Medifocus: A Biotechnology Nano-Cap Deserving Of More Attention

Aug. 8.14 | About: Medifocus, Inc. (MDFZF)

Summary

Medifocus has seen noteworthy revenue growth for seven consecutive quarters as a result of its continued success with its non-invasive BPH treatment.

Medifocus is currently working with a Hong Kong based consultancy to expand its business into the Asia-Pacific markets.

Despite having an innovative, breast cancer focused, thermotherapy technology in a phase three trial, the company resides in market purgatory and is all but unknown to most investors.

While the companies current cash position leaves much to be desired, the costs associated with its ongoing phase three trial, and ambitious Asia-Pacific expansion, appear quite reasonable.

To gain a more thorough understanding of the company's plans and potential, this article shares insights from one company executive, and from the ongoing trial's Principal Investigator.

In December of last year Seeking Alpha published an article of mine entitled Medifocus Incorporated: Not Your Typical Nano-Cap. The article introduced readers to a biotechnology company named Medifocus (OTCQX:MDFZF), whose relative anonymity seemed befuddling. The company was then, and continues to be, virtually unrecognizable to both traders and investors alike. Its daily volume is abysmal. It is rarely privilege to a press release or announcement. It is not followed by any distinguishable or aggressively publicized analysts. The company resides, quite firmly, in "market purgatory"; a place without definition, attention, or excitement. There is no institutional support. There are no charismatic declarations from executives. There is no "cult like" retail following which advocates the company's inevitable rise on message boards and investor blogs. In fact, in terms of publicity and momentum, there isn't much of anything. However, if one looks beneath the veil of obscurity, and considers the "nuts and bolts" of the company, one will find plenty of reasons to follow the Medifocus story.

You see, the title of my aforementioned first article on Medifocus was spot on. Medifocus is not your typical nano-cap. It is, instead, quite atypical. In most investment circles, aside from perhaps private equity groups, the mere muttering of the term "nano-cap" is met with skepticism and derision. Such a term is frequently associated with audacious hope, unqualified leadership, financial despondency, and unmitigated risk. Most investors flee from nano-cap opportunities without as much as a second thought. Such is their right. However, Medifocus is much different, and as a result, to flee from the opportunity presented by this company would be an exercise in foolish conformity. Medifocus employs capable leaders, provides innovative treatments, and is developing state-of-the-art medical technology. Moreover, the company has reported rapidly growing revenues for seven consecutive quarters, and is inching closer to both international expansion and profitability. For investors who are willing to employ patience on par with a two year investment horizon, Medifocus presents as a "multi-bagger" opportunity with built in downside protection.

A Brief Re-Introduction to Medifocus

For those of you who may not have read my first article referenced herein, or who may not have access to it currently (it is now part of the Seeking Alpha Pro Library), this segment will offer an ephemeral synopsis of the company. However, the reading of my first article remains highly recommended, as it goes into considerably greater detail regarding the company's history and technology.

Medifocus is a biotechnology company headquartered in two locations; Toronto, Canada and Columbia, Maryland. The company was founded by Dr. Augustine Cheung, Ph.D., a renowned expert in microwave technology, and the original leader and founder of the Celsion Corporation (NASDAQ:CLSN). Joining him at Medifocus is company COO John Mon; the one time V.P. of Business Development at Celsion. Together, these two men lead a team of qualified and accomplished professionals. Collectively, they are developing various products and technologies which employ microwave expertise, and focused heat therapies, capable of highly targeted and profoundly effective medical treatments. These treatments are divided into two specific therapeutic platforms; the Endo-Thermotherapy Platform (better known as the Prolieve System), and the Adaptive Phase Array Microwave Therapy Platform (referred to herein as the APA-1000 System).

