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Synergy Pharmaceuticals Reports Second Quarter 2018 Financial Results and Business Update

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  • TRULANCE® second quarter net sales up over 40% versus prior quarter
  • TRULANCE added to Express Scripts 2019 National Preferred Formulary
    List
  • Synergy secures ex-US licensing deal for TRULANCE in China -
    providing $12 million upfront payment and potential for future
    milestone and escalating royalty payments

Synergy Pharmaceuticals Inc. (NASDAQ:SGYP), a biopharmaceutical company
focused on the development and commercialization of novel
gastrointestinal (GI) therapies, today reported its financial results
and business update for the three months ended June 30, 2018.

"The Synergy team continues to demonstrate strong execution towards our
2018 key business priorities of optimizing the value of TRULANCE,
ensuring a strong financial foundation and continuing to explore all
business development opportunities," said Troy Hamilton, Chief Executive
Officer of Synergy Pharmaceuticals Inc. "In terms of optimizing
TRULANCE, we reported strong quarter-over-quarter growth with net sales
increasing 43% in the second quarter. In addition, today we announced a
major coverage win with Express Scripts, helping us to enhance and
expand our current coverage, improve patient access and support sales
growth. Lastly, since the beginning of the year we've successfully
executed on two ex-US licensing transactions for TRULANCE as well as a
collaboration with the National Cancer Institute (NCI) to advance
development of our second pipeline asset, dolcanatide, underscoring our
commitment to pursuing a wide variety of value-enhancing strategic and
business development opportunities. While we are very pleased with these
partnerships, we are still actively assessing other potential
opportunities that align with our ultimate objective of maximizing value
for Synergy shareholders. We remain committed to being as transparent as
possible during this ongoing strategic review and expect to provide
another update in the near term. I want to thank the entire Synergy
team, our customers and shareholders for their continued support during
this dynamic period."

"We were pleased with solid topline growth of over 40% in the second
quarter versus the prior quarter, resulting in $20.8 million in total
net sales for the six months ended June 30, 2018," said Gary Gemignani,
EVP and Chief Financial Officer of Synergy Pharmaceuticals Inc. "As we
move into the second half of the year, we will continue to balance our
commitment to topline growth with the efficient management of our bottom
line, as highlighted by the 44% reduction in total adjusted operating
expenses we achieved year-over-year. We are evaluating opportunities to
further optimize our operating efficiencies and intend to update our
2018 total adjusted OPEX guidance as part of our ongoing strategic
review."

Second Quarter 2018 and Recent Highlights

Optimizing the Value of TRULANCE

  • On August 7, 2018, Synergy announced that Express Scripts, a leading
    U.S. pharmacy benefit manager, will add TRULANCE to its 2019 National
    Preferred Formulary List, effective January 1, 2019.
  • Total TRULANCE normalized prescription volume in the second quarter of
    2018 included approximately 55,000 TRULANCE 30-count packs, up over
    24% versus the first quarter, and resulting in over 90% average
    quarterly growth since the product's launch on March 20, 2017, per
    IQVIA.
  • TRULANCE new prescription volume showed nearly 25% average quarterly
    growth since launch through June 30, 2018, per IQVIA.
  • Total number of unique healthcare practitioners prescribing TRULANCE
    reached over 14,000 in the second quarter of 2018, increasing more
    than 20% over the first quarter, and resulting in 60% average
    quarterly growth since launch, per IQVIA.

Ensuring a Strong Financial Foundation

Financial Results

  • TRULANCE net sales were $12.3 million in the second quarter of 2018,
    increasing 43% over the first quarter of 2018, and resulting in $20.8
    million in total net sales for the six months ended June 30, 2018.
    TRULANCE was first approved by the FDA for chronic idiopathic
    constipation (CIC) in January 2017 and Synergy initiated U.S. sales
    and marketing efforts on March 20, 2017. TRULANCE was approved by the
    FDA for a second indication in irritable bowel syndrome with
    constipation (IBS-C) in January 2018.
  • Total operating expenses were $37.5 million in the second quarter of
    2018 compared to $74.3 million in total operating expenses in the
    second quarter of 2017.
  • Total adjusted operating expenses (non-GAAP) were $34.0 million in the
    second quarter of 2018, a 44% decrease compared to $61.0 million in
    total adjusted operating expenses (non-GAAP) in the second quarter of
    2017.
  • Synergy reported a net loss of $29.7 million, or $0.12 per share, for
    the second quarter of 2018 compared to a net loss of $73.9 million, or
    $0.33 per share in the second quarter of 2017.
  • Cash and cash equivalents were approximately $61.2 million at the end
    of the first quarter. Synergy has the ability to access up to an
    additional $100 million in 2018 under its Term Loan Agreement with CRG
    LP, subject to the satisfaction of certain borrowing conditions.

