NEW YORK, March 18, 2024 (GLOBE NEWSWIRE) -- Diamond Equity Research, a leading equity research firm with a focus on small capitalization public companies has released an Update Note on ProPhase Labs Inc. (NASDAQ: PRPH). The update note includes information on the ProPhase’s business model, services, industry, financial results, valuation, and risks.
The update note is available here. Highlights from the note include:
- FY 2023 Financial Results Update: For the fiscal year ending December 31, 2023, ProPhase Labs, Inc. continued investing in its high growth segments:
- ProPhase Labs has optimized its laboratory operations, shifting from primarily focusing on Covid-19 and clinical lab services to establishing itself as a premier Whole Genome Sequencing facility. Boasting an advanced genomics laboratory in New York, which allows for in-house processing rather than outsourcing internationally, the company is on a clear path to transform its current direct-to-consumer approach into an expansive business-to-business strategy. The growth potential for this segment is considerable. Simultaneously, the company has fast-tracked the enhancement of its Pharmaloz Manufacturing facility's capacity. The surge in both global and domestic demand for lozenge production capabilities, coupled with a shrinking capacity both in the U.S. and abroad, has positioned the company as a sought-after partner for leading lozenge brands. The projected increase in capacity is expected to substantially boost revenue and profits in the future. This particular subsidiary may surpass the total market valuation of ProPhase Labs and has the potential for further expansion in subsequent quarters. In addition to these developments, the company is preparing to launch several promising initiatives in the latter half of 2024. Among these are the BE-Smart Esophageal Cancer test, an innovative diagnostic solution for a largely untapped market worth billions, and Equivir, a comprehensive antiviral that will be marketed as a dietary supplement. Considering the intrinsic value of these assets and their growth prospects, this presents an exceptionally appealing investment proposition.
- Net revenue saw a decrease of 63.1%, falling to $45.2 million from the previous year's $122.6 million. This decline was primarily due to a substantial decrease in diagnostic services revenue, which dropped by $83.5 million, attributed to reduced COVID-19 testing volumes. Conversely, consumer products revenue increased by $6.1 million. Cost of revenues for the year was $29.0 million, down from $52.0 million in 2022, reflecting a decrease in costs associated with diagnostic services and an increase in costs for consumer products. General and administrative expenses slightly increased to $34.5 million, up from $34.4 million, mainly due to increases in personnel, marketing, and professional fees associated with strategic initiatives. Research and development costs rose to $1.4 million from $0.7 million, reflecting heightened activities at ProPhase BioPharma, including product research and field testing. The fiscal year ended with a net loss of $16.8 million, or $(0.98) per share, compared to net income of $18.5 million, or $1.17 per share, in 2022. Cash, cash equivalents, and restricted cash totaled $2.1 million, down from $9.1 million, with working capital decreasing to $26.7 million from $44.8 million. This reduction in cash positions was influenced by operational cash use, asset purchases, statutory tax payments on stock transactions, share repurchases, investments, and capital expenditures, offset by various financing activities.
- Other financial highlights include securing a low-interest rate mortgage for the Pharmaloz plant in Q4 2023. Post-year-end developments include over $3.6 million realized from the partial sale of an investment, over $2.5 million raised by securitizing receivables, and an increase in monthly accounts receivable collections, reflecting a strategic approach to strengthening the company’s financial position amidst challenging conditions.
- ProPhase Labs has optimized its laboratory operations, shifting from primarily focusing on Covid-19 and clinical lab services to establishing itself as a premier Whole Genome Sequencing facility. Boasting an advanced genomics laboratory in New York, which allows for in-house processing rather than outsourcing internationally, the company is on a clear path to transform its current direct-to-consumer approach into an expansive business-to-business strategy. The growth potential for this segment is considerable. Simultaneously, the company has fast-tracked the enhancement of its Pharmaloz Manufacturing facility's capacity. The surge in both global and domestic demand for lozenge production capabilities, coupled with a shrinking capacity both in the U.S. and abroad, has positioned the company as a sought-after partner for leading lozenge brands. The projected increase in capacity is expected to substantially boost revenue and profits in the future. This particular subsidiary may surpass the total market valuation of ProPhase Labs and has the potential for further expansion in subsequent quarters. In addition to these developments, the company is preparing to launch several promising initiatives in the latter half of 2024. Among these are the BE-Smart Esophageal Cancer test, an innovative diagnostic solution for a largely untapped market worth billions, and Equivir, a comprehensive antiviral that will be marketed as a dietary supplement. Considering the intrinsic value of these assets and their growth prospects, this presents an exceptionally appealing investment proposition.
