Synergy Pharmaceuticals May Be Ready To Roll

Synergy Pharmaceuticals (NASDAQ:SGYP) ran to over seven dollars last month on increasing volume as the company's billion dollar potential took shape and numerous analysts jumped on board with encouraging write-ups and bold price predictions.

Synergy also received a boost when its chief competitor, Ironwood Pharmaceuticals (NASDAQ:IRWD) received a setback at the FDA that allows SGYP an extra three months to play catch up in the race to commercialization for each company's respective product candidate, both of which target the same indication. Synergy's product Plecanatide, however, has a much more favorable side effect profile, making the Ironwood setback that much more of a key factor when discussing future market potential.

Both products, Synergy's Plecanatide and Ironwood's Linaclotide, are being developed to treat chronic idiopathic constipation (CIC) and constipation-predominant irritable bowel syndrome (IBS-C). Linaclotide is already before the FDA for review, although the review was delayed by three months, as mentioned before, while Phase II/III Plecanatide results are due out later this year.

The head start to market may provide Ironwood with a distinct advantage, but the advantage might not last too long when Plecanatide shows up on the scene.

During the Linaclotide trials, the drug was successful in alleviating symptoms relating to IBS-C and CIC when compared with a placebo, but the kicker is that patients experienced side effects that included cases of extreme diarrhea, essentially reversing the symptom being treated. Some cases of diarrhea were so bad that 6% of the patients decided to abandon the trial altogether.

On the open market - with a competing product out there for which there have been no such cases noted - that means those patients would likely switch to the alternative, in this case Plecanatide.

Although shares started running on the encouraging outlook for Synergy, a recent stock offering reversed the short-term trend and shares fell back to near the price of the transaction, $4.50, where they have remained since the announcement.

Considering the events that have already unfolded this year, including multiple analysts jumping on board and the Ironwood setback, and considering that Synergy is now flush with an additional $40 million in the coffers as a result of the offering, shares are positioned to rebound again as potential catalysts play out over the coming months.

Aside from the most obvious catalyst, which would be trial results, Synergy should also be considered a potential buyout candidate. The market potential of Plecanatide justifies the interest of larger pharmaceutical companies that are on the prowl to sweep up smaller companies in an attempt to boost pipelines that have been depleted as a result of patents expirating. It's also beneficial for Synergy that the company still owns 100% of the rights to its products. Ironwood, for example, already has a partner in Forest Laboratories, Inc. (NYSE:FRX), which takes it, for the most part, out of the equation as a potential buyout candidate by a deep-pocketed third party that would have to purchase two companies to receive 100% of the Linaclotide revenue stream - not a likely event.

Ironwood is currently trading with a market cap of over $1.2 billion, leaving Synergy - with a market cap of under $300 million - with a significant amount of room to run, given its numerous advantages over Ironwood and Linaclotide.

The stock offering stalled the most recent run, but with a hefty bank account and numerous catalysts on the way, SGYP could be gearing up for another run.

Disclosure: Long SGYP.