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Synergy Pharmaceuticals (SGYP) has seen volatility ahead of a key data release on lead product candidate Plecanatide, which is being developed to treat chronic constipation, among other gastrointestinal disorders. Just this month, Synergy's Chairman bought $317,000 worth of stock and institutional investors added a net 438,000 shares as of Q3 2012, according to NASDAQ.com. Shares of the company have been advancing, testing six-month highs on above-average volume. What better time to reach out and seek clarity on some of the topics this company's investors care about most? The following is a transcript of my interview with Synergy's CEO, Gary Jacob (denoted as "Gary Jacob" throughout; the bold text represents my questions).

Mr. Jacob, thank you for participating in this interview.

Gary Jacob: It's a pleasure.

So let's jump right in to the questions about Synergy and what makes the company exciting to investors. I'll start with the treatment segment for gastrointestinal (GI) disorders. This area has become a real hot space in recent years. What are investors so excited about?

Gary Jacob: Well, I think this is an area that has gone pretty much or virtually neglected by big pharma. When we talk about GI disorders, we're primarily talking about chronic constipation and irritable bowel syndrome (IBS) and these are conditions that have plagued millions and millions of people. In the US alone, you have on the range of 45 million people who suffer from just chronic constipation (CC) alone. And, in fact, it is the most common digestive complaint in the United States and in the world, and yet there's been very little the gastroenterologist physicians can really provide all of these millions of people with these GI disorders.

What's really starting to excite a lot of the investors is that this is an example of a major unmet medical need. Very similar to what happened in the field of gastroesophageal reflux disease or heartburn or commonly referred to as GERD, where until Prilosec and Nexium came along, people were really silently suffering and now these are multibillion-dollar drugs serving a very important need. And that's where I believe there's a general recognition that in the GI space, the GI disorders, that this is an opportunity for a safe and effective drug to really change the landscape.

In fact, up until just recently, there was only one approved drug in this space in the US to treat chronic constipation and IBS, and that's a drug that's currently marketed by Sucampo (SCMP) and Takeda in the US. It's called Amitiza and it's the only approved drug in this space. But at the end of August, there is an approval by the FDA of a drug from a totally new class called GC-C receptor agonists. This drug and this new class are exciting a lot of investors because of the recognition that with a new, totally new mechanism, there is a way that these silent sufferers have a new treatment that can benefit them.

One other important element to this story is that in the U.S. and in Europe, you're dealing with an aging population. Baby boomers are getting older and these conditions, these GI disorders, chronic constipation and IBS generally are recognized as maladies that are associated with aging. So with baby boomers moving into their older years and into their elder years, you're seeing a huge increase in the number of patients who are not getting any real beneficial treatment at present. That is where I believe there is an increasing excitement on the part of investors with respect to a new class of drugs to treat these silent sufferers with GI disorders.

So it's a big market; it's growing with an aging population. Are there new therapies coming to the forefront?

Gary Jacob: That's correct.

And is Big Pharma getting involved more now?

Gary Jacob: Certainly. Big Pharma had been involved in a major way. The drug that was a major player in this space, called Zelnorm, which was marketed in the U.S. by Novartis (NVS), was headed toward blockbuster status when it was pulled in the spring of 2007 because of toxicity -- a heart toxicity -- and that changed, in fact, the whole landscape of treatments for this field of GI disorders. It highlighted the need, the clear need, for a safe and effective way to treat these patients. And it certainly highlighted the fact that with a safe and effective drug, Big Pharma would be very interested in the market opportunity because we're talking about blockbuster drug potential.

So how does Synergy specifically fit into the category? Which products are expected to drive shareholder value?

Gary Jacob: The key to Synergy, of course, is our flagship drug Plecanatide, which is in late-stage clinical development. And Plecanatide is a member of this totally new class of drugs called GC-C receptor agonists. These are drugs that are based on a totally new way to treat GI disorders. The first in class drug linaclotide was just approved by FDA in August. The only other drug in this space that it works in an identical mechanism, in an identical way, is our drug Plecanatide. So we are really excited because this new class of drugs, we believe, is going to be a major advance for treating these millions and millions of people who have found inadequate treatments to present.

The other important point about our drug Plecanatide is that it is a drug that is taken orally once a day -- essentially is not absorbed into the bloodstream -- but works locally in the GI tract, and it targets a specific receptor that is distributed throughout your GI tract called the GC-C receptor. Because it is not essentially absorbed into the bloodstream, there is a real benefit in terms of dramatic reduction in risk of the kinds of systemic toxicities that you typically see that have plagued a number of drugs such as Vioxx, a Merck (MRK) drug which was pulled from the marketplace for rheumatoid arthritis; Avandia, a diabetes drug; and Zelnorm I mentioned earlier from Novartis, that was a systemic drug. These are all drugs that have shown systemic toxicities.

