What happened

Synergy Pharmaceuticals (NASDAQ: SGYP), a commercial-stage biopharma focused on gastrointestinal diseases, fell more than 14% in July, according to data from S&P Global Market Intelligence. However, there wasn't any news released during the month that could justify the double-digit fall. That's just how things go when you're in small-cap biopharma land.

So what

Synergy recently became a commercial-stage company after it won approval from the U.S. Food and Drug Administration for its drug Trulance earlier this year. Trulance was approved as a treatment for chronic idiopathic constipation (CIC), a condition that affects about 35 million Americans.

While Trulance is going after a large patient population, success depends on the drug's ability to win market share away from Linzess, a CIC treatment marketed by Ironwood Pharmaceuticals (NASDAQ:IRWD) and Allergan (NYSE:AGN). Last year sales of Linzess exceeded $625 million in the U.S., so you can bet that Ironwood and Allergan will do everything in their power to protect their drug from the competition.

Thankfully, Trulance has a few clinical advantages going for it that could still make it popular with patients and providers alike. For one, Trulance users in clinical trials reported lower rates of diarrhea, abdominal pain, flatulence, and upper-respiratory-tract infections when compared to patients who used Linzess. What's more, Trulance can be taken at any time of the day, while Linzess needs to be taken on an empty stomach before breakfast. These advantages give the drug a strong chance of winning market share.

Colorful drugs on top of $100 bills

Image source: Getty Images.

Now what

Synergy is already looking for ways to expand Trulance's labeling; it had previously submitted the drug to the FDA as a hopeful treatment of irritable bowel syndrome with constipation. That filing was recently accepted and the company expects to have a go/no-go decision in hand by Jan. 24, 2018.

Meanwhile, early indications show that Trulance is off to a good start. According to BTIG, over 800 Trulance prescriptions per week were being written as of early June. That's a faster-than-expected start, and it hints that the company could surprise on the upside when it reports its sales results for the second quarter.

On the flip side, Synergy is spending heavily to get the word out on Trulance, putting the company in a precarious financial position. As of the end of March, Synergy only reported $139 million in cash on its balance sheet. That's not a huge number compared to the $65 million that it lost in the first quarter. That hints that Synergy could be looking to tap shareholders for extra cash in the not-too-distant future.

All in all, Synergy appears to have a differentiated product that is going after a large market opportunity, but the company's financial situation is a bit too dicey for me to simply overlook. I'd suggest that potential investors wait a few quarters for more information on how Trulance is performing before they consider taking a position in this speculative stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.