Progenity to hit $10-17 within a year | The undervalued thesis

Updated: Oct 27

Progenity to hit $10-17 a share within the next year, $105 within the next 4-7 years


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 financial advice and is never intended to be used as such.


PROG 🐸 | Progenity

Current Stock Price at Publishing date: $2.15


Topics ahead:

  • Technology Pill variants and how will make 3+ billion a year

  • Preecludia and estimated revenues 100+ million a year

  • Recent Patent News on their digestible technology

  • Current Status for the Athyrium short-selling picture

  • Cash crunch dilemma - resolved

  • Trending on Reddit, Stocktwits & Google Search




Fundamental | Value Investing

Our definition of Value investing is when you analyze the potential value of the company by doing revenue predictions and expanding out what the company can become. Using their future revenue is the basis of their future market cap which helps in determining the price targets that we claim.


  1. Products and their potential revenue streams into the future

  2. OBDS - The drug release device that is tackling the biotherapeutics industry where large molecules need to be passed through the harsh stomach to be ingested by the small intestines. This market in total is $250 Billion every year. Below I will explore their pill in further detail and which markets they will be hitting in the near term. Long term, you could possibly see this used in treatment in pets as well. We believe they can capture 2% of this market due to their technology and ease of manufacturability for these pills. 1.5-2% of this market is equivalent to 5 billion yearly. If this was the case, Progenity’s market cap at $3-5 Billion would bring the company stock to $21.17 - 34.6 a share. This is without the 5x multiplier which is normally used in the biotech industry for small biotechs.

  3. DDS2 - The autonomous drug delivery system This pill can currently be released consistently in humans and accurately predict locations in two separate and important locations in the human digestive tract.

Progenity has run studies in humans verifying the targeting accuracy.

Two major takeaways from current studies (more detail below):

Figure 1: Digestive Tract with 2 important locations The pill was accurate in the most important zones, drug uptake (blue) and the colon (purple) for treatment of ulcerative colitis and possibly colon cancer. They are 98.2% accurate with calling out the Jejunum (small intestines) This is important as this shows that they are incredibly good at calling out the zone which is the most absorptive for drug uptake. They are also 95.8% accurate currently at detecting when in the colon.

Figure 2: DDS2 Study accuracy results on their initial prototypes The study is here if you’d like to dive deeper. This means that they can accurately release a drug that would normally be harsh to a person by injection and can also have more effectiveness. How can you have more effectiveness and safety at the same time? Because you are going through the body's natural filter system vs straight injection or untargeted release of a gel pill/solid pill. This precision technique allows the body to filter some toxins out and do not have to use the same quantity of the drug to get the same effects because now you can use a liquid instead of a pill that breaks down over time. This decreases the toxins to the body and also allows for the entrance of the specific and necessary compounds to treat diseases.

Other potential areas they could springboard into:

Before Harry Stylli their ex-CEO left due to his own natural pursuits, he mentioned in an earnings call that they were addressing about 250 billion worth of industry with their precision medicine. We think they have the opportunity to tackle diseases after their proof of concept with ulcerative colitis comes out in December. They have had one study in 12 adult male beagle dogs, showing efficacy and safety profiles unmatched before. However, have not released any treatment results in humans. They announced that at the end of the year they would release the human clinical trial results. After this announcement, we expect if they can achieve similar safety and efficacy results, we shall see the stock price rise substantially. After all, this shows that their theory of precision medicine is correct and can increase the standard of care.

We think that they could target colonoscopies and chemotherapies (their recent patents show this): Keep in mind, they are still improving and are hiring more engineers such as mechanical, systems, and electrical that would be improving this design and working on variants which would cover broader markets such as Colonoscopy substitute (which currently is a $1.8 billion market in the world. We think that Progenity could expand that market size as patients would be easily able to take a pill and then send results to the doctor. It could be a quick yearly check-up for millions of people. Here’s a quick look at their hiring positions (10/16/2021) below to show that their business is focusing on precision medicine into far the future (below on left):


Chemotherapy:

Another avenue that we think this will be used in is Chemotherapy. They have a patent that has protection of delivering drugs with a considerably large payload in a pill which would allow more drug to get into the digestive tract. A common type of digestive tract disease is colon cancer. Typically the disease is hard to catch and is something that yearly checkups can help catch before it expands. The reason colon cancer expands and moves to other parts of the body is that a lot of blood flow is directed through the colon. This is why it is important to get checkups. Currently, in the US it is a $12 billion industry. We think this device could help eradicate the disease effectively if paired with its checkups before it spreads. They could take a $1 billion a year from the market just from this type of variant. This would automatically push the stock price from where it is to $8 a share without a typical future value multiplier which would equate to 5 in the biotech industry. This would mean a $5 billion market cap which would equate to $40 a share as it stands today with their current shares. This is if they just tackle this one industry.


