Synergy Pharmaceuticals (NASDAQ:SGYP) just announced the start of a phase IIb trial of their lead drug, plecanatide, in patients with constipation predominant irritable bowel syndrome (IBS-C). While today's press release does not explicitly indicate that patients have been dosed, in a recent conversation with Synergy's CFO, Bernard Denoyer, we confirmed that announcement of the start of the IBS-C trial was planned to be made after dosing of the first patient. We believe that the fact that the company is starting their second phase IIb trial of plecanatide before the top-line results from the recently completed trial are announced is a bullish indication of a positive trial outcome next week as outlined herein. We reiterate our view that SGYP shares appear to be significantly under-valued ahead of the upcoming trial results announcement.
About the New Trial
The IBS-C trial will enroll 350 patients meeting the ROME III criteria for IBS-C and the 12-week study will test four doses of plecanatide vs. placebo across 70 US clinical sites. According to the clinical trials information page, the primary efficacy endpoint is:
Change from baseline in the mean number of Complete Spontaneous Bowel Movement (CSBM) over the 12 week treatment period
Secondary endpoints measure the proportion of patients who are overall responders, reduction in pain and stool frequency. Plecanatide demonstrated excellent results in time to first bowel movement in their phase IIa dose-ranging and safety trial which was completed in 2010.
Because the new trial is only enrolling 350 patients, compared to the 800 patients enrolled in the recently completed phase IIb/III trial in patients with chronic idiopathic constipation (CIC), we expect that full trial enrollment will take half the time, or approximately 6 months for this new trial. If this enrollment timeframe is met, top-line results from the trial are likely to be released sometime in early to mid Q4 2013.
Implications for Upcoming Trial Data Announcement
We believe that the start of this trial before the announcement of top-line results from the phase IIb/III CIC trial is bullish for the upcoming clinical trial data release. Prudent allocation of capital demands that if there were serious doubts about a positive outcome for the CIC trial data (to be released next week), the company should not commit time and resources to launching a second trial without seeing what the current trial's data tells them about the efficacy of the drug. Recall that, while the company did examine efficacy in their 2010 phase IIa trial, that study was a safety study and efficacy was not a primary endpoint. Our view is that the company, based on information that is not yet public, is very confident of a positive trial outcome in the CIC trial.
Conclusion
As we indicated in our last Red Acre Insight about Synergy, we believe that fair value for SGYP before the announcement of trial results stands at $8.77 based on a 75% probability of positive clinical trial data. Shares are trading at a significant discount to future value in the event of positive top-line results and today's announcement may be the trigger for a rise to fair value. Shares of SGYP are already up more than 5% in early trading as we predicted 10 days ago. There is still a possibility of some selling pressure on the stock from run-up traders exiting later this week; however, as outlined herein, we believe that the fact that the company is committing resources to another trial ahead of the data release is a very good sign. As Always, holding through a binary event is a risky proposition no matter how likely one feels on being on the right side of the event. investors would do well to seek opportunities to lock in at least a portion of their gains should a significant rise toward fair value occur this week. We believe that top-line results may be announced as early as January 2nd 2013 given that SGYP's merger with Callisto is to be voted upon on January 3rd, investors should plan their trading accordingly keeping in mind holiday market schedules.
