Synairgen : 2023 Annual Report

BREAKTHROUGH SCIENCE FOR

LUNG INFECTIONS

Annual Report and Accounts 2023

LSE: SNG

www.synairgen.com

Company Number: 5233429

Contents
Strategic report
Highlights	2
Chairman's Statement	3
Strategic Report	4
Governance
Board of Directors	14
Corporate Governance Statement	16
Directors' Remuneration Report	21
Report of the Audit Committee	26
Directors' Report	29
Statement of Directors' Responsibilities in Respect of the Annual Report and the Financial
Statements	31
Financial statements
Independent Auditor's Report to the Members of Synairgen PLC	32
Consolidated Statement of Comprehensive Income	40
Consolidated Statement of Changes in Equity	41
Consolidated Statement of Financial Position	42
Consolidated Statement of Cash Flows	43
Notes to the Consolidated Financial Statements	44
Parent Company Balance Sheet	58
Parent Company Statement of Changes in Equity	59
Notes to the Parent Company Financial Statements	60
Other information
Corporate Directory	65
Glossary	66

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Highlights (including post period-end)

Operational

• Completed a full assessment of the underpinning science, clinical trial data, clinical need and commercial opportunity to determine next steps for SNG001
• Commenced preparatory work in 2023 to deliver a trial focusing on mechanically ventilated patients who we believe are the most attractive near-term patient group with respect to the extent of the unmet need, the commercial potential in a clearly identifiable population and the clinical development route for SNG001
• Recognised that opportunities for potential future assessment of SNG001 in platform trials and/or academic trials may materialise in the event of an emerging virus threat
• Continued collaboration with the University of Southampton's UNIVERSAL trial aimed at better characterising patients hospitalised with respiratory viral infections with over 500 patients recruited to date

Financial

• Prudent cost control applied across all operations
• Loss from operations for the year ended 31 December 2023 was £10.3 million (2022: £20.3 million loss)
• Cash and cash equivalents, and bank deposits of £12.0 million at 31 December 2023 (31 December 2022: £19.7 million)

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Chairman's Statement

There remains a significant unmet medical need for new treatments for respiratory viral infections which are caused by a wide range of viruses (influenza, RSV, SARS-CoV-2, rhinovirus, metapneumovirus and others). Antiviral therapeutic options are limited for the majority of hospitalised adult patients with severe viral lung infections, which remain a leading cause of death globally. Approximately 2.5 million people in the US are hospitalised each year due these respiratory viruses.

Synairgen's relentless focus in the year has been on applying the insights gained from 2020/21 to determine the best path forward for clinical development of its investigational drug, SNG001, for severe viral lung infections. This was conducted amidst the backdrop of a challenging year for the biotech sector; we have regained momentum and stand on the verge of embarking on a Phase 2 trial in patients who are mechanically ventilated as a result of a respiratory viral infection, subject to finalising the trial financing plan. We have selected this population because it has a high unmet need, represents a significant commercial opportunity, patients are readily identifiable and the clinical path is clear. We look forward to communicating the trial design and associated financing plan.

Since the results of SPRINTER and ACTIV-2 trials were announced, our team has focussed on using the findings from these studies, the literature and clinical experts to determine which patients stand to potentially benefit most from SNG001 and developing the clinical network and trial protocol which carries an appropriate level of risk and reward for Synairgen shareholders. The considerable research work that was required to critically evaluate all potential options has ultimately led us to eliminate a number of potentially promising avenues for further clinical development. We have made a strategic decision to focus on mechanically ventilated patients in the hospital setting enabling clinical development with smaller, easier to deliver clinical trials in an area of high unmet medical and pharmacoeconomic need. We have determined that it is inappropriate at this stage for the Company to conduct clinical trials in the non-hospitalised setting, although we believe that SNG001 continues to be an attractive asset in this setting, and we are open for inclusion of SNG001 in platform trials and/or collaborations as and when viral threats emerge.

I would like to take this opportunity to thank the entire team for their unwavering commitment to finding a path forward for SNG001 and express my appreciation to our shareholders for their continued support. I look forward to updating the market with both greater detail on our development.

