Biotech company Monopar Therapeutics (NASDAQ:MNPR) has
updated its planned IPO offering. Monopar had planned to raise $40 million back
in August and September, but Renaissance Capital reported in October that
Monopar had postponed the IPO due to market conditions. Now, Monopar is
planning to move forward, but it will be raising merely $20 million this time.
The share price will remain the same with a $8 to $10 range, but Monopar will
sell just 2.2 million shares instead of 4.4 million.
Monopar’s revised SEC report states that it will have
11.5 million outstanding shares after the offering, given it a market cap of up
to $115 million. This is very small for a biotech IPO, which does mean reduced
risk. There are major reasons to be skeptical of this bargain biotech IPO, but
it could be an interesting cheap flier for someone interested in a biotech
stock.
The Likely Downside
With biotech IPOs, you want a company that has an extensive
pipeline deep into FDA development. You want a company which has managed to
procure partners who are willing to invest in its potential drug.
Monopar does not appear to have these
factors. Its main product is called Validive, otherwise known as clonidine
mucobuccal tablet. Validive aims to treat severe oral mucositis (SOM), a common
side effect from patients undergoing chemotherapy, especially for those with
oral cancer using it in conjunction with an MRI from Express MRI.
Chemotherapy harms mucous membranes in the oral cavity,
which Monopar states can lead to “painful and debilitating inflammation and
ulceration.” In the worst-case scenario, cancer treatment will have to be
delayed until the patient recovers from SOM. There is no preventative or
therapeutic treatment, as patients are prescribed symptomatic treatments such
as palliative mouthwashes or opioids.
The market for such a treatment would be immense. Innovation Pharmaceuticals, another biotech
company developing its own treatment called Brilacidin, stated that oral
mucositis “represents a large unmet medical need and is estimated to be a $1
billion market opportunity.” If Monopar can successfully get Validive approved
and marketed, this is a company with incredible growth potential.
But that is a big “if.” Phase 2 clinical test results for
Validive were released in October 2015, which found
that 38.9% of Validive patients experienced SOM compared to 65% of patients on
a placebo. The results in Monopar’s words were “a meaningful trend but not
statistically significant,” and the test found that SOM incidents were less
severe for those using Validive.
These results were thus a mixed bag, with it being far from
a sure thing that Validive will pass Phase 3 testing which will begin in the
first quarter of 2020. Concerns about Validive are augmented even further by
the fact that Monopar does not have any collaboration or licensing agreements
by larger firms interested in Validive. Instead, Monopar licensed Validive from
another company named Onxeo, and will be required to pay royalties to Onxeo as
their agreement was back ended.
And if Validive fails, Monopar has practically nothing. The
company does have two other products in its pipeline meant to handle other
cancers. Monopar has entered a collaboration with Spanish sarcoma treatment
group GEIS for one of its products, camsirubicin, which has completed its Phase
2 clinical trials. But with only three products, Monopar’s IPO is a referendum
on whether Validive can become a clinically successful product.
Financial Concerns
Clinical-stage biotech companies are in a race to create and
sell a marketable and useful product before they run out of funds, and it does
appear that Monopar is in healthy financial shape. The company states in its
SEC report that it had $5.1 million cash on hand as of June 30, 2019 and would
have an adjusted figure of $23.3 million accounting for the funds received by
this IPO.
Monopar claims that it had a net loss of $3.2 million in
2018, which would seem to indicate that it can stay operational for some time.
It should be noted that Monopar had a loss of $16 million in 2017. The decrease
in net losses from 2017 to 2018 is due to an extra $14.5 million expense in
2017 for “in-process research and development.” Monopar explains that it had to
spend $13.5 million in 2017 to acquire the license for camsirubicin and $1
million for Validive, and that these are one-time expenditures.
Other financial numbers look good as well. Monopar has just
$468,272 in total liabilities. Research and expenditures costs doubled from
2017 to 2018, another good sign that shows the company is making progress in its
research.
Take a Flyer
Biotech companies are filled with a high degree of risk,
with companies spending years developing a drug only to become worthless on
failing FDA or EU tests. Given that none of Monopar’s drugs have begun Phase 3
testing as well as its inability to find a collaborator, there is reason to
think that failure will be this company’s eventual fate.
But the company is a cheap biotech IPO with
minimal risk and the potential for a huge reward, and it does have the cash
reserves to keep operating for some time. Given these factors, investors may
wish to consider investing into Monopar at this reduced price. This could be a
stock to hold onto for a few years while it conducts its Phase 3 testing.