NEW YORK, Feb. 21, 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, valuation, management, and risks.
The update note is available here. Highlights from the note include:
- Key Client Wins and Expansion Plans Fuel Strong Near-Term Growth Momentum: Pharmaloz Manufacturing Inc. (PMI) is experiencing notable growth momentum, propelled by strategic initiatives that strengthen its position in the Contract Development and Manufacturing Organization (CDMO) market, especially within the over-the-counter (OTC) segment. In the first quarter of 2024, PMI executed an approximately 15% price hike across its entire product portfolio, capitalizing on robust market demand and a competitive landscape with limited competition, which is expected to significantly boost revenues and profit margins. Additionally, the company secured two new major contracts in January 2024 with two major lozenge brands, anticipated to increase annual revenues by an additional $5 million and pre-tax profits by an additional $1.25 million, with projections of further revenue growth as capacity expands. These developments remarkably elevate PMI’s estimated revenue run rate to $16 million by the second quarter of 2024, with an annualized net profit forecast of $3.2 to $4 million, translating to a net profit margin of 20-25%. It's important to note that these forecasts exclude revenues from TK supplements, which are estimated to contribute an additional $2.5 to $3 million in profitable revenue. PMI also reported that it is in late-stage discussions with an additional two major global lozenge brands. Contracts with either one has the potential to double or triple the $16 million run rate of estimated business.
- Long Term Growth Trajectory Extremely Positive: In response to escalating demand, PMI has embarked on an aggressive expansion strategy, underpinned by the recent acquisition of advanced automation equipment. This equipment is expected to augment production capacity by over 50%, raising annual production capabilities to at least $16 million by Q2 2024. The subsequent installation of a second production line and further automation in Q3 2024 aims to double this new increased capacity to a revenue run rate of $30-$35 million, with plans for additional enhancements in Q4 2024 to potentially increase annual production to $60-$80 million by mid-2025. By extending the workweek, PMI aspires to reach a milestone of $100 million in revenue which could in turn generate $20-$25 million in net profit. The management's strategic foresight envisions expanding production capacity to $200 million in annual revenues over the next three years, leveraging positive market reception, and favorable trends in the OTC market.
- ProPhase Labs' Bold Leap Forward with Nebula Genomics: ProPhase Labs has appointed Jason Karkus as President of Nebula Genomics, marking a significant shift towards expanding its genomics business into the business-to-business space in addition to the direct-to-consumer space. Karkus, known for his leadership in driving ProPhase Diagnostics to a $200 million revenue milestone from Covid testing, will spearhead Nebula's growth in B2B operations, D2C Whole Genome Sequencing (WGS) offerings, and the operation of a state-of-the-art lab featuring sequencing platforms from several global manufacturers. This move responds to the growing importance of WGS in personalized precision medicine, a field where Nebula has already established a foothold through direct sales and international partner labs. Nebula Genomics aims to transform the WGS consumer market with a competitively priced genetic testing product set to launch in 2024. Historically, high costs have limited the accessibility of WGS for many healthcare providers. However, Nebula's world-class genomics lab located in Garden City, NY now positions it to offer some of the lowest cost sequencing services, making WGS more accessible domestically and globally. This can spark significant interest among telemedicine platforms and physician networks to offer WGS to their patients at a low cost for the first time, which can potentially turn Nebula's B2B initiative into a multi-hundred-million-dollar business within a few years. With strategic partnerships and experienced executives driving the initiative, Nebula Genomics is poised to play a pivotal role in the advancement of personalized precision medicine.
- Equivir Trial Shows Promising Immunity Boost Against Respiratory Viruses: ProPhase Labs has reported promising preliminary results from the clinical trial of its dietary supplement, Equivir, which is under evaluation for its potential to strengthen immunity against upper respiratory viruses, including colds, flu, and Covid-19, and is designed as a capsule to be taken like a multivitamin. Conducted by Vedic Life Sciences in India, the study involves 300 participants across two double-blind, placebo-controlled trials. The interim analysis shows a significant reduction in viral infection rates and symptom severity for those taking Equivir compared to a placebo. Notably, 62.3% in the placebo group experienced viral infections, compared to only 37.7% of Equivir recipients, with Equivir users also showing quicker recovery and no instances of reinfection. While not seeking FDA drug approval, ProPhase Labs plans to market Equivir as an OTC supplement, with full results to be published after the completion of the second trial in Q2 2024. The company anticipates leveraging its extensive distribution network for a successful product launch in late 2024, and highlights Equivir's potential to significantly contribute to the company's profitability. Furthermore, the product will be encapsulated and packaged at the Pharmaloz plant thereby increasing its potential contribution to the bottom line. Following the strategic sale of the Cold-EZEE brand for $50 million, recent trial results suggest that Equivir may be a broad-based antiviral that can potentially surpass the value of Cold-EEZE. Consequently, management plans to leverage the marketing and distribution channels originally developed for Cold-EEZE, aiming to achieve significant market penetration and impact with Equivir.
