Mologen — Update 1 September 2016

Mologen — Update 1 September 2016

Mologen

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Mologen

'Next Level' on track

Post-interim results update

Pharma & biotech

1 September 2016

Price

€1.73

Market cap

€38m

Net cash (€m) at 30 June 2016

15.3

Shares in issue

22.6m

Free float

55%

Code

MGN

Primary exchange

Frankfurt (Prime Standard)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.7)

(48.4)

(61.6)

Rel (local)

(9.0)

(50.0)

(62.8)

52-week high/low

€5.1

€1.3

Business description

Mologen is a German biotech company developing novel immunotherapies. Lead product lefitolimod (TLR9 agonist) is being evaluated in metastatic colorectal cancer maintenance, small cell lung cancer maintenance, HIV and a combination trial in advanced solid malignancies.

Next events

IMPALA recruitment completed

End 2016/Q117

IMPULSE: Start analysis

Q416

IMPULSE data

H117

IMPALA initial data

24 months after final
patient enrolment

Analysts

Dr Susie Jana

+44 (0) 20 3077 5700

Daniel Wilkinson

+44 (0)20 3077 5734

Mologen is a research client of Edison Investment Research Limited

Mologen’s interim results have confirmed the implementation of its ‘Next Level’ strategic review. This is focused on the development and commercialisation of lead candidate lefitolimod (oncology and HIV) across its four clinical trial programmes and the next-generation molecules EnanDIM (TLR9 agonist), effectively evolving Mologen into a more product-focused company. Partnering opportunities for lefitolimod are being actively sought. We anticipate Phase II IMPULSE (SCLC) data in early/mid-2017 and initial Phase III IMPALA (mCRC) data 24 months after final patient recruitment to drive the shares. We value Mologen at €201m (€8.87/share).

Year
end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/14

0.0

(17.0)

(1.01)

0.0

N/A

N/A

12/15

0.0

(20.5)

(0.99)

0.0

N/A

N/A

12/16e

0.0

(24.9)

(1.10)

0.0

N/A

N/A

12/17e

0.0

(25.8)

(1.14)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

‘Next Level’ evolution

To ensure evolution from a research-based to a product-oriented company, Mologen is focusing near-term efforts on developing lefitolimod (TLR9 agonist) for potential commercialisation; manufacturing efforts will be out-sourced to achieve suitable scale. Mologen’s move to a more clinical development-focused company means preclinical R&D assets (MIDGE vector system) will be spun off or divested while MGN1601 (renal cancer vaccine) is on hold.

IMPULSE and IMPALA critical share price drivers

Focus in the near term will naturally centre on lefitolimod and its four ongoing clinical trial programmes; notably Phase III (IMPALA) and Phase II (IMPULSE) maintenance trials for mCRC and SCLC respectively. We anticipate IMPULSE (SCLC) data in early/mid-2017 and IMPALA (mCRC) initial data approximately 24 months after final patient recruitment to be the next major share price drivers. Additionally, during the past six months Mologen has extended the TEACH ‘study (HIV) following positive initial results and has announced a collaboration with the MD Anderson Cancer center on recruitment of the first patient in the Phase I combination study with the immunotherapy ipilimumab (Yervoy) for advanced solid malignancies.

Valuation: €201m or €8.87 per share

Our valuation of Mologen remains at €201m or €8.87/share. We assume lefitolimod will be out-licensed in oncology in 2018 and have valued royalties accordingly; however, we do not model in any potential upfront or milestone payments. Our model suggests a cash runway into early 2017; we forecast additional illustrative financing of €30m in 2016. Following the AGM, Mologen has announced its intention to carry out a cash capital increase from authorised capital to extend the cash runway further; this is critical to fund lefitolimod’s development out to 2018.

