EX-99.2 3 prog-ex99_2.htm EX-99.2 EX-99.2

 

 

 

Exhibit 99.2

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Progenity Unaudited Pro Forma Condensed Consolidated Financial Information

SAN DIEGO, December 20, 2021 – Progenity, Inc. (Nasdaq: PROG), a biotechnology company innovating in the field of oral biotherapeutics for gastrointestinal health and beyond, closed the divestiture of its affiliate Avero Diagnostics (“Avero”) through an asset sale to Northwest Pathology. Beginning in the second quarter of 2021, Avero’s historical financial results for periods prior to the divestiture will be reflected in Progenity’s condensed consolidated financial statements as discontinued operations.

The following unaudited pro forma condensed consolidated statement of income of Progenity for the year ended December 31, 2020 is presented as if the divestiture had occurred as of January 1, 2020 and gives effect to the elimination of the historical Avero financial results due to the divestiture. The following unaudited pro forma condensed consolidated statements of income of Progenity for the year ended December 31, 2019 only gives effect to the elimination of the historical Avero financial results as if the divestiture had occurred as of January 1, 2019. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2021 is presented as if the divestiture had occurred as of September 30, 2021.

The following pro forma financial statements are based on information currently available, including certain assumptions and estimates. They are intended for informational purposes only, and do not purport to represent what Progenity’s financial position and results of operations actually would have been had the divestiture occurred on the dates indicated, or to project Progenity’s financial position or results of operations for any future date or period.

The information in the “Historical” columns in the unaudited pro forma condensed consolidated statements of income and the unaudited pro forma condensed consolidated balance sheet was derived from Progenity’s historical consolidated financial statements for the periods and as of the date presented and does not reflect any adjustments related to the divestiture and related events. The following unaudited pro forma condensed consolidated financial statements have been derived from Progenity’s historical consolidated financial statements as of and for each of the two years ended December 31, 2020, and as of and for the nine-month period ended September 30, 2021. The unaudited pro forma condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements, the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Progenity’s Annual Report on Form 10-K for the year ended December 31, 2020.

The information in the “Avero Divestiture” columns in the unaudited pro forma condensed consolidated statements of income and the unaudited pro forma condensed consolidated balance sheet has been prepared in accordance with the discontinued operations guidance in Accounting Standards Codification 205, “Financial Statement Presentation” and therefore does not reflect what Avero’s results of operations would have been on a stand-alone basis and are not necessarily indicative of Avero’s future results of operations.

In June 2021, the Company announced its plan to reallocate resources to research and development to better position the business for future growth. The plan included the closure of the Progenity genetics laboratory in Ann Arbor, Michigan and the divestiture of Avero. The Company stopped providing genetic laboratory-developed test services in its Ann Arbor, Michigan laboratory as of June 30, 2021. The adjustments to reflect the closure of the Progenity genetics laboratory are included in the "Transaction Accounting Adjustments" column in the unaudited pro forma condensed consolidated statements of income, see the accompanying notes.

 

 

 

Progenity, Inc.

Pro Forma Condensed Consolidated Balance Sheet

As of September 30, 2021

(Unaudited)

(In thousands)

 

 

Historical

 

Avero
Divestiture

 

 

Pro Forma Progenity

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

54,136

 

$

8,437

 

 (a)

$

62,573

 

Accounts receivable, net

 

1,917

 

 

 

 

 

1,917

 

Prepaid expenses and other current assets

 

10,372

 

 

 

 

 

10,372

 

Current assets of disposal group held for sale

 

26,545

 

 

(23,214

)

 

 

3,331

 

Total current assets

 

92,970

 

 

(14,777

)

 

 

78,193

 

Property and equipment, net

 

4,564

 

 

 

 

 

4,564

 

Other assets

 

147

 

 

 

 

 

147

 

Total assets

$

97,681

 

$

(14,777

)

 

$

82,904

 

Liabilities and Stockholders' Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

7,989

 

 

 

 

 

7,989

 

Accrued expenses and other current liabilities

 

40,850

 

 

 

 

 

40,850

 

Warranty Liability

 

42,402

 

 

 

 

 

42,402

 

Current portion of mortgages payable

 

75

 

 

 

 

 

75

 

Current portion of capital lease obligations

 

35

 

 

 

 

 

35

 

Current liabilities of disposal group held for sale

 

11,922

 

 

(1,831

)

 

 

10,091

 

Total current liabilities

 

103,273

 

 

(1,831

)

