Two healthcare companies with recently approved and much-hyped products- but which one makes a compelling investing opportunity right now? Synergy Pharmaceuticals Inc (NASDAQ:SGYP) specializes in digestive problems- a very large potential market- while Transenterix Inc (NYSE:TRXC) has just released a groundbreaking new robotic surgical system. Now BTIG analysts have published an intriguing report on each of these stocks – one optimistic the other less so. While Synergy has massive upside potential and encouraging catalysts says BTIG, the firm warns that the Street has substantially over-estimated the sale ramp up for TRXC’s $1.5 million robotic system. This overly confident analysis could ultimately be disastrous for share prices. Let’s take a closer look at the outlook for these two stocks now:
Synergy Pharmaceuticals: Timothy Chiang Sees About 340% Upside
Biopharma Synergy is busy focusing on the development and commercialization of novel gastrointestinal (GI) therapies. Currently all eyes are on its groundbreaking drug Trulance for the treatment of chronic idiopathic constipation (CIC). SGYP launched Trulance back in March and the initial uptake appears promising. One analyst that is already feeling the heat is BTIG’s Timothy Chiang. He reiterated his buy rating on Synergy with an $11 price target on November 9. Given that the stock is currently trading at just $2.72, a price target of $11 represents a huge vote of confidence in Synergy’s expansion potential for the next 12 months. He says: “we think SGYP is well-positioned to ramp Trulance.”
Key upcoming catalysts for the drug include 1) discussions with insurance plans to increase commercial access to Trulance in 2018, and 2) an application to expand Trulance from just CIC to IBS-C (constipation predominant IBS) in early next year. So far the application looks likely to receive regulatory approval from the FDA and Chiang expects positive news on the crunch date of Jan 24 2018 making this a “significant near-term growth opportunity” for the stock. The best part is that the drug has so far demonstrated a far better tolerability profile for IBS-C than its nearest rival- Allergan’s Linzess. For example, 20% of Linzess patients suffer with diarrhea (with 3% of placebo suffering) verses 5.4%-4.3% for Trulance (against 0.6% placebo).
As a result, Chiang has a very bullish outline of how Trulance sales will rack up over the coming years. Specifically, he is forecasting sales of Trulance for 2017 of $16 million, but says “we think Trulance will benefit from improved formulary access beginning in 2018.” For 2018, he estimates Trulance sales will increase to $60 million (for the chronic constipation treatment) plus an additional $30 million in sales (for the IBS-C treatment indication). By 2022, he expects Trulance annual sales to exceed a whopping $500 million. Indeed, if we take a closer look at the numbers so far we can see that since the launch of Trulance in March, the drug already boasts about 7,000 prescribers. And as Chiang points out, this number is increasing each month. For example, in the third quarter more than 25,000 Trulance prescriptions were dispensed, with half of these prescriptions coming from new patients that had not used the drug previously.
Looking forward, Chinag writes “We think this figure will continue to increase, as the Co. looks to DTC [direct to consumer] advertising in 2018.” He continues, “the company has effectively differentiated Trulance vs. other prescription treatments as a result of its 7-day sampling program, combined with its focused marketing efforts targeted to high-decile prescribers.”
Transenterix: Sales Will Be Key Going Forward
Medical device company Transenterix has just received approval from the FDA for the first robotic surgical device in well over a decade. The robot, known as the Senhance system, assists surgeons with colorectal and gynecological surgery. It now has clearance in both the US and Europe, and the support of the company’s $100 million cash pile and 17-strong US sales team. Following the approval, shares have experienced significant volatility. First prices more than doubled to $4 from under $1.50 when the FDA gave the device its blessing far earlier than expected. Since that date on October 16, prices slipped back to $2.37 but are since up again, and are currently trading at around $2.88.
And now a very bearish report suggests that prices could crash by at least 60%. The report by Bleecker Street Research- who is short TRXC- says current prices have been artificially inflated and will fall back soon: “There is minimal underlying business and the recent share price strength is simply the result of unsustainable promotion.” The report notes that post-FDA approval, prices rose following a promotion from “Small Cap IR”, which pushed vague and highly speculative rumors that TRXC looked like an attractive buyout target.
Interestingly, Bleecker Street Research notes that Small Cap IR has a pattern of promoting companies just at the time of an equity offering- and indeed, TRXC has just filed for the sale of 43 million shares for institutional investors. The rumors began from a page called Broad Street Alerts, which is apparently a front page for Small Cap IR- which Bleecker Street says is “a well-known stock promotion firm that has promoted multiple disasters.” Of course, the fact that Bleecker is short TRXC (and will profit if shares decline) means this report is also heavily biased- but for potential investors of the stock it is still an interesting take on the stock to consider.
At the same time, top BTIG analyst Sean Lavin has also warned investors to proceed with caution. He reiterated his Hold rating on TRXC on November 9. “We remain cautious on shares given the slower than expected ramp of systems within Europe and the ROW [rest of the world]” says Lavin. He concludes “We believe physicians and hospitals want competition within robotics but we note the sales cycle has and will take time for TRXC.” Indeed, TRXC has had approval for its system in Europe for a few years already, but has seen virtually no sales in all this time.
As a result, he is modelling for system sales below consensus. Currently, the consensus estimate for the full year of 2018 stands at $21.9 million. In contrast, Lavin is modelling for just $9.1 million, based on sales for the year of 4-6 Senhance systems. This is drastically below the consensus estimate of 10-12 sales- and if accurate could cause a significant slump in share prices. Bear in mind that each device costs about $1.5 million, which Lavin says in-line to slightly below other systems available on the market (see, for example, the Da Vinci system from Intuitive Surgical).
However, there are some key opportunities that Lavin recommends looking out for. First, while the Senhance is currently only approved for specific surgeries, it does have more general surgery in its line of vision. Lavin explains “While these are large market opportunities TRXC is pursuing further approvals (in the coming months) specifically within general surgery (i.e. cholecystectomy and hernia).” He also notes that it is likely the FDA will accept relevant data from Europe commercialization.