Moleculin Biotech Inc (NASDAQ: MBRX) has been climbing in the market over the past couple of trading sessions, with gains of more than 30% today alone. However, with a recent and dramatic decline in the market, many are wondering if this stock is headed up, only to fall again soon.
In my opinion, that’s not going to be the case. The reality is that the stock fell as the result of a fund raise. While dilution is never a good thing, in this case it was necessary to improve the balance sheet and fund the company moving forward. Let’s not forget, MBRX is still in clinical stages and not generating revenue from the sale of products.
Nonetheless, when the news was announced, investors were unaware of the positive information that was yet to come down the line. A key update surrounding a recent discovery seems to be the reason for the gains. Nonetheless, there are several reasons that I take a bullish stance on Moleculin Biotech stock. Let’s dive in:
What Is Moleculin Biotech?
Moleculin Biotech is a clinical-stage oncology company that is focused on the development of treatments for some of the world’s most treatment-resistant cancers. While the company is relatively young, it has amassed a strong pipeline that deserves some attention.
In fact, the Pipeline at MBRX consists of three clinical-stage oncology candidates, one that is preparing to enter clinical stages and six assets under preclinical development. The clinical assets are being developed to target AML, brain tumors and Cutaneous T-Cell Lymphoma, also known as CTLC. These are some of the toughest to treat forms of cancer, and early data suggests that the company is making meaningful progress in their treatment.
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Moreover, it’s worth mentioning that this isn’t one of those clinical-stage biotechnology companies that don’t stay in touch with investors. In fact, in April alone, the company has issued six positive press releases informing investors of progress being made.
Why MBRX Stock Is Climbing
As mentioned above, in recent trading sessions, including today, Moleculin Biotech has been seeing strong gains. There are a few bits of news that can be blamed for the movement that we’re seeing in the stock at the moment:
Significant Lung Cancer Discovery Announcement
The announcement that started the gains that we’re seeing from MBRX at the moment took place on April 17, 2019. In a press release, the company announced a significant discovery in the treatment of lung cancer.
The discovery had to do with ongoing sponsored research that’s taking place at The University of Texas MD Anderson Cancer Center. According to the release, the research has demonstrated that Annamycin is able to significantly improve survival in an aggressive form of triple negative breast cancer metastasized to the lungs in animal models.
In a statement, Walter Klemp, Chairman and CEO at MBRX, had the following to offer:
We know that Annamycin was previously show to be significantly more potent than doxorubicin in both Lewis lung carcinoma in vivo and small cell lung cancer in vitro models.
Now we are seeing significant activity against triple negative breast cancer that has metastasized to the lungs. This particular animal model used in our testing is considered to represent a very aggressive form of cancer.
We believe our success in increasing the survival rate in mice with this tumor model in combination with the previously observed high uptake of Annamycin by the lungs is a promising indication that supports additional clinical research in lung and metastatic lung cancers.
MBRX Announces Fast Track Designation
In a press release issued on April 18, 2019, Moleculin Biotech announced that it has received Fast Track Designation from the FDA. In particular, the FDA approved the company’s request for Fast Track Designation for Annamycin, for the treatment of relapsed or refractory acute myeloid leukemia (AML).
The news is overwhelmingly positive as Fast Track Designation opens several benefits to the company. These include:
- Higher frequency of meetings with the FDA along the development process.
- Higher frequency of written communication between the FDA and MBRX surrounding study design and other aspects of clinical development.
- Potential eligibility for Accelerated Approval and Priority Review.
- Roling review, which speeds up the regulatory approval process.
A Coming Conference Call To Discuss The Developments
Finally, MBRX announced that it will be holding a conference call on Wednesday, April 24, 2019 at 4:30 p.m. ET. During the call, the company will provide more details with regard to the recent discovery surrounding Annamycin, the Fast Track Designation, and other corporate developments.
If you would like to join the call, you can do so by dialing either (800) 860-2442 or (412) 858-4600. The company will also be webcasting the call on its website. In the release, MBRX will field live questions from equity analysts in a Q&A segment.
Addressing The Elephant In The Room
As mentioned above, there is some reservation among investors with regard to Moleculin Biotech after the company recently took a pretty painful dive. The decline in value was ultimately the result of a press release issued on March 26, 2019, centered around a fund raise.
In the release, MBRX said that it intends to offer and sell units consisting of shares of common stock and warrants in an underwritten public offering. Of course, the news proved to upset investors.
First and foremost, any public offering of shares and warrants will dilute the shares held by current shareholders. Moreover, the company did not disclose what the size or terms of the offering might be. So, the level of dilution is unknown. So, the market reacted by driving the stock down dramatically.
Nonetheless, as a clinical-stage biotechnology company, we all know that MBRX is reliant on support from the investing community. After all, the company cannot generate revenue from product sales as of yet.
After all, a look at the company’s 2018 financial report showed that it only had current assets amounting to just under $8 million. With a net loss in the same year amounting to more than $11 million, the company simply doesn’t have the funding that it needs to continue to operate as it develops the candidates within its pipeline.
At the end of the day, offerings are nothing new in clinical-stage biotechnology stocks. While they can be painful, they are also a primary source of funding for clinical development. All in all, while dilution is no fun, it is a necessary evil for Moleculin Biotech at the moment.
MBRX Comes With Incredible Market Potential
Should Moleculin Biotech receive regulatory approval for any of its clinical candidates, the market potential that would come with the approval would be incredible. In fact, the AML market is expected to grow to be worth more than $1.5 billion by the year 2024.
Digging into other targeted indications shows more potential value. The pancreatic cancer market is expected to grow to be worth more than $13 billion by 2023, with the brain tumor and skin cancer markets expected to grow at compelling rates.
Considering that MBRX has a market cap of just under $55 million, an approval and even small share of the market in any of these indications could prove to be a meaningful value creator for the company and its investors.
Risks To Consider
Any time an investment is made, there are risks that should be considered. This is especially the case when investing in clinical-stage biotechnology companies. In the case of Moleculin Biotech, I’m of the opinion that the most pressing of these risks include:
- Reliance On The Investing Community – As mentioned above, MBRX is a clinical-stage biotech company. As a result, it has no approved products and is heavily reliant on the investing and lending community for the funding required to continue operations. Should the support from either the investing or lending community falter, the stock could see declines.
- Potential Clinical Failure – Any clinical-stage biotech company is reliant on the success of its clinical trials. Should a clinical failure take place, investors would likely react by sending the stock spiralling down.
- Dilution – Due to the recently announced offering, dilution is coming at some point in time. However, it seems as though the market has already priced in the offering and that things are heading up from here.
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In my opinion, Moleculin Biotech represents an incredible opportunity. While the company’s balance sheet doesn’t look great, the recently announced offering will likely take care of that.
Moving forward, the company’s new discovery in lung cancer and work in AML with Annamycin are likely to yield several positive catalysts. Moreover, the rest of the company’s pipeline is also showing promise.
With a strong financial footing to come and several catalysts likely ahead, I believe that MBRX is poised for strong gains ahead.
What Do You Think?
Where do you think MBRX is headed moving forward? Join the discussion in the comments below!