Monopar’s smaller IPO makes it a better value

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.