The Prolieve System, which is a non-invasive treatment for Benign Prostatic Hyperplasia (enlarged prostate), was originally designed by Dr. Cheung's team at Celsion, before being sold to medical device conglomerate Boston Scientific (NYSE:BSX) in 2007. However, after years of underwhelming development and fragmented focus at Boston Scientific, Dr. Cheung's new corporate vehicle, Medifocus, purchased back all the assets, inventory, and IP for the Prolieve System. He believed that the system held boundless potential in the right hands, and having been in charge of its original development, he believed his hands to be the most capable. Since Dr. Cheung's reacquisition of the Prolieve System, it has been the principal asset at Medifocus. Furthermore, its continuous expansion has served as the underlying stability for the company's ongoing evolution and development.

The APA-1000 System, which is built from a microwave technology application originally developed at MIT, is a system which allows for controllable, targeted, and concentrated delivery of energy. Originally designed as part of a missile defense system, the APA technology enables physicians to target diseased tissue, deep within the body, utilizing a superior degree of control. This controllable mechanism dramatically reduces any consequential damage to the healthy tissue which may surround the tumor. Currently, Medifocus is engaged in a Phase Three Clinical Trial of the APA-1000 system, as an adjunct therapy in conjunction with chemotherapy, in the process of shrinking large breast cancer tumors prior to surgery. By combining this focused thermotherapy system alongside chemotherapy, the company hopes to prove to the FDA that this system is capable of turning prospective mastectomies into much simpler lumpectomies. If proven, this system would not only lead to a considerably higher rate of breast preservation, but in doing such it could contribute significantly to the post-operative health, welfare, and confidence of women who undergo the surgeries (more on this in forthcoming segments).

Thus, in summation, Medifocus is a biotechnology company currently generating revenues from its Prolieve System in the treatment of enlarged prostate, and is also currently developing a system capable of impacting the surgical oncology space as it pertains to breast cancer mastectomies.

Understanding Medifocus, its Priorities, and its Technologies

In an effort to procure a more comprehensive understanding of Medifocus and its technologies, I, alongside a colleague, reached out to company executives, and valuable associates, in an effort to ensure clarity and accuracy of insights and information. As a result, this segment of the article will incorporate conversations and communications had with two individuals specifically; Mr. Douglas Liu, the Director of Business Development at Medifocus, and Dr. William Dooley, the Principal Investigator of the company's current phase three trial, as well as earlier stage trials, for the APA-1000 system. Whereas these communications and conversations were held intermittently and informally, albeit professionally, as opposed to in a formal "interview capacity", the accounts of these exchanges will be in narrative form, as opposed to a prototypical "question and answer" format. Moreover, the exchanges seen below will not encompass the entirety of the conversation; niceties, and informality's, have been omitted. Nonetheless, these responses will appear in italicized text to ensure clarity and differentiation.

This segment will begin with the communications exchanged with Mr. Douglas Liu.

Mr. Liu is not only the Director of Business Development at Medifocus, but is also the principal liaison for the company's Investor Relations Department. Throughout our communications he proved to be very responsive, thoroughly transparent, and entirely professional. Even at times when our schedules were not accommodating of the other's agenda, Mr. Liu responded via email at his earliest available convenience, and in a most comprehensive fashion. His tenacity and willingness should be as appreciated by readers as it has been by both my colleague and I.

One of the first topics we discussed with Mr. Liu pertained to the company's joint venture agreement which was first announced last November. Since that time, there has been little said regarding the agreement, and speculation as to how it would be funded and managed were veiled in ambiguity. Previous announcements had been limited to sharing that the company was committed to expanding in Asia, and that the agreement was divided 40% to 60% in favor of Ideal Concept Group; a Hong Kong based business development consultancy with expertise in Greater China, and across the Asia-Pacific Region. Moreover, it had been indicated that a third party was involved as well; a consultancy named Maxim Concept Group. Fortunately, Mr. Liu was able to shed additional light on the agreement by making the following statements;

"As for the JV in Asia, the role of Maxim Concept Group is not part of it. However, they were involved in identifying potential distributors for our Prolieve technology. Our JV partner is Ideal Concept Group. They are based in Hong Kong. They own 60% of the JV while we own 40%. We are responsible for our portion of the funding."

