Another major deal, this time with AstraZeneca

Silence Therapeutics 25 March 2020 Update
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Silence Therapeutics

Another major deal, this time with AstraZeneca

Business update

Pharma & biotech

25 March 2020

Price

408p

Market cap

£337m

US$1.24/£

Net cash (£m) at 31 December 2019

33.5

Shares in issue (estimated)

82.6m

Free float

41%

Code

SLN

Primary exchange

AIM

Secondary exchange

OTCMKTS

Share price performance

%

1m

3m

12m

Abs

(5.6)

1

795.3

Rel (local)

27.1

44.2

1088.6

52-week high/low

610.0p

41.0p

Business description

Silence Therapeutics (SLN) has a portfolio of siRNA drugs in early stage testing. SLN124 for iron overload is the most advanced and is entering the clinic in Q120. SLN360 is being developed for cardiovascular disease and is targeting an IND filed in H220. Silence recently signed a deal with Mallinckrodt for rights to the preclinical complement inhibitor SLN500, and a deal with Takeda to pursue an undisclosed target.

Next events

SLN360 IND filing

2020

SLN124 interim Phase Ib study results

H121

SLN360 Phase I interim results

Mid-2021

Analyst

Nathaniel Calloway

+1 646 653 7036

Silence Therapeutics is a research client of Edison Investment Research Limited

Silence Therapeutics announced on 25 March 2020 that it has signed a collaboration agreement with AstraZeneca to develop novel drugs for cardiovascular, renal, metabolic and respiratory diseases. The deal includes an upfront of $60m, $20m in equity investment, and for each of the planned targets $400m in milestones, and high single- to low double-digit royalties. Additionally, the company announced that it would elevate SLN360 to the status of lead asset and expects to file an IND later in 2020 and to have interim results in mid-2021.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

0.0

(13.5)

(7.7)

0.0

N/A

N/A

12/18

0.0

(19.8)

(25.2)

0.0

N/A

N/A

12/19e

2.1

(17.8)

(20.4)

0.0

N/A

N/A

12/20e

21.9

(6.2)

(6.5)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

New programs to target hepatic/non-hepatic tissues

The AstraZeneca deal marks the third such agreement in the last 12 months (the others were with Mallinckrodt and Takeda). The current deal is a preclinical discovery collaboration (similar to the Takeda deal) in which Silence will develop five lead compounds (with the option to expand to 10) for a range of targets selected by AstraZeneca. In addition to liver-targeted therapies using the Silence platform, the companies will collaborate on delivery mechanisms for other tissues, including heart, kidney and lung, presumably based on AstraZeneca technology.

SLN360 elevated to lead program

In light of the improved cash position from the new deal, the company has made the strategic decision to elevate its program SLN360 for the treatment of cardiovascular disease to the status of lead asset and accelerate its clinical development. We currently expect it to initiate clinical studies before the end of 2020, pending further disruptions from COVID-19.

SLN124: Enrolment delays due to COVID-19

The company has opened several sites for the Phase Ib study of SLN124, but has not enrolled any patients yet, in part due to the disruption caused by COVID-19. The company has paused enrolment until it has a broader protocol in place to facilitate easier enrolment. The company now expects to provide interim results from the study in H121 (from H220).

Valuation: Increased to £462m or 559p per share

We have increased our valuation to £462m or 559p per basic share, from £345m or 440p per basic share. This is driven by the addition of the AstraZeneca deal metrics and its associated cash injections to our models (total £74m value uplift), an increase in the valuation of SLN360 to £167m from £112m and offset by the delay to SLN124 (£129m from £141m).

AstraZeneca deal: Over $4.0bn potential, to target extra-hepatic tissues

The AstraZeneca deal further validates the strength of the Silence siRNA platform in the marketplace of technologies. The investment from AstraZeneca marks the biggest deal to date for Silence in terms of upfront payments: $60m upfront (with $20m paid immediately and $40m by the first anniversary). Additionally, AstraZeneca will be making a $20m equity investment in the company ($4.07 per share based on new share information in the release). AstraZeneca has long had an interest in the company’s technology, and previously had a different (but similarly structured) collaboration agreement with Silence, which was signed in 2007, and is a current Silence shareholder, stemming from shares associated with that deal.

