Silence Therapeutics: Leaner, fitter and fully funded to develop exciting cancer treatment

The past year has been one of quiet, steady progress for Silence Therapeutics (LON:SLN).

Not that you would have picked this up from the share price graph, which has oscillated between 1.6 pence and 13.75 pence.

Bid interest, which has long since dissipated, explains the almost manic depressive highs and lows, which have tended to detract from the real story.

This is that Silence is fully funded, has a drug candidate that is showing some early promise and a delivery system that is becoming a “very valuable asset”, according to finance director Max Herrmann.

The company’s expertise is gene silencing (hence the name) using 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.

The buzz around Silence centres on ATU027 for cancer, which silences the production of PKN3, thereby reducing blood supply to the tumour and inhibiting its growth. 

Interim results from the phase I trial presented at ASCO last month revealed signs of efficacy in eight out of 24 terminally ill patients.  

However, at this stage of development the primary aim of researchers is to discover whether ATU027 is safe, rather than efficacious.

“Four patients have gone on to compassionate use,” Herrmann reveals.

“We are way through the trial and it (ATU027) is proving safe so we are very much more confident.

“More importantly the ATUPLEX delivery system is safe. So we haven’t seen any safety signals from the current study that would give us any concern.

“This is good news because the ATUPLEX delivery system can be used for other things. It becomes a very valuable asset.

“We waited until we had this confidence in ATUPLEX before we started to develop another compound using the delivery system.”

That process has begun with ATU134, though it’s still very firmly in the pre-clinical phase.

The phase I trial being carried out ATU027 in Germany will be completed at the end of this year, or early next. Silence is funded to take it into Ib/IIa trials at some point 2012.

In April the company raised £5.9 million in a well-received fundraising, which brought in the technology investor Robert Keith as a 9 percent shareholder.

However, Silence is predicted to have burned through this cash by the second half of next year.

There's the possibility that by that time it could have received a payment related to QPI 1002.

The drug is being developed for kidney transplant patients by partner Quark Pharmaceuticals, which in turn has a tie-up with industry major Novartis.

“If Novartis exercise their option, which is possible before the second half of next year, that could be quite significant,” says Herrmann. 

“It could be anywhere from $3 million upfront to $11 million depending on which indication it goes for.”

Of course Silence isn’t banking on the Novartis deal playing out in this way, which is why it has already begun negotiations with the industry’s big guns interested in helping develop ATU027.

Typically a small biotech can expect to receive an upfront payment in double-digit millions followed by milestones and royalties.

Herrmann admits that RNAi technology of the sort it is developing “is not flavour of the month” at the moment after Roche restructured and exited this area of research.   

However he remains upbeat on the prospects of being able to land a fourth blue-chip collaboration. 

It has the Novartis tie-up, which is an arm’s length relationship via Quark, as is the company’s link with Pfizer, which is involved in the development of a treatment for diabetic macular oedema, discovered by Silence.

And last year it extended a collaboration with AstraZeneca, which is “characterising” five potential targets for AtuRNAi drugs which is coming to an end.

AZ is yet to reveal whether the relationship will be extended, though Herrmann says he is quietly optimistic about the process. 

“All we can say is we’ve had some very interesting data on these molecules and it is up to AZ how they want to take this forward,” he added. 

“At the moment yes I’m quietly optimistic. But big pharma companies are not the clearest at revealing their intentions. So I would hate to predict anything.”

September last year saw the share price rocket as it revealed it received a potential offer for the company. As it transpired there were several approaches.

But they came to nought despite an extended period of discussions with the suitors.

And it seems it was the structure of the proposed deals that ultimately rendered them unattractive.

“A thorough sales process was run,” Herrmann says. 

“The reason the deals didn’t happen has nothing to do with anything related to the company’s technology. It was really to do with the type of deals envisaged.”

Even so the shares came crashing down. It means that the technology value of Silence – its market cap minus the cash on its balance sheet – is around £5 million.

Yet £50 million has been invested in Group’s RNAi technology without a major failure so far and there are £105 million-worth of potential milestones from the Quark tie-ups with Novartis and Pfizer.

Sector leader Alnylam is valued at £260 million, which minus its cash and long-term investments values the technology at north of £33 million.

Coming down the evolutionary chain you have RXi (technology value £27 million) and Tekmira (£5.5 million).

“When you talk about clinical trials you essentially compare Alnylam and Silence. So we have certainly moved up the pecking order,” says Herrmann. 

It is perhaps this valuation anomaly technology investor Keith spotted when he subscribed to the placing.

“The shares have come off a long way and we have invested £50m plus in this business, we haven’t had a failure yet and we have made good progress,” says Herrmann. 

“Yet our technology value is around £5m. If he can see a mismatch between those two then I would agree with him.”