4SC significantly improves operating result in first quarter of 2013 and resolves to focus its development strategy

(PresseBox) ( Planegg-Martinsried, Germany, )
- Revenue more than doubled
- Operating expenses further reduced
- First positive quarterly cash flow from operations
- Decision made to focus development strategy on enhancing value and optimising costs

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 quarter of 2013 (31 March 2013).

In the reporting period, the Company was able to more than double its revenue, make further significant reductions to its operating expenses and - in posting its first positive cash flow from operations - markedly improve its earnings. In the first quarter of 2013, 4SC reduced its operating loss by 28% year on year to EUR 2,738 thousand. Compared to the prior-year period, consolidated revenue doubled to EUR 792 thousand. Although begun only last year, the early-stage research marketing business conducted by Group subsidiary 4SC Discovery GmbH was the main source of revenue. The recent year-on-year decline in operating expenses by 16% to EUR 3,532 thousand is primarily attributable to reductions in research and development costs following the successful conclusion of a number of clinical trials.

As at 31 March 2013, the Company thus had funds totalling EUR 12,243 thousand, compared with EUR 12,064 thousand at the end of 2012. This resulted in an average monthly inflow of cash from operations amounting to EUR 60 thousand in the first quarter of 2013. The existing funds in connection with the current forecast of further expense and revenue planning will ensure the Company's financing into the third quarter of 2014.

Focus on the development strategy based on value creation and cost optimisation

The obvious successes and positive progress made by the Company will now be reinforced by a clear focus on development strategy and the Company's resources. To achieve this goal, the Management Board has resolved to amend the development strategy and introduced further measures for cost control.

Resminostat, the Company's lead compound for cancer medicine, remains 4SC's most important development project. Motivated by the progress made by the Company's Japanese partner Yakult Honsha Co., Ltd., recent market developments and the results of clinical trials, as well as by the feedback from potential cooperation partners and regulatory authorities, it was decided that after successfully obtaining proof of concept in second-line therapy resminostat will be developed further as a first-line drug. In comparison to a second-line strategy, the first-line option addresses a significantly larger market. This approach also enables 4SC to reach the next milestones in the clinical development value chain in a comparatively quick and cost-effective manner. The further development steps in such a strategy could be implemented in conjunction with partners, but also largely without partners, which would significantly increase resminostat's potential value for 4SC. All development scenarios that potentially promise success are currently being reviewed in this context.

The rest of 4SC's product portfolio will also be reprioritised. The planned measures include a precise analysis of the future opportunities and value potential of each individual compound in the Company's pipeline, plus a corresponding focus of the development programme. Any funds freed up will be principally used for the compounds with the largest revenue potential. For example, 4SC will discontinue its independent development of the 4SC-203 and 4SC-207 programmes as well as two projects in early research stages. Since personnel and financial resources have been allocated preferentially to the development of resminostat, no further steps will be taken in developing the compound vidofludimus in the field of autoimmune diseases without financing from external sources. Alongside the ongoing partnering process, more talks will therefore be conducted with financial investors and project backers to carry out the further clinical development in the indication of Crohn's disease.

The realignment of the development strategy as well as the new priorities in the product portfolio will have additional effects on 4SC's overall cost structures. 4SC is aiming to further reduce its costs and focus its financial resources more efficiently on the value drivers in the Company so as to obtain the greatest possible flexibility for the continued development of the Company oriented on value creation.

Operational highlights of the 4SC Group in the first quarter

- Key patent protection is granted for resminostat in Europe:

This means that resminostat is now protected in the world's key pharma markets, including China, India, Japan, Russia, South Korea and the USA.

- 4SC Discovery GmbH agrees strategic cancer therapy partnership:

In its work for the Mainz-based biopharmaceutical company BioNTech AG, 4SC's subsidiary will be identifying and optimising new small molecule anti-cancer drugs for defined therapeutic targets. The collaboration initially has a three-year team.

- 4SC Discovery GmbH enters into exclusive research and license agreement with LEO Pharma A/S, Denmark:

Work in the partnership will focus on developing a new treatment for psoriasis. 4SC Discovery received an upfront payment of EUR 1 million in the first quarter of 2013 and will receive payments for funding further research work as well as potential future milestone payments of up to EUR 95 million plus royalties.

- Chief Financial Officer Enno Spillner becomes the new CEO:

Dr Ulrich Dauer steps down as a member of the Management Board and Chief Executive Officer of 4SC AG effective 31 March 2013 for personal reasons. Chief Financial Officer Enno Spillner is appointed the new CEO.

