Taken at face value, Progenity (NASDAQ:PROG) stock has a certain appeal. The biotech firm founded in 2010 creates targeted therapeutics for diseases. It focuses on preeclampsia, gastrointestinal health, and oral bio-therapeutics. And the company is fast developing a lineup of patents and intellectual property.
That’s the good news that lends PROG stock a certain amount of appeal.
On the other hand, Progenity is a biotech firm. As you may have guessed, that means it comes with all the requisite issues biotech investing carries.
That’s a great place for us to start.
Progenity is similar to many biotechs in that it records very little in sales. The company reported just $463K in second quarter, its most recent period. But there’s nothing really surprising there. If you’ve researched biotechs, or read about them before, you likely know this is par for the course.
Likewise, it shouldn’t surprise you to learn that Progenity recorded significant losses. That’s standard operating procedure: biotechs incur large operating expenses in developing therapeutics.
But in the case of Progenity, it should be noted that the company did experience a rapid increase in those losses between the Q1 and Q2 Those losses accelerated from $32.264 million in Q1 to $78.531 million in Q2.
Yet, that $78.531 million loss could mean different things depending on the company’s cash position. For example, if Progenity were carrying $300 million in cash and equivalents, it wouldn’t be in immediate danger. In that case, it could continue to operate for 3 quarters, burning $235 million if losses held steady. And then it would have a serious issue in a year.
But that’s the problem for Progenity. At the end of Q2 it had only $65.99 million in cash equivalents. It couldn’t afford to burn another $78.531 million in the subsequent quarter.
So, what did it do? It raised capital.
PROG’s Capital Raises
The first occurred just after earnings were released on Aug. 24. And the second direct offering occurred on Oct. 6.
That meant that the $65.99 million of cash Progenity ended Q2 with was closer to $125 million, or thereabout.
But then Progenity issued an additional 8,513,850 shares of its common stock. In exchange, $20.175 million of its senior notes were wiped out. That’s good for Progenity as it struggles to balance debt with high operating expenses.
However, it’s less advantageous for shareholders. That’s true of all three of the capital raises. They only buy Progenity time as it moves toward commercialization of its products and services, but each capital raise costs shareholders.
That said, PROG stock hasn’t suffered. Shares are up over the past month, having increased from $1.50 to $3.85.
PROG Stock as a Short Squeeze Target
That recent movement is partially attributable to Progenity’s appeal as a short squeeze target. Short interest is just shy of 20% currently. That said, there’s no great method by which to predict a short squeeze. It’s certainly not worth chasing that alone.
Nevertheless, that will intrigue some investors to buy into Progenity. They’ll look to the company’s recent suite of patents as evidence that the firm can overcome its issues. And they’ll refer back to its previous patent approval to strengthen that narrative in their minds.
The Bottom Line on PROG Stock
I wouldn’t buy what that bull narrative purports to sell. Progenity looks like any number of biotech firms on the market today. Like them, it has real fundamental issues that can only be solved by one thing: capital.
PROG happens to have garnered a bit of attention for a variety of factors. But that doesn’t make it much different than other biotech offerings. Most of those will come to naught over time. There’s little to suggest that Progenity is any different at present.
On the date of publication, Alex Sirois 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.