pme jumps by 35%

Promedicus jumped 35% today on positive news that Agfa will distribute its products throughout the USA. Based on my calculations PME is undervalued at a price of 94c if the agfa deal ends up being as good as described below.

Agfa Deal Launches Pro Medicus into North
America
• Agfa to exclusively license PME technology in US and Canada
• An estimated A$10m minimum revenue for PME during first 3 years
• Considerable upside could more than double business
Leading e-health company Pro Medicus (ASX:PME) today announced that AGFA-GEVAERT
N.V. (Agfa) have signed a three-year agreement to exclusively license the Pro Medicus
Practice Management and digital radiology software products to address the large and rapidly
growing private imaging centre market in both the US and Canada.
The deal is expected to generate a minimum revenue of A$10 million in the first three years for
Pro Medicus with considerable upside based on sales volumes.
Under the agreement, Pro Medicus will receive a percentage of software sales backed by
minimum payments that increase in each of the three years. A share of ongoing maintenance
fees will provide the company with a recurring revenue stream in addition to license royalties.
All intellectual property rights are retained by Pro Medicus.
The products will leverage the strong brand presence Agfa has in the North American
radiology markets with all marketing, implementation and end user support performed by
Agfa’s extensive network of over 700 Healthcare sales, services and IT professionals.
It is anticipated that costs for localising the software for the North American market will be
largely covered within normal R&D expenditure for the year with all work carried out to date on
the project being fully expensed. As a result, margins on revenue from this deal are expected
to be comparable to those currently achieved in Australia.
Pro Medicus Managing Director Dr Sam Hupert described the agreement as a watershed for
the 21-year-old medical IT company. “This deal validates our focus and strategy on a future
based on our digital imaging software and builds massively on existing Australian
opportunities,” he said. “Our technology is being taken into a market over 20 times larger than
ours by a company with an established presence and reputation second to none. Agfa is one
of the biggest players in the US radiology market with huge links into the market, both from an
analogue perspective – it supplies film to over 40% of the market – and in digital where it is
also one of the biggest players. With this kind of backing we can see the potential to more
than double the size of our business within the next three years.”
Around 400 million X-Ray scans are taken annually in the United States, compared to around
14 million in Australia. Imaging Centers are the fastest growing segment of the US radiology
market. There are currently around 5,000 imaging centers and over 3,000 community
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hospitals with standalone imaging departments with the number increasing by 12-15%
annually for the past three years and this strong growth is expected to continue. Image
numbers are also increasing an average of 16% per annum.
“We are extremely pleased to be chosen as Agfa’s exclusive supplier to such a huge market,”
said Dr Hupert. “They conducted an extensive due diligence process in which they evaluated
the best technologies from North America. Their choice validates our long held contention that
what we have developed here in Australia is absolutely world class.”
Agfa Healthcare CEO Philippe Houssiau said, “This agreement with Pro Medicus is structured
to maximise the strengths of both companies and gives us a potent offering for the rapidly
growing Imaging Centre market. Our imaging technology, market position and distribution
channels combined with Pro Medicus’ elegant software integration technology and practice
management experience make for a product set designed to provide improved delivery of
patient care backed with a sound business platform for the imaging centre space.”
“The deal, which is huge in its own right, has the added potential to open up a raft of other
overseas opportunities,” said Dr Hupert. “We have leading edge technology that is applicable
to other medical segments of the North American health market as well as to other regions
around the world.”