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RECAP OF LAST WEEK AND RESULTS:
This company is going to announce their 12 month efficacy study at any time within the few months. If it shows efficacy at 12 months of treatment, the stock will likely skyrocket to over $100 a share. The stock rose from 50 to $58 from last week’s letter then fell to $54 a share. We still think Cassava is a bargain at the moment. Invest to defeat Alzheimer’s!
IN THIS ISSUE
Could 3x in the coming 3-6 months due to pharma partnerships with their direct drug release targeting pill. Story of who the company is and what they do below.
Progenity Inc: PROG
This company has multiple revenue streams from different niche medical products and one partnership with Illumina for non-invasive prenatal screening. We believe the biggest impact to put this company into a billion dollar company is the precision directed delivery system. Currently they are in a cash crunch and could go even lower depending on management's abilities/decisions in the next few months.
Near term financial trouble:
This stock price has been beat down from $15 per share since they IPO’d in 2019 after they have been unable to attain profitability and their cash balance for their company is draining quickly. As of their Q1 for 2021, they stated that they have 65.3 million of cash left which will take them to the mid Q3. The company also has had multiple lawsuits for multiple reasons and has paid settlements which has also hurt the share price as well. These settlements have ranged from 10-17 million dollars. They currently owe 5 million this next quarter and have 7 million long term left that they must pay. They have over 170 Million in debt. We are thinking that the market is pricing in a dilution & taking on more debt and that is why the share price has fallen from $15 a share and now rests at $2.60. We think management can dig this company out of the hole if they can execute on 3 paths that I am going to describe below. If they can do this, then we should see the price rise back up to $7-8 in the near term. Long term, we think this stock should approach $45-60 depending on how the market values the direct delivery system (DDS) which has shown success in recent studies.
Another factor which may have had some weight on the share price is 5 insiders sold shares on May 15th. After looking into their form 4s, they were only selling a few thousand dollars a piece. Currently no insiders have bought after their recent quarterly report.
Interestingly enough, the chief compliance officer sold 69 shares at $2.36 a share. Which equates to $163. We think this could have been some sort of meme or as noted in the form, it was for tax purposes. We just thought that was odd and somewhat playful. The insiders are all officers and do not hold very much in the company so it is probably not something worth worrying about. We think the market overreacted in this case.
Management’s possible routes out of the cash crunch:
Dilution & more debt (negative scenario) - The company can offer more shares to be bought which increases the supply of shares therefore lowering the price of the stock. This raises cash for the company to use. The debt can be refinanced to lower the interest rates and also they can take out more debt to build up cash in the near term. These both are not long term fixes and we think that this would be negative for the company to do in the short term.
Small Dilution and Partnership (positive scenario) - Management could offer shares which could help pay off some short term obligations, refinance their debt to increase cash flow. They have also stated that they are looking into licensing agreements and partnerships to help their cash crunch. This would be seen as very good. They also should delay the low cash generating products in their pipeline and push for the highest value product. Progenity also hired a Vice president on May 25th that specializes in strategic business development. He has a track record with institutional investors and making partnerships.Another possibility is we think they may announce that they are delaying the work on the Preecludia (down below), this would be positive because this would direct the company and resources to a product that could potentially pull this company out of cash flow problems and into a substantial positive cash territory.
Hostile takeover from large Pharmaceutical company (positive scenario)- We think that AbbVie could be interested enough into buying Progenity outright and covering their debt obligations. They have deep interest in one of the products in their pipeline which we will discuss below (The DDS). If this was the case, we think they could be bought out for $1.5 Billion, which after debt payoff, this would equate to around $1 Billion which would make the share price of Progenity go to $17 a share. Through our proprietary algorithm we also looked for other potential suitors (buyers of the company) and found that the 2 companies that have the closest intimacy with Progenity are ABBV and Illumina (ILMN). We also want to take note here that the CEO has sold his past companies to Vertex Pharmaceuticals & Pfizer. This information found from the research into the CEO is credited to @Stradez on stocktwits by bringing it up.
Progenity has two promising products in their drug pipeline (the 2nd being the most impactful on the business):
Preecludia - Is a blood test that has shown 97% efficacy in determining if a pregnant woman has hypertension classified as Preeclampsia. It will most likely become a common test and will help in isolating if a mother has the condition. Over 700,000 women a year may take this test. Could possibly bring in 70 Million a year in revenue. We are hoping that they delay this research and focus solely on the tech described below.
Precision Directed Delivery System (pictures below) -
This could be worth billions of dollars in the future. Here is exactly what it is and what they are planning on doing with it. They have shown efficacy in their animal models. The two main benefits this can give patients is that it can increase the overall efficacy of the drug that the patient is receiving because they can target the areas that would intake the medicine. Also this pill decreases the toxins that enter the body by releasing the drug in areas where the body does not allow toxins to pass through. They have shown that both of the factors are at work in a recent study published this past week.
Currently they are using AbbVie’s (ABBV) GI tract drug and have shown that it is safer to digest this pill and release the drug at the GI tract rather than taking a pill that gets absorbed through the digestive process. We think a partnership with ABBV is a most probable scenario in the coming months.
This technology is more than just a drug delivery system. This could be used in treating colon cancer, doing colonoscopies and more analytics then ever for patients. We think this pill has plenty of revenue streams that it can tap into. We expect to start seeing variants of this tech that will approach different parts of the body in various ways. Could have the ability to scan patients and send real time data to doctors.
We believe this stock has value in the long term and could be worth over a billion in market cap within the next 3-5 years.
Could see the price run down if dilution and debt are the only things the company can scrape together in the next few months. In our opinion, partnerships and commercial licensing agreements are on the horizon to help cover their cash burn.
Current Price: $2.60
3-6 Month Target: $7
We think if the company can put together a partnership to cover their cash burn, we think this stock will be revalued for their precision pill technology. We think it is worth 3 billion in its early stages. This could propel the stock to over 30-50 a share.
One Year Target: $17
We think the catalysts will drive this stock to around a 1-3 billion market cap.
Two Year Target: $23
If the company has not been bought out, we think this is where they will be in two years as they progress their precision medicine through the clinical trials.
We think there is a bumpy road ahead if Progenity cannot get the funding from a partnership. We do have high conviction that once the cash dilemma is resolved, we should see the share price increase substantially.
Special thanks to some members on Stocktwits board and their help with digging into Progenity Inc. with their helpful insights: @STradez, @SurpremeLeader, @POS_Stocks, @istanbulut, @BeaconInvestments, @Quids1n, @makemoney1024, and @Shortbusterzz.
This stock is a buy and hold, waiting patiently for a dilution and then buying on that news after a drop could be a very good idea.
Disclosure: We are holding shares and will continue to accumulate in PROG.
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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