded robotic surgery darling Intuitive Surgical (ISRG) which is now a $123 billion company. For him to assume that role means he sees a lot of potential in the company. Even if the company is moderately successful, they’ll make a great bolt-on acquisition for a large medical device company like Medtronic or Stryker who are increasingly dabbling in surgical robotics.
Even without knowing the terms of the IPO, we can still figure out what a fair price for shares might be. Here’s a look at how Intuitive Surgical is priced using our simple valuation ratio:
- Market cap / annualized revenues
$123 billion / $6 billion = 20
We won’t invest in any company with a valuation ratio over 40, so Intuitive Surgical wouldn’t be considered overvalued based on that metric. We can now look at what market cap PROCEPT BioRobotics would command using the same ratio and our upper limit:
- $626.72 million / 20 = $31.336 million
- $1.25 billion / 40 = $31.336 million
Once shares begin to trade, we can then calculate market cap. If it’s more than $1.25 billion, it’s just too richly valued to find a home in our portfolio.
Conclusion
Knowing that Dr. Moll is the CEO’s boss helps give us the confidence that they’ll be able to navigate the complexity of bringing a sophisticated device to the medical community. Traction in the form of meaningful revenues shows that the medical community finds value in the platform. If we decide to add this pure-play robotic surgery stock to our own +30 tech stock portfolio, Nanalyze Premium subscribers will receive an email alert.
Should the IPO go through as planned, shares of PROCEPT BioRobotics will trade under the ticker PRCT.
Share
Expected IPO date is tomorrow ..
Procept wrote in a revised S-1 filing with the U.S. Securities and Exchange Commission that it intends to offer shares of its stock at an expected $22-$24/range. That will value the firm at about $906.6M to $1B.
Now H1 2021 revenue is $15.7M, so if we annualize it that will make $31.4M.
So the ratio will be in the range : 28.9 – 31.8.
S-1: https://www.sec.gov/Archives/edgar/data/0001588978/000162828021018188/proceptbioroboticss-1a1.htm
Incoming IPO: medical device maker Minerva Surgical (UTRS):
Minerva Surgical delivers complete suite of devices that treat the root causes of Abnormal Uterine Bleeding (AUB) in both the normal and irregular shaped uterus.
S-1 : https://www.sec.gov/Archives/edgar/data/1452965/000119312521284328/d123908ds1.htm
Thank you for sending over. We’ll take a look. Also note another recent IPO for a robotic surgery stock related to women’s health: https://nanalyze.com/2021/09/memic-innovative-stock/
A quick check: PROCEPT BioRobotics stock is doing quite well since its IPO. In Sep 2021 it started trading at $40, now it is $46.78. Compare that to many other stocks that lost 50-90% during that time.
PROCEPT BioRobotics reported 135% YoY Q3 revenue growth to $20.3M.
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A different story is for Minerva Surgical: it fell from over $9 to $0.1838 now. So it was a disaster stock. I see they were growing revenue quite nicely before IPO, but no revenue growth after IPO. In Q3 revenue $12.6M.
Interesting: Minerva has in cash 3 times more than their market cap.
The valuation is through the roof – simple valuation ratio of 25. Not sure why but nice steady revenue growth. Maybe worth a revisit when the dust settles and valuation approaches something reasonable.