Thursday, January 7, 2016

Seeking Alpha: Synergy Pharmaceuticals Looks More Interesting Today

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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