Silence Therapeutics plc

Earnings Release • May 29, 2013

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RNS Number : 7350F

Silence Therapeutics PLC

29 May 2013

SILENCE THERAPEUTICS plc

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

London, 29 May 2013 - Silence Therapeutics plc (AIM: SLN), a leading international RNAi therapeutics company, today announces its unaudited preliminary results for the year ended 31 December 2012.

HIGHLIGHTS

During the year

·     Management reorganisation and cost restructuring  

·     Completion of phase I trial in Atu027 with no serious adverse effects or immune response deemed to be directly related to Atu027

·     Cash raised through equity placings totalling £10.7m before expenses

·     Assets using Silence technology continue to progress

Post year end events

·     In April 2013, patient dosing started for Atu027 in combination with a chemotherapy agent, gemcitabine

·     In April 2013, £19.0m gross funds were raised through an equity placing to fund further clinical trials and progress preclinical development in non-cancer targets

·     Ali Mortazavi steps up to chief executive from director of corporate strategy

·     Annie Cheng to join the board as director of corporate development

Jerry Randall, chairman, commented: "As a board we are incredibly excited about 2013 and beyond, as we look to translate our preclinical excellence today into clinical results and products in the future."

Ali Mortazavi, chief executiveof Silence Therapeutics, commented: "With the completion of Atu027 phase I study and a strengthened cash position, Silence Therapeutics is now ready to embark on the next step in a road well‑trodden by the pioneers of the biotechnology industry."

For further information, please contact the following:

Silence Therapeutics plc

+44 (0)333 988 0140

Ali Mortazavi, chief executive

Tim Freeborn, finance director

Nominated advisers

N+1 Singer +44(0)20 7496 3000

Shaun Dobson/Jenny Wyllie

Company website

www.silence-therapeutics.com

Forward-Looking Statements

factors. These risks and uncertainties could cause actual results to differ materially from those referred to in the forward-looking statements. All forward looking statements are based on information currently available to Silence Therapeutics and Silence Therapeutics assumes no obligation to update any such forward looking statements.

CHAIRMAN'S STATEMENT

We are transforming Silence from a technology company to a product company, and developing a clinical capability that will match and exploit our expertise in preclinical development.

2012 has been a year of significant positive change and development for Silence. Helped by key long-term supportive shareholders we have been able to restructure the company and provide a significant runway of cash to enable the company to both progress its Atu027 clinical asset and to broaden its preclinical pipeline. The transformation of Silence from a technology company to a product company continues, and we are evaluating opportunities to match and exploit our expertise in preclinical development.

Clinical development

Our development strategy with our siRNAs makes drug development significantly cheaper, quicker and more efficient than traditional drug development:

·     broad applicability: the ability to target any gene

·     specificity: the ability to block only selected genes without interfering with others

·     simplicity: after identification of the gene target, path to phase I is relatively simple and well defined

This is in contrast to traditional development where there is a risk of off‑target effects, multiple cycles of optimisation and design before a drug candidate is identified for phase I study. Additionally, relative to other oligonucleotide‑based technologies, our technology has the potential to be used at much lower doses.

During 2012 we completed the phase I clinical study for Atu027, which we believe has anti‑metastatic effects. A total of 34 patients were treated, and the excellent safety and tolerability observed in the study underpins our technology. Atu027 is believed to block the extravasation and intravasation of cancer cells necessary for the spread of cancer. This activity represents a novel cancer treatment paradigm versus many other anti‑cancer drugs, which target tumours directly. The potential for Atu027 when used with conventional anti‑cancer drugs is a very exciting proposition for us.

The next stage for Atu027 is a phase Ib/IIa trial that combines Atu027 with a chemotherapy agent in pancreatic cancer. Our preclinical work on this combination has demonstrated a reduction in total tumour burden, including visible metastatic spread. We were given ethical committee approval for this phase Ib/IIa early in 2013 for this trial, and dosed the first patient in April 2013.

We are evaluating further studies for Atu027 in combination with other chemotherapy agents in a variety of tumour types. We plan to initiate further programmes, and will provide updates in due course.

