MOLOGEN — IMPALA readout ends monotherapy strategy

MOLOGEN — IMPALA readout ends monotherapy strategy

MOLOGEN has announced that its pivotal Phase III IMPALA trial testing lefitolimod as a maintenance therapy in patients with metastatic colorectal cancer (mCRC) has missed its primary endpoint of overall survival (OS). As a result, we have removed from our valuation lefitolimod’s prospects as a monotherapy in mCRC and small cell lung cancer (SCLC) (previously 72% of our valuation). MOLOGEN will focus on the development of lefitolimod and EnanDIM in combination with other therapies. Recently announced restructuring measures should reduce monthly cash burn to €0.8m from the current rate of €1.4m. We note gross cash as of 30 June 2019 was €6.0m, which should enable funding into Q419. We value MOLOGEN at €50.4m (€4.1/share) vs €169m (€18.2/share) previously.

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MOLOGEN

IMPALA readout ends monotherapy strategy

Trading update

Pharma & biotech

6 September 2019

Price

€0.98

Market cap

€12m

Net debt (€m) at 30 June 2019

0.3

Shares in issue

12.4m

Free float

70%

Code

MGN

Primary exchange

Frankfurt
(Prime Standard)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(38.6)

(59.1)

(79.8)

Rel (local)

(41.0)

(59.6)

(79.9)

52-week high/low

€5.01

€0.98

Business description

MOLOGEN is a German biopharmaceutical company developing novel biopharmaceuticals. The company’s lead product, lefitolimod (TLR9 agonist), is being evaluated in HIV and a combination trial in advanced solid malignancies.

Next events

Q319 results

7 November 2019

Analysts

Dr Daniel Wilkinson

+44 (0)20 3077 5734

Dr Susie Jana

+44 (0)20 3077 5700

Dr Sean Conroy

+44 (0)20 3077 5700

MOLOGEN is a research client of Edison Investment Research Limited

MOLOGEN has announced that its pivotal Phase III IMPALA trial testing lefitolimod as a maintenance therapy in patients with metastatic colorectal cancer (mCRC) has missed its primary endpoint of overall survival (OS). As a result, we have removed from our valuation lefitolimod’s prospects as a monotherapy in mCRC and small cell lung cancer (SCLC) (previously 72% of our valuation). MOLOGEN will focus on the development of lefitolimod and EnanDIM in combination with other therapies. Recently announced restructuring measures should reduce monthly cash burn to €0.8m from the current rate of €1.4m. We note gross cash as of 30 June 2019 was €6.0m, which should enable funding into Q419. We value MOLOGEN at €50.4m (€4.1/share) vs €169m (€18.2/share) previously.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/17

0.0

(19.3)

(2.81)

0.0

N/A

N/A

12/18

3.0

(11.9)

(1.28)

0.0

N/A

N/A

12/19e

0.1

(14.0)

(1.13)

0.0

N/A

N/A

12/20e

0.0

(9.9)

(0.80)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

IMPALA Phase III trial primary endpoint not met

549 patients were enrolled in the two-arm, randomised pivotal Phase III trial for the maintenance treatment of mCRC patients. The primary endpoint of a statistically significant increase in overall survival was not met. Patients in the lefitolimod group demonstrated a median OS of 22.0 months compared with 21.9 months in the control group with a hazard ratio of 1.12 (95% CI: 0.91–1.38). MOLOGEN now plans to focus on combinations for lefitolimod and its early-stage EnanDIM assets. An ongoing trial is testing Yervoy (BMY – CTLA-4 antibody) and lefitolimod in patients with solid tumours, while the TITAN study (funded by Gilead) in HIV patients testing lefitolimod in combination with novel antibodies is expected to begin shortly. MOLOGEN also expects to start an anti-PD1 combination study soon with its partner, Oncologie, in the near term if funding is achieved.

