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.
Progenity | $2.33
The start of healthcare disruption: December PK/PD data for DDS | What to expect
The 4 Horsemen | Paths to disruption of healthcare
Cost to manufacture a tech pill
Progenity bear/bull cases are $400-1,200 a share in 10-12 years
December Data | What to expect
The PK/PD data for their DDS product using Adalimumab (Abbvie’s Humira) for Ulcerative Colitis is around the corner.
Here’s my thoughts and what you need to know about PKPD data:
PK/PD (pharmacokinetic / pharmacodynamic) is a type of method which accurately measures the dosings needed for future clinical trials. If you have criticisms or questions please ask me!
This graphic below shows Progenity's study type and what they mean by PK/PD:
What I am looking for from this data on their study is how effective the drug is per amount of dosage they give.
If Progenity's study shows higher efficacy than the current Humira efficacy in ulcerative colitis, it will be a positive event for Progenity.
The bar we should be looking for can be found by looking at current efficacy data on humira and then comparing it to Progenity's efficacy.
I think they will give a number or ratio for us to see how much better it is or how worse it is for the amount of drug per dose.
I expect Progenity to mimic and compare against Abbvie's humira. They achieved rapid remission of ulcerative colitis by injection/IV in 8 weeks:
This picture below shows the remission rate for dosed patients vs the control patients using the current standard of care. It looks like they achieved double efficacy from the patients. Below is the efficacy of Humira against the previous standard of care:
If Progenity shows quicker and higher remission rates from their dosage efficacy data, this will be very good news for Progenity.
The "bar" that Progenity needs to have is higher remission rates/ or higher efficacy percentage than Humira.
Reference this chart when reviewing Progenity's data. I'd expect when it comes out, if it is good, they will say something like "Progenity's Topline PK/PD results show have 40% (or some percentage higher than Humira) more efficacy at same dosage than current delivery methods"
This will send the company into a stock buying frenzy as this is one of the many drugs the DDS can handle in GI tract.
Keep in mind, they may embargo the data as it could be published in a peer reviewed journal however, they are giving us an answer which should suffice.
Final Thoughts on the upcoming December data:
Upon data release, if the data is positive (more efficacy per unit of Adalimumab), Large Pharmas such as Abbvie may start to really take serious interest in Progenity due to the reduction of risk that a partnership would bring. Progenity could be an acquisition target, however, if not, Progenity will be a serious market force in the long term. Also, the share price appreciation in the case of great data in my opinion will be an underreaction to their true value. As Progenity continues to execute and release data overtime they will be taken seriously and the market may start to realize that the company will be a disrupting force in the future for healthcare.
On negative results showing the same/marginally better efficacy or worse, they will most likely be punished and share price will be cut in half in the near term. However, I believe this is very unlikely due to past results in their animal studies. Also keep in mind they have scheduled a functional study for the first half and then topline Clinical PK/PD study finishing before the end of 2022. This tells me that the company is confident in strong data. If negative news does arrive, I still see a bright future for Progenity’s OBDS & PIL Dx. If Progenity does decide to halt the DDS product line, this will allow them to speed up progress on their OBDS development and PIL Dx platforms which also have very promising revenues in the future.
The S-curve and how I believe we are about start seeing radical change in drug delivery:
This curve has recently been popularized with the rise of Tesla. The thought process behind this curve is and why many get blind sided by change is because they tend to think on a linear progression in scale. For Progenity, we can see this in action at the moment. It looks like the stock will only be at $15-30 dollars right now due to the lack of understanding of how transformative their technology will be in the biotech space. Their tech can increase efficacy and safety of drugs especially large molecules (science and medicine is moving in this direction as seen by the top best selling drugs today are all large molecules)
Here’s my approach and prediction on how we will see Progenity’s tech make it into industry. This prediction of mine will be updated as we get more data and results from Progenity.
Above I am showing how I am predicting an S-curve market disruption for Progenity’s tech. By 2030, we should be in full swing of market uptake as competitors will be wanting to use this as more see Progenity’s solution as a competitive edge over other drugs. They also will help in extending best selling drugs such as Humira’s dominance.
Progenity’s 4 horsemen:
The first and fastest horse to make the biggest impact on the market value of Progenity in the near term:
1. The DDS
This is the tech that they have which is furthest along in development and has final PK/PD clinical data points already predicted to be done by the 1st half of 2023. After this, they can take the DDS technology to the FDA for medical device approval which we should start to see them apply for in mid 2023 after they have released their final PK/PD data on their topline clinical study. By 2024 we should see the DDS in production and start to be deployed into the market. Keep in mind, Abbvie’s drug Humira (which they are testing currently) will have a patent expired on it which will open the market up to generics. Abbvie's best answer and business move will be if they partner with Progenity as now they can completely and utterly destroy Ulcerative Colitis competition as the efficacy and safety will be beyond what any generic can do.
