The Synairgen (SNG) share price tanks 20% on earnings. What happened?

The Synairgen (LON:SNG) share price dropped by double-digits, despite the firm making key progress in clinical trials. Is this a buying opportunity?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Synairgen (LSE:SNG) share price took quite a hit last week following its latest earnings report. The stock is down around 21% since last Thursday. And this recent decline has pushed its 12-month performance to a disappointing -17% return. Is this business in trouble? Or is this volatility an opportunity to grab some shares at a discount? Let’s take a closer look.

The progress continues

Despite what the SNG share price would suggest, Synairgen has actually achieved some promising milestones. Its flagship drug SNG001 is currently undergoing phase three trials. And the last patient is on track to be enrolled by the end of November.

As a reminder, SNG001 is an inhaled interferon beta formulation to treat severe respiratory diseases. That’s a fancy way of saying, patients aren’t injected but rather breathe the drug directly into their lungs. The company is currently running trials to verify its effectiveness against severe cases of Covid-19.

Early lab results released back in May showed the treatment successfully eliminated the virus to undetectable levels. And if a similar outcome can be replicated in the upcoming phase three trials, Synairgen might soon shed its pre-revenue status. The next set of results for SNG001 are expected to arrive within the next few months. In the meantime, the firm has already begun exploring its effectiveness on other Covid-19 variants. And recruitment for its phase two trial of home treatment has just finished recruiting.

Needless to say, this is quite an encouraging amount of progress over the last six months. So why did the share price fall on the news?

The Synairgen SNG share price has its risks

The crashing share price

Drug development is a very expensive endeavour, with no guarantee of results. Now that SNG001 is entering phase three trials, the costs are ramping up. Consequently, research & development expenses have exploded over the last six months from £4.5m in 2020 to £36.9m in 2021. And with more staff on the payroll, administrative costs have more than doubled.

In my experience, seeing a high ramp-up of costs when entering phase three trials is not uncommon. The study is estimated to have a total of 610 patients in 99 different hospitals around the world. And hospital fees for running clinical trials are high.

Consequently, ignoring the effects of taxes, the firm reported a loss of £38.9m. That’s more than 600% larger than a year ago. So I can see why some investors were spooked, triggering the fall of the SNG share price.

The bottom line

The spike in costs ultimately doesn’t concern me as much as it does the market. After all, Synairgen still has £46.2m of cash on its balance sheet, which is a decent liquidity level. However, given the amount of capital being sunk into this single product, it does mean the SNG share price is exposed to a single-asset risk.

Suppose these trials don’t produce positive results? In that case, the SNG share price could be on the verge of collapsing even further. Personally, this binary outcome doesn’t tempt me. Therefore, I’m still keeping Synairgen on my watchlist for now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »