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Pro Medicus share price higher on new contract win

In morning trade the Pro Medicus Limited (ASX: PME) share price has zoomed notably higher.

At the time of writing the health imaging company’s shares are up 4% to $25.68.

Why is the Pro Medicus share price racing higher?

Investors have been buying Pro Medicus shares this morning after it announced a new contract win in the United States.

According to the release, Pro Medicus’ wholly owned subsidiary, Visage Imaging, has signed a five-year contract with The Ohio State University Wexler Medical Center.

The Ohio State University Wexler Medical Center is a large multi-disciplinary academic medical centre located in Columbus, Ohio. It currently employs approximately 30,000 staff. This includes 1,700 physicians, which are supporting over 1,500 inpatient beds.

It is also the teaching hospital for The Ohio State University College of Medicine.

The release explains that the contract is based on a transaction-based licensing model. It will see Pro Medicus’ Visage 7 technology implemented across all of the medical centre’s radiology departments. This spans seven hospitals and outpatient clinics and will be integrated into its electronic health record.

Management expects the implementation to begin in the second quarter of FY 2020, before completing in the middle of 2020.

All in all, the contract is estimated to be worth a total of A$9 million over the five years.

What is Visage 7?

Pro Medicus’ Visage 7 technology delivers fast, multi-dimensional images streamed via an intelligent thin-client viewer. It offers robust clinical capabilities and scales to the needs of massive organisations.

Demand for the technology has been growing strongly. In April the company signed a seven-year deal with Duke Health. Duke is ranked in the top 20 best hospitals in the United States and is in the process of implementing Visage 7 across all of its radiology departments.

And just under a year ago it announced a seven-year deal with Partners Healthcare in the United States and an extension to its contract with a large German Government Hospital network.

Canon contract.

The company also provided commentary on a contract won by rival Canon in Western Australia. This news has weighed heavily on its shares over the last week or so.

CEO Sam Hupert explained that the company decided not to bid for the WA Government contract. This is because when Pro Medicus assessed the contract in terms of effort per dollar, it decided its “efforts would be better reward elsewhere.” Dr Hupert pointed out that the actual revenue from the deal was only a fraction of the $45 million contract.

He also advised that for this reason, the company won’t be bidding on Australian government contracts any more.

Though, the company appears confident it would have won it if it had bid. Dr Hupert stated his belief that the company’s technology is 18 to 24 months ahead of the competition.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd. The Motley Fool Australia has recommended Pro Medicus Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.