Enno Spillner, the new CEO of 4SC AG, comments:

'4SC can look back on a successful first quarter in which we recorded the first positive cash flow from operations in the history of our company and achieved further important milestones in our clinical research and development activities. Together with my Management Board colleagues, I will be basing my guidance of our company on 4SC's proven business model and its documented successes. However, in the coming weeks we will be making major adjustments to the Company and focusing all our activities and resources even more squarely on harnessing our existing potential for value enhancement in specific ways. Together with my Management Board colleagues, I look forward to steering 4SC through this important phase in the development of our Company. On the whole, we believe 4SC to be well positioned for 2013 and beyond - not only on account of our promising clinical development programmes and the huge potential for our main value driver resminostat in the first-line treatment of liver cancer but also because of the expertise in early-stage research consolidated within 4SC Discovery GmbH and our recent decision to focus on creating value and optimising costs.'

Financial results in the first quarter 2013

The 4SC Group, comprising 4SC AG and its wholly-owned subsidiary 4SC Discovery GmbH, reports consolidated figures for the first quarter of 2013 from two operating segments in accordance with International Financial Reporting Standards (IFRS). In the first quarter of 2013, the Development segment comprised the drug development programmes for resminostat, vidofludimus, 4SC-202, 4SC-203, 4SC-205 and 4SC-207. The Discovery & Collaborative Business segment comprises the activities involved in drug discovery and early-stage research plus subsequent commercialisation, and, in particular, collaborative business related to drug discovery and optimisation.

Consolidated revenue was EUR 792 thousand in the first quarter of 2013, more than double the figure in the comparative period in 2012 (Q1 2012: EUR 365 thousand). This positive development was mainly attributable to the cooperation agreements signed with BioNTech AG, Mainz, and Leo Pharma A/S, Denmark, in December 2012 and February 2013. Revenue in the Development segment remained almost constant at EUR 227 thousand (Q1 2012: EUR 223 thousand), while the Discovery & Collaborative Business segment's revenue quadrupled to EUR 565 thousand (Q1 2012: EUR 142 thousand). Operating expenses stood at EUR 3,532 thousand in the first quarter of 2013, a decrease of 16% on the prior-year figure of EUR 4,188 thousand. Development costs incurred as a result of ongoing clinical studies continued to make up the majority of expenses. Research and development costs declined by 31% year-on-year to EUR 2,014 thousand (Q1 2012: EUR 2,919 thousand) on account of the reduced clinical study activities and the implementation of targeted cost-cutting measures.

The Company's loss from operating activities decreased by 28% on the back of higher revenue and lower operating expenses. The operating loss posted for the first three months of 2013 amounted to EUR 2,738 thousand (Q1 2012: EUR 3,822 thousand). The net loss for the period also improved by 28% year-on-year to EUR 2,678 thousand (Q1 2012: EUR 3,697 thousand). The decrease in the loss for the period along with a simultaneous increase in the underlying average number of shares (resulting from the capital increase performed in July 2012) cut the loss per share almost in half, from EUR 0.09 in the first quarter of 2012 to EUR 0.05 in the quarter under review.

Cash flows in the first quarter of 2013

Cash flows from operating activities in the first quarter of 2013 were influenced most by the Group's income from the license agreement entered into with BioNTech AG in December 2012 and from the license agreement signed with LEO Pharma A/S, Denmark, in February 2013. In the first quarter of 2013, 4SC thus generated a positive quarterly cash flow from operating activities (EUR 180 thousand) for the first time in the Company's history. In the comparative 2012 period, cash outflows from operating activities amounted to EUR 3,838 thousand. As at 31 March 2013, the Company had cash and available-for-sale securities totalling EUR 12,243 thousand, compared with EUR 12,064 thousand at the end of 2012. This resulted in an average monthly inflow of cash from operations amounting to EUR 60 thousand in the first quarter of 2013.

Notwithstanding its successful commercial and financial development, the Company was required to report a loss for the Group company 4SC AG amounting to half of its share capital in March 2013, in accordance with German Commercial Code accounting standards and section 92 (1) of the German Stock Corporation Act (AktG). This was largely due to the losses incurred as planned under 4SC's business model and thus has no material effect whatsoever on the Company's business operations. As required by law, this matter was discussed in detail at the Annual General Meeting on 2 May 2013.

4SC Group outlook: Further developments in company strategy and operations

Later on in 2013, 4SC expects to release data from several clinical trials, including the Phase I trials with the anti-cancer agents 4SC-202 and 4SC-205. Following the publication of the positive clinical data on overall survival for resminostat from the Phase II SHELTER trial in the advanced liver cancer (HCC) indication in 2012, the Company also plans to publish the additionally evaluated data from this trial, including the data from the extensive biomarker analyses, in 2013.