The agreement is structured such that Silence will design and develop siRNA molecules directed against targets selected by AstraZeneca. The two companies plan to investigate five such targets over the first three years of the agreement, with the option to expand to five more targets at a future date. Silence will be financially responsible for early-stage discovery and for manufacturing sufficient material to support Phase I studies. For each such asset developed through the collaboration, AstraZeneca will have the option to acquire it for $10m option fee, $140m in development milestones and $250m in commercial milestones, along with high single-digit to low double-digit royalties. This corresponds to $4.0bn in combined milestones for all 10 potential programs combined, although we do not expect them all to progress to this indicative value of the relationship.

The new drugs will be developed to treat cardiovascular, renal, metabolic and respiratory diseases. The company intends to target diseases of hepatic origin (which is addressed using its well established GalNAc platform) as well as to target other tissues such as ‘heart, kidney, and lung.’ The precise technology or technologies to be employed to target these non-hepatic tissues has not been disclosed, although this has been an active area of research at AstraZeneca. For instance, the company published in 2018 on the targeting of pancreatic islets.1 We therefore assume that this program to target other tissues will be largely driven by technology contributed by AstraZeneca.

  Ämmälä C, et al. (2018) Targeted delivery of antisense oligonucleotides to pancreatic β-cells. Sci Adv 4, eaat3386.

SLN360

In light of the improved cash position following the AstraZeneca deal and delays in the SLN124 program (described below), the company has made the strategic decision to accelerate the SLN360 program targeting Lp(a) for the treatment of cardiovascular disease. This translates to an earlier initiation of clinical studies than originally planned. The company plans to submit an IND later in 2020 (previous guidance was H220), which we expect to translate into initiation of Phase I before year end. This assumes that the plan is not further derailed by COVID-19. The company guided towards interim results being available for the study by mid-2021. The elevation of this program to the lead position is an aggressive step by the company. The program has the potential to deliver a vast amount of value given the size of the cardiovascular disease market, but the development of these drugs requires significant clinical investment. We expect the company to partner the program to progress it through later stages of development, but in light of the many recent deals, have increased confidence in the company’s ability to form such crucial partnerships.

SLN124 delays due to COVID-19

In news unrelated to the announcement of the new deal, the company has reported that it is pausing enrolment in its Phase Ib study of SLN124. The company opened clinical sites in Q419 and began screening patients, but has not enrolled any yet. This is partially due to the disruption caused by COVID-19 and the impact on medical systems seen worldwide. The company has stated that it intends to suspend enrolment under this protocol and initiate enrolment again later this year under an amended protocol, although precise details on the amendments have not been announced. The net impact of these delays will be relatively small and likely measurable in months. We should note that although SLN360 has been elevated to lead program, and SLN124 has faced delays, the company has not deprioritized this program and it plans on a similar investment of resources compared to previously. On the new timeline, the new protocol is expected to start enrolling patients later in 2020 and interim results are expected in H121 (from previous guidance of H220). Additionally, in positive news, the company reported that SLN124 received a Rare Pediatric Disease designation from the FDA. This would entitle the company to a priority review voucher (PRV) if the drug is approved, which can be used to speed the approval process of a drug or sold by the company. The latest sale of a PRC we are aware of was for $111m from Sarepta to Vifor Pharma in February 2020.

Valuation

We have increased our valuation to £462m or 559p per basic share, from £345m or 440p per basic share. This is driven by multiple factors. First, we have added the AstraZeneca project to our model with a valuation of £40m. We currently only model the first drug from this program being developed. Similar to our other licensing agreements, in lieu of an announced target indication, we have used a proxy, which assumes $400m in peak sales, royalties in the range of 8–12% and $400m in clinical and commercial milestones. The majority of this AstraZeneca project value at this time is driven by the remaining (deferred) upfront payable ($40m), which we expect to transfer to the cash line once it is delivered. We assign a probability of success of 3% considering that the discovery process has not initiated yet. In addition to this line item in our valuation, we have also added the $20m immediate upfront cash and $20m from equity in our cash balance, bringing it to an estimated £67m (pro-forma net cash at year-end 2019). The total impact to our valuation from the AstraZeneca deal is £74m.

