Synergy Pharmaceuticals (SGYP) is a New York, N.Y.-based biopharmaceutical company focused on the development and commercialization of novel gastrointestinal therapies. Synergy discovered, is developing, and controls 100% worldwide rights to its proprietary uroguanylin based GI platform.
Having commercially launched its first FDA approved drug in the U.S. market on March 20, 2017, weekly sales of Synergy's proprietary drug TRULANCE up to and including Sept. 29, 2017, are trending well. Despite Synergy's share price losing substantial value since TRULANCE was approved by the FDA in January of this year, Synergy's share price appears to be undervalued. Based on its current share price there appears to be substantial upside for Synergy for the reasons discussed in this article.
Current share price: $3.46 (close of Oct. 6, 2017)
52-week share price. trading range: $2.56 to $7.15
Outstanding shares: 224,948,622
Market cap: $778 million
Outstanding options as of June 30, 2017: 28,882,068 options with an exercise price ranging from $0.44 to $9.12; weighted average strike price of $3.90; 6.8 years remaining
Outstanding warrants as of June 30: 869,688
Senior Convertible Notes as of June 30: 5,981,672, convertible at $3.11
Debt facility: $300 million debt facility (as set out in Form 8-K filed with the SEC on Sept. 6, 2017); $100 million drawn on Sept. 1, 2017; $100 million second tranche available on or before Feb. 28, 2018 (subject to conditions); up to two additional $50 million tranches available to be drawn on or before March 29, 2019 (subject to conditions). The debt's maturity date is June 30, 2025.
Synergy's only commercial product, TRULANCE (uroguanylin based), was approved by the FDA on January 19, 2017 and commercially launched two months later on March 20, 2017 in the U.S. under the trademark name TRULANCE, as a once-daily treatment for adults with chronic idiopathic constipation, or CIC.
In clinical trials, TRULANCE helped improve stool consistency and provide more regular bowel movements. TRULANCE is the only prescription medication for CIC that can be taken once daily, with or without food, at any time of the day. In addition, TRULANCE is the only prescription medication for CIC available in a unique calendar pack that is patient preferred vs. a traditional pill bottle.
Synergy plans to expand the use of TRULANCE to include the treatment of adults with irritable bowel syndrome with constipation (IBS-C). The FDA has accepted Synergy's new drug application (sNDA) for IBS-C for review with a Prescription Drug User Fee Act (PDUFA) date of Jan. 24, 2018.
Synergy estimates available on Synergy's website) that in the U.S. alone an estimated 33 million adults suffer from CIC and 12 million adults suffer from IBS-C.
People with CIC have persistent symptoms of difficult-to-pass and infrequent bowel movements, which can adversely affect an individual's quality of life, including increased stress levels and anxiety. Many patients attempt to manage CIC symptoms with improved diet, fiber, and over-the-counter laxatives; however, these options can be ineffective or may not provide long-term relief. For those patients with persistent symptoms, prescription therapy is recommended. Many patients taking prescription medications fail to respond to therapy, or suffer from treatment-related adverse events, such as nausea and diarrhea.
Synergy's 250 person sales team was hired to promote TRULANCE to more than 27,000 gastroenterologists, primary care physicians, nurse practitioners and physician assistants in the U.S. The company believes that these 27,000 health practitioners represent approximately 70% of the branded prescription business.
In its recent Cantor presentation, Synergy estimates that currently only about 5% of the U.S. market for CIC or IBS-C is being treated with prescription drugs which represent an enormous untapped U.S. market opportunity. Synergy believes that not only is the entire market growing but that with the right marketing strategy it believes there is an opportunity to increase that 5% market to 10% or even 20%.
Consistent with its view of penetrating that untapped market, Synergy has found that it has not just taken away market share from its competitors, but more than half (51%) of new TRULANCE prescriptions filled since its March 20th launch are coming from new patients not previously on a branded prescription treatment. Approximately 45% were patients that converted from other branded prescription treatments.