Simon Shaw

Chairman

26 June 2024

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Strategic Report

Overview

During the past year the Group thoroughly assessed a wide range of options to identify the best route forward for its broad-spectrumhost-directed antiviral drug, SNG001 (inhaled interferon beta), for the treatment of severe viral lung infections. Respiratory viral infections are the most common cause of infectious disease and when they affect the lungs, they can cause significant morbidity and mortality. Interferon-beta is a naturally occurring protein, produced in response to viral infections, that drives the body's antiviral responses. People who make less interferon beta, for example due to their genetic profile, age or disease, are at greater risk of developing severe viral lung infections. Respiratory viruses themselves also supress interferon beta production to evade host antiviral responses. Together these factors provide the rationale to deliver SNG001 directly into the lungs as an aerosol to boost/restore the lungs' antiviral responses to clear the virus. During the year, Synairgen completed a review of potential development opportunities for SNG001 through careful assessment of the underpinning science, strength of clinical data, trial feasibility, clinical need and commercial opportunity. This included options in both hospitalised and non-hospitalised patients, and those with critical illness due to any respiratory virus.

As a result of this analysis, it has become clear that the hospitalised patient setting provides the greatest opportunity for SNG001 to provide assessable benefit in a group of patients in whom there is considerable unmet clinical need. Synairgen has focused its efforts on projects designed to enable identification of hospitalised patients at the highest risk of poor outcomes, which would make clinical trials more targeted whilst maximising the chance of success clinically and commercially.

The Company has developed a new trial plan focussed on mechanically ventilated patients that takes into account a range of important factors including learnings from trials of SNG001 in hospitalised patients, the high unmet need, and the clear commercial strategy for this group of very expensive to treat patients. It is intended to commence the trial this winter and will be supported by data from various projects, including the UNIVERSAL trial, a UK-wide observational trial in patients hospitalised with respiratory viral infections, led by Prof. Tom Wilkinson and colleagues from the University of Southampton, in conjunction with pharmaceutical industry partners. Recruitment has continued at pace into UNIVERSAL and the important insights will help the Company develop criteria to select populations most likely to respond to SNG001 for inclusion in future clinical trials.

Our strategy and plans

Mechanically ventilated patients

Respiratory viral infections are a significant burden on the global healthcare system and are associated with high morbidity and mortality. Approximately 2.5 million12 people in the US continue to be hospitalised each year due to respiratory symptoms associated with a respiratory virus. Prior to the pandemic, influenza was often singled out as the main driver of the winter virus season accounting for ~0.5m1 hospitalisations each year, however it is estimated that the so called 'common cold viruses' such as rhinovirus, coronavirus, RSV, parainfluenza, HMPV and adenovirus collectively account for an additional 2 million hospitalisations2, and SARS-CoV-2 persists as a problematic pathogen.

Patients on ventilators with viral pneumonia have a 25-45%34 chance of dying. There are few approved antiviral options for these patients and, for most respiratory viruses, no specific antiviral treatments. The literature also indicates that patients who develop severe viral lung disease have higher viral loads and shed virus for longer pointing to a compromised immune/antiviral response.

1. https://www.cdc.gov/flu/about/burden/past-seasons.html
2. Sieling WD, Goldman CR, Oberhardt M, Phillips M, Finelli L, Saiman L. Comparative incidence and burden of respiratory viruses associated with hospitalization in adults in New York City. Influenza Other Respir Viruses. 2021 Sep;15(5):670-677.
3. Piroth L, Cottenet J, Mariet AS, Bonniaud P, Blot M, Tubert-Bitter P, Quantin C. Comparison of the characteristics, morbidity, and mortality of COVID-19 and seasonal influenza: a nationwide, population-based retrospective cohort study. Lancet Respir Med. 2021 Mar;9(3):251-259.
4. Louie JK, Acosta M, Winter K, Jean C, Gavali S, Schechter R, Vugia D, Harriman K, Matyas B, Glaser CA, Samuel MC, Rosenberg J, Talarico J, Hatch D; California Pandemic (H1N1) Working Group. Factors associated with death or hospitalization due to pandemic 2009 influenza A(H1N1) infection in California. JAMA. 2009 Nov 4;302(17):1896-902.

