What happened

Synergy Pharmaceuticals (NASDAQ:SGYP) is rallying by 16.7% at 12:30 p.m. EDT after Cantor Fitzgerald initiated coverage with an overweight rating and a $11 price target this morning.

So what

Cantor Fitzgerald's rating follows BTIG Research's note yesterday saying that Synergy Pharmaceuticals' one and only commercial drug -- Trulance -- is off to a faster launch than projected. According to BTIG, Trulance prescriptions are north of 800 per week already, and that pace should help deliver on full-year forecasts for around $21 million in Trulance revenue. 

A gold pill sits atop a pile of gold coins.


A quicker-than-hoped ramp-up in Trulance sales is welcome news to investors because Synergy Pharmaceuticals is commercializing the drug on its own, and that's expensive. In the first quarter, selling, general, and administrative expenses totaled $42 million, up from $6.4 million in the first quarter of 2016.

A faster pace of prescriptions also suggests Trulance is making inroads against AstraZeneca (NYSE:AZN) and Ironwood Pharmaceuticals' (NASDAQ:IRWD) Linzess. Both Trulance and Linzess are approved by the Food and Drug Administration for use in chronic idiopathic constipation (CIC), and in 2016, Linzess sales were $626 million in 2016, up 38% from 2015. 

Now what

Trulance has only been on the market since March, but the addressable market (and Linzess sales) unquestionably suggests that there's a nine-figure opportunity associated with it. In trials, Trulance arguably delivered a better safety profile than Linzess, and that could help it become a top seller, too.

Having said that, Synergy Pharmaceuticals is a long way away from turning a profit. Last quarter, the company lost over $60 million. It wouldn't be surprising to see Trulance revenue eventually propel Synergy Pharmaceuticals into the black, but until we get a quarter or two of data under our belts, it's hard to guess when that might be. It's got $139 million in cash, but depending on its future cash burn, it's not 100% certain that it can avoid tapping equity markets in the future for more financing. 

Overall, this is a high-risk small-cap biotech targeting a lucrative market opportunity. It's got some stiff competition, but Trulance has advantages that appear to be resonating with prescribers. Nevertheless, with a market cap of $816 million, this stock can only be viewed as "cheap" if we assume peak sales will be well into the hundreds of millions of dollars annually. That's possible, but it might be worth seeing how sales come in over the coming quarter or two before bidding shares up even higher.