Lefitolimod commercialisation is key

‘Next Level’ aims to prepare Mologen’s lead product candidate lefitolimod for a potential market approval. IMPALA (Phase III mCRC) and IMPULSE (Phase II SCLC) trials continue as planned, with completion of patient recruitment for IMPALA expected by end 2016/Q117 (results expected approximately 24 months after last patient enrolment) and the results of IMPULSE in H117. We assume the launch of lefitolimod in its first indication (the maintenance treatment of metastatic colorectal cancer) will be in 2020 for Europe and 2021 for the US; we model that out-licensing in oncology indications will be achieved in 2018. Outsourcing of manufacturing will enable Mologen to effectively ramp up its production capacity and potentially multi-source its supply line through contract manufacturing, further increasing the licensing appeal of lefitolimod if IMPALA and/or IMPULSE are positive. Earlier-stage trials include a Phase I TEACH study in HIV, which has started its expansion study (final results due in H117), while a Phase I combination trial with ipilimumab (Yervoy) in advanced malignancies has started enrolment (potential data readout by 2019) could increase the licensing appeal of lefitolimod in oncology if results are positive.

Outsourcing key to strategy

Mologen has recognised that it does not have the sufficient capabilities in house to ramp up the manufacturing of lefitolimod for a potential market launch. It will close in-house clinical supply manufacturing and look for a contract manufacturer with the capacity and expertise needed to deliver lefitolimod in market quantities. This enables a solid production line to be put in place, while controlling costs that would be incurred if Mologen invested in the expertise and facilities needed to internally scale production. Furthermore, multiple manufacturers could be used to enable protection of lefitolimod supply. Additionally, early-stage, in-house R&D will be outsourced as Mologen directs its attention to clinical assets. All outsourcing activities will be led by Mologen staff, ensuring expertise and knowledge is retained in house.

Building commercialisation expertise

Mologen has indicated that it is proactively searching for licensing partners and has brought in a consultancy firm specialising in biotechnology. The team is expected to aid the Executive Board in evaluating and assessing strategic options that have arisen from the ‘Next Level’ strategy. A key objective will be refining the business case around lefitolimod and how it is targeting and searching for licensing partners. As commercialisation opportunities near, we assume internal expertise will be brought on board to support this process. While headcount is initially being reduced (in R&D and manufacturing), we expect numbers to remain steady in the mid-term as commercial expertise is brought on board. The successful commercialisation of lefitolimod is key for Mologen’s current strategy and the timing and terms will have a substantial impact on the company’s future, with the results of both IMPALA and IMPULSE key to any future deal.

More detail on lefitolimod and the ‘Next Level’ strategy can be found in our July 2016 update; ‘Next Level of development'.

Valuation

Our valuation of Mologen remains unchanged at €201m or €8.87/share. We assume lefitolimod will be out-licensed in oncology in 2018 and have valued royalties accordingly; however, we do not model in any potential upfront or milestone payments. Our model suggests a cash runway into early 2017; we forecast additional illustrative financing of €30m in 2016. Following the AGM Mologen has announced its intention to carry out a cash capital increase from authorized capital to extend the cash runway further; this is critical to fund lefitolimod’s development out to 2018.

Full details of our valuation methodology and assumptions can be found in our July 2016 note.

Financials

Cash at 30 June 2016 was €15.3m, which includes the capital raise in April 2015 when €28.3m gross (€26.2m 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 early 2017, depending on the progress of the IMPULSE and IMPALA studies for MGN1703. Importantly, this provides a cash runway that accommodates some important milestones in the next six months, particularly the primary analysis of the IMPULSE study data in SCLC (expected H216 – data expected H117) and completion of patient recruitment in the IMPALA trial at end 2016/Q117. However, a funding gap remains in respect of the IMPALA study (primary endpoint estimated by end-2018). We estimate this to be in the €25-35m range and include an illustrative €30m financing, nominally attributed to debt, in our FY16 forecasts to allow for completion of the study. Mologen has announced that funding will be covered by existing authorised capital, together with existing authorisation to use conditional capital.

