January 13, 2021
Synairgen: Lung disease specialist with Promising Covid19 treatment

We still need treatments as well as vaccines….

Synairgen COVID treatment investment research Pynk community

Covid has been a tremendous global problem - both economically and healthwise - and one that has blighted our lives for longer than anyone predicted. I have personally been very pleased about the lightning speed of the Covid vaccine launches last year: their incredible safety profile and unarguable efficacy against Covid is a real-life testament to the power of capitalism in solving society’s biggest problems. Unfortunately, despite our early success in reducing Covid infection thanks to vaccines, the emergence of new and more infectious variants means we are again in the situation where Covid infections are beginning to rise, with the risk that Covid continues to blight our lives and impacts our economic prospects.

It is difficult not to feel that Covid is here to stay for now, and although the hope remains that the growing population of vaccinated people limits hospitalisation and death rates (at least in developed countries), we are still in the situation of needing new vaccine versions (to better protect against emerging covid variants) as well as more effective Covid treatments.

A Dearth of Effective COVID-19 Treatments

More was spent on vaccine development in 2020 than in all the past 30 years, with stunningly fast results (thanks in part to new technology and AI). However, it amazes me that we still haven’t developed many really effective Covid treatments. This is despite the huge global focus and the sheer cash that has been thrown at the COVID problem. Really some of the existing Covid drugs we have, such as Remdesivir and Dexamethasone, only show marginal effectiveness in reducing the severity of the disease among critically ill patients. Monoclonal antibody treatments are showing more efficacy but are hugely expensive and therefore not easily accessible. After all, if we could cut the rate at which the virus becomes life threatening with an effective and affordable treatment, this would go a long way towards keeping our hospitals and the World as a whole functioning normally.

Experts have warned that more must be done to develop effective treatments for Covid-19, amid mounting concern that the push for a vaccine has led to a global “deficit of high quality” medicines for the disease. Experts from Wellcome Trust and Unitaid agree that “what we really need are drugs for all stages of the disease.”

Dr Nick Cammack, head of the Wellcome Trust’s Covid-19 Therapeutic Accelerator project into promising therapies, said the World needed “drugs that will stop people having to go to hospital in the first place, drugs that will, if you’re in hospital, get you out quickly, or at the very least prevent you from progressing to critical care and intensive care units." He added that there needs to be more “global funding and the engagement of large and small companies” in this space, highlighting that £1.5bn has been pumped into the race for a vaccine, while only £232m has been invested in the research and development of treatments.

What we do need are other options. The pipeline today is bare. We’ve estimated that to provide treatments around the world, it will probably need $7bn (£5.4bn) - a huge number, I know, but compared with a probable $7 trillion (£5.4trn) economic hit, it’s minuscule. Dr Cammack, head of the Wellcome Trust’s Covid-19 Therapeutic Accelerator

Janet Ginnard, director of strategy at Unitaid, a global initiative that focuses on pandemics, said that medicines for treating Covid-19 would still be needed "even when we have a vaccine. Treatments and vaccines are complementary. We need both tools”, she said.

In the UK, NHS chiefs have acknowledged that, with the mass delivery of a vaccine still some way off, there is a need to “see better and more effective treatments for the virus as the pandemic continues and changes shape”.

Dr Layla McCay, director at the NHS Confederation, said: “As case numbers rise, and especially those requiring hospital care, new, specific treatments will be important to help to keep people out of hospital and to treat the virus at different stages.”

Within this context, we can clearly see that there is huge untapped demand for a more effective Covid treatment.  Today I’d like to tell you about a company called Synairgen who I believe has very exciting prospects thanks to their novel Covid treatment.  This smaller (£300 market cap) UK business seems to be one of only a handful of investable companies worldwide with a treatment that has been shown in trials to be protective against Covid complications. It has been a stock I have held for most of 2020 but interestingly, Razvan pointed out recently that it was amongst the top five stocks searched for on a popular share platform so I thought it might be of interest to some of you.

What I like about this situation is that their drug - Interferon B - is a long-established drug, therefore has a proven safety profile. Synairgen’s COVID innovation is mainly focused on the delivery of the drug in a new novel way (inhaled into the lungs). From an investment and risk standpoint, using existing drugs in new ways – technically known as repurposing drugs - is an attractive and quicker route to market as there already exists so much patient data, familiarity, and manufacturing capability.