4SC is also planning the next value-creating milestones in the development of resminostat for the liver cancer (HCC) indication.

In its review of the development strategy and the entire development portfolio, the Management Board of 4SC AG decided at the beginning of May 2013, in agreement with the Supervisory Board, to henceforth focus on the refinement of resminostat as a first-line drug for treatment of HCC. By conducting further clinical trials - with support from partners if required - the Company hopes to obtain approval in first-line therapy for liver cancer, applied in combination with the cancer drug sorafenib.

Ultimately, this first-line strategy should - in contrast to the second-line strategy previously favoured by the Company - enable the compound to address a far larger patient population, thus offering a greater overall market potential for HCC treatment with resminostat. With the first-line strategy, the next important clinical step towards value creation could foreseeably be achieved earlier and more cost-effectively than with a Phase III registration trial, which would be immediately scheduled in the second-line strategy. And finally, 4SC is thus harmonising its development strategy with the preferred first-line strategy of its Japanese development partner Yakult Honsha Co., Ltd., which will allow for a higher degree of mutual support.

This focus is based on the positive Phase II trial data achieved with resminostat in combination therapy with sorafenib and builds on both the promising efficacy and good tolerability of the new therapeutic approach. Other factors influencing this decision were talks with potential partners and regulatory agencies - particularly the US FDA's preference for the development of resminostat in combination with sorafenib as a new first-line therapy option - as well as recent developments in the market.

4SC will finalise its clinical development plan for first-line therapy and then discuss this further with potential partners and regulatory authorities.

With regard to the ongoing Phase I/II SHORE trial, in which resminostat is being tested in combination with the FOLFIRI chemotherapy in the colon cancer indication, the complete data from the Phase I part of the trial will be ready for publication shortly. Assuming a timely start to the Phase II part of the trial, the Management Board currently estimates that data on clinical efficacy could be available in 12 to 18 months.

For vidofludimus, the Company's lead compound for autoimmune diseases, activities are focusing on the search for suitable partners with whose support the Company plans to conduct a Phase IIb trial in the Morbus Crohn indication. However, given the new focus for vidofludimus resolved at the beginning of May 2013, 4SC will not take any further steps to develop this compound without receiving additional financing from external sources. In this connection, in addition to the ongoing partnering talks with pharmaceutical and biotechnology companies, the Company has also now initiated talks with project and financial investors to accelerate this substance's development.

4SC is testing two other anti-cancer compounds, 4SC-202 and 4SC-205, in ongoing Phase I clinical trials. The Company assumes that it will be in a position to publish the results of the Phase I TOPAS dose escalation study with the epigenetic compound 4SC-202 in patients with advanced haematological tumours in the second half of 2013. Data from the Phase I AEGIS trial with the compound 4SC-205 in patients with solid masses - a trial that was extended in December 2012 to include the testing of an innovative dosage regime following positive study results - are scheduled to be published by mid-year 2013.

Overall, 4SC aims to secure further licensing deals with companies from the pharma and biotech sectors to ensure the advancement of its clinical development programmes. This is intended to generate a flow of funds, safeguard the products' further development and enable 4SC to participate in the substances' successful future development.

Following initial successes, the Group's subsidiary 4SC Discovery GmbH is currently focusing its efforts on securing further research collaborations with companies in the pharmaceutical and biotech sectors. 4SC Discovery GmbH is also planning further early-stage partnering deals for the development and commercialisation of its own research programmes.

Financial forecast

The 4SC Group had funds of EUR 12,243 thousand at the end of the first quarter of 2013. These existing funds in connection with the current forecast of further expense and revenue planning will ensure the Company's 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 run according to plan.

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 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.

As a consequence of the decisions it took at the beginning of May 2013 in relation to streamlining its product portfolio regarding the substances 4SC-203 and 4SC-207 plus two early research programmes, the Company expects to incur non-cash extraordinary expenses of around EUR 850 thousand in the second quarter of 2013 that will put additional pressure on consolidated profit/loss.

In the context of the focus decided by the Company, the Management Board will subsequently continue to review 4SC's cost structures with the aim of further reducing costs and focusing the Company's financial resources more efficiently on the value drivers so as to obtain the greatest possible flexibility for the continued development of the Company focusing on value creation.

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

The complete Group financial report on the first quarter of 2013 will be available for download at www.4sc.de/investors today from 7:30 am CEDT.

Telephone conference

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

Date: 14 May 2013
Time: 3:00 pm CEST (9:00 am EDT)
Dial-in numbers:
+49-6958-999-0805 (Germany)
+44-207-153-2027 (UK)
+1-480-629-9726 (USA)
+49-6958-999-0805 (other countries)
Conference ID: 4618702

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

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