After a successful PK/PD this December, this will completely reevaluate Progenity.
If Progenity decides to go at it alone after the Humira patent expires in 2023, Progenity can use their own generic formulation and take the ENTIRE (lion’s share) of the Ulcerative Colitis market due to the impact/advantages the DDS technology could present (pending December data). They do not need a Drug FDA approval, merely a medical device drug approval which we should expect before 2024.
2024-2025 they will be in a commercialization phase, and by 2028-2030 they will be closer to peak earnings of 3-4 billion if they go at it alone with solely the generic Humira and DDS combination treating Ulcerative Colitis. They have other drugs they can take advantage of as well with this tech but I think you get the point. At this point they will be taken more seriously as well and their PE will most likely be 25 or greater. This means they could trade at 75 billion to 100 billion in valuation just off of this one combination. This is why I am comfortable with near term dilutions for 90 million to keep them afloat and liquid. It does not affect my future forecasts due to the relatively low impact compared to what they could and most likely bring in the future.
Abbvie’s absolute best move for their future would be to buy Progenity out.
Progenity & company, if you are reading this, please use this research in your negotiations, YOU have the upper hand. You are backed by investors to get you there. Do not settle, do not quit and YOU will become the market leader. Strategically, you will be ahead of all of your competition and knowing your board, you are smart and most likely already know this fact. I see it now and why you have chosen and targeted Humira first, I see where you are taking the company. I am so fortunate to hold this and humbled to be apart of your future. I see that your divestiture of Avero and sell off of assets will propel you into the future. Thank you.
Now onto the next horse of disruption:
2. PIL Dx platform
The next to be on the market will be the PIL Dx. This is the diagnostic pill that can be used in the doctor’s office also known as Point of Care (POC). They are in their 2nd phase of engineering to get it to scale. They have announced 4 diseases that they could diagnose and even help do screenings. All of these could be possibly checked out at once (speculation). Precheck-colonoscopy, grab biomarkers for general IBD and collect data on NASH & SIBO. This will be a critical tool for more than 10% of patients who go through their primary care providers and could be a yearly check for some. The data that this pill will collect will help physicians in healthcare tremendously as they could create a timeline of data for every patient. Not to mention, each time the pill would be used, they could perfect it and find alternative uses as the data could correlate to show signs for different diseases. Progenity will have access to the data through their own proprietary software which will ultimately help progenity lead the oral diagnostics industry.
Progenity have not really announced any timelines for this, however they have already had 3 clinical trials of a working device commercialization could take some time as peer reviewed journal articles are surely being worked on.
I see this technology being implemented in the interim while DDS is most likely taking the highest focus in the next 2-3 years. By 2026, I estimate this product being marketed to gastroenterologists which most likely will take this technology quickly. There is a need to detect diseases in the GI tract and to better diagnose patients. This pill could profit Progenity $1,500 per test and will most definitely be insured as it will increase the cost savings dramatically by detecting diseases without having to do additional tests. Just by comparing Dexcom’s 10 day sensor base cost (no insurance) their Sensor is around $1,250 and the 90 day transmitter that goes with it is another $250. This is how I am comparing and estimating the cost of the 1-2 time pill a year.
This platform alone could bring in 250 million -1.5 billion by 2028-2030.
Because they have been developing these pills through Medimetrics since 2010, you will see that the development and tooling to produce these pills has been in the works for a long time.
3. The biggest horse with the largest addressable market:
This autolocation and precision tech will allow large molecules, monoclonal antibodies and more, to be delivered by jetting the drug into the small intestines. They keep the same methodology as the DDS but a more refined approach. They aim to increase efficacy and safety by reducing systemic risk to the patients. OBDS’s competition with a very similar mechanism of delivery (the JetCap) has stated that they can achieve 30-50% bioavailability of the drug in the target site which is by far the highest stated. Progenity in their early phases of the pill have shown 15% bioavailability which is already better than the standard. I expect in 2022 to see more studies as they have stated they have made engineering improvements to it and will use it to collect Pk/Pd data for it. If they show higher than 15% bioavailability through their pill, and can prove it (JetCAP has yet to prove their statements) then they will be the known market leader for this drug delivery method. The OBDS will have topline clinical data with already approved drugs near end of 2023.
What may happen is as the company is taken more seriously and the benefits of their product start to seep into other’s thoughts and start to ask “why are we not using this tech to benefit our drug against competition?”. The tech will probably cause a massive market uptake.
