Executive Summary / Key Takeaways

• Profound Medical is positioned for significant growth driven by its unique MRI-guided TULSA-PRO ablation technology, which offers superior precision and patient outcomes across the prostate disease spectrum compared to competing therapies like robotic radical prostatectomy (RP) and other ablative methods.
• A pivotal catalyst is the new CMS Urology APC Level 7 reimbursement effective January 1, 2025, providing favorable facility payments ($12,992 hospital outpatient, $10,728 ASC national average Medicare) and broad applicability across treatment settings, making TULSA-PRO economically attractive and potentially more profitable than RP for hospitals and ASCs.
• Initial perioperative data from the Level 1 CAPTAIN trial demonstrated statistically significant superiority for TULSA over RP in key patient experience metrics, including no blood loss, no overnight stay, less pain, and faster recovery, providing compelling clinical validation expected to drive patient demand and support private payer reimbursement efforts.
• Strategic initiatives like the upcoming TULSA AI Volume Reduction Module for BPH (limited release June 2025, full Q4 2025) are set to significantly expand the total addressable market, while the TULSA+ program (soft launch H2 2025) offers a turnkey solution combining TULSA-PRO with interventional MRI, accelerating adoption in diverse settings.
• Management projects high double-digit revenue growth of 70-75% in 2025, with expectations for triple-digit growth in 2026 and beyond, underpinned by the favorable reimbursement environment, clinical data leverage, market expansion, and a bolstered commercial team, although execution and the need for future capital remain factors to monitor.

The Dawn of MRI-Guided Prostate Intervention

Profound Medical Corp., established in 2014, is a commercial-stage medical device company at the forefront of developing and marketing customizable, incision-free therapeutic systems for image-guided tissue ablation. The company's core focus lies in leveraging existing healthcare imaging infrastructure, particularly Magnetic Resonance Imaging (MRI), to deliver precise, controlled thermal therapy. At the heart of Profound's offering is the TULSA-PRO system, designed for the ablation of prostate tissue, and Sonalleve, a platform for treating uterine fibroids and palliative pain from bone metastases.

The prostate disease market, encompassing a spectrum from low-risk cancer to benign prostatic hyperplasia (BPH) and salvage cases, represents a significant clinical need. Traditional treatments like robotic radical prostatectomy (RP) involve invasive surgery with associated risks and recovery times. Other ablative technologies, such as HIFU, often face limitations in treating the entire prostate or specific regions like the anterior zone, where a significant portion of cancers reside. This is where Profound's technology carves out a distinct competitive niche.

TULSA-PRO uniquely combines real-time MRI guidance, robotically driven transurethral ultrasound, and closed-loop temperature feedback control. This integration provides pixel-by-pixel precision, allowing physicians to sculpt the thermal ablation zone with remarkable accuracy while monitoring temperature in real-time to protect surrounding sensitive structures like nerve bundles critical for urinary continence and sexual function. Unlike other ablative methods that can cause tissue boiling or high-pressure destruction, TULSA employs controlled, gentle heating to a target temperature of 55-57°C. This technological approach enables treatment of virtually all prostate shapes and sizes, offering flexibility for both whole-gland and focal therapy protocols, a capability management asserts is unmatched by competing ablative technologies. The TULSA AI modules, such as Thermal Boost (used in over 50% of cases) and the Contouring Assistant (FDA cleared in May 2024), further enhance this precision and efficiency. Thermal Boost allows targeted energy delivery to challenging areas, while the Contouring Assistant improves treatment planning accuracy and reduces procedure time, aiming to enable sites to perform more procedures per day.

While Sonalleve is commercialized primarily outside North America for uterine fibroids and palliative bone pain, the strategic narrative for Profound is increasingly centered on the TULSA-PRO system and its potential to become a mainstream treatment in the large and evolving prostate care market. The company's historical journey has involved navigating the challenges of introducing a novel, MRI-dependent technology, initially relying heavily on a cash-pay patient model and a recurring revenue structure in the US. However, recent developments signal a significant inflection point, driven by favorable reimbursement and compelling clinical validation.

A New Economic Reality: CMS Reimbursement and the Shift to Capital Sales

A critical turning point for Profound is the implementation of new CPT Category 1 codes for the TULSA procedure, effective January 1, 2025. These codes were finalized by the U.S. Centers for Medicare and Medicaid Services (CMS) at Urology APC Level 7, a higher classification than any other prostate treatment procedure, including robotic radical prostatectomy, which is typically classified at Level 6.

