LH - ProPhase Labs: Lots Of Moving Pieces

Summary

• Medical diagnostic and testing concern ProPhase Labs, Inc. gets put in the spotlight today.
• ProPhase Labs, Inc. has seen huge revenue growth from Covid testing but is rapidly diversifying into other areas.
• An investment analysis follows in the paragraphs below.

Hysteria is impossible without an audience. Panicking by yourself is the same as laughing alone in an empty room. You feel really silly. ”? Chuck Palahniuk, Invisible Monsters.

Today, we take our first in-depth look at ProPhase Labs, Inc. ( PRPH ) . The company develops, markets and distributes over the counter ((OTC)) consumer healthcare products and dietary supplements. The company's ProPhase Diagnostic division benefited greatly from Covid19 testing, a revenue stream that has all but slammed shut now as the pandemic has finally ebbed.

What's ahead for ProPhase Labs, Inc. as its faces a large revenue drop in fiscal 2023? An analysis follows below.

Company Overview:

ProPhase Labs is headquartered just outside of New York City. The company has five business divisions which is nicely encapsulated via the slide below.

ProPhase Labs, Inc. stock currently trades just above seven bucks a share and has an approximate market capitalization of $125 million.

Third Quarter Results:

On November 10th, the company posted its third quarter results . ProPhase had a GAAP profit of six cents a share even as year-over-year revenues soared nearly 155% to $24.2 million. Bottom line numbers badly missed expectations while sales were nearly $3 million above the consensus. Adjusted EBITDA came in at a positive $6.3 million compared to a negative $1.3 million in 3Q2021.

The increase in sales was the result of a $13.4 million boost in revenue from diagnostic services and $1.3 million increase in consumer products as the company benefited from the Omicron variant driving its Covid testing volume in the third quarter of last year.

ProPhase has been branching out from its core testing and TK Supplements business. In the summer of 2021, the company acquired privately-owned genomics company Nebula Genomics in a small cash and stock deal ($14.6 million total). The company is in the process of integrating Nebula’s whole genome sequencing services with its clinical diagnostic testing services offered at the company's CLIA-certified molecular testing laboratories.

In early summer of last year, the company announced the creation of a new subsidiary called ProPhase BioPharma that will focus on the licensing and development of drugs, compounds and biotechnology. Just over three weeks later, this new unit acquired the exclusive worldwide rights to develop and commercialize two inhibitors - LB-1 and LB-2 - for the treatment of cancer, inflammatory diseases and memory-robbing diseases.

Finally, at the start of the fourth quarter, ProPhase announced a collaboration with G42 Healthcare. The two companies will target emerging markets across the globe and joint venture opportunities as well as explore creation of an advanced genomic sequencing facility in the U.S. and will look to collaboratively improve genomic sequencing capabilities.

Analyst Commentary & Balance Sheet:

The company gets sparse coverage on Wall Street. Only one analyst firm has chimed in around the company in the past six months. Last Thursday, H.C. Wainwright reiterated its Buy rating and $15 price target on the shares.

There has been no insider activity in ProPhase Labs, Inc. stock since March of 2022. Just over two percent of the outstanding float in the shares are currently held short. The company ended the third quarter with just under $23 million worth of cash and marketable securities on its balance sheet. The company has approximately $8 million of long-term debt. ProPhase has a small stock buyback plan in place and has paid special dividends in its past.

Verdict:

ProPhase Labs, Inc. is on track to post a dollar a share of profits or better in FY2022, as revenues soared over 50% to an estimated $120 million. The two analyst firms that have posted estimates believe sales will fall into a range of roughly $53 million to $67 million in FY2023, however.

There seem to be too many unknowns at the moment for any sort of investment recommendation around ProPhase right now. Fourth quarter numbers should have been out already based on the calendar of previous earnings releases.

Covid testing revenues are dropping off a cliff across the industry, with a 90% drop recently predicted in 2023 by the leadership at industry giant Laboratory Corporation of America Holdings ( LH ) . ProPhase has diversified its business by acquisition and collaborative arrangements over the past two years, but it is yet to been seen if these efforts will bear fruit.

With overall sales plunging in FY2023 and likely net losses for the fiscal year, I am going to stay on the sidelines around this story until investors have more data points/clarity to make an investment decision around ProPhase Labs, Inc.

An accident is often caused by an attempt to prevent one .”? Mokokoma Mokhonoana

For further details see: