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Research: Healthcare
In preparation for Molecure’s forthcoming clinical and preclinical R&D activities, management has secured (secondary) financing with a gross value of around PLN50m (c $12m). The Phase II trial for OATD-01, which was recently FDA approved for clinical studies as an Investigational New Drug (IND), is top priority. The company will seek EMA approval in the coming weeks so that it can proceed with Phase II studies in both the US and EU in parallel. It will also employ the proceeds to support the ongoing Phase I trial of OATD-02 in patients with solid tumours (updates expected in H223), and intensify efforts on its early-stage programmes, specifically focused on small molecule drug candidates designed to modulate underexplored protein targets and the function of mRNA. We view the capital raise as a positive development in light of the challenging macro environment.
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Molecure |
Ramp-up in preparation for busy clinical year
Pharma and biotech |
Spotlight – Update
27 July 2023 |
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Molecure is a research client of Edison Investment Research Limited |
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In preparation for Molecure’s forthcoming clinical and preclinical R&D activities, management has secured (secondary) financing with a gross value of around PLN50m (c $12m). The Phase II trial for OATD-01, which was recently FDA approved for clinical studies as an Investigational New Drug (IND), is top priority. The company will seek EMA approval in the coming weeks so that it can proceed with Phase II studies in both the US and EU in parallel. It will also employ the proceeds to support the ongoing Phase I trial of OATD-02 in patients with solid tumours (updates expected in H223), and intensify efforts on its early-stage programmes, specifically focused on small molecule drug candidates designed to modulate underexplored protein targets and the function of mRNA. We view the capital raise as a positive development in light of the challenging macro environment.
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Historical figures
Source: Company accounts. Note: *Diluted EPS. |
Equity raise through secondary public offering
Molecure has announced the closing of a secondary public offering of 2,776,000 Series H shares at an issue price of PLN18 per share, resulting in a gross value of c PLN50m (c $12m). Management expects the funding to contribute to the implementation of its strategic plans for 2023–25. Considering the challenging nature of the current market environment, we view this capital raise as a positive step for Molecure, and believe it is supportive of the company’s ongoing R&D activities and potential for growth.
FDA gives green light for OATD-01 in Phase II
Molecure’s lead clinical asset, OATD-01, is an oral, first-in-class CHIT1 inhibitor in clinical development for the treatment of sarcoidosis. The drug has the potential to be the first disease-modifying therapy for this indication, which EvaluatePharma projects will be worth c $452m by 2028. Management also believes that the drug could expand to larger indications such as idiopathic pulmonary fibrosis (IPF) and non-alcoholic steatohepatitis (NASH). Molecure has announced that the FDA has accepted its IND application, which permits the start of clinical studies in the US. The Phase II trial, due to commence in Q423, will be a multi-centre, randomised, double-blind, placebo-controlled study (n=90) to assess the efficacy, pharmacokinetics, pharmacodynamics and safety of OATD-01 in pulmonary sarcoidosis patients. Molecure also recently announced that is has signed an agreement with contract research organisation Simbec-Orion for the Phase II trial. The agreement states that Simbec-Orion will be responsible for organising and executing the Phase II trial in full. In our view, the results of the trial (anticipated in H125) could be a significant catalyst for investor attention.
Proceeds raised to support strategic plans for 2023–25
On 18 July, Molecure announced that it had completed an equity offering, entering into subscription agreements for all 2,776,000 Series H shares (economically equivalent to common shares) offered by private placement, and within its authorised capital. The Series H shares were subscribed for by 35 investors, consisting of both new investors, and existing institutional and individual investors. The company experienced a high level of investor interest, and the offer was oversubscribed. The issue price was set at PLN18 per share, bringing the gross value of the offering to c PLN50m (c $12m). Management has communicated that it will use the capital raised to co-finance the implementation of Molecure’s strategic plans for 2023–25. Given current market conditions, we believe that the success of this equity offering is a notable achievement. Moreover, the observed interest is supportive of the company’s ongoing clinical development programmes, in our view.
Molecure’s strategic objectives for the period 2023–25 aiming to enrich, expand and diversify its clinical development pipeline are as follows:
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For OATD-01 (a first-in-class CHIT1 inhibitor), Molecure aims to continue the clinical development of the asset and demonstrate therapeutic efficacy in the Phase II proof-of-concept trial in patients with pulmonary sarcoidosis.
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Following FDA approval of the IND application, the Phase II study also aims to validate CHIT1 as a target and could provide data to suggest the drug may be used in additional indications such as IPF and NASH. The study is expected to commence in Q423 and final readouts are expected once the study has been completed in H125.
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For OATD-02 (a first-in-class ARG1/2 dual inhibitor designed as a treatment for cancer), Molecure is determining the safety, tolerability and maximum tolerated dose (MTD) of the drug in the ongoing Phase I study in patients with advanced and/or metastatic solid tumours. We anticipate an update on the progress of this study in H223.
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Once the MTD is established, Molecure plans to expand Phase I studies into haematological cancers such as acute myeloid leukaemia. After the completion of Phase I, the company may also consider combination studies, for example with checkpoint inhibitors, in selected solid tumour indications. It may either pursue this alone, or with a partner.
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In the preclinical space, Molecure hopes to identify one or two advanced lead compounds for development against previously unexplored protein targets.
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Through the initiation of new research projects, based on in-house research, in-licensing and collaborations, Molecure aims to have 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.
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Molecure intends to maintain focus on its platform for the discovery of small molecules which modulate mRNA translation for a multitude of diseases previously considered undruggable.
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By end 2023, Molecure 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 2025, it hopes to have signed a partnership agreement in the mRNA platform space.
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Molecure aims to increase the efficiency of early-stage drug development.
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The company plans to pursue this goal in collaboration with a commercial partner specialised in generative artificial intelligence (AI) methods. It may also explore an AI-driven drug discovery engine approach for both mRNA and new protein targets. As a result of this already ongoing collaboration (the details of which have not yet been disclosed), Molecure intends to cut 50% of the time and cost associated with the process of therapeutic target validation to clinical candidate selection by 2025.
Molecure aims to secure at least one high-value partnership agreement within this period to support these plans. Management has also stated that, based on the current pipeline, it plans to launch or continue three independent Phase I and Phase II clinical programmes in the coming years. In our opinion, while these goals are ambitious for a relatively short period, they may represent significant growth for the company, provided it can secure a partnership agreement to license the further development and sale of any drug candidates.
Financials
As discussed in a previous update note, in FY22 Molecure recorded total revenue growth (including other operational revenue) of 12.2% y-o-y to PLN1.64m, which primarily consisted of domestic research grants. Total operating expenses stood at PLN18.63m, 22.3% y-o-y higher than PLN15.22m in FY21, attributed to the continued advancement of the clinical development pipeline, higher personnel expenses and increased costs of external services. Third-party services, accounting for 32% of total operating expenses, were significantly up by 49.7% y-o-y to PLN6.03m in FY22, due to increased clinical activities related to OATD-01 and OATD-02. Salaries (33% of operating expenses) increased by 58.4% y-o-y to PLN6.22m. The company reported a net loss of PLN15.26m in FY22, versus PLN13.64m in FY21.
While the cash outflow from operating activities stood at PLN10.21m in FY22 (PLN13.50m in FY21), the cash outflow from investing activities was materially higher at PLN33.59m (PLN18.82m in FY21), largely due to the ramp-up of preclinical work progressing towards the clinic. Notably, Molecure capitalises parts of its R&D expenditure, which stood at PLN30.31m in FY22 versus PLN16.38m in FY21. As at end FY22, the company reported a cash position of PLN65.62m, from PLN102.04m at end FY21, reflecting PLN36.42m in total cash outflows during the year.
Now that Molecure has revealed details of its strategy for the period 2023–25, management estimates that the execution of these plans will require capital expenditure of c PLN250m. This is approximately broken down into clinical development programmes for OATD-01 and OATD-02 (c PLN100m), discovery and preclinical development programmes (c PLN75m), general and administrative expenses (c PLN50m) and mRNA platform (c PLN25m). With existing cash and cash equivalents at c PLN50m (estimated for 30 June 2023 by management), the company needs to raise c PLN200m to complete clinical trials for OATD-01 and OATD-02 and to continue to progress its early-stage projects. Management has communicated that potential financing sources include transaction revenues such as upfront payment(s) from one or more licensing agreements, grants and subsidies, issuing new shares and/or venture debt instruments. Molecure plan to use non-dilutive sources of funding as efficiently as possible. To implement its strategic plans for 2023–25, management assumes that the required PLN200m will be financed from existing and future non-dilutive grants and subsidies (c PLN75m) and financing from capital markets and revenue from at least one partnering transaction (c PLN150m). This should leave Molecure with an excess of c PLN25m by end 2025, provided it is successful in obtaining these funds.
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Research: TMT
SenSen’s Q423 update shows robust quarter-on-quarter growth in cash receipts, broadly aligning with our full year revenue forecast. Lead indicators for FY24 are positive, highlighted by the recent signing of a A$1.4m three-year contract with a new Asian casino customer, as well as a strong contract pipeline. SenSen also launched several new solution variants in Q4, which could lead to high-margin upsell opportunities. The group has identified cost-cutting measures for H124, with the aim of becoming cash flow positive for the full year, which we have reflected in our updated forecasts.