Additionally, we have upgraded our valuation of SLN360, based on it being the lead asset. We have increased the probability of success to 7.5% from 5% to reflect this change and the firm’s commitment to bringing it to the clinic. We normally risk adjust preclinical programs to reflect that most never reach the clinic, and have partially lifted this adjustment to reflect the focus on the program. We have also accelerated the timeline slightly and expect it to launch in 2027 (compared to 2028 previously). These two factors have increased our valuation to £167m from £112m.

Offsetting these factors, we have lowered our valuation of SLN124 to £129m from £141m to reflect the new timeline and have pushed back our expected launch date to 2027 (from 2026). The other programs remain unchanged.

Exhibit 1: Valuation of Silence

Product

Indication

Clinical stage

Prob. of success

Launch year

Peak sales ($m)

Margin/ royalty rate

rNPV
(£m)

SLN124

Beta-Thalassemia

Phase I ready

15%

2027

489.2

59%

62.7

MDS

Phase I ready

15%

2027

683.7

60%

66.1

SLN360

Cardiovascular disease

Preclinical

7.5%

2027

5214.0

54%

167.1

SLN500

Complement disorder

Preclinical

5%

2027

*400

*11–19%

26.4

Takeda project

Undisclosed

Preclinical

3%

2028

*400

*11–19%

17.7

AZ project

Undisclosed

Preclinical

3%

2029

*400

*8–12%

39.9

QPI-1002

AKI & Kidney Transplant

Phase III

60%

2022

381.5

1.5–4.0%

9.7

Onpattro

hATTR Amyloidosis

Approved

361.6

0.33–1.0%

4.8

Total

394.5

Pro-forma net cash and deposits (at 31 December 2019 + AZ upfront est.) (£m)

67.4

Total firm value (£m)

461.9

Total basic shares (m) estimated following AstraZeneca $20m equity investment

82.6

Value per basic share (p)

559

Dilutive options (m)

4.7

Total diluted shares (m)

87.4

Value per diluted share (p)

532

Source: Silence Therapeutics reports, Edison Investment Research. Note: *Peak sales for SLN500 and Takeda are a placeholder, royalty rates described as ‘low double digit to high teens’ for SLN500.

Financials

We have added the AstraZeneca deal to our financials in a similar manner to the other recent deals, and record $40m of the $60m upfront payment as deferred revenue. The payment and investment from AstraZeneca has reduced our expected financing requirement to £80m (recorded as illustrative debt in 2024) from £105m previously. This was offset by a delay in profitability to 2027 and higher costs associated with SLN360 before profitability, on account of the accelerated timeline. We expect the company to meet these financing obligations at least in part through the partnering of SLN360 and potentially additional platform deals.

Exhibit 2: Financial summary

£000s

2017

2018

2019e

2020e

31-December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

16.0

0.0

2,147.1

21,928.8

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

16.0

0.0

2,147.1

21,928.8

R&D

(7,943.0)

(9,743.0)

(12,259.8)

(20,192.9)

SG&A

(6,464.0)

(10,828.0)

(8,377.2)

(8,628.5)

EBITDA

(13,958.0)

(20,172.0)

(18,070.9)

(6,513.6)

Normalised operating profit

(13,753.0)

(19,890.0)

(17,788.4)

(6,170.1)

Depreciation & amortisation

(433.0)

(399.0)

(419.0)

(379.0)

Exceptionals

0.0

0.0

0.0

0.0

Share-based payments

(638.0)

(681.0)

(701.4)

(722.5)

Reported operating profit

(14,391.0)

(20,571.0)

