Yesterday, respiratory drug developer Synairgen (LSE: SNG) jumped an astonishing 420% in value. It’s up another 15% this morning. Could there be even more to come? Quite possibly. That said, I think anyone investing should keep their expectations in check.
Before explaining why, let’s have a recap.
What’s behind Synairgen’s rise?
Monday’s share price jump followed news of a successful trial of a treatment. labelled SNG001 (an inhaled dosage of interferon beta), in patients who had been hospitalised as a result of coronavirus.
Results showed those who received the drug in a double-blind trial (where neither the patient nor the clinician knows who is getting what) had a 79% lower risk of severe disease compared to those who received the placebo. Those on SNG001 were also more than twice as likely to recover than those who didn’t receive the drug.
With concerns that the arrival of winter could bring about a fresh wave of the coronavirus, news that the treatment helps the lungs to tackle the virus, even in the event of co-infection (e.g. if a person catches flu), is clearly very positive.
Can the share price keep rising?
Here, from an investment point of view, is where things get tricky.
What’s important to remember — and the company clarified today — is that the recent positive outcome was a Phase 2 trial. This phase is “designed to test the efficacy of a drug and takes place before the drug is approved or able to be marketed.” In other words, a lot of questions still need answering.
While positive that patients in both groups were matched with each other in things like age, this trial involved just 101 patients — a very small sample. Also, all were recruited in the UK, which means results might not be generalisable to other countries.
Nor did every finding from the trial reach statistical significance. In other words, we can’t be absolutely sure that what was found wasn’t just down to luck. Naturally, all this makes a much larger trial of the treatment (Phase 3 of drug development) absolutely essential.
In short, I think SNG001 is still far from the sure thing the market presumably now believes it to be. For me, this has implications for what the Synairgen share price will do next.
The problem is that not everyone will want to stick around for the ride. It will, after all, be a few weeks before the company is ready to reveal the outcome of further analyses. If I were a trader and knew this, I’d seriously consider banking some profit on Synairgen.
And if I were a Foolish investor buying stocks for the long term (and I am), I’d be sure to appreciate that some in the market work on much shorter timescales and act (or not act) accordingly.
Synairgen could certainly still reward those buying in now. However, I would caution anyone against thinking they can make easy money in a set period of time. It’s very easy to find examples of promising treatments that failed to live up to the initial hype and progress beyond Phase 3.
We must not allow our desire for a quick profit to override our true tolerance for risk. If you’re going to expect anything from the share price, expect volatility. Don’t bet the ranch and ensure you’re diversified elsewhere.
Paul Summers 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.