Synergy's Appointment Of Former Pfizer Manager Points To Takeover Potential

On Wednesday, Synergy Pharmaceuticals (NASDAQ:SGYP), a biopharmaceutical company developing drugs to treat gastrointestinal disorders, announced the appointment of Gail M. Comer as Chief Medical Officer. Dr. Comer was first the Medical Director of Abbott Laboratories (NYSE:ABT) for seven years and then became the Senior Director of Pfizer's (NYSE:PFE) BioTherapeutics Research Unit. Joining Synergy, she not only helps validate the company's pipeline but also provides strong intellectual capital from her work as gastroenterologist and hematologist.

According to Dr. Comer:

Synergy's GC-C receptor agonist program represents an innovative and exciting technology platform that I believe offers great potential for the treatment of patients with GI disorders and diseases…

I believe the depth of my experience in clinical development specifically in gastroenterology will play a pivotal role in maximizing Synergy's clinical potential with these drugs, and am very pleased and excited to be joining Synergy at this opportune time.

What makes the appointment all the more interesting is that it raises the potential for a buyout. Due to a rather high level of risk discounting, Pfizer, as I explained here, is meaningfully trading below intrinsic value. Patent cliffs, especially Lipitor's exclusivity loss, simply mean that the iconic firm will have to reinvent itself in order to catalyze free cash flow. In this stage of the game, Pfizer has been selling off some of its non-core businesses and several analysts are now speculating that it will use some of the resulting cash to scoop up firms similar to Synergy.

And for good reason. Synergy's lead candidate, Plecanatide, which is smoothly progressing through its Phase II/III trial, treats constipation-predominant irritable bowel syndrome and chronic idiopathic constipation. The preponderance of bullish analysts suggests that it has favorable risk/reward: Summer Street gave the company a price target of $9; Roth Capital, $12; and Bean Murray, $13. That is an implied undervaluation of between 55.2% and 124.1% on top of 42.2% appreciation over the last month.

Equipped with her background in gastroenterology at Pfizer, Dr. Comer can meaningfully assess Synergy's synergistic value and possibly close the discount through a takeover. Competitor Ironwood Pharmaceuticals (NASDAQ:IRWD) is pushing a similar product to the market but this process has been delayed three months by the FDA. The commercialization disruptions compound other issues: Ironwood's product comes with the side effect of severe diarrhea whereas Synergy's does not.

Plecanatide targets an underserved market worth up to $2B annually and has strong IP protection. Phase IIa showed promising results in improving bowel symptoms and habits associated with chronic constipation. A majority of adverse events were transient and a majority of patients experienced 1st bowel movement within 7 hours versus 16 hours for the control. Secondary endpoints for abdominal discomfort, straining scores, constipation severity, and overall relief were also improved. With these results in mind, it appears that the major BioPharma players will increasingly eye Synergy as Dr. Comer guides plecanatide through its promising Phase II/III trial.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PFE, SGYP over the next 72 hours.

Additional disclosure: The distributor of this research report is not a licensed investment adviser or broker-dealer. Investors are cautioned to perform their own due diligence. We seek business relationships with all of the firms in our coverage, but research covered in this note is independent, derived from public sources, and prospectively commissioned.