AIM-listed biotech firm Synairgen (LSE:SNG) has been on a rocket ride since markets crashed in March 2020. In fact, the share price is nearly 1,000% higher than it was at the beginning of January.
The real kicker came on 18 March. On this day, the FTSE 100, S&P 500, Dow Jones and practically every other world stock market index plummeted. But SNG shot up because of a release that detailed how the company’s wholly-owned SNG001 treatment would be trialled on coronavirus patients.
SNG001 is an inhaled version of the antiviral protein interferon-beta-1a. In its injectable form, under the brand name Avonex, the drug is produced by NASDAQ-listed Biogen and used to treat symptoms of multiple sclerosis. The Synairgen formulation is converted into a fine spray and delivered to the lungs in much the same way as asthma medication.
Covid-19 in 2020
Looking at a short-term chart of the Synairgen share price I can see very many peaks and troughs. This says to me that the market is unsure of its true fair value.
It’s only natural in the middle of a global pandemic for investors to consider buying companies with potential Covid-19 treatments.
The medical world is racing to find treatments and vaccines for the disease caused by the SARS-CoV-2 virus. Clearly there is a newly-urgent need to assess new treatments for the respiratory illness that can occur as a result.
But I would warn that such investments come with significant strings attached.
At a market cap of £75m Synairgen is about the smallest-sized company I’d be happy to trade shares in. At this level, liquidity is likely to be poor. This means there might not always be sellers available when you want to buy, or buyers when you want to sell.
The good, the bad, the ugly
The Synairgen board of directors is stacked full of pharma heavyweights. These include non-exec director Dr Bruce Campbell, a visiting professor in pharmacology at King’s College London, and chief scientific officer Dr Phillip Monk, a respiratory disease specialist.
I’ve written on other Covid-19 related companies recently, like Novacyt and Omega Diagnostics. The first of these has seen its share price grow by 2,750% since the start of January.
But investing in unproven firms is a dangerous game for long-term investors. For every success there are many more companies that cannot follow through on their promises. And the smaller the firm, the more issues it will have with scale. If governments suddenly want 10m of their treatments, there would be huge manufacturing and supply chain challenges.
The process of bringing drugs to market is also long, slow and expensive. Costs are high for medical research companies as they have to invest significant sums in clinical trials and stringent regulatory requirements.
So when we look back through the balance sheets for Synairgen over the last five years we can see uneven revenue and profits. For example, 2017’s annual revenue was £5.03m, with £1.63m in pre-tax profit. In 2018 revenues were £100,000 with a pre-tax loss of £4.1m.
I’d say an investment would be fine for seasoned traders and those who know their biotech inside and out.
For retirees and novices, I would urge more caution. If you intend to sit on an investment for 10 years, you could be left holding shares at a loss when everyone else has scarpered.
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Tom Rodgers has no position in 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.