Progenity: Don’t Bet on This Biotech Firm Yet
Progenity (NASDAQ:PROG) is a biotech firm focused on treatments and testing products for a variety of diseases. Historically, PROG stock has been a disappointment. Since its initial public offering (IPO) in 2020, shares dropped from $13 to a low of under $1 per share. Recently, however, Progenity enjoyed a big short squeeze that brought shares back to the $4 mark.
It appears that the momentum is fading, however. Shares have started to slide again. And a deeper look into the company explains the weakness. Progenity has very little to rest its business case on at the moment. While the company used to have a sizable testing business, it put an end to that and no longer has near-term revenue generating assets. So what’s the outlook for PROG stock as it makes its transition into a biotech company?
IPOed On The Apparent Strength Of Its Testing Business
Progenity completed its IPO in June 2020. At the time, the company marketed itself as an advanced testing company using genomics, epigenomics, proteomics and metabolomics to improve patient lives. Progenity suggested that products such as its prenatal genetics tests could improve people’s lives.
The company built a considerable business. It generated $128 million in revenues in 2018 and $144 million in 2019. However, it appears that the demand for its tests fell sharply in 2020 as Covid-19 turned peoples’ attention elsewhere. The company had already been racking up large operating losses in 2018 and 2019, and things turned even worse in 2020 as operating results worsened.
Corporate Wrongdoing & Abrupt Industry Exit
As mentioned, Progenity’s results slumped in 2020. And then things went from bad to worse.
In July 2020, The Department of Justice announced a settlement with Progenity. Progenity had to pay $49 million to settle charges around fraudulent billing and kickbacks. As the DoJ’s press release headline stated, “Progenity Inc. Admits to Fraudulently Using Wrong Billing Code, Paying “Draw Fees” to Physicians, and Providing Meals and Happy Hours to Physicians and Their Staff.” Needless to say, giving doctors free drinks to buy their tests goes into dubious territory.
This fell like a ton of bricks on Progenity shareholders. Recall that the company had IPOed in June. Merely a month later, PROG stock lost half its value on this news.
The company tried to soldier on for awhile. But with revenues plunging and the DoJ news adding more headwinds, Progenity wound down the testing business. Earlier this year, it announced that it would close its testing lab and stop selling its genetic tests. This was a rather remarkable turn of events for a company that IPOed just one year ago on the strength of this now-shuttered business.
Pivoting To Drug Development
Progenity isn’t giving up entirely. While its legacy business is ending, the company now plans to become a clinical-stage biotech company.
It will now be pursuing a variety of things including other types of tests and certain types of drug-device combinations such as GI-targeted therapeutics.
That’s all interesting, but it will likely be years until Progenity has another shot at generating any meaningful commercial momentum. The company’s main focus now is on slashing costs so that it can sustain itself long enough to pivot its business model. That makes some sense from a financial perspective, but it doesn’t give much in the way of near-term catalysts to boost PROG stock.
No Reason For The Recent Rally
Listen to the company’s latest conference call and you’ll hear multiple mentions of “proof-of-concept” trials. These are small test runs in healthy patients to see whether a basic idea works or not. That’s all well and good, but it’s the first step of a great many in going anywhere in clinical drug development.
Progenity is going to require many years and tons of capital to get any of its proposed drugs to market. And, needless to say, the odds of any early stage drug actually making it through Phase 3 trials and getting Food and Drug Administration (FDA) approval is quite low. Most new drugs fail; it comes with the territory.
Perhaps we can credit Progenity for having the courage to close the door on its testing business and turn its attention elsewhere. That’s a respectable move in terms of protecting shareholder value. However, without any near-term revenue generation, this is just another very early stage clinical biotech company with little more than a dream to sell to potential investors. And, after witnessing last year’s IPO and subsequent DoJ debacle, investors would be smart to tread carefully with this firm.
PROG Stock Verdict
Meme trades based around corporate transitions this year have been a fiasco. Remember the merger that was Support.com with bitcoin mining firm, Greenidge Generation Holdings (NASDAQ:GREE)? Shares lost the majority of their value within days of that deal closing.
Similarly, the merger between Torchlight and Meta Materials (NASDAQ:MMAT) was an absolute mess. Traders hoped for an infinite short squeeze based around a special dividend. This failed to materialize and MMAT stock plunged.
Traders have now latched onto Progenity around its own corporate transition from genetics testing firm to biotech upstart. With a huge short interest, there was some trading potential there. However, there’s no fundamentals to support the share price, so be most wary with any moves in PROG stock.
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 $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
