PROG | Preamble to the business turnaround

Updated: Mar 16

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 | $1.20

 

RISKS

Market cap of Progenity is currently 196.50 Million. Roughly .2 Billion dollars at $1.20 a share.

They have fallen from their high of 1 Billion in market cap at their initial public offering.

They will present their earnings in late March.


Investors will be looking at a few things: Cash burn,debt, deathclock of the company & corporate updates. Also, I will be wanting to look at their sale of Avero labs on their balance sheets which was a part of their old business that caused many lawsuits.


Risk Factors that I believe are hindering large institutions going in on Progenity right now:


Progenity also had a $90 million dollar dilution-offering which still has not been closed out. I do believe this is another reason why large investors would hold off and wait.


Here are some articles for each one:

This one has already been resolved. $49 million Kickback

Natera v. Progenity - Dismissed jointly and came up with their own agreement on patent infringement (This is where I think the loss of credibility really started and why the price dropped from $15 to $2 within a year)

Misleading IPO lawsuit - This one looks like it may be possibly dismissed

Ravgen v Progenity - A lawsuit from a product Progenity created in 2015 innatal Prenatal, again another product from the avero labs business that they sold off. This is an ongoing patent infringement case. The question is, will progenity have legal insurance to cover this in the case that they lose?

Growth Company: Right now non-cash making companies are getting bombarded, and that is for many biotechs. With inflation (actually good for companies with debt), interest rates rising back up, and uncertainty about the future, it seems the people/companies who have a lot of money to invest are going with cash producing assets vs companies who won’t make money for the foreseeable future.

War: With the major conflict in Ukraine, there is alot of fear and disinterest in investing into the future. Which I think eventually will dissipate into a high interest into investing growth companies. I believe that buying american companies will do much better than buying any other assets right now. It is noteworthy that the Russian ruble has been tanking in value, as the American dollar has stayed strong. Here is a graph below to show how the US dollar has been increasing against the Ruble.

 

In the background, the company has multiple aspects will in my opinion will shine bright:


Everything regarding their oral drug delivery pipelines points to a positive and prosperous future. Their technology will have an impact on human life in a positive way.


My main reason for believing in their approach to healthcare is that it is easy to understand and see how the product will help patients with their health conditions. I also see insurance wanting to pay for this product as they have multiple indicators of reducing health risks, and cutting the quantity of drug needed. They also give a massive safety boost, as seen by their recent study with tofacitinib in humans. Possibly being able to get people off of steroids and decrease toxicity of the drugs. They do this by having mastery of control to release the drug in the human intestines. The drugs that they deliver can be put into two categories, topical and systemic administration. The DDS is their topical administration flagship tech pill which I think will make the most evident impact first. It will completely change how analysts and people view Progenity as a business. The OBDS will be the second to seriously differentiate for RNA targeted therapeutics. The pill has a very important niche in drug administration’s future due to the ability to get the drug to diffuse quickly through the body.


Colon Cancer: This one is personal to me and part of the reason I invested into this technology. My father passed away from a hard fought battle with colon cancer. I think if Progenity’s technology and business was around and had implemented a yearly check-up pill that could automatically diagnose and call out locations of the colon where the cancer lies, many people could be saved from this disease. Furthermore, you can see patents that Progenity has covered a large volume of liquid to possibly administer the chemo drugs at the target site location.

Progenity’s DDS or OBDS or possibly a partnership with Terry Research labs could tackle this market. I definitely see them implementing a way to detect through spectrometry a way to tell if there is a tumour in the intestines. If terry research could combine their needle and suction technique, they could absolutely target the tumours in the intestines.

GI tract Diseases: I believe I have covered this one immensely in the past. They have shown superiority over other digestive tech and I believe will outperform their competitors.

Point of Care diagnostics: What is point of care? Point of care is a term used to describe the primary doctor’s office that you’d go do your normal checkups at. It is the doctor that you go to for general sickness and referral as they can help get you to the correct specialist when you are sick. What Progenity is aiming to do with this pill is to get into the POC market where doctors can give the user a pill yearly which will be able to take general samples and moderate health, they also can use this data to sell to insurance, as the companies would be able to use it to better address patient populations and risk. They also could use this pill to detect if there is some sort of abnormality in the patients gut/colon. Enterologists would most likely use these pills on a routine basis as they could help better diagnose and see bacterial counts in hours to test patients. This would give them the necessary ability to diagnose and treat patients sooner.


I am skipping over how they would do this exactly, which I have covered in previous articles I’ve written, but for a quick how: All of their pills have some sort of data collection and transmitter which will be able to be uploaded to the cloud. All patients and eventually anyone who uses the pill will have their data sent to be processed and understood to better predict diseases and also this can be leveraged across all of their platforms for other applications.


RNA targeted therapeutics: It has become clear that Progenity is partnered with IONIS pharmaceuticals to help them get the drug safely into the patients. Ionis has recently had great Phase 2b results for their drug and the only problem was adverse events at the injection sites. This is because at the skin level layer where there is a lot of fats, the blood flow is slower. Progenity resolves this issue with their OBDS which is able to release the drug in the jejunum which has a lot of blood flow and at the same time the OBDS is designed to spread the drug over a large surface area of the Jejunum which allows for even better diffusion of the drug, I believe that this will be the case for many other RNA targeted therapeutics and Progenity could be a company that supports this quickly growing industry.


Business Turnaround Paradigm shift, revenue in 2025 how will they make it there?

A large concern of investors that have invested in Progenity is: “are they even capable of making it to commercialization of their oral digestive tech? “


This is another reason I think many are standing back and waiting. Why risk buying it cheap, when you can have some sense of certainty later?


I think Progenity’s answer to making it to commercialization is their Product: Preecludia. I believe that they may license it or sell it in the coming month. I am watching this extremely carefully as if they do have any good news regarding Preecludia’s certainty of success, I will be loading more. Currently Progenity has a debt of 125-145 Million. And I think that they could get themselves out of this hole by leveraging their Preecludia assets.


Another factor which I think will impact Progenity in the future is that they have 2 partnerships with Large pharma (Also Ionis as well). I think that if the initial feasibility studies go well with these companies, we may see milestone payments on the order of 10-40 million each for continued completion of the goals of the partnerships. I also could see the DDS product line getting a partnership as well with Pfizer. The DDS has shown human response with a drug that has been black boxed by the FDA for it’s Toxicity and the DDS is a powerful platform to completely eradicate the toxicity.


One of the most interesting ways I think Progenity may be able to stave off their business from being closed is the amount of impact that their tech will bring.


Another small probability is that their Single molecule detection platform is partnered with.

 

Final thoughts:

In 2 years this company will be a completely different animal. That’s why I continue to wait and will do so. As I have seen enough to know that their technology will be successful, and that they are taking the proper steps to making that happen.


Current Price: $1.20

1.5 Month Price Forecast: $3-6

I am basing this off of a embargo lift on the Preecludia product line and news over licensing agreements

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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