Additionally, Synergy states in its 10-Q that approximately 95% of people with commercial insurance had access to TRULANCE for a co-pay of $25 or less through the TRULANCE Savings-to-Go-Program.
Synergy estimates that the combined US market for the treatment of chronic idiopathic constipation or CIC and IBS-C or Irritable Bowel Syndrome with Constipation is worth approximately $1.8B today. The market is not only growing but it appears that there a large portion of potential patients that might be persuaded to take Trulance through patient and medical promotion, awareness and ongoing education. The company estimates that the market is growing and should be worth over $3B by 2025 in the U.S. alone.
Currently, the market for CIC and IBS-C in the US is dominated by . Linzess, was originally approved by the FDA in 2012 for CIC and then IBS-C, was also recently approved at a lower dose of 72 mcg. Linzess is owned by Ironwood Pharmaceuticals (IRWD). Last year Linzess generated approximately of $600 million in annual sales in the US, with an approximately 20% year over year growth rate. Sucampo's (SCMP) Amitiza, a lubiprostone drug first approved in 2006, also has a market share in CIC in adults and IBS-C in adult women, and generated approximately $400 million in sales last year in the U.S.
Trulance has a comparable or slightly better efficacy profile than its leading competitor, Linzess. More importantly, Trulance has a much better safety profile. Linzess has many side effects including weight gain and diarrhoea and is required to be taken 30 minutes before food. In contrast, Trulance can be taken anytime, with or without food, and has far fewer side effects.
After Synergy obtaining FDA approval by the FDA of Trulance in January 2017 and continuing after commercially launching Trulance in the U.S. on March 20, 2017, Synergy's share price has fallen significantly until a few weeks ago.
See the SGYP 2017 YTD chart below:
SGYP Shares Appear to Have Bottomed, Now Recovering
However, SGYP shares appear to have bottomed a few weeks ago and have now begun to recover.
See the SGYP one-month chart below:
Synergy's recent share price action has not gone unnoticed. There have been a number of recent articles published on Seeking Alpha about Synergy which are worthwhile reading such as the Oct. 3 article by Novum Insights and the Oct. 6 article by John Engle.
Trulance Weekly Sales from March 20, 2017, to Sept. 29, 2017
While the Trulance sales data presented by Synergy at its recent Cantor Healthcare Conference presentation included sales data up to the end of August 2017, I have provided six different charts below that show the sales data and trend for TRULANCE from the date of its commercial launch up to and including Friday, Sept. 29, 2017. The charts also including the following (using Symphony Health Solutions as the source of data):
1. TRX Count: The number of total prescriptions.
2. NRX Count: The number of new prescriptions.
3. TRX Quantity: The number of pills actually prescribed, taking into account that while the majority of prescriptions are for 30 days, a certain percentage are 90-day prescriptions. For example, for the week ending Sept. 29, the total prescription count (TRX Count) was 2,123 scripts written, with a total quantity of pills prescribed (TRX Quantity) of 79,829 pills. That averages out to 37.6 pills per TRULANCE prescription.
4. NRX Quantity: The number of pills actually prescribed, also taking into account that certain prescriptions are for 90 days. For the week ending Sept. 29, 2017, the total number of new TRULANcE prescriptions written was 1,230 scripts with 49,526 TRULANCE pills (TRX Quantity). That averages out to 40.26 pills per new TRULANCE script.
5. TRX MBS: A dollar amount equal to the Manufacturer's Benchmark Sales Dollars multiplied by the number of pills sold (new prescriptions only). For the week ending Sept. 29, 2017, the TRX MBS figure was $940,600.00. This represents a gross number before deducting the various discounts that the company has not disclosed. I expect that the discount will be in the 30% to 40% range but that is my guestimate only. That represents an annualized run rate in the $30 million range and that's only six months after the U.S. launch began.
