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4SC Announces Financial Results for the First Half of 2014Martinsried, )
Key operating events in Q2 2014 and beyond:
- 4SC Discovery GmbH expands research activities in epigenetics: EU grant of EUR 0.45 million received in the field of cardiovascular diseases (April 2014); collaboration with CRELUX in the field of cancer drugs launched (July 2014)
- Resminostat: Good safety profile in cancer patients demonstrated in Phase I trial by 4SC's Japanese partner Yakult Honsha; milestone payment received (May 2014)
- 4SC-202: Positive top-line data from Phase I trial in patients with haematological tumours presented at ASCO (June 2014).
- 4SC AG: Experienced oncology expert Dr Erich Enghofer joins 4SC as its new Executive Vice President Oncology and Haematology (June 2014).
Key financial figures for the first half of 2014:
- Consolidated revenue up 103% to EUR 3.98 million (H1 2013: EUR 1.96 million)
- Operating loss (EBIT) reduced by 37% to EUR -3.87 million (H1 2013: EUR -6.17 million); earnings per share improved by 33% to EUR -0.08 (H1 2013: EUR -0.12).
- Very strong second-quarter performance: revenue up 117%, EBIT improves by 49%
- Shareholder loan of up to EUR 10 million from 4SC's principal shareholder Santo Holding expected to secure the Company's funding until the end of 2015 (June 2014)
- Reallocation of the entire package of shares held by former shareholder VCG Fonds III i.L. to institutional investors completed, free float increased (June 2014)
- Convertible note agreement with Yorkville for up to EUR 15 million until the end of 2016 creates further flexible funding options (February 2014)
Enno Spillner, CEO of 4SC AG, commented:
"We are satisfied with our business performance in the first half of the year - and even more so in the second quarter. The shareholder loan from Santo Holding will enable us to push ahead with preparing the further clinical development of resminostat. Our work to prepare for the planned randomised Phase II trial for resminostat in the medically and commercially important indication of liver cancer is progressing apace. Furthermore, we are delighted that Dr Enghofer will be assisting us with the positioning and strategic marketing of resminostat."
Enno Spillner continued: "Our second epigenetic anti-cancer compound 4SC-202 also delivered impressive top-line data from the Phase I trial in haematological tumours, generating interest at the ASCO Annual Meeting in June. In recent months we have improved our operational and financial situation measurably, not least through the successful work of our research subsidiary 4SC Discovery GmbH. Nevertheless, a key objective of 4SC remains to secure the long term financing of 4SC and of resminostat's clinical development so that we can come closer to our overarching goal of making it 4SC's first approved drug."
Detailed financial review (6 months 2014 and Q2 2014)
The 4SC Group, which comprises 4SC AG and its wholly-owned subsidiary 4SC Discovery GmbH, reports consolidated figures for the Group in accordance with International Financial Reporting Standards (IFRSs) and financial figures for the two operating segments Development (resminostat, 4SC-202 and 4SC-205) and Discovery & Collaborative Business (drug discovery and early-stage research activities as well as their commercialisation through the service business and research collaborations). The figures for the 4SC Group are reported below; for more information on segment reporting, see the full 6-month financial report at http://4sc.de/investors/financial-reports.
6 months 2014:
In the first six months of 2014, consolidated revenue more than doubled (+103%) to EUR 3.98 million (H1 2013: EUR 1.96 million). In the Development segment, revenue was lifted by 328% to EUR 1.93 million (H1 2013: EUR 0.45 million), largely attributable to a milestone payment by 4SC's partner Yakult Honsha as well as to allocations to Yakult Honsha of costs to produce the medication for the resminostat trial. Revenue in the Discovery & Collaborative Business segment rose by 36% to EUR 2.05 million in the first six months of the year, mainly as a result of the collaborations with LEO Pharma and BioNTech (H1 2013: EUR 1.51 million).
The loss from operations (EBIT) improved by 37% in 2013 to EUR -3.87 million in the first six months of the year (H1 2013: EUR -6.17 million) due to higher consolidated revenue and lower operating expenses. The loss for the period decreased by 35% to EUR 3.97 million in the first six months (H1 2013: EUR -6.08 million). On account of the lower net loss for the period and the slight increase in the number of shares due to the conversion of bonds into shares, the loss per share fell to EUR -0.08 (H1 2013: loss of EUR -0.12).
