Spruce Point Warns of Storm Clouds Gathering for Procept BioRobotics

Procept BioRobotics (NASDAQ: PRCT), a medical technology company specializing in robotic surgical systems for benign prostatic hyperplasia (BPH), has been under scrutiny by short-seller Spruce Point Capital Management. In a recent report, Spruce Point raised serious concerns about Procept's market size estimates, procedure competitiveness, and the potential risks associated with its new HYDROS system. These concerns have led Spruce Point to estimate a 30%-60% long-term potential downside risk for Procept's shares, with a target price range of $29-$54 per share.

Procept's Aquablation procedure, which uses a waterjet to destroy prostate tissue, has gained traction in high-volume hospitals, contributing to significant revenue growth. However, Spruce Point argues that Procept's depiction of its market potential and comparisons to Intuitive Surgical are misleading. The report questions the credibility of Procept's addressable market estimates, business metrics, and valuation, suggesting that the company's $4.7 billion market valuation is unsustainable.



Spruce Point's concerns about Procept's market size estimates and procedure competitiveness are supported by several data points and expert opinions. The report highlights that Aquablation is most competitive for a small segment of the patient population, with over 90% of BPH patients managing symptoms through medication or watchful waiting before considering surgical intervention. Additionally, the competition from simpler minimally invasive surgical therapies (MISTs) presents a significant market challenge, as these procedures now account for 40-45% of BPH surgeries.

Procept's new HYDROS system, which incorporates AI capabilities, has also faced skepticism from urologists. Spruce Point notes that the system still requires sales representatives during procedures and that there is skepticism about its AI capabilities. The report also raises concerns about the potential inventory buildup of the HYDROS system, with finished goods inventory at all-time highs representing up to 2.6 quarters of handpiece supply.



Spruce Point's estimation of a 30%-60% long-term potential downside risk for Procept BioRobotics' shares is significantly more bearish than the opinions of other analysts. While 7 analysts have evaluated Procept BioRobotics over the last three months, offering a range of ratings from bullish to bearish, none have estimated such a significant downside risk. The average price target among these analysts is $83.57, with a high estimate of $99.00 and a low estimate of $69.00.

In conclusion, Spruce Point Capital Management's report raises serious concerns about Procept BioRobotics' market size estimates, procedure competitiveness, and the potential risks associated with its new HYDROS system. These concerns, supported by data and expert opinions, suggest that Procept's shares may face a significant long-term downside risk. Investors should carefully consider these factors when evaluating Procept BioRobotics as a potential investment opportunity.