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Will increased R&D spending pay off for the Synairgen share price?

Close-up of a petri dish used in biotechnology and drug discovery

Drug development and discovery company Synairgen (SNG) is expected to report a substantial decline in full-year 2021 profits, due to the halting of its Covid-19 treatment.

According to consensus estimates from analysts polled by MarketScreener, the company is expected to post an operating loss of £46.4m, compared with a £17.5m loss in the previous year, when it releases annual results on 25 May. Net income is also forecast to decline 165% year-on-year to a loss of £46.9m, down from a £13.9m loss in 2020, as a result of rising R&D and manufacturing costs.

The group, which spun out of the University of Southampton in 2003, has faced a difficult year so far, after trials were halted for its SNG001 respiratory drug. The news rocked investor confidence, sending the Synairgen share price crashing 84.1% on 21 February.

Covid-19 drug: a catalyst for the Synairgen stock

Synairgen had seen increased investor interest after it announced that it was developing an inhaled drug, SNG001, to treat lower respiratory tract illnesses caused by viruses including SARS, MERS and Covid-19.

As biotech firms raced to develop Covid-19 treatments and vaccines, Synairgen’s share price soared 1,138.5% from 11 March through to 11 October 2020, on the back of promising results from its phase two trials, which showed that the drug cut the chances of people developing severe Covid-19 by around 80%.

The Synairgen stock has been more volatile since, however, as confidence in whether SNG001 was an effective solution began to waver.

However, the biggest blow to Synairgen’s stock came in February 2022, when the group revealed disappointing results from its phase three trials. The study found that patients who received SNG001 were no more likely to be discharged from hospital than patients who received a placebo.

Its share price collapsed from 171p at the close on 17 February to just 11.12p when markets opened the next day following the news that its SNG001 trials in the US had been halted. The company stated that the study will require modification due to a “significant shift in the nature of the pandemic”. Nevertheless, the company had noted from the trial an encouraging reduction in the relative risk of progression to severe disease or death within 35 days.

R&D spending scaled up in H1

In its half-year results, announced in September 2021, Synairgen posted a loss before tax of £38.9m, down from a £5.1m loss in the same period in 2020. R&D spending came to £36.9m, a considerable increase on the £4.5m spent in 2020, as it advanced its phase three trial and “scaled up its manufacturing activities”.

While the stock fell 7.9% on the day of the announcement, CEO Richard Marsden remained confident on the company’s outlook and the importance of its SNG001 drug.

“The need for an effective, broad-spectrum antiviral to treat patients hospitalised due to Covid-19 remains urgent,” he said, explaining that a medication to treat acute symptoms is still necessary despite the development of effective vaccines. “This, coupled with the potential of waning immunity and the emergence of new SARS-CoV-2 variants, highlights the urgent need for additional effective antiviral therapies,” he added.

Where next for the Synairgen stock?

According to MarketScreener, only one analyst has a ‘buy’ rating on Synairgen and a target price of 220p, representing an 87% upside on the 19 May closing price.

It is understandable why brokers haven’t been lining up to give their forecasts on a stock so dependent on trial results and yet to generate much in terms of revenue. The Synairgen stock price has already shown its vulnerability to headwinds in the trial process. Even if the drug was proven to be successful, further delays could be created as it seeks to gain regulatory approval.

Looking ahead, there could be some good news for investors if the trials can resume. On 16 May, Synairgen revealed the full set of results from its phase three trial, which showed stronger treatment effects in high-risk patient sub-groups such as those with comorbidities. The company’s chief scientific officer, Phillip Monk, maintained that there is “strong clinical rationale” to continue research.

Synairgen shares lifted 27.8% on the day of the announcement. Though it has since fallen, this momentum suggests that positive full-year results could help the stock reverse some of its losses.

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