Moleculin Biotech Issues Shareholder Update on FDA Designation of Orphan Drug and IND Status for Annamycin HOUSTON

Moleculin Biotech Issues

Shareholder Update on FDA Designation of Orphan Drug and IND Status for Annamycin

HOUSTON - May 23, 2017 - Moleculin

Biotech, Inc., (NASDAQ: MBRX) ("Moleculin" or the "Company"), a preclinical pharmaceutical company focused

on the development of anti-cancer drug candidates, some of which are based on license agreements with The University of Texas System

on behalf of the M.D. Anderson Cancer Center ("MD Anderson"), today announced that it has issued the following letter

to its shareholders.

Letter to Shareholders

Update on FDA Designation of Orphan Drug and IND Status for Annamycin

Dear Moleculin Shareholders,

We wish to thank you for

your interest and investment in Moleculin Biotech, Inc. This letter is intended to update you on recent and planned activities

at Moleculin. As an overview, we recently received Orphan Drug designation from the Food and Drug Administration (FDA) for Annamycin

and we continue to make progress toward submitting an IND for Annamycin for the treatment of relapsed or refractory adult AML.

As well, the deadline for exercise of short-term warrants connected with our recent offering of common stock has now passed, removing

over 5 million shares of overhang from our stock.

As we transition from a

preclinical to a clinical-stage company, it is important to keep in mind the potential we see for Annamycin. The good news for

AML patients currently is that bone marrow transplants are successful in curing AML about 80% of the time. The bad news, however,

is that patients must first completely clear their bone marrow blasts (tumor cells) before qualifying for a transplant and the

"induction therapy" used to do so only succeeds about 20% of the time. That leaves about 80% of AML patients without

hope because there is no approved second-line therapy once the first-line therapy fails.

The magnitude of the unmet

need in the treatment of AML is evidenced by the recent purchase of Celator (CPXX) by Jazz Pharmaceuticals (JAZZ). Celator's

lead product was a reformulation of the current first-line induction therapy for AML, referred to as "7+3" into a single

injectable liposome. This improved delivery method of the same old 7+3 drugs (known as cytarabine and daunorubicin) resulted in

an increase in the average overall survival of AML patients by 3.5 months. Shortly after the announcement of this potential improvement,

Jazz paid $1.5 billion for Celator. Importantly, we believe Annamycin has the potential to represent an even greater improvement

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As summarized from our

more recent annual report for the year ended December 31, 2016 on Form 10-K (Annual Report) filed with the Security and Exchange

Commission (SEC), in a previous Phase I clinical trial of Annamycin, conducted by a prior developer of Annamycin, in relapsed or

refractory adult AML patients, 8 of 16 patients demonstrated significant activity, with 6 of 14 patients completely clearing their

bone marrow blasts (the primary benchmark for qualifying for a curative bone marrow transplant). The reason only 14 (rather than

16) patients were tested for leukemic bone marrow blasts is that 2 of 16 patients succumbed to their disease before bone marrow

testing should be completed. Furthermore, in a 30-patient dose-ranging Phase I/II study in Acute Lymphoblastic Leukemia, 3 of 8

patients treated with the MTD cleared their leukemic blasts to a level sufficient to qualify for a bone marrow transplant. We should

note that these patients had failed multiple prior induction therapy attempts with first-line therapy prior to receiving Annamycin.

Although we can provide no assurance regarding the performance of Annamycin in future clinical trials, if these results can be

reproduced in the general population of AML patients, we may able to more than double the number of patients who qualify for a

curative bone marrow transplant.

We believe Annamycin's

activity in relapsed or refractory patients may be possible because it appears capable of avoiding the multidrug resistance mechanisms

that work against the currently approved drugs like daunorubicin. And, at the same time, currently approved drugs like daunorubicin

are significantly cardiotoxic (dosing must be limited due to the potential for immediate and permanent damage to the heart). In

contrast, Annamycin has shown little to no cardiotoxicity in over 100 patients treated. We believe these characteristics make Annamycin

a promising candidate to become the first ever second-line therapy for relapsed or refractory AML, presenting a unique opportunity

to request a pathway for accelerated approval.

