Progenity Inc.

Updated: Nov 22, 2021


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RECAP OF LAST WEEK AND RESULTS:


Cassava Sciences

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


Progenity Inc.

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.

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