(18,489.9)

(6,892.6)

Net Interest

206.0

45.0

0.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

10,410.0

0.0

0.0

0.0

Profit Before Tax (norm)

(13,547.0)

(19,845.0)

(17,788.4)

(6,170.1)

Profit Before Tax (reported)

(3,775.0)

(20,526.0)

(18,489.9)

(6,892.6)

Reported tax

2,157.0

2,115.0

3,661.3

4,383.4

Profit After Tax (norm)

(5,806.4)

(17,800.2)

(15,955.5)

(5,534.3)

Profit After Tax (reported)

(1,618.0)

(18,411.0)

(14,828.5)

(2,509.1)

Minority interests

0.0

0.0

0.0

0.0

Discontinued operations

(1,306.0)

0.0

0.0

0.0

Foreign exchange adjustment

404.0

94.0

0.0

0.0

Net income (normalised)

(5,402.4)

(17,706.2)

(15,955.5)

(5,534.3)

Net income (reported)

(2,520.0)

(18,317.0)

(14,828.5)

(2,509.1)

Basic average number of shares outstanding (m)

70

70

78

85

EPS - basic normalised (p)

(7.72)

(25.18)

(20.37)

(6.50)

EPS - diluted normalised (p)

(7.72)

(25.18)

(20.37)

(6.50)

EPS - basic reported (p)

(2.31)

(26.18)

(18.93)

(2.95)

Dividend (p)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

9,460.0

9,387.0

9,157.5

8,968.0

Intangible Assets

8,057.0

8,191.0

8,151.0

8,151.0

Tangible Assets

1,170.0

921.0

731.5

542.0

Investments & other

233.0

275.0

275.0

275.0

Current Assets

45,547.0

29,498.0

36,548.4

83,770.2

Stocks

0.0

0.0

0.0

0.0

Debtors

733.0

0.0

0.0

0.0

Cash, cash equivalents, and deposits

42,745.0

26,494.0

33,544.4

80,766.2

Other

2,069.0

3,004.0

3,004.0

3,004.0

Current Liabilities

(2,657.0)

(3,830.0)

(5,049.8)

(5,468.0)

Creditors

(2,657.0)

(3,830.0)

(5,049.8)

(5,468.0)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

Long Term Liabilities

0.0

0.0

(16,129.0)

(47,580.6)

Long term borrowings

0.0

0.0

0.0

0.0

Other long term liabilities

0.0

0.0

(16,129.0)

(47,580.6)

Net Assets

52,350.0

35,055.0

24,527.1

39,689.6

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

52,350.0

35,055.0

24,527.1

39,689.6

CASH FLOW

Op Cash Flow before WC and tax

(13,320.0)

(19,491.0)

(17,369.4)

(5,791.1)

Working capital

1,711.0

913.0

1,219.8

418.2

Exceptional & other

3.0

6.0

16,129.0

31,451.6

Tax

2,007.0

1,812.0

3,661.3

4,383.4

Net operating cash flow

(9,599.0)

(16,760.0)

3,640.8

30,462.2

Capex

(173.0)

(188.0)

(189.5)

(189.5)

Acquisitions/disposals

0.0

0.0

0.0

0.0

Net interest

(15.0)

39.0

0.0

0.0

Equity financing

48.0

341.0

3,799.2

16,949.2

Dividends

0.0

0.0

0.0

0.0

Other

13,202.0

319.0

(200.0)

0.0

Net Cash Flow

3,463.0

(16,249.0)

7,050.4

47,221.8

Opening net debt/(cash)

(39,012.0)

(42,745.0)

(26,494.0)

(33,544.4)

FX

270.0

(2.0)

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

Closing net debt/(cash)

(42,745.0)

(26,494.0)

(33,544.4)

(80,766.2)

Source: Silence Therapeutics reports, Edison Investment Research

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This report has been commissioned by Silence TherapeuticsSilence Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Silence TherapeuticsSilence Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by Silence TherapeuticsSilence Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Silence TherapeuticsSilence Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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