- Valuation: ProPhase Labs has been continuously targeting growth across multiple subsidiaries, which is marked by strategic expansions, innovative product offerings, and substantial revenue growth potential. We have updated our valuation model to account for the latest financial results and upgraded our estimates based on latest disclosed segment details. Additionally, we have re-assessed our SOTP approach, yielding an increased valuation of $21.00 per share (from $20.00), contingent on the company's successful execution.
- Pharmaloz Manufacturing, Significantly Scaling Production and Revenue Growth: Pharmaloz Manufacturing reported revenues of over $9 million in FY2023, driven by efficiencies from new automation equipment. The subsidiary is targeting to significantly increase its capacity, with revenue goals of $30 million to $45 million with the installation of a second lozenge line by Q3 2024 and further to $90-$100 million with a 20-25% pre-tax net profit margin upon adding two more lines by the first half of 2025. Pharmaloz is capitalizing on the global shortage of lozenge manufacturing capacity, engaging in late-stage negotiations with four major brands in need of an FDA-approved manufacturer. Recent achievements include signing deals worth over $5 million in annual revenues, with production already started for one. Future expansions could significantly increase these figures. Engineering efforts have outlined a plan to expand up to seven lozenge lines within four years, potentially pushing annual capacity to over $250 million. Additionally, the subsidiary is ahead of schedule in acquiring new liquid fill equipment, poised for delivery in Q2, allowing for the introduction of higher-margin business lines. A price increase of 15.2% has been accepted by existing customers for production beginning in 2024. Pharmaloz also successfully passed a 3-year FDA audit with no citations, underscoring its commitment to quality and regulatory compliance.
- Whole Genome Sequencing Expansion Underscored by Continuous Client Wins: In a strategic move to expand its global footprint, Nebula Genomics has entered a significant business-to-business partnership with MenaDNA, a well-established distribution firm, enhancing its international reach. Furthermore, Nebula is on the verge of finalizing another major international deal potentially worth $10-$20 million in annual revenues, with more significant agreements in the final stages of negotiation. To strengthen its operational capabilities, Nebula acquired a second high-capacity whole genome sequencing machine, working towards an optimized, automated workflow for high-efficiency, low-failure genomic sequencing. This addition doubles the subsidiary's low pass whole genome sequencing (WGS) capacity, enabling it to potentially handle over 2 million specimens annually and potentially generate $150 to over $200 million in revenue. Nebula Genomics stands out in the genetic testing industry by analyzing over 99% of human DNA, significantly surpassing the typical ancestry tests that cover less than 1%. Its proprietary bioinformatics platform delivers in-depth genetic health insights, including rare genetic mutations and ancestry information, at highly competitive prices. The subsidiary ensures data security with top-tier cyber protection measures. The company also enhanced its team by hiring key industry veterans and optimizing clinical laboratory personnel. A new service offering includes genetic counseling for direct-to-consumer customers, adding value to its comprehensive genetic testing solutions.
