Last time we covered Synthetic Biologics Inc (NYSEMKT:SYN), the company was trading for around $0.87 a share.
This was back at the start of the year, on January 5.
During the months subsequent to our coverage, the stock dipped to as low as $0.48 a piece early May – a close to 50% decline.
Since May, the stock has recovered the majority of its lost strength and currently goes for in and around $0.72. That’s a pretty substantial run from lows but here’s the thing – there’s the potential for a considerable amount of strength from here and the next twelve months could be pivotal for the company in terms of realizing this strength.
Here’s what we are thinking.
This is a biotech stock that’s in a bit of a unique position. It’s got two late-stage assets in its development pipeline, both of which are ready to move into a pivotal trial and both of which have the potential to target markets worth late treble digit hundreds of millions, if not low billions of dollar markets.
When you look at a cross-section of the biotechnology space, companies in this position generally command market capitalizations of – at minimum – half a billion dollars. In the case of Synthetic Biologics, however, the company is valued at open market pricing (the above mentioned $0.71 a share) at just $91 million.
So why is this the case?
Well, the biotechnology markets are fickle. If a company isn’t pumping out regulatory updates on a weekly or monthly basis, markets tend to turn off to a company (regardless of the underlying opportunity) and it’s share price suffers – or trades flat – as a result.
That’s the situation here.
Synthetic is a bit of a slow burner from an operational perspective and this has led to markets losing interest in the company to a certain degree and – in turn – has led to what we see as a real opportunity to pick up shares at a discount ahead of Synthetic starting to jump through operational hoops.
So what are we looking for specifically and why now?
The company has two lead assets, as mentioned, one of which is called SYN-010 and is targeting the reduction of methane production by certain microorganisms in the gut, while minimizing disruption to the microbiome to treat the underlying cause of irritable bowel syndrome with constipation.
The second is called SYN-004 or ribaxamase, and is a breakthrough therapy designated program designed to be the first line of defense against antibiotic-mediated dysbiosis.
The SYN-010 program is in what we call ‘partner hunt’ phase, meaning the company is looking for a partner that can fund the trial in return for rights to the asset. This is a pretty solid approach and, for us, is a smart one given the likely cost of the phase III required to get the asset to market (we’re talking $50 million to $100 million) and Synthetic’s current cash balance – circa $21 million.
Any announcement that hints at the company having found a partner for this program (and we wouldn’t be surprised if we see such an announcement near term) is really going to get the stock moving.
The SYN-004 program is at the stage where the company wants to sit down with the FDA to put together a protocol for a investigator-sponsored pivotal. In other words, the company is likely going to go this one alone (as opposed to looking for a partner) and once the FDA has green-lighted a protocol, it’s go time.
Expectations are that we will see a type B meeting (which is the sit-down that the company is looking for) during the first quarter of 2018, meaning we could see trial initiation as early as second quarter next year. Again, these events are major upside catalysts as and when they hit press.
As mentioned, cash isn’t great (it’s not bad, but it’s not great) at $21 million, so there’s a small dilution risk – especially if, as we expect, the company wants to go it alone on ribaxamase.
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Image courtesy of Dominic Alves via Flickr
Disclosure: We have no position in SYN and have not been compensated for this article.