Mologen — SCLC data – subgroup analysis hints at benefit

IMPULSE is an exploratory Phase II trial in patients with small cell lung cancer (SCLC) that is testing the effect of lefitolimod as a maintenance treatment on overall survival. Patients must have achieved at least a partial response following platinum-based, first-line therapy. Participants in the trial are split between two treatments arms, with one arm receiving lefitolimod while the other arm receives local standard of care. With 102 patients enrolled in the trial, it is the largest single data package to date on lefitolimod and will further inform partnering and licensing discussions.

The recently announced top-line data did not meet the primary endpoint in the total patient population of overall survival. However, two pre-defined subgroups hinted at a potentially significant survival benefit. These were in patients with a low count of activated B cells (hazard ratio: 0.59; 95% confidence interval [CI]:0.29-1.21) and patients with chronic obstructive pulmonary disease (COPD) (hazard ratio 0.54; 95% CI: 0.21-1.38). While exact patient numbers in each group were not disclosed, approximately 50% of all patients had a low count of activated B cells and 25% had COPD. The low power of the exploratory subgroup analysis means confidence intervals are broad and statistically include the possibility that patients performed worse on lefitolimod. We do note that SCLC is a difficult indication to treat and the five-year relative survival rate in stage 1 patients is 31%, dropping off to 2% in stage 5 patients. Subsequently, the response in the subgroups is a positive development, but at this stage only exploratory in nature. As such, additional trials and further data are needed to confirm these initial data.

The most common adverse events (AEs) reported by the company were cough (25% vs 7.7% in control group) and headache (21.7% vs 5.1% in control group). The full data package will be presented at an upcoming scientific conference and the final readout is expected in Q118, approximately 24 months after patient enrolment. We have adjusted our valuation to account for the new data, a summary of which can be found in the valuation section of this report.

Outside of the IMPULSE trial, additional milestones are expected throughout 2017; the IMPALA (Phase III metastatic colorectal cancer) trial continues as planned – most recently, this has included the completion of patient recruitment (540 patients) (results are expected in 2019). The Phase I TEACH study in HIV has started its expansion study and final results are expected in late summer. The Danish Aarhus University Hospital, one of Mologen’s partners, recently presented positive data from the ongoing trial that demonstrated lefitolimod induced an antiviral immune response without causing unwanted destructive tissue inflammation. Additionally at the start of the year, Aarhus University Hospital announced that it had received a $2.75m grant from Gilead. The grant is to fund a clinical trial with lefitolimod in combination with novel virus-neutralising antibodies developed by Rockefeller University. The two unique modes of action are hoped to act in a “kick-and-kill” manner, where latent virus is woken up (“kick”) in the infected cells before being subsequently “killed” by the activated immune system; lefitolimod is believed to aid in both the “kick” and “kill” stages.

Finally a Phase I combination trial with ipilimumab (Yervoy) in advanced malignancies is enrolling (potential data readout by 2019) and positive results could increase the appeal of lefitolimod in oncology.

Mologen’s lead candidate lefitolimod (TLR9 agonist) demonstrated promising efficacy in mouse models when used in combination with a PD-1 or a PD-L1 immune checkpoint inhibitor (ICI). In an A20 lymphoma model, mean tumour growth inhibition (TGI) of 45.9% for PD-1 antibody treated and 49.8% for lefitolimod treated mice was observed. However, when used in combination the TGI increased dramatically to 99.1% and consequently at 60 days, survival was 100% compared with approximately 33% for the PD-1 antibody and lefitolimod when used as monotherapies. In a separate colon carcinoma (CT26) mouse model, a lefitolimod and a PD-L1 combination demonstrated a mean TGI of 48.4% compared with 27.6% for lefitolimod alone. The PD-L1 ICI had no effect on tumour growth when used as a monotherapy. This early pre-clinical data highlights the potential of ICI combinations with lefitolimod, however clinical data is needed in what is now a hotly contested sector.

The benefits of combining a TLR9 agonist with checkpoint inhibitors was further highlighted by recent data demonstrating the effect EnanDIM compounds (Mologen’s next-generation TLR9 agonists) had on a colon carcinoma CT26 mouse model. EnanDIM532 and a PD-1 antibody demonstrated 28.3% and 57.0% TGI, respectively, when utilised as monotherapies, while the combination of both reduced tumour growth substantially, represented by 74.7% TGI.

Cash at 31 March 2017 was €19.4m, which includes the recent January bond issue of net €4.99m. Our model suggests that current cash is sufficient to fund operations into early 2018; this provides a cash runway that accommodates some important milestones, notably the presentation of the full data package from the SCLC IMPULSE trial. However, a funding gap remains in respect of the IMPALA study (primary endpoint estimated 24 months after the final patient is recruited).

In terms of operating costs for Q117 and 2016, the company reported that FY16 R&D expenses remained steady at €17.0m vs €16.8m for 2015. This translated to a small increase in operating loss (EBIT) of €21.0m vs €20.5m in FY15. Q117 R&D rose slightly to €3.9m versus €3.7m in Q117. We expect R&D costs to remain broadly similar for the rest of FY17 and this is reflected in a forecast EBIT loss of €21.0m. We anticipate personnel expenses to remain stable as increased outsourcing offsets the lower headcount (we forecast €5.2m in FY17, vs €5.5m in FY16). In FY18 we currently assume that lefitolimod will be out licensed in oncology indications; as such, a reduction in costs is expected, mainly in cost of materials (€7.4m in FY18e from €12.4m in FY17e). Additionally, we model €30m in illustrative debt for 2018 to fund the company. We note that the terms of any potential future licensing deal will heavily influence Mologen’s financing needs, while we currently model the out licensing of lefitolimod in 2018; a delay or failure to achieve this could materially affect Mologen’s future cash needs.

To fund the company through to its next major inflection points, Mologen has raised gross proceeds of €21.1m, through a capital increase and the issuance of two convertible bonds. The capital increase in October 2016 issued 11.3m new shares, raising gross €13.6m (net €12.7m). Subsequently two convertible bonds have been issued: one in November (€2.54m) and another recently in January (€4.99m); each has an eight-year maturity date and a 6% coupon, paid quarterly. The €2.54m bond has a conversion price of €1.50, while the €4.99m bond can be converted at €1.60. Mologen’s largest shareholder, Global Derivate Trading (GDT), subscribed fully to the €2.54m bond and to approximately 73% of the €4.99m bond.

Our forecast net loss for FY17 has increased slightly to €21.4m (previously forecast at €20.7m).

Our valuation of Mologen has changed to €252m or €7.33/share (previously €261m or €7.67/share). The value of the portfolio has increased, from €245m (€7.20/share) to €254m (€7.44/share); however, this is offset by a reduction in net cash (minus interest-bearing debt), which is now modelled as of end-2017 at -€0.11/share (vs €0.47 previously). The portfolio value has increased primarily due to rolling forward our model. However, this was offset by a slight reduction in the value we attribute to lefitolimod (in SCLC) following the IMPULSE data. We now assume a lower peak penetration in SCLC of 15% (vs 25% previously) due to its potential applicability in fewer patients than initially forecast. Additionally, due to the uncertainty of the next steps in development, we have lowered the probability of success to 15% across the board (vs 30% in the US/Europe and 25% in Japan). Lefitolimod in SCLC now represents €0.07/share of our rNPV. The majority of the portfolio value still remains in lefitolimod in CRC (Exhibit 1) where we have retained our assumptions.

We assume lefitolimod will be out licensed in oncology in 2018 and have valued royalties accordingly; however, we do not model any potential upfront or milestone payments. Our model suggests a cash runway potentially into early 2018. For more details of our valuation methodologies please see our last outlook note, titled Next level of development.