MolMed investors asked to settle down for long-term growth

Analysis

MolMed is certainly an unusual beast - not only is it a rare stock market-listed Italian biotech it can also boast A-list backers - Italian prime minister Silvio Berlusconi effectively became its biggest shareholder last year when his holding company, Fininvest, raised its stake to 24%.

The company also achieved the rare feat of notching up decent share price gains during the recent Asco cancer conference season, for the second year running (Asco EventAnalyzer - 2010's winners and losers, June 10, 2010). However, MolMed’s shareholders could be forgiven for starting to get a little nervous about their investment, having been asked to come up with an extra €58m this week, albeit in a heavily discounted 1-for-1 rights issue, to help fund clinical work in the absence of a partnership for either of its phase III assets, TK and NGR-hTNF (Arenegyr).

Flagging partnership hopes

Two years ago senior executives at MolMed told EP Vantage that a product deal, particularly for NGR-hTNF, could be just around the corner (EP Vantage Interview - MolMed data should help deal talks, June 5, 2008).

Yet despite having reported largely encouraging phase II data for both candidates - NGR-hTNF in mesothelioma, liver cancer and colorectal cancer and TK in high-risk leukaemias – since then, a deal has yet to materialise.

The writing was on the wall earlier this year that a partnership was not imminent when MolMed decided to press ahead with starting phase III trials of both candidates while gaining shareholder approval to increase the company’s share capital.

In March, NGR-hTNF entered a phase III trial in malignant pleural mesothelioma (MPM), a cancer mostly caused by repeated exposure to asbestos. The trial will evaluate the compound in 400 patients whose disease has progressed following treatment with Alimta-based chemotherapy, the only agent that has been approved for first line treatment. Final results are not expected until 2013.

Earlier in February a phase III trial of TK was initiated in 150 high risk acute leukaemia patients, with mortality outcome data not expected until 2014.

Tapping shareholders

So instead of attracting a lucrative partnering deal, MolMed is now tapping its shareholders for more money just two years after going public and raising €50m (MolMed cuts lonely figure on IPO road, March 3, 2008), perhaps a factor in the massive discount on offer in the rights issue.

Shareholders have the right to purchase one additional share for each one they already own for just 55 cents, compared to an in-market share price of €1.45. The shares in issue will effectively double to 210 million, causing the market share price to decline over 60% to 84 cents in trading today.

In response MolMed’s chairman and chief executive, Claudio Bordignon, naturally accentuated the positive implications of this financing round, giving it the flexibility to develop its pipeline without the pressure of securing a deal.

With pivotal phase III data not available for at least three years, it is not yet clear if its inflated cash balance of around €70m will see it through to that moment. What is clear is that MolMed’s investors now need to settle in for the long haul.

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