BioPharma Catalyst And Investment Pick In Focus: Synergy Pharma

Written by Scott Matusow and Kyle Dennis

Today we focus on a bio-pharmaceutical company with several near-term catalysts and give our thesis why we believe the company makes for a good long-term speculative investment.

Synergy Pharmaceuticals (SGYP) focuses on the development of drugs to treat gastrointestinal disorders and diseases. The company is developing two proprietary compounds for treating IBS-S gastrointestinal diseases:

1. Plecantide is being studied in patients who suffer from chronic idiopathic constipation (CIC) as well as irritable bowel syndrome with constipation (IBS-C)

2. SP-333 is being evaluated in patients who suffer from OIC and ulcerative colitis (UC)

Compound

Indication

Pre-Clinical

phase 1

phase 2

phase 3

Marketed

Plecanatide (SP-304)

CIC

Pre-Clinical Phase completed

Phase 1 completed

Phase 2 completed

Phase 3 in progress

Marketing not started

IBS-C

Pre-Clinical Phase completed

Phase 1 completed

Phase 2 in progress

Phase 3 not started

Marketing not started

SP-333

UC

Pre-Clinical Phase completed

Phase 1 completed

Phase 2 in progress

Phase 3 not started

Marketing not started

Other GI Conditions

Pre-Clinical Phase completed

Phase 1 completed

Phase 2 in progress

Phase 3 not started

Marketing not started

Click to enlarge

Synergy's Developmental Drug Plecanatide

IBS-C and CIC are very similar in nature. Both are typically treatable by the same medications, but the two indications are different in several ways. IBS-C is characterized by chronic abdominal pain, discomfort, bloating and alteration of bowel habits and associated with constipation. In most cases these symptoms are relieved with bowel movements. CIC is defined as chronic constipation that has no known physical or physiological cause. Plecanatide is designed to increase complete spontaneous bowel movements (CSBMs), in turn providing relief of the symptoms of CIC as well.

There is no exact known cause for either of the indications, and both are believed to be neurological and caused by a miscommunication between the brain and the digestive system. Doctors believe that this miscommunication results in a disruption in the transport of fluids into the GI tract that allow digestion, in turn causing constipation and other physiological consequences. Trials evaluate CIC and IBS-C patients separately, but as with competitors Amitiza and Linzess, both indications are treated with the same therapy. The IBS-C and CIC market sits at about $2 billion. Approximately 35 million Americans suffer from CIC and an estimated 13 million are affected by IBS-C.

SP-333, which is a "next generation" form of Plecanatide, is being studied in patients who suffer from opioid-induced constipation which is a very common side effect of opioid painkillers. SP-333 is another synthetic analogue of uroguanylin which has found to have very potent anti-inflammatory properties. Synergy calls SP-333 its next generation GC-C agonist and is currently undergoing a phase II study evaluating patients OIC. The OIC market sits at an approximately $1.5 billion market which several companies have unsuccessfully tapped. Salix and Progenics are on their second go around with Relistor for OIC after receiving a CRL for the indication.

SP-333 is also being studied in patients with ulcerative colitis. Synergy believes the anti-inflammatory properties of SP-333 will allow it to be very effective against inflammatory bowel diseases such as UC and Crohns. The compound is thought to suppress the release of anti-inflammatory cytokines that are released with inflammation of the colon.

Technology

Plecanatide and its next generation compound SP-333 are synthetic analogs of uroguanylin. The hormone uroguanylin is produced in the small intestine and regulates critical gastrointestinal functions. Scientists have found that the human body requires a certain amount of fluid to be secreted into the GI tract to help facilitate the digestive process like lubrication. It is believed that a disruption in fluid transportation into the small intestine may cause the symptoms related to IBS-C and CIC. Uroguanylin plays a key role in regulating this process by controlling the amount of fluid secreted into the GI tract to normalize bowel function. Plecanatide mimics Uroguanylin and is actually more effective and more potent due to the enhanced chemical makeup of the compound. One key amino acid change in chemical structure allows for more potency and stability at the site of the GC-C receptor. This has allowed for the composition of matter patent, which is valid through 2022. Synergy's biochemists believe that this is the reason for Plecanatide's low incidence of diarrhea as a side effect compared to approved IBS-C products Amitiza by Sucampo (SCMP) and Linzess by Ironwood Pharmaceuticals (IRWD). Diarrhea is the most common side effect of IBS-C medications on the market and accounts for the large amount of discontinuations of medication.

Linzess was launched in December 2012 in collaboration with Forest Labs (FRX) for patients suffering from IBS-C or CIC. Ironwood's stock hit a peak of around $19 on strong speculation that sales would be very good out of the gate. The stock slid back to around $10 on reports that Linzess might not be as safe as first thought. However, analysts at Cantor reported that the FDA has not indicated that the Linzess label may require additional safety language.

