Mologen — Update 13 December 2015

Mologen was founded in 1998 based on research work by Professor Burghardt Wittig, the founding CEO. From 1 November 2015, Dr Mariola Söhngen assumed the role of CEO, taking over from Dr Matthias Schroff. Dr Söhngen is the co-founder of Paion AG, where she was chief medical officer. Mologen was funded by an IPO on foundation and has raised €130m to date, including €28.3 (gross) in April 2015. Mologen’s lead candidates are immunotherapies. MGN1703 is in a Phase III study (IMPALA) for the maintenance treatment of metastatic colorectal cancer, a Phase II trial (IMPULSE) for small cell lung cancer; and a Phase I trial (TEACH) in HIV. MGN1601, a renal cancer cell vaccine, has completed a Phase I/II study (ASET) for kidney cancer. The company is based on the Free University campus in Berlin and has 60 employees.

Our valuation of Mologen has increased slightly to €387m (vs €384m), or €17/share. Our valuation is based on a risk-adjusted, sum-of-the-parts DCF model, applying a standard 12.5% discount rate, and including estimated end-FY15 net cash of €25m. The key near-term drivers are the outcome of the IMPULSE Phase II study in SCLC and ultimately the IMPALA Phase III trial in mCRC. We await an update on the development strategy for MGN1601, meanwhile maintaining our assumptions.

We assume that a licensing partner for MGN1703 is secured on successful completion of IMPALA (2017/2018), although this may occur earlier (e.g. on positive IMPULSE data [H117]). We do not include any upfront fees and/or milestones that would be expected on securing a partner and successful commercialisation of the product, which offers further potential upside to our valuation.

The key sensitivities relate to the clinical performance of MGN1703 and the company’s ability to secure the additional financing, and/or a partner, to complete the full clinical programme. Results from the IMPULSE and IMPALA studies will have a major bearing on MGN1703’s chances of regulatory approvals and commercial success. We have made assumptions about the potential market opportunity available to MGN1703, which do not currently include significant stratification of patient populations. MGN1703 may be most active in certain subgroups, which could reduce the target patient pool. However, confirmed activity in a patient subset may result in a higher treatment price, greater reimbursement rates and more favourable economic terms from any partnership.

Future development of MGN1601 is dependent on funding and/or partnerships. At present MGN1703 is the priority, however we currently assume that with new management in place active development of MGN1601 may resume in 2016.

Cash at 30 September 2015 was €30.5m, which includes the capital raise in April 2015 when €26.8m (net) was raised from the rights issue (one-for-three) of c 5.7m new shares at €5.00/share. Our model suggests that current cash is sufficient to fund operations to mid-2017, depending on the progress of the IMPULSE and IMPALA studies for MGN1703. While this cash runway incorporates some key milestones (full enrolment of IMPALA [Q416] and IMPULSE top-line data [H117]) there remains a funding gap, in respect of the IMPALA study (initial data estimated H118). We estimate this to be in the €25-35m range and include an illustrative €30m financing, nominally attributed to debt, in our FY17 forecasts, to allow completion of the study. The size and timing of the financing may vary significantly, and could be influenced by the outcome of the IMPULSE study (H216) and potential licensing deals.

Mologen’s lead candidate, MGN1703, is now in three clinical studies: two in the post-chemo maintenance setting for cancer treatment (IMPALA and IMPULSE), and one in HIV (TEACH). The outcomes of the IMPALA and IMPULSE will determine MGN1703’s clinical effectiveness and commercial viability. The TEACH study is the first non-cancer study for MGN1703 and promising data from the study could expand the use of MGN1703 beyond cancer applications.

Mologen’s immunomodulatory approach involves stimulation of innate immunity via the activation of toll-like receptor 9 (TLR9) to take advantage of the inherent anti-cancer and anti-infective capabilities of the immune system. The innate immune system is the first line of defence against infection, comprising a set of receptors that recognise foreign DNA, reacting instantly and non-specifically to produce cytokines and other inflammatory mediators and to stimulate, among others, natural killer (NK) and NK T-cells. The innate immune system ultimately links through to the adaptive immune system; the latter is highly specific to a target antigen, and creates immunological memory after the initial response. The majority of immunotherapies (approved and in development) target the adaptive immune system; in targeting the innate system, Mologen’s approach could complement these, and combinatorial therapy approaches could prove synergistic.