Our other technologies

also continue to demonstrate potential as well. In particular, WP1066 is the subject of a physician-sponsored IND application submitted

to the FDA by MD Anderson Cancer Center. Although that application was placed on hold pending the development of additional CMC

data, we are optimistic that this IND might be allowed in the second half of this year, giving us two clinical stage drugs. In

addition, a second major cancer treatment center has asked to be able to use WP1066 in a potential grant-funded clinical trial

for a rare form of childhood brain tumors.

Notwithstanding our belief

in the potential for Annamycin, many risks and uncertainties exist regarding the successful development of Annamycin and our other

technologies, which have been set forth in our most recent Annual Report and, more recently, in our Form 10-Q for the first quarter

of 2017, both filed with the Security and Exchange Commission (both available on the Company's website www.moleculin.com

or at www.sec.gov). We encourage you to read and understand these risks carefully.

The Orphan Drug designation

granted to Annamycin as of March of this year for the treatment of AML (Acute Myeloid Leukemia) represents a significant development

milestone for Moleculin. The FDA grants Orphan Drug designation to investigational drugs to facilitate drug development for rare

diseases, which may provide several benefits to Moleculin, including assistance with clinical study design and drug development,

tax credits for qualified clinical trial costs, exemptions from certain FDA application fees, and seven years of market exclusivity

in the US upon regulatory product approval.

We filed our IND (Investigational

New Drug) application on February 10, 2017. In subsequent discussions, the FDA requested certain revisions to the protocol, additional

information, and additional data related to Chemistry, Manufacturing and Controls (CMC). We have the additional information, we

have made the requested revisions to the protocol, and we are developing the CMC data. In the interim, we withdrew the IND application

so that we may resubmit it when the requested data becomes available. We are working to resubmit the IND application in time for

the IND to go into effect and to announce that we may begin Phase I/II clinical trials by the end of July of 2017. However, if

we are unable to obtain the required CMC data on a timely basis, we will be delayed in resubmitting our IND application, which

will delay the commencement of our clinical trials.

On February 14th of this

year, we raised $4.5 million (net of offering costs) through the sale of 3,710,000 units, priced at a public offering price of

$1.35 per unit, with each unit consisting of one share of common stock, a five-year Series A warrant to purchase 0.50 of a share

of common stock, a 90-day Series B warrant to purchase one share of common stock, and a five-year Series C warrant to purchase

0.50 of a share of common stock, which Series C warrant only vested if, and to the extent that, the Series B warrant was exercised

during the 90-day exercise period. To date, approximately 600,000 Series B Warrants have been exercised, providing approximately

$800,000 of additional proceeds to the Company. As of May 15th, the remaining Series B warrants have now expired, as well as the

unvested Series C Warrants connected with them. As a result, market overhang of over 5 million shares was eliminated, leaving long-term

warrants for approximately 2.6 million shares related to this transaction outstanding, which includes warrants issued in connection

with a partial exercise of the over-allotment option we granted to the underwriter in the offering, as well as warrants issued

as compensation to the underwriter in the offering. For a detailed discussion about this offering, please refer to our recently

filed Form 10-Q for the quarter ended March 31, 2017.

We believe this additional

fund-raising provides us with enough cash to support our development efforts into the first quarter of 2018, at which point we

hope to have made significant progress with clinical trials for Annamycin. In the meantime, several key development milestones

are expected, beginning with the announcement of our IND for Annamycin before the end of July 2017. From there, we expect to announce

the opening of specific clinical sites as we gain IRB (Institutional Review Board) approvals for our protocol and, once sufficient

patients have been recruited, the establishment of an MTD (Maximum Tolerable Dose) signaling the advancement beyond Phase I activity.

We currently expect the MTD to be established during the second half of 2017.

Additional potential milestones

for the second half of 2017 include the possibility of a physician-sponsored IND being allowed for WP1066 for the treatment of

brain tumors, as well as additional development progress resulting from our continuing sponsored research at MD Anderson Cancer

We are about to enter an

exciting phase for our company and we encourage you to watch for the following potential announcements marking key milestones for

Thank you again for your