What other industries are we thinking about now that you have a reference? Diabetes Type 2 (~Global market size is $30 billion and growing), right now for some type 2 diabetics, their treatment is to take an oral insulin pill that dissolves over time. We think this standard could be made better. By having a target release in a zone, you could get the adequate dose needed per the doctor’s prescription without guessing if this person’s digestive tract is more or less acidic. You’d be able to directly release the long-lasting drug into the human system without having to play the guessing game of how much insulin is going to be uptaken. More research needs to be done here, but we do think this could be an area which they move into. We expect that they would possibly make 150 million a year from this avenue. Oral insulin market size is about $4 billion


The General Gastrointestinal disease market for diseases such as IBD and others is Globally is around $40 billion a year. We expect Progenity to be a key player in delivering these drugs as they have mentioned in their press releases that they are going after this market. We could see them possibly scooping over a billion a year. Within the next 5-7 years or so from their technology as it advances. This would add another $34.60 to their share price as discussed earlier using the 5X multiplier. However in the near term, if their human trials continue to go well, we should see the share price move to a value of 200 million a year which would equate to $8 extra dollars in the near term during the December-January period.


Ionis Partnership is a large piece of news that I should definitely mention. Progrnity has entered a partnership with Ionis on Antisense oligonucleotides. This is currently a 15 billion dollar market.

Final fundamental thoughts on their future value of the Pill technology: Let’s say they continue developing and perfectly perform with these estimates among the few avenues I have discussed.

If we treat them as a pill manufacturer, they will receive about 26%

Of the revenue from the drug sales. This is a standard in the industry.


With this knowledge, we know that the oral biotherapeutics industry is around 250 billion and growing. If they become the standard of care in each large industry talked about above.

4 billion oral insulin + 40 billion gastro intestinal + 12 billion Colon Cancer = $56 billion total


Assumptions:

1 out of 16 diabetic doctors choose the progenity = .25 billion

1 out 4 of the doctors gastroenterologists use progenity = 10 billion

1 out of 8 of the oncologists use progenity = 1.5 billion

Total annual revenue from these services = 11.75 billion annually


If we take the pill manufacturer’s cut into account (26%), Progenity would be profiting around 3.055 billion annually. I do believe this will happen in the next 3-4 years. This would be a conservative share price in 3-4 years of $21.17 without any value multipliers attached. If multiplied by their standard future earning potential by 5, then this would mean they would stand at over $105 a share in value.


This simple analysis makes us realize that this company is currently, extremely undervalued. We believe in their situation with just their Drug delivery pill system, they should at least be worth 1/10th of this value which is $10.58 a share fundamentally. When they release efficacy & safety results of their pill in human clinical trials, and the public sees that they materially increase the standard of care in oral drugs, this will go way higher in share price. On top of this, many partnerships would be coming in to make sure that this product was able to get on the market as big biopharma could see this as another way to compete with their products.

Preecludia | Product Fundamental Analysis


This patented test rules out a hypertension condition in pregnant women that leads to mortality. There were 3.6 million births in the US in 2020. If this becomes part of the standard of care in the lab tests that mothers receive, you could expect around 700,000 tests a year which could bring in $175 per test. (I made up the lab test value, but that's what you’d expect from any other normal lab test to cost) *The 700,000 comes from Progenity’s website.

With some back of the napkin math: $175 x 700,000 mothers = $122 Million a year

Typically biotechs trade at a 5x multiplier which would give PROG a fundamental stock price with just Preecludia being 600 million, the stock would trade at around $5 a share.