In addition to this exciting clinical programme, we are evaluating preclinical opportunities in areas that begin to take us outside oncology, to showcase the strength of our technology, as well as take advantage of various accelerated clinical and regulatory pathways. These programmes may make use of our DBTC and DACC delivery systems targeted towards the liver and lung endothelium, respectively.

Our partner Quark Pharmaceuticals (Quark) continues to make progress in the two projects covered under our license agreements, PFE-4523655 in diabetic macular oedema (under a licensing agreement between Quark and Pfizer), and QPI‑1002 in delayed graft function post kidney transplantation (under an option agreement between Quark and Novartis). The results of these studies, if they warrant continued development by Pfizer and Novartis, respectively, could yield milestone income for us in 2014 to 2015. If these molecules are commercialised, we would be entitled to further income in the form of royalties.

Operations

During 2012 we were able to significantly restructure the head office costs in London, reducing the costs and ensuring more of our cash resources are focused on developing the assets of the company. At the same time, we have added the appropriate personnel to support our progression into a product company.

The development team in Berlin, headed by Dr Klaus Giese, has continued to make significant progress with our pipeline and technology assets, and I am excited about the developments and their future potential.

In February 2012 Thomas Christely resigned as chief executive and left the company. In August, Tony Sedgwick, chief executive and Max Herrmann, chief financial officer, and Annette Clancy, non-executive director, left the company.

Ali Mortazavi joined us as director of corporate strategy, Tim Freeborn as finance director in October 2012, and I remained chairman. Ali brings a wealth of experience in the capital markets as well as small cap companies, and has been instrumental in the development of Silence since he has joined. Tim has a wealth of experience in the financial markets and as an analyst and qualified accountant. He has already undertaken significant streamlining of the finance function.

Mike Khan became a non-executive director in September and chief medical officer in January 2013. We also welcome Annie Cheng to the board as director of corporate development. She has 14 years of experience in the healthcare industry, in equity research and consulting. While in equity research, she covered a wide range of European and US healthcare product stocks. As a consultant, Annie advised a number of biotechnology companies in corporate development and communications with the investment community.

Capital raising

During 2012 we have continued to receive strong support from key shareholders and undertook two capital raisings, £5.7m before expenses in July, and £5.0m before expenses in November. In addition, as announced in April 2013 a further £19.0m, before expenses, was raised. These capital raisings have demonstrated the continued strong support post year end of our existing key shareholders and now some significant new investors. On behalf of the board of the company I would like to thank our shareholders for their continued support and input to the development of Silence in 2012 and into the future. As a board we are committed to maximising the value of the company and hence the value to shareholders.

Looking forward

Thanks to the work in the last twelve months by the whole team and key shareholders of the company, Silence is progressing in its transformation into a product company using our expertise in chemical modifications of siRNA and delivery technologies.  At the same time, the field of RNA‑based therapeutics continues to see positive developments, which in our view, validates our strategic direction.

As a board we are incredibly excited about 2013 and beyond, as we look to translate our preclinical excellence today into clinical results and products in the future. We look forward very positively to 2013 and the development of our pipeline and business, and to translating that into growth in shareholder value.

Jerry Randall

chairman

28 May 2013

CHIEF EXECUTIVE'S REVIEW

I am pleased to be appointed chief executive of Silence Therapeutics, transitioning from my prior role at the company as director of corporate strategy. With the completion of Atu027 phase I study and a strengthened cash position, Silence Therapeutics is now ready to embark on the next step in a road well‑trodden by the pioneers of the biotechnology industry such as Amgen and Biogen.

New technologies enabled the development of new medicines that changed lives dramatically for the better. For example, five‑year relative survival rate for cancer increased to 69% in 1999 to 2005, from 50% in 1975 to 1977. By supporting companies that made a difference for patients, investors in these companies were rewarded. In 2012, European small‑cap biotechnology stocks were up over 40%, according to Ernst & Young's 2013 Biotechnology Industry Report.

Silence Therapeutics, as one of the few companies with intellectual property and know‑how in the emerging oligonucleotide therapeutics platform, now has an opportunity to become a fully-fledged biotechnology company in the tradition of the previous waves of biotechnology pioneers.

