A Dilutive Offering In The Offing? Oppenheimer Downgrades Synergy Pharma

Synergy Pharmaceuticals Inc (NASDAQ: SGYP) announced an offering of 21 million shares of its common stock at $2.58 per share in November, and at least one Wall Street analyst said another dilutive offering is imminent.

The Analyst

Oppenheimer's Derek Archila downgraded Synergy Pharmaceuticals' stock rating from Outperform to Perform with no assigned price target.

The Thesis

Synergy's Trulance therapy for constipation is a differentiated product and is likely to gain traction in the market, Archila said in the downgrade note. (See the analyst's track record here.) 

At the same time, Synergy is unlikely to quality for a third and fourth tranch of funding from the health care-focused investment firm CRG, which previously offered non-dilutive financing to the company, according to Oppenheimer. 

As part of the financing deal with CRG, Synergy needs to hold at least $128 million in cash on Jan. 31, 2018 to quality for the next tranche of $100 million, the analyst said. But based on the analyst's spend estimates for Opex, there is "some risk to whether or not" the company will meet the $128-million cash target that looms in a few weeks.

Synery's cost-reduction program, which was detailed during the third-quarter conference call, is unlikely to be sufficient to generate enough savings to eliminate the need for an additional stock raise, the analyst said.

"While we could be wrong, another equity raise seems most logical, either alone or potentially in conjunction with an acquisition to add another product to sales reps' bag," Archila said. "Debt seems less likely, given the terms of the CRG deal though there is always the possibility of renegotiation. We view U.S. licensing/ partnership/royalty deals as less beneficial to equity holders."

Price Action

Shares of Synergy Pharmaceuticals were down 11.68 percent Friday afternoon at $2.15.

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