Immunotherapies are likely to be most effective when the disease burden is low and the immune system less compromised. Although traditionally thought to be immunosuppressive, some chemotherapies promote ‘immunogeneic cell death’, whereby the release of tumour-associated antigens induces an immune response, polarising dendritic cells towards a pro-inflammatory phenotype, and partially ameliorating tumour-driven systemic immunosuppression, ultimately serving to increase the tumour’s susceptibility to immunotherapy.1 This concept has led to the rationale that immunotherapies may have greatest potency when used in adjuvant settings.

Induction chemotherapy to reduce tumour burden and release cancer antigens, followed by a chemotherapy-free interval to allow recovery of immune cells and identify patients that respond best to induction treatment, would appear to be the optimum time to use an immunotherapy agent such as a TLR9 agonist. In this setting, the dendritic cells have been primed and can be activated further by MGN1703. The importance of timing may explain the Phase III failure of Pfizer’s TLR9 agonist, PF-3512676 (in non-small cell lung cancer), which was dosed alongside the chemotherapy cycles.

MGN1703 is an immunomodulating drug (TLR9 agonist) that broadly activates the immune system, enabling it to increase the recognition and combat of abnormal cells. It is being developed as a maintenance treatment for use after effective induction chemotherapy, to reduce tumour burden and help stimulate a response against free circulating tumour-associated antigens.

The randomised, placebo-controlled Phase II IMPACT study assessed the efficacy and safety of MGN1703 (60mg twice-weekly subcutaneously) as maintenance therapy following first-line induction therapy in metastatic colorectal cancer (mCRC). This was the first placebo-controlled trial to prospectively investigate the impact of an immunomodulator as maintenance therapy in mCRC, based on the hypothesis that patients with disease control could benefit from immunotherapy.

The study recruited patients who had achieved stable disease (SD) or response (complete response [CR], partial response [PR]) after 4.5-6 months of first-line induction chemotherapy (FOLFOX/XELOX or FOLFIRI ± bevacizumab). The patients were randomised 2:1 to maintenance treatment with MGN1703 or placebo. Recruitment was closed prematurely due to slow recruitment (59 out of 129 planned patients were enrolled; 43 MGN1703, 16 placebo).

The primary endpoint was progression-free survival (PFS) from the start of maintenance therapy (with MGN1703/placebo) until disease progression. Final analysis showed a superior effect in MGN1703 compared to placebo with a hazard ratio (HR) of 0.55 (p=0.04). A subgroup of patients (n=4) were continuously progression-free at the study-end and so continued to receive MGN1703 on a compassionate-use basis. As of August 2015, three of the patients remain progression-free (47-55 months) and continue on MGN1703 maintenance therapy.

At final study analysis, overall survival (OS) data were still not mature, as only 35% and 50% of the MGN1703 and placebo patients, respectively, had an event. The preliminary HR for OS of the intent-to-treat (ITT) population was 0.63 (p=0.29); medial OS was 22.6 months (vs 15.1 months). Mologen no longer expects final data to be available in 2015, due to lack of events.

In terms of safety, MGN1703 was generally well-tolerated, with most adverse events being mild-to-moderate (grade 1/2) and typically linked to injection site reactions (pain, redness, itching) or linked to immune system activation (flu-like symptoms). One patient in the MGN1703 group discontinued treatment because of an adverse event (grade 3 sensory neuropathy, possibly linked to previous oxaliplatin chemotherapy). The lack of treatment interruption in patients experiencing prolonged response, despite therapy for up to 55 months, highlights the tolerability of MGN1703 and indicates its potential suitability as a maintenance therapy. In the failed Phase III trial of Pfizer’s PF-3512676, increased toxicity was found in the PF-3512676 combination arm. PF-3512676 is a linear DNA molecule that requires chemical modification to protect from enzyme degradation; however, these modifications can have toxic side-effects. The dumbbell structure of MGN1703 means that no chemical modification is required; accordingly, even at MGN1703 doses significantly higher than those used of PF-3512676, no dose-limiting toxicity has been observed.

The PFS and OS Kaplan-Meier curves in Exhibit 2 are consistent with observations from other clinical studies with cancer immunotherapies. Typically, for PFS there are minimal differences in the median PFS (eg 2.8 months for MGN1703 vs 2.6 months on placebo), but in a subgroup of patients the treatment benefit can be huge, as demonstrated by the three patients from the MGN1703 arm still progression-free for at least 47 months. Further, in two of the three responders the response was observed as late as nine months after starting treatment, making a carry-over effect from induction chemotherapy unlikely. Conversely, the OS curves can show greater separation at the median, although long-term survival benefit in 10-20% of patients can be dramatic; the PFS and OS curves for Yervoy (ipilimumab; BMS) illustrate this.2

Analysing the data from the IMPACT study, Mologen found thee possible factors that could be used to identify patients most likely to respond to MGN1703:

CEA levels and NKT cells could be biomarkers for selecting patients most likely to benefit from MGN1703, although the patient numbers in these sub-groups were small so drawing definitive conclusions at this stage would be premature.

