We reinstate our coverage of Molecure with a HOLD recommendation and set our FV at PLN 17.0 per share (implying 6% upside). The decision to terminate the OATD-01 partnering agreement by Galapagos was a major disappointment for the market on top of the overall weakness of the biotech sector in recent months. Although Molecure is close to an important milestone in OATD-02 development and is still cash rich (net cash over PLN 80m), we see a share issue risk because the company will not be able to finance two parallel clinical trials from its own resources. In our opinion, this risk together with the uncertainty over the outlook for OATD-01 limits the growth potential of the share price, although, on the other hand, it should be remembered that a partnering window in the OATD-02 project is opening and the chances of partnering in this project are growing.
Galapagos terminated OATD-01 partnering. Molecure has obtained all rights to OATD-01, but the decision to terminate the partnering agreement will weigh on OATD-01 in the near future, causing difficulties in obtaining a new partnering contract on favorable terms or receiving a grant. We expect OATD-01 Phase 2 clinical trials in Sarcoidosis to commence next year and to last until 2025E. We assume a partnering contract in 2025E based on the Phase 2 clinical trial results, with an upfront payment of USD 45m. We assume the success probability at 10% due to uncertainty surrounding Galapagos’ termination of the contract. The possible success of Phase 2 clinical trials may remove a large discount from the valuation of OATD-01 and unlock a large transaction potential.
OATD-02 close to entering clinical trials. Molecure has applied for authorization to start the OATD-02 Phase 1 clinical trial. We assume the probability of entering the first phase of clinical trials in 4Q22 at 90%; its success should increase the valuation by approximately PLN 1.1ps. The study is to be conducted in 3-4 centers in Poland and is to cover 30-40 patients. We assume the cost of the trial at USD 5m. We assume that a partnering agreement will be signed in 2024E after the completion of Phase 1 (cumulative probability of success: 69%).
Share issue risk. The termination of the partnering with Galapagos complicated Molecure's financial plan. Instead of receiving milestone payments in the OATD01 project, the company will have to conduct and finance two parallel OATD-01 clinical trials (phase 2) and OATD-02 (phase 1) for a total of over PLN 70m. The company itself admits that in the most negative scenario - i.e. without any cofinancing or subsidies - the company has secured financial resources until the end of 2023. In our opinion, there are three possible scenarios for obtaining financing: early OATD-02 partnering, venture debt financing and a new share issue.
Analyst
Åukasz Kosiarski
+ 48 882 108 382
