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 | $1.14
Reflection of earnings and previous prediction
OBDS and exactly why it will be adopted in industry
My last article was pinned on the fact that Preecludia would be announced to have a partnership at this point. We were given clarification during the earnings call by the relatively new CEO Adi Mohanti that they have stopped progressing their Preecludia pipeline. During the earnings call, this statement alone dropped the price 25%.
From my perspective, initially it was a shock, but then an “aha”. I could see why they would slow down. They have a consulting firm which they have hired to take on the task of licensing and getting the product to be sold to someone else. Adi was unable to give further statements on when we find out, but he did give some hint that they are actively seeking out this product line to be sold or licensed. Another shock factor was that they had guided us that we should see the end of their clinical validation study.
Here are a few reasons I think why Progenity stopped working Preecludia:
They were affirmed by the consulting firm to direct resources elsewhere. Possibly they already have a deal in the works but are trying to package it.
It was too risky to continue working on a product that may not be greatly affirmed by a peer review (We found out this month that in a scientific peer review that Preecludia is legitimate)
During the last guidance, Adi Mohanti was still running up to speed. I am sure the old plans were being pushed. Finally as Adi mentioned, that he is up to speed and I believe we can expect honest and rigid guidance going forward.
Other items which were materially new which deserve a bit of attention:
Cash burn dropped from 35 to about 20 million a quarter. This is much larger than I was expecting.
They plan to meet with the FDA to see if they can go with the expedited clinical trial route for their Tofacitinib and DDS combination. They should expect to know more information this Q3 from the FDA. This would allow them to spend less money and get their product on the market quicker.
Here is Adi’s transcript directly from the Call explaining the DDS Status:
“Our current time line to start the clinical trials in UC patients have some risks. Because we are approaching the regulatory agencies with a plan that depends on the data we have generated to date, we believe our current data could be sufficient to begin trials for our drug and device combination. However, there is a chance that we will be required to provide data for additional animal studies before we are able to begin these trials. These animal studies are planned for the coming months. But if we need to complete them before initiating the Phase I trial, it could add another quarter or so to our projected start for the Phase I trial, pushing it into early next year.
We feel we have good rationale to begin the trial earlier rather than later, and we will provide updated guidance after we meet with the FDA. We plan to file the request in Q2. We understand the patient's need for this product and are committed to progressing toward approval as quickly as possible while planning for all the required stages of the drug and device development process.
Our Phase I clinical trial with PGN-600 will evaluate both blood and colonic tissue levels of tofacitinib. Given the data presented in February, if the clinical data generated in our Phase I trial resembled the preclinical PGN-600 data we have generated, we believe the likelihood of improving remission rates in subsequent studies in UC patients is high.
We believe we have reduced development risks for PGN-600 because of the well-known therapeutic profile of the drug in standard oral formulations and the ability to utilize existing data on this formulation in our regulatory submissions.
Soon after the Phase I trial is completed, we will initiate a disease interventional study where we may clearly learn about the benefits our solution can bring to UC patients. Each development stage that we successfully achieved is expected to increase the value of the current program as well as the value of the entire platform, thus enabling us to better assess and discuss partnerships and future commercialization discussions. It will also guide our plans for future product expansion of our targeted therapeutics platform.
We will present additional data at Digestive Disease Week, DDW in San Diego this May. We will be presenting in conjunction with our scientific collaborators, further evidence for the need for local targeted delivery of therapeutics to the colon. DDW is the largest international gathering of physicians, researchers and academics in the GI field.”
With this said above, I am still extremely excited for this company. Their oral platfroms are multi billion dollar opportunities which have a serious chance at happening.
OBDS success in industry:
I have written down some sketch art for the OBDS explaining why it will succeed for drugs that are complex. In a nutshell, complex drugs have a hard time bypassing system defenses. Here is the anatomy of the OBDS and it’s function which is why companies like Ionis Pharmaceuticals are needing it. Look at the Pfizer and Ionis phase 2b trial which had great results but adverse events at injection sites. OBDS stops this from happening due to its unique ability to diffuse drug faster than anything out there with its technique.
Quick technology outline:
How it looks in action and works to bypass mucosal layer to get the drug through (This is been previously a very hard thing to do):
Shows how a shot does not diffuse drugs as quickly because it is in a low blood flow area, drug could possibly also get hung up and stuck which causes inflammation (Below):
Demonstration below of the OBDS and exactly why it will be used:
This picture above shows that the drug get spread at the highest uptake zone in the body, this makes sure to rapidly deliver drugs to the target zone before getting stuck or caught by t-cells which cause inflammation.
Still holding strong. I expect to see a sudden price jump and I am holding it out. This week shook me a bit after feeling misguided. One other concern for me is: How are they going to get more cash at the end of 2022 when they are running out? Do they expect to further dilute at such low prices? Or do they have a plan for selling Preecludia to buffer their cash to make money with the DDS?
It did seem odd to me as well that they only used 5 million of their at the money offer at they peak of November social hype. It seemed like they wanted to kill the short squeeze. Is there something at play here? My best guess is Pfizer acquiring them early for $3-5 billion. Which would equate to $15-25 a share.
Current Price: $1.14
If they can endure the weather long enough:
10-12 Year Price Forecast (2030-2032):
Bear case: $390 a share or $64 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: $1,170 a share or $196 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.
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.
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Until next week,
and the Optifinancial Team
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