6. NRX MBS: A dollar amount equal to the manufacturer's benchmark sales (MBS) dollars multiplied by the number of pills sold (new prescriptions only). For the week ending Sept. 29, 2017, the figure was $583,550.00. This represents a gross number before deducting the various discounts that the company has not disclosed. I expect that the discount will be in the 30% to 40% range but that is my guestimate only.
In some ways, reviewing the NRX Quantity, NRX MBS and TRX Quantity and TRX MBS charts and weekly sales data provides a better understanding of Trulance's sales trajectory compared to simply looking at the TRX or NRX Count figures.
Synergy's sales of TRULANCE are continuing on a nice upward trend with increasing weekly sales in a growing market. As of the week ending Sept. 29, annualized TRULANCE sales run rate are already in the $30 million range in the U.S. alone. Given the advantages of TRULANCE over its competition and its aggressive marketing strategy, I expect that TRULANCE will continue taking market share from its competitors and increase the overall size of the prescription market at the same time.
With an upcoming Jan. 24, 2018, PDUFA date for its expanded indication for TRULANCE to include ICB-C (which will likely be approved), that will simply help increase sales further. With its recent $300 million debt facility being arranged, Synergy now has sufficient capital (or the ability to access the necessary capital) to continue executing on its launch strategy in the U.S. without the need to raise further funds in the foreseeable future.
While some authors have estimated TRULANCE peak U.S. sales to be somewhere in the $600 million range, the company has not yet sold or partnered its rights to TRULANCE to any market outside of the U.S. which represents a substantial upside potential. I would expect to see some partnering deal later this year or next year for all markets outside of the U.S. as the company demonstrates the potential value of TRULANCE in the U.S. market. I don't expect that Synergy would invest in developing its own sales force internationally so a partnership or licensing deal with an upfront payment, milestone payments and an ongoing licensing royalty is the most likely option.
With its 250 sales force focusing on the GI market (which is an expensive sales force to develop), it would certainly be prudent for Synergy to consider adding additional GI related products for its sales force to market in addition to TRULANCE. So I wouldn't be surprised to see some M&A for additional GI drugs or companies focused in the GI market within the next 12 to 24 months. Alternatively, Synergy would make an attractive target for a larger pharmaceutical company trying to expand its existing GI product lines.
At its current share price and market cap, there appears to be a great deal of upside for Synergy shareholders over the next few years.
Analyst Share Price Targets for Synergy Pharmaceuticals
- Cantor Fitzgerald has an $11.00 price target for SGYP (as of Oct. 5, 2017)
- H.C. Wainwright has a $8.00 price target (as of Sept. 25, 2017)
- Canaccord Genuity has a $13.00 price target (as of Sept. 8, 2017)
- Oppenheimer has a $6.00 price target (as of Sept. 8, 2017)
- BTIG LLC has an $11.00 price target (as of Sept. 8, 2017)
- Citi has a $2.50 price target (as of Sept. 23, 2017)
Investing in a company like Synergy has various risks, many of which were set out in detail in the company's 10-Q filed with the SEC on March 1, 2017. The company's success is currently dependent on the commercial success of TRULANCE in the U.S. for the foreseeable future, and the company cannot guarantee when, or if, it will attain profitability or positive cash flow. Commercial success depends on many factors including the effectiveness of TRULANCE, the size of the patient population, the effectiveness of the sales team, adoption by physicians, and the occurrence of any side effects, adverse reactions or unfavorable publicity.
There are also risks of changes in government regulations, class actions, future capital requirements and general downturns in the pharmaceutical markets or general market. There is also a risk that the FDA won't approve TRULANCE for its expanded IBS-C indication on or before its upcoming Jan. 24, 2018, PDUFA date. In addition, the company faces competition, unforeseen material adverse reactions, and various other risks.
Future Weekly TRULANCE Sales
I hope to post weekly sales of TRULANCE in the comments section below every few weeks (as long as the data continues to be available). I look forward to hearing comments and suggestions from readers.
Disclosure: I am/we are long SGYP.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.