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A little over a month ago, Synergy Pharmaceuticals, Inc. (NASDAQ:SGYP) announced that it had filed an Investigational New Drug with the FDA for a second GI pipeline candidate, SP-333 - an announcement that piqued investor interest in this company's ability to potentially become a big player in the GI field sometime down the road.

Until that time, Synergy had mainly attracted investor interest for the potential of its lead drug candidate, Plecanatide, which is currently being investigated in a Phase IIb/III trial for the treatment of chronic idiopathic constipation (CIC), with further trials planned for Plecanatide in the treatment of constipation-predominant irritable bowel syndrome (IBS-C).

Shares ran to the seven-dollar mark earlier this year, as the potential of Plecanatide became appreciated by speculative investors in the sector and another push over five dollars materialized following the approval of Ironwood Pharmaceuticals' (NASDAQ:IRWD) Linzess early last month.

Linzess, as previously discussed, shares the same origins and mechanism-of-action as Plecanatide and analysts believe that the two will perform comparably on the market, with a potential edge going to Plecanatide for a more favorable side-effect profile.

What had been missing from the Synergy story, however, was a pipeline beyond Plecanatide that investors could bank on for the future; no one likes a 'one-trick pony' in this sector. Synergy took care of some of those concerns through a merger with Callisto Pharmaceuticals (PINK: CLSP) that - once the deal is finalized - will net the company three pipeline candidates, while an Asset Purchase Agreement with Bristol-Myers Squibb Company (NYSE:BMY) will also add the a shingles drug into the mix.

Although these products will expand Synergy's pipeline and offer the company exposure to various treatment areas, they will not strengthen the company at its core as a second GI product candidate could. That's where SP-333 comes in.

Early on Monday morning, the company announced that it had "initiated oral dosing of healthy adult volunteers" in a Phase I clinical trial for SP-333 in the treatment of ulcerative colitis (UC). The trial is slated as a placebo-controlled, dose-escalating, single-dose study; a multi-dose, dose-escalation trial is also slated to begin in early 2013. As is generally the case for Phase I studies, the trial is designed primarily to measure the safety of SP-333, but efficacy will also be duly noted.

It's often hard for investors to get excited about the initiation of a Phase I trial, but what this does is validate Synergy's potential as a significant player in the GI market. The CIC and IBS-C markets targeted by Plecanatide are multi-billion dollar markets combined, while the UC market - in its own right - is growing exponentially and is estimated to approach three billion dollars annually by 2020.

The above numbers position Synergy to land in the heart of a booming industry, when the pipeline potential is mature, while also assuming positive clinical trials. The fact that SP-333 is officially in development also adds additional valuation to Synergy in the event of a buyout.

Synergy shares were rolling lower late last week as the overall market dropped, which may have opened up a decent buying opportunity for investors looking to play the potential of Plecanatide and the late-year trial catalyst. The Phase IIb/III trial has completed enrollment and results are due by the end of the year. Positive results could spark a rally in share price, especially if the data looks strong enough to rival Linzess, whose previous successes have Ironwood's market cap sitting at well over a billion dollars.

With a pending trial catalyst due over the near term and the unfolding of an SP-333 trial, Synergy is one to keep on the radar for the duration of 2012. Worth a look, especially if a broad market dip has this one slipping any lower.

Disclosure: I am long SGYP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Synergy Pharmaceuticals: Monday's Pipeline News Strengthens Company At Its Core