Modus Therapeutics: Advances at a high pace - Carlsquare

Modus Therapeutics Holding AB (Modus or the Company) has developed a compound that can revolutionise the treatment of sepsis/septic shock and systemic inflammation. The Company is coming off an eventful year in which it performed on all of the milestones set for the year. 2022 will be the most important year in the Company’s history when data will be presented, and the pivotal Phase II study will be initiated. We continue to argue that Modus should be valued as a company with a completed Phase I study, which is not a reality today. The Company trades at a steep discount to similar stage companies in Nordic biotechnology. We maintain our justified shareholder value in the range of SEK 242-420 million, equivalent to SEK 12.2-22.0 per share.

Coming off an eventful year in 2021
Modus Therapeutics is developing the patent-pending drug candidate sevuparin for sepsis and septic shock (formerly known as sepsis). However, the candidate’s properties allow for potential use in other forms of systemic inflammatory conditations. Sevuparin’s initial focus on sepsis and septic shock may change the treatment regimen for the condition – where there are currently no approved preparations specifically for sepsis/septic shock. According to the WHO, the condition affects nearly 20 million people annually and is a leading cause of death in intensive care units globally. Given limited treatment options and the aggressive nature of the condition, mortality is high. We estimate that Modus’ drug candidate has the potential to reach peak sales of USD 2.7 billion in the seven largest markets. The launch is expected to occur with partners in 2028.

Modus submitted its full-year report in mid-February. The summary comment for the year is, in our opinion, “as planned.” Part of the costs related to the LPS study (Phase I) were incurred in Q4 2021. In total, R&D costs amounted to SEK -13.5 million for the full year, of which SEK 10.7 million in Q4. This is according to plan, and the first patient was dosed already on December 1 2021 – in our view, impressively early given the progress of omicron in the past quarter.

Furthermore, Modus has secured production and supply of sevuparin through an agreement with Symbiosis Pharmaceutical Services (CMO). Notably, the agreement also ensures drug supply for future Phase II programs in sepsis/septic shock and other conditions. This is an important step that significantly reduces the risk of potential delays in future studies – an indication of the strategic capabilities of the agile Modus organisation.

The Company has a cash position of approximately SEK 21 million at the end of 2021, which will need to be strengthened for upcoming Phase II trials if out-of-the-money options are not exercised during the middle of this year.

Significant triggers in 2022 could change the valuation
The Company has generated data in previous studies that will form the basis for the upcoming Phase I/II programs. A successful Phase I program is i.e. already completed with sevuparin in other indications. However, the ongoing Phase Ib study (LPS) is important to confirm a good safety profile. Above all, it will be interesting to see if any early efficacy signals can be derived from sevuparin. The clinical trial is expected to be completed in Q2 2022, and interim data are forecast to be presented in April/May this year. This is a trigger for the Company’s stock and not discounted today’s price. Given positive data, the market should feel more confident that Modus should be valued like similar companies where confirmatory Phase I studies are available. Modus should trade at an EV north of market cap of SEK 200 million in terms of relevant peers, which can be put in relation to today’s SEK 50 million. At the same time, investing in biotech is associated with incredibly high risk.

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