Did Synergy CEO Just Telegraph Phase 3 Success For Plecanatide?

Jun. 02, 2015 11:29 AM ETSGYP-OLD2 Comments
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Nate Greene is an avid investor who focuses on small cap, high-growth companies that are undiscovered. His particular interest is China and the Chinese consumer. He looks for undervalued companies that will grow quickly due to the consumption trends of the rising Chinese middle class.

Did Synergy CEO Just Telegraph Phase 3 Success for Plecanatide?

In the small cap, biotech world of binary outcome events, it is very rare that a CEO tips his hand in investor presentations about the success or failure of an imminent Phase 3 readout before those results are released in a customary, official press release.

For those market participants who took the time to listen to Synergy CEO Gary Jacob s presentation at the UBS Global Healthcare Conference last week, you heard a CEO with as much giddiness as I have ever heard from a CEO on the eve of his forecasted, imminent release of Phase 3 results.

These are the comments from CEO Gary Jacob on May 20, 2015:

-"This is a terribly exciting time for Synergy."

-"We are very close to releasing top line data on two registration trials."

-"High confidence around Plecanatide"

-"Really a transformative time for Synergy"

-"A company that has taken our drug from discovery all the way through to cusp of NDA filing"

-"We think we have a terrific asset"

Apparently, Canaccord Analyst Corey Davis heard exactly what I heard at UBS on May 20 because just two days later, he issued a Buy rating and a price target of $11.00 for Synergy (or 150% upside from current price of $4.40). As Davis put it in his note to investors, "We have never been shy about taking swings in front of binary outcomes, and this one qualifies as one of the biggest we've seen in a while." He continues that he thinks the Phase 3 trial has a "high likelihood of success" and if successful "an attractive takeout candidate since it owns full worldwide rights on plecanatide."

And just a few days before Davis' note, Cantor Fitzgerald Analyst Irina Koffler issued a similar note on May 12 pointing to the possibility that Synergy will be acquired in saying, "we continue to view Synergy as a potential takeout candidate. Once Synergy releases its Phase III constipation data in ~June/July, we think the company will be at a more urgent inflection point, where management may need to engage potential partners or assess go-it-alone commercial scenarios." Koffler has a "Buy" rating on the SGYP stock with an $8.50 price target (or 93% upside from current price of $4.40).

This recent analyst action echoes what was first reported by Bloomberg s Makiko Kitamura and Manuel Baigorri on March 26 when they said Synergy was "talking to advisers about a potential sale of the company." They continued that, "a sale of the New York-based company is likely to hinge on the results of a late-stage trial of the drug, which may be announced in May."

Well, we are two days past Bloomberg's forecast of a May announcement of Phase 3 results. And we have 20 market days left until the end of Q2 2015, which is the timeframe that Synergy CEO guided for in releasing Phase 3 results.

Based on the UBS presentation on May 20, the recent analyst comments, and the media reports of the potential sale of the company if Phase 3 results are successful, this is a very interesting time to speculate on what is going to happen today or in the next 20 market days for Synergy Pharma.

Out of all of the chatter cited above, I would put the most weight in what we heard directly from the CEO last week at UBS. The Phase 3 trial he said they were "very close" to releasing results from completed enrollment on January 8, 2015. Therefore the twelve week trial would have concluded in early April 2015. His UBS comments were nearly 60 days post the completion of the trial when he said, "this is a terribly exciting time for Synergy," and that he has "high confidence around Plecenatide."

Consistent with the extraordinary bullishness expressed by the CEO on May 20, I expect Synergy to release market moving results from their pivotal Phase 3 Plecanatide trial (3mg) in patients with chronic idiopathic constipation at any time now and no later than June 30. With this many clues to the likely bright future of Synergy, this may be an ideal time to consider a speculative position in Synergy with a clearly forecasted short term catalyst.

Disclosure: The author is long SGYP.

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