Our team of scientists, who have been with us since the inception of the company, created a powerful platform technology from which new drugs can be developed to treat previously unaddressable conditions.

The drug development industry remains an attractive investment opportunity due to demographic trends. This path is not without challenges. We believe our success is contingent on developing drugs that truly make a difference to patients. We are in the process of acquiring the capabilities to enable us to make appropriate clinical development decisions for the benefit of patients and shareholders. In the next year, we look forward to sharing with you a research and development plan and timelines for delivering key development milestones.

Leveraging the strengths of our technology

The core technology of Silence Therapeutics enables the development of novel molecular entities that "silences" or inactivates genes. It is inspired by a naturally occurring process called RNA interference (RNAi). This process is triggered by a short, double stranded oligonucleotide known as short interfering RNA (siRNA), in cells where the target gene is expressed, and when such expression is undesirable. Our scientists improved on nature by chemically modifying a natural siRNA, to create a proprietary form of siRNA molecule known as AtuRNAi. These molecules have been demonstrated to be more stable and less immunostimulatory than unmodified siRNAs, making AtuRNAi desirable as drugs molecules.

In contrast to conventional drugs that can access a limited proportion of disease targets, we believe our technology can be used to address the overexpression of any gene. As such, our technology may be able to help more patients and treat more diseases.

Given the properties of our technology, we believe it would be most powerful when used to address diseases with established and well‑studied links between the expression of a specific gene (or the production of a specific protein) and a disease. More of these opportunities should come to light as gene sequencing technology advances.

Pursuing new clinical development projects

Our technology provides many clinical development opportunities. We have a responsibility to patients and shareholders to pursue projects with the highest chance of success. To do so, we will adhere to the following simple principles:

·     Decision enabling experiments we will do studies that enable go/no go decision, where the benchmark for "go" is prospectively defined, and we will stop projects that are not worth doing as soon as practicable.

·     Efficacy signals early we will target conditions where it is possible to know early whether the drug works. For example, where clinical outcome would be obvious in small uncontrolled studies, or where there are well‑accepted surrogate endpoints for clinical outcome. Importantly, early efficacy signals may enable accelerated path to approval for the benefit of patients and value creation for shareholders.

·     Found patient population we are better able to help patients if they are already known to treating physicians because their diseases are obvious enough that they seek medical help, or their diseases are screened routinely.

·     In target tissues we will pursue diseases where the undesirable gene expression and protein production are in the vascular endothelium, lung endothelium, liver, or wherever else our technology can take us in the future.

·     Necessary before we embark on any clinical development project, we will establish the necessary efficacy and safety parameters for a new drug that will be meaningful to patients in light of existing options and more advanced potential therapies. The target profile will inform our study design, so we can know as early as possible whether our drug can make a difference to patients. Clear characterisation of unmet medical needs may also allow us to take advantage of certain accelerated regulatory pathways.

·     Elucidated biology we plan to pursue disease where the link between the undesirable gene expression and disease is already well‑studied, preferably by multiple, independent groups.

How Atu027 fits into our future portfolio

Currently, we have one clinical stage project, Atu027, an AtuRNAi against PKN3, delivered by AtuPLEX, to the vascular endothelium. By acting against PKN3 in the vascular endothelium, it is hypothesised that metastatic spread would decrease, thereby slowing progression and improving survival rates of cancer patients.

We have demonstrated the safety of Atu027 in 34 patients. In 2012, we completed a phase I, monotherapy, one‑month safety study of Atu027 in a variety of solid tumour patients.

The phase I study, showed that none of the 34 patients experienced a serious adverse event directly associated with Atu027.

The next logical step in the development of Atu027 is to combine its presumed ability to stop cancer spread with chemotherapy agents that kill tumours, to better clarify Atu027's efficacy profile when used as intended. In April 2013, we initiated dosing of cancer patients with the chemotherapy agent gemcitabine, in combination with Atu027. As such further studies are being planned, we will pay special attention to cancers where patients experience spread of disease or death within a relatively short period of time, even on best current available therapy.

