SYNEXUS CLINICAL RESEARCH (SNX)

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These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

SYNEXUS CLINICAL RESEARCH (SNX): Lost the Plot - May 2007

RHPS Recommendation - SELL

Synexus has been set up to acquire businesses that can run clinical trials. This seems like a sensible business model, but acquisition vehicles do need a nicely rising share price in order to attract new companies into the fold, and to reward those who have sold their businesses to the group. Although Synexus may indeed only have seen contracts delayed and not lost for good, the hit to the share price has been quite severe, and it will be hard to recover momentum. We sold on 19 April.

SYNEXUS CLINICAL RESEARCH (SNX): Deferral of Clinical Studies - Mar 2007

RHPS Recommendation - HOLD

Synexus has warned that it will not make the £2.3m profit forecast for the year to March 2007, owing to a deferral of clinical studies by its pharmaceutical company clients. Rival ClinPhone has reported similar delays, so this problem does not seem to be peculiar to Synexus. Furthermore, Synexus has actually seen its order book grow since December and is confident that this is simply a case of profits deferred. The shares fell heavily on this news, but three directors stepped in to buy a total of 45,000 shares at 65p.

SYNEXUS CLINICAL RESEARCH (SNX): Studies Deferred - We Sell - Feb 2007

RHPS Recommendation - HOLD

Sharecall: (0906 812 1210) 5586
A postponement of several clinical research studies, which has also affected rival ClinPhone, means that Synexus will not meet this year's profit expectations. Synexus is confident that this work is merely postponed, but still faces the challenge of integrating recent acquisitions while anxiously awaiting new contracts. I have marked the shares down to HOLD.

SYNEXUS CLINICAL RESEARCH (SNX): Impressive growth - Jan 2007-07-05

RHPS Recommendation - BUY

Sales grew by 49% in the six months to September, with a particularly impressive 32% organic growth from its UK operations. Synexus has a good pipeline of contracted future business, and is intent upon making further acquisitions in order to deliver the greatest number of patients for high volume clinical trials at the lowest industry cost. I like this business model, and it seems to be paying off.

SYNEXUS CLINICAL RESEARCH (SNX): An acquisition in South Africa - Nov 2006

RHPS Recommendation - BUY

Sharecall: (0906 812 1210) 5586
Synexus is paying up to £1.8m for a South African company, Clinical Research Centres SA. CRC provides clinical trial services, particularly the recruitment and subsequent management of patients onto later-stage clinical trials for the pharmaceutical industry.

This deal is very much in line with Synexus's strategy, which is to be able to offer large scale clinical trials to pharmaceutical companies. It also allows Synexus to conduct trials on, for instance, hay fever in the Southern Hemisphere at times of the year when it could not do so in the North.

SYNEXUS CLINICAL RESEARCH (SNX) - Oct 2006

RHPS Recommendation - BUY

The company has said that interim results, to be announced in early December, will meet expectations and that enquiries for its services have been "buoyant".

Double your money as one company fills a $2bn void in the clinical trials market - Jul 2006

RHPS Recommendation - BUY

Last year, 12,700 new trials for innovative drugs commenced around the world, all part of the global pharmaceutical industry's $82bn research and development effort. Forty per cent of this budget is spent on clinical trials, and the quicker these trials can be completed the sooner new drugs can be brought to market, thus increasing their revenue potential in the period before they go off-patent.

So the likes of GlaxoSmithKline, Merck, AstraZeneca and Novartis are all looking at ways of improving the speed and efficiency of drug trials. They face other pressures, too. Regulatory bodies are demanding more thorough testing, with larger sample sizes. But it is hard to find sufficient patients in the developed world, partly because most of us have had various diseases and medical treatment, which can affect the impact and results of a new drug. So there is a move to trial new drugs in poorer countries, where patients can be found who are unaffected by previous medication, and who are willing to try new drugs because none other are available.

And therein lies an opportunity of fantastic proportions...

A new dawn in the clinical trials industry...