In terms of the JV details, revenue projections, and funding, Mr. Liu offered the following understanding;

"Since costs are determined by the number of projects they launch, projections would be premature. What is important is that if we don't fund our 40%, then our interest in the JV is diluted. So it will be handled responsibly. The JV is really our extended arm to get things going in Asia - distribution, R&D, new treatment indications, and so on. We just don't have the expertise, the connections, or resources to do it ourselves in that market. So, we will work with Ideal Concept Group to do just that."

When pressed a bit further regarding growth prospects as a result of this agreement, Mr. Liu cordially provided the following insights;

"They have initially offered some projections in Asia which could potentially bring good growth for us. But, some of these projects are lengthy, particularly when we are dealing with foreign regulatory bodies for medical devices. So no timeline is yet known. But, they are ongoing, and could bring good growth for us in Asia."

The expansion of the company's Prolieve System in Asia is noteworthy. While the system is already providing growth and revenue for the company domestically, the Asian market could, potentially, be quite large. In Asia, the prevalence of secondary effects and lifestyle adjustments in BPH patients are reported to occur at a significantly increased rate of incidence. For example, Lower Urinary Tract Symptoms and Sexual Dysfunction have been reported in Asia at a rate of approximately 80%. In North America, observed in a similarly qualified group of subjects, comparative effects have been reported in only 40% of men. Whereas lifestyle changes and secondary effects are pivotal in motivating patients to seek treatment, the potential pool of patients in Asia could be substantial. Nonetheless, it is not the potential growth rate of the Prolieve System alone which should excite potential shareholders.

The APA-1000 System is the segment of the Medifocus story which should be most alluring to investors. Breast Cancer is, according to the World Health Organization, a $10 billion annual market in the United States and Europe alone. Of the cases which present in those two global markets, approximately 70% of patients opt for, or require, surgery. Of that now $7 billion market, nearly half of it is defined by LABC, or Locally Advanced Breast Cancer. Nearly 40% of those cases involve tumors greater than 3.5 centimeters in diameter with a tumor classification of either T2 or T3 (the same prerequisites detailed as inclusion criteria in the ongoing phase three trial for the APA-100 System). Of that now $1.4 billion potential market, no less than 50% of those women could benefit from their tumors being shrunken prior to surgery in an effort to minimize complications, reduce recurrence, and preserve the breast. As a result, the APA-1000 System could potentially be addressing a $700 million "niche market."

Due to the fact that the APA-1000 System could potentially become a standard of care for a $700 million annual market, it is here where the speculative investor should see enticing value. Thus, the next part of our exchange with Mr. Liu will focus on the APA-1000 System. When asked, initially, about the APA-1000 phase three trial, Mr. Liu was understandably vague. After all, one cannot discuss publicly ongoing trial data, and in the vast majority of instances, companies are blinded to cumulative data until the end of the trial. Thus, our initial inquiry was met ambiguously by Mr. Liu;

"Not much to report on the APA-1000 trial. We just haven't had the financial resources to accelerate. But we do understand that a segment of the investing public is attracted to anything breast cancer related. We do anticipate, however, that we will be putting more focus on the APA trial than we had before."

Now, that answer didn't offer much to investors. However, that answer was also provided to us the same day that Medifocus had filed its annual report (the company's fiscal year ends March 31st). Thus, we then combed through the report the day after its filing on July 29, 2014, and reached back out to Mr. Liu the following day. We inquired as to the estimated costs of the trial, the methods of potential payment, and the probability of meeting the current Estimated Study Completion Date (December 2016). Given the fact that the company reported total current assets of only $4.1 million, with only $1.29 million in cash and cash equivalents, we were inquisitive about the company's strategy for funding the trial's completion. Mr. Liu had the following to say;

"We estimate that the cost to complete the APA phase three trial is approximately $8 million for final enrollment of 238 patients. This is, of course, very, very low for a phase three breast cancer trial. I think the funding for the trial will come from a combination of resources; equity offerings, and cash flow from Prolieve, once it hits the point of critical mass, included. Of course, if existing warrants gets exercised, we will have some additional funds and the overhang will be reduced. We hope that the price of our shares will increase enough that the warrant holders will choose to exercise them.

