Synergy Pharmaceuticals Inc (NASDAQ: SGYP) has been an incredibly interesting stock to watch as of late. While the stock has been headed up in recent sessions, the gains follow a business update a couple of weeks ago that caused the stock to lose around two thirds of its value. Now, the big question is, “What are the chances that SGYP will recover?”
Will SGYP Stage A Long Term Recovery?
First and foremost, I want to be clear that I like Synergy Pharmaceuticals. I want the stock to do well, and if the stars align perfectly, it just might. However, the stars would really have to align here.
Before we get into what would have to happen for a recovery to take place, it’s important that you understand why the company is having such a tough time in the first place.
The issues started a couple of weeks ago when SGYP announced a corporate update. In the update, the company said that sales of its recently approved TRULANCE treatment are expected to come in between $42 million and $47 million for the year. Sure, that sounds like a big number, but it greatly misses previous expectations.
To make matters worse, the company has an agreement with CRG that has a clause surrounding revenues. For the company to stay on the good side of the debt agreement, it must generate $61 million in sales in 2018. If this figure is missed, it will need to pay between $31 million and $51 million by no later than March 31, 2018. If that doesn’t happen, insolvency will be the key word!
Considering this, in order for SGYP to avoid insolvency, it will have to do one of three things:
- Renegotiate Terms With CRG – The first option would be for the company to renegotiate its terms with CRG. Unfortunately however, chances of this happening are slim. In the recent business update, Synergy Pharmaceuticals said that it has been working to renegotiate the agreement, but those efforts weren’t going well. Nonetheless, if this takes place, the company will be in the clear.
- Increase Sales – Another option would be for the company to increase sales and push revenue up to meet the $61 million requirement. Unfortunately, this is another thing that isn’t likely to happen. After all, we only have about a month and a half left in 2018, and SGYP is far from the finish line.
- Raise Funds – Finally, if the company is unable to reach the sales covenant or renegotiate its agreement by the end of this year, it will need to raise funds in order to make the massive payment that would be due in March. Unfortunately, this would likely require a bit of dilution.
So, there you have it. At the end of the day, it looks like things will get worse before they get better. However, there is indeed still a chance that SGYP can pull itself out of the hole it has found itself in.
What We’re Seeing From The Stock
While Synergy Pharmaceuticals has a tough, up-hill battle ahead of it, investors are working to maintain faith in the company. Yesterday, the stock was up 6.77% at the closing bell. Today, the stock continues to gain. As is just about always the case, our partners at Trade Ideas were the first to alert us to the gains. Currently (8:00), SGYP is trading at $0.39 per share after a gain of $0.0083 per share or 2.17% so 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 work to pull itself out of the pickle it is in with CRG. While chances are that things will get worse before they get better, it’s important not to undervalue TRULANCE. Sure, $61 million in sales is likely to be missed, but $40 million plus in the first year is a decent launch and the drug has the potential to grow from here. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!