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Analyses of several trials conducted by Synairgen to date reveal that, across different patient populations and care settings, those with more severe disease at the start of treatment responded best to treatment with SNG001. This includes prevention of hospitalisation in patients treated in the community as well as progression to severe disease or death in patients hospitalised due to their viral infection. These observations underpin our strategy of targeting patients at the highest risk of poor outcomes.

As a broad-spectrum antiviral drug, SNG001 has shown in vitro effects against multiple respiratory viruses and in vivo has uncovered its potential to treat and/or prevent severe viral lung infection. Preparatory work for a trial commenced in 2023 and has continued into 2024. The company is currently finalising potential trial structures and a potential financing plan to enable it to pursue an enhanced trial structure. If this comes about, details will be communicated in due course.

UNIVERSAL trial

During the year the Group has continued its work with Prof. Tom Wilkinson from the University of Southampton to progress UNIVERSAL, a multi-centre observational study in patients recently hospitalised due to respiratory viruses. UNIVERSAL is supported by Synairgen, AstraZeneca, and Janssen. A key objective is to develop methods to identify patients at higher risk of poor outcomes due to respiratory viruses.

UNIVERSAL is progressing well with more than 500 patients recruited to date. Data and samples are being analysed as they are collected and will continue through 2024. Results from UNIVERSAL will provide more insight for the Company to help inform the design of future trials with SNG001, allowing Synairgen to identify patients at the highest risk of disease progression whilst avoiding patients who are more likely to recover rapidly without the need for an antiviral intervention.

Key learnings from other patient populations

Non-hospitalised: During the pandemic the Company generated encouraging data in non-hospitalised patients from both its own 'SG016 home trial' and through collaboration with the US Government's ACTIV-2 trial team, which was ultimately halted due to declining rates of infection. This COVID-19 data sits well alongside earlier data from trials in asthma and COPD.

Neither the SG016 home nor ACTIV-2 studies were powered to demonstrate statistical significance on hospital admission as an endpoint, however pooling the data from all 330 COVID-19 patients from the two studies showed that 1 out of 165 patients on SNG001 (<1%) were hospitalised compared to 10 out of 165 (6%) placebo patients56. This represents a ~90% relative risk reduction, a comparable reduction to that seen with Paxlovid in Phase 3 trials. The encouraging signals coincided with the less pathogenic Omicron becoming the dominant circulating variant. As a result, hospitalisation rates with COVID-19 significantly dropped, meaning that clinical trial sizes needed to confirm the efficacy of SNG001 in the outpatient setting would exceed thousands of patients and therefore became commercially unfeasible for a Company of Synairgen's size.

Despite this, Synairgen believes that SNG001 continues to be an attractive asset for inclusion in platform trials, a position the Company was not in prior to the pandemic.

Long term viral shedders: Beyond pandemic preparedness, Synairgen has explored various non- hospitalised patient groups who are particularly vulnerable to viral lung infections, with a particular focus on patients who struggle to clear the virus and become long term shedders of virus, many of whom are immunocompromised patients (e.g. through undertaking cancer treatments). After careful

1. Jagannathan P, Chew KW, Giganti MJ, Hughes MD, Moser C, Main MJ, Monk PD, Javan AC, Li JZ, Fletcher CV, McCarthy C, Wohl DA, Daar ES, Eron JJ, Currier JS, Singh U, Smith DM, Fischer W; ACTIV-2/A5401 Study Team. Safety and efficacy of inhaled interferon-β1a (SNG001) in adults with mild-to-moderateCOVID-19: a randomized, controlled, phase II trial. EClinicalMedicine. 2023 Oct 6;65:102250. doi: 10.1016/j.eclinm.2023.102250. PMID: 37855026; PMCID: PMC10579289.
2. Francis NA, Monk PD, Nuttall J, Oliver T, Simpson C, Brookes JL, Tear VJ, Thompson AG, Batten TN, Mankowski M, Wilkinson TM. Feasibility of home administration of nebulised interferon ß-1a (SNG001) for COVID-19: a remote study. BJGP Open. 2023 Dec 19;7(4):BJGPO.2023.0089. doi: 10.3399/BJGPO.2023.0089. PMID: 37669805; PMCID: PMC11176681.

