4SC AG — Earnings Release 2013

Aug 8, 2013

News Details

Corporate | 8 August 2013 07:30

Press Release: 4SC reports second quarter 2013 financial results

4SC AG / Key word(s): Half Year Results/Miscellaneous

08.08.2013 / 07:30

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Press Release

4SC reports second quarter 2013 financial results

– Consolidated revenue up 167% in the first half-year

– Consolidated loss reduced further due to higher revenue and lower costs

– Successfully implemented strategy to focus on key development assets

Planegg-Martinsried, Germany, 8 August 2013 – 4SC AG (Frankfurt, Prime Standard: VSC), a discovery and development company of targeted small molecule drugs for cancer and autoimmune diseases, today announced the financial results of the Group managed by 4SC AG (4SC) in accordance with International Financial Reporting Standards (IFRS) for the first six months of 2013 and the second quarter of 2013, which ended 30 June 2013.

In the first half of 2013, 4SC more than doubled its revenue compared to the same period last year and made significant reductions to its operating expenses adjusted for one-off extraordinary effects. Thus 4SC markedly improved its earnings situation while at the same time recording a positive development of its cash flow from operations compared to H1 2012.

Consolidated revenue was EUR 1.17 million in the second quarter (Q2 2012: EUR 0.37 million). This means that the Company posted its highest quarterly revenue in five years – excluding the fourth quarter of 2012, in which high licensing income was directly recognised as revenue. In the first six months of the year, consolidated revenue increased by 167% to EUR 1.96 million compared to the same time period last year (H1 2012: EUR 0.73 million). This positive development was mainly attributable to the research partnerships aimed at compound discovery and optimisation which were launched in the first half-year by the Group subsidiary 4SC Discovery GmbH with Leo Pharma A/S and BioNTech AG.

Due to the growth in revenue, the reduction in R&D costs as a result of clinical studies coming to an end as well as continued cost saving measures, the result from operating activities improved significantly. The loss from operating activities fell by 14% to EUR 3.43 million in the second quarter of 2013 compared to the same quarter last year (Q2 2012: EUR -4.00 million) and by 21% to EUR 6.17 million in the first six months of 2013 (H1 2012: EUR -7.83 million). After adjusting for the one-off expenses of EUR 1.20 million incurred in the second quarter of 2013 in connection with the focusing of the Company’s development strategy by streamlining its product pipeline and making personnel adjustments, the operating loss in the first half of the year was EUR 4.96 million, down by as much as 37% compared with the prior-year figure.

The net loss for the period improved by 15% to EUR 3.40 million in the second quarter of 2013 compared to the same quarter last year (Q2 2012: EUR -3.98 million) and by 21% to EUR 6.08 million in the first six months of 2013 (H1 2012: EUR -7.68 million). The decrease in the net loss for the period along with a simultaneous increase in the underlying average number of shares (resulting from the capital increase completed in the third quarter of 2012) reduced the loss per share to EUR 0.07 in the second quarter of 2013 (Q2 2012: EUR -0.09) and to EUR 0.12 in the first half of 2013 (H1 2012: EUR -0.18).

As at 30 June 2013, 4SC had funds totalling EUR 9.21 million, compared with EUR 12.06 million as at 31 December 2012. This resulted in an average monthly outflow of cash from operations amounting to EUR 0.48 million in the first half of 2013. The company forecasts these funds, in connection with the current further expense and revenue planning, will ensure the Company’s financing into the third quarter of 2014.

Key events in the second quarter of 2013 and after the reporting period

– May 2013: Announcement of advances in the clinical development of resminostat – 4SC’s lead anti-cancer compound

The Phase I results from the SHORE study in advanced colorectal cancer (CRC) were announced at the ASCO Conference in Chicago and showed that resminostat in combination with FOLFIRI chemotherapy was safe and well-tolerated at all dosage levels administered. In addition, treatment with resminostat – already in the Phase I part of the study – showed promising signs of clinical activity.

Furthermore, 4SC identified a potential new predictive biomarker (ZFP64), whose expression in Phase II trials in liver cancer (HCC) and Hodgkin’s lymphoma (HL) correlates with the expected survival of patients receiving treatment with resminostat. Patients with overexpression of the biomarker ZFP64 at the beginning of treatment experienced a considerably longer survival than patients with low levels of ZFP64 expression.

– May/June 2013: Focusing of the development strategy and adjustment of the corporate structure

Corporate and personnel structures are being adjusted in line with the development strategy focused on key products. The planned clinical development of the anti-cancer compound resminostat towards market approval as first-line therapy of liver cancer remains the main focus of the Company’s operational development activities. Conversely, other development programmes have been cut back or halted. The Group subsidiary 4SC Discovery will continue pursuing its successful course of growth in marketing early-stage research.