This results in an average monthly outflow of cash from operations of EUR 0.65 million in the first half of 2014 (H1 2013: EUR 0.48 million). As at 30 June 2014, the Company had cash totalling EUR 3.42 million, compared with EUR 4.90 million as at the close of 2013.
Compared with the second quarter of the previous year, consolidated revenue was up again in the reporting quarter, increasing by 117% to EUR 2.54 million (Q2 2013: EUR 1.17 million). The Company's loss from operating activities decreased by 49% to EUR 1.75 million in the second quarter of 2014 (Q2 2013: EUR 3.43 million). The loss for the period decreased by 45% to EUR 1.85 million (Q2 2013: EUR -3.40 million), resulting in earnings per share of EUR -0.04 (Q2 2013: EUR -0.07).
At the beginning of June 2014, 4SC AG agreed a loan of up to EUR 10 million with its principal shareholder Santo Holding (Deutschland) GmbH (Santo) to secure the Company's short- and medium-term funding. This is earmarked for financing the costs of preparing the planned clinical trial with resminostat and for financing the Company's ongoing administrative costs. The shareholder loan carries interest of 8% p.a. and runs until the end of 2016 (maturity date). In line with its financial planning, 4SC can draw down credit lines in tranches until 31 December 2015. Early repayment or - under certain conditions - a reduction in the available loan amount is possible. The first tranche of EUR 2 million has already been drawn down.
Shortly after the end of the reporting period, 4SC AG announced that the reallocation of a larger package of shares had been completed on 24 June 2014 and the shares placed with a syndicate of institutional investors. These shares had previously been held by VCG Venture Capital Gesellschaft mbH & Co. Fonds III KG i.L. (VCG Fonds III) and other shareholders of Deutsche Bank. This reallocation became necessary because VCG Fonds III is in liquidation and was therefore required to end its involvement with 4SC AG. On conclusion of this transaction, the free float of 4SC shares increased from 30.3% (as at 31 March 2014) to around 35.0%.
Review of operations in H1 2104 and outlook for 2014
Development segment (clinical development activities of 4SC AG)
This epigenetic drug candidate with an innovative mechanism of action is 4SC's most highly advanced anti-cancer compound. Significant progress was made in the reporting period in the operational preparations for the planned blinded randomised controlled Phase II trial in advanced liver cancer (hepatocellular carcinoma, HCC). In this trial, resminostat in combination with sorafenib is to be examined as first-line therapy of patients with advanced HCC compared with the current standard treatment (monotherapy with sorafenib). The aim of 4SC is to show the superiority of the resminostat-sorafenib combination under controlled study conditions. The above study also aims to further qualify the potential predictive biomarker ZFP64 for possible subsequent investigation in a Phase III registration trial.
The study plan has been prepared together with a contract research organisation (CRO). Further revisions will be coordinated both internally and in talks with external key opinion leaders (KOLs) and experts.
Following this, the trial protocol will be discussed with the competent authorities and the study will then commence shortly afterwards, assuming sufficient funding is available. In this context, the Company aims at submitting an Investigational New Drug Application (IND) to the US Food and Drug Administration (FDA) before the end of 2014. 4SC continues to pursue talks with potential partners and investors in order to secure funding for the planned Phase II trial.
Yakult Honsha, 4SC's Japanese development partner, is driving the development of resminostat in Japan. In May 2014, the company successfully completed a clinical Phase I trial with resminostat in patients with advanced solid tumours. This study was able to demonstrate that the compound achieved a good level of safety and tolerability for Japanese patients - two of the most important preconditions for further development of resminostat in Japan. Completion of the study triggered a contractually agreed milestone payment to 4SC from Yakult Honsha.
Furthermore, Yakult Honsha is carrying out the two Phase I/II trials with resminostat in the indications of liver cancer (HCC) and non-small-cell lung cancer (NSCLC), in which resminostat is examined as combination therapy with the conventional cancer drugs sorafenib (HCC) and docetaxel (NSCLC) in Asian patients, in each case in contrast to monotherapy with the respective cancer drug.