The financial implications of this are substantial. The Medicare national average facility payment for TULSA is set at $12,992 in a hospital outpatient setting. While comparable to RP's hospital payment, TULSA is expected to be more profitable for hospitals due to significantly lower operational costs associated with an MR suite (around $800/hour) compared to a surgical suite (around $3,000/hour). Furthermore, TULSA is a same-day procedure requiring no overnight hospital stay, unlike RP, offering significant cost savings for facilities.

Perhaps even more impactful is the reimbursement in the Ambulatory Surgical Center (ASC) setting. RP is not on the CMS ASC covered procedure list, effectively limiting Medicare RP procedures to hospitals. In contrast, TULSA is approved for use in ASCs, with a proposed national average Medicare payment of $10,728. This figure is notably higher than the payment for other ablative procedures in ASCs and, crucially, is higher than the facility payment a hospital receives for robotic prostatectomy. This creates a compelling economic incentive for large urology group practices that own ASCs to adopt TULSA-PRO, potentially shifting Medicare patients from hospitals to their more profitable ASC setting. The TULSA codes are also applicable in imaging centers and physician-owned office settings, offering an unrivaled range of treatment locations compared to RP.

This favorable reimbursement landscape is driving a strategic shift in Profound's business model in North America. The company is transitioning from its historical recurring revenue-only model to a more traditional medical device model comprising upfront capital sales (anticipated ASP around $350,000), per-patient disposable sales (ASP around $5,000-$6,000), and service agreements. This model is expected to deliver high gross margins, projected to remain above 70%, while offering greater financial predictability and per-procedure profitability for adopting sites, further accelerating adoption. Management noted that some sites currently on the recurring model are already expressing interest in converting to a capital purchase to realize these benefits.

Clinical Validation and Market Expansion

Beyond the economic tailwinds, Profound is bolstering its clinical evidence base. The CAPTAIN trial is the first successful Level 1 randomized controlled trial comparing a new technology (TULSA) head-to-head against robotic radical prostatectomy for localized prostate cancer. Initial perioperative data presented in April 2025 provided compelling evidence of TULSA's superior patient experience. Key findings included the complete elimination of blood loss and overnight hospital stays (many patients treated outpatient), statistically and clinically significant less pain in the first week, and less interference with daily activities in the first month. Management highlighted that TULSA patients recover to their baseline activities nearly two weeks faster than RP patients, a benefit expected to resonate strongly with patients and drive demand, mirroring the early adoption drivers of the surgical robot. This data is crucial for supporting discussions with private insurance companies to secure favorable coverage policies and for seeking inclusion of the TULSA procedure in cancer society guidelines.

Profound is also actively expanding the potential market for TULSA-PRO. The company is developing a TULSA AI Volume Reduction Module specifically for BPH patients. Leveraging the existing AI platform, this module aims to provide fast, intelligent workflows for BPH treatment, targeting an estimated total procedure time of 60-90 minutes regardless of prostate size or shape. This initiative is expected to be a "game changer," substantially increasing the total addressable market by targeting the approximately 400,000 BPH patients per year who require surgical intervention, effectively tripling TULSA's potential market to 600,000 prostate disease patients annually. A limited release of this module is planned for early June 2025, with a full release anticipated in early Q4 2025.

To facilitate adoption, particularly in ASCs and physician-owned settings, Profound is developing the TULSA+ program. This turnkey solution will offer a combined package of the TULSA-PRO system and an interventional MRI, such as the Siemens Magnetom FreeMax 0.55 Tesla. This specific MRI is highlighted for its suitability due to its lightweight design, large bore, significantly reduced installation and operating costs compared to traditional 1.5T+ systems, and ability to fit in smaller spaces. TULSA+ aims to provide a financially viable model for sites without existing compatible MRIs, enabling accelerated adoption and supporting the broader expansion of interventional MRI in urology. Management expects to soft launch TULSA+ and announce initial deals within the next few months, targeting a broader rollout in the second half of 2025. The company is also strengthening its partnerships with major MR manufacturers like Siemens (SIE), Philips (PHG), and GE (GE) to support this MRI-centric prostate care pathway.

