Synergy Pharma’s (NASDAQ:SGYP) plecanatide approval was supposed to be on January 29, 2017. However, it got approved 10 days early, late in the afternoon of January 19, 2017. Immediately after that, the stock tanked. Investors were hoping to see $8 or more, however, right now, the stock is hovering dangerously close to $5.

What’s wrong with plecanatide, now known as Trulance?

Some analysts speculate that the diarrhea label warning that came with the approval caused the stock to tank. As a fellow author says, “the market’s refusal to reward the group suggests investors were hoping for a better label – one without a warning about severe diarrhoea.”

However, that is a little naive. It is true that many investors are also that – a little naive – however there will be two groups of investors here, those with some knowledge and those with zero knowledge. The latter group will have no idea about diarrhea labels and all that sort of medical stuff – they trade on charts or second-hand information, and that’s all. For them, a label warning would not have much impact on their trading decisions. On the other hand, those who have some knowledge will know that not to expect a diarrhea warning when the trials definitely had diarrhea issues is naive at best. I mean, “some knowledge” of a drug that centers around the concept of diarrhea comparison with its competitor should imply knowledge about the diarrhea issue, right? How could you claim to have “some knowledge” about plecanatide’s diarrhea trial (efficacy was never an issue) and not know that it caused diarrhea in some patients? So if you knew that, you must have expected the FDA to note that somewhere, i.e., through a label warning. So, since that was expected, why sell out and tank the stock?

No, I don’t think that happened at all. Take a look at the trading volume data below:

(click to enlarge)

Source – Yahoo Finance

5, 3 and 4 million, then 20 million, and then 6,7, and 6 million. That’s how the data looks here. On 20th, the day after the news came out, 20 million shares were traded, about 5x the previous day’s volume. I wonder if the details about the label warning even reached most of these investors by the time they sold out. I offer two claims:

  1. On January 20, most investors who sold out were not even aware of the label warning.
  2. Over the following weekend, and by January 25, more and more investors – those who have “some knowledge” about plecanatide- came to know about the label warning

So if the above two claims have merit, and if people were selling out on the fear of the label warning and not “on the news”, then the data would have rather looked like

Jan 20 – 8, 000, 000 shares sold

Jan 23 – 12, 000, 000 shares sold

Jan 24 – 18, 000, 000 shares sold

Jan 25 – 20, 000, 000 shares sold

Because as more people came to know about the label warning, they started selling out.

Since that did not happen, I argue that the high volume sell was an ordinary “sell on good news” play, and had nothing to do with a label scare.

Take another recent approval for comparison, eteplirsen from Sarepta (NASDAQ:SRPT) that was approved exactly 4 months before:

(click to enlarge)

Source: Yahoo Finance

Eteplirsen was approved on September 19, and there was no label warning surprise, so the huge sell-off was obviously on good news. There was a sell off the next day as well, and then it pattered down to almost normal. Basically, I want to say that “sell on good news” chart patterns should look like that, while sell on label surprise should look much different.

This is behavioral stuff, so it is hardly ever provable, but the basic idea is that, a label surprise news would take time to percolate to the least-informed investors, and then there would be a sell-off. The immediate sell off after approval is simply selling on good news.

Label comparison

Let’s do a label comparison between plecanatide and Linzess. Here’s how they look.

Sources: Linzess and Plecanatide

Now note the differences:

Linzess Plecanatide
Take on empty stomach at least 30 minutes prior to first meal of the day Take with or without food
Dosage – 145 to 290 mcg Dosage – 10x more, 3 mg, or 3000 mcg
Most common adverse reactions
(incidence of at least 2%)
reported in IBS-C or CIC patients are diarrhea, abdominal pain, flatulence and abdominal distension.
Most common adverse reaction ( ≥2% ) is diarrhea.

Note that, Linzess is not prescribed on empty stomach. It must be taken well before any food intake. Plecanatide can be taken with or without food. It can even be crushed and taken with applesauce. The meaning is simple but critical – if you take Linzess with food, it will work on the food, lead to diarrhea or flatulence or other gastro problems; Plecantide will not. Compliance is thus much easier on plecanatide. People do not need to worry about eating when taking this med.

Also note that both Linzess are plecanatide are the same compound, but while Linzess is an e.coli enterotoxin derivative , plecanatide is an uroguanylin analog. This creates the dosage difference. The human body can tolerate 3000mcg of Plecanatide, while it can only tolerate one-tenth of that amount of Linzess.

Now, to give more color to the last point, about adverse reactions, above, go to section 6 of each of the two documents, and note the following tables:

(click to enlarge)

Linzess, for IBS-C

Screen Shot 2017-01-26 at 8.48.42 AM.png

Linzess, for CIC

Screen Shot 2017-01-26 at 8.48.52 AM.png

Plecanatide, for CIC

Linzess has 16% diarrhea at 145mcg in CIC and 20% diarrhea at 290mcg in IBS-C. At 10x that dosage, at 3mg, Trulance has only 5% diarrhea – severe diarrhea, of the kind that leads to hospitalization and an IV, was 2% in Linzess and only 0.6% in plecanatide. Linzess had a host of other adverse reactions, including abdominal pain, flatulence, abdominal distension, and a host of upper respiratory tract infection – in short, this drug was a big pain to take. Trulance had none of those things. At the higher dose, Linzess even had headache. Poignantly, look at the adverse reactions leading to discontinuation and dose reduction data:

Discontinuation/PLACEBO Dose reduction/PLACEBO
Linzess 290mcg IBS-C 9%/3% 29%/NA
Linzess 145mcg CIC 8%/4% 27%/NA
Trulance 3000mcg CIC 4%/2% NA

Bottomline is, Linzess is a nightmare for many patients, while Trulance is a breeze to take in comparison.

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