By now most biotech investors know about RNAi companies like Alnylam Pharmaceuticals (ALNY) and Isis Pharmaceuticals (ISIS), and many probably know Tekmira (TKMR) and Arrowhead Research (ARWR) as well. Alnylam and Isis have excited investors with the potential multiple billion-dollar drugs in their pipeline, while Tekmira and Arrowhead have solid delivery technologies and emerging therapeutic pipelines.
If you'll pardon the obvious pun, it has been a lot quieter where London-based Silence Therapeutics (OTCPK:SLNCF) (SLN.L) is concerned. This small biotech is barely followed on the Street and isn't exceedingly liquid even on its home stock exchange (the LSE). Silence's corporate history is shakier than many others and the company does not have a particularly thick book of clinical data in humans, but what the company does have is a three-pronged delivery platform that could, like Arrowhead's delivery technology, open up a wider range of treatment targets for RNAi therapy.
Interesting Technology … If It Works
Silence Therapeutics believes it has carved out some valuable real estate with proprietary technology for both siRNA molecule construction and siRNA delivery. As a brief refresher, siRNA molecules tend to be unstable and getting them into their targeted cells intact has been a significant challenge.
Silence Therapeutic's AtuRNAi technology uses methoxy groups to create a blunt-ended, chemically stable siRNA that is less susceptible to degradation and less immunologically active. This could result in better efficacy in patients, but also a strong intellectual property position within the space.
Silence Therapeutics has also developed multiple delivery approaches. Delivery is a big deal in the RNAi space, both for its ramifications on clinical efficacy and safety as well as its IP ramifications. Tekmira uses liquid nanoparticles, Alnylam has developed GalNAc technology that conjugates a sugar molecule to the siRNA molecule, and Arrowhead has its Dynamic Polyconjugate technology that uses nanoparticles attached to polymer backbone that can be conjugated to an siRNA molecule or co-administered.
Silence has developed AtuFECT01, a proprietary cationic lipid that figures into both the AtuPlex and DACC delivery systems. AtuPlex combines AtuFECT01 with a fusogenic lipid and a PEGylated lipid to basically embed the siRNA into a lipid bilayer particle that can deliver the siRNA molecule into the vascular endothelium. The DACC delivery system is similar, but uses a different fusogenic lipid to achieve delivery into the lungs. Last and not least is DBTC, another lipid-based approach that targets the liver (a popular/common destination for RNAi therapies).
Studies in cell lines and non-human primates have shown strong expression with these therapies, but there is not all that much human clinical data at present. Two partnered programs are using Silence's RNAi structure technology, but there is very little human data at this point on the delivery side.
Targeting Cancer And Lung Injury
Silence Therapeutics is not sitting on the potential for its delivery technology to go places other RNAi therapies haven't gone yet, namely into the vasculature and lungs. The company's lead compound, Atu027, is being studied as a anti-metastatic agent for cancer therapeutics. Atu027 doesn't have cancer-killing effect on its own, but it seems to render vessels less permeable to cancer cells and the PKN3 gene it targets mediates metastatic cell growth, possibly slowing or stopping cancer from spreading.
Silence Therapeutics has Atu027 in a Phase Ib/IIa study in pancreatic cancer where it is being administered in combination with gemcitabine. The study is not powered to demonstrate improved survival, but it should establish safety and there may be indications of efficacy in terms of suppressing metastasis. Silence has also put Atu027 into a Phase Ib study in combination with cisplatin, 5-FU, and cetuximab in head & neck cancer - a cancer type where biopsies (to measure expression of the PKN-3 gene that Atu027 targets) are easier to perform.
Silence Therapeutics is also looking to start a Phase I study of Atu111 later this year, with acute lung injury being the most likely target.
These studies may not sound so exciting, but Alnylam and Isis have established precedents for starting off by establishing safety and gene expression/knockdown as valid targets for early-stage RNAi trials. With that, it is possible to say that there is a sizable potential market for a safe agent that slows or stops cancer metastasis, but it really is not possible to say that Atu027 is effective in that role.
Licensed Programs Not Likely To Move The Needle
Quark has licensed technology from Silence Therapeutics that is it using in two clinical programs, one partnered with Pfizer (PFE) for diabetic macular edema and wet age-related macular degeneration, and the other optioned to Novartis (NVS) in acute kidney injury and kidney transplantation. These are basically technology partnerships (Quark has licensed siRNA structure technology from Silence), though, so the financial rewards to Silence will be small (likely low or mid single-digit royalties).
You never can quite tell what will get investors excited about RNAi stocks, though. The few analysts who do cover Silence Therapeutics seem to think that the clinical success of Alnylam and Isis are a form of validation for Silence, so it is not impossible to think that clinical success for Quark will reflect well on Silence.
Good Luck On Valuation
I will not pretend to have all the answers on how to value Silence Therapeutics. There is so little clinical data on Atu027 (and none of it relevant to efficacy) that I do not think you can really create a credible risk-adjusted model for potential revenue. A drug that can stop metastasis would very likely have billion-dollar potential (if not much more) and just a 10% chance of success would seem to support a $4 to $5 per share value.
Technology value is the real key here, but that is a decidedly slippery and subjective concept. Various licensing, acquisition, and settlement transactions in the RNAi space would seem to support the idea that delivery technology goes for at least $100 million these days, if not substantially more. Relative to Silence's current market cap of close to $300 million, then, there could be meaningful upside if Atu027 demonstrates real efficacy.
The Bottom Line
Valuation is admittedly murky when it comes to Silence Therapeutics, as it requires sizable guesses as to whether Atu027 works and what those delivery systems would be worth on the market. What's more, there are some odd things about this company - there have been more than a few executive rearrangements, a capital-sparing restructuring in April of 2011, and the curious decision to sponsor a world-class chess player.
The preclinical data on Silence Therapeutics' delivery platforms have been solid enough to make this a stock to watch, but I think you have to have a real tolerance for risk to buy in today on that basis. This very well could be a ground-floor opportunity, but the stock has already ridden the surge in RNAi optimism to a roughly 85% gain since early December, and I prefer RNAi companies with more data already in hand.