Molecure — Striving to maximise clinical potential

Molecure (WSE: MOC)

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Research: Healthcare

Molecure — Striving to maximise clinical potential

Molecure has announced H123 results, including a recap of its operational activities. Management also outlined four strategic objectives for 2023–25, with the aim of creating a diversified portfolio of projects (additional details below). Key highlights from the reporting period included updates on the company’s two clinical-stage assets. For OATD-01, management is preparing to commence Phase II studies (initiation expected in Q423), and for OATD-02, the Phase I trial assessing the drug in patients with advanced and/or metastatic solid tumours is ongoing (updates expected in H223). As of 30 June 2023, Molecure had a gross cash position of PLN49.6m. This was supplemented by the issuance of 2,776,000 Series H shares at PLN18 per share (announced July 2023) providing additional funds of c PLN50m. While this financing is intended to support the company’s strategic plans for 2023–25, we note that additional funding will be required to meet the full estimated capital expenditure of PLN250m for this period.

Soo Romanoff

Written by

Soo Romanoff

Managing Director - Head of Content, Healthcare

molecure01

Healthcare

Molecure

Striving to maximise clinical potential

Pharma and biotech

Spotlight Update

4 October 2023

Price

PLN17.82

Market cap

PLN299m

Share price graph

Share details

Code

MOC

Listing

Warsaw Stock Exchange

Shares in issue

16.8m

Cash at 29 September 2023

PLN85m

Business description

Molecure is a clinical-stage biotechnology company. It uses its medicinal chemistry and biology capabilities to discover and develop first-in-class small-molecule drug candidates designed to directly modulate underexplored protein targets and the function of RNA to treat multiple incurable diseases.

Bull

Two assets in clinical development (OATD-02 in Phase I; OATD-01 in preparation for Phase II).

OATD-01 has potential for disease-modifying action in interstitial lung disease.

Pipeline supported by preclinical assets and technology platform.

Bear

Delays or disruptions to timelines could affect management’s estimated cash runway.

Unvalidated mechanisms of action increase development risk.

Additional funding needed to complete Phase II development.

Analysts

Soo Romanoff

+44 (0)20 3077 5700

Dr Arron Aatkar

+44 (0)20 3077 5700

Nidhi Singh

+44 (0)20 3077 5700

Molecure is a research client of Edison Investment Research Limited

Molecure has announced H123 results, including a recap of its operational activities. Management also outlined four strategic objectives for 2023–25, with the aim of creating a diversified portfolio of projects (additional details below). Key highlights from the reporting period included updates on the company’s two clinical-stage assets. For OATD-01, management is preparing to commence Phase II studies (initiation expected in Q423), and for OATD-02, the Phase I trial assessing the drug in patients with advanced and/or metastatic solid tumours is ongoing (updates expected in H223). As of 30 June 2023, Molecure had a gross cash position of PLN49.6m. This was supplemented by the issuance of 2,776,000 Series H shares at PLN18 per share (announced July 2023) providing additional funds of c PLN50m. While this financing is intended to support the company’s strategic plans for 2023–25, we note that additional funding will be required to meet the full estimated capital expenditure of PLN250m for this period.

Historical figures

Year
end

Revenue
(PLNm)

PBT
(PLNm)

EPS*
(PLN)

DPS
(PLN)

P/E
(x)

Yield
(%)

12/20

124.9

73.7

4.64

0.0

4.78

N/A

12/21

1.5

(13.6)

(0.98)

0.0

N/A

N/A

12/22

1.6

(15.3)

(1.09)

0.0

N/A

N/A

Source: Molecure accounts. Note: *Diluted EPS.

Final preparations for OATD-01 in Phase II

Molecure is gearing up for Phase II studies in the US for OATD-01, following the July 2023 FDA acceptance of the company’s Investigational New Drug (IND) application. In September 2023, the company submitted an application to the EMA and MHRA to conduct studies in the Europe. The Phase II trial (KITE) is intended to be a multi-centre (20–30 sites in the US and Europe, randomised, double-blind, placebo-controlled study (expected n=90). The primary endpoint will assess the efficacy of the drug in sarcoidosis patients after 12-weeks of administration, based on change from baseline in levels of granulomatous inflammation assessed by PET-CT imaging. The first patient for the KITE trial is scheduled to be dosed in the US in Q423. As this is the company’s flagship programme, the results for the study (expected by mid-2025) could represent a significant catalyst for investor attention, in our view.

