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Silence Therapeutics plc: THE INVESTMENT CASE

Silence Therapeutics' swoop for Arrowhead stake gives UK company options

We look at what looks to be a savvy investment by the UK biotech.
Silence Therapeutics' swoop for Arrowhead stake gives UK company options
INVESTMENT OVERVIEW: SLN The Big Picture
Piecing the picture together - the stake acquisition works on a number of levels

Success in business can often hinge on opportunities taken (or indeed spurned).

Yes, you require a good product, or stellar technology and, of course, decent management.

But sometimes company-defining moments come down to happenstance and then having the lead-lined stomach to take the plunge.

Silence Therapeutics (LON:SLN) has done just that – taken the plunge - with its US$9.6mln acquisition of an 8.4% stake in Arrowhead Pharmaceuticals (NASDAQ:ARWR).

Whether it proves to be a pivotal investment only time will tell. At the very least it looks like a well-timed transaction.

Less than six months ago, when Arrowhead was valued at just shy of US$730mln, buying a shareholding of this scale was inconceivable (not mention too expensive).

Then fate and poor luck intervened (for Arrowhead at least). In November it cancelled three clinical programmes for drugs designed to tackle liver disease, which caused the stock to tumble to a low of US$1.20 from that August high-point of US$8.22.

Silence will have been looking on with interest – not least because the two companies are in the same area of research; they are pioneers in RNA interference (RNAi). This is the cellular process of silencing unwanted or harmful genes.

The two companies also use similar delivery mechanisms – GalNAc liver technology - so there ought to be areas where the pair can collaborate.

The investment starts the ball rolling in this regard – it is a conversation opener. 

“Any number of scenarios are possible from mergers, takeovers, cross-collaboration, licensing and at default level maybe nothing,” said Silence’s chief executive Ali Mortazavi.

“We have taken a worst case that we are left we with a passive investment.”

The UK firm is not alone in having taken a view on Arrowhead and backed that hunch with cold hard cash.

The giant Amgen handed over an initial US$56.5mln in September to buy into RNAi therapies being developed to tackle cardiovascular disease as part of a deal worth US$617mln in staged payments.

It is worth noting the equity investment at US$7.16 a share provided support for a US$500mln valuation of Arrowhead.

Amgen’s interest lies with the firm’s GalNAc technology, which is unaffected by November’s decision. In fact, analysts say the platform has significant untapped potential.

If the market has spotted the value still inherent in Arrowhead it has been slow to react. Silence has been far quicker to cotton on. “We are in the field and so are much more knowledgeable about what’s happening,” said Mortazavi.

Technologies such as Silence’s and Arrowhead’s are undergoing clinical and preclinical assessment yet the market has assigned both discount valuations. 

Yet the CRISPR gene editing technology, still very much in its infancy, is receiving billions of dollars of investment cash from big pharma, while listed companies are valued between $500mln and $1bn. 

This is frustrating for those operating in RNAi, though it is also helped create the “extraordinary circumstances” that allowed Silence to make its move.    

“A lot of different stars aligned at the same time and Arrowhead fell right back into our zone,” said Mortazavi.

“There wasn’t [just] one single reason we did this. At its best this could be a very, very important moment in RNA interference and the ability to actually be able to capture something. 

“These opportunities don’t come around very often and they may be defining moments.”

One should remember Silence is first and foremost a drug development company, not an investment vehicle.

“We are going down the development path ourselves. You must not forget this,” said Mortazavi. 

Indeed, the company continues to use its own IP and know-how to progress its liver-targeted preclinical pipeline.

In addition, it is expecting pivotal clinical results from its out-licensed phase III and phase II programmes in mid-2018.

The share price, up 4%, suggests the market likes the Arrowhead deal. Equally, investors don’t seem to be getting too carried away. 

And neither is boss Mortazavi: “We are in a place where any number of things can happen, including nothing.”

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Silence Therapeutics plc Timeline

Newswire
September 27 2016

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