As for dilution, I am not going to sugarcoat dilution issues. There will be more dilution. But, it is worthwhile to mention that over $100 million was spent on the development of our technologies by Celsion Corp and Boston Scientific, and most of that is not on our books.

I would also like to point out that, even with more dilution, our technology and its applications should be worth considerably more than what the market says we are currently worth due to our TSX listing. We believe that once we are reporting in the USA, we will see more liquidity and a more reasonable valuation."

As Mr. Liu discussed valuation, we inquired with him as to the correlation between valuation and trial advancement. He stated the following;

"A company with an active, breast cancer, phase three trial is worth significantly more than our current market cap indicates. We have enrolled several patients in the phase three trial so far, but we are also looking at enrolling patients in China and India in order to speed up the trial. The timeline of completion will depend on a host of factors, including funding availability and patient enrollment. Trial advancement should help valuation."

Naturally, the conversation had progressed to such a place where we were interested in finding out if Mr. Liu would care to speculate about the fair market valuation of his own company. He responded fairly and diplomatically;

"As to the impact of a successfully completed APA trial, I am hesitant to speculate. But, I think that our problem in earning a fair valuation from the market is that we are not an SEC reporting company yet, so we have very little exposure in the US. But, we are in the process to become an SEC reporting company. One U.S. company though, Puma Biotechnology (NYSE:PBYI), recently announced its completion of a phase three breast cancer trial, and their market cap jumped from $2 billion to $6 billion in ONE DAY. That was not an approval, but just good data. So, much is possible for companies in the space with strong results."

Mr. Liu certainly makes valid points. There is a lot to be said for exposure, SEC reporting, and strong data in the United States. It would be quite reasonable to assume that once Medifocus gets its ducks in a row with becoming an SEC reporting company, and advancing the APA-1000 trial, that the potential of a "puma like move", in the context of course of the company's own existing market cap, is at least possible.

After the discussions with Mr. Liu, there was one big question which remained. What were the chances of Medifocus making a "puma like move" in the future? Was a 300% jump on good data possible? After all, one must be realistic, Medifocus is not Puma. Puma's drug candidate, neratinib, improved disease-free survival by 33% compared to a placebo in women with early-stage HER2-positive breast cancer who were also taking Herceptin, a breast cancer drug from Roche (OTCQX:RHHBY). Medifocus, on the other hand, is developing a thermotherapy system designed to turn mastectomies into lumpectomies. Are the two companies even comparable? Based on dollar for dollar, and market to market criteria, certainly not. However, perhaps in potential appreciation percentage, from pre-data levels, they are. In an effort to find out, I sought out and spoke with Dr. William Dooley, the Principal Investigator of the APA-1000 trials.

Dr. Dooley, a highly accomplished physician, was equally as receptive, willing, and enlightening as Mr. Liu. He was also, quite expectedly, equally guarded however. Prior to our conversation, he made it known, firmly albeit kindly, that he could only discuss previous trials for the APA-1000 System. He could only comment on the current trial, in as so far as was relevant to trial design, predicated on previous trial findings. He could not, under any circumstances, comment progressively on the current trial. While I was aware of this fact going into the conversation, it was refreshing and reassuring to know that Dr. Dooley functioned with such a high level of integrity, professional reliability, and conviction.

In asking initially for a general synopsis of the previous trials for the APA-1000 System, and the data they provided, Dr. Dooley spoke very openly and confidently;

"There were three previous trials, all of which have seen the data published, so I can speak about those. Those trials were designed to measure the effect of the thermotherapy system both as a stand-alone treatment, and in conjunction with chemotherapy. In the first trial, the results were mixed but largely unpredictable. For example, in 30-40% of the subjects we saw the tumors completely wiped out. In others we saw intermittent shrinkage. However, in some we saw no response whatsoever."

