Mologen — IMPALA the focus as funding gap remains

In 2017, Mologen’s exploratory Phase II SCLC IMPULSE trial and its Phase Ib/IIa HIV TEACH trial completed and investor attention is now focused on the most advanced clinical study, the Phase III IMPALA trial in mCRC. IMPALA, a Phase III trial testing lefitolimod as a maintenance treatment in 549 mCRC patients has completed enrolment (concluded in May 2017). It is a randomised, exploratory, non-blinded, two-arm study, with a primary end point of overall survival. In April, Mologen published a data-based prediction that has forecast when the primary analysis of IMPALA will occur. It has predicted that this will most likely occur in April 2020 with a 95% confidence interval of plus/minus five months. Previous forecasts had estimated initial data were to be expected in 2019. The time period was calculated based on patient data collected up to April 2018. Mologen plans to repeat this type of analysis in order to review and, if necessary, adapt its current forecast.

In April 2018, Mologen confirmed the top-line results presented in 2017 from the now-completed exploratory Phase II IMPULSE trial. Data demonstrated that it did not meet the primary end point of overall survival. However, it showed potential, non-statistically significant advantage in two pre-specified subgroups. Patients with a low number of activated B cells and patients with chronic obstructive pulmonary disease (COPD) demonstrated improvements in overall survival hazard ratios. Patients with a low number of activated B cells demonstrated a hazard ratio of 0.53 (95% confidence interval [CI]: 0.26–1.08) and patients with COPD (a common underlying disease for lung cancer) demonstrated a 0.48 hazard ratio (95% CI: 0.20–1.17). The trial was not powered for statistical significance in these subgroups. It should be kept in mind that SCLC is a difficult disease to treat and any potential benefit that could be provided is a positive. Mologen is currently assessing its options for future development.

Top-line data from TEACH, an exploratory, non-randomised Phase Ib/IIa trial testing lefitolimod in HIV-positive patients, failed the primary end point of reduction in viral reservoir in 12 patients receiving both antiretroviral therapy and lefitolimod. However, an increased duration of viral control above what is typically expected was observed in one patient out of nine after stopping ART. A new trial, designated TITAN, plans to test lefitolimod in combination with virus-neutralising antibodies and is planned to start in 2018. The trial will be run by Aarhus University Hospital in Denmark. In January 2017, Aarhus received a $2.75m grant from Gilead to fund the trial. The antibodies have been developed by Rockefeller University in New York.

We note TLR9 therapies, of which Mologen’s lead candidate lefitolimod is one, continue to gain industry-wide traction; most recently, sector-wide attention was generated by a publication in the journal Science. In a preclinical study, it was demonstrated that a combination of a TLR9 agonist with an OX40 antibody cured mice of existing cancers. These and other immune combinations continue to gain traction and multiple approaches are being tested, including a Phase I trial run by MD Anderson Cancer Center, testing Mologen’s lefitolimod with Yervoy (CTLA-4 inhibitor). Mologen additionally continues to progress its next-generation TLR9 agonists EnanDIM, with data most recently presented at AACR.

In April, it was announced that Dr Mariola Söhngen will be stepping down as the CEO as of 31 October. Mologen has begun the search for a successor.

In February, Mologen signed a licence and co-development agreement with Oncologie potentially worth over €100m (€3m upfront), a €2m equity investment and double-digit royalties. Oncologie is a Boston-headquartered, private oncology therapeutics company with operations additionally in Shanghai, China. Mologen had previously announced in 2017 that it had signed deal terms with China-based iPharma. After the end of an exclusivity period, Mologen entered discussions and negotiations with Oncologie. The contract comprises two parts.

First, a licence agreement through which Mologen grants Oncologie an exclusive licence for the development, manufacturing and commercialisation of lefitolimod in China, Hong Kong, Macao, Taiwan and Singapore. The second part is a global co-development partnership, which aims to utilise Oncologie’s novel biomarkers. Both parties will share the economic returns from global joint development pursuant to both parties’ contributions; however, all costs relating to development, registration, marketing and commercialisation of lefitolimod in any territory are to be covered by Oncologie.

Mologen has received an initial payment of €3m and a €2m equity investment by Oncologie is expected within 12 months of the initial payment. Additional development and commercialisation milestones are expected and total payments could be more than €100m. They are due on reaching predefined development steps as well as market approval. In addition, sales-related commercial milestones are defined. Finally, Mologen will receive low double-digit royalties on sales.

We now value Mologen at €243m (€6.5/share) versus €256m (€7.43/share) previously. The valuation is based on a risk-adjusted, sum-of-the-parts DCF model, applying a standard 12.5% discount rate and including 31 March 2018 net cash of €2.8m. With the delay in anticipated data readout for IMPALA, we have pushed lefitolimod’s forecast launch in mCRC back to 2022 from 2021 in the US and 2020 in the EU. We assume based on historic data that the creation of a regulatory package for the FDA/EMA is likely to take between eight and 12 months with the review of a regulatory submission taking 12 months. As such we assume a launch in both markets is most likely in early 2022, however variability in timings related to these aforementioned processes mean a launch as early as late 2021 could be possible.

With the uncertainties around the next stages of development for lefitolimod in SCLC, we have pushed back the launch dates to 2024 from 2022 in both the EU and the US. We no longer assume lefitolimod will be out-licensed in 2018 in the EU and the US. We now assume it will be out-licensed across indications in 2020 once IMPALA data have been published. We note that the terms of any potential future licensing deal for lefitolimod will heavily influence financing needs, while a delay or failure to achieve out-licensing could materially affect Mologen’s long-term financial position.

At this time, we assume Mologen will be able to negotiate a higher royalty rate in mCRC and now assume this at 35% (versus 25% previously). We additionally assume that a partner will fund a Phase III trial for SCLC. A summary of our valuation assumptions can be seen in Exhibit 1. For a full breakdown of our valuation, please see our previously published outlook note (Lefitolimod trial readouts hint at future potential).

Gross cash at 31 March 2018 was €8.3m (net cash €2.8m). Our model suggests that current cash is sufficient to fund operations to end 2018; a funding gap remains in respect of the IMPALA study and combination readout. Our model includes €20m of illustrative debt in 2019 to fill this funding gap.

In Q118, Mologen reported €3m in revenue from the Oncologie deal. Cost of materials in Q118 was reduced to €1.6m (vs €3.0m in Q118), mainly as a result of reduction in R&D costs from the completion of the TEACH and IMPULSE studies. We expect the trend in reduced R&D costs to continue with forecast cost of materials for FY18 of €8.3m versus €9.7m in 2017. We forecast a net loss for FY18 of €14.6m versus €19.3m in 2017.

To continue to fund the company, Mologen has engaged in a variety of funding activities in Q118.

In February, Mologen entered into an agreement with Luxembourg-based financing provider European High Growth Opportunities Securitization Fund (EHGO). Under this agreement, Mologen can, over a two-year period, require EHGO to subscribe to convertible bonds. The bonds can be issued in amounts of €500,000 in 24 tranches for a total of €12m. Bonds must be converted 12 months after issuance and they do no not accrue interest. As of Q118 results, two tranches have been exercised and both have been converted. We note existing shareholders will face some, albeit small, share dilution if future bonds are exercised. We assume a further six tranches are drawn down in 2018.

In March, Mologen announced a rights issue from authorised capital to national and international investors. 2,357,368 new shares were issued at a subscription price of €2.12. Overall, the company generated gross proceeds of around €5m. For details of all of Mologen’s existing financial arrangements, including previously subscribed convertible bonds, please see our outlook note Lefitolimod trial readouts hint at future potential.