Cash position supported by recent fund-raise

As of 30 June 2023, the company had a cash balance of PLN49.6m, which was further enhanced by a subsequent equity fund-raise of c PLN50m (c $12m) with the issuance of 2,776,000 Series H shares at PLN18 per share. Management expects the funding to contribute to the implementation of its strategic plans for 2023–25. As of the publication of these results (29 September 2023), the company has reported an approximate cash position of PLN85m, taking into account the funds raised from the recently finalised public offering. Based on its anticipated activities, we expect the company will need to seek additional funding to cover its estimated capital expenditure requirement of PLN250m (2023–25).

An active pipeline with potential for growth

Molecure’s clinical development pipeline is focused on two key areas: inflammation and fibrosis with OATD-01; and oncology with OATD-02 (Exhibit 1).

Exhibit 1: Molecure’s clinical development pipeline

Source: Molecure website

Lead asset OATD-01 is an oral, first-in-class inhibitor of CHIT1, a human chitinase enzyme. Pathologically activated immune cells, such as macrophages and neutrophils, secrete CHIT1 as part of the body’s natural immune response. This makes CHIT1 an attractive therapeutic target for inflammatory and fibrotic diseases. The drug has already demonstrated a desirable safety profile in Phase I, and we note that the candidate has been granted Orphan Drug designation (ODD) for its use in sarcoidosis and idiopathic pulmonary fibrosis (IPF). Molecure is currently focused on the launch of its Phase II trial for OATD-01 in pulmonary sarcoidosis; the first patient is scheduled to be dosed in the US in Q423. The drug has the potential to be the first disease modifying treatment for pulmonary sarcoidosis, the market for which is projected to be worth $337m by 2028 (according to EvaluatePharma). Management also believes that the drug could expand into larger indications such as IPF and non-alcoholic steatohepatitis (NASH), provided the data continue to be supportive.

The company’s second drug candidate is OATD-02, an oral, first-in-class inhibitor of ARG1/2, arginine-depleting enzymes associated with immunosuppressive tumour microenvironments. OATD-02 is currently being evaluated as a monotherapy in a Phase I clinical trial in patients with advanced and/or metastatic solid tumours. This is an open-label, multi-centre (three sites in Poland) study with dose escalation, to assess the safety and tolerability of the drug. Additional objectives include preliminary efficacy (response and survival), pharmacokinetic and pharmacodynamic biomarker data, and establishing a maximum tolerated dose (MTD). Management has communicated that the trial will recruit 30 to a maximum of 40 patients, focusing on indications where checkpoint inhibitors have had low response rates, such as colorectal cancer, ovarian cancer, pancreatic cancer, and renal cell carcinoma. The first patient was dosed in March 2023 with 2.5mg, and in April 2023 an independent committee recommended increasing the dose to 5mg, based on the a positive assessment of this first patient and a lack of tumour progression. Treatment of additional patients at 5mg is ongoing, and the committee has recommended that subsequent patients may be escalated to 10mg, as per the Bayesian optimal interval design. We anticipate updates on the progress of this trial in H223, and note that Molecure may explore combination studies with checkpoint inhibitors in the future to maximise the potential of OATD-02.

Recap: Strategic plans for the period 2023–25

Molecure has laid out a series of strategic objectives for the period 2023–25. These plans aim to enrich, expand and diversify the company’s clinical pipeline, and management hopes that this will maximise the company’s potential (Exhibit 2).

Exhibit 2: Molecure’s strategic areas of focus for 2023–25

Source: Molecure H123 report

As outlined in our prior update note, Molecure’s four strategic objectives for 2023–25 are as follows:

For OATD-01, it will continue the clinical development of the candidate and demonstrate therapeutic efficacy in the Phase II trial involving patients with pulmonary sarcoidosis.

Final results are expected by mid-2025. Management also hopes that the study will validate CHIT1 as a therapeutic target, enabling explorations into additional indications such as IPF and NASH.

For OATD-02, it aims to determine the safety, tolerability and MTD of the drug in the ongoing Phase I trial involving patients with advanced and/or metastatic solid tumours.

Once the MTD is established, management plans to expand the Phase I study into haematological cancers such as acute myeloid leukaemia, which has been associated with overexpression of ARG2. Management may also consider combination studies with checkpoint inhibitors. It may pursue this alone or with a partner.

Regarding its preclinical portfolio, the company intends to identify one or two advanced lead compounds for clinical development in previously unexplored protein targets.

