Moleculin Biotech Inc (NASDAQ:MBRX): Proceed With Caution

Analysis of Moleculin Biotech Inc (NASDAQ:MBRX)

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Moleculin Biotech Inc (NASDAQ:MBRX), an oncology-focused pharmaceutical firm that just joined public markets in June, is making some waves in the biotech world. Having initially traded above issue to raise $9.2 million and reach post-IPO highs just shy of $9, the company has since settled into the $6-7 range. It’s targeting the development of an interesting asset in the oncology space, but it’s also running a pretty aggressive $20,000 promotional campaign according to HotStocked. These sorts of promotional campaigns can sometimes be legitimate advertising for a company looking for real investors and that’s OK, but they can also be red flags due to conflicts of interest that ensue.

Confirming this is a disclaimer that came from this newsletter, sent out by Small Cap Leader. Moleculin paid this company $20,000 to push its stock on its email subscribers. There are two more – Awesome Stocks here and Stock Trade Wire – for which compensation is not disclosed.

What matters though, is what’s under the hood. With this in mind, let’s have a look at what Moleculin has to offer investors in an attempt to determine whether or not its fundamentals support its current market cap of circa $75 million.

First up, a look at the drug. It’s called Annamycin, and it’s a version of an already approved and very widely used chemotherapy drug type called anthracycline, of which the drug doxorubicin, brand name Doxil by Johnson & Johnson (NYSE:JNJ), is the best known and best selling. Anthracyclines are used to treat most types of cancer, and through inhibiting DNA synthesis among other means they stop cancerous cells from replicating. The problem with anthracyclines, however, is they have an extremely high cardiotoxicity. This limits their efficacy, as dosing is limited to how much a patient (and in particular, a patient’s heart) can withstand. Annamycin is a liposomal version of anthracycline, meaning it is enveloped in a pocket like a cell membrane, which reduces toxicity by preventing direct exposure. This reduces the cardiotoxicity of the drug, which increases the potential dosing, and in turn, should translate to an improved efficacy.

On top of reduced cardiotoxicity, the liposomal element of Annamycin also “hides” it from the multidrug resistance-associated protein (MRP). This protein sits at the outer layer of cancerous cells. When a patient undergoes chemotherapy, the chemo will kill some cells, but leave others that are resistant to the treatment as a result of them expressing this MDR protein, in a survival of the fittest cancer cells mechanism. This means the resistant cells are left to replicate, so when the same treatment is used again, MDR protein pumps recognize the chemo compound and literally pump it out of the cell, negating its efficacy. Multiple studies have shown that these MDR pumps are not able to recognize Annamycin, which eliminates the potential for resistance at least from that factor.

Moleculin is going after a second line acute myeloid leukemia (AML) indication. In patients with AML, the goal is to reduce the number of cancerous cells to the lowest level possible, and then to do a bone marrow transplant. In as many as 80% of treated patients, however, it’s not possible to reduce to the 95% degree required before a bone marrow transplant, and this is in part due to the dose limiting toxicity of anthracyclines drugs. Moleculin is hoping that it can improve the rate of patients that become eligible for a bone marrow transplant with its high dose, low toxicity version of anthracycline.

The hypothesis is sound, and the science is supported by data, but there are some issues.

The first is that the drug isn’t yet technically eligible for investigational development. Moleculin bought the rights to the drug last year from a private entity called AnnaMed. AnnaMed had discontinued the development of the drug, and so the IND on which this development rested expired. So, to start any clinical trials going forward, the company has to get a fresh IND, a complex bureaucratic process.

Before this, it has to audit the results that AnnaMed derived from its preclinical and clinical trials of the drug, and verify they are correct. Now, there shouldn’t be any issue there, but it’s a cost and time factor. IND submissions cost around $600K, and since the company is applying for a special protocol assessment which will allow it to use a phase IIb as a pivotal trial) it could be months before it’s even allowed to start its own development of Annamycin.

There’s also no way of guaranteeing that the company will qualify for the special protocol, though companies developing similar medications have in the past, including CytRx Corporation (NASDAQ:CYTR) which is in the thick of Phase III trials for its own less toxic version of doxorubicin called aldoxorubicin. If it doesn’t qualify, it’s looking at a Phase II and a Phase III pivotal before it can submit for commercialization. And even if it does qualify, CytRx for example has proceeded to Phase III even with an SPA, so there’s no guarantee that commercialization proceeds after Phase II. Nonetheless, an SPA will still likely shorten the development pathway somewhat, Phase III or not.

