Diamond Equity Research Initiates Coverage on ProPhase Labs Inc. (NASDAQ: PRPH)
NEW YORK, May 01, 2023 (GLOBE NEWSWIRE) -- Diamond Equity Research, a leading equity research firm with a focus on small capitalization public companies has initiated coverage of ProPhase Labs Inc. (NASDAQ: PRPH). The in-depth 32-page initiation report includes detailed information on the ProPhase’s business model, services, industry, valuation, management, and risks.
The full research report is available here. Highlights from the report include:
Diagnostics Business Enabling Pivot Toward Niche and Emerging Business Segments: ProPhase's strategic evolution from a predominantly diagnostics-centric company to a multifaceted healthcare organization is underscored by its ability to capitalize on the success and cash generation of its diagnostics division. By investing in and growing healthcare companies such as genomics and biopharma, the company expands its market presence and fosters revenue diversification. The company's management is ambitiously striving to transform ProPhase Labs into an all-encompassing healthcare powerhouse, with diagnostics and genomics pinpointing disease origins, contract manufacturing delivering top-tier production capabilities, and the biopharma division driving the development of cutting-edge therapies and treatments.
Solid Financial Performance Showcasing Substantial Progress: The company reported strong growth across all its major business divisions for the year ended 2022. In 2022, ProPhase Labs reported revenue of $122.64 million, a significant increase from the $79.04 million recorded in 2021. This translates to a year-over-year (y-o-y) growth rate of 55.16%. In 2022, the diagnostics business itself experienced a 63.3% revenue growth, mainly due to increased COVID-19 testing volumes in response to the spread of the Omicron variant. Other divisions, such as contract manufacturing and genomics, have also reported impressive growth numbers. We anticipate a contraction in diagnostics revenue for 2023 and 2024 due to changing market dynamics. To offset this, ProPhase is focusing on growth in BioPharma, Contract Manufacturing, and Genomics divisions. The BioPharma division aims to fully commercialize its esophageal cancer test by H1 2024, while Contract Manufacturing and Genomics divisions are expanding their client base and distribution channels.
Valuation: The market has been conservative in valuing ProPhase, possibly undervaluing its potential and expertise across multiple segments due to a lack of understanding of the unique strengths and synergies between divisions. The genomics business and esophageal pre-cancer test operate in promising markets with billion-dollar opportunities. The management remains strongly optimistic about its genomics business and expects over 100% growth in 2023. These businesses are regarded as somewhat de-risked, given their exceptional value proposition and the overall market undervaluation of the company. With its impressive competitive positioning, exceptional product offerings, and tremendous growth potential within the genomics market, it can be reasonably argued that Nebula, as an independent entity, has the potential to command a valuation in the range of $80-$120 million. Furthermore, the company’s Equivir and Linebacker portfolios are supported by a strong sound scientific background and present high upside optionality in terms of shareholder value creation. We assessed the company's value at around $344 million or $20.00 per share using a combination of DCF and SOTP valuation methodologies, allocating equal weightage to both approaches. The DCF assumptions include a discount rate of 12.5% and a terminal growth rate of 1.5%. By using the median 2024e EV/Revenue multiple for each business division and their forecasted revenue numbers, we have determined the value of each segment. Subsequently, we aggregated these values to derive the overall SOTP valuation for the company, providing a detailed and nuanced perspective on the company's worth. However, the valuation is contingent on the company's successful execution and is subject to change with new information or progress in development and commercialization processes.
Significant Momentum Across Nascent Business Domains: ProPhase is strategically positioned to capitalize on emerging opportunities across its contract manufacturing, genomics, dietary supplements, and biopharma divisions. The contract manufacturing division, PMI, has experienced significant revenue growth due to an expanding client base, an extended manufacturing agreement with Mylan, and facility improvements. Management expects a 200% increase in production capacity over the next two years, projecting to triple the division's revenue from $8 million to $25 million by 2024. The genomics division, Nebula, is set to benefit from the growing demand for direct-to-consumer genetic testing, driven by factors such as customized healthcare solutions, precision medicine, and a decrease in whole genome sequencing costs. Nebula excels as the price and quality leader in the industry, providing valuable DNA testing insights and maintaining a competitive position among low-cost genotyping service providers. An extended distribution network and partnerships with research-focused universities will likely fuel further expansion in this field. The dietary supplements segment targets the growing health and wellness market, while the biopharma division develops innovative products, such as the BE-Smart esophageal cancer test, addressing urgent medical needs within a multi-billion-dollar market. It is being developed in collaboration with the Mayo Clinic and may be commercialized as early as Q1 2024. The biopharma division is also developing Linebacker, a cancer co-therapy with excellent pre-clinical results being developed in collaboration with Dana Farber Cancer Institute and Harvard University scientists. Additionally, ProPhase has displayed a remarkable ability to identify and execute value-enhancing acquisitions at highly favorable market valuations.
Executives With a Proven Track Record of Execution and Adaptability: The leadership of ProPhase Labs, under Ted Karkus' supervision, has skillfully navigated the company's growth by organically developing the diagnostics business and swiftly growing it into a $100 million business. The management team has accomplished remarkable growth and profitability by prudently allocating resources and investing in advanced genomic sequencing tools and innovative drug-development projects. This adept approach to managing growth and resources highlights the team's ability to deliver sustained success while continuously exploring new avenues in healthcare innovation. The team has also exhibited exceptional adaptability in modifying strategies, as demonstrated by their swift response to the discontinuation of the HRSA uninsured program for COVID-19 testing. Moreover, the company is capitalizing on its vast biopharma experience and utilizing genomics as a strategic advantage to create synergies across diagnostics, genomics, and biopharma business divisions. The management led by Ted Karkus' successfully turned around the flagship Cold-EEZE brand, significantly growing revenues before selling the brand to Mylan for $50 million in 2017. Notably, Ted Karkus previously forced the restructuring, turnaround, and new direction for ID Biomedical, a Canadian biotech company, ultimately leading to its acquisition by GlaxoSmithKline for over $1.4 billion.
About ProPhase Labs Inc.
ProPhase Labs, Inc. (Nasdaq: PRPH) is a diversified diagnostic, genomics, and biotechnology 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 an annual or semi-annual research engagement. As of 05/01/2023, the issuer had paid us $35,000 for our services, which commenced 03/21/2023 and is billed annually. 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 not paid us for non-research related services as of 05/01/2023. Issuers are not required to engage us for these additional services. Additional fees may have accrued since then. 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.
Contact:
Diamond Equity Research
research@diamondequityresearch.com
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