If successful, Atu027 could help cancer patients at risk from developing metastasis thereby slowing progression of disease and improve survival. Demonstration of these effects will ultimately require sizable randomised controlled trials using progression free survival or overall survival as endpoints. At this time, the early indicators of efficacy that are normally available to drugs with tumour killing properties (e.g. tumour regression), are not available to Atu027, given its mechanism of action. Therefore, we consider Atu027 to be a high-risk, but high-reward opportunity.

We will therefore be looking to balance the pipeline appropriately.

Enabling infrastructure

With its solid scientific foundation, Silence is well positioned to develop impactful new treatments for patients that would also generate shareholder value. The next stage of our development will require further expertise.

We have identified two near‑term needs for the company:

·     run clinical trials in a cost‑efficient way to reach value inflection points early, and

·     identify diseases where there is a significant medical need, and the required target profile for new drugs.

We have taken steps to recruit the appropriate personnel to address the aforementioned needs. 

Conclusion

The next year will be critical for Silence Therapeutics in its transition to a drug development company, including an update on our clinical development plan. I look forward to providing you with further updates throughout the year.

Ali Mortazavi

chief executive

28 May 2013

FINANCIAL REVIEW

During 2012 Silence significantly improved its cash position through a number of fund raisings and undertook a cost reduction programme which will benefit the company in 2013 and beyond. The fund raisings in 2012 totalled £10.7m before expenses. A further £19.0m before expenses was raised post year end, and will allow the company to significantly advance both its clinical and preclinical programmes.

Revenue

Revenue generated during the year reduced by £0.53m to £0.16m.

Research and development expenditure

Research and development expenses during the year remained virtually unchanged at £3.4m (2011: £3.4m), and comprised the expenditure on both our clinical and preclinical development programmes.

Administrative expenses

Administrative expenses during the year also remained virtually unchanged at £2.6m (2011: £2.7m). A cost reduction programme was undertaken in London during the summer period, but due to associated one off costs the benefit of these will not be seen until 2013 and future years.

Impairment

The impairment charge of £20.5m (2011: £nil) related to the impairment of goodwill, write down of intangibles and trade payables.

Restructuring charge

There was no restructuring charge in the current year (2011: £0.5m).

Financial income

Financial income during the year was lower at £0.02m (2011: £0.06m) mainly due to lower average cash balances during the year.

Taxation

No corporation tax was payable in either 2012 or 2011.

Liquidity, cash, cash equivalents and money market investments

The group's cash position at year end was £8.9m. At the end of 2011, Silence had cash of £3.7m. A total of £10.3m after expenses was raised during 2012 through placings and open offers which involved the issue of 1,089,088,220 shares at 0.5p and 200,000,000 shares at 2.5p.

The net cash outflow from operating activities in 2012 was £4.9m (2011: £5.1m) against an operating loss of £26.3m (2011: £5.8m), which reflects the impairment charge.

Trade and other receivables at year end were £0.2m (2011: £0.2m) and trade and other payables were £1.0m at year end (2011: £1.3m).

Goodwill at year end was £7.3m (2011: £28.3m) following a reassessment after the closure of Intradigm in the US.

Tim Freeborn

finance director and company secretary

28 May 2013

CONSOLIDATED INCOME STATEMENT

year ended 31 December 2012

		2012	2011
		£000s	£000s
Revenue		163	694
Research and development costs		(3,378)	(3,361)
Gross loss		(3,215)	(2,667)
Restructuring charge		-	(472)
Impairment of intangible assets		(20,486)	-
Administrative expenses		(2,613)	(2,647)
Operating loss		(26,314)	(5,786)
Finance and other income		18	57
Gain on sale of assets		12	5
Finance expense		-	(13)
Loss for the period before tax		(26,284)	(5,737)
Taxation credit for the period		-	-
Retained loss for the period after taxation attributable to equity holders transferred to reserves		(26,284)	(5,737)
Loss per ordinary equity share (basic and diluted)		(2.7p)	(1.2p)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
year end 31 December 2012
	2012	2011
	£000s	£000s
Loss for the period after taxation	(26,284)	(5,737)
Other comprehensive income:
Exchange differences arising on consolidation of foreign operations	(714)	5
Total comprehensive income for the period	(26,998)	(5,732)