I caution that Synairgen is a loss-making biotech company and therefore a higher risk binary type proposition, but the series of stunning trial results over the past six months means there is now more than an even chance of the company successfully bringing a treatment to market.

Synairgen equity research for Pynk Community stock details

Synairgen is engaged in the drug discovery and development of therapies for respiratory diseases, particularly in the areas, including severe asthma, chronic obstructive pulmonary disease (COPD) and idiopathic pulmonary fibrosis (IPF). More recently, they have conducted trials showing promising efficacy of their novel therapies for COVID-19 patients.

Synairgen equity research for Pynk Community Price chart

Source: Stockopedia
Past performance is not a true indicator of future results.

Investment Case

Synairgen, a respiratory drug development company, is a specialist in lung disease using Interferon, which is a long-established drug in this space. Interferon beta (IFN-β) is a cytokine protein involved in the body’s antiviral responses as part of the innate immune system. Coronaviruses, such as SARS-CoV-2, are thought to have mechanisms to suppress IFN-β production to evade the body’s immune system and a deficiency in IFN-β production by the lung may explain why certain patients develop severe lung diseases during infection.

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Reassuring Trial data, Timeline hastened by expedited FDA approval path

We have had a series of positive and increasingly reassuring trial results over the second half of 2020, all of which is supportive of Synairgen’s drug (SNG001) becoming a novel treatment for COVID-19.

July 2020: Synairgen announced Phase II trial results of SNG001 in COVID-19 hospitalised patients. The double-blind placebo-controlled trial recruited 101 patients from 9 specialist hospital sites in the UK. Patients treated with SNG001 had a 79% reduction in the odds of developing severe disease (e.g. requiring ventilation or resulting in death) during the treatment period, compared to patients who received placebo. Patients who received SNG001 were more than twice as likely to recover over the course of the treatment period compared to those receiving placebo.

September 2020: A fuller disclosure and analysis of the Phase II trial of inhaled interferon (SNG001) in hospitalised COVID-19 patients confirms the earlier optimism.

October 2020: A very encouraging peer review of Synairgen’s trial data in the Lancet, further confirming the company’s promising results

December 2020: Synairgen announces positive data from interim analysis of SNG001 trial in COPD patients. SNG001 was well tolerated in this older population with a significant comorbidity (COPD) and showed a strong interferon driven antiviral biomarker response. This positive data is obviously supportive of the SNG001 COVID-19 programme. Importantly, the company also announced that this further data was received favourably by the FDA who have now granted the drug ‘expedited approval status’.

Key Implications from the Trial Results

  • The fast-track designation by the US Food and Drug Administration (FDA) for the company’s Covid19 is hugely significant: not only does Fast Track FDA designation mean smaller/shorter/less costly trials needed before approval, but it also means higher likelihood of drug approval.
  • By removing the lower dose arm of the trial, “thereby reducing the number of patients required to complete the placebo-controlled trial from 900 patients to 610” and changing primary endpoints to ‘time to hospital discharge’ and ‘time to recovery’, Synairgen gets to complete its phase 3 trials more cheaply and quickly.
  • Company can initiate its smaller phase III trial in the US and dosing is at the same time expected to start imminently in the UK.
  • The data is being used to demonstrate efficacy and safety of the drug in patients with co-morbidities, a significant at-risk group in terms of Covid.
  • Outside of Covid treatment, the data published shows promising results for COPD. That in itself is hugely important as it’s an enormous addressable market.

Recent Results/Placing

In terms of the balance sheet, Synairgen is in good shape, having subsequently raised £80m earlier this year to find the buildout of its Covid business. Synairgen reported FY 2020 results in July that showed an adjusted net loss of £13.7m, with year-end cash of £75.0m, some £27m higher than analyst expectations. The company stated that the delta variant largely accounted for the delays in starting enrolment into the Phase III trial as well as the treatment of prepayments for drug substance and nebulisers. Near-term focus remains on the outcome of the Phase III study (SG018), and with the enrolment rate into this trial having accelerated after a slower than expected start due to regulatory approvals, top-line data is still expected to be presented during H2 2021. The US NIH-sponsored ACTIV-2 Phase II trial in outpatients is also expected to complete during this period, which should add to the evidence base for use of inhaled interferon in COVID-19 patients. The company will continue to invest material amounts of cash into supply chain activities in preparation for launch.