Financials: Cash reach into Q419

The net loss increased to €8.0m versus €4.8m in H118, resulting in gross cash at 30 June of €6.0m. In addition, as at the mid-year, MOLOGEN had €6.3m in long-term convertible bond liabilities. At the recent AGM, shareholders agreed a new authorised and conditional capital facility in addition to authorisation to issue new convertible bonds and/or option bonds. We model funding (as illustrative debt) of €10m by the year end to fund operations into 2020.

Valuation: €50.4m (€4.1/share)

We value MOLOGEN at €50.4m (€4.1/share) vs €169m (€18.2/share) previously, updated for the failure of the IMPALA trial. As a result of this data we have removed lefitolimod’s potential as a monotherapy in CRC and SCLC. In addition, we have rolled forward our model, and updated for FX and the increased number of shares.

IMPALA data signal the end of monotherapy strategy

IMPALA, a 549-patient (enrolled), two-arm, non-blinded, randomised pivotal Phase III trial for the maintenance treatment of mCRC patients did not meet is primary endpoint of generating a statistically significant increase in overall survival. The trial was conducted across 120 centres in eight European countries. Patients in the lefitolimod group demonstrated a median OS of 22.0 months compared with 21.9 months in the control group with a hazard ratio of 1.12 (p=0.2765; 95% CI: 0.91–1.38). In predefined subgroups, lefitolimod demonstrated no benefit while progression free survival (PFS) was superior in the control arm. No new safety signals were observed. MOLOGEN notes that it no longer sees a future for lefitolimod as a monotherapy and all future trials will be based around combination therapies.

Exhibit 1: IMPALA Phase III study design

Source: MOLOGEN. Note: PD = progressive disease, PR = partial response, CR = complete response.

MOLOGEN now plans to focus on combinations for lefitolimod and its early stage EnanDIM assets. A trial is ongoing testing Yervoy (BMY – CTLA-4 antibody) and lefitolimod in patients with solid tumours. At SITC 2018, first clinical data were presented on the combination of the immune checkpoint inhibitor Yervoy and lefitolimod in patients with solid tumours. To date, 19 patients have been enrolled and no dose-limiting toxicities were encountered at any dose level. The combination was generally well tolerated and safe. Two patients experienced stable disease for 45 weeks (primary peritoneal carcinoma) and 24 weeks (high-grade pancreatic neuroendocrine tumour), respectively (NCT02668770).

Together with its partner, Oncologie, MOLOGEN plans to start an anti-PD1 combination study soon, in the near term if funding is achieved. In addition, two further combination studies in solid cancers are in advanced stages of planning and could start soon if funding is raised.

In HIV, the TITAN study (funded by Gilead) is expected to begin shortly. The trial will test lefitolimod with innovative antibodies developed by Rockefeller University. As with the previous TEACH study, the trial will be led by Aarhus University Hospital Denmark. MOLOGEN also notes that additional late-stage conversations are ongoing with renowned US centres to start further trials.

For its next generation TLR9 assets (EnanDIM), MOLOGEN notes that preclinical development of the first product candidate continues and forecasts that it should be ready for the clinic by year end.


H119 results: MOLOGEN’s cash needs are pressing

Based on MOLOGEN’s current cash burn, we forecast a cash reach into Q419 and model funding (as illustrative debt) of €10m by the year end to fund operations into 2020. At the AGM on 29 August, shareholders agreed a new authorised and conditional capital facility in addition to authorisation to issue new convertible bonds and/or option bonds. We now anticipate that management’s main focus in the autumn will be on achieving the required funding to secure MOLOGEN’s future clinical development plans. Gross cash at 30 June was €6.0m, boosted by the €4.2m capital raise in April 2019.

Following the failure of the IMPALA Phase III trial, MOLOGEN has announced a new strategic programme including restructuring measures. This includes a reduction of staff to around one-third of the current number, with a final employee count of 15 (47 employees as of 30 June 2019). Additionally, it has withdrawn from two locations and will now wholly operate from one site. As a result of these changes, management expects to bring its monthly cash burn down to €0.8m from the current rate of €1.4m.

