I am neutral on Progenity (PROG), as its strong growth potential, general support from Wall Street analysts, and high upside potential relative to its consensus price target are offset by its current steep losses and highly speculative outlook.
Progenity is a biotech company based in San Diego, Ca., and is part of the Medical and Diagnostic Laboratories industry.
Strengths
Founded in 2010, Progenity aims to improve the diagnosis of disease and therefore improve the outcomes for patients using localized treatment with targeted therapy. Progenity takes a multi-omics approach, using a combination of genomics, epigenomics, proteomics and metabolomics to improve disease diagnosis.
As of yet, false positives are very rare with Progenity tests. With its highly complex molecular diagnositic testing, Progenity allows healthcare providers to access advanced genomic technology to guide patient healthcare at critical stages in their lives.
Recent Results
For the third quarter 2021, Progenity reported revenues of $182,000, showing significant improvement since the same period last year, when revenues stood at $56,000. Net loss was reported at $43 million, largely due to operating expenses.
This was still a slight improvement since the previous year, when loss stood at $47 million. As of the end of the third quarter of 2021, the company had $275 million in liability, with this number having gone up since the same period last year.
However, despite losses, the company is moving forward with operations. The company signed the third pharma partnership to test their molecule with an ingestible capsule, and obtained a patent related to the device. Progenity also has an ongoing clinical study focused on ulcerative colitis patients, and has published an article in Crohn’s and Colitis 360. They also achieved a $110 million reduction in annual operating expenses.
Progenity has two therapeutics programs – namely oral delivery of biotherapeutics and GI-targeted therapeutics. Both of these have multiple studies ongoing, having reached the preclinical stage in the third quarter of 2021.
Progenity also designed the first blood test designed to assess risk involved in preeclampsia, with a validation study manuscript submitted, and was awarded a patent for one of the key assays.
Valuation Metrics
PROG stock is very difficult to value, due to the fact that its revenues are declining rapidly and it is running up steep losses. On top of that, the company trades for 40 times forward sales, which seems like a very lofty multiple. As a result, the stock looks extremely speculative here, as the company is likely headed towards failure unless one of its products under development can succeed, in which case it could richly reward investors from here.
Wall Street’s Take
From Wall Street analysts, PROG earns a Moderate Buy analyst consensus, based on 1 Buy rating, 1 Hold rating, and 0 Sell ratings in the past 3 months. Additionally, the average PROG price target of $3.00 puts the upside potential at 34.5%.
Summary and Conclusions
Progenity is a high-risk high reward bet on the company’s research and development team’s ability to deliver on his pipeline of promising products. If they can deliver profitable products that earn acceptance, the stock will likely soar, and investors at current prices will likely reap significant returns. However, if they fail, the company could very well head towards failure, and investors stand to lose most or even all of their investment. As a result, investors should keep in mind that this is a very high-risk speculative opportunity before adding any shares.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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