The advantage of this new class of drug, this GC-C receptor agonist, is that they work locally in the GI tract and essentially are not absorbed into the blood stream. Hence, there is a significant reduction in the potential for side effects, for systemic side effects, of toxicities. I think that's going to become a hallmark of this new class of drug of which Plecanatide is, we believe, the drug that has the potential to be best in class of this new class of GC-C receptor agonists.

How does Plecanatide work as a treatment for chronic constipation as well as irritable bowel syndrome, or IBS?

Gary Jacob: Well, Plecanatide is an analog of a human hormone called uroguanylin. Uroguanylin was discovered in the 1990s at Monsanto and the University of Missouri. It's a peptide hormone, and plays a key role in your upper GI -- just past your stomach -- in controlling the movement of fluid into the luminal space of the intestine. It mimics that human hormone. It is an analog of that human hormone, and it acts in an identical way to activate a receptor and to move fluid. The movement of fluid is a major benefit in alleviating the constipation that's associated with chronic constipation and IBS.

It also has been demonstrated through successful clinical trials with this new class of drug that this new class has a clear benefit in reducing pain and abdominal discomfort, which is a major problem for people with chronic constipation and IBS-C, the constipation predominant form of IBS. So our drug really works just the way your natural hormone operates in controlling the normal GI physiology in your upper GI tract.

The recent drug that was approved, linaclotide (brand name Linzess), did its FDA approved literature indicate reduction of pain?

Gary Jacob: Absolutely. In fact, Ironwood (IRWD) conducted four registration trials: two in chronic constipation and two in IBS-C. And specifically in the IBS-C trials, a co-primary endpoint is reduction in abdominal pain and discomfort. So there's clear indication that this new class of drugs benefits people with this abdominal discomfort, pain, bloating, and gas -- major problems with that particular GI disorder. So this is really great news because what you really need in a drug to treat GI disorders, is a drug that improves frequency of bowel movement, reduces abdominal discomfort and pain, and has an excellent safety profile. That's what we see is going to be the hallmark of this new class of drugs.

Since your drug works through the same mechanism as Linzess, you'd expect to see those same types of benefits from Plecanatide?

Gary Jacob: Our drug, Plecanatide, and Linzess both act as agonists hitting the exact same receptor, the GC-C receptor. So the reason we are very excited about our drug is that there is already proof of concept, and, in fact, an approval by FDA of the first-in-class drug for this new class. Plecanatide is the only other drug in that class that is presently in the clinic.

Could you take a moment to tell us a little bit about your background in pharmaceutical development?

Gary Jacob: Certainly. I've been involved in drug discovery and drug development for virtually all of my adult life. I started actually at Monsanto Searle in the early 1980s. It was a time when Monsanto was transitioning into the healthcare space and acquired G.D. Searle, a pharmaceutical company. I subsequently spent a number of years at Oxford University heading up a drug discovery program, and in the 1990s came back to Monsanto Searle where we developed the Searle Monsanto program around Celebrex, the COX-2 inhibitor.

I've been involved with drug discovery and development for a number of years now, and in 2000 left Monsanto Searle to become head of Synergy when it was first a private company and now as a public entity, and have been moving forward with this class 1 technology around GC-C receptor agonists from that point, 2000 on.

Given your experience, what gives you confidence that Plecanatide can become a commercial success?

Gary Jacob: Well, I think the important point is that there's already an approval of a first-in-class drug from this new class of drugs, the GC-C receptor agonists. The excitement around Linzess, which is likely going to be launched toward the end of this year or early 2013 by Ironwood and Forest (FRX), gives us a high level of confidence that there's already clarity regarding not only the benefit of this new class, but from a regulatory standpoint, this class has met the requirements of an FDA approval.

So for us, it's a very exciting time. I will point out that the distinction between our drug and Linzess is that our drug is an analog of the human hormone that is the natural agonist of the receptor. Linzess is essentially a form of ST peptide, which is an enterotoxin produced by E. coli that have taken that receptor hostage. It's generally thought that ST peptide is an agent that produces traveler's diarrhea. So we see the distinction between Plecanatide and linaclotide having to do more with what we believe is a lessening of a side effect that you see with Linzess, which is a level of diarrhea that they report in their Phase III trials. We believe that that's where Plecanatide will differentiate itself from Linzess.

