I can't really complain with how the Synergy Pharmaceuticals (NASDAQ:SGYP) story has developed. When I last wrote about the stock
in April, I calculated a fair value of just under $6 with the shares
trading at around $4 at the time. Since then, the shares have moved up
$1 (up about 25%), though there was a big move up to $10 in the meantime
as investors reacted very positively to strong Phase III data on the
company's lead drug.
Since then, I think reality has set in and dragged the
shares down with it. Medically significant constipation (by which I mean
a condition that is persistent and not quickly relieved with OTC
options) has proven to be a challenging market for Allergan (NYSE:AGN)/Ironwood (NASDAQ:IRWD) and Sucampo (NASDAQ:SCMP)/Takeda (OTCPK:TKPYY),
as these companies have had to push direct-to-consumer campaigns to
drive awareness. I likewise believe that investors had inflated
expectations of an acquisition, and impatience with that process has
disappointed some shareholders (or former shareholders).
I do believe that Allergan et al are slowly chipping
away at the awareness issue, and that by virtue of its solid efficacy
and better tolerability, Synergy can reap the benefits of these early
market-building exercises. My fair value estimate has nearly doubled as
the successful Phase III results for plecanatide significantly de-risked
the value and I believe the company's efficacy/safety trade-off can
gain more share than I previously assumed. I do see meaningful risk of
further dilution as the company will need to raise funds to build a
marketing effort, and investors will likewise have to wait to see
whether a lower-dose version of linaclotide can better balance the
tolerability issues.
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Synergy Pharmaceuticals Looks More Interesting Today
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