Synergy Pharmaceuticals Inc (NASDAQ: SGYP) is having an overwhelmingly rough day in the market today as investors weigh the pros and cons. The reality is that there's a compelling argument that can be made on both sides. Today, we'll talk about the bullish argument, the bearish argument, what we're seeing from the stock, and what we'll be watching for with regard to SGYP ahead.
The Bullish Argument Surrounding SGYP
Those that are in on Synergy Pharmaceuticals have likely been for quite a while, and the diehard bulls remain bulls to this day. So, why would there be so many people that believe in a stock that has clearly struggled? Well, the answer is Trulance (plecanatide).
Trulance is a treatment that SGYP created for multiple indications, most notably irritable bowel syndrome with constipation (IBS-C) and chronic idiopathic constipation (CIC). In clinical studies the treatment outperformed the standard of care, Linzess, and looking through the data, it is clearly the superior option. As a result, the FDA has granted approval for the CIC indication. However, the IBS-C indication remains under review.
Considering the approval for the CIC indication, and comparing the CIC and IBS-C studies, it's clear that label expansion is all but in the bag! After reading through studies for both indications, it's hard to argue that SGYP won't receive approval, come the PDUFA date in January.
On top of all of this, while sales are struggling, they are climbing at an incredible rate. In the past quarter, prescription volume grew by 105%, while total net revenue grew by 117%. On top of that, the company is rapidly expanding insurance coverage surrounding the treatment with both private insurers and public insurers.
At the end of the day, the bulls have a very valid argument here. When we talk about Synergy Pharmaceuticals, we're talking about a company that has Trulance approved for CIC and is likely to receive approval for IBS-C relatively soon. On top of that, the company is rapidly expanding sales and payer coverage. If the company can continue with this rate of success or better following the label expansion, it's in good shape for the long run!
The Bearish Argument
While there are plenty of reasons to be excited about SGYP, there are also a couple of big reasons to be concerned. At the end of the day, while the opportunity surrounding the stock could be massive, the risks are nearly equally damning.
First and foremost, in the most recent quarter, SGYP had a cash burn rate of around $60 million. That's a massive amount of money, and something that should not be ignored. Considering the just over a hundred million the company has on hand, it's got two quarters. Well, that is without considering the recent credit facility valued at $300 million, but that's money with a high 9.5% interest rate. So, while the company does have the financial clout to survive for now, revenues are going to need to ramp up, and it's going to need to happen quickly.
On top of that, the bears point to the fact that Synergy Pharmaceuticals is playing on a playground with some serious competition. In the space, we have Linzess - a treatment that has been around for years and takes the lion's share of the market. Sure, Trulance is proven to be a better option, but fighting with competition like this can be a daunting and expensive task. Then we have other prescription competition with Amitza and an incredible amount of OTC competition.
So, the bearish argument is another good one. The bears argue that while SGYP is seeing strong increased revenue, it's got an uphill battle. With such a high cash burn rate and little money, revenues are going to have to climb quickly for this thing to pan out. As a result, many argue that it's best to stay away for the moment.
What We're Seeing From The Stock Today
Unfortunately, today isn't proving to be the best day in the market for Synergy Pharmaceuticals. As investors dig in here, the stock continues to tumble. Of course, our partners at Trade Ideas were the first to alert us to the declines. Currently (10:49), SGYP is trading at $2.15 per share after a loss of $0.29 per share (11.89%) 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, there are two big factors that we'll be watching here. First and foremost, we're interested in following the growth story surrounding Trulance sales. The company seems to be making the right moves and now would definitely be the right time for continued exponential growth. Also, we're interested in the coming potential label expansion. While the FDA hasn't made their decision just yet, the data suggests that approval should be coming down the line. From there, it becomes a matter of whether or not Synergy Pharmaceuticals can continue with the impressive sales growth. If so, this could be a massive opportunity. If not, the losses could be painful!
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