The pivotal Phase III IMPALA study of MGN1703 in mCRC has been designed to take into account the insights gleaned from the IMPACT trial. The study is an open-label, randomised (1:1), controlled two-arm study (n=540; across >120 sites in eight European countries). The key differences from IMPACT include: a more variable induction chemotherapy period (2-7 months); no constraints on the drugs used in chemo-induction (any biological agent allowed); selection of responsive patients (PR/CR only; 50-60% estimated response; PR/CR is the primary driver for patient selection, not duration of chemo); the use of a treatment control group (‘doctor’s choice’); and a re-induction treatment (with chemo ± MGN1703) phase after first evidence of progressive disease (assessed by a local investigator). Patients in the MGN1703 treatment group will be dosed at the same level as used in IMPACT, 60mg twice-weekly via subcutaneous injection. Patients will be stratified according to the biomarkers (CEA/NKT levels) identified in IMPACT. See Exhibit 3.

The primary endpoint is overall survival, the gold standard for a pivotal cancer study, which also allows for the open-label study design. Secondary endpoints include PFS, overall response rate, quality of life assessment and safety. Recruitment is ongoing and full enrolment is expected in H216, with initial data 12-18 months later (H118).

In November, Mologen presented exploratory immunological data from a preliminary analysis of the IMPALA study at the Annual Meeting of the Society for Immunotherapy of Cancer. The profile of activated immune cells (monocytes, NKT cells, natural killer cells and T-cells) identified in the analysis confirms the evidence already observed in IMPACT and the mode of action of MGN1703.

Excluding skin cancers, colorectal cancer is the third most common cancer diagnosed in both men and women in the United States, and is the second leading cause of cancer-related deaths when both sexes are combined (cancer.org). Cure is not possible for most patients with mCRC, although for those with limited involvement of distant organs surgery may be curative. For others, chemotherapy, often in combination biological agents, can improve symptoms and prolong life. Yet the five-year survival rate of mCRC is just 11% (cancer.org).

There are a number of other Phase III candidates in development for mCRC listed on clinicaltrials.gov. The majority appear to be targeted at second- /third-line treatment, typically after disease progression following treatment with approved chemotherapies, biological agents, and other targeted agents. This suggests that MGN1703 could occupy a unique space as part of the first-line treatment for patients with mCRC.

The FDA has approved two new therapies for mCRC in 2015. Lilly’s Cyramza (ramucirumab) was approved for use in combination with the chemotherapy combination FOLFIRI (irinotecan with 5FU and folinic acid) in mCRC that has progressed after first-line treatment; median OS 13.3 months for patients on the FOLFIRI plus ramucirumab arm (vs 11.7 months for FOLFIRI plus placebo). Taiho Oncology’s Lonsurf (trifluridine/tipiracil) was approved for refractory mCRC; median OS 7.1 months in the trifluridine/tipiracil plus best supportive care (BSC) arm (vs 5.3 months for BSC and placebo).

IMPULSE is a randomised, controlled, two-arm, multi-national study assessing MGN1703 as a maintenance therapy post-induction chemo in metastatic small-cell lung cancer (SCLC; n=100). The design is similar to that of IMPACT (Exhibit 4). Recruitment completed in October 2015.

In this patient population, the response to first-line chemotherapy is often good (c 70%). Unfortunately, disease progression is almost inevitable, occurring in a short time period and with treatment options then largely palliative. Therefore, a maintenance therapy such as MGN1703 could have a significant benefit in this disease. Patients will be stratified according to biomarkers: NKT levels and NSE (neuron specific enolase, a tumour marker for lung cancer). The primary endpoint is OS and Mologen expects to begin the analysis after 12 months or by end-2016, and to present the data at ASCO 2017. The OS rate in this patient population is typically <12 months.

The data from the Phase III trial of the immunotherapy Yervoy (ipilimumab; BMS) in combination with chemotherapy for the treatment of SCLC are expected before the year end. The primary endpoint is also OS. BMS is also conducting two other Phase III trials in SCLC. CheckMate 451 is investigating Opdivo (nivolumab) and Opdivo in combination with Yervoy as maintenance therapy in patients with metastatic SCLC after completion with first-line chemo; the same target population as MGN1703. CheckMate 331 is investigating Opdivo vs chemotherapy in patients with relapsed SCLC. Both trials started recruitment in August 2015, with initial OS data due in 2018.