Of course, trials in low cost countries are also cheaper. About 1,650 trials are conducted in the UK each year, and they cost at least £3,250 for each of the 100-plus patients involved. One reason these trials are so expensive is that they have traditionally been conducted through what has been a "cottage industry". Patients have been recruited through a wide network of GPs and consultants.

This has been an inconsistent process, expensive to administer and slow to produce results. But still the pharmaceutical industry has been paying out $2bn annually in outsourced investigator fees, and it now wants the job done more efficiently. The big boys of pharma are already clients. Dr Ian Smith was one of the GPs conducting part-time trials. He recognised the advantage of having dedicated research sites and founded Synexus, which came to AIM last November. Synexus now has 12 research sites around the UK, and is rapidly building a network abroad. It is responsible for sourcing patients, assessing their suitability, managing the trials, submitting documents to the relevant authorities and collating the results.

It has worked with all of the top 20 global pharma companies, offering them faster and wider recruitment, a single point of contact and consistent quality. It has worked on both the treatment of chronic diseases such as migraine, diabetes, osteoarthritis and obesity, and also on disease prevention. The latter is increasingly encouraged by regulatory bodies, and tends to require longer and larger studies which can be more profitable.

Six out of 10 companies prefer Synexus...

Synexus works on late stage trials. So it could not have been responsible for the clinical trials that went so disastrously wrong at the Northwick Park Hospital in March. Those were early phase 1 trials (known as "first in man") for which healthy volunteers get paid. In late stage trials the drug is given to a larger group, to confirm its effectiveness, to monitor for side-effects and to compare it to other forms of treatment. The patients already have the disease in question and basically get free medical benefits, albeit with slightly uncertain results.

Synexus typically wins 60% of the work for which it bids, and last year started 10 new studies. For each it agrees terms with the pharmaceutical companies or clinical research organisations up front based on the clinician's time, and receives additional fees for specific procedures such as blood tests.

New patients up 27%, revenue up 17%...

The result has been a growing business. Synexus has two main competitors in the UK: Minerva Medical and Profiad. But both of these provide clients with a network of GPs rather than owning the investigator sites, and Synexus has now claimed a 10% share of the £150m UK market. In the last two years the number of new patients it has recruited has risen by 27% to 2,971, and the revenue derived from each of these has risen by 17%. Now Synexus is building its network through the acquisition of organisations abroad. Last November, it bought Skandynawskie Centrum Medyczne in Poland, paying a maximum of £1m for a business that achieved a post-tax profit of £100,000 last year. Next it acquired Diagnostic Units, a 10-year-old business based in Hungary, paying just seven times its earnings. It has also opened an office in Sofia, Bulgaria and formed an alliance with India's Mumbai Clinic, which will effectively work as a franchise under the Synexus recruitment model.

"Pushing at an open door" - get in now for 97% gains

By widening its network, Synexus can recruit patients faster, and can offer larger trial populations. For instance, within nine months it has been able to recruit 2,000 patients for a new study. Big pharmaceutical companies are encouraging this approach, making it relatively easy to find companies to join the network. "We are," says its executive chairman, Michael Redmond, "pushing at an open door."

This year Synexus is planning a sales drive to US pharma companies and already has reported a positive response, while it continues to look for further acquisitions across Europe and Asia. Meanwhile, back in the UK, it expects to increase its efficiency and add 50% to capacity in the process of consolidating its 12 UK sites into just eight.

With little requirement for capital investment the business is cash-generative, and last month Synexus announced a 32% increase in its bid pipeline and a 63% increase in its contracted order book. This is a profitable business in a growth industry, with a strategy that is simply tapping into the demands of the pharmaceutical industry. I expect the shares to be trading at 200p in 12 months.

RHPS Verdict: Synexus has paid no tax to date, but will do so from 2008. This is slowing the rate of earnings per share growth. All the same comparable companies identified by Brewin Dolphin trade on 2008 P/E ratios averaging 18. By comparison Synexus looks very cheap - especially as acquisitions could easily accelerate the rate of earnings growth.

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The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

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