Molecular Templates: Pipeline Progressing, Clinical Updates Loom

Sep. 26, 2019 12:12 PM ETMolecular Templates, Inc. (MTEM)12 Comments

Summary

  • Shares have risen by 20% since my initial article.
  • I provide a recap of the bullish thesis and recent events.
  • Data for MT-3724 in multiple indications will be forthcoming later this year.
  • TAK-169, an ETB targeting CD-38, could carve a sizeable niche out in treating relapsed/refractory multiple myeloma patients.
  • Management continues to suggest additional partnerships could be inked in the near future.
  • Looking for a helping hand in the market? Members of ROTY get exclusive ideas and guidance to navigate any climate. Get started today »

Shares of Molecular Templates (NASDAQ:MTEM) have risen by roughly 20% since my initial recommendation last year, which highlighted its agreement with Takeda (OTCPK:TKPHF) to develop CD38-targeted engineered toxin bodies (ETBs). On the other hand, shares have fallen by 8% since my June update.

I felt this one merited a revisit after I listened in on management's presentation at Ladenburg Thalmann Healthcare Conference, given that multiple data readouts are expected later this year and Takeda collaboration is progressing nicely as well.

Chart

Figure 1: MTEM daily advanced chart (Source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the above chart (daily advanced), we can observe a steady uptrend for much of 2019 (topping out above the $8 level). The stock pulled back to $5 for a couple of months but has bounced recently as a result of upcoming trial readouts.

Overview

Keys to the bullish thesis I outlined previously included the following:

  • The company made its way onto the Nasdaq via a merger with struggling biotech firm Threshold Pharmaceuticals in March of 2017. I considered it a green flag because around the same time it accessed a $40 million equity financing led by Longitude Capital with participation from BVF, Perceptive Advisors, and others. As if that were not enough, after the merger, Takeda Pharmaceutical made a $20 million equity investment in its tiny partner as part of a collaboration and license agreement.
  • Molecular Templates is ushering forward a new class of targeted biologic therapies with unique biological properties, known as Engineered Toxin Bodies (ETBs). One special characteristic of ETBs is that they can induce internalization into cells even against non or poorly internalizing targets (expands number of extracellular receptors that can be targeted by direct cell-kill). Additionally, a unique intracellular mechanism of action has been observed via enzymatic and permanent ribosome inactivation (observed activity is not inhibited by generalized mechanisms of chemo-resistance). ETBs can also be used for seeding of foreign antigens in a tumor cell for surface expression.

Figure 2: Pipeline (Source: Corporate presentation)

  • Looking at the company's pipeline, I appreciated the updated agreement with Takeda to jointly develop CD38-targeted ETBs for the treatment of a range of diseases, starting with multiple myeloma. The rationale for the pact is based on the fact that multiple myeloma cells have a wide expression of CD38 protein and the hypothesis that ETBs could bring about more extensive, deeper responses as they don't rely on the body's immune system to be effective. The CD38 collaboration involves $632.5 million in potential milestones, double digit up to low-twenties royalties, and 50/50 cost share. Apart from that, the multi-target deal involves $547 million in milestone payments and royalties in the mid single to low double digit range (not to mention $25 million when Takeda exercises its option to license ETBs). Preclinical data showed that TAK-169 appeared to draw the most attention given that it's active in the presence of daratumumab and active against daratumumab resistant cells (keep in mind Darzalex did over $2 billion in sales in 2018). If data in the clinic lines up with preclinical results, the drug candidate could find its niche in patients who've progressed after or are unlikely to respond to CD38-targeted antibody therapy. In xenograft models, complete regressions were observed using both once- and twice-weekly dosing schedule.

Figure 3: TAK-169 overview (Source: Corporate presentation)

  • Data presented at ASCO last year for wholly-owned asset MT-3724 also looked intriguing (in phase 1 and 1b study in patients with non-Hodgkin's lymphoma who had previously relapsed after anti-CD20 Mab and chemotherapy). Best activity took place in heavily pre-treated patients (median five prior therapies) with relapsed or refractory diffuse large B-cell lymphoma (DLBCL). Management made the call in the future to enroll patients with low levels of rituximab (RTX), as those with high circulating levels exhibited a poor response to MT-3724. In DLBCL patients with these low RTX levels (n=10), objective response rate was 30% with a disease control rate of 70%. Interestingly enough, two patients with stable disease experienced tumor reductions of just under 50%. The tolerability profile left more to be desired and management chose to implement a maximum tolerated dose (MTD) of 50 mcg/kg (with 6 mg per dose at most). It should be pointed out that dose interruptions or reductions were required in the first 2 of 3 patients treated and toxicities occurring at 100 mcg/kg were consistent with Capillary Leak Syndrome (CLS). However, as pointed out above, the new MTD should allow for efficacy (observed at 5 mcg/kg as there was little evidence for CLS at less than 7 mg per dose).

