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Synairgen plc: THE INVESTMENT CASE

Synairgen primed for a successful year

Chairman Simon Shaw said: "Synairgen ended 2017 in a strong position"
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INVESTMENT OVERVIEW: SNG The Big Picture
The company is a respiratory specialist; its most advanced drug is being developed to help sufferers of chronic obstructive pulmonary disease or COPD

Synairgen plc (LON:SNG), a developer of respiratory drugs, has all the building blocks for another successful year.

Key going forward will be the company’s collaboration with Pharmaxis developing Lysyl Oxidase type 2 (LOXL2) inhibitor PXS-5382 to treat lung and liver fibrosis, which has entered phase I clinical trials.

READ: Synairgen says first phase II clinical trial patients have been dosed

Late last year, the two re-cast their agreement with Synairgen receiving £5mln and the promise of 17% share of any future partnership deal Pharmaxis is able to negotiate.

Analysts at small-cap boutique broker finnCap reckon the cash proceeds from this deal will provide Synairgen with the financial wherewithal to fund a phase IIa clinical study of another drug candidate, SNG001.

Having taken back the full control of its inhaled interferon beta programme from AstraZeneca, the company is assessing SNG001’s potential use in patients with chronic obstructive pulmonary disease (COPD) who are suffering illnesses such flu or the common cold.

Antiviral defence

Pre-clinical work has suggested the drug may orchestrate an antiviral defence against these common ailments, protecting sufferers.

The first trial patients were dosed last month.

The inflow of cash from the Pharmaxis collaboration has put Synairgen on a sound financial footing.

Revenues for the 12 months to December 31 were £5.03mln, giving a profit from operations of £1.62mln.

Research and development costs were just over £2mln, down around £400,000 on the year-earlier.

Sound financial footing 

More importantly for a drug developer funding a clinical trial, the company was sitting on £6.85mln at the end of last year.

Chairman Simon Shaw said: "Synairgen ended 2017 in a strong position.

“The developments with our inhaled interferon beta asset and Pharmaxis agreement demonstrate Synairgen's commitment to innovative development programmes and the value we can bring to collaborative projects.

“We are well set to pursue interferon beta in COPD and add to our pipeline in the coming period."

Does current share price undervalue the company's potential?

The shares, up 60% in the year to date, nudged ahead a further 1.8% to 14p, valuing the business at just over £20mln.

Broker finnCap reckons the stock is worth 35p based on a discounted cash flow (DCF) valuation that that puts 17p and 18p a share price tags on, respectively, SNG001 and LOXL2.

“The slightly higher-than-expected year-end cash of £6.8m provides an ample cash runway through 2019,” added analyst Mark Brewer.

His risk-adjust DCF valuation will rise to £41mln, or 45p a share following the successful completion of a pilot safety study of SNG001.

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