Synergy Pharmaceuticals (SGYP) is well-funded, with over $100 million in cash after its last capital raise, and the weakening biotech tape of late enables investors to take advantage of SGYP’s depressed price, a message reinforced by two insider purchases by the company’s founder and Chairman Gabriele Cerrone. Apparently, Mr. Cerrone sees value in the stock in the mid-$4.00 range, roughly $1.00 below Synergy’s most recent capital raise. PropThink reported on SGYP after full Phase IIb/IIIa results were presented at Digestive Disease Week (DDW) in Orlando Florida last month, and while news flow for the stock is quiet for now, shares are a great long-term buy in our view. Patient investors are likely to be rewarded, and Mr. Cerrone’s acquisition of stock at these levels is a nice vote of confidence in the investment thesis.
While Citigroup was one of the bankers on the recent capital raise (we also expect an initiation from Credit Suisse in the near-term), we note that Citi’s initiation contains one of the more conservative views on peak revenue, with an estimate of $550 million annually for plecanatide, Synergy’s candidate for chronic constipation (CC) and irritable bowel syndrome (IBS). Nevertheless, the investment bank still issued a 12-month price target of $8.50. Most analysts expect plecanatide to achieve peak sales near or above $1 billion annually, thus this analyst could be highly conservative, especially if a large drug manufacturer acquires the asset. The current average price target on Synergy from Wall Street analysts is $14.30 given that many are modeling much higher sales for plecanatide than Citi has forecast. Either way, investors win, and with a full balance sheet, a product candidate with strong late-stage clinical data and a large market, a sale of SGYP to big pharma remains a strong possibility. We expect investors to begin stepping up on SGYP with long-term dollars and the idea that there’s significant upside in this name with some patience.
The company should be meeting with the FDA soon to get full details on what’s needed for Phase III and the completion of development for plecanatide. After that, discussions with potential partners or acquirers could begin. Remember that this investment thesis is based largely on competitor Ironwood Labs’ (IRWD) $1.3 billion market cap, which suggests what Synergy could look like in a couple of years if a specialty pharma partner is in the cards (Ironwood is partnered with Forest Labs [FRX] on its own IBS and CC product Linzess). Using this as a jumping off point, SGYP’s upside potential is a multiple of where the stock trades today.
In connection with SGYP, PropThink has taken a long position.
