An FDA decision could push Synergy Pharmaceuticals Inc (NASDAQ:SGYP) stock higher as little as 24 hours from now — or not. Sales of the company’s popular constipation drug may not increase enough, or increase fast enough, to offset a blazing rate of cash burn.
Irritable Bowel Syndrome (IBS) is no laughing matter, but an uncomfortable intestinal condition with symptoms ranging from cramping, gas, and bloating, to … worse. Internet information website WebMd estimates that 20% of American adults suffer from IBS (and when has the Internet ever been wrong?).
That sounds like an uncomfortable situation, but for investors in Synergy it could come as a relief.
A relief from irritable stock syndrome
You see, Synergy Pharmaceuticals stock has been on a downward slide ever since hitting a recent high of $7.07 a share on January 1, 2017. At its closing price of $2.64 Monday, Synergy shares have lost 63% of their value in just a little over 12 months. But according to some analysts, that may change — and soon.
Last year , Synergy received approval from the Food and Drug Administration to use its “Trulance” drug for treating chronic idiopathic constipation in adults. In June 2017, Synergy further applied for approval to use Trulance in the large IBS with constipation (IBS-C) market, and under rules established by the 1992 Prescription Drug User Fee Act (PDUFA), the FDA has until January 24 to issue its decision. For Synergy and Trulance, that deadline arrives on Wednesday.
Analysts are wondering if approval could turn things around this stock. Citing data from Phase III trials, analyst Timothy Chiang at BTIG Research predicted that the FDA will approve Trulance for IBS-C, and that this would boost Synergy stock — perhaps by quite a lot. BTIG has a $7 price target on the shares, which suggests the shares could more than double. Ram Selvaraju at H.C. Wainwright is of a similar opinion — and in fact more optimistic, setting a price target of $8 a share, and setting up the possibility of a three-bagger for Synergy investors off today’s prices.
More recently though, analysts at Oppenheimer pointed out that while Trulance has enjoyed some success in the market, this could actually limit the upside from a positive FDA decision. Oppenheimer notes that “some” physicians are already prescribing Trulance for use in treating IBS-C “off-label.” This suggests that any sales increase following FDA approval might not be as big as would be expected if use of Trulance to treat IBS-C were a completely novel idea.
Oppenheimer urges investors to focus less on any potential boost in sales of Trulance, and more on Synergy’s high cash burn rate. In that regard, investors should be aware that with perhaps $180 million in the bank today, Synergy is still burning through cash at a rate of nearly $220 million a year — and due to run out of cash in less than a year.
Overall, Wall Street loves this stock, earning a stellar analyst consensus rating, as TipRanks analytics demonstrate SGYP as a Strong Buy. Out of 5 analysts polled in the last 3 months, 4 are bullish on Synergy stock, while one is neutral. With a return potential of nearly 250%, the stock’s consensus target price stands at $9.25.