|Mentor Capital (MNTR.pk): A Risk-Mitigated Call Option on QI's Cancer Immunotherapy|
|Friday, 28 August 2009 20:37|
The stock research section of BioMedReports has been updated to include my 8-page report for Mentor Capital (MNTR.pk), which is current as of the 8/28/09 publication date. Highlights from the report that make Mentor's stock a compelling investment for individuals interested in the small/micro-cap biomed space are outlined below. Click here for my initial overview article on the Company and click here to view the Mentor Capital Cancer Immunotherapy Index of 10 stocks.
1.) Blockbuster, billion dollar sales potential for QI's experimental cancer immunotherapy
2.) Quantum Immunologics (QI) expects to have all 27 women started in the three-month procedure by end of December 2009, which puts them at reportable stage by March 2010 for possible reporting of Phase I/II clinical data by May 2010
3.) Mentor Capital has 28 million (M) in stepped warrants outstanding for up to $145M in cash funding, with the warrants exercisable at $1, $3, $5, and $7/share for built-in financing from 1,386 shareholders and estimated, fully-exercised $250 million market cap at $8.80/share
In early July, as the first of four steps leading to an anticipated merger and name change, Mentor Capital acquired a 20% ownership stake in an innovative clinical stage cancer immunotherapy company, Quantum Immunologics, Inc. (QI). QI is a privately held company with a goal of initially marketing its active immunotherapy for the treatment of breast cancer in the U.S., in addition to planning for new studies in other types of cancer and a new cancer screening tool. Mentor Capital is providing funding for QI to complete its ongoing, FDA-authorized Phase I/II trials for its experimental metastatic breast cancer treatment, in addition to possible acquisitions and additional clinical trials.
The last full count of Mentor Capital shares before the QI transaction was 583,443. At the time of the transaction, it was closely estimated that the total MNTR shares were 600,000. The price paid by Mentor Capital for its 20% stake in Quantum was $2,244,000, which equates to the following on a per-share basis using the most recent financial data for the Company: $2,244,000 / 700,000 = $3.20 per share as of 8/28/09, compared to the latest closing price for MNTR.pk of $2.65/share.
Based on NCI/NIH (National Cancer Institute, National Institutes of Health) statistics, the estimated number of new breast cancer cases and deaths among women in the U.S. for 2009 is 192,370 and 40,170, respectively. The following conservative model estimates a cost of $30,000 for QI's proprietary dendritic cell OFA/iLRP-loaded cancer immunotherapy, which is at the lower end of estimates for pricing of Dendreon's Provenge.
Assuming just 75% penetration for the approximately 40,000 estimated deaths yields a $900M market opportunity in the U.S. alone = 30,000 patients X $30,000 per treatment. Assuming a similar market opportunity in Europe yields a potential global market opportunity of about $2B at the time of potential commercialization for QI's cancer immunotherapy product, which would likely be around mid-2012 at the earliest or about two years behind Dendreon's planned launch of Provenge in 2010.
This model assumes that the product would be reserved for late-stage cases of breast cancer in women who have failed at least one prior form of chemo and/or radiation therapy. However, because the OFA/iLRP marker has been found on many types of cancer and does not occur in normal tissue, future clinical trials may yield additional indications for QI's dendritic cell cancer immunotherapy.
A partnership with a global, oncology-focused bio-pharmaceutical company would likely occur late in development due to the high-risk nature of the cancer immunotherapy space and previous failures by companies such as Genitope (GTOP.PK) and Favrille. However, the positive clinical trial data reported by Dendreon earlier this year highlights the enormous potential of the space in terms of both improving cancer patient outcomes and achieving exponential stock price/market cap gains.
A 20% royalty rate on $2B in sales would translate into $400M of annual royalties for QI, equating to $80M for Mentor Capital's current 20% stake. Assuming all warrants are converted, Mentor Capital would have 28M shares of common stock outstanding, $145M in cash, and collect nearly $3/share in pure profits as a royalty collection vehicle for its stake of the QI royalties = $80M / 28M shares = $2.86/share. Applying a conservative 10X price to earnings (P/E) multiple yields a $28.60/share stock price target for Mentor Capital and this is based on just a 20% stake in QI, which is likely to increase as Mentor provides additional funding during the clinical development process.
Buying Mentor Capital's common stock at its current price of $2.65/share is like a risk-mitigated call option on QI's cancer immunotherapy candidate which could pay off exponentially in terms of stock price gains - yet the Company has $145M in stepped warrant funding so that the downside in this case is not zero because Mentor Capital has only committed $2.2M at this time to fund the Phase I/II trial through early 2010.
Disclosure: Long MNTR.pk