The modified development strategy necessitated adjustments to the staffing structure, especially in preclinical and clinical development operations, but also in administration. These changes will reduce the number of employees by about 15% during the second half of 2013, and the Überlingen-Bonndorf office will be closed at the end of 2013.

– May and July 2013: 4SC’s partner Yakult Honsha starts clinical Phase I/II trials in Japan with the anti-cancer compound resminostat and established cancer therapies in liver cancer (HCC) (May) and non-small-cell lung cancer (NSCLC) (July).

The liver cancer study will investigate the safety and efficacy of resminostat in combination with sorafenib versus the current standard of care, sorafenib alone, as a novel first-line treatment of advanced liver cancer (HCC). The lung cancer study will investigate the safety and efficacy of resminostat in combination with the cancer drug docetaxel versus docetaxel monotherapy in patients with advanced, metastatic or recurrent NSCLC.

– June 2013: UCB begins collaboration with 4SC Discovery and CRELUX to research and develop new therapies for neurological diseases.

Based on the joint idea-to-candidate (i2c) research platform, 4SC Discovery and CRELUX will identify and optimise small molecule compounds for treating central nervous system diseases on behalf of UCB. UCB intends to bring these compounds to further stages in preclinical and clinical development.

– July 2013: 4SC expands its patent protection for 4SC-202, the Company’s second epigenetic anti-cancer compound in clinical development, in China, Hong Kong and the USA.

Enno Spillner, CEO of 4SC AG, commented:

‘We achieved further operational strides and took important strategic decisions in the first half of the year. After focusing our development strategy on our main products – above all our epigenetic cancer compound resminostat – we implemented important strategic measures aimed at further improving our cost structures. In addition, our subsidiary 4SC Discovery GmbH started several important partnerships which contributed to our significantly improved consolidated revenue in the second quarter. Preparing and launching a clinical registration programme with our main product resminostat as a novel therapy option for advanced liver cancer remains our main strategic objective and we believe the identification of ZFP64, a potentially predictive biomarker, could help us advance resminostat as a personalised cancer therapy. Overall, 4SC is entering the second half of the year with a clear strategic focus and a streamlined organisation, on the back of successful operations.’

Further finance information

Segment reporting

The 4SC Group, comprising 4SC AG and its wholly-owned subsidiary 4SC Discovery GmbH, reports consolidated figures from two operating segments. At the end of the second quarter of 2013, the Development segment comprised the development programmes for resminostat, 4SC-202, 4SC-205 and vidofludimus. The Discovery & Collaborative Business segment comprised the activities involved in drug discovery and early-stage research plus subsequent commercialisation, in particular through service business and research collaborations.

Revenue in the Development segment remained constant both in the quarter under review and in the first half of the year (Q2 2013: EUR 0.22 million after Q2 2012: EUR 0.23 million; H1 2013 and H1 2012: EUR 0.45 million in each case). Revenue in the Discovery & Collaborative Business segment was given a substantial boost. It amounted to EUR 0.94 million in the second quarter (Q2 2012: EUR 0.14 million) and showed a more than fivefold increase in the first six months to EUR 1.51 million (H1 2012: EUR 0.28 million).

Operating expenses

Operating expenses, comprising the cost of sales, distribution costs, research and development costs and administration costs, stood at EUR 4.59 million in the second quarter of 2013, an increase of 5% on the prior-year figure (Q2 2012: EUR 4.39 million). At EUR 8.12 million, the figure for the first six months was down 5% year-on-year (H1 2012: EUR 8.57 million). The Development segment accounted for EUR 6.57 million (H1 2012: EUR 7.41 million) of operating expenses, while the Discovery & Collaborative Business segment incurred EUR 2.29 million (H1 2012: EUR 2.50 million) and the consolidation accounted for EUR -0.73 million (H1 2012: EUR -1.34 million).

Extraordinary expenses in the course of strategic adjustments

Two one-off extraordinary factors drove up expenses by EUR 1.20 million in the second quarter of 2013. A non-recurring, non-cash expense of EUR 0.72 million was reported under research and development costs which resulted from the decision to focus the development strategy and were due to the associated impairment losses as a consequence of the streamlining of the product pipeline. Operating expenses in the reporting period also include an amount of EUR 0.48 million comprising accrued liabilities in connection with the adjustment of personnel structures related to the focused development strategy. About half of these expenses are made up by prepaid staff costs which are expected to be reversed during the second half of 2013. One-time extraordinary factors of just under EUR 1 million arising from the impairment losses and the adjustment of personnel structures can therefore be anticipated for 2013 as a whole. The Company expects considerable, high six-figure savings in its annual staff costs during 2014.

