Analysis of top Seeking Alpha coverage: Synergy
Today, we will discuss an article on Synergy Pharma (SGYP) by John Engle, titled Synergy Pharmaceuticals: Opportunity In Irritable Markets. The author began with a quote that I found very appropriate for the Synergy situation - "What's the best way to make God laugh? Tell him your plans for the future." This is a company with a best-in-class drug approved in a very important market, with another critical approval 3 months ahead - and yet the stock is being held back forever.
The company competes with Ironwood (IRWD), a debt-laden company that has never seen a dollar of profit; but actually, it competes against big pharma Allergan (AGN). I wonder, though, whether these gods are laughing at Allergan or at Synergy right now.
There has been little recent news from Synergy except for a presentation it made at a medical conference. The presentation concerns findings from a survey of patients and healthcare providers about current treatment for irritable bowel syndrome with constipation. It shows how the market is largely dissatisfied with existing treatment options and how Trulance can benefit from this large unmet need. The presentation, to me, was largely irrelevant and confused me even further - if Trulance is so good, why isn't the stock moving?
Synergy also reported more data for Trulance. Testing two dosage levels against placebo, both showed significant Overall Response (Placebo, 16.0%; Low Dose, 25.7%; High Dose 26.6%). Results were also positive for abdominal pain response and stool frequency. Furthermore, patients reported improvements in stool consistency and reduced straining severity. The principal negative side-effect, diarrhea, was limited (Placebo, 1.0%; Low Dose, 4.3%; High Dose, 4.0%). Barely more than 1% of treated patients had to discontinue treatment due to the effects of diarrhea. If you recall, Linzess has shown 5 times more probability of patients having diarrhoea than Trulance. And yet, the poor show from SGYP.
In response to a Total Pharma Tracker member's question, I wrote yesterday that there is not a single apparent reason for SGYP to go down. There is no negative news, analysts are bullish, funds are holding, insiders are not selling, IBS-C has every chance of being approved, competitor IRWD is heavily debt laden, Trulance has strong uptake, Linzess has poor safety profile... I could probably add 5 more points like these.
However, the stock is going down, with probably a bottom of sorts at $2.5. All sorts of investment logic tell me this is the time to double down. Street analysts are also strongly bullish the stock, and while that by itself is hardly a convincing argument, the consensus is hard to ignore. "Out of 6 analysts polled by TipRanks in the last 3 months, 5 are bullish on Synergy stock while 1 is bearish. With a return potential of nearly 195%, the stock's consensus target price stands at $8.59."
I note that the author Mr. Engle also has same bottom out price for SGYP - $2.5. As he says,
"While I am wary of trying to identify a bottom, it seems highly unlikely that it will fall below $2.50."
Meanwhile, Allergan is hard at work wooing the consuming public with TV ads like the one that was selected as the only DTC pharma advertising to win an Effie Award this year and ranked in the Sweet 16 of FiercePharma's DTC March Madness contest. The ad doesn't mention Trulance because there's no way the words "Trulance" and "Linzess" can be used in the same sentence without making that sentence sound detrimental to Linzess, or be a falsehood.
Here, try it out: Linzess is... better than... cheaper than... easier to use than.. Trulance. All those statements are false.
Also, another Trulance negative is that Express Scripts (NASDAQ:ESRX) did not take it up for the national preferred formulary in 2018, instead opting for the older meds Linzess and Amitiza. As the referenced article says, this is probably because Trulance, the new kid on the block, dared to price its BETTER drug at par with big boy Linzess, while the PBM must have been looking for a discount. One Cowen analyst who seemed biased against SGYP noted earlier this year, "We believe Trulance's uptake will be primarily determined based on Synergy's resources and ability to establish payor relationships and not on the diarrhea and efficacy differences with Linzess." Sadly, this may be true and hurt the stock in the short to midterm as the company establishes payor relationships. CVS (NYSE:CVS) is on board, but Express Scripts is the largest of them, and Trulance needs to find itself on that list of approved meds.
The problem here is just pricing, and I am not sure why SGYP didn't budge. But eventually, this will be sorted out if its marketing people can do a good job and IBS-C gets through. That means, if you have a little patience, this could be a huge winner in about a year's time or less, when next year's formulary inclusions are declared sometime in July. That, coupled with IBS-C, and potentially a buyout, could change the game in favor of SGYP, the David in this David and Goliath story.
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