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Here's Why Synergy Pharmaceuticals Inc. Is Falling Today

What happened

After posting a much higher loss than Wall Street expected, shares of Synergy Pharmaceuticals (NASDAQ: SGYP), a commercial-stage biopharma focused on diseases of the gastrointestinal system, fell as much as 13% in early morning trading on Thursday before they started to recover. As of 11:10 a.m. EDT, the stock was down about 7%. 

So what

Here's a review of the headline numbers from the second quarter: 

  • Net sales of Trulance, the company's newly launched treatment for chronic idiopathic constipation (CIC), were $2.3 million in the second quarter. That number compares favorably to Wall Street's estimate of $2.1 million.
  • Net loss for the quarter $73.9 million, or $0.33 per share. This number was far worse than the $0.25 loss that market watchers had expected.
  • Cash balance at quarter's end was only $82 million. 

Traders are reacting harshly to the news of a higher-than-expected loss. That makes sense given that the company's current cash balance is only enough to sustain the business for about four more months if current spending rates persist.

Image source: Getty Images.

Looking beyond the financials, Synergy shared a lot of upbeat data with investors related to the Trulance launch:

  • More than 12,600 total prescriptions have been filled since launch.
  • Trulance's market share for new-to-brand prescriptions was 6.8% among all prescribers and 12% among gastroenterologists.
  • More than half of new Trulance prescriptions were coming from patients who were not previously on a branded prescription CIC treatment while about 45% were converting from another therapy. This news should worry Ironwood Pharmaceuticals and Allergan shareholders since their CIC drug Linzess is most likely on the receiving end of those conversions. 
  • 95% of commercial lives can access Trulance for a copay of $25 or less.
  • A contract has been signed with CVS Health that starts next year.
  • Medicare and Medicaid remain ongoing and several wins are expected in 2018.

Furthermore, management reminder investors that its label expansion claim to treat irritable bowel syndrome with constipation (IBS-C) was recently accepted for review by the Food and Drug Administration and a PDUFA date of Jan. 24, 2018, has been set. 

Now what

While it is great to see that Trulance is off to a fast start, there is no doubt that Synergy is going to have to raise a bunch of capital in the not-too-distant future. However, after including today's loss, shares have declined by more than 46% since the start of the year. That makes the prospects of a secondary common stock offering tough to swallow.

My hunch is that investors won't have to wait long before they learn how the company plans to bolster its balance sheet. Potential investors might want to remain on the sidelines until they know more about its funding plans.

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.