Diamond Equity Research Releases Update Note on ProPhase Labs Inc. (NASDAQ: PRPH)
NEW YORK, Aug. 22, 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:
- ProPhase Labs Projects Significant Growth for Pharmaloz Manufacturing Inc. Through Strategic Enhancements and New Technologies - ProPhase Labs has recently revisited and emphasized the promising future for its CDMO subsidiary, Pharmaloz Manufacturing Inc. The company is anticipating significant revenue and earnings growth for the latter half of 2024 and the entire year 2025 due to strategic enhancements to its production capabilities and the introduction of new automation and energy-efficient technologies. These advancements include a liquid fill machine, and a new vacuum pump system expected to reduce water usage by over 96%, alongside a transition to 100% renewable energy usage, positioning Pharmaloz to cater to increasing customer demand. ProPhase anticipates that starting in Q3 2024, the projected annual revenue from just one of PMI's improved production lines will range between $14-16 million, with pre-tax net profits expected to reach around $5 million. This financial outlook is based solely on the performance of the first upgraded manufacturing line at PMI. Additionally, new equipment for a second lozenge manufacturing line is set to potentially double the production capabilities and introduce new product lines, particularly in the fast-growing liquid-filled lozenge market. With the introduction of equipment capable of producing liquid-filled lozenges—a rapidly growing market segment—PMI is also enhancing product flavor while maintaining therapeutic integrity. This advancement also opens opportunities for PMI to potentially grow its private label business by appealing to larger retailers looking for high-margin, value-added products. Moreover, with the scaling up of the CDMO business, the company, in engagement with ThinkEquity as an advisor, expects to explore strategic alternatives for the potential monetization of PMI, thereby generating substantial additional capital to further enhance the company's growth. We hold the belief that Pharmaloz Manufacturing Inc.'s underlying value surpasses the entire current market valuation of ProPhase Labs.
- ProPhase Labs Partners with Forward Healthcare Consultants to Commercialize Breakthrough Esophageal Cancer Test - In a recent strategic development, ProPhase Labs, Inc., has announced a strategic partnership with Forward Healthcare Consultants (FHC) to commercialize its innovative BE-Smart test for esophageal cancer. This collaboration aims to leverage FHC's expertise in clinical validation and market access strategies, including coverage, pricing, and coding, as well as their strong connections within the healthcare industry. ProPhase Labs is committed to advancing this potential billion-dollar esophageal cancer assay, which is positioned to fill a critical gap in cancer detection and diagnosis. The company emphasizes that the partnership will utilize FHC's extensive network and experience, which includes past successes in bringing similar diagnostic tests to market with significant commercial success. With FHC's support, ProPhase Labs aims to navigate the pathways to potential regulatory approval and widespread market adoption, enhancing its portfolio of healthcare solutions.
- Valuation - With multiple developments in place across emerging business lines, Prophase has transitioned from a traditional diagnostic company to an innovative healthcare service provider, with diversified capabilities in automated manufacturing, genomics, oncology, and AI-driven analytics. Each of these divisions is currently in different stages of development, progressing towards a monetization phase where they can contribute to potentially significant revenue generation and profitability. This strategic pivot not only diversified its portfolio but also enhanced its competitive edge in the rapidly evolving healthcare market. We believe that the next twelve months will likely be a key inflection period, with the company's efforts in these divisions beginning to yield tangible results in the form of significant revenue growth and improved profitability. We have updated our valuation model to reflect the updated recent financial results and re-assessed our SOTP approach, reiterating a valuation of $21 per share, contingent on successful execution by the company.
