Moleculin Biotech soars on research deal for novel cancer med; Buy signals abound, but not for the risk-averse.

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The News:

Moleculin Biotech Inc. (Houston TX) is one of the biggest, and quietest, gainers on the Nasdaq earlier in the week, soaring $1.92, or 275% on the week, to $3.02 mid-day Thursday (June 29, 2017).

@MoleculinBio is one of the recent biggest, and quietest, gainers on @nasdaq Click To Tweet

The huge upward move started for real after the preclinical pharma company announced that it has entered into an agreement with a Mayo Clinic (Rochester NY) physician to enable additional research on Moleculin’s WP1066 molecule. The research will focus on the possible treatment of a rare form of pediatric brain tumor called Diffuse Intrinsic Pontine Gliomas (DIPG).

According to multiple independent research reports, WP1066 is now capable of tumor suppression in xenografts of human brain tumors transplanted into mice. Moleculin stated that it focuses on WP1066, as a potential treatment for DIPG, along with the physician efforts of multiple researchers at the MD Anderson Cancer Center (Houston TX). The goal is to secure an Investigational New Drug (IND) permission to study and validate the potential importance of WP1066 in the treatment of complicated tumors.

Studies at the Mayo Clinic have indicated that this rare form of pediatric brain tumor could be particularly sensitive to the inhibition of the activated form of a cell-signaling protein called STAT3, which is a primary target of WP1066. Preliminary studies have shown there has been significant anti-tumor activity of WP1066 in DIPG in both vitro and vivo tumor models.

Moleculin Biotech is a preclinical stage pharmaceutical company focused on the development of anti-cancer drug candidates, some of which are based on discoveries made at MD Anderson Cancer Center.

Its lead product candidate is Annamycin, an anthracycline being studied for the treatment of relapsed or refractory acute myeloid leukemia, more commonly referred to as AML.

It also has two preclinical small molecule portfolios, one of which is focused on the modulation of hard-to-target tumor cell signaling mechanisms and the recruitment of the patient’s own immune system. The other portfolio targets the metabolism of tumors.

Steve’s Take:

In just the past several weeks, two different types of “smallish” equities have caught my attention with their potential for major growth. Both are suited only for those interested in a high-risk play.

The first was Idorsia Ltd. (Allschwil CHE)–the research-based spin-out from Actelion following the latter’s $30 billion acquisition by Johnson & Johnson (New Brunswick NJ)–which started trading on the SIX Swiss stock exchange at 10 Swiss francs June 16. It’s now up 70% at 17 francs. I’d say that has some people smiling who read and acted on my piece that week.

The second is Moleculin Biotech (Nasdaq:MBRX), which at the beginning of June traded at just $0.75 a share. Two key developments are driving this massive thrust upward–one pipeline-related and another, pure investment risk.

Examining the pipeline-related driver, last week, Moleculin reported that it had made a discovery via its alliance with MD Anderson Cancer Center regarding a potential treatment for pancreatic cancer. The new med, which the company labeled WP1234, builds on the mechanism of action of its existing, primary pipeline asset, named WP1122, which Moleculin is investigating as a potential brain-cancer treatment.

The idea behind the Anderson collaboration med and the root of the latest discovery is provocative and discussed well in semi-lay terms by InsiderFinancial. It’s worth a summary for those interested in this potential high flyer.

Scientists have known that cancer cells produce energy in a much different way than normal cells. Adenosine-5’-triphosphate (ATP) is the main energy source for all forms of work inside our cells Specifically, instead of using oxygen to produce ATP, they use a process called glycolysis, which converts glucose to ATP, bypassing oxygen. This translates to a much higher consumption of (and in turn, a much higher necessity for) glucose by cancer cells.

With this understanding of the way cancer cells produce energy, scientists have long theorized that being able to starve cancer cells of glucose should result in their death. However, until now, it has been extremely problematic to get any sort of treatment to persist long enough to effectively inhibit glycolysis.

With WP1122, Moleculin developed a med that had a half-life of 6 hours–compared to the half-life of only a few minutes with previous attempts at this glucose starvation tactic. Hypothetically, that should be sufficient to shut off cancer cells’ access to glucose and, as mentioned above, the company is now testing this hypothesis in pediatric brain cancer.

As for this latest discovery, the company has found a way to increase this half-life further (how much we don’t know), which means it could potentially have a comparable clinical effect, but in pancreatic cancer–a cancer that, right now, has essentially no treatment options outside of standard chemotherapy (relatively ineffective in this type of cancer, in any event).

The foregoing research update sets the stage for future development-related announcements going forward as the company puts its new advance through the next phase of clinical testing.

The second momentum driver for shares is the easing of conditions calling for a reverse split. To reiterate, at the beginning of June, Moleculin was trading below minimum bid threshold and consequently was at risk of delisting. This risk would have necessitated a reverse split. The recent explosion in share prices has thrust the company above the threshold and for the time being obviated the need to keep such a painful step in mind.

Since reverse splits traditionally are viewed as signaling financial frailty, this easing of a serious downside stressor allows investors an opportunity to focus on the product development situation rather than capital structure side.

Moleculin has a market capitalization of $58.24 million, suggesting the company is relatively stable and safe compared to smaller companies.

Shares have a 52-week low at $0.71, and a 52-week high of $7.36. Some analysts suggest that the difference between the 52-week low and 52-week high–$6.60–and the current price of the stock–$3.02–indicates the next move in the share price. If the price is currently hovering near the 52-week low and that price has just been achieved, it can suggest that the price of shares will rise.

Bottom Line:

As of today (June 29, 2017), Moleculin shares are closer to their 52-week low, and are 44% below their 52-week high. Buy this name if you can tolerate the risk of an abject clinical failure in Moleculin’s glucose-starvation technology.

Among the 13 indicators comprising the technical signals monitored by Research Driven Investing, 11 indicators signal a Buy and two a Sell.

Available cash on hand as of March 31, 2017 was $8.8 million, which seems decent, but the WP1234 med will need a capital infusion for an entirely new program. At the moment, this is the only major risk and additional funding sources, although likely dilutive, would appear accessible.

The positive impact this new med could have in combating pancreatic cancer, particularly where there currently aren’t any, is potentially huge, especially where even a small clinical benefit would be a major step forward.

Steve's Take: @MoleculinBio is a rational risk for your portfolio Click To Tweet

Is this name suited for the risk-averse portfolio? No. But is it a rational risk, even if tilting toward a gamble? I say there’s perhaps a place in the higher-risk segment of a portfolio where there’s some extra cash looking for a home.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.