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Small cap respiratory drug developer Synairgen [LON:SNG] has reported positive results from its phase II clinical trial of inhaled SNG001 in Sars-CoV-2 infected patients. Shares nevertheless took a tumble after the announcement on 30 April, falling more than 25% from 150.66p down to 111.90p on 4 May.

Shares had been trading down, giving a return of -26.56% year to date. Over 12-months, the return is 59%, though this includes a 420% surge in share price in July last year, from 36.28p on 17 July 2020 to 188.87p three days later on 30 July, after Synairgen announced positive results from a clinical trial of SNG001 in hospitalised Covid-19 patients.

Synairgen’s COVID treatment IS working

The phase II clinical trial results may have failed to impress investors, but they did indicate the potential efficacy of its inhaled interferon-beta treatment in those with severe illness, demonstrating a reduction in the rate of hospitalisation in Covid-19 patients. Analysis of the combined data from the hospital and home cohorts showed that the more breathless patients are three times more likely to recover on inhaled SNG001 than placebo, in both home and hospital settings.

Tom Wilkinson, Professor of Respiratory Medicine at the University of Southampton, described the trial as “very successful”, adding that “although the vast majority of non-hospitalised patients had very mild symptoms, the effects of SNG001 on the small group of markedly and severely breathless patients indicated who might be benefiting most from SNG001.”

The vast majority of patients only had mild Covid symptoms, with two (3%) hospitalised during the treatment period, both on placebo. This limited the potential of assessing treatment effects in this cohort, as the prevention of severe lower respiratory tract illness could not be determined. However, the trial results were encouraging and reinforced confidence that the international phase III study of hospitalised patients requiring supplemental oxygen is on track to deliver positive results later this year.

Listen: Podcast with Ailsa Craig of the International Biotechnology Trust

Investors are biding their time, awaiting phase III outcome

A key feature of SNG001 is that it can be self-administered at home, bringing a number of benefits. Patients are more likely to self-administer at an earlier point in the course of the illness, potentially preventing a more serious progression of the virus into the lower respiratory tract. And as a face-to-face meeting with a health care professional is not required, SNG001 can minimise the risk of onward infection, lower the burden on healthcare systems and reduce the need for economically costly lockdowns.

Though the trial results were encouraging, it seems investors are biding their time, perhaps waiting for the outcome of the phase III clinical trial later this year. A further consideration is that commercialisation is some way off, as the findings must first be submitted for peer review.

Positive results from the phase III trial (SG018) could be a game changer. With a positive result, broker finnCap is expecting “significant revenues to accrue from government orders in 2021/22”, as the clinical need for a targeted broad-spectrum anti-viral treatment for hospitalised Covid-19 patients remains significant, both domestically and globally. FinnCap is holding its share price target of 505p, while waiting for the read-out from the phase III trial.

Synairgen is currently unprofitable, and reliant on revenues raised from issuing shares to cover operational costs, which dilutes shareholdings. More reassuring is that the company has been debt free for five years, and its assets more than cover its short- and long-term liabilities, indicating a stable and experienced management team.

Demand for coronavirus treatments will remain strong, as the continuing waves of infections around the world indicate. Over the past week, Synairgen’s shares have continued to slide and are now looking quite cheap at 109.47p as trading opened this morning (10 May). Watch out for those trial III results later this year, as the shares could yet reach finnCap’s 505p price target.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

James Norris

James Norris

James is a highly experienced writer and editor, gained from more than 20 years in the financial services industry, in particular wealth management and asset management.

He initially worked as a financial journalist for a number of leading media brands, including the FT Group, Financial News, Euromoney and Incisive Media, covering most aspects of the asset management industry. More recently, James switched to work as an in-house content specialist for fund management and wealth management groups, including JP Morgan Asset Management, Quilter Cheviot Investment Management, AXA Investment Managers and Invesco Perpetual.

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