As the market tumbled lower this past Friday, shares of Synergy Pharmaceuticals (SGYP) held strong and jumped by six percent. Shares jumped another two percent during after hours trading that day and then held strong through Monday's trading, even with the markets experiencing another down day.
Trading volume over the past few trading sessions has come in at well over twice the daily norm, indicating that big money may be starting to buy in, even at a time when money is flowing out of the market in droves due to concerns of another global economic meltdown that could threaten a thus-far solid recovery in the United States.
Although trading in the $4.50 range to open the new trading week, Synergy shares flew to seven dollars earlier this year after competitor Ironwood Pharmaceuticals (IRWD) suffered a setback with the FDA that will delay an approval decision of its competing drug to Synergy's Plecanatide. This drug is currently being developed for the treatment of chronic idiopathic constipation (CIC) and constipation-predominant irritable bowel syndrome (IBS-C).
Investors had also started taking serious notice of Synergy's billion-dollar potential around that time, especially when a few analysts jumped on board and added more fuel to the rallying fire before a stock offering halted the move and returned shares to their current levels.
While effectively halting an impressive rally, the offering placed Synergy in a position of strength by filling the cash coffers with enough reserves to last well past the expected time frame for the release of Plecanatide trial results, expected later this year. The additional financial security also puts Synergy in a stronger position to negotiate any potential partnership or buyout deal. Given Plecanatide's potential to launch into a multi-billion dollar market with a side effect profile more favorable than that of the product Ironwood plans to put on the market, big pharma could be priming to move on the company before the release of results in order to secure what could be one of the better deals out there right now in small pharma-land.
Validating that theory is the fact that IRWD currently trades with a market cap four times that of SGYP. That's a particular note to keep in mind, given the fact that Ironwood already has a deal secured to split profits with partner Forest Laboratories, Inc. (FRX) on a product that may be inferior to Synergy's.
Another factor to consider in regards to the increasing interest in Synergy over the past week may be attributed to a NY Times article published last weekend that indirectly offered investors another angle in regards to the potential of Synergy's Plecanatide in meeting a hugely unmet medical need.
As outlined by the Times, other treatments for CIC currently on the market-- specifically the laxative Miralax-- are not only being misused, overused and abused, but safety data surrounding its use has never been fully investigated nor finalized in clinical trials, nor has its long term use been approved or validated by the FDA. This fact has raised concerns among many physicians, many who even admit to over-prescribing the product, especially in regards to overuse in children. With no FDA-approved standard treatment for CIC in children, doctors have admitted over prescribing Miralax for years, even to children.
That potentially leaves another door open, of which Synergy can take advantage. Should the company storm into the children's market and replace existing treatments, such as Miralax-- which have never been approved for extended use-- then the already robust potential of Plecanatide can multiply yet again.
Plecanatide's safety profile may give it the overall advantage on the market, as the product has yet to demonstrate any side effect concerns during trials, not even diarrhea, which is a significant note because Ironwood's Linaclotide cannot boast the same claim. Linaclotide comes with the expectation that runny stools will accompany treatment, bad enough in some cases to force patients from the clinical trial.
With Plecanatide Phase II/III Plecanatide results due out later this year, Synergy could continue to attract the investor interest that took shares to over the seven dollar mark for a period last month. The analysts have already jumped on board and the trading action of the past few sessions could be an indication that investors are watching -- and more importantly, jumping on board.
One to keep an eye on as SGYP may be ready to roll.
Disclosure: Long SGYP.