Synergy Pharmaceuticals (SGYP) May Be Filing for Bankruptcy — and Its Stock Price Is Now Around 40 Cents

Synergy Pharmaceuticals (SGYP) is considering filing for bankruptcy protection as it faces a large debt repayment. Shares of Synergy plunged as much as 80% in after-hours trading. Let’s take a closer look.

Liquidity Update

In parallel with the strategic review process, Synergy has been seeking to renegotiate the terms of its term loan agreement with CRG Servicing LLC (“CRG”). The Company has been unable to further amend the agreement with respect to the financial and revenue covenants, and the Company has decided to forego drawing down on any additional amounts pursuant to its term loan agreement. Moreover, the Company’s term loan agreement contains a minimum liquidity covenant that absent relief from CRG may not be satisfied. Synergy is continuing discussions with CRG for covenant relief and in parallel the Company is currently pursuing financing alternatives that better align with its business, but there is no assurance that the Company can secure CRG’s consent or otherwise obtain any such financing on commercially reasonable terms, in which case the Company could default under the term loan agreement and may have to pursue or otherwise accelerate strategic alternatives, including the possibility of seeking bankruptcy protection to protect stakeholder value in the event other options are not reasonably executable. Further updates on financing alternatives will be provided when available.

Financial Update

TRULANCE uptake in 2018 has been slower than anticipated due to a highly competitive market access environment and slower than anticipated overall market growth. As a result, based on the Company’s current updated forecasts, Synergy is projecting TRULANCE total net sales for 2018 to be between $42.0 million to $47.0 million, which would be below the minimum revenue covenant of $61.0 million set forth in its term loan agreement with CRG. Under the terms of the agreement, Synergy will be required to repay principal and pay prepayment penalties in an amount equal to $38.0 million to $51.0 million if total net sales fall within the expected range noted above. Such principal repayment and prepayment penalties will be due no later than March 31, 2019. As previously announced, the Company has continued to evaluate opportunities to reduce cash expenditures to better align with anticipated revenues and available capital.

Strategic Review Update

In April 2015, prior to the FDA approval and launch of TRULANCE® (plecanatide) in 2017, Synergy hired a top tier advisory firm to engage external parties and evaluate all strategic options available to the Company, including US and ex-US partnerships and a possible sale of the Company. Ultimately, there were no offers to acquire the Company and no partnership opportunities emerged in this evaluation that it believed aligned with the Company strategically or financially. As a result, Synergy determined the best course of action for the business and Synergy shareholders at that time was to commercialize on its own. However, the Company has always remained open to, and committed to exploring all strategic and business development opportunities to enhance shareholder value. These efforts resulted in several recently announced partnerships and collaborations in 2018, including two ex-US licensing deals for TRULANCE and a collaboration with the National Cancer Institute for Synergy’s second asset, dolcanatide.

In May 2018, Synergy announced that it was running a strategic review process. As part of this extensive review, the Company, assisted by outside strategic and financial advisors, has been exploring multiple options and alternatives to create and enhance shareholder value. The Company held in-depth discussions with numerous potential counterparties regarding various strategic alternatives during this process. To date, the offers received to acquire Synergy have been significantly below the Company’s current market value, and it has been unable to consummate any partnership opportunities. At this time, Synergy does not believe that it will obtain any offers that are significantly higher in value than those received to date. Nevertheless, Synergy remains committed to the continued evaluation of all opportunities to enhance shareholder value, and there is no set timetable for completing this process.


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