Synthetic Biologics, Inc. (SYN) is a diversified clinical-stage company that develops therapeutics that are designed to prevent and treat gastrointestinal diseases. The company’s major advancement in clinical development programs and specifically its significant progress in its SYN-020 IAP program have helped the stock gain 159.5% over the past year. However, SYN’s shares have retreated 20.3% over the past month.
In its 2020 year-end financial results, SYN reported high operating expenses and a significant operational loss. Although the company has several products in its pipeline, its leading candidates — SYN-004 and SYN-020 — are still in clinical and pre-clinical stages, respectively. This suggests that it will be some time before the company begins to generate revenues.
We expect SYN to struggle to stay afloat in the near term because of its fairly weak financials and unfavorable growth prospects.
Click here to checkout our Healthcare Sector Report for 2021
Here is what we think could influence SYN’s performance in the near term:
Challenges Faced By the Biotech Sector
Despite the growth in the sector spurred by the COVID-19 pandemic and increased investments in new medical treatments for a variety of illnesses, the biotechnology industry still under pressure from various risks and operational challenges. For instance, higher expenses associated with research and development, coupled with a financial crunch, could negatively impact the profitability of SYN.
Lead Candidates Still in Clinical Stage
Although SYN has commenced screening patients to enroll in Phase 1b/2a clinical trials of SYN-004, it has not yet begun administering doses of the drug. And its second lead candidate, SYN-020, is still in its pre-clinical stage and SYN does not expect to commence a Phase 1 single-ascending-dose study in volunteers until second quarter of 2021. Since the clinical trials for both developments are still underway, it will likely be a long wait before its leading candidates begin generating revenues for the company.
Weak Financials
SYN has not generated revenues because it currently has no products that have been approved for commercial sale. In the year ended December 31, 2020, its general and administrative expenses increased 9% year-over-year to $5.03 million, due mainly to increased legal costs and patent execution expenses. SYN reported a $10.16 million loss from operations and a $10.04 million net loss. Its loss per share came in at $0.66 over this period. The company’s cash and cash equivalents were $6.2 million, a decrease of $8.8 million from December 31, 2019.
Unfavorable Earnings Outlook
Wall Street analysts expect SYN’s EPS to decline 33.3% in its fiscal 2022. SYN missed the Street’s EPS estimates in two of the trailing four quarters.
POWR Ratings Indicate Bleak Prospects
SYN has an overall D rating, which equates to SELL in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on different categories. Among these categories, SYN has a D grade for Sentiment and Quality. Analysts’ expectation of a decline in earnings and the company’s negative ROE and ROA justify this grade.
SYN also has a Momentum Grade of D, given the stock’s price decline over the past month.
The stock is currently ranked #416 of 488 stocks in the F-rated Biotech industry.
To see additional POWR Ratings for Stability, Value, and Growth for SYN, Click here.
If you’re looking for better stocks in the Biotech industry with an Overall POWR Rating of A or B, you can access them here.
Bottom Line
Despite the advances made by SYN on its clinical development programs for SYN-020 IAP and SYN-004 and its impressive gains over the past year, the stock’s unimpressive financials and poor growth prospects in a highly challenging environment could contribute to a further price decline in the coming months. Furthermore, it might take a long time before its lead pipeline candidates begin generating revenues. Hence, we believe it wise to avoid betting on the stock now.
Click here to checkout our Healthcare Sector Report for 2021
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SYN shares were trading at $0.76 per share on Friday morning, down $0.03 (-3.85%). Year-to-date, SYN has gained 98.43%, versus a 3.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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