Now this is only if they can show efficacy in 2022 during their PKPD trials on the Adalimumab and GLP-1. If they show great pk/pd for Adilumimab on this pill, you can start to realize now that they can make full use of Humira with higher efficacy and safety. For the DDS, they are only able to sap around 4-6 billion or so with Ulcerative Colitis. With the OBDS, they can effectively take another 5-6 billion of the market if Progenity goes at it alone and takes the generic humira. Again, this is only humira. I am not accounting for other weighted large molecules that they will be testing which will have a probability of experiencing the same effect of market uptake if Progenity shows the same type of results. Caution here: Remember that these data points haven’t even been revealed yet, so this is speculation
By now you get the point. And as you do more research on the capable drugs that they could test, the share price over the next 10-12 years will in my opinion appreciate greater than the current expectations.
Research on disruptive technologies has brought up the s-curve for adoption of large market impact. Tesla is a great example of this. They recently have experienced the s-curve effect as their technology is starting to be taken up by the masses and changing the world.
I believe this is where Progenity is heading for healthcare. Large Biopharmas will be in need of innovation in their pipelines and the answer is to increase safety and efficacy lies with oral drug delivery tech.
4. The final horse:
Preecludia | The Preeclampsia rule out test for Women’s health in pregnancy
This test was developed and is currently commercial ready. They have stated the topline data is currently under an embargo for a top tier journal. I was expecting it to come out by the end of November as it would be past the 2 month mark which is a typical time for a journal to go through the full peer review process. The reasons it may be taking longer is for Covid delays and slow communications. Also Peer reviewers for the journal may be asking for additional information and questions for Progenity to resolve. These parts of the process make the release of the publication a highly variable process.
What is the purpose of this journal and why does Progenity hold the data from us?
Peer reviewed journal particles are an integral part of the medical community and allow doctors/prescribers/insurance to properly gauge the efficacy and ability of a test. This will help aid in a clear path to value and commercialization. The data can be trusted by a 3rd party and not just the creator of the product. This is a good thing and I am happy to see that Progenity is doing this in the correct manner. This will help the company avoid future roadblocks as some concerns may arise in the edge cases such as the test being incorrect. This also reduces the liability Progenity has in their product as it:
Can reveal some issues that they need to resolve or science that does not make sense
Now they can say someone else checked their work and they acted in good faith in case something does go wrong
It has been a grey zone however in their timeline as they are planning on licensing it and there is also some underlying research with high evidence (still speculation) which could also point to Natera taking over the Preecludia commercialization along with purchasing their Avero Lab assets. This divestiture of Avero could come before the end of year or the first quarter. If the lab is divested and sold (80-100 million) then I think we can better isolate how Progenity is going to handle Preecludia.
They have a total addressable market in the US to be 3 billion, I expect the peak earnings to be 500 million from the US. In regards to the rest of the world, I could see them striking some licensing deals with other large pharmaceutical companies. This could bring them in more money as the world has plenty of cases where this is needed.
We should expect to know Preecludia’s destiny anytime now until the end of the 1st quarter in March. We should expect a release of their journal publication, and then will most likely get a business update on where they are.
Due to the lawsuit settlements last year with Natera on the development of Preecludia, I think that Natera may be connected and will be a part of Preecludia’s future.
We also know that Progenity is now only focusing on precision medicine and will not want to focus on managing assets that are unrelated. They have been focusing down their business in the past 6 months and have hired engineers directly for their DDS, OBDS & PIL Dx platforms. This evidence tells me that Progenity will try to make royalties and be hands free of other assets that do not pertain to Precision oral delivery.
Frequently asked question about how much the pills will cost the company to produce:
These pills will be manufactured most likely in an assembly line at a very high rate.
The cost of the materials are excessively cheap and do not require expensive manufacturing processes that Dexcom uses to produce their sensors.
Here are my estimates for the cost of manufacturing once at scale and high volume(Small items are much less expensive):
They will use plastic injection molding for the capsules.
The cost of the plastic shell will be $.05 (possibly could vary if transmissive where light goes through needs special plastic)
Cost of the circuit boards: $.20
Cost of the 3 LEDS (integrated into circuit boards): $.30
48 hr Battery: $.40
Internal adhesives, mechanical parts: $.50
Total cost of materials per Pill: $1.55
Other packaging and manufacturing processes: $2
Total Cost estimate per pill: $3.55
Overtime they will be able to bring costs down. I am expecting higher costs of manufacturing in the beginning but nothing more than 5-7x the price or $22 a pill.
The biggest part of their value is the IP and software which is protected by patents.
Current Price: $2.33
3 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.
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Until next week,
and the Optifinancial Team