Recently, Forrest reported sales of the drug of $34.4 million in the third quarter of 2013 compared to $28.8 million in the preceding quarter - a clear sign Lizness is gaining market acceptance and traction.

According to a report written by Don Seiffert, at least one analyst believes Lizness sales will hit over $1.4B by 2018:

A survey of doctors commissioned by Leerink Swann found that while Ironwood Pharmaceuticals' drug to treat irritable bowel syndrome has captured a smaller percentage of the market since its launch in December, patients are staying on the drug longer.

The 30 gastroenterologists and 30 primary care doctors surveyed also said they plan to increase prescriptions of Linzess by three to six times over current levels. The survey confirmed Leerink Swann's previous expectations that sales of the drug will hit $1.4 billion by 2018, the investment firm said in a research note Monday.

These developments bode very well for Synergy moving forward in lieu of the company's current market cap under $500M. Based on the previously proven mechanism of action found in Linzess, we believe that Synergy's top notch safety profile and potentially better efficacy will place Plecantide as "best in class" medication. If approved, it's a good bet Plecantide will be cutting into that $1.4B Lizness sales estimate offered by Leerink.

Odds are very much in Plecnatide's favor that final clinical studies will prove Plecanatide's profile successful in phase III trials. If so, the current market cap and related stock price of Synergy will see a huge percentage increase.

Clinical Trials

Before Linzess and Amitiza came to market, laxatives were typically used and prescribed by doctors to treat these disorders. Not since about ten years ago have advanced medications been studied for these types of bowel diseases and the markets for most of these disorders are large. Not a lot is understood about how and why most of these gastrointestinal disorders occur. For this reason, we are starting to see more and more impressive compounds being found and studied in clinical trials as the demand for such medications increases. What we like about GC-C agonists and Plecanatide in particular is how safe they are and how quickly they work. Patients taking Plecanatide daily experience complete spontaneous bowel movements (CSBMs) well within a 24 hour time period.

IBS-C: ClinicalTrials.gov Identifier: NCT01722318

The company expects to release topline data from its Phase IIb trial evaluating 350 patients suffering from IBS-C in early Q2 2014, possibly earlier in late Q1. The endpoint in the trial will measure the number of CSBM's per week. Secondary endpoint measures the abdominal pain intensity and stool frequency as co-endpoints for the responder analysis. Enrollment was completed in December and data is to be released in early April. We're expecting this release to show positive results after review of recently impressive safety and efficacy data of Plecanatide in CIC patients. We believe that the risk profile of the study is very low.

CIC: ClinicalTrials.gov Identifier: NCT01429987

A Phase IIb/III trial evaluating 951 patients with CIC has provided the base in which analysts have been able build an overall bull thesis on positively favoring Plecanatide. Primary endpoint measured what was considered a feeling of "total evacuation" caused by a complete spontaneous bowel movement occurring 24 hours post-laxative-use, and on increase of at least one of these from baseline. Secondary endpoint was designed to find a reduction in straining and abdominal symptoms such as pain, bloating, and discomfort.

Data released from this phase IIb/III study evaluating patients suffering from CIC was most impressive. It showed more compelling safety and efficacy than most analysts had expected. The consensus on the street is that Plecanatide will inevitably become the market leader over Linzess after approval due to its much better safety and efficacy profile. We believe that this phase IIb data shows Plecantide works extremely well and is safer than Linzess:

  1. 9.7% rate of diarrhea vs. Linzess 16% rate of diarrhea
  2. 3% discontinuation of therapy vs. 8% discontinuation
  3. 70% of patients taking the maximum 3mg dose experienced a SBM (spontaneous bowel movement) within 24 hours of the first dose - meaning it works well.
  4. Response rates increased with larger doses with no safety issues - best response was with 3mg dose

Some volunteer patients were even tested in a single-ascending dose study with up to 48.6mg of Plecanatide and no additional significant side effects. We see how safe to the human body Plecanatide is when these levels of the medication are taken with a very high tolerability.

Since this data was released by Synergy, the FDA has agreed to the terms of the trial design for a final phase III trial. On November 13th, a pivotal phase III trial for patients with CIC was initiated and expected to enroll about 1,350 patients.

Plecanatide's Safety Profile and Therapy Value against Ironwood's Linzess

In total, 951 patients who suffered from CIC were evaluated in a Phase IIb/III trial rendering excellent safety data. Top-line data released from this trial has further validated Plecanatide's safety profile. Diarrhea is the most commonly encountered side effect with therapies that treat CIC and IBS-C. Severe cases of diarrhea account for the majority of reasons for discontinuation of therapy. Doctors in the gastrointestinal field and community have been paying major attention to the development of Plecanatide due to trial data that shows lower rates of diarrhea in clinical data compared to its competitors. Amitiza, which is the first of these types of medications for these disorders, will undoubtedly suffer as safer medications come to market. This will open up potential markets for Plecanatide if and when approved.