Financial Performance and Outlook

Profound's recent financial performance reflects the early stages of this strategic transition and investment in future growth. For the first quarter of 2025, the company reported total revenue of $2.62 million, an 82% increase compared to $1.44 million in Q1 2024. This growth was driven by higher recurring non-capital revenue ($1.80 million vs. $1.44 million) and a significant increase in capital equipment sales ($0.82 million vs. $0 million in Q1 2024). Gross margin improved to 71% in Q1 2025 from 60% in Q1 2024, attributed to the favorable product mix with more capital sales and improved manufacturing efficiency.

Operating expenses saw a notable increase, rising 49% to $13.02 million in Q1 2025 from $8.74 million in Q1 2024. This was primarily due to increased investment in R&D (up 22% to $4.81 million, driven by headcount, CAPTAIN trial enrollment, and R&D initiatives) and a substantial increase in Selling, General, and Administrative expenses (up 71% to $8.21 million, reflecting increased sales force, commissions, travel, and marketing events). This led to a net loss of $10.72 million ($0.36 per share) in Q1 2025, compared to a net loss of $6.59 million ($0.27 per share) in Q1 2024.

As of March 31, 2025, Profound held $46.4 million in cash and cash equivalents, down from $54.9 million at the end of 2024. The company utilized $8.28 million in cash from operating activities during Q1 2025, reflecting the increased expense structure supporting commercialization and R&D. Management stated that existing cash and anticipated sales are expected to fund operations for at least the next 12 months from the May 8, 2025 filing date. The company has access to a new revolving line of credit with CIBC (CM), maturing in March 2027, and was in compliance with associated financial covenants as of the end of Q1 2025. Proceeds from the December 2024 public offering ($36.1 million net) are being deployed for commercialization, development, and working capital, with $12.16 million spent as of March 31, 2025.

Looking ahead, management is confident in its growth trajectory. They reaffirmed guidance for high double-digit revenue growth in 2025, specifically citing a range of 70-75% growth compared to 2024 revenue (which was guided at $11M-$12M). They anticipate the "proverbial hockey stick" of rapid, accelerated growth, potentially reaching triple-digit revenue growth, starting to form in late 2025 and early 2026. This outlook is predicated on the favorable impact of CMS reimbursement, the leverage of CAPTAIN trial data, the market expansion driven by the BPH module, and the successful execution of the TULSA+ program and sales team build-out. Management acknowledges that the transition to the capital sales model is likely to make the 2025 revenue growth more back-end loaded.

Risks and Challenges

Despite the significant opportunities, Profound faces notable risks. The company's ability to achieve its ambitious growth targets and maintain compliance with debt covenants depends on successfully driving TULSA-PRO adoption and achieving projected revenue and EBITDA levels. While CMS reimbursement is secured, gaining widespread positive coverage policies from private insurance companies is a critical next step, for which the CAPTAIN data will be essential, but the timing and outcome are not guaranteed. Market acceptance of a new technology, even with favorable reimbursement and data, can be slower than anticipated.

Operational risks include the successful development and launch of new AI modules and the TULSA+ program. The company also identified a material weakness in internal control over financial reporting related to revenue recognition as of December 31, 2024, for which remediation efforts are ongoing and expected to be completed in 2025. While remediation is in progress, this highlights a need for continued focus on financial processes. Finally, while current cash is expected to last over 12 months, significant expansion and R&D activities may necessitate raising additional capital in the future, the availability and terms of which depend on market conditions and company performance.

Conclusion

Profound Medical stands at a pivotal juncture, poised to potentially capitalize on a confluence of favorable factors. The CMS decision to grant TULSA-PRO a higher reimbursement level and broad site applicability fundamentally alters the economic landscape for prostate interventions, making the procedure significantly more attractive to healthcare facilities. Coupled with compelling initial clinical data from the CAPTAIN trial demonstrating superior patient experience compared to robotic surgery, Profound has powerful tools to drive adoption. The strategic focus on expanding the market through the BPH module and facilitating access via the TULSA+ program further strengthens the long-term growth narrative. While execution risks, particularly in scaling the commercial organization and securing private payer coverage, remain, the foundation built upon differentiated technology, validated clinical outcomes, and a favorable reimbursement environment positions Profound for a period of potentially accelerated growth, aiming to transform the landscape of prostate disease treatment.