Revenue in H119 decreased to €81,000 (vs €3m in H118) as a result of the one-off Oncologie payment in H118. SG&A expenses decreased slightly year-on-year to €3.2m (vs €3.6m in H118) and €2.6m (vs €2.7m in H118) respectively. The net loss increased to €8.0m versus €4.8m in H118. We forecast a decrease in our FY19 net loss (to €14.0m from €17.0m previously) as we have lowered our assumed R&D (to €5.6m from €6.9m previously) and SG&A (to €4.5m from €5.5m previously) expenses as a result of the aforementioned restructuring plans. In FY20, we forecast a significant reduction in costs as the restructuring plans take complete effect.

MOLOGEN currently has €6.3m in non-current liabilities as a result of convertible bonds issued since 2016. In January 2019, the company issued a convertible bond with a nominal value of €2.7m, a term of eight years and fixed interest rate of 6.0%. In September 2018, MOLOGEN issued a €2m convertible bond to Oncologie without subscription rights. In November 2016 (2016/2024 bond: €2.54m) and in January 2017 (2017/2025 bond: €4.99m), two convertible bonds were placed. Terms of these were renegotiated at the start of 2019. We have modelled €10m of illustrative debt in 2019 to enable funding into FY20.

Valuation: €50.4m (€4.1/share)

We value MOLOGEN at €50.4m (€4.1/share) vs €169m (€18.2/share) previously, updated for the failure of the IMPALA Phase III trial. As a result of this data we have removed lefitolimod’s potential as a monotherapy in CRC and SCLC. Additionally, we have rolled forward our model, and updated for FX and the increased number of shares following the capital raise in April. The valuation is based on a risk-adjusted, sum-of-the-parts DCF model, applying a standard 12.5% discount rate and net debt of €0.3m.

Exhibit 2: Valuation assumptions

Product

Status

Market launch

NPV (€m)

Peak sales ($m)

Probability of success

Royalty estimate

rNPV (€m)

rNPV share (€)

Key assumptions

Lefitolimod - HIV - WW

Phase I

2025

112

405

15%

12%

17.7

1.4

~36.7m cases (prevalence), 46% treated, 5% peak share (2034), $20,000 price, patent expiry 2036 (expected – not yet granted), c $130m milestones in total WW.

Lefitolimod and ICI - ASM (SCLC used as model) - WW

Phase I

2028

84

511

15%

12%

13.7

1.1

~1.8m lung cancer cases worldwide, 12.50% SCLC, 5% peak share (2033), $30,000 price, patent expiry 2036 (expected, not yet granted), c $150m milestones WW total.

Lefitolimod - mCRC - China

Phase I

2028

73

203

5%

12%

19.4

1.6

~200 CRC cases/year; 25% metastatic + 5% regional; 60% chemo response; 10% will receive additional treatment, 1% peak share (2033), €5,000, patent expiry unknown, c $100m milestones in total China.

Portfolio value

513

50.7

4.1

Cash/(debt)

(0.3)

0.0

Net debt at 30 June 2019.

Total

50.4

4.1

9.27m shares outstanding.

Source: Edison Investment Research. Note: ASM = all solid malignancies; ICI = immune checkpoint inhibitor; WW = worldwide.

Exhibit 3: Financial summary

€000s

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

47

3,047

81

0

Cost of Sales

0

0

0

0

Gross Profit

47

3,047

81

0

Research and development (cost of materials)

(9,752)

(6,529)

(5,550)

(4,440)

Selling, general & administrative (personnel expenses)

(5,093)

(5,053)

(4,548)

(2,729)

Other operating income / expense

(3,860)

(2,727)

(3,577)

(2,262)

EBITDA

 

 

(18,658)

(11,262)

(13,593)

(9,430)

Operating Profit (before amort. and except.)

