Synergy Pharmaceuticals Inc.
- Company Name
- Synergy Pharmaceuticals Inc.
- Stock Symbol
- Class Period
- September 5, 2017 to November 14, 2017
- Motion Deadline
- April 9, 2018
- Eastern District of New York
The complaint charges Synergy and certain of its officers with violations of the Securities Exchange Act of 1934. Synergy is a biopharmaceutical company focused on the development and commercialization of therapies to treat gastro-intestinal disorders and diseases. Synergy’s only FDA-approved product is Trulance, a drug for the treatment of chronic idiopathic constipation. Synergy operates under a go-it-alone business strategy, eschewing licensing partnerships with established drug manufacturers to distribute Trulance on its own in order to retain the profits generated by the drug. This strategy requires that Synergy fund its operations through equity offerings and/or loans.
On September 5, 2017, defendants announced that Synergy had closed on a "non-dilutive" $300 million loan from CRG Partners III L.P. (“CRG”), which would be available to Synergy "when needed" and fund the Company's operations through 2019, giving Synergy the “financial flexibility to continue to execute on the launch of Trulance and achieve [its] business objectives.” However, the terms of the CRG loan, including various significant onerous terms and conditions, were not disclosed.
The complaint alleges that during the Class Period, defendants failed to disclose that the terms of Synergy’s loan agreement with CRG prevented the Company from accessing $200 million of the loan without conducting a secondary public offering of its shares, and thus, contrary to defendants' statements at the beginning of the Class Period, the CRG loan was not available to Synergy "when needed," would result in dilution of the Company’s outstanding shares, and would not, without a secondary offering and dilution of the Company’s outstanding shares, be sufficient to fund the Company's operations through 2019. As a result of these material omissions regarding the terms of the CRG loan agreement, the price of Synergy stock was artificially inflated during the Class Period to as high as $3.46 per share.
On November 9, 2017, Synergy filed its quarterly report on Form 10-Q with the SEC attaching as an exhibit the underlying CRG loan agreement. This was the first time it was disclosed that the terms of the loan would to be dilutive to the outstanding equity interests of Synergy shareholders, and that the loan did not by itself provide Synergy with the financial flexibility to continue to execute on the launch of Trulance and achieve its business objectives and would not fund the Company’s plans through 2019. The price of Synergy stock fell to $2.72 per share the following day. Then on November 13, 2017, Synergy filed an automatic shelf registration statement to allow future offerings of its securities to the public. The following day Synergy filed a prospectus supplement to the prior day’s registration statement disclosing the completion of a secondary offering of approximately 22 million shares at $2.58 per share, with warrants to purchase another 22 million shares in the future at $2.86 per share, for gross proceeds of approximately $56 million. On this news, the price of Synergy stock fell to as low as $1.68 per share before closing at $1.89 per share on November 15, 2017.