PROG | Hidden Assets

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 | $1.75


  • Hidden Assets to extend business runway

  • Why I think Progenity is certain about their future


Hidden Assets:

The biggest risk to Progenity and why I think they are being discounted so much is that they are in the middle of a turn around.

You can see that large firms have been purchasing shares to possibly obligate themselves to study the company further. I think the company will appreciate once we get confirmation from factual data that the company’s turnaround is actually happening. Some pieces of evidence I am looking for are proof of the company’s transformation being successful: Cash burn expenses continuing to go down, Furthering their existing partnerships, receiving money from their hidden assets (which I will explain below).


These large institutions will wait because their timelines are much longer, they can be ok with missing the first 3x gains and having more certainty in the company’s future success.


Another reason Progenity is most likely on discount is just a human nature factor: “It’s a cheap stock price, so something is definitely wrong with it”


They have sold off their Avero labs assets, fought off legal troubles caused by the Avero labs and even have brought in new management.


Business turnarounds are risky as there is not much margin for error. I do think Progenity will successfully turn around.

I am betting that Progenity will have a successful turnaround for these few reasons below:

 

Preecludia: From previous research and understanding the technology that they have patented and done rigorous studies with. I believe that this will be the solution to pulling the company

Some notes about Preecludia: it is commercially ready now. Currently the product is under a peer review journal which will determine the products fate. If the embargo is lifted and the study is shown to be accurate and their data can be trusted, we shall see doctors and insurance take up this product.

They have shown through their corporate presentation that they will give us an update on licensing approximately in March.


In my own speculative opinion: I still believe there could be a connection between Natera and Progenity from a lawsuit that was settled merely a week or so after the Preecludia validation study came out. Also around the same time after Progenity announced the validation data, Natera raised $500 million. I believe Natera is interested in what Progenity’s product and assets can do and would be willing to buy them outright. ($290 million)

If this case happened, this would alleviate Progenity’s cash issue and allow them to reach 2025-2026 where they commercialize their topline therapeutic products which I think could bring in billions in a 8 year time frame.

 

Patents / Intellectual Property (IP):

Progenity has acquired patents that seriously rival the oral tech drug delivery and sampling market. From Large volume payloads, using pressurized mechanisms, slow release, needles and anatomical sensing, I believe they have covered what is needed to stop competition from entering into the market. From my research on their external competition, I do believe Progenity has the right ingredients to do well commercially. Their IP will be extremely important in the next 20 years.


Possible Milestone Payments with Partners:

Progenity at the time has told us that their are 3 partnerships in the works over their OBDS (Oral Biotherapeutics Delivery System)


IONIS: This partnership is most likely an extremely valuable asset to Ionis because of the ability of the OBDS. Ionis has an effective drug which just passed it’s phase 2B topline. They found that during the trial though, IONIS’s drug had adverse events at the injection site. Progenity is the perfect solution for this problem. The way the OBDS works is that it uses 6 jet streams at once to deliver the drug in the highest uptake zone in the body. This zone diffuses the drug quickly. Unlike the adipose tissue (fat) which injections are normally done in, the small intestines could possibly diffuse drug much better into the body than an injection.


I think Ionis will pay Progenity heavily for their product. I think if we see success in their initial feasibility studies, we will see some form of payment to Progenity. My best guess is that it would be around $15-25 million to continue with Ionis.


Large Pharma 1 & Large Pharma 2: These partnerships are a toss up, I do not have much information other than that Progenity is working on some topline drugs which have access to billions of dollars of revenue each year: GLP-1 (Progenity could commerciliaze end of 2025), Adalimumab. I do think that an extension of a partnership/further updates could be a positive catalyst for Progenity

 

Recent studies which have shown 30% a possible increase in available Ulcerative Colitis Patients:

Quickly: Progenity may be able to partner or license with another company to develop and make a drug that suppresses a cytokine at the colon where the DDS would be applicable to deliver. They would have the monopoly on this 30% patient population (roughly 2.5 Billion a year)

Why I think Progenity is certain about their future:

Progenity is becoming a tech company. They have software, manufacturing, systems, mechanical, electrical engineers and project leaders that they are hiring in.


Without a doubt this tells me they most likely have a plan to sustain themselves into they can reap the profits of their product which will most definitely be accustomed for Prescribers, Insurers and Patients.

They have a product that during manufacturing should have an easy economy to scale.


I do expect them to make an offering when we are at around 4.89 of 90 Million dollars. Which I would gladly accept them doing. This would essentially give the money needed to push their manufacturing and rapidly scale.


Final thoughts:

The larger economy creates too much noise sometimes. I do not think it will impact Progenity as a company, but I do believe the market in general will correlate if we have a down turn. I however, think because Progenity has been so beaten down for over a year and a half, I think they could have a solid chance to do well this year. I think they will start to show more concrete results going forward and I look forward to their future!


Current Price: $1.75

2 Month Price Forecast: $3-6

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.

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,

Brad Mitchell

and the Optifinancial Team

 

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