But certainly we're excited about this new class of drug, and we believe that it's going to be a major player in treating people moving ahead who suffer from chronic constipation and the constipation predominant form of IBS.

So we're expecting results from Plecanatide by the end of this year. These are what you guys are calling Phase II/III clinical results. What does the company mean by Phase II/III, and what are the results that you are looking for out of this trial?

Gary Jacob: Well, firstly, what is a Phase III and a Phase II trial? Generally, from the standpoint of FDA, the FDA is concerned about registration trials or non-registration trials. A registration trial is what the industry calls a Phase III trial, and the FDA mandates two registration trials for an approval in a disease indication. Every other trial that a company conducts is maybe staged as Phase I, II, IIa, IIb but they're all essentially corporate decisions to get you to registration trials.

So what we did with this trial was, we have elements of what we call a Phase IIb trial, which is a trial that's generally used to set the doses that you use for a registration trial. But we also designed the trial to meet all of the standards, all of the requirements, of a Phase III registration trial. So we believe that with the data from this trial, we will essentially know if this is an approvable drug, and that's why we have indicated it as a Phase III trial. We also refer to it as a Phase II because we're using additional doses -- one that we believe will be an underperforming dose -- so that we can get further information on what is the precise dose that you would really want to be using, for which we would expect to get an approval from the FDA. We've built in both elements of a Phase IIb as well as a Phase III registration trial.

If this trial succeeds, it's important to investors that this can be used as one of the registration trials for an NDA (new drug application). Is that in the works?

Gary Jacob: Exactly. Of course, only the FDA can designate whether they believe that this trial, as it was executed, meets the requirements formally of a registration trial. However, it gives us great confidence that we have a trial that demonstrates that our drug meets the requirements of an approved drug. And then of course, we will work with the FDA to define what the strategy is for following on with the additional trials that you need in order to get an approval for the particular disease indication.

Then would the meeting that you would have after a successful trial be an end-of-Phase-II meeting or an end-of-Phase-III meeting? Which one would you have with the FDA? In short, how much FDA input do you have thus far?

Gary Jacob: We will have an end-of-Phase-II meeting with the FDA in the early part of 2013 once we have the data generated from this trial. That is a meeting with the FDA that is utilized to really map out the strategy for further clinical development of your drug all the way to what's called a new drug application, or NDA for short.

So once that end-of-Phase-II meeting has occurred, the company has clarity regarding what is needed in order to get you through to a filing for approval. Now we have been working closely with the FDA in terms of guidance from them regarding the protocols that we've used for earlier trials, both our Phase IIa trial with Plecanatide as well as the ongoing Phase IIb/III trial, and have had a lot of useful interaction with the FDA. We believe that we are in close concordance with the FDA regarding what we need in order to get an approval for this indication.

I will also point out that we have benefited from the track record that is laid out by Ironwood and Forest in moving forward with Linzess with the agency, as well in terms of what is the primary endpoint for an approval in chronic constipation and in IBS-C and all of the other requirements that you need in order to put together a successful NDA package.

Ironwood's advancement of Linzess gives you some good clues in terms of how the Phase III trial will be structured. Are you confident that this Phase II/III trial has those elements?

Gary Jacob: Absolutely. In fact, it enabled us to really utilize the clinical development program that they utilized, and feedback from the FDA, to develop what we believe is the best way to take Plecanatide all the way through an approval.

How do you view the recent approval of Ironwood and Forest, especially given that the products act similarly?

Gary Jacob: I think it is a major advance and a major step for the treatment of these millions of people with chronic constipation and IBS. I believe that it's going to generate a broad awareness that this new class of drugs, these GC-C receptor agonists, are going to be a major new way to treat these GI disorders that have been substantially neglected for some time. So from our standpoint, we believe that recognition within the GI community and among patients in terms of educating about this new class of drugs is going to be very beneficial for us, of course, as well as the marketing of Linzess for these treatments.

In terms of building the market, Linzess will have a head start over your compound. Assuming your compound beats all the hurdles in Phase III and the FDA, how do you view them getting ahead of you? Does it benefit Synergy, or is it going to be hard to break into the market?