There’s also the question as to why would a previous developer halt development? In some of the promotional material that Moleculin is distributing, and at its website, the company states:

“30% of patients who had failed an average of five previous induction therapies of 7+3, responded to Annamycin well enough to qualify for a curative bone marrow transplant…”

This is a bit misleading. Yes, three out of ten patients that took Annamycin reduced their levels of cancerous cells to a level that is acceptable for bone marrow transplants. Only one of these transplants actually happened and was a success, however. The other two died of what’s called tumor lysis syndrome caused by the Annamycin itself, a complication of chemotherapy where too much of a tumor is killed too quickly, overloading the body’s ability to deal with the debris. The deaths, as unfortunate as they are, were still a sign that Annamycin works. It’s just that in its current form it may be too powerful, and tweaking that could take some time. Even if a drug is technically effective, the FDA will probably not approve it if there is a high chance of directly causing death, and that is what investors need to have in mind in this case.

That aside, and even ignoring the fact that 30% isn’t that great of an efficacy rate, the primary endpoint of any pivotal would have to be a reduction towards baseline eligibility for a bone marrow transplant, or there’s no real point in the treatment. Additionally, annamycin doesn’t look that safe so far, at least by FDA standards. There’s a link to the phase I/II in question’s adverse event report here. In the dose determinant element of the trial, which preceded the phase IIa detailed above, Luekopenia, Neutropenia, infection, tumor lysis, pneumonia all cropped up at various rates and grades, and that’s just naming a few.

It’s going to be a while before Annamycin officially returns to the development process, and if it does, previous data has shown its safety profile to be somewhat worrying. Reduced cardiotoxicity, or even zero cardiotoxicity, is great, but not if the increased dosing that this reduced toxicity affords impacts other parts of a patient’s health – and it looks like this might be the case with annamycin. There is no telling for sure, but that might be why the last developers dropped it.

Moleculin material would have us believe otherwise, however. Comparisons to the recently announced Jazz Pharmaceuticals plc – Ordinary Shares (NASDAQ:JAZZ) buyout of Celator Pharmaceuticals Inc (NASDAQ:CPXX) suggest a similarity, and promotional material seems to imply this similarity bodes well for Moleculin. Both companies are in the same space, but that’s where the similarity ends.

In the interest of balance, it’s important to mention that the FDA is often more lenient when it comes to the safety profile of drugs designed to treat serious conditions in unmet needs. If the choice a patient faces is some serious potential side effects or death, chances are they will choose the side effects. The agency considers this as part of its cost benefit analysis come review time. So, even with a relatively weak safety profile, the FDA may be willing to approve a drug like Annamycin because there’s no other real option for the patient’s it’s targeting. This is perhaps the biggest plus for annamycin’s safety profile.

All this, and we’ve not even mentioned the questionable social media campaign that underpinned the company’s IPO efforts. A look at Moleculin’s Facebook Inc (NASDAQ:FB) page reveals it has nearly 80,000 likes, increasing at a rate of nearly 15% a week. It’s painting as an oncology space champion when it is a newcomer, and may have used Facebook to get followers to share news about its IPO. It also has some reviews from some very questionable follower profiles (no friends, no history, one profile picture etc.). This is often a sign of false reviews, designed to influence the opinion of real users that come across the reviews. Further, Moleculin has 80,000 likes on Facebook and just 17 followers on Twitter Inc (NYSE:TWTR). This is further evidence of promotion, which is OK. Promotion does not mean a company is not worth an investment per se. It just means investors should be cautious here.

Moleculin may yet have a bright future and may just need the word to get out to jumpstart its work. Annamycin may yet succeed. The drug is supported by some promising data, and assuming this data passes audit, will have a chance to build into a pivotal trial across the next couple of years.

What we are pointing out, however, is that this company seems to be attempting to align itself with some big players in a big space, and it doesn’t even have a drug in its clinical development pipeline. It’s doing this through paid promotional activity, skewed social media campaigns and the supporting of its lead candidate with as yet unaudited data that another company collected.

The final concrete quantitative statistic we will leave you with is that CytRx, which is nearing the end of Phase III trials with a special protocol assessment for a very similar reformulated anthracycline chemotherapy, only has a market cap of $58M right now. Does a company that does not even have an active IND for a similar class drug deserve a market cap 28% higher? If annamycin succeeds, Moleculin will of course be worth much more than it is now by many multiples. But before we can even begin to assess whether it will be, its value looks set to fall in the meantime.

Annamycin does seem to work so far, but it doesn’t look to justify the company’s current valuation. There will probably be better entry points later if development continues. The drug looks good so far in term of long term potential. The current valuation, not so much.

 

**None of the Market Exclusive staff have any positions or plan to take any positions, short, long or other in MBRX within the next 72 hours.

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