Analyst Cuts Price Target on Synergy Pharmaceuticals Inc (SGYP); All Chips Are Riding on Trulance Uptake

Though Cantor's William Tanner keeps SGYP's capital needs and prospective dilution in mind, he is confident on Trulance's uptake in the market.

One bull believes Synergy Pharmaceuticals Inc (NASDAQ:SGYP) stock performance is hinging upon market update of lead asset Trulance, a therapy that is now approved to treat both chronic idiopathic constipation (CIC) as well as constipation-predominant Irritable Bowel Syndrome (IBS-C).

Cantor analyst William Tanner anticipates that SGYP’s “Trulance could be an important new therapy,” but sees more dilution from the company’s financing.

Factoring in the uptake of Trulance, expense forecasts, and the dilution factor, following the company’s fourth quarter results, the analyst reiterates an Overweight rating on SGYP stock but lowers the price target from $10 to $8. Even with Tanner’s cut price target, this still implies a massive 279% upside potential from where the shares last closed. (To watch Tanner’s track record, click here)

“In our view, SGYP stock will be driven mainly by continued evidence of market uptake of the drug and visibility as to the company’s capital needs,” asserts Tanner.

The analyst anticipates that “progress with commercial basis should provide support for Trulance uptake.” Synergy’s fourth quarter showcase has left Tanner largely encouraged regarding a rising use of Trulance. Specifically, Tanner notes that the SGYP team anticipates around half of prescriptions are being written to patients that are “new to branded therapy,” a dynamic that rings “positive as it suggests SGYP may not have to engage in ‘hand-to-hand combat’ with entrenched competition.”

Moreover, the analyst notes that SGYP’s Trulance had hit around 35% coverage with commercial payers by the time of launch. Present day, the SGYP team has pinpointed coverage hovers at 85%, with Medicare Part D and Medicaid coverage at 54%. Tanner also calls attention to almost three quarters of high prescribing physicians having written scripts for Trulance, another positive the analyst takes in bullish stride for Synergy.

On the debt front, the analyst notes, “Debt amendment should relieve concern about ability to access additional cash.” Now, Synergy can access its $100 million tranche from CRG LP without needing a minimum cash requirement in three tranches of $25 million by June 30th, $25 million by September 30th, and $50 million by December 31st of this year.

“BD activity probably not a focal point for investors but we believe it should be. We view SGYP’s licensing agreement with Cipher Pharmaceuticals as logical given the likelihood that SGYP would commercialize Trulance outside the U.S. Management noted that ‘all options are on the table’ as it relates to ‘value enhancing’ BD. We doubt investors would be enthusiastic, at this point, about in-licensing activities but monetizing assets such as Trulance and dolcanatide would be received positively by the market, in our opinion,” contends Tanner.

For the fourth quarter, SGYP posted $9.4 million in revenue and ($0.16) in GAAP EPS against the analyst’s expectations looking for $6.7 million in revenue and ($0.19) in GAAP EPS. FactSet had bet on $7.1 million in revenue for the quarter from the biotech player and ($0.19) in GAAP EPS. Tanner takes the revenue beat as a jump from stronger-than-anticipated Trulance performance, likewise seeing operating expenses lesser than expected from lesser R&D “as clinical activity slowed.” The company closed the quarter with a cash balance of $137 million from net cash use of $33 million- not including net proceeds of $52 million from share and warrant issuance throughout the fourth quarter.

TipRanks indicates Wall Street belongs to the bulls when it comes to Synergy’s market opportunity. Out of 5 analysts polled in the last 3 months, a majority of 4 are bullish on SGYP stock while only 1 plays it safe on the sidelines. With a giant return potential of nearly 315%, the stock’s consensus target price stands at $8.75.  

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