CONSOLIDATED BALANCE SHEET

at 31 December 2012

		2012	2011
		£000s	£000s
Non‑current assets
Property, plant and equipment		157	225
Goodwill		7,333	28,342
Other intangible assets		526	971
		8,016	29,538
Current assets
Trade and other receivables		148	174
Investments held for sale		2	37
Cash and cash equivalents		8,909	3,688
		9,059	3,899
Current liabilities
Trade and other payables		(959)	(1,260)
Total assets less current liabilities		16,116	32,177
Net assets		16,116	32,177
Capital and reserves attributable to the company's equity holders
Share capital		1,872	5,771
Capital reserves		94,849	81,141
Translation reserve		2,323	3,037
Retained loss		(82,928)	(57,772)
Total equity		16,116	32,177

The financial statements were approved by the board on 28 May 2013.

Tim Freeborn

finance director

CONSOLIDATED STATEMENT OF CHANGE IN EQUITY

year ended 31 December 2012

	Share	Capital	Translation	Retained
	capital	reserves	reserve	loss	Total
	£000s	£000s	£000s	£000s	£000s
At 1 January 2011	2,799	80,269	3,032	(53,831)	32,269
Recognition of share‑based payments	-	120	-	-	120
Transfer upon:
- lapse of vested options in the year	-	(1,796)	-	1,796	-
- issued warrants in the year	-	1	-	-	1
Shares issued in period, net of expenses	2,972	2,547	-	-	5,519
Transactions with owners	2,972	872	-	1,796	5,640
Loss for the year to 31 December 2011	-	-	-	(5,737)	(5,737)
Other comprehensive income
Exchange differences arising on  consolidation of foreign operations	-	-	5	-	5
At 31 December 2011	5,771	81,141	3,037	(57,772)	32,177
Recognition of share‑based payments	-	656	-	-	656
Transfer to capital redemption reserve	(5,194)	5,194	-	-	-
Transfer upon:
- lapse of vested options in period	-	(1,128)	-	1,128	-
Shares issued in period, net of expenses	1,295	8,986	-	-	10,281
Transactions with owners	(3,899)	13,708	__	1,128	10,937
Loss for the year to 31 December 2012	-	-	-	(26,284)	(26,284)
Other comprehensive income
Exchange differences arising on  consolidation of foreign operations	-	-	(714)	-	(714)
At 31 December 2012	1,872	94,849	2,323	(82,928)	16,116

The accompanying accounting policies and notes form an integral part of these financial statements.

CASH FLOW STATEMENTS

for the year ended 31 December 2012

	Group				Company
	2012			2011	2012		2011
	£000s			£000s	£000s		£000s
Cash flow from operating activities
Loss before tax		(26,284)		(5,737)	(25,823)		(893)
Impairment of intangibles		20,486		-	-		-
Depreciation charges		63		91	1		-
Amortisation charges		189		214	-		-
(Gain)/loss on sale of property, plant and equipment		(12)		(6)	-		-
Charge for the year in respect of share‑based payments		656		121	579		28
Charge for warrants		32		-	32		-
Foreign exchange charge on intragroup loan		-		-	200		-
Increase/(reduction) in impairment provision  against investment in subsidiary		-		-	24,135		3
Finance income		(18)		(56)	(15)		(284)
Finance expense		-		13	-		-
		(4,888)		(5,360)	(891)		(1,146)
Decrease/(increase) in trade and other receivables		17		667	40		(33)
Decrease/(increase) in inventory		-		27	-		-
Increase/(decrease) in trade and other payables		(5)		(431)	(29)		(68)
Cash absorbed by operation		(4,876)		(5,097)	(880)		(1,247)
Interest paid		-		(13)	-		-
Net cash outflow from operating activities		(4,876)		(5,110)	(880)		(1,247)
Cash flow from investing activities
Assets held for sale - proceeds (cost)		39		(6)	-		-
Proceeds from sale of property, plant and equipment		15		10	-		-
Addition to loan in subsidiaries		-		-	(4,243)		(3,513)
Interest received		15		27	15		285
Addition to property, plant and equipment		(3)		(27)	-		(4)
Addition to intangible assets		(199)		(248)	-		-
Net cash (used in)/generated from investing activities		(133)		(244)	(4,228)		(3,232)
Cash flow from financing activities
Proceeds from issue of share capital		10,248		5,519	10,248		5,519
Increase in cash and cash equivalents		5,240		165	5,140		1,040
Cash and cash equivalent at start of year		3,688		3,567	3,323		2,283
Net increase in the year		5,240		165	5,140		1,040
Effect of exchange rate fluctuations on cash held		(19)		(44)	-		-
Cash and cash equivalent at end of year		8,909		3,688	8,463		3,323

The accompanying accounting policies and notes form an integral part of these financial statements.

