Spruce Point Sees Trouble Ahead For Procept BioRobotics

On Thursday, Spruce Point Capital released a detailed report on PROCEPT BioRobotics PRCT, raising concerns about the claims surrounding its market potential and growth prospects, suggesting the company’s stock could face a 30% to 60% downside.

Spruce Point questions the credibility of Procept’s addressable market estimates, business metrics, and valuation.

Procept BioRobotics specializes in a robotic surgical system for benign prostatic hyperplasia (BPH or enlarged prostate).

Benzinga has contacted Procept for comment on the Spruce Point report and will update if a response is received.

The company’s Aquablation therapy, a waterjet procedure designed to minimize sexual side effects compared to other surgeries, has gained traction in high-volume U.S. hospitals, contributing to significant revenue growth—from under $10 million in 2020 to $200 million, according to Spruce Point.

However, Spruce Point argues that Procept's comparison to Intuitive Surgical Inc ISRG is misleading and that the addressable market for Aquablation is significantly overstated.

Also Read: Surgical Robotics Provider PROCEPT BioRobotics’ Q3 Earnings Beats Street View, Analyst Optimistic About Upside Potential

Spruce Point writes that Aquablation’s appeal is limited to a niche segment of patients with large prostates, representing only a small fraction of the BPH market. Most BPH patients suffer from mild to moderate symptoms, often managed with medications or minimally invasive surgical therapies (MISTs).

These outpatient procedures, offering minimal risks and shorter recovery times, have rapidly gained market share since 2014, accounting for 40-45% of BPH surgeries. Spruce Point says MISTs will continue to outpace resective procedures like Aquablation.

Further concerns stem from Procept's rising days sales outstanding (DSOs), which have increased from 47 to 130 days over three years, signaling potential sales and accounting issues.

Spruce Point also found inconsistencies in Procept's reported surgical volumes and equipment utilization rates, raising doubts about the company's metrics.

Procept’s statements regarding its robotic and AI capabilities have faced scrutiny. Critics, including Spruce Point Capital Management, argue that the system’s reliance on sales representatives during procedures and the need for surgeon expertise undermines its “automation” narrative. The HYDROS system, introduced with promises of AI-driven advancements, has been met with mixed feedback, with some urologists finding its features underwhelming.

Despite Procept’s $4.7 billion market valuation and premium revenue multiple, Spruce Point argues that its niche product, structural barriers to growth, and questionable metrics make its valuation unsustainable. The firm estimates Procept's fair value at $29 to $54 per share, implying substantial downside risk.

Price Action: PRCT stock is down 1.79% at $76.91 at last check Thursday.

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