- BE-Smart Esophageal Cancer Test Imminent Commercialization Planned for 2H 2024: The BE-Smart Esophageal Cancer Test has progressed with the completion of additional samples that are currently under analysis by Stat King, a division of Genesis Drug Discovery and Development. This step is aimed at further confirming the test's sensitivity and specificity rates, which are already exceeding 90%. The company is also actively engaging in commercialization discussions with various global partners, aiming for a market launch in the latter half of 2024. Concurrently, BE-Smart is on schedule to acquire Current Procedural Terminology (CPT) codes by mid-2024, which will facilitate insurance reimbursements, marking a significant step towards commercial viability. Collaborations with CDx Diagnostics are enhancing the test's multistage prediction algorithm through the analysis of multiple samples from individual patients. Innovatively, BE-Smart is developing an 'advanced traffic light' system to stratify cancer risk into four categories—green, yellow, orange, and red—enabling tailored treatment strategies. This nuanced risk assessment model has the potential to become a standard requirement by insurance providers for endoscopies in Barrett’s Esophagus patients, emphasizing its clinical importance. Furthermore, the subsidiary is advancing in its assessment of RNA Seq data to confirm the presence of eight major proteins identified by the BE-Smart test, which are under patent protection. This also includes verifying the absence of significant expression of proteins currently considered the gold standard in diagnosis. This comprehensive validation process emphasizes BE-Smart’s competitive edge over existing technologies, solidifying its standing as a notable advancement in esophageal cancer diagnostics.
- Equivir Initial Trial Results Indicate Potential Breakthrough in Respiratory Health: Equivir, another subsidiary under ProPhase Labs, Inc., has achieved significant milestones in its clinical development. The subsidiary successfully completed enrollment of over 329 patients, with the last participant starting at the beginning of 2024. Interim results from the first 152 patients at the 90-day mark have been particularly promising. The data revealed that 68% of the total number of upper respiratory incidents occurred in the placebo group, compared to only 32% in the Equivir group, indicating a strong potential for Equivir in potentially reducing upper respiratory incidents. The initial data surpassed expectations, with the full dataset expected to be available by the end of June 2024. In anticipation of these positive outcomes, Pharmaloz is preparing to increase the production of Equivir capsules, targeting a product launch in the second half of 2024. Equivir is also advancing its market strategy through collaborations with distribution partners, aiming to secure a presence in over 40,000 food, drug, and mass retail stores. This extensive distribution network positions Equivir for significant impact upon its launch, highlighting the potential for widespread adoption and success in the marketplace.
About ProPhase Labs Inc.
ProPhase Labs, Inc. (Nasdaq: PRPH) is a diversified diagnostic, genomics, and biotech company seeking to leverage its CLIA lab services to provide whole genome sequencing and research directly to consumers and build a genomics database to be used for further research. The company also operates a contract manufacturing subsidiary and offers the TK Supplements line of dietary supplements, which are distributed in food, drug, and retailer stores. For more information, visit https://www.prophaselabs.com/
About Diamond Equity Research
Diamond Equity Research is a leading equity research and corporate access firm focused on small capitalization companies. Diamond Equity Research is an approved sell-side provider on major institutional investor platforms.
For more information, visit https://www.diamondequityresearch.com.
Disclosures:
Diamond Equity Research LLC is being compensated by ProPhase Labs Inc. for producing research materials regarding ProPhase Labs Inc. and its securities, which is meant to subsidize the high cost of creating the report and monitoring the security, however the views in the report reflect that of Diamond Equity Research. All payments are received upfront and are billed for research engagement. As of 03/18/24 the issuer had paid us $95,000 for our research services which commenced 03/21/23, and is billed annually upfront, consisting of $35,000 for the annual subscription in the first year and $35,000 in the second year (in two $17,500 installments for six month periods paid upfront) and $2,500 for additional one-time research work for the first year coverage and $20,000 for a research report on a subsidiary of ProPhase Labs Inc. and $20,000 for another research report on a subsidiary of ProPhase Labs Inc. The issuer has paid us for non-research-related services consisting of $2,500 for attending a virtual conference. Issuers are not required to engage us for these services. Although Diamond Equity Research company sponsored reports are based on publicly available information and although no investment recommendations are made within our company sponsored research reports, given the small capitalization nature of the companies we cover we have adopted an internal trading procedure around the public companies by whom we are engaged, with investors able to find such policy on our website public disclosures page. This report and press release do not consider individual circumstances and does not take into consideration individual investor preferences. Statements within this report may constitute forward-looking statements, these statements involve many risk factors and general uncertainties around the business, industry, and macroeconomic environment. Investors need to be aware of the high degree of risk in small capitalization equities including the complete loss of their investment. Investors can find various risk factors in the initiation report and in the respective financial filings for ProPhase Labs Inc.
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