Progenity (NASDAQ:PROG) didn’t go public recently. Instead, its IPO dates back to June 19, 2020, when the biotech sold 6.67 million shares of PROG stock at $15 a pop. 

On its first day of trading, Progenity’s shares lost 12.5%. In the 18 months since it’s lost an additional 80%. Trading at $2.36 as I write this, Progenity is unlikely to live up to its IPO hype. 

Here’s why.  

PROG Stock Is a Waste of Your Time

If you’re new to Progenity, the company’s troubles started long before it was forced to pay $49 million to the Justice Department to settle fraud charges that it improperly billed some customers and took kickbacks from others.  

As InvestorPlace’s Dana Blankenhorn recently highlighted, the managers responsible for these misdeeds are no longer with the company. However, its business has been on a downhill slide ever since. As Dana points out, Progenity no longer generates much in the way of revenue from its “patents and early-stage studies.” 

Looking at its 2021 third-quarter results, Progenity had revenue of $182,000, down from $463,000 in the second quarter. This sales slowdown resulted in a $36.9 million loss from continuing operations, more than 11% higher than Q2 2021. It finished the quarter with net debt of $103.2 million. The annualized interest expense amounts to approximately $14 million, considerably more than its revenue generation. 

Yet, some investors want to waste their valuable time studying this dog with fleas. Get a hobby, read a book, volunteer at a soup kitchen, do anything but waste time on PROG stock. The reality is that Progenity’s IPO valuation was way overdone. 

IPO Overvalued at $15

Upon completion of its IPO, Progenity had 45.16 million shares outstanding. At $15 a share, that’s a market capitalization of $677 million. It intended to use the net proceeds of $89 million to support its molecular testing research and development (R&D), investments for its precision medicine platform, and working capital.

In 2019, it had net debt of $39 million and a $140.1 million loss from operations, while its revenue was $144 million. So, investors were paying 4.7x sales. At the time of its IPO, that probably seemed like a reasonable price to pay. 

Here’s what the company said about its business in its prospectus:

“We believe that we are a market-leading provider of in vitro molecular tests designed to improve lives by providing actionable information that helps guide patients and physicians in making critical and timely medical decisions during various life stages, such as family planning, pregnancy, or navigating a complex disease diagnosis.” states pg. 12 of its prospectus. 

On pg. 2 of its prospectus, it provides a pretty little chart that shows test volumes growing from 210,000 in 2016 to 329,000 in 2019.

On June 2, 2021, it announced that it was ending its test services and cutting 56% of its total workforce. Instead, it focuses on innovation and R&D. The move suggests the revenue it generated in 2019 was very misleading. 

At the very least, we know from lawsuits filed that the company overbilled government payors by $10.3 million. But it was also facing an imploding business model, so it’s hard to know what the multiple was that IPO investors paid for PROG stock.

I would suggest investors actually paid at least 8x sales for its $15 stock, perhaps more. 

The Bottom Line

Where there’s smoke, there’s fire. Adding a few new board members and hiring a new CEO will not hide the stench of this formerly fraudulent company. That said, I have no reason to believe new members of the board or management are in any way to blame for any of this mess. 

That said, I don’t see why someone would buy PROG stock when they could buy any of the 25 holdings in the VanEck Biotech ETF (NASDAQ:BBH) and likely achieve a better return for their troubles. Or even better, buy BBH if you’re looking for biotech exposure to your portfolio.

I’d be shocked if Progenity ever lives up to its IPO hype.    

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.