Shares in gastrointestinal biopharma Synergy Pharmaceuticals Inc (NASDAQ:SGYP) are plunging by 30% this week, following the announcement of an equity offering to raise money. The move will certainly improve Synergy’s balance sheet, but it will also dilute current shareholdings. From a financial perspective, the decision seems to make sense. Without a big pharma’s backing, Synergy needs cash to finance the commercialization of its key product Trulance. This drug has already been approved for the treatment of chronic idiopathic constipation (CIC) and is now being reviewed by the FDA for the treatment of irritable bowel syndrome with constipation (IBS-C).
So for investors looking for high-potential stocks does this dip make a neat buying opportunity? Let’s take a closer look at this healthcare stock and see what analysts are forecasting.
At the moment, SYGP is battling to steal market share from Allergan and Ironwood Pharmaceuticals’ rival drug Linzess. If we take a look back at the third quarter, we can see that Trulance is nonetheless making a firm start with sales doubling quarter over quarter. At the same time, Allergen is a fierce rival that can afford to invest in its drug Linzess and keep Trulance in the shadows. Something that should help Synergy push Trulance further is if it succeeds in its application for Trulance to treat IBS-C as well as the current offering for CIC.
Indeed, approval from the FDA would represent a key catalyst for the stock. Moving into IBS-C would open up a whole new- and very sizeable- market with around 17 million potential new patients. It could also increase the positive perception and knowledge of the drug from physicians. The key crunch date to look out for is in this respect is January 24 2018. On this date, the FDA will approve or reject the application- potentially causing considerable share price volatility for investors. The initial signs appear promising. The application was based on Phase 3 clinical trials for Trualance for IBS-C where both the 3mg and 6mg dosages met the primary endpoint showing statistical significance which includes an over 30% reduction in worst abdominal pain.
Furthermore, two analysts have recently issued very encouraging reports on the stock. Oppenheimer’s Derek Archila assigned a buy rating with a $6 price target (195% upside from current share price). Archila says: “We continue to be encouraged by Trulance’s launch progress, particularly around SGYP’s recent coverage wins which should bode well for Trulance in 2018.” He expects Trulance to begin to accelerate in early-to-mid 2018 post the IBS-C PDUFA in January. Ultimately Trulance could reach peak sales of $695 million by 2029 says Archila, after which time generic competition would begin to impact sales potential.
Crucially he is bullish on how Trulance shapes up against other players in the market: “We remain convinced of Trulance’s differentiation relative to existing branded agents for constipation, based on our positive physician checks and continue to see value in shares.” However, management’s 2019 breakeven timing seems aggressive says Archila- listing 2021 as a more realistic date. Interestingly the analyst also adds that “While takeout is not core to our thesis, we believe SGYP does represent an attractive potential acquisition target.”
Similarly, Cantor’s William Tanner has a buy rating on the stock with an even higher price target of $10- this is down from $11 but still represents a whopping 392% upside from the current share price. He says it is likely that the FDA will approve Trulance for IBS-C, and is also confident about Trulance’s prospects for CIC: “We continue to believe that Trulance will become an important therapy for treating chronic idiopathic constipation (CIC).” Two attractive elements to the Trulance-uptake story are the number of IBS-C patients untreated and the dissatisfaction of those who are being treated with the available therapies says Tanner.
Overall, TipRanks shows that the stock has a relatively optimistic analyst consensus rating of Moderate Buy. This breaks down into 5 buy ratings and just 1 lone sell rating. Meanwhile the stock’s average analyst price target of $7.75 translates into huge upside of 220% from the current share price.