Optifinancial Newsletter - Knowledge is power - Brad Mitchell
This is not financial advice nor recommendations. This is purely our own thoughts and opinions regarding the matter discussed below for entertainment purposes. This is not advice and is never intended to be.
Disclosure: We own PROG securities/shares at the time of publication. This could affect my biases in my analysis.
Progenity | $2.69
Valued at $440.49 Million Market capitalization at the time of writing
Near term DDS product that will disrupt the healthcare platform
DDS - Releases FDA approved drugs into system and lines the intestines with drug to help better aid treatment of IBD - $20-30 Billion industry annually
Detailed look at how the economics of the DDS could double or triple the stock with looking at simple profit margins for their tech
Preecludia - possible catalysts
DDS: This pill technology is the first to most likely get appreciation from the market in general. They are attacking the Ulcerative colitis market first which is about 7 billion annually every year.
3 things to know about the DDS, we will learn more after this next data point in December. Expect the general topline results however some data may be embargoed for peer review. They should give us the actual results however which will be enough for us to make some conclusions about the future of the DDS pill.
The DDS is the only drug delivery technology on the market that uses the body's physical anatomy instead of the body’s physiology. This is important because there is much wider variance in human physiology and chemical composition (PH levels which normal tech uses to dissolve), especially in varying levels of sickness in patients. Progenity instead uses anatomical structures (entrances/exits) in the gut and machine learning to understand where exactly it is. It releases the drug to line the intestines at the exact place to reduce the actual dose needed and improve targeted delivery of the drugs. These drugs are only commercially available for injection. Progenity will be the first to market for oral delivery.
The December-early January data will show the amount of efficacy the drug has in combination with the DDS device. I am not exactly sure on how they will present this data to us. I am hoping they compare to the standard of care through injections vs how their performance was in their first round of Pkpd data. I am thinking from their history that they will retain the exact lower level details of the study and present it in the future. It is for a device using a standard approved drug. There are less regulations to the sharing of data due to underlying competitive purposes. I believe they will have it peer reviewed and published later. Look at their Preecludia product press release here which they published July 29th which states that they hit their primary endpoints but still have have the data under an embargo. Progenity should give us the topline results which should suffice to allow us to predict their future. This will then have an impact on the share price.
If the data shows more efficacy this means there are 3 other positive health and monetary aspects to look at in Progenity’s future valuation:
Safety and systemic risk is lower for the drugs, meaning harsher drugs could be used for more aggressive forms of disease and also shows a doorway for chemotherapies and alternative approaches to treatments
Immunogenicity - If this shows that less drug is needed for the same therapeutic effects, this possibly could mean that patients can stay on the drug for longer before switching as Humira (adalimumab) is currently able to be used for 3-5 years before it becomes ineffective due to the bodies immune response to the increase drug content in the system. Since it is at the target site and less likely to interact with the body's immune system overall, it may be able to be used for much longer and possibly indefinitely in some cases. This would be a breakthrough for many patients.
Drug costs will be lowered due to less drugs being deployed to get the same therapeutic effects. This is where Progenity can fit the cost of their pill in and make more revenue.
Rationalizing the DDS pill with for revenue & total commercial acceptance:
I believe if Progenity is able to show better efficacy, in my opinion, we will see a massive appreciation in share price due to the underlying implications that it will affect in the gastrointestinal disease sector. It also shows a path to a wider moat on more drugs.
With the efficacy, and especially as Pfizer just bought Arena for $6.7 billion with an unapproved Phase 3 drug for ulcerative colitis. It shows how valuable this portion of the health care market is. Progenity could easily if able to reach 50% of the patient population, could bring in just with Ulcerative Colitis, 2-3 billion annually. This is just 1 drug and 1 disease. There are multiple others that would follow suit. Tofacitinib is also a longer term one as well that they could most likely make 1 billion a year. For some, it is hard to see how this technology could integrate into standard care, however, I see it being the best solution to patient compliance and getting better data.
Imagine a pill that would light up for you and make a sound to alert you to take the pill. It then would improve efficacy, increase the safety (lowering side effects) and longevity patients can utilize the drug.
Insurance will likely cover this as the increased safety will lower the high risks associated with these drugs and future incurred costs. Insurance will most likely be happy to see less expensive drugs are being used so they will be able to cover it as these drugs cost (such as humira) cost $12,000 a month (from personal stories from patients). Reducing the drug by half, means Progenity can step in and take over the difference.
For example: If Progenity proves that less drug is needed for the same therapeutic effect, the cost to the patient will be $6,000 a month, and then Progenity can charge $4000-5000 per month essentially for the pills. The dosing schedule is very interesting and I believe very lucrative. For instance Crohn’s patients (another disease that adalimumab treats), has an initial dose of 2 shots in the first day and then once every other week! Roughly only ~4 pills a month. Even if the pill costs even $150 (very high estimate) to manufacture, they still can make $3500-4500 per patient per month. Insurance will see the obvious savings and would most likely approve this use.
