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In the drug development world a great idea is nothing without the cash to get it out of a lab and onto a pharmacy’s shelves. This is the biggest issue investors need to consider when supporting a small pharmaceutical business that is developing what it believes will be the world’s next wonder-drug.
Respiratory drug developer Synairgen (SNG:AIM) is one such company that is trying to get its drug to market despite its having modest resources by the drug industry’s standards.
The UK pharmaceutical and biotech markets are dominated by smaller players. Indeed, only three such companies are members of the FTSE 100, the club of the largest businesses listed in London. This means there are up to 50 public businesses that do not have the infrastructure or the hundreds of millions of pounds that could be needed to develop a product and put it through the three-stage clinical trials process before it can be sold to hospitals or the public.
The tried-and-tested solution is to let one of the big boys take the strain. Several companies have sold the sales rights to the drug they have spent years developing to get to market, while retaining a small interest in the product that could generate millions of pounds in revenue.
Path to success
Synairgen is following this path. The loss-making £38.2 million cap was spun-out of Southampton University in 2003 to turn academic research into a commercial product. Its focus is treating asthma and chronic obstructive pulmonary disease (COPD), a coughing and breathlessness condition typically caused by smoking.
Synairgen’s lead product is SNG001, an inhaled interferon beta treatment for viral respiratory infections in people with severe asthma. The treatment corrects a deficiency which makes asthma suffers vulnerable to viral infections and has entered clinical trials, a three-stage process that seeks to prove that a treatment works and is safe. This process takes years and could involve thousands of sufferers before a regulatory body, such as the Food & Drug Administration (FDA) in the US, approves its sale.
In the summer Synairgen signed a global licensing agreement with UK drugs giant AstraZeneca (AZN) (12 Jun), making it responsible for funding SNG001’s development. The shares have since retreated as some of the initial excitement has waned and the group launched a £5.3 million placing (4 Jul).
AstraZenca stands to claim the majority of the products revenues and was interested in funding the treatment through to market due to it potentially offering ‘a step-change’ in treating severe asthma and possibly COPD.
It is a huge market. There are some 235 million asthma suffers globally, while NHS spends £1 billion a year treating asthmatics, according to charity Asthma UK.
Maintaining an interest
Synairgen may have sold the sales rights, but it has not ended its interest in its lead product. The company could still receive millions of pounds from the treatment, whether reaching the end user or not. Under the terms of the agreement AstraZenca paid Synairgen $7.2 million upfront. Further milestones totalling $225 million could be paid to Synairgen if development, regulatory and commercial milestones are achieved.
If the drug reaches market, Synairgen is set to receive tiered royalties ranging from single-digit up to mid-teens percentage of sales.
AstraZeneca’s next step is a Phase IIa study for SNG001 in those with severe asthma, building on the existing clinical trial data Synairgen collected. The treatment may not reach the market until the early 2020s, highlighting the financial burden that has passed to the £54.6 billion cap, considering that there is always a chance that clinical trials could prove the drug does not work or is unsafe.
Now that AstraZenca is taking the development and financial strain of getting regulators’ around the world to approve SNG001 for sale, Synairgen’s staff are not putting their feet waiting for the milestone payments and royalties flood in. It has several other opportunities that it is developing. Aiming to get the research to a stage to repeat SNG001’s success in attracting a larger player.
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At 42p Synairgen is the perfect example of how a small company can get their research into hospitals without huge capital outlays while retaining a financial interest.