Written by Travis Knight
All eyes are once again on Synergy Pharmaceuticals (SGYP) in anticipation of Phase IIb data to be released regarding its 350-patient study, evaluating patients with IBS-C (irritable bowel syndrome with constipation). The company expects completion of the study by April, with topline Phase IIb data to follow shortly afterwards. In December, enrollment was closed for this study and the company guided that data would be released at the beginning of the second quarter, a bit later than initially guided. A sell-off in share price following the news has given investors the opportunity to grab shares at a really good price. With increasing confidence in plecanatide based on previous data studying patients with a similar indication, good results are expected by many.
Synergy is evaluating patients who are suffering from two very similar types of gastrointestinal disease, CIC (chronic idiopathic constipation) and IBS-C (irritable bowel syndrome w/constipation). Plecanatide is just the second of two GC-C agonists in clinical studies. Three major factors point to a high-reward investment with very low risk. Here's why we are making a bull bet on plecanatide for IBS-C:
- First approved GC-C agonist linaclotide (Linzess) developed by Ironwood (IRWD) has proven safety and efficacy for this new class of drugs, and has proven to be a real success.
- Safety/Efficacy data in previous plecanatide trials showed very positive results with potentially better safety profile than linaclotide.
- Multi-billion dollar market can easily accommodate GC-C agonists, even though plecanatide is expected by many to eventually be the next best-in-class therapy for these indications.
Indications for Plecanatide
Although IBS-C and CIC are classified as separate indications, both are very similar in nature. In both cases, constipation and bloating exist as the underlying causes of discomfort. Here is how Synergy defines each one:
IBS-C is characterized by frequent, reoccurring abdominal pain and/or discomfort associated with chronic constipation as well as bloating and alteration of bowel movements.
CIC is primarily characterized by low bowel movement frequency or basically chronic constipation that has no known physical or physiological cause.
Clinical trials for both indications are conducted in a very similar fashion to one another because constipation is the resulting reason for discomfort in both. Achieving complete spontaneous bowel movements (CSBM) and the percentage of responders are the gauges in measuring efficacy as primary endpoints in both indications. Secondary objectives include measuring reductions in discomfort levels and frequency of bowel movements.
GC-C agonists are a new class of therapy designed to treat gastrointestinal diseases. These compounds are an entirely new class of drug, designed to limit side effects and toxicity. Ironwood's linaclotide (Linzess) was the first to be approved, and has achieved quite an amazing track record to date. Linzess sales increased by 48% in the last quarter of 2013 and sales of the product for the full year reached $119M. Sales are projected to reach $1B by 2017. Linaclotide's success has been accredited to its much better safety profile than its main competitor, Amitiza (lubiprostone) by Sucampo (SCMP). Although Linzess has been proven to be superior to lubiprostone in respect to side effects, it does exhibit severe diarrhea in some patients.
We believe that Synergy actually has more potential than Ironwood going forward. In a very large Phase II trial evaluating CIC patients, plecanatide showed a much better safety profile, which is foreseen to be a hallmark of its potential success. Although early in clinical studies for this indication, many patients were evaluated at several doses, and safety and efficacy were very consistent all throughout the trial. It's also very encouraging to note that many gastrointestinal physicians are already betting on the success of this new compound.
Plecanatide may be a much better option to its competitors if later-stage clinical trials can show to be as consistent as previous ones. Synergy believes to have a compound that truly finds the most balance between safety, efficacy, and convenience with once-daily dosing schedule.
These drugs cater to an estimated $2B market. If plecanatide can eventually make its way through trials, it will compete directly with Linzess and Amitiza in a somewhat non-competitive drug market.
