First Berlin – MOLOGEN AG Research Update (04/06/2018)

First Berlin Equity Research has published a research update on MOLOGEN AG (ISIN: DE0006637200). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from EUR 13.10 to EUR 5.70.

Mologen's main value driver is the IMPALA phase III trial of its lead compound, the TLR9 agonist and immunomodulator, lefitolimod in metastatic colorectal cancer (mCRC). This indication is worth USD10bn - over 250x the company's current market capitalisation. The extreme discrepancy between Mologen's market valuation and the value of its main addressable market is partly explicable in terms of a challenging start to 2018. Last August Mologen announced its first partnering deal with the Chinese company, iPharma Ltd., regarding the development, manufacture and commercialisation of lefitolimod in China. The exclusivity period with iPharma expired at the end of 2017 and in February Mologen announced that it had agreed on a partnership with the US company, Oncologie on very similar terms to the iPharma deal conditional on a €3m initial payment. This payment was made in April. Meanwhile, publication of the annual report was delayed from 22 March to 25 April. Also in April, the company stated that the primary analysis date for the IMPALA study is April 2020. This suggests that filing for approval of lefitolimod in mCRC may not happen until 2021. Mologen had previously guided towards a filing date of 2019/20. Current cash reach is expected to be end-2018. In late April, CEO Mariola Söhngen announced that she will not renew her contract which expires at the end of October. We have lowered our price target from €13.10 to €5.70 and raised the risk rating from High to Speculative while maintaining our overall Buy rating. The higher level of dilution entailed by later filing than we previously modelled is one reason for the downgrade to our price target and risk rating. We also use higher discount rates in our valuation model to reflect the departure of the CEO and the worsening quality of the company's financing (€12m bond financing with conversion into shares at a 10% discount to VWAP).