 

 

101,442

 

Mortgages payable, net of current portion

 

1,219

 

 

 

 

 

1,219

 

Convertible notes, net of unamortized discount of $8,255

 

156,045

 

 

 

 

 

156,045

 

Other long-term liabilities

 

14,110

 

 

 

 

 

14,110

 

Total liabilities

$

274,647

 

$

(1,831

)

 

$

272,816

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

Common stock – $0.001 par value. 350,000,000 shares authorized;
    123,279,683 shares issued; 119,567,684 shares outstanding

 

83

 

 

 

 

 

83

 

Additional paid-in capital

 

537,548

 

 

 

 

 

537,548

 

Accumulated deficit

 

(695,813

)

 

(12,946

)

 (b)

 

(708,759

)

Treasury stock – at cost; 3,711,999 shares of common stock

 

(18,784

)

 

 

 

 

(18,784

)

Total stockholders' deficit

 

(176,966

)

 

(12,946

)

 

 

(189,912

)

Total liabilities and stockholders' deficit

$

97,681

 

$

(14,777

)

 

$

82,904

 

 

 

 

 

Progenity, Inc.

Pro Forma Condensed Consolidated Statements of Operations

Nine Months Ended September 30, 2021

(Unaudited)

(In thousands, except share and per share amounts)

 

 

Historical

 

Avero
Divestiture

 

Pro Forma Progenity

 

Revenues

$

812

 

 

 

$

812

 

Cost of sales

 

-

 

 

 

 

-

 

Gross profit

 

812

 

 

-

 

 

812

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

37,300

 

 

-

 

 

37,300

 

Selling and marketing

 

4,437

 

 

 

 

4,437

 

General and administrative

 

56,753

 

 

 

 

56,753

 

Total operating expenses

 

98,490

 

 

-

 

 

98,490

 

Loss from operations

 

(97,678

)

 

-

 

 

(97,678

)

Interest expense

 

(10,450

)

 

 

 

(10,450

)

Loss on warrant liability

 

(5,818

)

 

 

 

(5,818

)

Interest and other income, net

 

18,211

 

 

-

 

 

18,211

 

Loss before income taxes

 

(95,735

)

 

-

 

 

(95,735

)

Income tax benefit

 

-

 

 

 

 

-

 

Loss from continuing operations

 

(95,735

)

 

-

 

 

(95,735

)

Loss from discontinued operations

 

(58,804

)

 

13,629

 

 

(45,175

)

Net loss

$

(154,539

)

$

13,629

 

$

(140,910

)

Net loss per share attributable to common stockholders,
    basic and diluted

$

(2.13

)

 

 

$

(1.94

)

Weighted average number of shares outstanding,
    basic and diluted

 

72,590,873

 

 

 

 

72,590,873

 

 

 

 

Progenity, Inc.

Pro Forma Condensed Consolidated Statements of Operations

Year Ended December 31, 2020

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Historical

 

Avero
Divestiture

 

Transaction Accounting Adjustments (c)

 

Pro Forma Progenity

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

74,313

 

$

(40,370

)

$

(33,781

)

$

162

 

Cost of sales

 

 

93,433

 

 

(34,758

)

 

(58,675

)

 

—

 

Gross (loss) profit

 

 

(19,120

)

 

(5,612

)

 

24,894

 

 

162

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

47,743

 

 

—

 

 

—

 

 

47,743

 

Selling and marketing

 

 

52,887

 

 

(9,036

)

 

(37,902

)

 

5,949

 

General and administrative

 

 

75,438

 

 

(8,010

)

 

(10,780

)

 

56,648

 

Total operating expenses

 

 

176,068

 

 

(17,046

)

 

(48,682

)

 

110,340

 

Loss from operations

 

 

(195,188

)

 

11,434

 

 

73,576

 

 

(110,178

)

Interest expense

 

 

(9,984

)

 

69

 

 

 

 

(9,915

)

Interest and other expense, net

 

 

(24,888

)

 

(196

)

 

 

 

(25,084

)

Loss before income taxes

 

 

(230,060

)

 

11,307

 

 

73,576

 

 

(145,177

)

Income tax benefit

 

 

(37,532

)

 

 

 

 

 

(37,532

)

Loss from continuing operations

 

 

(192,528

)

 

11,307

 

 

73,576

 

 

(107,645

)

Loss from discontinued operations

 

 

—

 

 

 

 

(73,576

)

 

(73,576

)

Net loss

 

 

(192,528

)

 

11,307

 

 

—

 

 

(181,221

)

Dividend paid to preferred stockholders

 

 

(268

)

 

 

 

 

 

(268

)

Net loss attributable to common stockholders

 

$

(192,796

)

$

11,307

 

$

-

 

$

(181,489

)

Net loss per share attributable to common stockholders,
   basic and diluted

 

$

(7.01

)

 

 

 

 

$

(6.60

)

Weighted average shares outstanding, basic and diluted

 

 

27,512,876

 

 

 

 

 

 

27,512,876

 

 

 

 

 

Progenity, Inc.

