Progenity is Still a Sell as Company Lacks Catalysts

Progenity (NASDAQ:PROG) is a clinical-stage biotech company. PROG stock completed its initial public offering (IPO) in 2020 at $15 per share.

The company would suffer a rapid and complete fall from grace, however. At the time of the IPO, Progenity aimed to be a molecular research company and had actual products out on the market and generating revenues. However, the company engaged in unfortunate business practices and got hit with fraud charges.

As things went from bad to worse, Progenity shares crashed into the low single digits. However, this fall, Progenity shares rebounded from $1 to $5 each. But, there was no tangible news to explain the sudden jump. Rather, it appeared to be based almost entirely on positive social media chatter and hopes of a short squeeze. Since the company has little going for it, though, that rally quickly faded as reality sets in.

Prog Stock In Search Of An Identity

When I last wrote about Progenity, I warned investors that there was no reason to buy the stock. And, indeed, the stock has lost around 40% of its value over the past month. When a potential short squeeze thesis breaks down, a stock can quickly plummet. Simply put, short interest alone isn’t a good reason to own a stock.

And beyond that, the fundamental bull thesis for Progenity is exceptionally thin. As I detailed in my previous article, the company’s former line of business has been shut down. And it will likely be years before Progenity’s new research direction leads to much in the way of tangible results. Clinical stage research is not a field known for overnight results.

As our Will Ashworth put it recently, “PROG Stock is a Waste of Your Time“. Why’s that? The company had to pay $49 million in fines to the Justice Department related to fraud from its previous line of business. After being disgraced, Progenity has suddenly tried to pivot to new clinical research instead of remaining an established testing company. The odds of this paying off aren’t too good, and the odds of it working anytime soon is minimal.

Fundraising: The Only News of Note

So what’s new with Progenity over the past month? There’s not much. The most interesting development was that Progenity brought in some cash from selling warrants.

Specifically, Progenity scored $44 million thanks to warrant exercises up through Q4 of 2021. Progenity also completed an exchange transaction in Q4 which allowed it to retire more than a third of its 2025 convertible senior notes.

Progenity states that with the cash it raised, it will have runway to make it through at least the next 12 months. That should, in theory, give it enough time to reach some clinical trial data readouts. If those go well, presumably, Progenity will use the buzz generated from that to sell more stock to the public to fund further research.

This is the usual road for shoestring early-stage clinical biotech companies. Unfortunately, Progenity is burdened by the debt and reputational harm from its previous failed business ventures. This gives it significantly worse odds than many other biotech peers.

PROG Stock Verdict

If, for some reason, you really like Progenity’s clinical-stage biotech program, you should be able to buy PROG stock cheaper in 2022.

I’d imagine, however, that almost everyone trading Progenity shares now is playing the short-term swings. And, in that case, there’s absolutely no reason to stick with PROG stock at this time. As the company shut down its previous line of business, there’s little to look forward to in the way of earnings or positive catalysts for the foreseeable future.

The $2 PROG stock of today in no way represents the same business as the one that IPOed at $15 last year. Meanwhile, without any positive news coming in the near future, the social media buzz will fade.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.