Silence Therapeutics — Change is good

Silence Therapeutics (LN: SLN)

Last close As at 21/12/2024

615.00

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Market capitalisation

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Research: Healthcare

Silence Therapeutics — Change is good

Silence provided a corporate update with its H120 financial results that show it moving forward on all fronts. It announced that it has hired a new CEO, listed its stock on Nasdaq, enrolled its first volunteers in SLN124’s Phase I study, filed its SLN360 IND ahead of schedule and expanded its existing partnership with Mallinckrodt, all in the past few weeks.

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Written by

Healthcare

Silence Therapeutics

Change is good

Earnings update

Pharma & biotech

17 September 2020

Price

461p

Market cap

£382m

US$1.24/£

Net cash (£m) at 30 June 2020

50.3

Shares in issue

82.8m

Free float

18.3%

Code

SLN

Primary exchange

AIM

Secondary exchange

Nasdaq

Share price performance

%

1m

3m

12m

Abs

2.9

8.2

95.3

Rel (local)

3.0

10.1

131.8

52-week high/low

610p

170p

Business description

Silence Therapeutics (SLN) has a portfolio of siRNA drugs in early stage testing. SLN124 for iron overload is being dosed in a Phase I. SLN360 is being developed for cardiovascular disease and is targeting entering Phase I in 2020. Silence recently signed partnering deals with Mallinckrodt, Takeda and AstraZeneca to develop siRNA drugs using its platform.

Next events

SLN360 Phase I study

By year end 2020

SLN124 Phase Ib study

By year end 2020

Analyst

Nathaniel Calloway

+1 646 653 7036

Silence Therapeutics is a research client of Edison Investment Research Limited

Silence provided a corporate update with its H120 financial results that show it moving forward on all fronts. It announced that it has hired a new CEO, listed its stock on Nasdaq, enrolled its first volunteers in SLN124’s Phase I study, filed its SLN360 IND ahead of schedule and expanded its existing partnership with Mallinckrodt, all in the past few weeks.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/18

0.0

(19.8)

(25.2)

0.0

N/A

N/A

12/19

0.2

(22.3)

(27.2)

0.0

N/A

N/A

12/20e

6.3

(20.5)

(20.9)

0.0

N/A

N/A

12/21e

10.0

(20.9)

(21.0)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

New CEO and new listing

Silence recently listed on Nasdaq (ticker: SLN; 53.7m existing shares at a 3:1 share:ADS ratio for 17.9m ADSs) for the first time, an important step in establishing itself as an international company. It also recently announced the appointment of a new CEO to guide it through this transition and the first products entering the clinic: Mark Rothera, previously CEO of Orchard Therapeutics, a UK gene therapy company. The appointment is a good fit in our view because of overlap in the two company’s research as well as Mr Rothera’s success during his tenure at Orchard in raising and deploying capital.

R&D progress on track

The company reported that the first volunteers have been dosed in its Phase I study of SLN124. The study previously opened sites earlier in 2020 but enrolment was delayed due to COVID-19. The company also reported that its IND for SLN360 has been approved by the FDA, ahead of previous expectations (year end 2020). Silence is planning on starting a Phase I dosing study in healthy volunteers by the end of 2020.

Mallinckrodt expands development agreement

Silence announced that Mallinckrodt has expanded its existing development partnership with Silence on complement-mediated disorders by exercising its option to license two additional complement targets from the company in July 2020. This option was granted in 2019 when Mallinckrodt licensed SLN500 (which also targets the complement pathway). A $2.0m research milestone payment was triggered on starting work on the second complement target in August 2020, with the potential for future development, regulatory and sales milestones and royalties (more details below).

Valuation: Increased to £476.6m or 575p

We have increased our valuation to £476.6m or 575p per basic share from £461.2m or 558p/share. This increase is driven primarily by rolling forward our NPVs and offset by lower net cash (£52.0m from £67.4m).

R&D update

SLN124

Silence provided an update on its R&D programs in early September 2020. It was pleased to report that the first volunteers had been dosed in the Phase I clinical study of SLN124. The study was initiated earlier in 2020 but, due to disruptions from COVID-19, enrolment was delayed. The trial is a randomized, double-blind, placebo-controlled dosing study in up to 24 healthy volunteers.

The dosing is also a milestone for Silence because it is the first in-human experience for its proprietary GalNAc-siRNA platform. GalNAc has already been vetted as a reliable hepatic targeting methodology for siRNAs, but it is encouraging to see the culmination of the company’s preclinical development with this step into human testing.

The company intends to follow up this healthy volunteer study with a Phase Ib study in non-transfusion dependent beta-thalassemia and myelodysplastic syndrome (MDS) patients later this year (n=112), which may give us some early indications of whether the drug is working.

Additionally, the company reported that it had received orphan drug designation from the FDA for SLN124 for adults with beta-thalassemia. The drug also has orphan designation in Europe for beta-thalassemia and in the US for MDS. Finally the program has a rare paediatric disease designation in the US for beta-thalassemia.

SLN360

Silence also provided an update on its progress with SLN360, its drug for cardiovascular disease. The FDA has accepted the company’s IND filing, which will allow it to commence human clinical studies shortly, barring any disruptions from COVID-19, about which the company remains cautious. It received approval to study the drug in the context of both primary and secondary prevention. In this context, primary prevention would be the treatment of patients with elevated Lp(a) before the emergence of other factors in need of treatment (atherosclerosis, etc), whereas secondary prevention would be after these patients have been diagnosed with other cardiac conditions. The company is planning on initiating a study in a primary prevention population by the end of the year (although COVID-19 might affect this). This is slightly faster than our previous expectations, which forecasted an IND filing before the end of the year and Phase I initiation in early 2021.

We are pleased to see the program progressing as it main competitor AMG-890 (Amgen/Arrowhead) entered Phase II clinical testing in July 2020. AMG-890 is also an Lp(a) targeting siRNA treatment. We believe it is premature to be concerned about competition with AMG-890 before either drug has demonstrated efficacy, and instead believe that both these programs advancing will collectively increase interest and opportunities in this space.

Mallinckrodt collaboration and SLN500

Finally, Silence has reported that its partner Mallinckrodt has exercised its option to license two additional complement targets from the company and Silence will now evaluate up to three targets under the collaboration. When Mallinckrodt licensed SLN500 in 2019, the deal contained the option to license two additional assets targeting the complement system (like SLN500, which targets complement factor C3). The start of work on the second development program triggered a $2m payment to Silence (leaving a final $2m option for the third asset), as well future downstream milestones ($703m maximum for all asset options) and royalties (we assume in the same range as SLN500, low double digit to high teens).

New CEO and Nasdaq listing

Shortly after Silence announced its listing of ADSs on Nasdaq (53.7m of its 82.8m existing basic shares, at a 3:1 share:ADS ratio for 17.9m ADSs), it announced that it had hired a new CEO. The new CEO, Mark Rothera, was most recently CEO of Orchard Therapeutics, a UK-based, clinical-stage gene therapy company. He stepped down as CEO of Orchard in March 2020. He guided Orchard through a similar transition after his appointment in 2017 and the company’s subsequent Nasdaq listing in 2018. He helped it raise $375m through that transition ($150m in a pre-listing round and $225m with the Nasdaq IPO). He oversaw the expansion of the company’s pipeline through licensing a portfolio of rare disease gene therapies from GlaxoSmithKline (among other deals). This story is also similar to his experience before Orchard with PTC Therapeutics, where he served as chief commercial officer during the launch of its two rare disease drugs. In our view, he is a good fit for Silence at its current stage with his combination of experience in rare disease, nucleotide therapies, capital markets and business development.

