The Synairgen (LSE: SNG) share price has crumbled in value in early deals this morning. The stock is off nearly 8%, at the time of writing.
To put this decline into perspective, over the past 12 months, shareholders have seen a return of 126%. Moreover, since the beginning of 2020, the stock has risen by more than 2,000%.
However, past performance should never be used as a guide to future potential. Just because the Synairgen share price has produced considerable returns in the past doesn’t mean it’ll continue to outperform.
That has become painfully clear today after the firm published results from its phase II trial of inhaled interferon beta in Covid-19 patients.
Today’s update from the business was a positive one. According to Richard Marsden, CEO of Synairgen, the trial findings show that the “SNG001 treatment led to a threefold likelihood of recovery to ‘no limitation of activities’ in the markedly/severely breathless population compared to those on placebo in the home and hospital setting.“
SNG001 is Synairgen’s formulation containing interferon beta for nebulisation. This allows delivery directly into patients’ lungs.
Some studies have shown that Covid-19 suppresses the natural production of interferon beta. The virus can also prevent the induction of antiviral responses by infected cells. Synairgen’s work appears to show that its SNG001 formulation containing interferon beta can help overcome this problem.
However, the company is still a long way from commercialising the product. The latest findings still need to be peer-reviewed. It’s also in the process of completing a phase III trial. After that, regulators will need to approve the product.
Considering the volume of work still required, there’s no guarantee this product will ever successfully make it to market. I think that’s the most significant risk overhanging the Synairgen share price right now.
Synairgen share price decline
It’s difficult to tell exactly why the Synairgen share price has declined so substantially today. However, it looks to me as if the market is starting to become concerned about the firm’s valuation.
The company’s current market capitalisation stands at £308m, which seems to me to be a lot, considering the success of SNG001 is far from guaranteed.
Of course, on the other hand, if the treatment successfully makes it through the next trial stage and is approved by medical regulators, the market could be substantial. In this best-case scenario, the Synairgen share price may be incredibly undervalued at current levels.
Despite this, I’m not a buyer of the stock today. I think the company’s future is incredibly uncertain. Until we have more information on the SNG001 treatment, there’s no guarantee whatsoever this will ever be a sustainable business.
This is just my own personal preference as I don’t like to invest in companies still in the development stage. However, other investors may be comfortable taking on this level of risk.
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Rupert Hargreaves 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.