Diamond Equity Research Releases Update Note on ProPhase Labs Inc. (NASDAQ: PRPH)
New York, NY, Nov. 18, 2024 (GLOBE NEWSWIRE) -- Diamond Equity Research, an 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 ProPhase's business model, services offered, industry outlook, financial results, management commentary, valuation, and risks.
The update note is available below.
ProPhase Labs November 2024 Update Note
Highlights from the note include:
- Launch of Direct-to-Consumer DNA Complete and DNA Expand Genetic Testing Offerings: In Q3 FY2024, ProPhase Labs launched two significant product offerings, DNA Complete and DNA Expand, under its wholly-owned subsidiary, DNA Complete, Inc. These initiatives mark a strategic move to enhance ProPhase's presence in the direct-to-consumer (DTC) genomics market:
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- DNA Complete offers nearly 100% genome sequencing, differentiating itself from traditional ancestry-focused DNA tests by providing detailed insights into health, wellness, and ancestry. Available in three tiers—Essential at $195, Pro at $495, and Elite at $1,495—each option offers different levels of DNA analysis, accuracy, and personalized health reports to suit varying consumer needs and budgets. This service also includes genetic counseling, ensuring customers can interpret their data effectively, and incorporates a subscription model to provide ongoing updates and insights, a feature expected to drive long-term, high-margin cash flow. Furthermore, DNA Complete is built on advanced bioinformatics, enhancing the depth of ancestry analysis, and offers flexible sample processing through ProPhase's Nebula Genomics subsidiary or other leading labs to maintain high-quality results and efficient turnaround times. The product launch is supported by an influencer-driven campaign aimed at maximizing reach and consumer engagement, leveraging DNA Complete's competitive pricing and robust digital platform to make advanced genomic insights accessible to a wide audience.
- DNA Expand allows users with existing DNA ancestry data to enhance their insights without additional sequencing. By uploading data from previous ancestry tests, customers can unlock ProPhase's proprietary health and wellness reports, with their original data expanded up to 50 times. This product is offered on a subscription basis, priced at $49.95 annually, making it a high-margin, low-cost service due to minimal IT-related expenses. DNA Expand targets a sizable market of over 26 million people who have undergone ancestry testing worldwide, potentially positioning ProPhase to generate substantial revenues and cash flow as it scales its subscription base. Additionally, ProPhase anticipates robust seasonal demand, positioning DNA Complete and DNA Expand as attractive holiday gift options in the upcoming holiday season, adding another potential revenue driver.
- Pharmaloz Manufacturing Prepares for Rapid Growth with New Contracts and Capacity Expansion: Pharmaloz Manufacturing is potentially positioned for robust growth and is currently evaluating strategic alternatives, including a potential sale, with advisory support from ThinkEquity. The company's second manufacturing line is built and ready for deployment, with a third line planned for H2 2025. These new lines are highly automated, incorporating advanced dry feed systems that minimize labor requirements, and are expected to drive both revenue growth and improved margins through enhanced efficiency and scalability. Pharmaloz anticipates generating over $15 million in revenue and over $5 million in pre-tax earnings over the next 12 months, beginning in Q4 2024, excluding potential contributions from the upcoming second lozenge manufacturing line. The company is in advanced discussions with a major lozenge brand for a long-term contract that would utilize the entire capacity of this second line, potentially adding $20-$25 million in revenue in its first full year of production, with further growth potential. Additionally, Pharmaloz has secured agreements with two top-tier lozenge brands, which are expected to contribute around $5 million in annual revenue with strong profit margins and is actively engaging with other potential clients. Starting in January 2025, a major new customer will begin production of a non-seasonal lozenge, helping to smooth seasonal fluctuations in the cold lozenges business.
- Potential Liquidity Events and Financial Outlook: ProPhase Labs anticipates several significant liquidity events and a positive financial outlook in the coming year. The planned sale of Pharmaloz Manufacturing, Inc. (PMI) is targeted for early 2025, with a projected valuation exceeding $40 million. Additionally, a potential partnership for the BE-Smart Esophageal Cancer Test could yield an upfront payment of $30-50 million, complemented by milestone payments and long-term royalties following approval and commercialization. Meanwhile, the company's receivables collection efforts could potentially generate $20-25 million over the next six months, contributing to immediate liquidity and supporting ongoing operational and strategic initiatives.
- Valuation - ProPhase Labs has undergone a strategic transition from its previous dependence on COVID-19-related revenues to a diversified portfolio of sustainable, emerging growth businesses. While this transition is accompanied by recent declines in revenues and profitability, it reflects the company's focus on building high-margin, scalable operations focused on long-term sustainable growth. Pharmaloz Manufacturing projects over $15 million in revenue over the next year, with additional upside from planned production expansions and long-term contracts that could add $20 to $25 million annually. We hold the belief that Pharmaloz Manufacturing Inc.'s underlying value surpasses the entire current market valuation of Prophase Labs. The BE-Smart esophageal cancer test, supported by strategic partnership discussions and clinical validation efforts, targets a multi-billion-dollar diagnostics market. The launch of DNA Complete and DNA Expand capitalizes on consumer demand for genetic analysis, offering recurring, high-margin subscription revenue. Additionally, the upcoming potential launch of Equivir, a clinically supported immune-boosting product, provides another significant growth driver. With multiple developments in place, ProPhase has positioned itself for a strong operational and financial performance in 2025, supported by a diversified revenue base. We have revised our valuation model to incorporate the latest financial results, factoring in the recent capital raise and the resulting dilution, and updated our SOTP analysis. The updated model assigns a 90% weight to the Discounted Cash Flow (DCF) analysis and a 10% weight to the Sum-of-the-Parts (SOTP) valuation, reflecting their relative contributions to our overall estimate. Based on this approach, we arrive at a revised valuation estimate of $20.00 per share, contingent on the successful execution by the company.
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 11/18/24 the issuer had paid us $112,500 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 consecutive 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. Diamond Equity Research LLC may be compensated for non- research related services, including presenting at Diamond Equity Research investment conferences, press releases and other additional services. The non-research related service cost is dependent on the company, but usually do not exceed $5,000. The issuer has paid us for non-research-related services as of 11/18/24 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. Please review update note attached for full disclosure page.
Contact:
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