Manufacturing scale up and partnerships in place

Synairgen is already working on putting in place a much larger manufacturing capability. They are partnering with Florida-based Akron Biotechnology to access a second-source supplier for SNG001, in order to be able to fully meet expected clinical and commercial demand for the drug. Together with its current manufacturing partner, Rentschler Biopharma, the aim is to scale production of SNG001 from the current few thousand to c.100,000 treatments per month in 2021. Benchmarking against existing treatments implies potential best-case revenues of c.$300m per month at that level!

In addition, a device manufacturing partnership with Aerogen (Ireland) is in place to provide its Aerogen Solo and Aerogen Ultra aerosol delivery systems, to deliver SNG001 directly into patients’ lungs. This is a global business with the capacity to supply the necessary volume of devices with operations in the US, China, India and Germany.

Valuation Case

Despite the drip feed of excellent trial news over the last six months of 2020, the share price was absolutely decimated on the new vaccine approval news in November, the thinking being that we apparently no longer needed any treatments for Covid, thanks to vaccines.  The share price then partially recovered as the complete eradication of Covid proved to be too optimistic and has been broadly flat in recent months due to lack of news flow.

In terms of forecasts and valuation, obviously with such a large binary event as final trial results on the horizon, forecasts incorporate a probability of success  factor: analyst estimates now reflect the costs of the Phase III clinical trial, manufacturing scale-up activities as well as potential revenues. Despite these costs and the dilution from the recent placing, a sum of the parts analysis gives a target price (420p) far in excess of current levels, with the probability of SNG001 being commercialised for COVID-19 now seen as rising from 50% to 70% by market analysts.  With plans to scale manufacturing to c.100,000 treatment courses per month, Synairgen is clear in its ambitions. Based on pricing points for Rebif and Avonex and Gilead’s Remdesivir, future supplies suggest significant potential near term revenues all dependent on success at trial which would lead to a significant uplift in revenue estimates.

Reason to be Hopeful?

No one knows whether Synaigen’s phase 3 drug trial will be successful. However, I saw a surprising, very promising and unexpected tweet yesterday from a director of National Insitute of Health where he highlighted the potential importance of Inteferon B in severe Covid infection:

Synairgen equity research for Pynk Community CEO tweet

Risks

  • Synairgen is a higher risk investment in that it is loss making and has yet to commercialise its lead product
  • There can be no guarantee that Synairgen achieves the necessary approvals to commercialise SNG001
  • There may be further delays in the trial
  • Other better competing treatments may be launched
  • The phase 3 trials may show new adverse reactions or lack of effectiveness
  • Risk of Manufacturing and logistical difficulties
  • Company may need to fundraise if its COVID-19 treatment doesn’t become revenue generating in the expected timeframe

Conclusion

In conclusion, Synairgen is a higher risk investment given its early stage and loss making nature, but one with significant upside. With full trial data and peer review released last year, and an expedited FDA approval path now in place, we can be somewhat more confident of a commercial product launch. In addition, with product safety seemingly a non-issue and infections on the up all over the World, an effective therapy is needed more than ever and, better still, if it can be used both at hospital and at home before hospitalisation.

Even if Synairgen misses on Covid, it is worth remembering that their original disease focus (COPD) is a very large and attractive market to address. COPD  is potentially a far bigger non-Covid respiratory market for SNG001 than even Covid. The world has been waiting decades for a new effective drug to manage symptoms of COPD. Nevertheless, it is difficult to overstate the importance of the phase 3 Covid trial data in terms of Synairgen’s short term share price performance and these results should be announced over the next few months. Success in these trials immediately opens up the tremendous revenue potential of providing Covid treatments globally. Dramatic short term share price movements are therefore very likely on the back of this news.

Disclaimer: This information does not constitute any form of advice or recommendation by Pynk One Ltd. and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. When investing, your capital is at risk and you may recover less than the initial investment.

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Written by
Pouneh Bligaard
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