Figure 4: MT-3724 single agent comparison (Source: Corporate presentation)

Figure 5: MT-3724 development plan (Source: Corporate presentation)

  • The company's PD-L1 targeting ETB appeared interesting as well (not just another checkpoint inhibitor), given that it directly targets tumor cells and overcomes resistance mechanisms against PD-1 and PD-L1 antibodies. Cytotoxicity delivered is designed to be independent of a requirement for tumor-infiltrating lymphocytes, high tumor mutational burden, or modulatory effects of the tumor environment. PD-L1 ETB MT-6035 can also deliver a viral peptide for cell surface presentation and targeting by a specific antiviral CTL population for a complementary mechanism for tumor cell destruction (antigen seeding).
  • Positive developments in my last update piece included the hiring of Roger Waltzman as Chief Medical Officer (ex-Novartis leading development of Glivec and Jakafi) and management's presentation at Cowen highlighting high unmet need addressed by TAK-169 and potential for their HER2 asset to provide benefit to non-responding or resistant patients or be used in sequential combination (or those coming after small molecule drugs or ADCs). Lastly, we were reminded that the company's PD-L1 asset is still wholly owned and targeting a huge opportunity with differentiated mechanism of action. A nugget that stood out to me was that management suggested additional deals (along the lines of what we saw with Takeda) could be coming.

Let's take a look at recent news and how it's affected our thesis here.

Select Recent Developments and Other Information

In June, the company announced that the FDA accepted its IND application for TAK-169, its ETB targeting CD-38. The plan from here is to conduct an open-label phase 1 dose escalation and expansion study in relapsed/refractory multiple myeloma patients. Keep in mind that Darzalex did over $2 billion of sales in 2018, so the opportunity to overcome mechanisms of resistance to existing CD38 targeted therapies is quite large.

For the second quarter of 2019, the company reported cash and equivalents of $72.3 million with management guiding for operational runway into the first half of 2021. Net loss fell slightly to $9.2 million, while research and development expenses rose to $10.2 million. G&A came in at $4.6 million.

As for future catalysts of note, the company will be providing study updates on three ongoing phase 2 trials for MT-3724 later this year (for the MT-5111 phase 1 study as well). Trials for both MT-5111 and TAK-169 should start dosing patients in the near term. For the TAK-169 study, I want to point out that the 50 mcg/kg starting dose is the maximum tolerated dose for MT-3724 (protocol calls for once weekly and once every 2-week dosing schedules). Therefore, we could start seeing activity relatively early. Additionally, management has guided multiple times for additional partnerships to be inked in the medium term (the big question is whether they follow through).

Figure 6: Upcoming catalysts and milestones (Source: Corporate presentation)

As for the conference presentation at Ladenburg Thalmann, I was reminded of how logical management's approach is to simply go after well-validated targets in order to get early reads on safety and efficacy in phase 1 trials. They again guide for additional collaborations, and for MT-3724, we are reminded that unique attributes and novel MOA (induce internalization, ribosmal destruction) make it ideal for being combined with other therapies (a significant advantage over bispecifics). As for TAK-169, pre-clinical data showed a striking reduction in side effects including capillary leak, it's active even in the presence of daratumumab and appears well-positioned to go after these relapsed or refractory patients.

As for institutional investors of note, BVF owns over 3 million shares and Perceptive Advisors owns a decent-sized stake as well.

Final Thoughts

To conclude, near-term readouts for MT-3724 are of interest given the additional validation they could provide the company's approach based on the unique properties of Engineered Toxin Bodies. At the same time, this lead asset is not a principal reason for investing (for me at least) given limited market opportunity and a substantial competition faced. The value proposition for TAK-169 appears much more compelling, but there's still some waiting to be done for initial clinical data. More immediate near-term upside could also be had if management follows through on inking additional partnerships in a similar vein to the Takeda collaboration.

For readers who are interested in the story and have done their due diligence, Molecular Templates remains a Buy. The stock is most appropriate for patient investors with multi-year time frame, given the wait for TAK-169 data and other assets moving forward in the clinic.

Risks include disappointing data for MT-3724 in the second half of the year, setbacks in the clinic for initiating studies or enrolling patients, disappointing initial data readouts for multiple product candidates in 2020 and intense competition for certain indications (i.e. CD20). Dilution in the near term is possible given the company's current cash position (raise money while you can, not when you need to).

As for downside cushion and elements of derisking, cash position accounts for about one-third of the market capitalization and Takeda partnership provides an added layer of cushion as well.

For our purposes in ROTY, I plan to revisit toward the end of the year or in early 2020 after pipeline has further progressed.

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This article was written by

Jonathan Faison profile picture
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Community of Biotech Investors Focused on Value & Clinical Momentum

Founder of ROTY (Runners of the Year), a 500+ member community of biotech investors & traders. Big believer in quality over quantity, my goal is to add value for ALL readers.





Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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