Interested in the nature of the unpredictability, as well as the cause of the difficulties quantifying it, I politely interrupted him in an attempt to gain further understanding. I was curious as to why predictability was so elusive. Was it something specific to the inclusion criteria of the trial, or was it simply that medical technology hadn't been adequate at the time? Dr. Dooley kindly offered further insight;

"Some of it was simply a result of resources at the time. General medical advancements since then have now provided us with better biological precursors and markers capable of providing more capable measurable standards. We would be better supported these days to more accurately identify the most probable candidates and conditions."

Having now better understood the uncertainties of the phase one trial, we moved onto the phase two trials, which focused on two different measurable standards. Dr. Dooley elaborated as needed;

"In the phase two trials we focused, really, on two different measurements. One was with the microwave thermotherapy alone at higher doses, and the other was implemented at lower doses but delivered in conjunction with chemotherapy. Whereas the first showed little promise, the latter showed dramatic results. Increases in efficacy, measured by tumor shrinkage, increased up to 1000 fold per increase in degree centigrade. The effects were encouraging. We more than tripled the complete response rate when compared to chemotherapy alone. Those results then, given their significance, became the design basis for the current trial; APA-1000 thermotherapy in conjunction with chemotherapy."

Still wrapping my head around the idea that the phase two trial had successfully tripled the complete response rate, I was interested if Dr. Dooley would be willing to elaborate any further on the design of the current trial. He elaborated best he could without violating any confidentiality enforcements;

"Current trial design, in terms of enrollment and inclusion criteria, was selected for the standard purpose; that those prerequisites and standards would be what were needed in the eyes of the FDA to show a statistically significant measurable outcome."

Fair enough. I was willing to take what I could get. I was curious however, given the success of the phase two trial which measured the APA-1000 System as an adjunct therapy to chemotherapy, why the focus had been on breast cancer specifically, and if any other indications had presented themselves in the trial that perhaps were not expected. Once again, Dr. Dooley offered an insightful response;

"Given the tissue composition and makeup of the breast area, this type of therapy is particularly effective in breast tissue. Responses and secondary findings in the breast were encouraging. For example, the trial showed that microscopic tumors, which had surrounded the primary tumor, were completed eliminated. As a result, those patients that received the microwave thermotherapy had a much lower incidence rate of recurrence post-surgery. In fact, this outcome has led to some speculation that the thermotherapy of the APA-1000 System may increase the natural immunological response."

Those insights are quite encouraging. The idea that the focused thermotherapy provided by the APA-1000 System could, perhaps, lead to a reduced rate of recurrence would certainly be of interest to physicians, patients, and the FDA. Moreover, the speculation that there may be some immunological benefits as well also holds potential worth exploring. In all likelihood, the latter would require vast follow up research, over multiple years, to be a tangibly claimed benefit. However, the recurrence rate findings likely contributed to one of the secondary outcome measures being evaluated in the current trial. Tumor Necrosis is, after all, currently being assessed as a secondary outcome measure.

At this point, knowing that I didn't want to venture into any questions which may have made Dr. Dooley uncomfortable, I simply wanted to inquire about his professional opinion regarding the need for this type of therapy in the surgical oncology space. Was the ability to transform near certain mastectomies into more desirable lumpectomies an unmet need? Would this therapy, if approved by the FDA following the completion of the trial, be well received?

"As to transforming mastectomies into lumpectomies, let's say that it is a widely held belief that doing such consistently and controllably would be well received in the space. Certainly, patients would receive it well, as breast preservation has wide ranging appeal to women requiring surgical intervention for a myriad of reasons."

A myriad of reasons indeed. The fact of the matter is this; preservation of the breast isn't just about physical health and minimal invasion. It is much more than that. Women who undergo mastectomies have a long history of enduring depression, self-confidence issues, and marital complications post-surgery. These issues can lead to occupational instability, social retreat, and consequentially debilitating self-image obstacles. Aside from the obvious fear of cancerous recurrence, just getting one's life back together post mastectomy has been proven to be easier said than done. Preservation of the breast has wide reaching benefits.

Given all he has shared, I simply wanted to give Dr. Dooley the chance to offer his simplest and most applicable definition of the trials purpose. He managed to summarize it quite succinctly;

"Really, what it all comes down to, is does this thermotherapy improve the efficacy of the chemotherapy. Other findings are certainly nice, and can offer added benefit, but the end game is really whether or not this improves chemotherapy."

Given the fact that the complete response rate was shown to have more than tripled in the phase two study, it would seem as though an improvement on existing chemotherapy is nearly a forgone conclusion.

Company Financials and Forward Looking Projections

As stated previously, while the company is seeing consistently dramatic increases in Prolieve revenues quarter over quarter, there remain some concerns. While the total current assets for the company have improved year-over-year by nearly 35%, the current cash and cash equivalents of just under $1.3 million are down from $1.72 million in 2013. In addition, accrued liabilities are increasing, and payments to Boston Scientific are still being made. That being said, revenue for the year increased by a factor of nearly 3 compared to 2013; increasing from $1.8 million to just under $5.4 million. Moreover, the company's gross margin improved by 600% to $1.9 million. Net losses have also decreased, albeit slightly.

Like most emerging biotechnology entities though, the question is less about "where are you today" and more about "where will you be tomorrow." The value is not just in today's margins, but in tomorrow's profits. The company has yet to reach, in the words of Mr. Liu, "critical mass" pertaining to Prolieve revenues, and the APA-1000 System remains 29 months away from the trial's Estimated Study Completion Date. On the short term horizon, there is little more to look forward to than Medifocus becoming an SEC reporting company, progress with the JV in Asia, and continued enrollment in the APA-1000 trial. Immediate price appreciation is unlikely; aside from occasional volume spikes and indeterminate progress on the three fronts mentioned. Nonetheless, if an investor defines "tomorrow" as being measured in steps, as opposed to calendar days, then there is much to look forward to.

Medifocus currently maintains a market capitalization of only $14 million, and a price per share of .12 cents on an outstanding share count of 117 million. To say that there is "room to grow" would be a colossal understatement. The global market for BPH, or enlarged prostate, is estimated at $8 billion. The Prolieve System offers a non-invasive, lifestyle friendly treatment, which has been well received by patients. In my previous article I said that the potential existed, assuming a productive roll-out into Asia, for Medifocus to capture 2.5% of the global market for BPH. I stand by that assessment, and see a captured market for the company potentially equal to $200 million. In regards to the APA-1000 System, in congruence with the applicable market details identified in the previous section, I believe the addressable market for this business segment is $700 million. However, capturing the entirety of any market, by any one company or product, is highly improbable. Based on the "niche" definitions, as are congruent with the inclusion criteria for the current trial, and forecasting the applicability of permitted markets deemed viable by the FDA in the event of approval, I believe that Medifocus could potentially capture 65% of that market niche, or $455 million accordingly. That number could, potentially, increase down the road pending additional applications of the system outside of just breast cancer. Therefore, I believe that with a successful rollout of the Prolieve System in Asia, and a successful and timely conclusion to the APA-1000 phase three trial, that Medifocus could well be valued at a market capitalization of $655 million.

However, before speculation ensues as to share price, one must first examine the risks associated with this investment, including, but not limited to, the inevitability of future dilution.

Risks

Above all else, the risks here are financial; plain and simple.