4SC's second epigenetic anti-cancer compound currently in clinical development is 4SC-202, a selective inhibitor of the epigenetic regulators LSD1 and HDAC 1, 2 and 3. In early June 2014, an initial set of positive top-line data from the 4SC-202 Phase I TOPAS trial in patients with advanced haematological tumours was made public at the ASCO Annual Meeting in Chicago. 4SC-202 proved to be both safe and well-tolerated by patients. In particular, the compound demonstrated promising indications of anti-tumour efficacy, both in terms of long-term stabilisation of the disease and in terms of shrinking the actual tumour itself.
The data will be fully evaluated after final completion of the trial. The main study phase has been completed for all patients, with one patient who has responded to treatment with a so-called complete remission so far currently remaining on follow-up study treatment. On the strength of the positive results achieved to date, 4SC is now considering a range of options in relation to a potential clinical Phase II development of 4SC-202, possibly in collaboration with potential partners.
The Company's third anti-cancer compound - 4SC-205 - continues to be investigated in a clinical Phase I trial. An oral Eg5 kinesin inhibitor that blocks tumour cell division, this compound is currently being intensively trialled in patients with a special disease condition (lung tumour/metastases) in the ongoing AEGIS study. The final patients are currently being recruited and treated.
For the compound vidofludimus in autoimmune diseases, activities continue to focus on talks with potential project partners with whose support the Company plans to finance and externally conduct a Phase IIb trial in the Crohn's disease indication.
Discovery & Collaborative Business segment (early-stage research at 4SC Discovery):
The existing research collaborations and partnerships, including those with Mainz-based BioNTech AG and Danish pharmaceutical company LEO Pharma S/A, continued to develop encouragingly in the reporting quarter. In addition, the strategic technology and sales partnership with CRELUX GmbH was further strengthened in the reporting quarter.
In April 2014, the Company announced that 4SC Discovery GmbH had received a EUR 0.45 million grant from the EU for research into new epigenetic compounds targeting cardiovascular diseases. Within this research project, which is scheduled to run for three years, 4SC Discovery GmbH will work with the University of Munich Medical Clinic and other project partners, and will retain all rights to any compounds discovered. This grant will enable 4SC to deploy the epigenetic research expertise previously focused primarily on oncology to the field of cardiovascular disease for the first time. In July 2014, 4SC Discovery GmbH and CRELUX GmbH announced the launch of a joint project for the discovery and research of new epigenetic cancer compounds inhibiting bromodomain proteins. This collaboration is being supported with a grant from the m4 biotech cluster in Munich.
4SC confirms its financial outlook for the 2014 financial year. The 4SC Group had funds of EUR 3.42 million at the end of the half-year. Based on current revenue and expense planning and taking into account the convertible note agreement signed in the first quarter with Yorkville and the loan agreement signed with Santo Holding in the second quarter, 4SC assumes that these funds suffice to finance the Company's activities up until the end of 2015. According to the current planning, research and development costs for 2014 are much lower than in the previous year, the launch of additional clinical trials not included. The consolidated net loss for 2014 should improve further year-on-year due to cost reductions and the expected contributions by 4SC Discovery's positive activities to earnings. This estimate is based on the assumption that the average monthly operating cash burn rate in 2014 will be reduced significantly to around EUR 0.40 million and that the Company's research and development programmes and existing partnerships will continue to run according to plan.
In the event of funding being secured and the start of further clinical trials - particularly the planned Phase II liver cancer study with resminostat - the Company's cost structure will change markedly, with significant rises in both development expenses and the cash burn rate.
Given its positive business development to date, 4SC Discovery GmbH could achieve at least break-even for operating cash flow in 2014.
Cautionary statement regarding forward-looking statements
This press release contains certain forward-looking statements. Any forward-looking statement applies only on the date of this press release. By their nature, forward-looking statements are subject to a number of known and unknown risks and uncertainties that may or may not occur in the future and as a result of which the actual results and performance may differ substantially from the expected future results or performance expressed or implied in the forward looking statements. No warranties or representations are made as to the accuracy, achievement or reasonableness of such statements, estimates or projections, and 4SC AG has no obligation to update any such information or to correct any inaccuracies herein or omission herefrom which may become apparent.
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