 

 

(18,684)

(11,283)

(13,595)

(9,433)

Intangible Amortisation

(23)

(17)

(1)

(1)

Exceptionals/Other

0

0

0

0

Operating Profit

(18,707)

(11,300)

(13,596)

(9,433)

Net Interest

(574)

(583)

(438)

(492)

Other

0

0

0

0

Profit Before Tax (norm)

 

 

(19,258)

(11,866)

(14,033)

(9,925)

Profit Before Tax (FRS 3)

 

 

(19,281)

(11,883)

(14,034)

(9,925)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(19,258)

(11,866)

(14,033)

(9,925)

Profit After Tax (FRS 3)

(19,281)

(11,883)

(14,034)

(9,925)

Year-End Shares Outstanding (m)

6.9

9.3

12.4

12.4

EPS - normalised (c)

 

 

(2.81)

(1.28)

(1.13)

(0.80)

EPS - FRS 3 (c)

 

 

(2.81)

(1.28)

(1.13)

(0.80)

Dividend per share (c)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

44

18

25

31

Intangible Assets

17

2

1

1

Tangible Assets

27

16

24

31

Other

0

0

0

0

Current Assets

 

 

8,061

9,339

12,747

3,490

Stocks

16

701

691

682

Debtors

13

0

0

0

Cash

6,523

8,021

11,438

2,191

Other

1,509

617

617

617

Current Liabilities

 

 

(7,502)

(4,749)

(4,749)

(4,749)

Creditors

(4,400)

(2,640)

(2,640)

(2,640)

Short term borrowings

0

0

0

0

Other

(3,102)

(2,109)

(2,109)

(2,109)

Long Term Liabilities

 

 

(5,474)

(5,553)

(18,696)

(19,191)

Long term borrowings

(5,419)

(5,553)

(18,696)

(19,191)

Other long term liabilities

(55)

0

0

0

Net Assets

 

 

(4,871)

(945)

(10,673)

(20,418)

CASH FLOW

Operating Cash Flow

 

 

(19,696)

(14,269)

(13,845)

(9,733)

Net Interest

574

583

440

495

Tax

0

0

0

0

Capex

(33)

(10)

(9)

(9)

Acquisitions/disposals

35

0

0

0

Equity Financing

477

12,787

4,129

0

Dividends

0

0

0

0

Other

4

1

0

0

Net Cash Flow

(18,639)

(908)

(9,286)

(9,247)

Opening net debt/(cash)

 

 

(18,401)

(1,104)

(2,468)

7,257

HP finance leases initiated

0

0

0

0

Exchange rate movements

(8)

0

0

0

Other

1,350

2,272

(439)

(495)

Closing net debt/(cash)

 

 

(1,104)

(2,468)

7,257

17,000

Source: Edison Investment Research, MOLOGEN accounts


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This report has been commissioned by MOLOGEN and prepared and issued by Edison, in consideration of a fee payable by MOLOGEN. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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General disclaimer and copyright

This report has been commissioned by MOLOGEN and prepared and issued by Edison, in consideration of a fee payable by MOLOGEN. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Healthcare

Acacia Pharma — NDA resubmission before month-end

Acacia’s interim results highlight the group’s focus on commercialising key asset BARHEMSYS in the US market during 2020. With a new CMO qualified, management plans to resubmit its new drug application (NDA) to the US FDA before end September. If the FDA deems it a Class 2 resubmission, a new PDUFA date would fall in Q120, enabling a launch in H120. The US sales team is positioning itself for a prompt launch. Managing cash burn during the intervening period is essential as we forecast that c £40m will need to be raised in H120 (following approval) to fund operations, with additional future funding dependent on sales execution. With Acacia’s commercial focus concentrated on the US, it has changed its presentation currency from GBP to US$. We will reflect this in our financial model in due course, but retain our previous forecasts (GBP denominated) and valuation of €631m in the interim.

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