Drug development is rightly seen as a high-risk investment area, but Sinclair Pharma is less speculative than many of its peers.
Drug development can deliver big rewards for investors. If you had bought shares in Glaxo, now part of GlaxoSmithKline
(LSE: GSK)
, thirty years ago, your shares would have risen 59 times in value over that period. And that's excluding dividends!
Trouble is, many promising medicines fail to reach the market, so investing in small drugs companies is a risky game.
Sinclair Pharma
(LSE: SPH)
is definitely on the small side, but it's relatively low risk. The risk is lower because Sinclair doesn't follow the conventional route of taking a drug through from early development work in a lab to market launch.
Instead the company focuses on picking up products that have already entered late-stage trials in humans but have been slowed down by some regulatory snag. Sinclair then uses its expertise to win final approval for a drug.
The company has had some success following this strategy, and, crucially, that success is now beginning to show up in the numbers. In a recent trading statement, Sinclair said it expected revenue for the year to June 2006 to come in at £11.6m, up 65% from the previous year.
Granted, that's not a massive sum for a £114m company (120p share price), but analysts expect Sinclair to move into the black in 2007 with plenty of growth to come after that. Indeed, Equity Development (ED), a research house, reckons earnings per share could reach 14.2p by 2009.
Of course, that begs the question: is ED's forecast realistic?
Well, bear in mind that Sinclair has paid ED to write the research. But I think there's a decent chance that Sinclair will deliver nonetheless -- as it has several products with significant potential. Especially these two:
Decapinol
Decapinol is an oral rinse for the treatment of gingivitis, also known as gum disease. Many current treatments are antiseptics and can thus trigger secondary mouth infections such as thrush. They may also stain teeth. Decapinol works in a different way and clinical trials show the product is effective, doesn't stain teeth and isn't washed away by water.
What's more, medical giant, Johnson & Johnson acquired US licensing rights for the product in a recent five-year deal. There's lots of potential here, 80% of the US adult population is estimated to have some degree of gum inflammation.
Crucially, Decapinol could also be marketed in other formulations -- a toothpaste is one example -- and Sinclair hasn't yet out-licensed the US rights for these different versions.
Decapinol is already on sale in some European countries and a US launch will probably happen within the next 12 months.
Atopiclair
This is a cream for eczema that is already available in the US. It's a non-steroidal cream which means it doesn't thin the skin -- a significant advantage over most current treatments
Atopiclair has been launched in the US with a marketing partner, and Sinclair is doing all the marketing on its own in Italy. That's a first for the company as it's always signed up with marketing partners in the past.
What else?
Sinclair has a range of other products on the market and in development. You can find out more about them here.
Sure, there's a serious risk that Decapinol and other products won't perform as well as I hope. But Sinclair is definitely less speculative than cutting-edge biotechs like Oxford Biomedica
(LSE: OXB)
or Antisoma
(LSE: ASM)
, and there's a decent chance you could make a nice profit in the end.
More: A Tempting Biotech