Research and development costs

Research and development costs incurred in connection with ongoing clinical studies and the preparation of planned clinical studies continued to make up the majority of expenses. R&D costs were down slightly by 1% over the prior-year quarter to EUR 3.13 million (Q2 2012: EUR 3.15 million) and by 15% over the first six months to EUR 5.15 million (H1 2012: EUR 6.07 million) on account of the reduced operating activities in connection with clinical studies and the implementation of targeted cost-cutting measures. After adjusting for the extraordinary factors, research and development costs amounted to EUR 2.14 million in the second quarter and to EUR 4.16 million in the first half-year.

Development of operating cash flow

Cash flows from operating activities in the first half of 2013 were influenced predominantly by the Group’s income from the licence agreement concluded with BioNTech AG in December 2012 and from the licence agreement entered into with LEO Pharma A/S, Denmark, in February 2013. Added to this are non-cash items from the statement of comprehensive income totalling EUR 1.24 million (including from the amortisation of intangible assets and depreciation of property plant and equipment and the one-off impairment losses incurred in connection with the streamlining of the product pipeline), which means that in spite of a pre-tax loss of EUR 6.08 million, the Company recorded cash outflows from operating activities of just EUR 2.82 million. In the comparative 2012 period, a pre-tax loss of EUR 7.67 million resulted in cash outflows in the amount of EUR 6.90 million.

4SC Group outlook: Further operating and strategic development

Resminostat: Preparation of registration trial in HCC

Subject to approval from the regulatory agencies, 4SC is pursuing an adaptive study design for the planned registration trial with as a first-line treatment of advanced liver cancer (HCC). This programme will consist of a preliminary Phase IIb stage, followed by a larger Phase III stage. Following a positive interim evaluation during the Phase IIb stage, an adaptive modification can then be made for the Phase III stage. As plans currently stand, 4SC assumes that around 650 patients will be needed for the trial. In addition, 4SC also intends to integrate the analysis of ZFP64 as a potentially predictive biomarker such that it forms an integral part of the study. If successful, this is intended to enable 4SC to advance resminostat as a personalised cancer therapy towards market approval. 4SC is now taking steps to ensure the financing and successful initiation of the study. Including the registration phase, 4SC expects the overall study to last approximately five years. Assuming the Phase IIb stage of the study commences in the first six months of 2014, market approval could therefore be granted in 2019.

Further plans for resminostat in the current financial year include the publication of a more detailed data analysis from the Phase II SHELTER study in liver cancer (HCC) as well as the publication of detailed results from the biomarker analysis in the HCC and Hodgkin’s lymphoma (HL) indications. The results will be presented at two scientific conferences: ILCA (12-15 Sept. 2013, Washington, D.C./USA) and ECCO (27 Sept.-1 Oct. 2013, Amsterdam/The Netherlands).

After the successful completion of the Phase-I part of the SHORE study in the treatment of colorectal cancer (CRC), 4SC decided to discontinue the development of resminostat in this indication for the time being. In accordance with its focused development strategy, the Company wants to concentrate fully on the further development of resminostat in the indication of liver cancer (HCC). Yet 4SC may return to building on these results at any time in the future – both in colorectal cancer and other cancer indications – not least because the results once again confirm resminostat’s positive safety profile, clinical activity and its broad applicability in combination with established cancer therapies.

Further product pipeline: Study data with cancer compounds 4SC-202 and 4SC-205

4SC is currently testing two other promising cancer compounds, 4SC-202 and 4SC-205, in Phase I clinical trials. The Company currently assumes that it will be in a position to publish the results of the Phase I TOPAS dose escalation study with 4SC-202, its second epigenetic compound after resminostat, in patients with advanced haematological tumours in the second half of 2013. Data from the Phase I AEGIS trial with the oral cell division inhibitor 4SC-205 in patients with solid masses – a trial that was extended in December 2012 to include the testing of an innovative dosage scheme following positive study results – are scheduled to be published in the second half of 2013. This is due to the positive tolerability shown to date in the new dosage scheme.

For vidofludimus, the Company’s lead compound for autoimmune diseases, activities are focusing on the search for suitable partners or investors to work with 4SC to conduct a Phase IIb trial in Crohn’s disease. In accordance with its focused development strategy, 4SC will not take any further steps to develop vidofludimus without receiving additional financing from external sources.

