BIOTECH · @_B_I_O_T_E_C_H_
4th Jan 2017 from TwitLonger
oppenheimer $SGYP Initiate at Outperform PT $10.00: The Final Countdown to
Plecanatide Approval
SUMMARY
We are initiating on Synergy Pharmaceuticals with an Outperform rating and a $10
price target. We believe SGYP’s plecanatide for the treatment of chronic constipation
offers a differentiated profile and improved tolerability relative to the incumbent
branded therapies. We expect plecanatide to be approved on January 29, based
on its two positive Ph.3 trials in chronic idiopathic constipation, and subsequently
approved in 2018 for irritable bowel syndrome with constipation. We believe SGYP will
benefit from the past several years of growing awareness of new branded therapies for
constipation and forecast plecanatide sales reaching $695M by 2029. While takeout
is not core to our thesis, we believe SGYP does represent an attractive acquisition
target and view management as a willing seller at the right price.
KEY POINTS
■ Large, growing market: Approximately ~45M people are suffering from chronic
constipation in the US. Growing awareness among patients and physicians of
recently launched branded therapies continues to drive more patients to seek
treatment. We expect plecanatide to benefit from this strong category growth and
forecast $695M in peak sales by 2029 assuming ~7% share.
■ Improved tolerability profile: We believe plecanatide's superior tolerability
demonstrated in Phase 3 trials addresses the shortcomings of existing branded
constipation therapies and will resonate with physicians and patients alike. Our
diligence with physicians was generally positive on plecanatide with them seeing
a meaningful role for plecanatide in their treatment armamentarium for chronic
constipation.
■ Commercial strategy: We are positive on SGYP's commercial strategy to
execute a focused launch on high-decile prescribers using a hybrid sales force
made up of company-hired sales managers and contract sales representatives
coupled with a marketing campaign with a strong social media presence. We view
this as a fast & cost-efficient way to launch plecanatide given the company's limited
resources.
■ Takeover target: We view SGYP as a potential take-out target but believe at this
point, any acquirer is likely going to wait to see how the initial plecanatide sales
ramp looks like before stepping in. Based on our peak sales forecast, we view a
theoretical takeout price in the $13-14/share range as feasible but could be higher
if plecanatide is a blockbuster.
■ Valuation: Our 12-18-month price target of $10 is based on a discounted cash
flow analysis through 2030 using a 10% WACC. Our valuation takes into account
a capital raise in 1Q17, which we believe has been an overhang for the shares,
and the impact of SGYP's convertible debt.