Recent Patent News | Legitimizes Progenity's position in the drug delivery monopoly


1. Directed delivery system Patent (actual patent here)


Figure 3 Intellectual property protection of their deliverable technology


This is definitive proof if questioned that Progenity owns a mechanism that owns the idea of delivery of drugs into the human body. This picture also gives you understanding and knowledge of the future capabilities such as a wireless transceiver


2. Treatment of a disease of the gastrointestinal tract with a JAK inhibitor and devices Below I am showing the part of a recently approved patent which shows more of the details on exactly how they will interface this with the consumers and how it will fluidly work from home. This is important in my opinion to understand. It shows that users can do this from home. They can pick them up from the pharmacy and connect them to the phone and it will work from there. Actual patent here


Figure 4 Shows how the pill will be used in practice


The takeaway with their recent patents after digging through them:

They are protecting the IP that they have created, showing that they have 25 times more effectiveness in their formulation of Tofacitinib (treats ulcerative colitis) than anything on the current market. They also have the IP over any ingestible technology world wide. They have been granted the patents in the US and we are awaiting other areas such as the EU as well.

This patent sets them up to be the leaders and sets them apart from any competition that may appear.


Also patents show legitimacy as well. They obviously show industry know-how and definitely are not a fraudulent company as some would claim. As an engineer looking into their patents, they obviously have created something that makes sense and I would approve of in a design review.

Is Athyrium Capital Management really the culprit?

This company has been scapegoated as the one shorting Progenity. They are a structured capital management company that was little known by retail before this. I am not completely sold on this yet, but there is a substantial amount of evidence pointing in their direction. I have personally messaged them to get a response on their strategy to also clear their name. I will let you know via reddit if I receive something back (r/Progenity_PROG). Nothing as of yet 10/16/2021.


Some highlights about how Athyrium operates their business:

  • They like assets in life sciences such as progenity that they invest in because of their nature to be bought out by larger pharma.

  • They structure agreements to limit their downside risk: They use things such as convertible notes, hedging strategies, warrants and possibly shorting as well.

  • Athyrium makes money in main 3 ways:

1. Make money from interest that debt they issue to Progenity (warrants) or private placements, both of these can be considered offerings.

2. Hedging themselves while buying more of the stock on the way down

3. Getting the company they have invested in acquired above their dollar cost average


All of these ways are legal and even stated in Progenities IPO prospectus that they persons involved in offerings are allowed to naked short and covered short the company stock. This is to maintain price so that they can negotiate deals or to stabilize. Which essentially means they can manipulate the stock price. Which is a bit scary. I am surprised this was passed through the SEC without a problem.

The argument against why Athyrium is not shorting is that they would be committing an illegal crime holding material information and using it to manipulate a stock to make more money. Here’s some thoughts I received from a CFA (thanks for your thoughts if you are reading this by the way, you know who you are.) :

In the investment world, using material non-public information to trade on is the definition of insider trading. Shorting the stock knowing what was going to happen is exactly that. Jail time and loss of profits as we saw with Martha Stewart. They can try to rationalize it as stabilizing the stock all day long, it does not matter. It comes down to rational investor theory. Which is would a rational person want the information they possess which the public does not have to make an investment decision, absolutely.

They need to disclose all related positions whether direct or not, again, it would come out and they would have the crap sued out of them by the company, shareholders, the former CEO, etc for holding the stock down while trying to sell the company. PROG has too much potential regarding the pipeline to need to manipulate the stock trying to get a sale, and again, if the company does not have that potential and they know otherwise, then that is exactly insider trading.

I agree the offering that just happened was poorly timed and sends the wrong message as well as creates speculation, but until there is real proof it is only speculation.”


The facts are that Progenity has been shorted heavily and the price has been suppressed by the shorting. We also have seen some peculiar behavior as Progenity diluted their stock just as it was gaining momentum during a trend upwards in the middle of the day. This dropped the stock 40% from where it was sitting. $2.10 to 1.36 in a matter of minutes on Wednesday October 6th . I think this was possibly done to stop the price from rising, possibly for buyout reasons.

My final thoughts on this: I think Athyrium possibly could be shorting Progenity however there is no clear evidence that they are. They haven’t stated anything on their form 4s and the only mention of shorting is in their hedging strategies on their website.

