Syros Pharmaceuticals Update: Still A Buy

Jan. 23, 2020 4:23 PM ETSyros Pharmaceuticals, Inc. (SYRS)1 Comment5 Likes
William Meyers profile picture
William Meyers
6.51K Followers

Summary

  • Syros Pharma has 2 clinical stage drugs under development.
  • New collaboration with Global Blood is a plus.
  • Mark Alles joining the board is intriguing.

Syros Pharmaceuticals (NASDAQ:SYRS) is a small cap, clinical stage pharmaceutical company. As such it carries all the risks and potentials to the category. Mainly, if its drugs fail to gain regulatory approval, it will turn out to be a bad investment. If one or more drugs gain regulatory approval, and that is followed by commercial success, then Syros could turn out to be an extraordinarily good investment.

I last wrote about Syros (Syros Pharmaceuticals Platform Undervalued After Dip) on April 9, 2019, when the stock had closed at $6.82. On January 21, 2020, as I write, the stock is down almost 9% for the day to $7.74, as it comes off a near-term peak of $9.41 that followed positive news to be discussed below. I wish the 21.6% increase between April 9 and January 21 could be attributed to investors agreeing with my earlier article's thesis that Syros was undervalued. But a look at the charts shows it is almost certainly just volatility. The 52-week low is now $4.45, the high $11.93, so we are back to midrange. High volatility is not unusual behavior for a pharma company that may or may not ever generate commercial revenue and that is thinly traded. As I write the market cap is $329 million, but it could be considerably up or down by the time you read this.

Nevertheless, long-term investors like myself do try to predict the long-term future, or at least the odds of success. This article is mainly to provide an update, but the thesis is the same: Syros is undervalued.

ChartData by YCharts

Collaboration with Global Blood

On December 18 Syros and Global Blood Therapeutics (GBT) announced a collaboration agreement. Syros will use its gene expression platform (discussed in more detail below) to discover potential therapies for sickle cell disease and beta thalassemia. Global Blood will receive a global option to develop and commercialize the therapies. Syros will receive $20 million cash upfront and three years of preclinical research funding, plus potential milestone payments. In addition, if the drugs ever generate commercial sales, Syros would get a mid to high single digit royalties.

Syros had already completed some investigatory work. Syros already identified components of LRF (leukemia/lymphoma-related factor) and the NuRD (nucleosome remodeling and histone deacetylation) complex that could switch on the gamma globin gene and induce the production of fetal hemoglobin. This could improve the health of the blood in sickle cell or beta thalassemia patients. For investors, the $20 million in cash is of immediate importance, as it extends the cash runway for the development of Syros's drugs currently in clinical trials. Any major payoff for investors from the collaboration would be something like 5 to 10 years away, and program success is speculative. Also note there are competing therapies, including Acceleron's (XLRN) Reblozyl (luspatercept), which was recently approved for beta thalassemia. For me it is an important vote of confidence in the platform concept by a company that has strong expertise in its therapeutic specialty.

Mark Alles joins the Syros board

Mark Alles was the CEO and Chair of the Board at Celgene, capping a long career in the pharmaceutical industry. On December 20, 2019 Syros announced he had joined the board. That is quite a catch for a small cap company. Mark also recently joined the board of Antengene, which is based in the U.S. and China and already has an approved drug on the market. While Mark's expertise will doubtless help Syros, it is unlikely that he would join the board unless the company has a good shot at regulatory approvals and commercial success. So more validation.

The Syros Platform

The Syros platform discovers ways to control gene expression. Only about 2% of human DNA codes for specific proteins. For decades most scientists regarded the other 98% of the DNA as garbage that had accumulated over the course of evolution. But at least some of this non-coding DNA has regulatory functions. For instance, each cell type, like muscle or skin, requires different protein sets to function. Regulatory DNA is part of a system that determines whether to turn genetic sequences on or off for specific cell types. The Syros platform analyzes regulatory regions of the DNA, identifies malfunctions, and allows drugs to be designed to correct defects. For more detail see the Syros Pharmaceuticals gene control page.