- Significant Progress Across Other Business Divisions - Significant advancements and operational improvements are evident across other business divisions. Equivir and Legendz XL have transitioned to in-house production at Pharmaloz, enhancing efficiency and profitability. Particularly noteworthy is Equivir, which is poised for strong market performance owing to a strategic marketing campaign that leverages Nebula Genomics' extensive marketing infrastructure and the company's existing network spanning over 40,000 stores nationwide. Concurrently, Nebula Genomics has upgraded its consumer offerings with the newly enhanced "DNA Complete®" product, offering faster service, competitive pricing, and a more dynamic genetic user platform. The company's genomic database has expanded to include data from over 100,000 users from more than 130 countries, enriching its diversity and analytical depth. Additional services, such as genetic counseling and various strategic partnerships, are being pursued with a contract secured to offer genetic counseling, further augmenting the value of the genomic data. Amidst these advancements, maintaining rigorous data security remains a critical focus, with stringent cybersecurity measures in place to protect sensitive genetic information. The company has also rolled out an extensive new marketing campaign, utilizing the expertise of leading industry influencers and managed by experienced marketing professionals known for their track record in developing global brands, aiming to substantially boost the company's visibility and market penetration. Additionally, the company's Project ZenQ-AI is revolutionizing cancer research, utilizing the extensive genomic databases from ProPhase and the advanced diagnostic of BE-Smart. With training on comprehensive datasets provided by Nebula Genomics and BE-Smart, the AI excels in uncovering unique genomic relationships and patterns. These discoveries could significantly advance the development of new cancer therapies, specifically those involving antibody-drug conjugates.
- Nebula Genomics Launches "DNA Complete®" as Part of Major DTC Initiative - Nebula Genomics is set to launch a significant new Direct-To-Consumer (DTC) initiative, following an eight-month development phase. The revamped product, now branded as "DNA Complete®," aims to revolutionize the genetic testing market by offering a comprehensive and user-friendly platform. The launch, anticipated to drive a new sales ramp in the near term, is backed by the expertise of Stu Hollenshead, former Chief Business Officer and Chief Operating Officer of Barstool Sports, and current President and Chief Revenue Officer of 10pm Curfew, a key player in the social media space. "DNA Complete®" will feature industry-leading pricing, faster turnaround times, and leverage Nebula's cutting-edge bioinformatics platform alongside a newly launched proprietary advanced Ancestry platform. The initiative also includes a robust marketing campaign featuring top influencers, under the guidance of Stu Hollenshead, who has a proven track record in building global brands. Nebula Genomics has expanded its genomic database to over 100,000 users from 130+ countries, ensuring the broadest diversity and the most comprehensive analysis available in the market. Additionally, the company has secured a contract to offer genetic counseling services, further enhancing its value proposition. Data security remains a top priority, safeguarded by world-class cybersecurity measures to protect sensitive genetic information.
- Short Term Volatility, But Future Vision Remains Consistent - For the quarter ending June 30, 2024, ProPhase Labs reported a decline in net revenue, declining from $13.2 million in 2023 to $2.5 million. This reduction was largely attributed to a $7.8 million decrease in diagnostic services revenue, and a $2.9 million reduction in consumer products revenue as the company transitioned out of Covid Testing Business. Costs of revenue also decreased from $6.8 million in Q2 2023 to $2.9 million in Q2 2024, contributing to a shift from a gross profit of $6.4 million (48.8%) to a gross loss of $0.5 million (-19.2%). General and administrative expenses fell by $2.7 million or 27.2%, primarily due to lower personnel costs and professional fees, while research and development expenses decreased by $433,000 due to scaled-back product research activities. The company's operating cash burn for H1 of 2024 was $9.94 million and concluded H1 with cash reserves of $2.4 million. At the end of H1, the company had more than $17 million in net working capital, providing a substantial cushion to support ongoing operations and strategic initiatives. Moreover, the company anticipates a potential financial turnaround in H2 2024 with significant scaling of PMI's operations, followed by the commercialization of BE-Smart Esophageal cancer test and Equivir (OTC). As these investments mature, management expects the company to stabilize financially and begin reaping the benefits of its strategic transformation. This could potentially lead to improved financial health in subsequent quarters and a return to more shareholder-oriented strategies, such as dividends and buybacks.
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 08/22/24 the issuer had paid us $95,000 for our research services (not $95,500 referenced in error in last release) 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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