Buy Synergy Pharmaceuticals; Good News for Microvision
On Jan. 27 I issued a buy recommendation on Synergy Pharmaceuticals (NSDQ: SGYP), a biotech company focusing on diseases and conditions of the digestive system. The company received FDA approval for its idiopathic (cause unknown) constipation drug Trulance on Jan. 19, ten days ahead of the deadline—a bullish sign. The stock dipped initially on the news but recovered within a couple of days, making it a speculative, but worthwhile, addition to our portfolio.
I like the company because as I doctor I know well that there is no one constipation remedy that works for every single patient, so there is room in the market for Trulance. Trulance is an analog of a naturally occurring substance in the human gut. It functions by increasing the water content in the lumen of the intestine, leading to more frequent movement.
I am approaching this recommendation with some caution. Synergy’s market cap is about $1 billion and it has no sales, but revenue is likely to start in the next one to two quarters. It reported $109 million on its balance sheet at the end of the most recent quarter, which was enough to cover a catastrophic event at the company. The market for constipation medications is large, with an estimated 42 million sufferers in the U.S. alone.
The company does have competition from Allergan’s Linzess drug, which has been around for four years. The difference may be the lower side effects that studies suggest with Trulance. If this holds up it may provide Synergy with a potential blockbuster drug. Trulance also has the potential to be approved for use as a treatment for opioid induced constipation (OIC), which would expand its market, although it has competition from Astra Zeneca and Daiichi Sankyo’s Movantik in this area. I’ve seen Movantik work well in patients, but its price is often too high to be affordable. Pricing for Trulance will be a major factor in the drug’s acceptance and profit potential.
This is a small company and this is a dicey market, but at this point the rewards outweigh the risks.
Buy SGYP up to $7. Set a sell stop at $5. I have a position in SGYP.
Staying Patient on Bristol Myers
Shares of Bristol Myers Squibb (NYSE: BMY), a blue chip pharmaceutical company with a well-diversified drug portfolio, have declined of late. The precipitating issue was its recent decision to not pursue an early application for its cancer blockbuster Opdivo in certain types of lung cancer. This was based on the most recent information the company had available – translation: the current clinical trials are not that impressive. Its main competitor in the field, Merck (NYSE: MRK) opted for the opposite approach and submitted its own block buster Keytruda for early approval.
A few days later, Bristol Myers won a $675 million settlement from Merck that includes future royalties based on the fact that Keytruda violated Opdivo’s patent.
Here is the bottom line as far as I can tell: At the moment Bristol Myers is struggling because Opdivo is not delivering what many had expected in the lung cancer area. Opdivo does have growth potential in renal cancer, bladder as well as head and neck cancer, and melanoma. And the combination of Opdivo and Yervoy – another BMY cancer drug – is still under investigation for many cancers. BMY also has several late stage trials for lung and other types of cancer with potential FDA drug registrations in the works over the next 12 months. Furthermore, Bristol Myers has a very broad drug portfolio beyond cancer. I like its chances with Orencia, a T-cell modifying drug for moderate to advanced rheumatoid arthritis and Eliquis, a blood thinner which is becoming the leading blood thinner in the world. Both Eliquis and Orencia had a combined $3.8 billion in sales in 2015 compared to the $942 million for Opdivo.
Bristol came up short on its earnings for its fourth quarter but beat on its sales expectations. And it does have a broad restructuring program under way. There are some analysts that are suggesting it could be a takeover target. For now, I’m willing to wait a bit. This company has a very strong product roster. I own shares and options on BMY.
Turning VR into a Virtual Bazaar
Shares of Microvision (NSDQ: MVIS) made a 18.9% jump last week after an analyst said he believes the company’s new displays will allow Virtual Reality (VR) users this year to make purchases while they’re using VR gear, something users currently can’t do. Imagine Amazon’s “one click” to buy feature attached to the slow, but growing popularity of VR machines.
In a note in issued Thursday, Ladenburg Thalmann analyst Glenn Mattson pointed out that Microvision scored some wins last year, especially supplying its pico projectors to Sony. Buy the big wins will come this year as Microvision has three new displays set to launch, at least two of which have the potential to be game changers for VR.
One of the three displays, set to launch in the second quarter, can give the ability to create VR displays on lots of different devices, like smartphones and smart home audio systems. Another, set to launch in the third quarter, will let users swipe, pinch and “engage” with VR images. The best way to think of it is swiping the “buy” button on your smartphone.
Mattson went on to predict that thanks to those new displays, Microvision’s revenue will likely more than double between 2016 and 2018. Considering how profitable that new function could be, it will likely even increase the size of the entire VR market as developers rush to take advantage of basically adding ecommerce to their devices—and ecommerce is what’s
So it’s little wonder that investors rushed into the stock on that note of confidence, and I do mean rushed. Trading volume doubled from an average of about 600,000 shares to more than 1.4 million on Thursday.
I think the enthusiasm might be overdone. While the capability created by the new displays is no doubt valuable and game changing, few people own VR sets at this point, so it will take time for profits to really ramp up. Basically, Mattson’s timeline is a bit too short, though I agree that there’s definite long-term potential there.
Buy Microvision under $2.
— Benjamin Shepherd