Medifocus has a revenue generating therapy, in a sizeable market, which is currently being prepared for rollout in Asia. However, that rollout will come with sizeable costs. While those costs cannot be tied down specifically, and while that uncertainty lends itself to some level of uneasiness, what is known is that 40% of those costs, whatever they are, will be the responsibility of Medifocus. In the event that the company cannot pay their end, for any reason, their JV is dissolved and the potential revenues derived from the Prolieve System in Asia are thwarted. While continued roll-out of the system remains vigilant in the U.S., failure to procure market share in Asia would be disappointing, and would have a negative impact on potential revenue projections looking ahead.

In regards to the APA-1000 System, and all the potential which resides within it, the question once again comes down to costs. This trial must be funded, and while $8 million is a minuscule amount for a phase three breast cancer trial, it is still a price tag which is more than six times the amount which Medifocus currently has in cash. Therefore, when viewed from a standpoint of proportion, an $8 million trial price tag is most kindly described currently as being out of immediate reach.

Therefore, the company has two pivotal projects which must be funded; the execution of the JV in Asia, including the rolling out the Prolieve System there, and completion of the phase three trial for the APA-1000 System. While revenues from the Prolieve System are growing at noteworthy rates, profitability still remains elusive. Thus, the means of funding these endeavors will likely fall to dilution. However, even that scenario poses potential problems. With an average daily volume of only 9,000 shares, shareholder positions are not exactly in high demand. Furthermore, with the price per share currently hovering around .12 cents, the amount of dilution needed would be massive. Where would the company find the buyers? How would the shares move? What would they be priced at? The simple fact is that dilution as a means for funding these endeavors, at the present time, is not viable.

Medifocus needs to become an SEC reporting company. They also need a more accurate valuation, and they need existing warrants to be exercised. The timeline for those events to come to fruition remains speculative at best. Even when those events do transpire, assuming they do, the applicable process thereafter could be tumultuous and complicated. Assuming that the company needs an equity injection of approximately $10 million ($8 million for completion of the phase three trial and $2 million for the JV in Asia) that would require the selling of 20 million shares at the exercisable warrant price of .50 cents each (a value 417% greater than the current price). A 20 million share offering (at .50 cents per) would constitute dilution equal to 17% of current outstanding shares, and that would be, from the current standpoint, best case scenario. It's a difficult road regardless.

The point here is this; Medifocus needs money now in order to make money in the future. Whether the amount they need, and the method by which funds are procured, is in line with the above referenced projections or not is of little relevance. Their approach could end up being less aggressive, or more aggressive. That is, as things currently stand, speculative and indeterminate. What is known however is that, at the present time, retail investors don't seem too interested in supplying the capital needed. Thus, the road to funding the company's existing projects appears to be a bumpy one, and until it is smoothed out, clearly defined, and efficiently executed, uncertainty will remain. That uncertainty, at this juncture, is the most obvious risk associated with initiating a position in Medifocus.

In addition, it is also worth noting that both the BPH space, and the breast cancer space, are densely populated and ferociously competitive. Despite having innovative, non-invasive technologies at hand, there is no promise of market acceptance or physician response. As is the case in any heavily saturated market, failure can be equally as probable as success regardless of product efficacy.

Lastly, of course, there is the "elephant in the room." What happens if Medifocus can't raise the funds it needs to advance it's product expansion and/or development? The answer to that question is, of course, quite ugly. If dilution, continued revenue growth, and all other paths to funding procurement fail, no matter how unlikely that may be, Medifocus would be left to it's current devices, and any upside, even from current levels, would be far fetched.

Conclusion

I believe that the most appropriate symbol for American Capitalism is the Pet Rock. It was, quite literally, a product derived from nothing. Advertising guru Gary Dahl created it in the 1970's as a joke. He came up with it as a cynical anecdote directed at a group of his friends who had all been complaining about their pets. It would be a rock, in a box, and they could name it. It wouldn't bark. It wouldn't urinate on the carpet. It wouldn't get hair on the furniture. It was "low maintenance" in the purest sense of the term. As absurd as the idea was, something more absurd happened in the years that followed. Dahl sold 1.5 million Pet Rocks, and became a millionaire. He put rocks in boxes, called them pets, and became a millionaire. That really happened; right here, in America.

