Synergy Pharmaceuticals Inc (NASDAQ:SGYP) shares were dipping almost 4% yesterday after the drug maker landed $300 million in debt financing to carry out its operations and keep commercialization of its chronic idiopathic constipation (CIC) drug Trulance on track. The financing comes set-up as senior secured loans from healthcare-focused investment firm CRG along with its lender syndicate.
Canaccord John Newman is relieved to see what he hopes will be an end to concerns of capital overhang weighing on Synergy investor sentiment.
Though along with the loan agreement also comes “meaningful,” “significant” interest, the analyst believes this will be “manageable with recurring revenue” forecasted for Trulance. In fact, Newman predicts revenue from SGYP’s CIC drug could even eventually “cover” the debt repayment.
In reaction to the debt financing deal, the analyst maintains a Buy rating on SGYP stock with a price target of $13, which represents a 348% increase from where the shares last closed. (To watch Newman’s track record, click here)
As per the terms of the loan, there are to be four tranches of debt: $100 million upon the execution of the loan document, $100 million due at the start of 2018, along with two more traches circling up to $50 million by the first quarter of 2019. Synergy’s loans are established to mature by the middle of 2025, pegged with a 9.5% yearly interest rate. Meanwhile, these payments will be interest-only between now and 2022, pursued by principal plus interest between 2022 and the close of the loan maturation in 2025.
From Newman’s perspective, this “debt removes financing overhang,” which is “preferred to equity,” continuing: “Based on cash flow analysis, we expect the debt financing to sustain the company through 2019, which is highly encouraging. We believe the non-dilutive method of financing is a prudent measure to sustain company financial health without causing pressure on the share price.”
Ultimately, the analyst sizes up both the commercial launch of Trulance as well as its market uptake pattern to be “highly encouraging,” contending, “We believe the debt financing should reduce overhang on the stock and ensure cash flow health throughout 2019. We acknowledge that the debt financing does carry significant interest payment, but believe that the Trulance revenue should be able to address the debt repayment.”
TipRanks analytics showcase SGYP as a Buy. Based on 6 analysts polled by TipRanks in the last 3 months, 5 rate a Buy on Synergy stock while 1 issues a Sell. The 12-month average price target stands at $10.74, marking a 270% upside from where the stock is currently trading.