Gary Jacob: We'll argue, of course, that they're going to be doing a lot of that heavy lifting in terms of educating the GI community and patients, and building a broad recognition that this new class of drugs can really benefit patients and the market. From that standpoint, we see that as a really good thing. We also believe that the market potential here is in the billions. We're talking about blockbuster drug potential, and building a market over the next few years will take time. We believe that by focusing our strategy with our drug to clearly show how our drug is differentiated from Linzess, and coming out into the marketplace with the drug, that shows what we believe will be a difference in the level of diarrhea, which is where we believe there is a clear distinguishing factor between Linzess and Plecanatide. That there will be an advantage in providing patients with more than a single drug from this class, that's been recognized generally with the pharmaceutical community for many years.

If you look at other clear mechanisms of action -- whether you're talking about the PPIs, the proton pump inhibitors where you have both Prilosec and Nexium, or the drugs to treat rheumatoid arthritis, Celebrex, Vioxx before it was pulled from the marketplace -- you see that there are multiple examples of drugs that work in an identical way, are structurally different, and that are all selling in terms of blockbuster status.

So we see this as an excellent time for Synergy because during this period we can follow and track the performance of Linzess as it goes into commercial marketing and also work to show how our drug is differentiated. We believe there will be an advantage to patients to have more than one drug from this class, since choice is always very good.

There's been some talk about Synergy potentially entering into a partnership with a major drug company to help finalize development and perhaps fund the development of Plecanatide, as well as market Plecanatide once it's approved. What can you say about these partnership rumors, and what type of partner are you looking for, if any?

Gary Jacob: Well, certainly our main emphasis has been driving our clinical program because, as you know, any partnering is predicated on a drug that is showing excellent clinical data. So for us that's been our primary concern. But I would say that naturally it would be expected that a drug that demonstrates the potential to impact a major unmet medical need, which is what GI disorders exemplify, there will be a great interest from Big Pharma. But we have made no statements publicly about any specific interactions at this point with any potential Big Pharma representatives, or any further discussions about how we might look to partner this drug and further develop it.

For investors trying to get their arms around the story, if there were partnership discussions, would you be looking for companies that are experienced in the GI space or ones that are new?

Gary Jacob: Well, I think that it's important to recognize that when you're dealing with drugs to treat these GI disorders, it's a primary care focus. So you need pharmaceutical companies that have a large sales force that deals with primary care and so that --

By primary care, you mean your generalist physicians that are out in the community, not specialists in the GI area?

Gary Jacob: Exactly. Because when these patients first present, they're generally talking about their problems with their primary care physician. So it's the primary care physician that generally will first look to help the patient. In cases where it's more serious, these primary care physicians can then refer the patients to a gastroenterologist. So what you're dealing with drugs to treat these GI disorders, is a primary care arena where you're looking at pharmaceutical companies that are comfortable with those kinds of marketing scenarios. So that generally includes the multinational Big Pharma and certainly certain GI focused pharmaceutical companies that have a major emphasis in marketing in that particular space.

Recently you settled with Ironwood on patents that might have crossed over with your patents on Plecanatide. Why was that settlement important and can you briefly review the terms?

Gary Jacob: Sure. So we have felt very strongly about our own IP or intellectual property estate, and from the very beginning we've had what's called composition of patents. These are patents that deal specifically with the compound per se, with the structure. We've had worldwide protection around Plecanatide based on these patents. That's a very important point because it enables you to take your drug all the way through to commercializing, to launching and commercializing. But there had been in the early part of this year, a patent that had issued from Ironwood that covered a very broad claim around a class of these GC-C receptor agonists to treat GI disorders. This claim was a concern because it suggested that we would not have what's called freedom to operate in terms of using our drug to treat constipation and IBS-C.

In September, we announced that we had come to an agreement with Ironwood in which Synergy now has clarity -- in terms of our investors', freedom -- to operate in terms of our commercialization of Plecanatide or potential commercialization of Plecanatide to treat chronic constipation and IBS. So we signed a letter of intent for a definitive agreement. And what that has done is it indicates that we will not challenge Ironwood's intellectual property moving forward, and they won't challenge our intellectual property, with one caveat -- that we still believe that the patent that was issued in January that had that claim, that broad claim, that we have the freedom to seek to challenge that patent.

But the clear message is that this agreement between Ironwood and Synergy clarifies Synergy's freedom to operate in terms of Plecanatide to treat GI disorders.

And by GI disorders, you mean the chronic constipation, as well as the IBS associated with constipation indication?

Gary Jacob: That's correct. And in fact, even in the broader sense of other elements of GI disorders that are not just, you know, that are also under the umbrella of GI disorders beyond chronic constipation and IBS-C.

You have other compounds in the pipeline. Can you talk to us about what other interesting [candidates] you have?