In terms of operating costs for H116, R&D expenses increased to €7.1m vs €5.2m in H115 translating to an in increase in operating losses (EBIT) of €9.8m vs €6.9m in H115. The increased R&D costs are expected to continue in FY16, mainly in support of the IMPALA and IMPULSE trials, with this expected to drive a higher net loss than in 2015. We forecast FY16 R&D (cost of materials) costs of €15.4m and SG&A (personnel expenses) of €5.2m. Our forecast net loss for FY16 remains unchanged at €24.9m.

Exhibit 1: Financial summary

€'000s

2013

2014

2015

2016e

2017e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

227

12

39

40

50

Cost of Sales

0

0

0

0

0

Gross Profit

227

12

39

40

50

Research and development (cost of materials)

(2,904)

(8,687)

(11,011)

(15,415)

(16,186)

Selling, general & administrative (personnel expenses)

(4,364)

(5,113)

(5,074)

(5,175)

(5,227)

Other operating income/expense

(2,803)

(3,199)

(4,372)

(4,368)

(4,368)

EBITDA

 

 

(9,844)

(16,987)

(20,418)

(24,919)

(25,731)

Operating Profit (before GW and except.)

 

(9,923)

(17,059)

(20,499)

(24,943)

(25,762)

Intangible Amortisation

(935)

(38)

(40)

(88)

(53)

Exceptionals/Other

0

0

0

0

0

Operating Profit

(10,858)

(17,097)

(20,539)

(25,030)

(25,815)

Net Interest

30

19

3

25

8

Other

0

0

0

0

0

Profit Before Tax (norm)

 

 

(9,893)

(17,040)

(20,496)

(24,918)

(25,755)

Profit Before Tax (FRS 3)

 

 

(10,828)

(17,078)

(20,536)

(25,006)

(25,807)

Tax

0

0

0

0

0

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(9,893)

(17,040)

(20,496)

(24,918)

(25,755)

Profit After Tax (FRS 3)

(10,828)

(17,078)

(20,536)

(25,006)

(25,807)

Average Number of Shares Outstanding (m)

15.4

16.8

20.7

22.6

22.6

EPS - normalised (c)

 

 

(0.64)

(1.01)

(0.99)

(1.10)

(1.14)

EPS - FRS 3 (c)

 

 

(0.70)

(1.02)

(0.99)

(1.10)

(1.14)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

457

440

414

411

435

Intangible Assets

237

206

175

105

63

Tangible Assets

220

234

239

306

372

Other

0

0

0

0

0

Current Assets

 

 

15,480

14,613

25,981

31,523

6,248

Stocks

33

30

28

28

27

Debtors

0

0

0

0

0

Cash

14,765

13,563

24,592

30,134

4,860

Other

682

1,020

1,361

1,361

1,361

Current Liabilities

 

 

(943)

(1,747)

(6,886)

(6,886)

(6,886)

Creditors

(943)

(1,747)

(6,886)

(6,886)

(6,886)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(10)

(8)

(6)

(30,006)

(30,006)

Long term borrowings

0

0

0

(30,000)

(30,000)

Other long term liabilities

(10)

(8)

(6)

(6)

(6)

Net Assets

 

 

14,984

13,298

19,503

(4,958)

(30,209)

CASH FLOW

Operating Cash Flow

 

 

(8,869)

(15,602)

(15,095)

(24,349)

(25,168)

Net Interest

0

3

0

0

0

Tax

0

(6)

12

0

0

Capex

(146)

(93)

(95)

(109)

(106)

Acquisitions/disposals

1

0

0

0

0

Financing

8

14,495

26,207

0

0

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net Cash Flow

(9,006)

(1,203)

11,029

(24,458)

(25,274)

Opening net debt/(cash)

 

 

(23,777)

(14,765)

(13,563)

(24,592)

(134)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

(6)

1

0

0

0

Other

0

0

0

0

0

Closing net debt/(cash)

 

 

(14,765)

(13,563)

(24,592)

(134)

25,140

Source: Company accounts, Edison Investment Research

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Mologen and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Mologen and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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