Precipio, Inc. (NASDAQ: PRPO) had a strong trading session in the market today, gaining 5% throughout the day and an additional 1.39% after hours. The gains come after the company announced early success in an effort to expand its offering to an international stage.
If you’re not familiar with PRPO, consider reading my detailed report on the company here. Nonetheless, the company is focused on advanced cancer diagnostics screening and recently announced plans to take its products to the global stage. Just a few sessions later, the company is already boasting success. Let’s dive in.
PRPO Stock Climbs On Early Success In International Efforts
As mentioned above, the gains that we’ve seen in Precipio since early in the premarket hours came as a result of early succes in the company’s efforts to bring its products and technologies to the international diagnostics stage. The company announced early this morning that it entered into its first major international contract with a firm that manages several major hospitals in Egypt.
On April 24, 2019, just five calendar days ago, PRPO announced a global expansion strategy led by its recently appointed Chief Strategy Officer, Ori Karev. In the announcement, the company said that it plans on initially targeting India, China, Malaysia, various European countries and the gulf countries in the Middle East.
The company had one heck of a head start as well. After all, the company’s recently appointed Chief Strategy Officer was responsible for helping UnitedHealthcare Global enter into around 100 markets around the world. As a result, his rolodex is an impressive one that’s already proving its worth.
Precipio Announces A Break Into Egypt
Impressively, just five days after announcing international efforts and little more than a week after announcing the appointment of Mr. Karev, Precipio has announced its first major success in its global expansion plans.
In a press release issued in the pre-market this morning, the company said that it entered into a services contract with a health care management group that serves various major hospitals and is based in Cairo, Egypt. According to the release, the company will be providing both expert pathology diagnostic services and proprietary technologies.
In the beginning, the hospitals will send Precipio biopsies for both primary diagnosis and secondary opinion. Down the road, the company is expecting that collaborations will include the establishment of laboratory operations within Egypt. These laboratories will license the company’s technologies to provide liquid biopsy testing using ICE-COLD PCR and HemeScreen.
Moreover, the PRPO investors aren’t going to have to wait long to see a meaningful improvement in revenue. In fact, the company said that it “anticipates significant first year revenues.”
Moreover, once the company’s liquid biopsy and HemeScreen tests are available in Egypt, the company expects to see yet another substantial increase in revenue. The first of the revenue growth is expecting to be seen no later than the end of the second quarter.
Why This Announcement Is So Important
In my view, there are multiple reasons that the announcement is an important one for PRPO investors. Here’s how I see it:
First and foremost, the clear benefit for investors here is an increase in revenue. However, revenue gains aren’t the only way that the company is likely to see a positive financial impact as a result of the news.
In fact, there’s an important term often used in the market known as economies of scale. Essentially, when a company produces more product, the cost of production for each unit tends to decline.
This is due to bulk pricing perks seen when buying more base supplies to create products, use of manufacturing equipment and personnel to a higher potential, and more. At the end of the day, the more volume produced, the lower the cost, ultimately improving margins.
In fact, the company pointed to this fact in the press release itself. In the release the company said that “early estimates project H2-2019 gross margin to be improved by 20 to 25 points.”
Another positive financial impact comes from how business in done in the medical sector in Egypt. Instead of having to wait for reimbursements like what we see in the domestic space, in Egypt and other global markets, cash is prepaid.
Aside from the financial impact of this single deal, one thing that this agreement screams to me is that the strategy is working. Think about it. Sure, Precipio likely wanted to enter a global stage for some time. However, the timing wasn’t right.
Once they had the right team member to lead the charge, Ori Karev, the company went full steam ahead with the strategy. In comments on this post, a commentator with the pseudonym “oldyahooposter” made the following argument:
And how long do you think it will take for any deals in other regions, especially those that rely on gov funded health care, to materialize? 1 Month? 6 Months? A year?
All in all, I responded that even if it took a year to monetize, an entrance into the global space would provide long run value for the company. Well, now we know, it’s going to take less than a quarter to realize some revenue from these efforts, with significant revenue growth expected by the end of the year.
Through the agreement, Precipio is showing that it is hitting the ground running, taking aggressive steps to bring its products to the global scale. Considering this early success, I’m expecting that the strategy will lead to more deals in the very near future.
In fact, in the press release announcing the launch into the global space, Precipio said that it “has already launched discussions with leading hospitals, healthcare providers and regional health insurance carriers to discuss implementation of Precipio’s model in their respective countries.”
The key here is that the company is in multiple discussions. This early success in one of the markets that represents a large opportunity suggests that future agreements that will add more significant revenue growth are highly likely.
As I continue to follow the news surrounding PRPO, my opinion surrounding the stock only becomes more positive. With a market cap of just $373 million and an entrance into a global market that could yield billions in annual revenue, I believe that the stock is highly undervalued. As more significant global agreements come down the line, the stock could gain in multiples!
What Do You Think?
Where do you think PRPO is headed moving forward? Join the discussion in the comments below!