We viewed a change of strategy and leadership as necessary and likely. In hindsight, we ought to have called it quits then and there. The secondary offering, which was announced a day after the company stated its near-term funding needs had been satisfied by a private loan facility courtesy of CRG, left us questioning our core investment thesis. While investors were growing increasingly worried about Jacob and his team in the latter months of 2017, it was a botched secondary offering in November 2017 that finally crippled market confidence in the company. ![]() Gary Jacob, Synergy’s co-founder and long-time CEO, proved to be incapable of leading the company through the difficult transformation from developmental pharmaceutical company to commercial concern. Synergy suffered badly from a lack of effective leadership. But there was a clear path forward and prescriptions were growing. By the time we began following the company, in early Q4 2017, Trulance had been on the market for months and had made disappointing progress. Synergy stumbled out of the gate in its commercial launch efforts. Rotting from the Head: Feckless Leadership Squandered Opportunities Given those factors, we saw a strong path forward, given proper execution. It also enjoyed impressive clinical results, showing Trulance to be the best-in-class product on the market. Synergy could gradually chip away at the market leader while making inroads with new patients. So why were we still bullish on Synergy? For one thing, CIC and IBS-C patients population is huge and growing. Allergan dwarfed Synergy and could afford to invest in advertising, sales, and marketing to protect its status as market leader. Developed by another smaller firm, Ironwood Pharmaceuticals ( IRWD ), Linzess is licensed to Allergan ( AGN ), one of the biggest pharmaceutical companies in the world. Linzess, another drug for the treatment of CIC and IBS-C, was already in the market. It might have been able to make a decent go of winning market share if it had an open field. Synergy faced an even greater challenge in the form of competition. That is especially true for a product like Trulance, which aims at a mass-market audience. Small firms lack the resources, experience, and clout to make inroads with insurers and prescribers. ![]() For most developmental pharmaceutical companies, a commercial partnership can be vital to success. The company quickly opted to pursue a go-it-alone commercialization strategy, meaning it would not license the drug to a larger partner in exchange for upfront cash, milestone payments, and a cut of sales. In January 2017, Synergy won FDA approval for Trulance in the CIC indication. ![]() Synergy’s first big mistake was to attempt to commercialize Trulance, its drug for the treatment of chronic idiopathic constipation (“CIC”) and irritable bowel syndrome (“IBS-C”) with constipation, on its own. Fighting Goliath: The Hubris of Eschewing a Commercial Partner What can we all learn from this sorry case study? In our most recent note (published, quite aptly, on Halloween), our tone had changed in light of the company’s imminent financial distress: “ Can Synergy Survive This Crisis?” The answer to that last question: No. As it turned out, Synergy had a long way to fall. We followed that up with an even worse judged note titled “ Not A Falling Knife”. In our first note, we declared that “ After A Stumble, Synergy Pharmaceuticals Is Poised To Rise”. Since we initiated coverage of Synergy in October 2017, we published 19 research notes about the company. Bausch Health Companies ( BHC) has offered $200 million for them in the court-supervised auction and sale. The small pharmaceutical company has filed for bankruptcy and its assets are set to be bought up on the cheap. Reviewing our performance in 2018, our worst call was, without question, Synergy Pharmaceuticals ( NASDAQ: SGYP-OLD). Alas, it is the nature of the investment game.
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