Exploring All Strategic and Business Development Opportunities

Collaborations & Partnerships

  • On August 7, 2018, Synergy announced a license agreement with Luoxin
    Pharmaceutical Group Co., Ltd., Shandong (Luoxin) providing Luoxin
    exclusive rights to develop and commercialize TRULANCE for the
    treatment of adults with chronic idiopathic constipation (CIC) and
    irritable bowel syndrome with constipation (IBS-C) in mainland China,
    Hong Kong and Macau. Under the terms of the agreement, Synergy will
    receive an upfront payment of $12 million. Synergy is also eligible,
    in the event that certain regulatory and commercial milestones are
    met, to receive additional payments of up to $56 million in aggregate.
    In addition, Synergy is eligible to receive tiered royalty payments on
    aggregate net sales.
  • Synergy's Canadian partner, Cipher Pharmaceuticals, remains on-track
    to file a New Drug Submission for TRULANCE in IBS-C with Health Canada
    in the second half of 2018. The regulatory review period is
    approximately one-year from the submission date. Under the terms of
    the licensing agreement, Synergy is eligible for a milestone payment
    upon regulatory approval in Canada, as well as royalties from product
    sales in Canada.
  • The National Cancer Institute (NCI) has initiated a NCI-funded and
    managed clinical biomarker study to evaluate the potential of
    dolcanatide, Synergy's second uroguanylin analog, to prevent
    colorectal cancer. The study will assess the colorectal bioactivity of
    dolcanatide in healthy volunteers and will inform the feasibility and
    design of a larger study. This is the first clinical biomarker study
    evaluating the potential benefit of using a uroguanylin analog in
    colorectal cancer prevention.

2018 Financial Guidance / Strategic Review Update

  • Synergy intends to provide an update to shareholders on its ongoing
    strategic review, including any anticipated related impact on
    operating expenses, in the third quarter of 2018.

About Synergy Pharmaceuticals

Synergy is a biopharmaceutical company focused on the development and
commercialization of novel gastrointestinal (GI) therapies. The company
has pioneered discovery, research and development efforts around analogs
of uroguanylin, a naturally occurring human GI peptide, for the
treatment of GI diseases and disorders. Synergy's proprietary GI
platform includes one commercial product TRULANCE® (plecanatide) and a
second product candidate - dolcanatide. For more information, please
visit www.synergypharma.com.

About Irritable Bowel Syndrome with Constipation (IBS-C)

Irritable bowel syndrome (IBS) is a chronic gastrointestinal disorder
characterized by recurrent abdominal pain and associated with two or
more of the following: related to defecation, associated with a change
in the frequency of stool, or associated with a change in the form
(appearance) of the stool. IBS can be subtyped by the predominant stool
form: constipation (IBS-C), diarrhea (IBS-D) or mixed (IBS-M). Those
within the IBS-C subtype experience hard or lumpy stools more than 25
percent of the time they defecate, and loose or watery stools less than
25 percent of the time. It is estimated that the prevalence
of IBS-C in the U.S. adult population is approximately 4 to 5 percent.

About Chronic Idiopathic Constipation (CIC)

CIC affects approximately 14 percent of the global population,
disproportionately affecting women and older adults. People with CIC
have persistent symptoms of difficult-to-pass and infrequent bowel
movements. In addition to physical symptoms including abdominal bloating
and discomfort, CIC can adversely affect an individual's quality of
life, including increasing stress levels and anxiety.

About TRULANCE®

TRULANCE® (plecanatide) is a once-daily tablet approved for
adults with CIC or IBS-C. With the exception of a single amino acid
substitution for greater binding affinity, TRULANCE is structurally
identical to uroguanylin, a naturally occurring and endogenous human GI
peptide. Uroguanylin activates GC-C receptors in a pH-sensitive manner
primarily in the small intestine, stimulating fluid secretion and
maintaining stool consistency necessary for regular bowel function.

Indications and Usage

TRULANCE (plecanatide) 3 mg tablets is indicated in adults for the
treatment of Chronic Idiopathic Constipation (CIC) and Irritable Bowel
Syndrome with Constipation (IBS-C).