NOTES

year ended 31 December 2012

1.         Principal accounting policies

1.1       Basis of preparation

Silence Therapeutics plc ("Silence Therapeutics" or "the company") and its subsidiaries (together "the group") are primarily involved in the research and development of novel pharmaceutical products. Silence Therapeutics plc, a Public Limited Company incorporated and domiciled in England, is the group's ultimate parent company. The address of Silence Therapeutics' registered office is 22 Melton Street, London NW1 2EP and the principal place of business is 3 Shortlands, London W6 8DA.

The financial information set out in this statement does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 31 December 2012, but is derived from those accounts.

Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered in due course. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498 (2) or (3) Companies Act 2006. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRS") this announcement does not itself contain sufficient information to comply with IFRS.

The principal accounting policies used in preparing this preliminary results announcement are those that the Company will apply in its statutory accounts for the year ended 31 December 2012 and are unchanged from those disclosed in the Company's Annual Report and Accounts for the year ended 31 December 2011.

Full financial statements for the year ended 31 December 2012 will be posted to shareholders on or shortly after 31 May 2013.

1.2       Company income statement

The company has taken advantage of Section 408 of the Companies Act 2006 and has not included its own income statement in these financial statements. The loss for the financial year dealt within the accounts of the company, including provision against the investments in subsidiary companies, were as follows:

£000s					2012	2011
					25,823	894

2.0       Going concern

The financial statements have been prepared on a going concern basis that assumes that the group will continue in operational existence for the foreseeable future.

The group had a net cash inflow for 2012 of £5.2m (after expenses) and at 31 December 2012 had cash balances of £8.9m. Since the year end the company has raised a further £18.7m (after expenses) from investors. The directors have reviewed the working capital requirements of the group for the next twelve months and are confident that these can be met.

The directors consider that the continued adoption of the going concern basis is appropriate and the accounts do not reflect any adjustments that would be required if they were to be prepared on any other basis.

The directors, having prepared cash flow forecasts, believe that existing cash resources together with additional funds provided by equity fundraisings, grants, milestone payments and licence fees will provide sufficient funds for the group to continue its research and development programs and to remain in operation for at least twelve months from the date of approval of these financial statements.

3.0    Loss per share

The calculation of the loss per share is based on the loss for the financial year after taxation of £26.3m (2011: loss £5.7m) and on the weighted average of 958,406,050 (2011: 466,864,698) ordinary shares in issue during the year.

The options outstanding at 31 December 2012 and 31 December 2011 are considered to be non-dilutive in their conversion into ordinary shares would not increase the net loss per share. Consequently there is no diluted loss per share to report for either year.

4.0   Related party transactions

During the year the company charged a fee to its subsidiary company Silence Therapeutics AG amounting to £0.2m (2011: £0.2m).

During the year the company paid £0.1m to Fast Web Media for supporting the website. Fast Web Media is controlled by Robert Keith, a major shareholder.

The company issued 3.33m warrants exercisable at 1.5p to Darwin Strategic Limited ("Darwin") in consideration for an equity funding facility. Darwin is 37% owned by Ali Mortazavi, Chief Executive of Silence Therapeutics plc.

In the summer 2012 refinancing, Robert Keith, a major shareholder, bought a £1.0m loan note at nil yield convertible into shares at 0.5p from the company. The loan note was converted in December 2012.

5.0  Subsequent events

During April 2013, Silence Therapeutics raised £18.7m after expenses with an issue of 475.6m shares at 4p per share. In addition, during April 2013 the company consolidated its shares from 50 into 1.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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