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consideration, the Company elected not to fund its own trials in these very high-risk patients at this point in time. This decision was primarily based on the large size of trial required to demonstrate a reduction in the rate that patients are hospitalised, and the logistical complexity of patient identification. The Company will, however, continue to be open to trial collaborations in this area.

Summary

After conducting a rigorous evaluation of the clinical need, supporting scientific literature, trial feasibility, and commercial viability, Synairgen's strategic decision is to determine an appropriately sized trial in mechanically ventilated patients who it believes are most likely to benefit from SNG001 as a result of infection from a wide range of respiratory viruses causing appreciable morbidity, mortality and a strain on health care infrastructure.

The Company continues to be extremely excited by the potential for SNG001 to be the first inhaled broad-spectrum antiviral targeting the lungs. The Synairgen team is ever grateful for the support of its loyal investors, partners and staff in a crucial year where it has researched the rationale for, and is gearing up to execute on, the most appropriate strategy for the development of SNG001. The Company is currently finalising its assessment of the best combination of trial structure/locations and associated financing requirement and aim to communicate the outcome of this soon with a view to commencing the next Phase 2 trial this winter.

Financial Review

The Financial Review should be read in conjunction with the consolidated financial statements of the Company and its subsidiaries (together the 'Group') and the notes thereto on pages 40 to 57. The consolidated financial statements are prepared in accordance with UK-adopted international accounting standards.

The financial statements of the Company, set out on pages 58 to 64, are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework.

Consolidated Statement of Comprehensive Income

The loss from operations for the year ended 31 December 2023 was £10.3 million (2022: £20.3 million

loss) with research and development expenditure amounting to £6.5 million (2022: £14.9 million) and

other administrative expenses of £3.8 million (2022: £5.4 million).

Expenditure on research and development activity decreased in 2023, continuing the trend from the prior year, as the Group focussed on refining plans for future clinical trials.

Clinical trial expenditure was limited to the cost of closing out the SPRINTER, SG015 and SG016 trials, in conjunction with preparatory work to design future clinical trial activity, such as participation in the UNIVERSAL trial.

Manufacturing activities also reduced significantly in the year, with spend focussed on the manufacture of a new batch of drug product and placebo (pre-filled syringes), and third-party laboratory testing (incorporating stability, comparison and release testing of drug product, qualification of new reference standards). All manufacturing costs were expensed to the income statement.

Expenditure on science (R&D) and quality departments remain flat on the prior year, with regulatory costs reducing in-line with diminished trial activity.

Other administrative expenses totalled £3.8 million in 2023, which comprise all expenses which are not research and development expenditure, and predominantly reflect staff costs and professional fees. This represents a decrease of £1.6 million on the prior year (2022: £5.4 million), due to cost saving initiatives implemented within commercial, medical affairs, business development, and corporate communications.

Interest receivable increased from £0.2 million to £0.6 million, as deposit interest rates increased during 2023.

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The research and development tax credit (including R&D expenditure credit - "RDEC") decreased from £2.4 million to £1.3 million in line with reduced qualifying research and development expenditure. The credit equates to 20% of our 2023 research and development expenditure (2022: 16%).

The loss after tax for 2023 was £8.4 million (2022: £17.6 million) and the basic loss per share was 4.18p

(2022: basic loss per share of 8.76p).

Consolidated Statement of Financial Position and Cash Flows

At 31 December 2023, net assets amounted to £12.7 million (2022: £20.3 million), including cash and deposit balances of £12.0 million, comprising cash and cash equivalents of £10.5 million and other financial assets - bank deposits of £1.5 million (2022: £19.7 million cash and bank deposit balances).

The principal elements of the £7.7 million decrease during the year ended 31 December 2023 (2022: £14.1 million decrease) in cash and bank deposit balances were:

• Cash outflows from operations before changes in working capital: £9.4 million (2022: £19.3 million), with the reduction being attributable to the lower research and development administrative expenditure and as explained above;
• Changes in working capital: £1.2 million outflow (2022: £4.1 million outflow), due to a reduction in trade and other payables of £1.7 million, and a £0.5 million decrease in trade and other receivables;
• Interest received £0.6 million (2022: £0.2 million); and
• Research and development tax credits received: £2.4 million (2022: £9.1 million) on account of receipt of the 2022 tax credit.

