Molecular Templates Near Term Catalysts and Analyst Review

Molecular Templates, Inc. (NASDAQ: MTEM) formerly known as Threshold Pharmaceuticals, Inc. (NASDAQ: THLD) is a clinical-stage biopharmaceutical company focused on the development of drugs and diagnostic agents targeting the tumor microenvironment of solid tumors and hematologic malignancies. This approach offers broad potential to treat a variety of cancers. By selectively targeting tumor cells, Molecular is building a pipeline of drugs that hold promise to be more effective and less toxic to healthy tissues than conventional anticancer drugs.


On August 1st, 2017, Threshold announced that its stockholders approved all the proposals presented at the Annual Meeting of Stockholders held on July 31, 2017, including a proposal related to the merger with Molecular Templates, Inc.  Following the completion of the merger, Threshold changed its name to Molecular Templates, Inc.


Molecular Templates is focused on the discovery, development and commercialization of next-generation immunotoxins called Engineered Toxin Bodies (ETBs) for the treatment of cancers and other serious diseases.


Apart from the operational & financial synergies outlined below, the merger is expected to result in a re-rating of the merged entity over the near term. Additionally, the deal is expected to bridge some part of the valuation gap of the standalone entities. We expect full synergies to take some time to come through.


Post merger, the combined company has a Unique Biological Platform with a differentiated mechanism of action in oncology and two clinical-stage candidates, MT-3724 and Evofosfamide. As per management, the merger has triggered an exciting step in the evolution of Molecular Templates as it enters the public markets.


Furthermore, the merged entity is now well funded with approximately $75.0 Million in Cash on its Balance Sheet. The merged company now has the resources (at least for the near term) to further the development of its lead ETB product candidate, MT-3724, with new clinical efficacy and safety data from an MTD expansion study in relapsed/refractory DLBCL patients expected in 2018, and to develop its pipeline of drug candidates based on next generation ETBs, the first of which is expected to enter the clinic in 2018.  The company is also committed to exploring Threshold’s evofosfamide (formerly TH-302), which is currently in a Phase 1 clinical trial in combination with ipilimumab in advanced solid tumors.


On August 3rd, the merged entity announced a collaboration agreement for oncology drug discovery programs. The collaboration will apply Molecular Templates’ engineered toxin bodies (ETB) technology platform to potential therapeutic targets provided by Takeda Pharmaceutical Company Limited (TKPYY) through a joint scientific committee of both companies.

Under the terms of the agreement, Takeda will make an equity investment and Molecular Templates is eligible to receive upfront payments, as well as development and commercial milestone payments. Takeda has agreed to royalties on the sales of commercial products developed through the collaboration.

The previously mentioned collaboration is an exciting opportunity to develop a new class of oncology therapeutics by applying METM’s modified Shiga-like toxin fusion proteins to Takeda’s world-class oncology target portfolio.


About the Company:


Molecular Templates, Inc, formerly Threshold Pharmaceuticals, Inc, is a clinical-stage biotechnology company. The Company is engaged in the discovery and development of therapeutic and diagnostic agents that selectively target tumor cells for the treatment of patients living with cancer. It is presently focusing on therapeutic product candidates based on hypoxia-activated prodrug technology, including evofosfamide and tarloxotinib.


Overall Pipeline: The company has multiple leads in development across multiple indications.

Major pipeline

About MT-3724:


MT-3724 is Molecular Templates’ lead drug candidate.  MT-3724 is in a Phase 1 clinical trial in heavily pre-treated non-Hodgkin’s lymphoma patients at the Memorial Sloan-Kettering Cancer Center, the MD Anderson Cancer Center, and the University of Arizona.  An expansion arm of the Phase 1 study focused on relapsed and refractory diffuse large lymphoma patients is set to commence enrollment.


About MT-4019:


MT-4019 is Molecular Templates’ preclinical drug candidate targeting CD38.  MT-3724 has been awarded a $15.2 million grant from the Cancer Prevention and Research Institute of Texas (CPRIT) to fund development.  MT-4019 represents the second generation of Engineered Toxin Bodies (ETBs) that incorporate a proprietarily de-immunized scaffold.