Valuation

We have increased our valuation to £476.6m or 575p per basic share from £461.2m or 558p/share. This increase is driven primarily by rolling forward our NPVs and offset by lower net cash (£52.0m from £67.4m). The new cash figure reflects reported £50.3m net cash at 30 June 2020 in addition to the post-period end $2m milestone payment from Mallinckrodt. The holdi4ng value used for the Mallinckrodt collaboration (SLN500) has been updated to reflect the new option, but we are not separately modelling a second drug launch at this time, although we may in the future if data are released on the existing programs and they both enter the clinic.

Exhibit 1: Valuation of Silence

Product

Indication

Clinical stage

Prob. of success

Launch year

Peak sales ($m)

Margin/ royalty rate

rNPV (£m)

SLN124

Beta-Thalassemia

Phase I

15%

2027

489.2

59%

66.5

MDS

Phase I

15%

2027

683.7

60%

70.1

SLN360

Cardiovascular disease

Phase I ready

7.5%

2027

5214.0

54%

177.3

SLN500

Complement disorder

Preclinical

5%

2027

*400

*11–19%

32.6

Takeda project

Undisclosed

Preclinical

3%

2028

*400

*11–19%

18.8

AZ project

Undisclosed

Preclinical

3%

2029

*400

*8–12%

44.6

QPI-1002

AKI & kidney transplant

Phase III

60%

2022

381.5

1.5–4.0%

10.3

Onpattro

hATTR Amyloidosis

Approved

354.5

0.33–1.0%

4.4

Total

424.6

Net cash and deposits (at 30 June 2020 + $2m Mallinckrodt upfront) (£m)

52.0

Total firm value (£m)

476.6

Total basic shares (m)

82.8

Value per basic share (p)

575

Dilutive options (m)

5.2

Total diluted shares (m)

88.0

Value per diluted share (p)

549

Source: Silence reports, Edison Investment Research.

Financials

Silence reported an operational loss of £14.2m for H120, driven by R&D spending of £10.2m, which was consistent with our estimates. We have slightly increased our expected SG&A spending for 2020 to £9.5m from £8.8m, although the cash effect is negligible due to an increase in stock-based compensation (£2.0m from £0.6m). We have not made any other major adjustments to our 2020 financials apart from the addition of the new Mallinckrodt upfront option payment, an adjustment to our revenue recognition schedule, and accounting for the previous upfront and milestone payments to align with the company’s reporting. Our financing forecasts remain unchanged at the moment and we forecast that the company will need an additional £85m (recorded as illustrative debt in 2023) in capital before profitability if it develops its internal programmes alone, although we expect it to seek a partner to advance SLN360 into late-stage trials at the very least, given the scope of cardiovascular outcomes studies.

Exhibit 2: Financial summary

£000s

2018

2019

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

0.0

244.0

6,262.1

10,039.1

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

0.0

244.0

6,262.1

10,039.1

R&D

(9,743.0)

(13,336.0)

(20,192.9)

(23,248.0)

SG&A

(10,828.0)

(9,642.0)

(9,480.3)

(9,764.7)

EBITDA

(20,172.0)

(22,252.0)

(22,973.1)

(22,535.6)

Normalised operating profit

(19,890.0)

(22,150.0)

(21,381.6)

(20,883.2)

Depreciation & amortisation

(399.0)

(482.0)

(438.0)

(438.0)

Exceptionals

0.0

0.0

0.0

0.0

Share-based payments

(681.0)

(584.0)

(2,029.5)

(2,090.4)

Reported operating profit

(20,571.0)

(22,734.0)

(23,411.1)

(22,973.6)

Net Interest

45.0

(136.0)

864.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

(19,845.0)

(22,286.0)

(20,517.6)

(20,883.2)

Profit Before Tax (reported)

(20,526.0)

(22,870.0)

(22,547.1)

(22,973.6)

Reported tax

2,115.0

3,288.0

4,633.3

5,334.4

Profit After Tax (norm)

(17,800.2)

(19,989.6)

(18,403.4)

(18,731.4)

Profit After Tax (reported)

(18,411.0)

