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66 Days Left on $1 Call |
MNTR Forecast at $28.60 in 2012by Mike Havrila
The stock research section of BioMedReports.com 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 t
he company and click
here to view the Mentor Capital Cancer Immunotherapy Index of 10
stocks.
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 t
he 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 t
he 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.
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