Synergy overreaches itself


In a market turning bearish it was only a matter of time before investors got another reminder of the danger of financing lossmaking biotechs through debt. Step forward Synergy Pharmaceuticals, which today sold itself for $200m to Bausch Health, the company formerly known as Valeant, at the same time as revealing that this deal would go through under Chapter 11 bankruptcy protection. Synergy’s problems stem from a $300m debt deal a year ago, done when its market cap was above $600m. Not all of this ended up being drawn down, but as Synergy’s constipation drug Trulance floundered in the face of competition from Allergan’s Linzess its shrinking market cap ended up being dwarfed by the debt. Today that debt pile stands at $120m, and Trulance is clearly not an economic proposition: so far this year Synergy had spent $109m to sell $32m of it. Agreeing to the Bausch approach under Chapter 11 probably renders impotent any outcry from equity investors, who stand to receive virtually nothing – as reflected in Synergy’s 50% share price fall today. The only mystery is what Bausch will now do with Trulance.

The downfall of Synergy
Date Market cap ($m) Event
Jan 2017 1,236 Trulance launched for chronic idiopathic constipation
Feb 2017 1,325 Equity raise at $6.15/share
Aug 2017 787 Trulance quarterly sales come in at $2.3m
Sep 2017 652 $300m debt financing
Nov 2017 691 Equity raise at $2.57/share
Dec 2017 546 Troy Hamilton appointed CEO
Jan 2018 521 Trulance launched for IBS-C
Oct 2018 104 Sale process is under way in the wake of poor Trulance uptake
Dec 2018 50 Sale to Bausch under Chapter 11; shares fall to $0.17
Source: company filings.

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