Deciding where to put your money takes research.
While you could just pick your favorite companies, your portfolio will generally perform better if you take the time to select those stocks with the best chance of performing well during your investment horizon.
Pharmaceutical stocks are no exception. However, they do have some special considerations.
Pharmaceutical stocks can be high-risk and high-reward. All it takes is one break-through and the stock explodes. At the same time, it is entirely possible to spend millions of dollars and several years developing medicine that never gets approval to be sold anywhere.
For many pharmaceutical companies, diversification is key. They have several drugs under development at any given time and that makes it easier for them to handle the occasional miss.
Less risk-averse investors may opt to choose pharmaceutical stocks that focus on specific treatment areas, hoping that the ultimate payout will be bigger when they do develop something good. Oncology and pain therapy are two good examples.
For these reasons, before you invest in any pharmaceutical company, make sure you understand what they do.
To this end, Syros [NASDAQ: SYRS] created its own platform that allows it to identify targets in the patient population related to a specific gene. These are called monogenic diseases and can include genetic predisposition to cancer.
Syros [NASDAQ: SYRS] has three primary drugs in development:
This drug is a “selective retinoic acid receptor alpha” (RARa) that has shown promise in the treatment of acute myeloid leukemia (AML). It is in Phase 2 of its clinical trials.
There are roughly 40,000 people in the United States and Western Europe who have AML (the estimated cost of treatment is $1 billion) so the market could be significant.
SY-1365 inhibits cyclin-dependent kinase 7 (CDK7). It would help treat solid tumors that have reached an advanced state, especially in ovarian and HR+ breast cancers.
Obviously, this drug could have far-reaching success Syros estimates up to $8 billion in a year but it is still early in testing. SY-1365 is only in Phase 1.
SY-5609 is another CDK7 inhibitor. Syros is currently investigating how it can be used. Initial testing should conclude around the end of 2019.
Right now, it looks like it could follow the same ovarian and HR+ breast cancer treatment patterns as SY-1365.
Syros investors have some reasons to be encouraged.
In addition to treating AML as well as ovarian and HR+ breast cancers, the company also has some important agreements in place.
One of these is a research collaboration deal with Incyte [NASDAQ: INCY].
It was inked in January 2018. Incyte paid $10 million to Syros for research, but Syros could get another $54 million from Incyte if it reaches specific targets.
Syros also has a deal with TMRC that concerns SY-1425.
Under the terms of the agreement, Syros is allowed to develop the drug in exchange for certain payments.
“Under the TMRC license agreement, we have agreed to pay TMRC singledigit royalties based on net sales if TMRC’s patents cover our product and low singledigit royalties based on net sales with respect to knowhow licensed by TMRC during a predefined royalty term,” writes Syros in its annual report, “and to make payments to TMRC upon meeting specified clinical and regulatory milestones in an aggregate amount of approximately $13.0 million per indication, of which $1.0 million was paid in the third quarter of 2016 upon successful dosing of the first patient in our Phase 2 clinical trial of SY-1425.”
The deal is in place until TMRC’s patent expires on the drug or 15 years from the date of the first sale whichever takes longer.
Syros has some good beginnings in play, but they could fail at any time. Many drugs do miss the mark in development and all the costs to that point have to be written off.
There is also the issue of competition.
Many companies are looking at ways to treat cancer and leukemia and it will be several years until anything Syros has under development hits the market.
One of those rival treatments could be more effective, better tested, have fewer side effects, or otherwise outshine and overshadow the drugs Syros is developing.
Finally, there is the testing itself. Many things could hinder the ability of Syros to adequately test their drugs.
The company could have problems attracting enough study participants, there could be issues with the execution of the study, or Syros could be required to have additional studies before the drugs get approval adding to the cost and delaying the commercialization of the company’s drug developments.
In March 2019, Syros released its FY18 results. For 2018, the company lost $62.3 million compared to $54 million in the previous year.
At the time of the annual report’s release, Syros said that it had enough to cover its operating expenses until 2Q20.
The company is trading in a 52-week range of $5.17 to $13.73. Consensus estimates give Syros a one-year target estimate of $15.33.
It may well get there if the trials go well, but investors should remember that anything can happen between development and approval.
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