By initiating new research projects based on in-house research, in-licensing and collaborations, management intends to build a balanced project portfolio with high clinical and market potential. By 2025, it aims to have four to five projects in the discovery stage, and one to two projects in preclinical development.

The company plans to maintain focus on its platform for the discovery of small molecules that modulate mRNA translation for multiple diseases that have previously been considered undruggable.

Management plans to confirm binding of several small molecules to at least one selected mRNA target and observe the expected inhibition of translation (in vitro) by the end of 2023. If successful in achieving this, management hopes that this will support traction of potential partnerships in this space; it hopes to sign a large industry partner by 2025.

Beyond these four strategic areas of focus, more generally, Molecure is aiming to increase the efficiency of its early-stage drug development efforts. Management plans to pursue this goal in collaboration with a partner specialised in generative artificial intelligence (AI) methods. It may also explore an AI-driven drug discovery engine approach for mRNA and new protein targets. Management aims to reduce the time and cost associated with the process of therapeutic target validation to clinical candidate selection by 50% by 2025.

Financials

In H123, Molecure reported total revenue (including other operational revenue) of PLN1.00m, which was down 19.8% y-o-y from PLN1.25m in H122 and mainly comprised domestic research grants. Factoring in six applications submitted for grant allocation, the company expects an increase in grant funds raised through licensing and partnering agreements and also from investors. Total operating expenses were 25.6% y-o-y higher at PLN10.88m in H123 due to increased research costs associated with the advancement of the company’s clinical development pipeline, higher personnel expenses and enhanced costs of external research services. Expenses related to third-party services, accounting for 37.0% of the total operating expenses, were up by 24.0% y-o-y to PLN4.03m in H123, mainly due to increased research costs on early-stage projects (not capitalised) and higher prices of third-party services. Wages and salaries (35.2% of operating expenses) were up 48.8% y-o-y to PLN3.83m, mainly driven by higher personnel expenses related to early-stage projects and changes in the management board. As a result, the operating loss for the period stood at PLN9.9m (vs PLN7.4m in H122). Financial income was significantly higher at PLN2.81m in H123 (vs PLN0.41m in H122) due to the interest received on the refund of overpaid income tax, resulting in a net loss of PLN7.36m in H123, compared to PLN7.06m in H122.

As part of its recently announced strategic plans for 2023–25, Molecure has expanded its development pipeline into several early-stage projects, hence, we expect increased clinical activity over the medium term. An initial indication of the costs incurred on research work on such early stage projects is given in the table below (Exhibit 3). We note that these projects are being developed for commercialisation at early stages of clinical trials and the company does not intend to develop these on its own.

Exhibit 3: Balance sheet value of capitalised projects

PLNm

As at 31 December 2022

As at 30 June 2023

Chitinase platform

14.54

21.33

Arginase platform

25.78

29.72

Deubiquitinase platform

8.19

10.92

Other

2.68

3.87

Total

51.19

65.85

Source: Molecure H123 report

At end H123, the company’s cash balance stood at PLN49.61m, which was further supported by a PLN50m fund-raise (gross value) by the issue of Series H shares in July 2023. However, Molecure estimates that the company might require about PLN250m to complete both its clinical trials and continue the development of its early-stage projects. Hence, the company continue to seek more sources of funds in the form of upfront payments from license agreements, grant and subsidies, share issues and debt instruments. Exhibit 4 explains in detail the budgeting by the company:

Exhibit 4: Capital expenditure estimates, 2023–025

PLNm

FY23–25

Clinical-phase programmes

100

Discovery and pre-clinical development programmes (including AI tools)

75

mRNA platform (including AI tools)

25

General and administrative costs, including business development and IR

50

Total

250

PLNm

Clinical-phase programmes

Discovery and pre-clinical development programmes (including AI tools)

mRNA platform (including AI tools)

General and administrative costs, including business development and IR

Total

FY23–25

100

75

25

50

250

Source: Molecure H123 report

General disclaimer and copyright

This report has been commissioned by Molecure and prepared and issued by Edison, in consideration of a fee payable by Molecure. Edison Investment Research standard fees are £60,000 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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

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.

United Kingdom

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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General disclaimer and copyright

This report has been commissioned by Molecure and prepared and issued by Edison, in consideration of a fee payable by Molecure. Edison Investment Research standard fees are £60,000 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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

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.

United Kingdom

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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