A bumpy ride, but Silence has options

Life has been tough for biotechnology minnow Silence Therapeutics since its merger with US-based Intradigm at the start of the year.

Despite extending its two collaborations with AstraZeneca and expanding its deal with Dainippon Sumitomo, the share price has tumbled from 18.5p on January 5 and is trading currently at a lacklustre 5p.

Investor concerns centre on a potential funding shortfall and a seeming lack of access to new sources of cash, though confidence has also dented by some key management changes.
There’s no doubting the company faces a tricky 12 months. But as we’ll see later there are reasons to believe boss Philip Haworth and his team will find new sources of finance before the deadline date.

But first it is worth looking at the technology that Silence is developing.

It gets the name because its expertise is 'gene silencing', also known as siRNA technology.

This is a way of controlling, or shutting down, some of the 40,000 genes in the human body. It copies the body's own method of fighting a virus.

In theory the process could be used to tackle cancers and other diseases that traditional chemistry and biotechnology have failed to eradicate.

However there are just a couple of hurdles that need to be overcome with this cutting edge science.

First, the ‘siRNAs’ have a nasty habit of creating flu like side effects and second, they require a delivery technology to get them to the parts of the body where they are needed.

In both cases Silence, although very much a junior player in this arena behind the likes of Alynylam Pharmaceuticals and siRNA (now part of Merck & Co.), is well ahead of the pair so far as the intellectual property, the delivery and the side effects profile are concerned.

This is a real plus and may help the company as it searches for ways of heading off those funding problems.

At the start of the year the company had around £1.3 million on its balance sheet and raised a further £15 million at the time of the Intradigm merger.

Samir Devani, Nomura Code’s biotechnology analyst, reckons the Silence has enough cash to last until the second quarter of next year at the current run rate.

The obvious move would be to tap investors for the funds.

But as Silence’s finance director Max Herrmann points out: “The current share price is telling us this isn’t really an option.”

So what are the options? Well, Silence has a number of collaborations that could yield valuable milestone payments, which in turn might ease the firm’s financial worries.

The problem is nobody – not even the management – is entirely certain if and when these payments will materialise.

Take the company’s collaboration with Pfizer and Quark Pharmaceuticals to find a treatment for diabetic macular oedema, or swelling of the retina in diabetes.

Currently in phase II development, it could go into late stage clinical trials as early as next year. That in turn would trigger a sizeable milestone payment to Silence.

But the timing of the release of phase II data and the decision on whether to go into phase III, are out of the control of Silence.

This is because Pfizer and Quark are running the clinical programme, not the British drug developer.

Quark on its own is running the clinical trial on QPI 1002, which could be used to treat kidney injury.

The group recently presented phase I data, which means a further milestone payment will be triggered if QP 1002 progresses to phase II studies.

“If they (Quark) licence it out then we would get a milestone on that as well, or share of their upfront fee,” Herrmann said.

But again Silence has no control of when trials are commenced, or when these precious payments are made.

AstraZeneca has extended its three-year relationship, which if successful could yield milestones of up to £200 million and royalties.

However it is highly unlikely any of the money will come in time to bridge the firm’s funding gap.

The company also has a relationship with the Japanese Dainippon Sumitomo, but financially at least, it is a similar story here.

So how might Silence replenish the coffers? An obvious alternative source of income is a deal based on some of the other intellectual property from the company’s portfolio.

ATU 027 is probably the company’s most exciting drug candidate. It is being developed to target currently untreatable solid tumours, which would propel it into the blockbuster category if it makes it out of the lab and onto the market.

However that’s a big if. And Silence is a long way from having a finished product as ATU 027 is still in phase I development, though the feedback thus far suggests it is well tolerated and has few if any side-effects.

Of course Silence needs money now, not five or six years down the line.

There is a possibility of doing a deal to develop the AtuPlex system used to deliver ATU 027, though this is unlikely until the company’s scientists collate more data.

More likely, the group will look to tie up with a senior partner to carry out trials on ATU 027 that would include AtuPlex.

The group might also look to do a smaller, target validation deal on AtuRNAi, which helps minimise the side-effects of siRNAs.

Of course a deal could involve all three pieces of Silence IP, which would be financially far more beneficial.

“New deals remain critical and delivery in this regard has not met our expectations,” says Nomura Code’s Devani.

“We believe the new management team is acutely aware of the importance of demonstrating that significant additional revenue can be generated from new partnerships.”