IMPORTANT SAFETY INFORMATION

WARNING: RISK OF SERIOUS DEHYDRATION IN PEDIATRIC PATIENTS

TRULANCE® is contraindicated in patients
less than 6 years of age; in nonclinical studies in young juvenile mice
administration of a single oral dose of plecanatide caused deaths due to
dehydration. Use of TRULANCE should be avoided in patients 6 years to
less than 18 years of age. The safety and efficacy of TRULANCE have not
been established in pediatric patients less than 18 years of age.

Contraindications

  • TRULANCE is contraindicated in patients less than 6 years of age due
    to the risk of serious dehydration.
  • TRULANCE is contraindicated in patients with known or suspected
    mechanical gastrointestinal obstruction.

Warnings and Precautions

Risk of Serious Dehydration in Pediatric Patients

  • TRULANCE is contraindicated in patients less than 6 years of age. The
    safety and effectiveness of TRULANCE in patients less than 18 years of
    age have not been established. In young juvenile mice (human age
    equivalent of approximately 1 month to less than 2 years), plecanatide
    increased fluid secretion as a consequence of stimulation of guanylate
    cyclase-C (GC-C), resulting in mortality in some mice within the first
    24 hours, apparently due to dehydration. Due to increased intestinal
    expression of GC-C, patients less than 6 years of age may be more
    likely than older patients to develop severe diarrhea and its
    potentially serious consequences.
  • Use of TRULANCE should be avoided in patients 6 years to less than 18
    years of age. Although there were no deaths in older juvenile mice,
    given the deaths in young mice and the lack of clinical safety and
    efficacy data in pediatric patients, use of TRULANCE should be avoided
    in patients 6 years to less than 18 years of age.

Diarrhea

  • Diarrhea was the most common adverse reaction in the four
    placebo-controlled clinical trials for CIC and IBS-C. Severe diarrhea
    was reported in 0.6% of TRULANCE-treated CIC patients, and in 1% of
    TRULANCE-treated IBS-C patients.
  • If severe diarrhea occurs, the health care provider should suspend
    dosing and rehydrate the patient.

Adverse Reactions

  • In the two combined CIC clinical trials, the most common adverse
    reaction in TRULANCE-treated patients (incidence ≥2% and greater than
    in the placebo group) was diarrhea (5% vs 1% placebo).
  • In the two combined IBS-C clinical trials, the most common adverse
    reaction in TRULANCE-treated patients (incidence ≥2% and greater than
    in the placebo group) was diarrhea (4.3% vs 1% placebo).

Please also see the
full Prescribing Information
, including Box Warning, for
additional risk information.

Forward-Looking Statements

Certain statements in this press release are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements may be identified by the use of forward- looking words such
as "anticipate," "planned," "believe," "forecast," "estimated,"
"expected," and "intend," among others. These forward-looking statements
are based on Synergy's current expectations and actual results could
differ materially. There are a number of factors that could cause actual
events to differ materially from those indicated by such forward-looking
statements. These factors include, but are not limited to, substantial
competition; our ability to continue as a going concern; our need for
additional financing; uncertainties of patent protection and litigation;
uncertainties of government or third party payer reimbursement; limited
sales and marketing efforts and dependence upon third parties; and risks
related to failure to obtain FDA clearances or approvals and
noncompliance with FDA regulations. As with any pharmaceutical under
development, there are significant risks in the development, regulatory
approval and commercialization of new products. There are no guarantees
that future clinical trials discussed in this press release will be
completed or successful or that any product will receive regulatory
approval for any indication or prove to be commercially successful.
Investors should read the risk factors set forth in Synergy's Annual
Report on Form 10-K for the year ended December 31, 2017 and other
periodic reports filed with the Securities and Exchange Commission.
While the list of factors presented here is considered representative,
no such list should be considered to be a complete statement of all
potential risks and uncertainties. Unlisted factors may present
significant additional obstacles to the realization of forward-looking
statements. Forward-looking statements included herein are made as of
the date hereof, and Synergy does not undertake any obligation to update
publicly such statements to reflect subsequent events or circumstances.

 

Synergy Pharmaceutical Inc.

