First Berlin – MOLOGEN AG Research Update (11/09/2018)

First Berlin Equity Research has published a research update on MOLOGEN AG (ISIN: DE0006637200). Analyst Simon Scholes reiterated his BUY rating and increased the price target from EUR 28.50 to EUR 28.90.

Abstract
On 15 August Mologen signed a term sheet outlining the framework of an agreement assigning global development, manufacturing and commercialisation rights for lead compound lefitolimod to the Chinese/U.S. firm, Oncologie. The agreement is conditional on further funding of Oncologie in a mid-double digit million amount. Both the funding of Oncologie and the Oncologie-Mologen agreement are expected to close in Q1/19. The Oncologie-Mologen deal stipulates near-term (2018/19) funding of €23m (of which €14m to fund the pivotal IMPALA trial with metastatic colorectal cancer patients and €9m for additional combination trials of lefitolimod) as well as coverage of additional expenses (from 2019) of €20m. Development milestones would be up to ca. €200m, commercial milestones over €900m and tiered royalties would be set at a low double-digit percentage average rate. On 1 September Mologen announced a 1 for 2 rights issue intended to raise a net €17m. Up to 3.77m new shares are being offered at €4.70 per share between 7 September and 20 September. The issue proceeds together with the funding from Oncologie would fully fund the IMPALA trial, results of which are currently expected in April 2020. If lefitolimod is licensed to a third party outside Greater China (the most likely scenario in our view), Mologen will receive not less than 50% of the agreed payments for these territories. We had previously modelled double digit percentage royalties outside greater China. The assumption of single digit royalties outside Greater China has a negative impact on our price target. However, this is largely cancelled out by the positive impact of lower dilution and discount rates than we had previously modelled due to better funding visibility. We have also revised up our forecasts for milestone payments. Our new price target for the Mologen share is €28.9 (previously: €28.5): We maintain our Buy recommendation.