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Oppenheimer Cuts Sales Expectations for Synergy Pharmaceuticals (SGYP) Approaching 1Q18 Print; But Better Sales Growth Ahead?

Oppenheimer's Christopher Liu thinks the Street is too confident on SGYP ahead of its first earnings show of the year- opting for now to stick to the sidelines.


One sidelined analyst is getting a bit more cautious on Synergy Pharmaceuticals Inc (NASDAQ:SGYP) ahead of its first quarter print anticipated May 9th, fearful that the Street’s expectations are ambitious.

Oppenheimer analyst Christopher Liu prefers to hedge his bets for now in his first quarter earnings preview, reiterating a Perform rating on SGYP stock without listing a price target.

While before Liu had been setting expectations circling $12 million in first quarter for Synergy’s lead asset Trulance, now the analyst looks for roughly $9 million. Additionally, the analyst dials down his full year sales forecast from around $67 million to approximately $63 million, taking under account Symphony script data. In contrast, the Street is looking for around $77 million in sales expectations- numbers which Liu deems potentially “too high” that “may need to come down.”

“We think the slowdown in the sales ramp could be temporary as the IBS-C indication and the commercial strategy for Trulance start to bear fruit. However, as we wait for an inflection point in Trulance sales and as we consider the need for additional financing to reach breakeven, we would rather stay on the sidelines for the time being.”

“The weaker than expected Trulance volumes could be partially due to the IRWD Linzess DTC/sampling campaign mentioned in the last preview. While this could signal slower sales in 2018, we still believe Trulance is a differentiated product with a place in the chronic constipation treatment paradigm,” writes Liu, who adds: “We think maintaining low opex will be integral to management’s plan on minimizing costs while growing the top line.”

For the quarter, Liu looks for around $44 million in operating expenses from Synergy and roughly $178 million for 2018. For context, the SGYP management team has set its full year outlook for operating expenses between $175 to $185 million, and Liu notes that the first quarter performance should signal whether or not cost savings are running right “on track.”

What else should investors keep an eye on approaching the print? Liu’s top points of attention for Synergy come May: “(1) insight into the trajectory of Trulance sales and volumes; (2) SGYP’s execution on slowing its burn rate and lowering opex; and (3) updates regarding formulary access and/ or the progress of the Trulance commercial strategy. We still believe in Trulance as a differentiated product and await an inflection point in sales.”

Regarding debt financing, the analyst expects the drug maker can gain a window into the approximately $100 million form the CRG debt deal this year, stemming from a covenant that requires a minimum of around $61 million in 2018 Trulance revenue- revenue Lue calls to hit above at roughly $63 million. When considering expectations for Trulance sales over the next two years, the analyst believes Synergy will need an extra around $100 to $125 million in capital in order to hit breakeven.

Concluding on a note of caution, the analyst notes that the SGYP team is bracing for the first quarter to land as “the weakest” considering “managed care plans are reset,” which will result in a dip in volumes. However, on a positive note, as 2018 rolls on, Liu keeps his eyes peeled for “stronger sales growth” from Synergy.

TipRanks showcases SGYP as a Strong Buy on Wall Street. A majority of 4 out of 5 analysts polled in the last 3 months are bullish on SGYP stock with just 1 playing it safe on the sidelines. Notably, the 12-month average price target soars to $8.75, marking a whopping 383% upside from where the stock is currently trading.