Gary Jacob: Certainly. We are quite excited about our second-generation GC-C receptor agonist, SP-333. We recently announced that we have now brought SP-333 into the clinic and dosed our first volunteers. This is a drug that we're looking to explore to treat GI inflammatory bowel disease, IBD, more specifically, ulcerative colitis. This actually is an important point because as I mentioned earlier with this new class of drugs, we're seeing a benefit in treating people with abdominal discomfort and pain.

What Synergy has discovered is that this class of agonists, these GC-C receptor agonists, show a potent anti-inflammatory activity. In a number of animal models, we've demonstrated this clear new mechanism that produces this anti-inflammatory activity, and it's excited us with the potential that this new class can treat more than just GI disorders, but can in fact treat people with GI diseases such as ulcerative colitis, which is an acute inflammatory and chronic inflammatory disease. So SP-333 has been designed and formulated to explore its potential in treating people with ulcerative colitis, and once we have finished our early Phase I studies in volunteers, we plan to take SP-333 into a Phase II trial in people with mild to moderate ulcerative colitis. So that, we believe, will expand this new class of GC-C receptor agonists out and beyond the GI disorder space and into the broader GI disease space.

In addition, in August we announced that we had closed a deal with Bristol-Myers (BMY) to acquire FV-100, which is a drug candidate that had been developed to treat shingles, which is a condition that is also one that primarily affects people who are aging and who have a chickenpox virus, that silent virus that they have had from their childhood and then in adult life can express a very serious outbreak referred to as shingles.

FV-100 is a nucleoside that we believe has real potential in treating these people with shingles, and it's a drug that we know a great deal about. The inventor of the drug is on our board and we have a lot of experience in what it will take to take FV-100 through to an approval. So it's a drug that we'll be developing a clinical program around, and we haven't given any guidance yet regarding how we will be exploring its further development. But it's something that we believe is going to broaden our clinical pipeline.

You have the IBS and chronic constipation focus with Plecanatide, FV 100- focused on shingles, and SP-333 targeting inflammatory bowel disease. How does that fit together? How should we think about Synergy in terms of its therapeutic focus?

Gary Jacob: Excellent question and no pun intended -- we believe the name Synergy in fact exemplifies our strategy here, our theme, which is that we're looking at how we can use our clinical experience to explore the development of drugs that require what are called "patient reported outcome instruments" for evaluating a benefit to patients who suffer from abdominal discomfort and pain in the GI disorder space. Or, for example in shingles, people who are suffering from post-herpetic neuralgia. So we believe that FV-100 is an excellent fit to our overall program and overall theme. Although many might view shingles as an infectious disease, we view this as a natural area for Synergy to broaden its general pipeline.

Final question on the long-term strategy for Synergy. Do you plan to build this company to be a commercial company, or will Synergy become part of another larger organization over time?

Gary Jacob: So, we actually believe that our major responsibility is to build shareholder value for our stakeholders by really driving forward with the clinical development program. A key strategy for us is to control 100% of the worldwide commercial rights, and so we have not yet done any partnering for any geographic area and that is a key strategic goal for the company, to continue to control 100% of the worldwide rights. We believe that with top-line data, that will enable us to define how we go from there. That could lead us to partnerships; it could lead to a potential merger-acquisition type deal; but we have not focused on or we have not ruled out any possible further business development option. Our view is that once we have our top-line data from Plecanatide,that we will then reevaluate what is the best way forward, but our clear mandate is to continue to build shareholder value.

So shareholder value is top of the list.

Gary Jacob: Right, and we are really focused on clinical development and leaving all of the options for how we might -- from a business development standpoint -- move forward, whether that be looking at potentially developing joint partnerships for further development and marketing, or whether we would look at an exit through an M&A deal. But we haven't ruled out any of those options at this particular point.

What would you say the next big event investors should be looking forward to with Synergy?

Gary Jacob: That one is easy. It's clearly the release of top-line data on our Phase IIb/III trial with Plecanatide in chronic constipation patients. The guidance we have given is that we're expecting to release top-line data by the end of the year.

Can you fine-tune that guidance a bit more specifically?

Gary Jacob: It will be very late in the year. We actually announced in August that we have achieved the key number of 880 patients in that planned trial, and were continuing to enroll up through the end of August. So the database lock won't be occurring until early December. And we'll then, of course, be working very hard to generate the top-line data and release that as soon as we can. But it will come very late in the year.

And execution of that trial is still on track to where you initially set it?

Gary Jacob: Absolutely; we're totally on track.

Great. Gary, thank you for your time.

Source: Synergy CEO Reveals Why Investors Are Eagerly Anticipating Key Data