Synergy Pharmaceuticals Inc (NASDAQ: SGYP) is tumbling in the market yet again this morning after reporting its financial results for the third quarter. After the company’s recent announcement that it has reduced guidance due to lower-than-expected TRULANCE sales, it’s not surprising to see that the earnings report wasn’t all that great. Today, we’ll talk:
- The earnings report;
- what we’re seeing from SGYP as a result; and
- what we’ll be watching for ahead.
SGYP Reports Earnings
As mentioned above, Synergy Pharmaceuticals is having an incredibly rough time in the market this morning after the company announced its financial results for the third quarter. Here’s what we saw from the report:
- Losses – During the third quarter, the company reported a loss of $34.5 million. That works out to a loss of $0.14 per share.
- Revenue – SGYP revenue came in at $11.1 million for the period.
Both earnings and revenue proved to be below analyst expectations.
The Big Issue For SGYP
While investors expected that the earnings report wasn’t going to be a very positive one, it served as validation for the company’s recent statements surrounding TRULANCE and issues that it will likely soon face.
You see, SGYP has debt with CRG, and that debt has a clause surrounding revenue. Ultimately, the company has to make revenue of $61 million in order to satisfy the terms of the agreement. At the moment, the company is guiding for revenue to come in between $42 and $47 million.
Should Synergy Pharmaceuticals not be able to lift revenue, the company will be required to pay between $31 million and $51 million by March 31, 2018 to CRG in order to avoid insolvency. Considering that at the end of the third quarter, the company only had about $45 million in cash on hand, making this payment may prove to be impossible.
Therefore, SGYP has two options, both of which seem to be a far stretch. Either the company will increase sales and blow away expectations in the third quarter by growing TRULANCE sales by more than 300%, or it will need to renegotiate the agreement with CRG.
So far, we know that negotiation attempts have not been going in the company’s favor. Moreover, chances are slim that the company will be able to increase sales to the level required under the CRG agreement. So, SGYP may be headed for bankruptcy relatively soon.
What We’re Seeing From The Stock
With earnings out, Synergy Pharmaceuticals isn’t doing very well in the market this morning. After all, investors wanted to see some indication that the company has done something to solve its CRG problem, and that wasn’t provided through the report. So, it’s not surprising to see that upset investors are sending the stock tumbling in the market this morning. As is normally the case, our partners at Trade Ideas were the first to alert us to the gains. Currently (8:02), SGYP is trading at $0.42 per share after a loss of $0.031 per share or 6.85% 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 deal with CRG. If the company is able to successfully renegotiate the agreement, it has a chance. However, it doesn’t look like sales are going to reach the required threshold, and should the contract not be renegotiated successfully, the company will need to find a creative way to avoid bankruptcy. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!