(MENAFN- ProactiveInvestors - UK) If the market worked as perfectly as its more rabid advocates insist we wouldn't have attractive anomalies such as Synairgen plc (LON:SNG).
Its shares are trading at a fraction of what would be considered fair market price - particularly for a company sitting on a potential blockbuster drug.
The respiratory specialist has also succeeded where many of its peers have failed in convincing one of the giants of the pharma world to fund the ongoing development of its lead product.
The deal is worth just shy of quarter of a billion dollars.
So why you wonder is the stock changing hands for 24.5p giving Synairgen a market worth of just 22.5mln?
That's a complicated question and a problem linked more to the liquidity of the shares than the company's fundamentals.
Small-cap specialist finnCap recently looked at Synairgen and came up with a valuation based on a discounted cash flow model of 137p.
Not quite a ten bagger but getting there.
Anyway parking the hyperbole for a moment it is worth looking at just whether the figures stack up.
The company's flagship product is AZD9412 (inhaled interferon beta) a treatment for patients with severe asthma which Synairgen successfully nurtured through phase IIa trials before handing it over to AstraZeneca (AZ).
In all that deal is worth 158mln (US$225mln) in staged payments plus royalties.
Currently AZ is repeating the phase IIa trial to see if it gets the same results as Synairgen in the difficult-to-treat group of sufferers.
There are reasons why even at this early-to-intermediate stage of clinical trial process AZD9412 is less risky than some other compounds negotiating the same route.
It is repurposed interferon beta taken by multiple-sclerosis sufferers by injection so the safety profile in blood is already well known.
Synairgen's inhaled version of the drug has been well tolerated by asthmatic patients when given by the inhaled route in Synairgen's clinical trials in other words it seems unlikely that this drug will fall over in development because of some as yet unknown safety concern.
'Already lots of reasons why the drug can fail are off the table' chief executive Richard Marsden told Proactive Investors. 'The thing we are focused on is the results of the next trial'
The read-out from the AZ clinical trial is expected sometime in the first half of next year.
If positive the results of this study will provide a major catalyst for the currently lacklustre share price which has traced its way down from 40p.
The next staged payment from AZ an estimated 7mln (US$10mln) will come once the phase IIb study gets underway. The drug is expected to make it to market in the early 2020s.
The company meanwhile isn't short of a bob or two. The last results showed it had around 7.7mln in the bank enough for over three years at the current burn rate.
And rather refreshingly for a man working in the cash-hungry drug development industry CEO Marsden said Synairgen has enough funds to meet its current needs.
'We are going flat out. More money wouldn't make us go faster' he added.
The company has worked hard to get to its secondary objective after landing the AZ deal and that was to bring in another drug candidate to the pipeline.
It has done this by partnering with Australian company Pharmaxis to develop drugs aimed at a fatal lung disease called idiopathic pulmonary fibrosis (IPF) and importantly with potentially broader applications in other forms of fibrosis.
The putative treatment works by inhibiting an enzyme called LOXL 2 which is implicated in fibrosis not just in the lungs but also the liver and kidney.
Synairgen can earn 50% of the LOXL2 inhibitor product for IPF and a smaller amount from other indications.
It will do this by matching the amount spent by Pharmaxis to get it to this stage of development.
Practically this will mean funding the LOXL2 enzyme inhibitor programme right the way through to the end of a phase I clinical trial.
At the end of the process (and assuming a successful outcome) it will look to out-license the product if the right deal can be found. Otherwise the partners will take the drug on through phase II.
The deals in this area of medicine are mind-bogglingly large.
US giant Gilead splashed out US$225mln for Arresto Biosciences which has a phase I fibrosis drug and is paying US$400mln for Nimbus Therapeutics (plus US$800mln in development-related milestones).
The Nimbus treatment also in phase I and is targeted at NASH a liver disease that can lead to fibrosis.
Bristol Myers Squibb last year upped the ante to US$1.25bn in staged payments for a phase II treatment while Roche broke the bank with an US$8bn deal.
Okay the Swiss giant's swoop for Intermune wasn't just predicated on one drug.
However analysts said pirfenidone which has been approved for IPF was certainly Intermune's most attractive asset.
'Big pharma companies are clamouring for these anti-fibrosis opportunities at the moment' said Marsden.
All of this forgets Synairgen's Biobank created by the firm's founders and which provides tissues for a multitude of different respiratory ailments and diseases.
Having this sort of material on hand allows its researchers to assess more accurately the potential of a drug than they might using animal models or laboratory created cell lines.
So back to that valuation. Neil Woodford Lansdowne Partners and Richard Griffiths are known to be particularly savvy investors.
Each has a fairly significant stake in Synairgen which suggests the wider market is missing a trick.
'I am delighted to have some great blue chip investors on board. They are supportive enthusiastic and right to be expecting a lot' said Marsden.
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