The FDA recently approved Lilly’s antibody therapy, necitumumab, alongside two types of chemotherapy for patients with metastatic squamous non-small cell lung cancer (NSCLC) who have not received any form of therapy; NSCLC is more common than SCLC (85% of all lung cancers), but like SCLC the squamous type is difficult to treat, with few treatment options. The approval came despite the fact that in combination with two chemotherapies OS benefit was just 1.6 months vs the chemotherapies alone, and the PFS benefit was less than a week; it also carries black-box warnings due to cardiovascular and thromboembolic risks. This illustrates the need for treatment options in these difficult-to-treat lung cancer patients, where even a modest benefit is valuable.

The broad activation of the immune system triggered by MGN1703 means that its potential may not be limited to cancer immunotherapy. To this end, in collaboration with the Aarhus University Hospital, Denmark, a Phase I study is underway to assess whether MGN1703 can activate the innate and adaptive immune system in patients with HIV leading to enhanced killing of HIV infected cells. The study has received funding from the American Foundation for AIDS Research.

Aarhus University Hospital is conducting the non-randomised interventional trial in two hospital centres in Denmark (Mologen is providing the MGN1703). Patients will receive four weeks of MGN1703 (60mg subcutaneously twice weekly; n=16). The primary endpoint is the change in proportions of activated natural killer cells; secondary endpoints include a collection of virological, immunological, pharmacodynamic and safety data. Recruitment completed in September 2015, and results are expected in Q216. Promising findings could expand the range of applications of MGN1703, broadening its appeal to potential future partners.

MGN1703 remains the focus for Mologen; however, its pipeline does include other cancer immunotherapies. Mologen is also working on the preclinical EnanDIM (Enantiomeric, DNA-based, ImmunoModulator), an innovative linear DNA-based TLR9. It has been designed to combine the chemically unmodified DNA components of MGN1703 with the ease of production advantages of linear molecules; this could also potentially extend the patent life of the franchise.

MGN1601 is a cell-based cancer vaccine specific to renal cell carcinoma (RCC), cultured from a tumour cell line from one patient, and genetically-modified using the MIDGE technology. This makes the product unique and impossible to copy by a potential generic competitor. The cells are also combined with MGN1703 (used as an adjuvant, at a lower-dose), and the product can be stored and shipped frozen, providing an off-the-shelf cancer vaccine.

MGN1601 was evaluated in a small, open-label, single-arm, Phase I/II study (ASET). The trial treated 19 patients with advanced RCC who failed prior systemic therapies (intent-to-treat, ITT). 10 patients completed the study per protocol (PP; intradermal injections of 10m cells per dose, administered once-weekly for four weeks, then bi-weekly until 12 weeks). Overall, two patients achieved disease control (1x PR; 1x SD) after 12 weeks and continued treatment in an extension phase (starting at week 24 through to 120 weeks). Subsequently, one patient had PD after 60 weeks, while the other completed all five further vaccinations and was still in tumour remission after 120 weeks. Median OS was 24.8 weeks in the ITT population, and 115.3 weeks in the PP group. The two patients still alive at week 120 were in the PP group. The safety profile was favourable.

Despite encouraging initial findings in a subgroup of patients, and identifying potential biomarkers, development has not visibly progressed since ASET completed in 2013. Fresh funding and/or a partner will be required to proceed to a larger study, or studies in combination with other agents.

The FDA recently approved Opdivo to treat advanced RCC in patients who have received prior anti-angiogenic therapy. It is only the second drug approved for the condition, and the first in nearly nine years. The Phase III CheckMate-025 trial was stopped early this July after an independent panel determined that Opdivo improved OS vs standard of care (median OS benefit of 25 months vs 19.6) in patients with advanced RCC; FDA Breakthrough Therapy designation was granted shortly after.

MGN1404 is a MIDGE-based gene therapy targeting malignant melanoma. Mologen is collaborating with the Charité University Medicine Berlin and Max-Delbrück Center for Molecular Medicine (MDC) in Berlin for MGN1404’s development. The Charité is leading a Phase I trial investigating its safety and tolerability, with additional data on mechanism of action to be collected. The study began in 2013 and recruitment is ongoing (aiming to recruit nine patients).

