Updated: Jun 10, 2021
Progenity Inc Update (PROG) Business turning around
Progenity is a company that has been listed on the exchanges for a year and IPO’d at $15 a share and is trading near all time lows of $2.36 as of writing. This company has fallen apart in the past year as they have been unable to tap out enough margins out of their diagnostics business. They have been burning cash heavily and have been needing a large strategic shift. Here is an article explaining what this company is and their capabilities. Price targets are $7-10 on a partnership, and $17-40 on a buyout announcement.
Disclosure: I own shares of PROG so make sure to do your own research and this is not investment advice.
Here is a list of the moves being made by this company at it’s all time low and how they are positioning themselves for a much better future.
Recently they made a massive move towards a better future by cutting the cash burning aspects of their business off completely and even stopped the services that they are providing that barely make any money. They have decided to shift their approach from diagnostic equipment to therapeutics. We think this is a good move especially since they are going after high margin products which will have a higher impact. Another important aspect to note is they hired a new VP of strategic business development. Sean Lavin was hired on May 25th and has already been making moves to increase the value Progenity can bring to the table. Nearly 1 week after he was hired, the board decided to cut over 70% of the operating costs of the business. They closed their genomics laboratory & laid off over half of their workforce of 374 employees (56%). This was hard news to hear for the employees, but in the business sense, it was very necessary to keep the business afloat. Here is the reddit community for this stock, this community is growing and we have already seen much value as we were alerted by employees about the layoff before the news was released. (Brief update from post publication 6/10) // Progenity announced a $40 million cash infusion from giving warrant rights to 2 health care funds. This does two things: 1. It indirectly will dilute shares by 16.17 Million, they currently have 68 Million in total. This brings the total amount of shares to 84 Million (within a 5 year span as the warrants are converted to shares). With warrants, the health care funds will be able to exercise them when the share price is over 2.84 a share up until the 5th anniversary of the June 24th closing date. This means they must execute the warrants before or on June 24th 2026. This will dilute the shareholders over time depending on when the health funds execute the warrants. (Thank you Stocktwits User @Sam201 for the correction I mistakenly posted an incorrect statement that has now been changed) 2. This gives the company assistance in their cash crunch dilemma. they have already cut half of their workforce and now have a cash infusion which will expand their runway. This also shows a vote of confidence in the companies pipeline as well. We think the value is seen and institutions are more than willing to risk money for the future potential. //
Here are some potential upcoming catalysts summarized quickly within 1-5 months:
The current market cap of the company has been reduced from approximately 807 million to 142 million from their IPO date They have around 170 million in debt, and have a cash balance of around 70 million reported from the Q1 results. They have been burning 30-40 Million a quarter, so it was a large concern that they would dilute investors further to raise cash. We think the market was pricing this in and has dropped the share price substantially. With the reduction in workforce and lowering the capital required to run the business, we think this news expands the runway before they have to dilute investors. They have also stated in press releases that they are seeking non-dilutive methods to fund their business through partnerships.
A few partnerships: They have stated that they are finding ways to get cash infusions that will propel their business forward. Also through diving into the press releases we see that they are probably wanting to maintain their intellectual property over the DDS pill technology (an ingestible tech pill that can release a drug at specific point and collect data/samples) Since this pill is classified as a device, FDA medical device compliance should be much easier to attain than the regular Four phase clinical process that the FDA uses for drugs. They have a lab partner that they are pursuing a deal with Avero Diagnostic’s that is soon to be profitable and could be a key to unlocking the cash to finish out their work on the two main products in their pipeline: PreeCludia and The DDS precision medicine tech. AbbVie (ABBV) is also another partner that they could be involved with and potentially could buy them out. They have partnered with AbbVie in the past to demonstrate the value the DDS pill has in treating Ulcerative colitis ($17 billion addressable market). They showed that the effectiveness and safety of ABBV’s drug was increased and could help in the treatment of patients. Here’s a poster demonstrating the efficacy of ABBV’s Adilimumab. Which was recently FDA approved for Ulcerative colitis. We are thinking the peak sales of the DDS technology could be around $7.5 billion annually due to the wide moat of applications that this brings. It addresses around a 250 billion market. A buyout of 1 billion would bring the price to ~15 a share, and then 2.5 would bring it to be valued at ~$40.
Insider buying is incredibly high: You never know why an insider is selling, but you do you know why insiders are buying. They think the stock is going to go up. Recently there was a large purchase by an insider at average cost of $2.86, they bought over 300,000 shares. Below is a picture of the insider buying over the past 12 months:
As from the photo above, you can see that hardly any shares have been sold in the past months relative to the buying. This is a large indicator that the stock has potential to move upwards. We are assuming that these insiders have more tools/research/backing than what an average investor would be able have.
Buyout indications that have all been checked (will update as more are found): 1. Words like Strategic transformation, business transformation, alternative strategies are words that increase the likelihood of a buyout. 2. Hiring a person who specializes in business development 3. Price detracted from its potential value especially from its competitors valuations 4. Company is in a cash crunch 5. Has recently sold or closed off parts of business to tidy balance sheet and help with M&A talks 6. Having management/CEO that has sold their previous businesses. (Harry Stylli) 7. Large institutional holdings 8. Massive insider buying
There are many aspects to this business that are turning positive and it might be a good idea to watch for. Read this article (I linked above as well) to get a better scope of who they are and other aspects to their business to watch for.
Thanks for reading!
Brad Mitchell Optifinancialnews.com