(19,582.0)

(17,913.7)

(17,639.2)

Minority interests

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

Foreign exchange adjustment

94.0

(411.0)

585.0

0.0

Net income (normalised)

(17,706.2)

(20,400.6)

(17,818.4)

(18,731.4)

Net income (reported)

(18,317.0)

(19,993.0)

(17,328.7)

(17,639.2)

Basic average number of shares outstanding (m)

70.3

75.1

85.1

89.4

EPS - basic normalised (p)

(25.18)

(27.15)

(20.93)

(20.96)

EPS - diluted normalised (p)

(25.18)

(27.15)

(20.93)

(20.96)

EPS - basic reported (p)

(26.18)

(26.07)

(21.04)

(19.73)

Dividend (p)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

9,387.0

8,612.0

8,400.0

8,188.0

Intangible Assets

8,191.0

7,726.0

7,740.0

7,754.0

Tangible Assets

921.0

611.0

385.0

159.0

Investments & other

275.0

275.0

275.0

275.0

Current Assets

29,498.0

37,465.0

84,213.4

67,104.0

Stocks

0.0

0.0

0.0

0.0

Debtors

0.0

4.0

32,927.0

0.0

Cash, cash equivalents, and deposits

26,494.0

33,515.0

44,586.1

59,702.6

Other

3,004.0

3,946.0

6,700.3

7,401.4

Current Liabilities

(3,830.0)

(9,653.0)

(14,524.6)

(19,203.6)

Creditors

(3,830.0)

(6,888.0)

(5,366.6)

(6,013.3)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

Other

0.0

(2,765.0)

(9,158.0)

(13,190.2)

Long Term Liabilities

0.0

(15,515.0)

(57,258.1)

(50,806.5)

Long term borrowings

0.0

0.0

0.0

0.0

Other long term liabilities

0.0

(15,515.0)

(57,258.1)

(50,806.5)

Net Assets

35,055.0

20,909.0

20,830.8

5,282.0

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

35,055.0

20,909.0

20,830.8

5,282.0

CASH FLOW

Op Cash Flow before WC and tax

(19,491.0)

(21,668.0)

(20,943.6)

(20,445.2)

Working capital

913.0

3,054.0

(35,625.4)

33,573.8

Exceptional & other

6.0

18,033.0

48,136.0

(2,419.4)

Tax

1,812.0

2,308.0

3,060.0

4,633.3

Net operating cash flow

(16,760.0)

1,727.0

(5,372.9)

15,342.6

Capex

(188.0)

(9.0)

(226.0)

(226.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

Net interest

39.0

(6.0)

864.0

0.0

Equity financing

341.0

5,273.0

15,806.0

0.0

Dividends

0.0

0.0

0.0

0.0

Other

319.0

0.0

0.0

0.0

Net Cash Flow

(16,249.0)

6,985.0

11,071.1

15,116.6

Opening net debt/(cash)

(42,745.0)

(26,494.0)

(33,515.0)

(44,586.1)

FX

(2.0)

36.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

Closing net debt/(cash)

(26,494.0)

(33,515.0)

(44,586.1)

(59,702.6)

Source: Silence reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Silence Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Silence Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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General disclaimer and copyright

This report has been commissioned by Silence Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Silence Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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JPMorgan Global Growth & Income — Delivering ‘best of both worlds’ – growth & income

JPMorgan Global Growth & Income (JGGI) aims to provide superior total returns and outperform its benchmark over the long term by investing in a portfolio of 50–90 companies from around the world. It has achieved this objective, delivering outright gains and outperforming its benchmark since the inception of its current strategy in 2008. JGGI makes quarterly distributions set at the beginning of the financial year, with the intention of paying at least 4% of NAV at the time of announcement. Dividend payments can be funded from reserves, which means the managers are not constrained by the need to purchase high-yielding stocks but are instead free to invest in non-dividend paying stocks for capital growth. The managers believe this gives investors ‘the best of both worlds’.

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