Condensed Consolidated Balance Sheets

(unaudited)

       
($ in thousands) June 30, 2018 December 31, 2017
Assets
Cash and cash equivalents $ 61,233 $ 136,986
Accounts receivable 8,511 6,491
Inventories 17,609 17,214
Prepaid expenses and other current assets 7,772   4,469  
Total Current Assets 95,125 165,160
Other assets 1,480   1,446  
Total Assets $ 96,605   $ 166,606  
 
Liabilities and Stockholders' (Deficit)
Total Current Liabilities $ 33,598 $ 38,147
Senior convertible notes, net 17,657 17,302
Long term debt, net 100,327 98,660
Derivative financial instruments – warrants 9,334 17,582
Other long-term liabilities 379   433  
Total Liabilities 161,295 172,124
Total Stockholders' Deficit (64,690 ) (5,518 )
Total Liabilities and Stockholders' Deficit $ 96,605   $ 166,606  
 
 

Condensed Consolidated Statement of Operations

($ in thousands except share and per share data)

(unaudited)

           

Three
Months
Ended June

30, 2018

 

Three
Months
Ended June

30, 2017

 

Six Months
Ended June
30, 2018

 

Six Months
Ended June
30, 2017

Net sales $ 12,254 $ 2,314 $ 20,840 $ 2,412
Cost of goods sold 3,885   1,643   7,589   3,279  
Gross profit 8,369 671 13,251 (867 )
Costs and Expenses:
Research and development 2,844 22,069 6,236 40,470
Selling, general and administrative 34,615   52,185   74,760   94,973  
Total Operating Expenses 37,459   74,254   80,996   135,443  
Loss from Operations (29,090 ) (73,583 ) (67,745 ) (136,310 )
Other Income/(Expense):
Interest expense, net (3,205 ) (345 ) (6,328 ) (1,135 )
State R&D tax credits 30
Debt conversion expense (1,209 )
Change in fair value of derivative instruments - warrants 2,604   39   8,248   161  
Total Other Income/(Expense) (601 ) (306 ) 1,950   (2,183 )
Net Loss $ (29,691 ) $ (73,889 ) $ (65,795 ) $ (138,493 )
 
Net Loss per Common Share, Basic and Diluted $ (0.12 ) $ (0.33 ) $ (0.27 ) $ (0.63 )
 
Weighted Average Common Shares Outstanding 246,990,080   224,948,622   246,827,974   220,269,223  
 

Synergy Pharmaceuticals Inc.

Non-GAAP Financial Measures

Adjusted research and development expenses, adjusted selling, general
and administrative expenses, and adjusted total operating expenses are
not measures of financial performance under accounting principles
generally accepted in the United States ("GAAP") and should not be
construed as substitutes for, or superior to, GAAP research and
development expenses, GAAP selling, general and administrative expenses
and GAAP total operating expenses as a measure of financial performance.
However, management uses both GAAP financial measures and the disclosed
non-GAAP financial measures internally to evaluate and manage the
Company's operations and to better understand its business. Further,
management believes the addition of non-GAAP financial measures provides
meaningful supplementary information to, and facilitates analysis by,
investors in evaluating the Company's financial performance, results of
operations and trends. The Company's calculations of adjusted research
and development expenses, adjusted selling, general and administrative
expenses and adjusted operating expenses, may not be comparable to
similarly designated measures reported by other companies, since
companies and investors may differ as to what type of events warrant
adjustment.

The following table reconciles reported research and development
expenses to adjusted research and development expenses (adjusted R&D):

(Unaudited; $ in thousands)

       

Three
Months
Ended
June
30,

2018

Three
Months
Ended
June
30,

2017

Research and development expenses $ 2,844 $ 22,069
Adjusted to deduct:
Stock based compensation expense 504 (80 )
   
Adjusted research and development expenses $ 2,340   $ 22,149  
 

The following table reconciles reported selling, general and
administrative expenses to adjusted selling, general and administrative
expenses (adjusted SG&A):

(Unaudited; $ in thousands)

       

Three
Months
Ended
June
30,

2018

Three
Months
Ended
June
30,

2017

Selling, general and administrative expenses $ 34,615 $ 52,185
Adjusted to deduct:
Stock based compensation expense 2,924 13,378
   
Adjusted selling, general and administrative expenses $ 31,691   $ 38,807
 

The following table reconciles reported total operating expenses to
adjusted operating expenses (adjusted OPEX):

(Unaudited; $ in thousands)

       

Three
Months
Ended
June
30,

2018

Three
Months
Ended
June
30,

2017

Total operating expenses $ 37,459 $ 74,254
Adjusted to deduct:
Stock based compensation expense 3,428 13,298
   
Adjusted operating expenses $ 34,031   $ 60,956
 

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