Synthetic Biologics: A Small Company Targeting A Big Market

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Synthetic Biologics

US healthcare spending is a hot topic at the moment. By 2024, government spend on healthcare is expected to account for one fifth of gross domestic product – more than double that of the vast majority of other developed nations. Anything that can reduce this overspend, therefore, could be big business. One company currently working in the space, and even better, one that has a number of near-term milestones that could inject some upside potential into its market capitalization, is Synthetic Biologics Inc. (NYSE:SYN). With a market capitalization of a little over $210 million, Synthetic Biologics is a development stage pharma, but one that is tackling a potentially huge market. Let’s take a look at the company and its potential.

The company has two lead pipeline candidates, but the one that will focus on (primarily because this is the one with the near-term drivers) is SYN-004 – a preventative therapy targeted at C difficile infection, and the diarrhea and colitis associated with it. To simplify the science, C difficile is a bacterium that builds up in the gastrointestinal tract as a side effect of antibiotic treatment. Basically, a certain amount of antibiotic formula ends up in the gut (as opposed to in the bloodstream, where it belongs) and just sits there and builds up. This buildup of useless antibiotic leads to the formation of bacteria – one of which is C difficile. Every year, 14 million people receive IV antibiotics as part of surgical or other treatment in the US – with a total of 118 million administrations. Treatments targeted at C difficile buildup, and infections related, to it cost the US about $10 billion each year. At the moment, the only treatments available (and some that are in development) target the buildup. SYN-004 is preventative, designed to administer alongside an IV antibiotic treatment. Simply put, the patient takes antibiotics and SYN-004 at the same time, and the SYN-004 stops C difficile buildup without affecting antibiotic levels in the blood. At least, this is the hypothesis. So what does this mean? Well, it means that SYN-004 has the potential to treat in combination with 118 million antibiotic administrations annually. With 30,000 people dying each year from the implications of a C difficile buildup, and a potential saving of $10 billion annually, this treatment could be a real hit. That is, so long as the company can prove it is both safe and effective.

So where do we stand with that? Well, the company has initiated two phase 2A trials this year, with final data for both expected by the end of the year. Phase 1A and 1B proved safety and tolerability, as well as a certain level of efficacy on a small scale, so now we just looking at this efficacy to translate across a larger population. In anticipation of a phase 3, the company raised $42.6 million in public offering last month.

One of the great things about this area of biotech is that involves what are called microbiomes – basically just groups of microbes sealed together in a biological capsule. Why is this good? Because the time to market (i.e. the time it takes to go from preclinical to NDA) is roughly one third of the average pharmaceutical candidate. With trials well underway and fully capitalized this short time to market means a concentration of data releases – each of which have the potential to give us some upside in market cap.

So, what are we looking for over the coming few quarters? Well, the phase 2 data is expected from both A and B before the end of the year, and these releases will offer some insight into the phase 3 initiation. Management stated on last earnings call that they expect an October or November release, so we could be looking at a phase 3 initiation during the first quarter of next year. Time to completion will be about six months, so realistically, if all goes well, we could see an NDA filed way ahead of the 2017 turnaround. Looking at the trial specifically, the element to keep an eye on is the level of antibiotic in the patient’s bloodstream. If SYN-004 has any significant effect on concentration, it could seriously damage Synthetic Biologics’ chances of getting the treatment approved.

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