I think that there may be other’s short selling the stock. Athyrium has been a large majority stakeholder in PROG for quite some time and has funded Progenity to continue their R&D. I think we need to uncover a bit more evidence to fully blame Athyrium. Here is an excellent article covering why Athyrium is possibly shorting Progenity



Cash Crunch Dilemma - Solved


This is something I have covered in the past on a few of my last articles discussing the large reason why Progenity fell from $15 to $2.30 a share. They were burning 70 million a quarter with their low margin business Avero that they had considerable trouble with due to some billing practices that created lawsuits for them. Thankfully they separated from that business as they did have to make some tough decisions to cut half of their employees in May.


We look at cashburn to see how long this business will survive as they are not making any money yet and also ultimately, you want to know if they are going to possibly dilute you.

The quick answer from my thoughts below is: Approximate cashburn is $30 million and they have enough money not to dilute shares for the next 3-6 months.


Source


Cashburn (underlined in blue) as of Q1 report was $48 Million, This was in the middle of them cutting half of their employees and closing down their non-profitable business portion. These cost the company quite a bit to give out severance packages and they even now have a CEO that left that was being paid a few million a year. Harry Stylli (ex-CEO) is still receiving 1 year of full pay which is very interesting and not typical of someone leaving on their own interests as stated in the company press releases. This could lead some to speculate on a potential buyout of the company.

We should expect the cash burn to slowly come down to $15-20 million a quarter as they have half the employees and are not running a low margin business. This means that we should expect $100 million a year in cash burn for this business. With this is mind, now what is their current burn rate? I am expecting it to be about $25-30 million a quarter at the moment.

Their current cash on hand in their March Q1 report was $65 million:

Source

In between now and then they added the $40 million private placement, then diluted investors for another 40 million and another additional 20 million. This totals $145 million.

They stated that they will not be diluting any longer until November 20th in their latest dilution press release.


From this simple look, we can see if they burned another $40 million in Q2 and then $30 million in Q3, they should have: 75 million. If they can get the spending to around 25 million, this gives them until mid year in 2022 before they go bankrupt. I think that they will be bought out before this ($17-30 a share) or will be making money with Preecludia which will pull them out of their negative cash flow. They also could receive more money to continue the OBDS/DDS2 development as well. We should get an even better picture of their cashburn around November 17th after-hours (expected earnings date).


Trending on Reddit, Stocktwits & Google Search | Price Trends Up with Popularity


Progenity is starting to trend in many places, which may cause the price to rise as company brand awareness increases.


  1. Below is a graph of the rising popularity of Progenity within the past 12 months:

Google search Interest over the past 12 months


1. The google search interest of Progenity is the highest it has ever been at this moment.

2. Reddit traffic and growth in Progenity related communities has tripled within the past week from: 400 members to 1,300 members

3. Stocktwits PROG watchers have exploded within the past month from 5,000 watchers to over 18,500 watchers.


Twitter & youtube have also been ringing with well known people who have been mentioning PROG.


Similarly to GME and the AMC movements, the classification of an animal has been brought to the ticker. GME and AMC holders were and still are considered APES.


PROG holders have assumed themselves as Frogs labeled by the Frog emoji 🐸🐸🐸🐸

They are called the Prog Army, I'd like to say that I am also apart of it as there is a sure possiblilty that large hedge funds may have been caught off guard by a ticker symbol that had very low visibility is now gaining increasing popularity.

The first mention of this emoji for PROG in public was on r/Shortsqueeze.


I was actually in a discord chat early on in May where people were using frog emojis interestingly enough.


Final statement:


I believe Progenity could fundamentally be over $105 a share in 5-7 years.

Currently they are extremely undervalued and should regardless of a short squeeze or not reach $10-17 a share within the year. I think they are a solid hold.


I hope you enjoyed this read. I am sure I created more questions, so please feel free to reach out to me for clarification, corrections, and comments.

Brad Mitchell

brad@optifinancialnews.com


Other materials I have published on PROG on my website:

Short Squeeze Part 1

Short Squeeze Part 2

Progenity at firesale could go to $8-17

Short Summary on Preecludia and DDS2

Progenity $17-40 on Buyout Price

The case for Progenity and what they will become


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