Pro Forma Condensed Consolidated Statements of Operations

Year Ended December 31, 2019

(Unaudited)

(In thousands, except share and per share amounts)

 

 

Historical

 

Avero
Divestiture

 

Transaction Accounting Adjustments (c)

 

Pro Forma Progenity

 

 

 

 

 

 

 

 

 

 

Revenues

$

143,985

 

$

(41,231

)

$

(102,754

)

$

—

 

Cost of sales

 

100,492

 

 

(30,539

)

 

(69,953

)

 

—

 

Gross profit (loss)

 

43,493

 

 

(10,692

)

 

(32,801

)

 

—

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

63,400

 

 

(28

)

 

 

 

63,372

 

Selling and marketing

 

58,888

 

 

(6,825

)

 

(44,214

)

 

7,849

 

General and administrative

 

61,324

 

 

(7,106

)

 

(8,001

)

 

46,217

 

Total operating expenses

 

183,612

 

 

(13,959

)

 

(52,215

)

 

117,438

 

Loss from operations

 

(140,119

)

 

3,267

 

 

19,414

 

 

(117,438

)

Interest expense

 

(9,199

)

 

(120

)

 

 

 

(9,319

)

Interest and other income, net

 

575

 

 

1

 

 

 

 

576

 

Loss before income taxes

 

(148,743

)

 

3,148

 

 

19,414

 

 

(126,181

)

Income tax benefit

 

(706

)

 

 

 

 

 

(706

)

Loss from continuing operations

 

(148,037

)

 

3,148

 

 

19,414

 

 

(125,475

)

Loss from discontinued operations

 

—

 

 

—

 

 

(19,414

)

 

(19,414

)

Net loss

 

(148,037

)

 

3,148

 

 

—

 

 

(144,889

)

Dividend paid to preferred stockholders

 

(3,652

)

 

 

 

 

 

(3,652

)

Stock dividend on exchange of Series A-1
    to Series B Preferred Stock

 

(27,637

)

 

 

 

 

 

(27,637

)

Stock dividend on Series B Preferred Stock

 

(49,501

)

 

 

 

 

 

(49,501

)

Net loss attributable to common stockholders

$

(228,827

)

$

3,148

 

$

-

 

$

(225,679

)

Net loss per share attributable to common stockholders,
    basic and diluted

$

(46.87

)

 

 

 

 

$

(46.22

)

Weighted average shares outstanding,
    basic and diluted

 

4,882,662

 

 

 

 

 

 

4,882,662

 

 

 

 

 

Progenity, Inc.

Pro Forma Condensed Consolidated Financial Information

(Unaudited)

 

Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

a)
Adjustment represents cash consideration from the sale of Avero for $10.9 million, less transaction costs of $2.5 million.
b)
Adjustment represents the loss on the Sale Transaction assuming the Company had completed the sale as of September 30, 2021 is as follows (in thousands):

Net cash proceeds

 

$

10,887

 

Net assets sold

 

 

(21,209

)

Adjustment for transaction costs

 

 

(2,450

)

Loss on sale

 

$

(12,946

)

The loss is only reflected in retained earnings on the unaudited pro forma condensed consolidated balance sheet as of September 30, 2021. The actual loss on the sale of Avero will likely be different from the amount above due to a difference in (i) asset and liability balances at the date the Sale Transaction closes, (ii) certain working capital adjustments, (iii) the actual Sale Transaction costs used in determining the net cash proceeds from the Sale Transaction.

c)
As presented within the Q2 2021 10-Q filed on August 12, 2021, in order to refocus efforts and resources on the Company's research and development pipeline, in June 2021, the Company announced a strategic transformation that included the closure of the Progenity genetics lab in Ann Arbor, Michigan. These adjustments are to re-classify the operations related to the Progenity genetics lab from continuing operations to discontinued operations for the annual periods ending December 31, 2020 and December 31, 2019.