The other significant changes in the Statement of Financial Position were:

• Current tax receivable decreased from £2.4 million to £1.3 million on account of the lower research and development tax credit (including RDEC) receivable;
• Trade and other receivables decreased by £0.5 million to £0.8 million (2022: £1.3 million), due predominantly to a reduction in prepayments due to the reduction in the level of operating expenditure;
• Trade and other payables decreased by £1.7 million to £1.6 million (2022: £3.3 million), in line with the reduction in the level of operating expenditure.

Parent Company Balance Sheet

Company only impairment review of investment in subsidiary.

The Company performed an impairment review of the carrying value of the Parent Company's investment in Synairgen Research Limited, using a value in use methodology, due to Synairgen's share price being an indicator of possible impairment. As a result of this review, it has concluded that the recoverable amount exceeds the carrying value, and therefore the investment is not impaired.

Key Performance Indicators (KPIs)

The Board considers that the most important KPIs during the year under review are non-financial and relate to the progress of pre-clinical and clinical programmes, and the advancement of manufacturing activities, which are discussed elsewhere in this report.

The most important financial KPIs are the research and development expenditure on clinical trial and on-going manufacturing activities, and the cash position of the Group. Cash and deposit balances reduced from £19.7 million to £12.0 million principally on account of the planned research and development expenditure. The financial results are discussed in the Financial Review above.

Section 172 statement

As required by section 172 of the Companies Act 2006, a director of a company must act in a way they consider, in good faith, would most likely promote the success of the company for the benefit of its shareholders. In doing this, the director must have regard, amongst other matters, to the:

1. Likely consequences of any decisions in the long-term;
2. Interests of the Company's employees;
3. Need to foster the Company's business relationships with suppliers, customers and others;
4. Impact of the Company's operations on the community and the environment;
5. Desirability of the Company maintaining a reputation for high standards of business conduct; and

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1. Need to act fairly between members of the Company.

As a Board, its aim is always to uphold the highest standards of governance and business conduct, taking decisions in the interests of the long-term sustainable success of the Company, generating value for its shareholders and contributing to wider society. The Board recognises that the business can only grow and prosper over the long term by understanding the views and needs of its stakeholders. Engaging with stakeholders is key to ensuring the Board has informed discussions and factors stakeholder interests into decision-making.

The following table, in combination with the Corporate Governance Statement set out on pages 16 to 20 and the Company's website (www.synairgen.com), sets out the framework of its engagement with key stakeholder groups.

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Our stakeholders	Material topics	How we engage
Investors
The Group continues to consume cash resources and	•	Business strategy	•	RNS announcements
remains dependent upon securing funding through share		Operational performance		Website and social media updates
issues. It is therefore critical that we have shareholders	•	•
who will continue to invest in the Company over the longer	•	Financial performance and cash	•	Meetings after preliminary statement release and interims for
term.
	requirements		investors
	•	Environmental, Social and Corporate	•	AGM
		Governance (ESG)		Proactive Investor interviews
			•
			•	Responses to direct investor questions
Employees
Synairgen has 36 employees (including executive	•	Operational targets and progress	•	Regular company meetings (virtual and face-to-face) and a policy of
directors) at the year end, who are multi-skilled and many		Opportunities to share ideas		open disclosure
of them have worked for the Group for many years. They	•		Regular virtual and face to face team meetings
all play a key role in the business, and it is vital that they all	•	Financial resources of the Group	•
understand and support the key decisions taken in the
		•	Open door policy to executive directors
running of the business.		Share price
•
	•	Working time flexibility and working	•	Company intranet
		from home
			•	Use of share-based incentives for employees
University of Southampton
Synairgen is a spin-out company from the University and	•	Operating facilities	•	Meetings with Founders
still maintains many links with it, which benefits both		Intellectual property		Interaction on projects with scientists and clinicians and the
parties. The University is Synairgen's landlord and certain	•	•
intellectual property is licensed from it.	•	Joint projects		University's Research & Innovation Services team
	•	Published papers

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