H.C. Wainwright Lowers Numbers on Synergy Pharmaceuticals (SGYP) in 1Q18 Earnings Preview

Here's why even bullish analyst Ram Selvaraju of H.C.

It’s earnings season, and Synergy Pharmaceuticals (NASDAQ:SGYP) has a bull tweaking some of his expectations ahead of Thursday’s first quarter print. Notably, H.C. Wainwright analyst Ram Selvaraju is taking chronic idiopathic constipation drug Trulance’s commercialization into the picture, where he sees gross-to-net climbing more than initially expected.

Yet, this is “not unusual in the early stages of a drug’s commercialization,” writes the analyst, maintaining a Buy rating on SGYP stock with a $7 price target, which implies a massive just under 338% upside from current levels. (To watch Selvaraju’s track record, click here)

Selvaraju explains, “In thinking about our current gross-to-net ratio for Trulance and ongoing investments being made into manufacturing-related process improvements, we have revised our projections for revenue, operational spending (particularly with respect to R&D) and per-share estimates.”

As such, the analyst scales back his 2018 revenue forecast from $77 million down to $54.3 million and cuts his 2019 revenue forecast from $230 million to $209 million. The analyst likewise tweaks his loss per share expectations, taking his estimate from $0.58 to $0.70 this year and from $0.08 to $0.17 per share next year. Synergy closed out last year with around $137 million in cash and equivalents. This leads Selvaraju to maintain his conviction that between existing resources and the rest of cash to be accessed via the CRG debt facility, the company will have enough to keep operations sustained to reach breakeven status. Even with dialed down expectations, the analyst nonetheless maintains his bet that Trulance sales will “progressively” fire up throughout 2018, with Synergy potentially achieving cash flow-positive status by late next year.

When considering activist shareholders that have expressed a desire to negatively vote on a boost in management compensation, as of last week, Selvaraju spotlights 580 total shareholders claiming they control 20.6 million shares of common stock. Meanwhile, the leaders of this group have reached out to Carl Icahn of Icahn Enterprises as well as Pershing Square’s Bill Ackman seeking out intervention.

Ultimately as these activist investors gain steam, “We believe that these developments represent an indication that certain shareholders are growing somewhat restive and Synergy management may need to execute on some business development initiatives soon in order to calm the situation. As examples, we would point to the potential for out-licensing of certain elements of the company’s pipeline, notably its second candidate dolcanatide, as well as the possibility of entering co-promotion arrangements with more established firms so as to place more marketing heft behind Trulance. However, at this juncture we cannot have certainty that any such agreements shall be consummated,” contends Selvaraju.

TipRanks indicates a strong bullish consensus bets on this biotech player. Out of 4 analysts polled in the last 3 months, 3 rate a Buy on SGYP stock while 1 maintains a Hold. The 12-month average price target stands tall at $9.33, marking a nearly 487% upside from current levels.

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