On August 13th, shares of Synergy Pharmaceuticals (SGYP) hit an intra-day low of $3.66 before closing the day at $3.74. Now, just two weeks later, shares routinely trade for a buck higher while volume has modestly increased, too. The quick price spike in itself could certainly attract the attention of investors looking for a nice momentum play or trading opportunity, but the company has enough pending catalysts and developing stories in play to justify the recent price increases, and potentially more.
Synergy had initially moved higher during the dog days of summer after a merger with Callisto Pharmaceuticals (CLSP) was announced in late July. The merger put Synergy in a position of strength in its quest to attract a more committed investor because - as a result of the deal - Callisto's previously-held for percent stake in SGYP will be cancelled and distributed evenly amongst Callisto investors. Many large funds and institutions are hesitant to buy into a company already forty percent owned by another entity. The merger agreement alleviated this roadblock.
Synergy then followed up the Callisto news with a confirmation that a much-anticipated, end-of-year trial milestone was still on track. Results from the recently-closed Plecanatide Phase IIb/III trial should be out by the closing weeks of December and investors could then better gauge the company's true potential moving forward. It is expected that these results will be positive, considering Plecanatide's shared origins and same mechanism of action as Ironwood Pharmaceuticals' (IRWD) Linaclotide, which is currently before the FDA for approval review with a decision due within weeks.
While these catalysts provided fuel for SGYP's recent price spike, the company announced yet another significant development last week - one that caught many investors by surprise. It was announced last week that an Asset Purchase Agreement with Bristol-Myers Squibb Company (BMY) had taken place and would add FV-100 for the treatment for shingles, to Synergy's pipeline. The FV-100 deal diversifies the company's portfolio and right off the bat does three things for the company - boosts the overall value and potential of Synergy Pharmaceuticals in the event of a buyout; provides a backup pipeline in case the lead candidate does not make it through approval, and legitimizes the company in its quest to become a much bigger player in the sector. The full financial terms of the deal were not disclosed but it was revealed that Synergy paid an up-front sum of $1 million. SGYP shares spiked by five percent on the news.
The Callisto deal also brought a few more pipeline products into the fold to team with Plecanatide and now FV-100, including the Phase II cancer treatment Atiprimod, the Phase I L-Annamycin and the pre-clinical Degrasyns.
Neither of the acquisition/merger deals were earth-shattering news, but even before any of it hit the wires, some analysts had already tagged SGYP with price targets at least double the current levels. Such valuations are based on the potential of the company's flagship product, Plecanatide, on the open market in the treatment of chronic idiopathic constipation (CIC) - and eventually also constipation-predominant irritable bowel syndrome (IBS-C) - and did not take into account the new pipeline boost.
In regards to Synergy's main product candidate, Plecanatide, investors may have cause for concern with the fact that it is further behind in development than Linaclotide - which is slated to receive an FDA approval decision for the same indications within weeks - but a more favorable side effect profile for Plecanatide has analysts and investors convinced that any initial momentum gained by Linaclotide on the open market could be quickly recaptured by Plecanatide, should it also muster an eventual FDA approval. When the Phase IIb/III results hit later this year, investors will have much more of a clue as to just how valid the recent price targets are and whether the previously-discussed potential is real.
Do bear in mind, however, that there are no sure things in the markets, especially in this sector, so investors should protect their investments, and sometimes that means 'playing the catalyst' - which often translates into playing some trading shares into the pre-catalyst run-up, should one take shape.
While surprising, the Bristol-Myers deal for FV-100, a product of the Inhibitex deal earlier this year, also cannot be ignored. Any relationship between a developmental company such as Synergy and a much larger player in the sector will be scrutinized by investors who may speculate that a much more major partnership - or even a buyout - is in the works, but it's also possible that Bristol is just looking to cut losses with the Inhibitex transaction and move on, especially since the company just took a near-two billion dollar hit on a failed hep-C drug last Friday.
Regardless, the relationship will be worth watching and should be assumed to exist in some still-unspoken terms, because its unlikely that the whole FV-100 deal entails just the one million dollar up-front payment.
Synergy shares moved higher by five percent on the news last week and were moving higher again during the opening days of the 27 August trading week.
With catalysts pending and some intriguing M&A moves completed this month, SGYP is a stock to watch - and one that's been 'on the move.'
Disclosure: Long SGYP.
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