Previous Data Points To Success
Results from the large 951-patient trial evaluating patients with chronic idiopathic constipation (CIC) looked very promising. In the CIC trial, safety is ultimately graded by diarrhea rates (as well as other adverse events), which is the most common side effect of therapies treating these indications. Efficacy is graded by a resulting complete spontaneous bowel movement, and the time and consistency in which this occurs. Since both therapies aim to reduce symptoms related to constipation, we are using the CIC trial as a comparator. In the trial, three dosages were evaluated (.3, 1.0, 3.0 mg), and below are some highlights of the results:
- 19% vs. 10% (overall response rates to medication, plecanatide 3mg vs. placebo)
- 9.7% vs. 1.3% (incidence of diarrhea, plecanatide 3mg vs. placebo)
- 52.3 vs. 36.8 (percentage of responders who reported increase of 1 or greater CSBM/week plecanatide 3mg vs. placebo)
- 54.7 vs. 124.5 (time in hours to first CSBM)
- 31.2 vs. 11.5 (percentage of patients w/CSBM in within 24 hours)
- 70% of patients taking maximum 3 mg dose experienced a spontaneous bowel movement within 24 hours of 1st dose
Compared to Linzess:
- 9.7% rate of diarrhea plecanatide vs. 16% rate Linzess
- 3% discontinuation of therapy vs. 8% (plecanatide vs. Linzess)
Since this was such a large trial, there is a small chance of statistical error in comparison to placebo and Linzess studies. The significance of this data is compelling in regard to safety and efficacy. It's highly likely that we will see similar significance in the CIC Phase III trial as well as data from the upcoming IBS-C trial. We believe this data indicates an increase in the odds of success for future trials of plecanatide.
This class of drugs relieves constipation symptoms without causing high rates of diarrhea, which is the most common and unwanted side effect of medications that treat these indications. This is why Linzess has been such a popular option relative to Amitiza, which causes this side effect in highly excessive amounts. These considerably lower rates of diarrhea have created significant value in linaclotide, even though this side effect is still prevalent. Plecanatide seems to cut these rates in half. With a sufficient amount of data highlighting a possibly much better safety profile than Linzess, plecanatide has the potential to be a true blockbuster.
SP-333 For Opioid-Induced Constipation
SP-333 also represents even more potential value for Synergy. The compound is somewhat of a free option at this point, valuation-wise. Synergy calls this compound a second-generation GC-C agonist, and varies from plecanatide due to a very small change in its chemical makeup. SP-333 has shown to exert potent anti-inflammatory properties. For this reason, Synergy has initiated trials which will evaluate the compound in ulcerative colitis (UC) as well as opioid-induced constipation.
Without speculating on early-stage data for these indications, it must be noted that the Phase II trial evaluating 260 patients with OIC is to be completed in May. Data will be released shortly thereafter, and if good results are announced, the share price would then reflect the added value for the following reasons:
- OIC market expected to reach $2B by 2017.
- UC market is worth about $1.7B.
- Fairly uncompetitive market with no true blockbuster treatment available.
- No options that offer an excellent safety profile (Amitiza/Relistor).
SP-333 is a similar compound to plecanatide, and it is believed that it will most likely offer a similar safety profile. Preclinical studies in rats showed dramatic amelioration in morphine-reduced bowel dysfunction. Studies in rats, mice, and monkeys showed that repeated doses of SP-333 were very well tolerated.
With little data to make assumptions from, investors may want to play it safe. SP-333's anti-inflammatory properties do bring some excitement to the table for investors. Success in OIC and UC would add tremendous value to the company and open the door to other indications in future studies, as the market for these indication are both large and very quickly growing.
2014 is expected to be a pivotal year for Synergy. The company is expecting to release data for both indications in the first half of the year. The two catalysts are:
- IBS-C Topline Data Readout in Early 2Q.
- SP-333 Topline Data Following Trial Completion Estimated In May.
If positive data is presented, it would be a large milestone for Synergy. The market for these drugs is very large, and there is the potential for Synergy to take a large slice of profits from competitors if its drugs eventually get approved.
We believe that Synergy stock might conservatively run to about $8 before data is announced and reach $10 on good data. As always, the strength of Synergy stock will also be dependent on overall market conditions, but we like the risk-to-reward on this investment.
We think Synergy is undervalued, albeit speculative, today with a market cap under $500M. Ironwood has a market cap over three times higher than Synergy. Ironwood is obviously way further along, since the company already has an approved drug and sales, but it also only owns half of Linzess. If it owned all of Linzess, theoretically the company's market cap would be over $3B. We believe that Synergy has a great shot at producing a drug that is superior to Linzess and would be worth about $1B on good Phase IIb data. Long term, if data continues to be positive in future trials, we believe Synergy could be worth at minimum the same as fully valued Ironwood, or $3B.