You see, American Capitalism has one linear truth, and that truth says that a charismatic and aggressive PR team, or a loud and optimistic marketing and advertising plan, can often be more important to a company than a capable CEO or a quality product. As the saying goes, "it's not what you're selling; it's how you sell it." Investors see this premise come to life every day in the clinical phase biotechnology space. We constantly hear companies relentlessly pumping that they are on the verge of "changing cancer forever", or reporting "epic data." What usually happens with those companies? You got it; nothing. They disappoint. They were destined to do so. They spent more money on propaganda, promises, and publicity then they did on research, development, and administration. They worried more about padding executive pockets then they did moving along their pipeline. They had a short term horizon in the board room, but sold themselves as long horizon executives committed to the best interest of investors. It happens over, and over, and over again. Yet, every time, like clockwork, investors buy in, and lose. It's sad.

Even sadder however, is that a company like Medifocus, with real products, real potential, real leadership, real revenues, and real growth prospects, fails to attract any concentrated investor interest at all. Instead, the company resides in market anonymity; long on potential, and short on shareholders. Why does this happen? The answer is simple, because the company isn't riding momentum and salesmanship. The company doesn't feel it has to. Medifocus is content to let its story unfold over time, organically, as a result of real revenues and innovative technologies. The company doesn't subscribe to the belief that propaganda is worth investing in. You won't see regular announcements from public relations firms and company executives. There is absolutely no chance that you will ever hear the company refer to themselves as "changing the way cancer is treated" or "bringing surgical oncology into the next century." There is no hype here; only humility. Nonetheless, in the glorious debauchery of American Capitalism, potential must be coupled with propaganda in order for investors to take notice. It's sad, but it's true.

It is my contention that Medifocus should be embraced as a genuinely undervalued investment opportunity. This is a company with growing revenues derived from a product still in its infancy. At current levels, those revenues protect investors from any substantial downside risk. This is also a company with an innovative thermotherapy technology currently in phase three trials for entry into the surgical oncology space. Together, as detailed above, this could lead Medifocus to a potential market capitalization of $655 million over the next few years. Even in the event of significant dilution - let's say equal to 100% of the current OS count - that would leave the company with 234 million outstanding shares. That would price shares at $2.80 per. Assuming an even more conservative approach, one where expansion into Asia fails to come together (minimizing the BPH portion of MC to 57M) , and the APA-1000 System makes a market impact equal to only half of my previous forecast, shares would still be priced (assuming the same 100% dilution scenario) equitably at $1.22 per. Therefore, even in a most conservative scenario, there is significant ROI opportunity from current levels.

So, what is required of investors? Investors in Medifocus must accept two undeniable facts; first, the road to significant profits will be riddled with obstacles and milestones. Becoming an SEC reporting company, successfully fulfilling their end of the JV agreement in Asia, and the certainty of future dilution to fund the APA-1000 trial, are all required stops along the way. Secondly, this road is a long one, and investors would be required to accept a minimum investment horizon of two years in order to see the types of returns detailed above potentially come to fruition. While incremental increases should occur along the way, the true evolution of Medifocus stock will not reach its potential without a positive APA-1000 trial reporting top line data in or around December 2016. Nevertheless, with strong phase two trial results already known, and with the company having successfully treated its first patient in its phase three trial, shareholder faith should be well rewarded.

With a promising phase three trial underway, and existing revenues continuing to grow, Medifocus deserves far more attention, and far more investor support, than it is currently privilege too. Hopefully, for all parties involved, investors start to take notice.

Disclosure: The author is long MDFZF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Please note, Medifocus was party to a single paid stock promotion effort in June of 2013. ResearchOTC.com was paid by an entity named StockAppeals, LLC for a one-day profile which included MDFZF. This is the one and only occurrence on record. The company currently does not, and maintains no intentions to, directly initiate any stock promotion for a fee.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.