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Progenity Files for IPO, Seeks to Raise up to $100M

This article has been updated to clarify that the funds Progenity plans to use to meet settlement obligations has already been accrued.

NEW YORK — Molecular diagnostics testing lab Progenity on Wednesday filed to sell up to $100 million of its shares through an initial public offering on the Nasdaq.

While Progenity said that the proceeds of the planned IPO will go toward typical business expenses, much of it will be used to end criminal and civil investigations over past billing practices and settle allegations of misconduct by three major insurance companies, according to a filing with the US Securities and Exchange Commission.

Piper Sandler and Wells Fargo Securities are the joint book-running managers on the offering. Other underwriters include Robert W. Baird, Raymond James, and BTIG.

Progenity's product line includes the noninvasive prenatal tests Resura, for monogenic disease, and Inntal, for chromosomal aneuploidies. The Ann Arbor, Michigan-based firm also offers the Preparent Carrier Test for genetic diseases that parents can pass to their children, Riscover for hereditary cancer risk, and a range of anatomic and molecular pathology tests and specialized genetic tests provided through affiliate Avero Diagnostics.

Progenity is also developing a next-generation version of Innatal that is expected to launch by the end of 2021, a proteomics-based preeclampsia rule-out test, and a platform for gastrointestinal (GI) disorders that uses a localizable, ingestible capsule to obtain a GI tract sample for diagnostic analysis or to deliver a therapeutic payload.

In the SEC filing, Progenity said that it intends to use the proceeds of the IPO for R&D related to its molecular testing products and GI disorder platform, as well as for working capital and general corporate purposes, and to meet its settlement obligations. According to the firm's SEC filing, it has agreed to pay $49.0 million over a five-year period to resolve criminal and civil charges filed by the US Department of Justice and the State of New York over billing practices for its NIPT and microdeletion tests, as well as alleged kickbacks or inducements made to physicians and patients. Under the terms of that agreement in principle, it will pay $8.0 million upon entering into the settlement; $4.0 million in December 2020; $5.0 million in December 2021; $7.0 million in December 2022; $8.0 million in December 2023; $9.0 million in December 2024; and $8.0 million in December 2025 for a release of the civil claims. The firm also said it will enter into a non-prosecution agreement to resolve all criminal allegations. 

Progenity said that as of Dec. 31, 2019, it had accrued an aggregate of $35.8 million associated with the potential settlement, and in the quarter ended March 31, 2020, the firm accrued an additional $13.2 million with respect to the total amount to be paid under the agreement in principle to the DOJ and the states' attorneys general participating in the agreement.

Progenity also said in the SEC filing that it had recently agreed to pay millions to insurers Cigna, Aetna, United HealthCare under settlement agreements related to allegations about undisclosed past business practices. Specifically, Progenity would pay Cigna $12.0 million on behalf of Avero, of which $2.5 million remains outstanding; Aetna $15.0 million, of which $7.5 million remains unpaid; and United HealthCare $30.0 million, with $23 million remaining to be paid.

Progenity said in the filing that it generated $144.0 million in 2019, versus $128.0 million the year before. R&D spending in 2019 increased 30 percent year over year to $63.4 million from $48.7 million, while SG&A costs rose 18.5 percent to $120.2 million from $101.4 million.

The firm posted a 2019 net loss of $148.0 million, versus $129.1 million in 2018.

At the end of 2019, Progenity, which raised $125 million in a Series B round in late 2017, had cash and cash equivalents totaling $33.0 million.