Financial forecast

The 4SC Group had funds of EUR 9.21 million at the end of the second quarter of 2013. These existing funds are expected to secure Company financing into the third quarter of 2014. This forecast is based on the assumption that the average monthly operating cash burn rate in 2013 will be approximately EUR 0.6 million and that the Company’s research and development programmes will continue to run according to plan. These assumptions do not reflect the execution of the pivotal study programme in the indication of liver cancer, which is currently in preparation.

4SC expects its loss situation to continue into the short to medium term, although research and development costs in 2013 are currently expected to be lower than in 2012. Accordingly, the Group’s operating loss – before adjustment for non-recurring effects in the form of restructuring costs and impairment losses due to streamlining its pipeline – should continue to decline year-on-year, thanks to falling costs and the expected rise in earnings as contributed by the activities of 4SC Discovery GmbH.

The decision to focus research and development activities, combined with adjustments to the corporate structure and a downsizing of the workforce by around 15% by the end of 2013 compared to the headcount at the end of May 2013, will enable 4SC to further improve its cost structures. In conjunction with restructuring, moderate one-time extraordinary expenses of an estimated EUR 0.25 million will be recognised in the 2013 consolidated financial statements. From the 2014 financial year onwards, 4SC expects these adjustments to result in a significant, high six-figure reduction in staff costs per year.

Based on the strong performance of 4SC Discovery GmbH to date during the current financial year, the Management Board of 4SC AG currently expects this subsidiary to be able to achieve a balanced cash flow from operating activities in 2013.

On the whole, 4SC believes that it is positioned well for 2013 and beyond, given the promising clinical development programmes and the flow of clinical news that is expected to continue in the short and medium term as well as with the strengths in the area of early-stage research consolidated in 4SC Discovery GmbH, plus the Company’s decision at the beginning of May 2013 to focus on value drivers and optimising its cost structure.

The complete consolidated financial report for the first six months of 2013 will be available for download at http://4sc.de/investors/financial-reports today from 7:30 am CEDT.

Ends

Telephone conference

4SC will host a telephone conference in English today, 8 August 2013, at 3:00 pm CEDT (9:00 am EDT) , in which the Management Board of 4SC AG will report on the principal developments in the first half of 2013 and beyond. To participate in the telephone conference, please use the following dial-in data:

+49-6958-999-0808 (Germany)

+44-207-153-2027 (UK)

+1-480-629-9870 (USA)

+49-6958-999-0808 (other countries)

Conference ID: 4632901

After the conference call, an audio replay will be available at www.4sc.com under Investors / Events & Presentations / Conference Calls & Webcasts.

About 4SC

The Group managed by 4SC AG (ISIN DE0005753818) discovers and develops targeted, small-molecule drugs for treating diseases with high unmet medical needs in various autoimmune and cancer indications. These drugs are intended to provide innovative treatment options that are more tolerable and efficacious than existing therapies, and provide a better quality of life. The Company’s pipeline comprises promising products that are in various stages of clinical development. 4SC’s aim is to generate future growth and enhance its enterprise value by entering into partnerships with pharmaceutical and biotech companies. Founded in 1997, 4SC had 83 employees at 30 June 2013. 4SC AG has been listed on the Prime Standard of the Frankfurt Stock Exchange since December 2005.

Legal Note

his document may contain projections or estimates relating to plans and objectives relating to our future operations, products, or services; future financial results; or assumptions underlying or relating to any such statements; each of which constitutes a forward-looking statement subject to risks and uncertainties, many of which are beyond our control. Actual results could differ materially, depending on a number of factors.

For more information please visit www.4sc.com or contact:

4SC

Jochen Orlowski, Investor Relations & Public Relations

jochen.orlowski(at)4sc.com, Tel.: +49-89-7007-6366

MC Services

Raimund Gabriel, Michelle Kremer

raimund.gabriel(at)mc-services.eu, Tel.: +49-89-2102-2830

The Trout Group

Chad Rubin

Crubin(at)troutgroup.com, Tel.: +1-646-378-2947

End of Corporate News

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Language:	English
Company:	4SC AG
	Am Klopferspitz 19a
	82152 Martinsried
	Germany
Phone:	+49 (0)89 7007 63-0
Fax:	+49 (0)89 7007 63-29
E-mail:	public@4sc.com
Internet:	www.4sc.de
ISIN:	DE0005753818
WKN:	575381
Listed:	Regulierter Markt in Frankfurt (Prime Standard); Freiverkehr in Berlin, Düsseldorf, München, Stuttgart

End of News	DGAP News-Service

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