Plecanatide is one of only two compounds of its class being studied in clinical trials. If it's approved, it will compete directly with Ironwood's Linzess which received marketing authorization in November 2012. It is the first and only GC-C agonist available on the market. In just this short period of time, Linzess sales have been quickly ramping up. Doctors filled about 50,000 new prescriptions in the first quarter of 2013 and more than 125,000 in the second quarter alone. Last quarter, 178,000 prescriptions were sold. So sales are continually increasing. This massive increase in first-time prescriptions shows the demand for new and safer drugs for the indication of IBS-C. Sucampo's Amitiza was the go-to therapy for IBS-C before the approval of Linzess. Amitiza is being subscribed less and less by doctors due to its less than impressive safety profile. Plecanatide trumps both of those medications in that category. A $2 billion market can easily accommodate three major players and Amitiza may be slowly squeezed out due to its unfavorable safety/tolerability profile. Linzess' success has essentially proven the case for GC-C agonists and removed some of the skepticism that typically comes with new compounds and medications. So, Plecanatide will potentially be positioned for a very successful launch with minimal headwinds if approved.

Catalysts

There are several major catalysts nearing that should propel Synergy's share price in the short term.

Phase II Data IBS-C Trial: Topline phase II data is expected to be released in the earlier part of Q2 2014. Based on excellent data from its Phase IIb CIC trial, topline data here should be good here as well.

Phase II Data SP-333 for OIC: A 4 week phase II study which was initiated last month should be completed early first quarter with topline data to follow shortly after in the same Q1.

Additionally, the Phase III program for Plecanatide might very well be one of the most risk-mitigated clinical development initiatives in the biotech sector since the drug is designed to mimic an endogenous human hormone and as mentioned prior, it has proven its efficacy in a large, Phase II /III trial comprising 951 patients. Plecanatide could end up becoming the best-in-class therapy for both CIC and IBS-C of the constipation-predominant subtype. Data from this pivotal trial is expected around mid-year 2014 and will probably be the most driving stock catalyst for Synergy in 2014.

Insider and Baker Brothers Purchases

Synergy chairman Gabriel Cerrone continues to buy shares of the company and owns almost one million shares. There is obviously some real confidence in these assets as insider buying continues. The insider history shows no open market sales of shares of the company.

It's worth noting that The Baker Brothers have a substantial position in Synergy with 2.7M shares at $4.23 a share, or about $12M worth. This is bullish for the company since the Baker Brothers have an excellent track record in biotech investments as we point out in a recent article from us.

We followed the Bakers into Halozyme (HALO) earlier this year and informed our followers we were and are very bullish in Halo's short and long-term prospects. We are especially bullish on PEGPH20, which is currently in a Phase II trial, with a Phase 1b run-in period, for patients with metastatic pancreatic cancer. If successful, this treatment could potentially revolutionize how cancer is treated, providing hope to those with varieties difficult if not impossible to treat, such as the previously mentioned pancreatic cancer.

The Bakers have recently more than doubled their initial investment in Halozyme and it has paid off as the stock has more than tripled in 2013.

Halozyme has several catalysts yet to come in the short term which is why we feel its stock could double in 2014 along with Synergy, further adding to the Baker Brothers' gains they've enjoyed in 2013.

Analyst opinion

The current average price target on Synergy from Wall Street analysts is $12.38, and has increased slowly over time. Synergy is mostly under-the-radar of many institutional firms.

Price Target Summary

Mean Target:

$12.38

Median Target:

$10.25

High Target:

$25.00

Low Target:

$8.50

No. of Brokers:

6

Click to enlarge

Conclusion

We believe this new class of drugs has the potential to expand into other drug markets and indications by the way it works. Its mode of action allows for excellent tolerability in the human body and has been validated by the approval of Linzess. Plecanatide has the potential to expand into other bowel disorders in the future as clinical trials and data continue to validate its safety and efficacy.

SP-333 will start to become a very interesting asset if data can show effectiveness against OIC and inflammatory bowel disorders. OIC is a large, untapped market. With the safety concerns with mu-opioid receptor antagonists such as Relistor, SP-333 could become a potential big money asset to Synergy as a new emerging class of therapies for this type of disorder. Inflammatory bowel diseases also continue to become more and more prevalent in modern cultures and SP-333 may also become a player in that sector.

We believe Synergy is a good speculative investment candidate and predict the stock will at least double in value over the next year or so. Therefore, our one-year target price opinion is $11 to $12, with a short term catalyst trade target opinion in the $6.50 range.

Disclosure: Long SGYP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky - always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.