Molecular Partners AG (MOLN): a biotech net-net with institutional buying
Molecular Partners AG mainly develops drugs against cancer. To get the information for this post I had a look into the business update for the first half of 2024, the financial statements for the third quarter of 2023 (30 September 2023) and the annual report over 2022.
Disclosure is in English. Filings and reports are available in Edgar and on the website of the company. In the annual report the auditor mentions “there are no key audit matters to communicate in our report”.
Business highlights
The company is doing a phase 1/2a trial for MP0533 which is a “tetraspecific T cell engager for the treatment of relapsed/refractory acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS)/AML.” Furthermore the company is conducting a phase 1 trial for MP0317, which is “CD40 agonist designed to activate immune cells specifically within the tumor microenvironment by anchoring to fibroblast activation protein (FAP)”.
More generally the company develops “DARPin (designed ankyrin repeat protein) therapeutics”. This is a new class of proteins with apparently high expectations for treating diseases.
The company also develops a platform for delivering radioactive payloads used to attack tumors. The company expects to make announcement in the coming months about this platform.
Since November 2021 the company owns “global development and commercial rights to abicipar for the treatment of neovascular age-related macular degeneration (nAMD) and Diabetic Macular Edema (DME).” This drug has completed “two positive Phase 3 clinical trials” but is for unknown reasons difficult to commercialize. The company is looking into farming it out.
In January 2022 Novartis bought the rights on ensovibep from Molecular Partners for 150 million CHF. Ensovibep is an anti-viral drug against COVID-19. Currently Novartis is also supporting development of the platform for delivering radioactive payloads. In the first 9 months of 2023 it paid 1.034 million CHF for this.
Dual listed
The stock trades in Switzerland and in the US on the Nasdaq. In both cases the ticker is MOLN. Trading volume in Switzerland is much higher than in the US. I bought the shares for higher prices than the current price. Currently the last closing prices are 3.5 CHF and 3.96 USD. The numbers in this article are based on 3.5 CHF per share.
At 3.5 CHF per share most financial websites, screeners, etc will show you a market cap of about 160 million USD. But after taking 3.5 million treasury shares and 1.8 million options into account there are effectively 34 million shares. I estimate the market cap at 131 million CHF which is about 150 million USD. So this stock is slightly cheaper than it looks based on information from large websites, screeners, etc.
I rank net-nets globally. Based on this simple ranking it is one of the best net-nets in my list.
Cash burn and balance sheet
I estimate cash burn at 70 million CHF per year, so 17.5 million CHF per quarter. When taking an extra half year of cash burn into account I estimate the liquidation value at 153 million CHF. Therefore Liquidation Value/Market cap = 1.17. This is low for a biotech net-net but do not forget the conservative extra half year of cash burn, after the last financial report, I have substracted.
The balance sheet is strong with lots of cash and hardly any leverage. The company says it is “well funded into 2026”.
Trustworthyness
Substantial shareholders (up to date until beginning of March 2024): Mark N. Lampert (Biotechnology Value Funds) 24.13%, Federated Hermes, Inc 8.69%, Suvretta Capital Management LLC 6.45%, Novartis AG 4.86%. These numbers are slightly too low because the percentages are relative to the total share count including treasury shares.
In 2023 Mark N. Lampert has increased his stake from 12.31% at the end of 2022. Also Federated Hermes is a new shareholder in 2023 and Suvretta Capital Management LLC has also increased its stake from 4.89% at the end of 2022. In 2022 there were three managers with shareholdings worth more than a million USD.
I have not found any related party transactions except for insider compensation.
Large board with 7 non-executive directors and a CEO. The non-executive directors are very well paid, mostly in restricted share units. The audit fees are excessive: 917k CHF and 643k CHF in 2021 and 2022 respectively. About 60% of the compensation for the CEO is variable. In total he earned 1.0 million CHF in 2021 and also in 2022.
Investors have filed a class action against the company for alleged disclosure issues related to MP0310 in the US in July 2022.
The share price is volatile but not exceptionally volatile for a net-net or biotech stock.
Summary
The platform the company uses to develop new drugs might be promising as institutional buying and the successful development of encovib. Furthermore this net-net is more expensive than is seems because of stock options and ongoing cash burn.
I have not found any major governance issues but think there are too many non-executive directors and that they are overpaid.
This is a good stock to roll the dice with for a small position. As with any biotech company: this is a risky stock with a volatile share price.
Disclosure: long Molecular Partners AG.