BST Trade Alert: April 17, 2013
April 17, 2013
Recommendation:
Buy Synergy Pharmacetucials (NASDAQ: SGYP) up to $6.00 per share.
About the Company:
Synergy Pharmaceuticals is a development-stage biotech with a potentially super-nova bright future.
The company’s financial condition is rock solid. Their leading drug candidate might just be a better option for patients than the current FDA approved treatment. And the drug’s target market is worth several billion dollars a year.
What’s more, recent positive trial results make the company a juicy acquisition or partnership target.
However, despite these positives, the shares are down right now due to a recent public offering. As a result, we have an opportunity to snap up shares at a nice discount.
Here’s a little more background about this exciting biotech…
Synergy is focused on developing drugs to treat gastrointestinal (GI) disorders and diseases. They have two drugs currently in clinical testing. One is in mid- to late-stage testing and the other is in early-stage testing.
Both have blockbuster sales potential.
Of course, investors love biotechs with promising, late-stage drug candidates that could generate annual sales of a billion dollars or more.
But that’s not all…
In addition to an attractive pipeline, Synergy also boasts a strong balance sheet.
Thanks to the recent stock offering the company’s sitting on a cash hoard of approximately $117 million with zero debt. Given their cash burn rate of around $7.8 million a quarter, Synergy clearly has plenty of cash to see us through this trade.
In other words, the company won’t be doing another share-dilutive stock offering anytime soon. That’s a major share-price risk we don’t have to worry about.
In our opinion, Synergy has what investors look for in a development-stage biotech. As such, we think investors are likely to pounce on the shares now that the stock offering is complete.
But before we discuss the stock, let’s take a closer look at the company’s leading drug candidate.
About the Drug:
The company’s most advanced drug is Plecanatide. It’s an oral drug being developed to treat both chronic idiopathic constipation (CIC) and constipation-predominant irritable bowel syndrome (IBS-C).
One thing that makes this drug so exciting is that it belongs to a new class of non-systemic drugs called guanylate cyclase C (GC-C) agonists.
Plecanatide is a synthetic analog of uroguanylin, a natural human hormone that regulates ion and fluid transport in the intestine. As such, it binds to the same receptors on the inside of the GI tract as uroguanylin.
What’s more, Synergy believes the drug can restore the normal balance of fluid and thus restore the regular function of the intestine in patients suffering from CIC and IBS-C.
It’s not known what causes CIC.
But here’s what we do know…
CIC patients suffer from very hard stool and abdominal symptoms like bloating, discomfort, gas, and a feeling of incomplete evacuation. Patients with CIC typically have less than three bowel movements per week and often less than one. And the symptoms persist for six months or more.
Now, here’s the worst part…
Over the counter medications offer only short-term relief and are not indicated for chronic treatment. And while there are prescription drugs available, they have significant side effects and are effective in only half of patients treated.
The main side effect complained of by patients is diarrhea.
Clearly, these treatment options have major drawbacks to say the least. And there’s no question a safer and more effective treatment for CIC is needed.
That’s where plecanatide comes in.
Results from a phase 2b/3 trial released in January 2013 show plecanatide may just be the solution CIC patients need. The trial involved 951 CIC patients at 113 clinical sites in the US and evaluated 3 doses of plecanatide plus a placebo arm.
And not only was plecanatide well tolerated, it met both the primary and key secondary endpoints of the study. The key take away from this study is that plecanatide appears to normalize bowel movements with minimal diarrhea.
That’s a major improvement over existing CIC prescription drugs.
As we mentioned earlier, plecanatide is also being developed as a treatment for IBS-C.
This disorder is characterized by symptoms of abdominal pain or discomfort such as cramping, bloating, gas, and constipation or diarrhea or both. As such, it profoundly impacts patients’ physical, social, and working lives.
But again, Synergy believes plecanatide is the solution.
We’ll find out soon if it is. Results from a phase 2b study of plecanatide in 350 IBS-C patients are expected later this year.
The primary objective of this study is to select doses for the planned phase 3 studies. But the trial will also provide the first set of safety and efficacy data for plecanatide in this patient population.
Given plecanatide’s success in the CIC trial, chances are good it will perform well in the ongoing IBS-C trial. And if the results are good, Synergy shares should soar.
About the Market for This Product:
Chronic constipation is the most common digestive complaint in the US and the world. About 15% – or 45 million people – suffer from CIC in the US. And CIC is just as prevalent in other developed countries.
What’s more, IBS is also widespread.
It’s one of the most commonly diagnosed GI illnesses in the US. As many as 1 in 6 or up to 50 million adult Americans suffer from IBS. And about 13 million of them suffer from the IBS-C subtype.
Now, as we mentioned earlier, CIC and IBS-C patients do have prescription drugs they can take right now. Linaclotide (also known by its brand name, Linzess), by Ironwood Pharmaceuticals (NASDAQ: IRWD) and Forest Laboratories (NYSE: FRX) has been approved by the FDA for both conditions.
However, linaclotide is not an ideal treatment.
You see, it can cause diarrhea and nausea, both of which are as uncomfortable as the symptoms of IBS-C.
And that’s where plecanatide may have the advantage over linaclotide.
Remember, the trial data show plecanatide has a low incidence of diarrhea. That one significant difference could allow plecanatide to replace linaclotide if ultimately approved.
And if that happens, Synergy will be raking in the dough.
According to a Decision Resources study, sales of drugs to treat CIC and IBS-C in seven major markets are expected to soar from $620 million in 2010 to $3.2 billion by 2021.
About the Potential Catalyst:
Results of the phase 2b trial of plecanatide in IBS-C are expected by the end of 2013 or in early 2014.
About the Shares:
The recent public stock offering by Synergy has provided us with a golden opportunity to grab shares at a discount. When the offering was announced, the stock dropped from a recent high of $7.44 to a recent low of $5.23.
But it has now rebounded to $5.38 per share.
In other words, we can pick up SGYP at a 28% discount to where it was trading just a few days ago. And we can get the shares for less than the public offering price of $5.50.
We think this is very attractive entry point for our trade.
At $5.38 per share, Synergy has a market cap of just $395 million. That’s hardly factoring the drug’s multi-billion dollar a year sales potential.
As a result, we expect SGYP to trend higher this year. Investors are likely drive SGYP up significantly in anticipation of the phase 2b trial results for plecanatide in IBS-C later this year.
Go ahead and grab your shares of SGYP as soon as possible. Establish your positions before the herd rushes back in.
Key Facts:
| Company: | Synergy Pharmaceuticals |
| Ticker: | SGYP |
| Recent Price: | $5.38 |
| Market Cap: | $395 million |
| Avg. Daily Volume: | 663,125 shares |
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Category: BST Trade Alert
