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Pro Medicus (ASX:PME) share price drops despite inking new contract

falling healthcare asx share price represented by doctor grimacing at x-ray
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The Pro Medicus Limited (ASX: PME) share price is trading lower today despite the company announcing a major contract renewal with one of the largest private outpatient radiology providers in the United States. At the time of writing, the Pro Medicus share price has fallen 1.87% to $31.53, which is largely in line with the broader fall in healthcare sector shares today. 

What’s in the deal?

Health imaging company, Pro Medicus, today announced that its wholly-owned US subsidiary, Visage Imaging Inc., has signed a 5-year renewal contract with US-based, Zwanger Pesiri. The contract, which is constructed on a transaction-based licensing model, will see the ‘Visage 7’ technology continue to be used across all Zwanger Pesiri locations for the next 5 years.

The contract announced today follows another significant contract win Pro Medicus inked earlier this month, when it announced a 7-year deal worth $10 million with one of the largest university hospitals in Germany, LMU Klinikum. In that deal, the Visage 7 technology was to be deployed throughout LMU Klinikum’s radiology and sub-specialty imaging departments. 

What did management say?

Commenting on the deal today, Pro Medicus Chief Executive, Dr Sam Hupert said:

We are very pleased to have played such a key role in Zwanger Pesiri’s growth over the past 5 years. We believe our solution provides the best return on investment of any system in the market from both financial and clinical perspectives. We think the results we achieved at Zwanger Persiri is validation of that.

Zwanger Pesiri was also pleased with the contract renewal, with chief, Dr Steve Mendelsohn, echoing Hupert’s sentiment:

We have had a great partnership with Visage over the preceding 5 years. The speed and capabilities of their software is unrivalled in the market. Since implementing it 5 years ago, we have experienced significant increases in radiologist productivity and clinical accuracy which has underpinned our substantial growth over that time.

What does Pro Medicus do?

Pro Medicus provides healthcare imaging software and services to hospitals, diagnostic imaging groups and other health related entities in Australia, North America and Europe. The company has more than 30 years’ experience in providing radiology information systems and imaging technology. 

How is the Pro Medicus share price performing in 2020?

After explosive growth in 2019, the Pro Medicus share price has been able to successfully navigate the impacts of COVID-19 in 2020. Pro Medicus shares have increased by more than 41% to $31.53 in 2020. As a comparison, the S&P/ASX 200 Health Care Index (ASX: XHJ) has risen by 12% this year. Pro Medicus commands a market capitalisation of $3.4 billion.

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Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and 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.

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