Prescribers and patients will want this as well: Prescribers will enjoy getting the patient compliance factor and feedback, This will be hugely important to keeping patience on the drug and reducing losing patients. Also the automatic lighting and noise the pills can make will help to ensure the patient knows which pill to take and when.
Patients will enjoy the savings and increased benefits to health and safety.
Preecludia - Proceeding publishing results
My Estimation on annual peak profits $300 Million out of the total addressable market of 3 billion in the US. They also have outside US potential to sell their tests.
Here is Progenity’s guidance on Preecludia’s timeline and status
Preecludia’s next steps after publication of a peer reviewed journal are to then initiate a study with a partner (most likely Natera) and will then start to deploy it commercially after understanding how the product will perform and how they need to deploy it. They currently have hired a consulting business on this marketing and selling Preecludia. If you look at my previous articles discussing this Natera relationship, you will see that Natera (in their Q2 10-Q report) has an undisclosed business that they are going to pay 290 million upon a successful execution of a commercialization plan with assets. Natera disclosed that they paid 10 million to this company. Looking at Progenity’s financial Q3 10-Q report, they have an additional 10 million in revenue which was shown. There was no explanation for this.
Straight from their website:
“However, methods for diagnosis of preeclampsia are nonspecific and have not changed significantly since the 1800s. Current triage assessment is cumbersome and can miss up to 50% of adverse neonatal outcomes.”
Last thought on Preecludia: The largest piece of value they bring to the medical community is being able to verify that the mother does not have preeclampsia. This will stop from unnecessary preterm deliveries which result in much more cost to the patient & insurance.
Current Price: $2.69
2.5 Month Price Forecast: $10-17
If the PK/PD topline data comes out for the DDS this December and shows much more efficacy than current efficacy of Humira by injection or IV, then the company will be reevaluated as it is now seriously an impact and catalyst for change in the healthcare industry. If the data is good, they will show the power of oral drug delivery. Remember RANI is shown to be the leader at the moment with their pill that injects into the intestines. I do not believe their technology has the right ingredients for serious market uptake. Too many stumbling blocks and patients have to take the pill in a fasted state. For Progenity, they will be exploring non-fasted states in the 1st Quarter of 2022 using the DDS. If they show functionality through both states, the share price could surpass my current forecasts as now the pill will be seen as the best for patient and physician experience. Also, remember as they collect data from one pill, they can leverage that for the others.
10-12 Year Price Forecast (2030-2032):
Bear case: $400 a share or $66 billion in valuation
If Progenity takes a bit longer on their goals and commercializes in 2028, I believe they will still be driving 3-4 billion a year and could be trading at a PE of 20.
Bull case: $1,200 a share or $198 billion in valuation.
If Progenity can start commercialization in 2025 and progress their technology through multiple revenue streams, we could see solid dominance and incredible growth. I think they could capitalize on Humira and then further large molecules (tofacitinib & GLP-1). If their Ionis partnership pushes through as well (60 billion market by 2030), we could see 9-12 billion a year. And with a PE of 20.
Final thought on PROG: After diving into their board members and management. Progenity is strategic. Their technology has been in development before 2010 and now has reached the time where it will start picking up pace and fast. These four horses will guide Progenity and disrupt healthcare. Before you know it, the company may be a large biopharma if they can stave off the buyout offers along the way. One thing I think Progenity need s to do is to guide investors on their timeline. They haven't stated when they will commercialize this pill, but looking to hearing more as the DDS December data is released. These are my own analysis and opinions based on industry knowledge and following other products in their development.
Disclosure: We own PROG securities/shares at the time of publication.
All stocks talked about we have invested in, and do not intend to give advice nor recommend acting upon the information.
Thanks for subscribing to the newsletter. If you find this information helps you, please share it with someone else! It will help us out greatly.
Until next week,
and the Optifinancial Team
Optifinancial is not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA ;nor an accountant nor a lawyer. Optifinancial is not a finance professional through formal education. Optifinancial believes in and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment of money. The contents on this site/letter/email are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. Optifinancial can’t promise that the information shared on our posts is appropriate for you or anyone else. By using our content, you agree to hold Optfinancial or any constituents related to Optifinancial harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided through our site, website, social media and newsletter.
Optifinancial does not collect information about you other than (1) what you personally provide if you submit a comment (your email will not be published) or sign up for our newsletter updates and (2) what’s available through normal server logs and Google Analytics. Optifinancial won’t sell or disclose your information to others unless we have received prior written agreement from you (e.g., you agreed to let me share your comment on a post with other readers).
17350 State Highway 249
Ste 220 #3942
Houston, Texas 77064