Our valuation of Mologen has increased slightly to €387m (vs €384m), or €17/share, primarily due to rolling the model forward to 2016 and updating for estimated end-FY15 cash of €25m. At present we maintain our assumptions for the MGN1703 and MGN1601 programmes until the new management has provided an update on strategy. Given the early stage of development we do not include MGN1703 for use in HIV at present. Our sum-of-the-parts DCF model applies a standard 12.5% discount rate. Our key assumptions and valuation metrics are summarised in Exhibit 5.

Positive results from the TEACH study (expected in Q216) that indicate the potential for MGN1703 to expand beyond cancer immunotherapy offers upside to our valuation. The key near-term drivers are the outcome of the IMPULSE Phase II study in SCLC and ultimately the IMPALA Phase III trial in mCRC. Positive results would prompt higher probabilities of success, leading to potentially significant valuation increases (see unadjusted NPV).

Our valuation assumes that a licensing partner will be secured on successful completion of the IMPALA study, with a 25% royalty rate in mCRC. Since the SCLC programme will have completed Phase II, we assume a more modest 15% royalty. In reality, the royalty rate may fall somewhere between the two levels. However, we have not included any upfront fees and/or milestones that would be expected on securing a partner and successful commercialisation of the product, which offers further potential upside to our valuation. While we assume a deal on completion of IMPALA, we note that a partnership could be secured ahead of IMPALA study data in 2018 (for example, on the back of positive IMPULSE data in 2017).

In September, the US Patent and Trademark Office declared that it will grant a patent for the combined use of MGN1703 with a chemotherapeutic agent (as is the dosing regimen used in the ‘re-induction’ treatment phase of the IMPALA trial). Mologen expects that this patent will permit a longer exclusive commercialisation than the initial patent for MGN1703 alone; we have extended the patent protection to 2025 in the US (previously 2023).

For MGN1601, we assume Mologen will commercialise the product itself in the US and Europe, with a 15% COGS and 15% marketing costs, giving a 70% operating margin. A partner would be required in Japan/RoW, and therefore royalties would be receivable (estimated at 15%).

The key sensitivities relate to the clinical performance of MGN1703 and the company’s ability to secure the additional financing and/or an appropriate partner to complete MGN1703’s full clinical programme. Results from the IMPULSE Phase II study in SCLC (H117) and the IMPALA Phase III trial in mCRC (2018) will have a major bearing on MGN1703’s chances of regulatory approvals and commercial success. We have made assumptions about the potential market opportunity available to MGN1703, which do not currently include significant stratification of patient populations. In the final analysis it may be that these candidates are most active in certain subgroups (eg levels of tumour antigens and/or immune cells), which could significantly reduce the target patient pool. However, should a biomarker-related response be confirmed, this could be offset by being able to extract a higher treatment price, gain greater reimbursement from payers (governments/insurance companies), and secure more favourable economic terms from any partnership.

Future development of MGN1601 is dependent on funding and/or partnerships. At present MGN1703 is the priority, however we currently assume that with new management in place active development of MGN1601 may resume in 2016.

Cash at end-Q315 was €30.5m, which includes the capital raise in April 2015 when €28.3m gross (€26.8m net) was raised from the rights issue (one-for-three) of c 5.7m new shares at €5.00 per share. Our model suggests that current cash is sufficient to fund operations to mid-2017, depending on the progress of the IMPULSE and IMPALA studies. Importantly, this provides a cash runway that accommodates some important milestones, particularly the completion of patient recruitment into the IMPALA trial (H216) and the primary analysis of the IMPULSE study data in SCLC (H117). There does, however, remain a funding gap, in respect of the IMPALA study (primary endpoint estimated 2018). We estimate this to be in the €25-35m range and include an illustrative €30m financing, nominally attributed to debt, in our FY17 forecasts, to allow completion of the study. The size and timing of the financing may vary significantly, and could be influenced by the outcome of the IMPULSE study and potential licensing deals.

In the first nine months of 2015, net loss amounted to €13.3m (equal to the same period in 2014). R&D expense, as classified by Mologen, is mainly derived from 'cost of materials' of €6.4m (€7.1m in Q1-Q314) and 'personnel expenses' of €3.8m (€3.9m in Q1-Q314), as reported in the income statement. Mologen continues to guide that FY15 R&D will exceed that of FY14 (€8.7m) as the IMPALA and IMPULSE studies progress; our R&D forecast (cost of materials) has increased slightly to €9.9m for FY15, offset slightly by reduced estimated SG&A (personnel expenses) of €5.3m. This drives a higher net loss than in 2014 (€17.1m); we forecast €19.1m, in line with management’s reiterated financial outlook. Our revised forecasts are illustrated in Exhibit 6.