Lead Pipeline Candidate: SY-1425

SY-1425 is a RARA (retinoic acid receptor alpha) agonist (response strengthener). RARA helps control the transcription of DNA (to RNA). Syros discovered that some AML (acute myeloid leukemia) and MDS (myelodysplastic syndromes) have highly specialized regulatory regions of DNA associated with the RARA and IRF8 genes. These lock cells in an immature, undifferentiated and proliferative state that leads to cancer. Syros also developed biomarkers to identify these patients.

New data from the Phase 2 trial of SY-1425 combined with Azacitidine for RARA-positive AML patients was released in October 2019. The results were very positive, with 62% of treated patients achieving either CR (complete response) or CRi (complete response with incomplete blood count recovery). Mature data for SY-1425 is expected in Q4 2020.

Rest of Pipeline: SY-1365 and SY-5609

SY-1365 is a CDK7 (cyclin-dependent kinase 7) inhibitor. CDK7 is a cell cycle transcription regulator. Inhibiting CDK7 may prevent cancer cell proliferation. Clinical Phase 1 trial data was announced by Syros on November 15, 2018. Syros believes the data confirmed the SY-1365 mechanism of action. The first cohort tried a dose of 2 mg/m2 while the latest cohort dose was 112mg/m2, with a total of 32 patients treating. Safety was good. There was one partial response and six patients had stable disease. All the responses were in the higher dosages. Based on that, 80 mg/m2 was chosen for future dosing.

The other pipeline candidate, SY-5609, is still in the preclinical stage. It is a selective CDK7 inhibitor that demonstrated preclinical activity in models of triple-negative breast cancer and ovarian cancer. New SY-5609 preclinical data was presented in October. A Phase 1 clinical trial is planned for Q1 2020.

In addition, on January 12, 2020 Syros announced that its second monogenic disease program is in myotonic dystrophy type 1.

Incyte Deal

In January 2018 Syros announced a collaboration deal with Incyte. Syros will use its gene control platform to identify targets for myeloproliferative neoplasms. Incyte will have the option to buy worldwide rights for up to seven validated targets, including the right to develop therapies using those targets. Syros received a $10 million upfront payment, but $7.5 million of that was prepayment for R&D expenses. As part of the deal Incyte purchased $10 million in common stock at $12.61 per share, which I see as another indicator of confidence. Further down the line Syros could receive up to $54 million in target selection and exercise fees, plus up to $50 million in development milestones and $65 million in commercial milestones. Ultimately Syros is eligible for low-single-digit royalties on sales of end products.

Cash Runway

Per the Syros Q3 2019 press release the end of quarter cash balance was $108 million. That was before the expected $20 million from the new collaboration was announced. Syros has issued guidance that its cash runway extends through Q4 2021, by which time it should have new clinical data for SY-1425 and SY-5609. Any additional milestone payments or new collaborations could add to the runway.

Conclusion

I like the Syros platform, which has been validated by preclinical work and by clinical trials for two therapies. Two larger pharmaceutical companies, Incyte and Global Blood Therapeutics, have validated the platform. While any given therapy could fail at any point in the development process, and while I would like to see more cash in the till to reduce the need for cash raises and consequent stock dilution, I see Syros as a long-term opportunity. There will likely continue to be a great deal of stock price volatility in the meantime, so I see no point to specifying a price target. I have added Syros to my list of stocks to buy, as cash becomes available, but it still has to compete with other stocks on that list. If I were a large cap pharma CEO I might buy the entire company for its platform and expertise. I have not heard of any interest in acquiring the company. Then again, Mark Alles probably knows most of those CEOs.

This article was written by

William Meyers profile picture
6.51K Followers
I provided stock and bond research and analysis to a small cap specialist investor, Lloyd Miller, from 2002 until his death in January 2018. For my own account I invest mainly in technology and biotechnology stocks. My technology and investment web site is openicon.com, where readers can view the notes I take to make decisions and to write articles for Seeking Alpha.
Follow

Disclosure: I am/we are long XLRN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I do plan to buy an initial position in SYRS, if the price is right, after the 72 hour disclosure period expires.

Recommended For You

Comments (1)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.