Synergy Pharmaceuticals Could Realize Billion Dollar Potential

Synergy Pharmaceuticals (NASDAQ:SGYP) has numerous catalysts pending for the remainder of 2012 and could be gearing up to make a splash in the healthcare and pharmaceutical sectors as those catalysts unfold. Proof positive may be the fact that - within just the past month - three analysts have issued enthusiastic 'Buy' ratings on the company, with each posting price targets of well more than double that of where SGYP trades today.

Summer Street initiated coverage with a price target of $9, Brean Murray's rating was accompanied by a price tag of $13, and just a couple of weeks ago Roth Capital threw its own prediction into the mix with a target of $12.

As of Tuesday afternoon, SGYP was trading for just a tad above the four dollar mark on below average volume, so what are the analysts seeing right now that investors have not yet caught on to?

The answer lies with the company's lead product candidate, Plecanatide, which has just recently reached the halfway enrollment point of an ongoing Phase II/III trial that, if successful, could quickly lead the stock to the price levels predicted by the analysts and position the company to enter into the gastrointestinal disorders & diseases market, which in the US alone is expected to exceed the $20 billion mark on an annual basis by the time Plecanatide would reach commercialization, according to some estimates.

Clinical trials are currently underway to test effectiveness of Plecanatide in treating chronic idiopathic constipation (CIC) and constipation-predominant irritable bowel syndrome (IBS-C). The results of these trials are highly expected to turn out positive, as cited by the above-mentioned analysts, because the mechanism of action behind the treatment has already been tried and tested - and proven successful - with Linaclotide, a product developed by Ironwood Pharmaceuticals (NASDAQ:IRWD) that shares origins with Plecanatide.

The mid and late stage successes of Linaclotide have launched Ironwood's share price to a over sixteen dollars at its peak during the past 52 weeks, which placed the company's market capitalization at right around a billion and a half.

Currently IRWD's market cap is roughly 1.3 billion.

In comparison, SGYP's market cap is just under 220 million - which is a key reason why the analysts believe that the company's share price has significant room to appreciate. Ultimately, the two products are designed to treat the same indications - CC and IBS-C - in a market that is huge enough for two big players to enjoy, so the argument can be made that two should be trading at relatively equal valuations.

With that being said, Synergy may hold a distinct advantage with Plecanatide that could put its product over over the top and ultimately eat up more of a share of the market than its competitor.

During the Linaclotide trials, the treatment was successful in alleviating constipation when compared to a placebo, but the kicker is that side effects included cases of extreme diarrhea, with some cases being so bad that 6% of the patients decided to abandon the trial altogether.

To date in the Plecanatide trials, however, no such cases were noted.

In essence, Linaclotide reverses the indication being treated - from constipation to diarrhea - while Plecanatide looks to alleviate it and normalize the bowels.

Linaclotide does have the advantage of reaching market first, however. That variable will allow the product to gain a significant head start in achieving market share before its competitor arrives on the scene. When the two products are competing head-to-head, however, common sense has to tell us that the preferable option for a patient is going to be the one that does not include walking around full time with a sack of Charmin Ultra at the ready.

In that case, it's advantage Plecanatide.

As the year develops and the pending catalysts continue to unfold, awareness of the Synergy story and its pipeline should begin to attract increased investor interest.

The halfway point of enrollment in the CIC trial has already been met, so look for complete enrollment to be reached in the third quarter of 2012, according to a recent company press release, and for top line results to become available during the following quarter.

It's also expected that the company will initiate a Phase IIb trial for Plecanatide in IBS-C indication during the third quarter of this year, which would set expectations of top line results for the same quarter of the following year.

Beyond Plecanatide, Synergy has another product candidate in the late preclinical stages, SP-333, that is also being primed to target the lucrative GI market. An IND is expected to be filed for theSP-333 in ulcerative colitis indication during the third quarter of this year, setting the company up to initiate clinical trials shortly thereafter.

That leaves Synergy with two products being developed to enter multi-billion dollar markets - and those markets are growing every day. Both products are also fully owned by the company, which paints a bright target on the company to investors as a potential merger and acquisition candidate.

Ironwood has already landed multiple partners for its product candidate and seen it's share price increase significantly. There's no reason to believe that Synergy cannot achieve the same level of success - if not more - for its own product, given the distinct advantages noted above and assuming the continued trend of positive efficacy.

Whether Synergy decides to go-it-alone or whether a partner is brought on board - or even whether the company is outright purchased - it's entirely possible that we are looking at a future billion dollar company in the making.

Judging by the price targets issued by the analysts over the past few weeks, it looks like there's at least a few out there who would tend to agree.

This one could become a big mover for 2012.

Disclosure: Long SGYP.