Shares of Synergy Pharmaceuticals (SGYP) were already sliding to below the four dollar mark when a recently-announced merger with Callisto Pharmaceuticals (CLSP) looked to have paved the way for a larger and more committed investor base to take up positions in the company. While that slide continued at the open of the current trading week, a Tuesday morning trial update by Synergy reinforced the potential of the company's flagship product, Plecanatide, in preparing to enter a multi billion dollar market.

According to Tuesday's press release, linked above, the company has completed enrollment of the Phase IIb/III clinical trial measuring the effectiveness of Plecanatide in treating chronic idiopathic constipation (CIC). This milestone event was already highly anticipated to conclude in the near future, but it reinforces previous expectations that results will be released by year-end 2012.

Although you can't bank on sure things in this highly-volatile and unpredictable sector, it is widely expected that the results from this trial will be positive. Ironwood Pharmaceuticals (IRWD) has already submitted with the FDA for the approval of Linaclotide - a treatment designed for the same indications and shares origins and the same mechanism of action with Plecanatide - and a decision is expected to take place next month. A trial delay announced this spring allowed Plecanatide to play a bit of 'catch up' in the path towards commercialization, but Tuesday's Synergy announcement keeps its developmental timeline in tact.

In the end, however, Synergy may hold a distinct advantage over Ironwood and could still make SGYP the more compelling play. During Ironwood's Linaclotide trials, the treatment was successful in alleviating constipation when compared to a placebo, but the kicker is that side effects included cases of extreme diarrhea. Some cases were extreme enough to force 6% of the patients to abandon the trial altogether. No such side effects were noted during Plecanatide trials, according to publicly-released information.

That's a huge benefit for team Synergy.

Another benefit for the short and long term future of Synergy stock is that the company has yet to land a partner, unlike Ironwood who has already signed Forest Laboratories, Inc. (FRX), with which the company will share Linaclotide revenue. Since IRWD's market cap sits at well over a billion dollars already, the market is effectively valuing Linaclotide at over two billion dollars, terms of the partnership considering. Synergy has yet to realize such expectations, and the merger with Callisto that removed 40% control by one entity may allow SGYP to begin doing so.

Although Tuesday's news confirms a late-year release of Plecanatide results, SGYP shares traded flat. This could be a huge opportunity, considering the valuation of Ironwood's competing product and the market potential for treating CIC.

Aegis Capital Corp also tagged SGYP on Tuesday with a price target of $25, noting the trial developments, expectations of results and potential of Plecanatide on the open market. In terms of valuation, Aegis noted the following:

"Synergy's current market cap of about $250mm does not adequately value the potential of Plecanatide and the firm's platform technology, in our view. We also note that linaclotide is currently valued at a level approaching $3bn based on the market cap of Ironwood Pharmaceuticals (IRWD/NASDAQ - Buy), the originator of this agent."

Bear in mind that there are no sure things in this volatile sector, as more drugs fail than ever make it to market, so each investors must conduct his or her own due diligence and invest accordingly.

Disclosure:  Long SGYP.

Contact VFC's Stock House: vfc@vfcsstockhouse.com

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