About Evofosfamide:


Evofosfamide (formerly TH-302) is an investigational hypoxia-activated prodrug of a bis-alkylating agent that is preferentially activated under severe hypoxic tumor conditions, a feature of many solid tumors. A Phase 1 clinical trial evaluating evofosfamide in combination with the immune checkpoint antibody, ipilimumab, is currently ongoing at the M.D. Anderson Cancer Center in Houston Texas. At the same time, while the PMDA has just indicated that the current analysis of the MAESTRO data is not sufficient to support the submission of a New Drug Application (NDA) in Japan, Molecular Templates is in ongoing discussions with the PMDA to clarify the scope of an additional study, the results of which may then support the submission of an NDA for evofosfamide in Japan.


 Details of the recently concluded merger:


Following the completion of the merger, Molecular Templates completed a previously announced $40.0 million equity financing led by venture capital firm Longitude Capital, which invested $20.0 million in the combined company, with an additional $20.0 million from CAM Capital, BVF, Perceptive Advisors and others, including certain affiliates of Molecular Templates.  In addition, following the completion of the merger and the Longitude-led financing, the combined company closed a $20.0 million equity investment from Takeda Pharmaceutical Company Ltd. made in connection with Molecular Templates’ entry into a collaboration and license agreement with Takeda.


The holders of shares of Molecular Templates common stock outstanding immediately prior to the merger received 7.7844 shares of Threshold common stock in exchange for each share of Molecular Templates common stock in the merger.  The exchange ratio reflects a 1-for-11 reverse stock split effected by Threshold prior to the completion of the merger.  Following the completion of the merger and the equity financings, the combined company has approximately 26,880,899 shares of common stock outstanding.


Following the completion of the merger, Threshold moved its corporate headquarters to Austin, Texas. The combined company operates under the leadership of Molecular Templates’ management, including Eric E. Poma, Ph.D., as Chief Executive Officer and Chief Scientific Officer, and Jason Kim, President, and Chief Operating Officer.


First Quarter 2017 Financial Results:


Revenue for the second quarter ended June 30, 2017, was $3.0 million, compared to no revenue for the same period in 2016. Revenue for the second quarter ended June 30, 2017 related to the receipt of non-refundable payments in aggregate of $3.0 million from OBI for the sale of TH-3424. The Company immediately recognized the $3.0 million as revenue since there were no further obligations under the Asset Transfer Agreement upon the completion of the transfer of Threshold’s rights and obligations to OBI, which occurred on June 16, 2017.


Net income for the second quarter ended June 30, 2017 was $1.1 million compared to a net loss of $6.9 million for the same period in 2016. Included in the net income for the second quarter of 2017 was operating income of $0.2 million and non-cash income of $0.9 million compared to operating loss of $5.9 million and non-cash expense of $1.0 million for the second quarter of 2016.


Cash, cash equivalents and marketable securities totaled $16.8 million at June 30, 2017 compared to $17.6 million at March 31, 2017. The net decrease of $0.9 million was a result of $1.8 million for operating cash requirements for the quarter ended June 30, 2017, and a $2.0 million bridge loan to Molecular Templates in the form of a promissory note, partially offset by a $3.0 million payment received from OBI for sale of TH-3424.


The company has not generated and does not expect to generate revenue from sales of product candidates in the near term. Since inception it has funded operations primarily through private placements and public offerings of equity securities.


Management believe that cash, cash equivalents and marketable securities will be sufficient to fund projected operating requirements for at least the next 12 months based upon current operating plans and spending assumptions.



Key risk factors and potential stock drivers:


The company is exposed to risk of the potential for dilution. The company is going to need incremental capital.


Timely financial closure for incremental capital requirement would continue to remain a critical business & liquidity sensitivity factor over the medium term.


Notwithstanding, incremental improvements in existing therapies by enhancing efficacy/ convenience; could impact the company’s meaningful value (on a longer run).


The company’s ability to ramp-up profitability while sustaining its revenue growth would be one of the key stock driver over the near to medium term. The company must regulate its increasing development costs.


Stock Chart:


On Wednesday, August 9th, 2017, MTEM closed at $5.80 (-3.33%) on volume of 92,700 shares exchanging hands. Market capitalization is $ 37.74M. The current RSI is 55.88

In the past 52 weeks, shares of MTEM have traded as low as $3.85 and as high as $16.28.


At $5.80, shares of MTEM are trading above its 50-day moving average (MA) at $5.08 and above its 200-day MA at $5.51


The present support and resistance levels for the stock are at $4.95 & $6.15 respectively.


With the recent developments, analysts have revised their outlook on the stock: The stock currently has an average rating of “BUY” and a consensus price target of $10. Considering present valuation, Molecular is at a favorable risk reward position.


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