Synergy Pharmaceuticals Inc (NASDAQ: SGYP) is headed for the top in this morning’s trading session, working to recover from the dramatic declines seen on the stock as of late. At the end of the day, this could prove to be an opportunity, but I would be very careful here. Today, we’ll talk about:
- The primary risk associated with SGYP right now;
- how this could become an opportunity;
- what we’re seeing in the market; and
- what we’ll be watching for with regard to the stock ahead.
What To Worry About With SGYP
As mentioned above, while Synergy Pharmaceuticals is headed up, before you get involved, it’s important that you understand the big risk here. Recently, the company provided an update that led to some serious concern. Apparently, SGYP is having a relatively hard time selling TRULANCE. Granted, the company is on track to make between $42 and $47 million in sales on the product this year. However, this number isn’t enough.
This is where CRG comes in, and SGYP owes CRG plenty of money. The problem is that there is a sales covenant associated with this debt that requires Synergy Pharmaceuticals to make revenue of $61 million this year, which is a far cry from where the company is guiding. Should the company miss this mark, it will be required to pay between $31 million and $51 million by no later than March 31, 2018 to avoid insolvency. That’s money that the company simply doesn’t have.
Now That You Know The Risk, Let’s Talk Opportunity
There’s no doubt that the risk here is a big one. If SGYP can’t come up with something, it could find itself in the middle of Chapter 11 conversations. However, if the company does avoid this, the stock could fly. At the end of the day, investors seem to be expecting failure here, creating an atmosphere of fear. On the other hand, buying when fear is high is a notion that’s known to pay off.
If Synergy Pharmaceuticals were to successfully renegotiate its agreement with CRG, the company would be back in business. Fair disclosure, in their recent update, SGYP said current discussions with the lender are not going well, but anything can happen over the course of a couple of months. Nonetheless, if a deal is met that allows the company to avoid the threat of insolvency, investors will chear and shorts will likely be squeezed. I’ll admit, it’s a long shot, but if you want to get into a risky game with the potential for a strong payout, it’s worth thinking about.
What We’re Seeing From The Stock
Synergy is having a pretty strong day in the amrket today. We recently got an alert from our partners at Trade Ideas, letting us know that the stock was headed up. At the moment (9:31), SGYP is trading at $0.40 per share after a gain of $0.025 per share or 6.78% thus far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on SGYP. In particular, we’re interested in following the story surrounding the company’s attempts to renegotiate a deal with CRG. We’re also interested in continued efforts to sell TRULANCE. Nonetheless, we’ll keep a close eye on the news and bring it to you as it breaks!
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