- BE-Smart Test Game Changing Technology Nears Commercialization with Broad IP Protection Granted: BE-Smart is a novel diagnostic test intended to detect and quantify early signs of certain types of cancer in individuals with Barrett's Esophagus, a condition known to significantly increase the risk of developing esophageal cancer. This breakthrough test has shown an area under curve of greater than 99% distinguishing highly impactful histologic classification, identifying whether the biopsied tissue is currently cancerous. Importantly, and what is particularly important to the insurance companies, the test can also targets to project whether the patient is at high risk or low risk of developing esophageal cancer. This would allow for a simple procedure to eradicate the pre-cancerous cells and save a significant number of lives. The test has been in development for nearly five years and is nearing the completion of clinical studies. If the clinical trial results are successful, the company will aim for a commercial launch in 2024. Recently, an additional 139 specimens were analyzed in collaboration with The Mayo Clinic for the purpose of assessing the test's precision and reliability in identifying esophageal adenocarcinoma risk. These additional specimens continue to achieve consistently positive preliminary results. All tested samples are currently under review by Genesis Biotechnology Group, a leading independent statistical analysis firm, for independent verification of the results. The company was granted broad-ranging IP that protects its novel approach to identifying biomarkers for use in oncology and other disease types. With an estimated 20 million people suffering from Barrett’s Esophagus, the test could have multi-billion-dollar long-term potential.
- BE-SMART Targeting Enormous Market with Imminent Launch: ProPhase has recently announced the appointment of Jed Latkin as its Chief Operating Officer (COO). Mr. Latkin, holds a Columbia MBA and a distinguished track record in various leadership roles, is poised to significantly enhance ProPhase's trajectory. Notably, he played a key role in representing the seller during ProPhase's acquisition of the BE-SMART Esophageal Cancer Test, underscoring his critical involvement in the company's biotechnological advancements. His extensive background in finance and operations, especially within the pharmaceutical sector, is anticipated to be crucial for the commercialization of the BE-Smart test. The company places significant emphasis on the rollout of the BE-Smart Esophageal Cancer Test, targeting a 2024 launch. This diagnostic innovation is set to potentially revolutionize esophageal cancer screening by offering a novel approach to early detection and treatment, potentially redefining clinical standards in the field. The BE-Smart test specifically targets the initial market of 7 million annual endoscopies conducted for GERD (Gastroesophageal Reflux Disease) and Barrett’s Esophagus diagnoses. ProPhase estimates the reimbursement for this test to range between $1,000 and $2,000, projecting an initial market potential of $7 billion to $14 billion. There is also the potential that insurance companies might mandate the utilization of the BE-Smart test in these endoscopic procedures. Additionally, the possibility of partnering with a major cancer testing company could further amplify its market reach. Thus, with only a minimal investment needed before its commercialization, the BE-SMART test is potentially well-positioned to secure notable market share.
- Valuation: Considering Pharmaloz Manufacturing Inc.'s comprehensive expansion strategy, our analysis leads us to conclude that the intrinsic value of Pharmaloz alone potentially exceeds the current market capitalization of ProPhase Labs. It is important to note that ProPhase Labs encompasses several other valuable entities as well, including Nebula Genomics, BE-Smart esophageal cancer test and Equivir broad based anti-viral. In light of these factors, we reaffirm our valuation of ProPhase Labs at $20.00 per share, contingent on the company's successful execution of its strategies. Additionally, the goal to commercialize both Equivir and BE-Smart this year could significantly amplify ProPhase Labs' revenue and potentially its valuation.
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.
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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 02/21/24 the issuer had paid us $77,500 for our research services which commenced 03/21/23, and is billed annually upfront, consisting of $35,000 for the annual subscription and $2,500 for additional one-time research work 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. Issuers are not required to engage us for these additional services. The issuer has paid us for non-research-related services as of 02/21/24 consisting of $2,500 for attending a virtual conference. Issuers are not required to engage us for these 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 potential 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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