In small cap developmental biotech, we see a lot of creative financing, and when we understand how it works, we can profit from it. These types of biotech charts normally trade in a consistent 'channel pattern.' and when we spot these patterns, we can profit from them. On January 17th, 2015, 28M shares become unlocked. This means the holders of these shares are free to sell the shares into the open market. You would think at first thought here that the stock would be selling off, so why am I bullish that the stock will rally before then?
It's simple; the holders of these shares paid $4.23 a share originally, yet the stock is currently trading at $3.15. If the stock was to remain at the current prices, these shareholders would be selling for a substantial loss.However, from the following, we can see a high short interest in the stock;
*Shares Short (as of Dec 15, 2014) 15.59M
Short Ratio (as of Dec 15, 2014): 25.10
Short % of Float (as of Dec 15, 2014): 16.70%
Most of the short interest here is being held by many of the holders of the shares that will become unlocked Jan. 17th. The idea of shorting here to control the price of the stock. Since Synergy had no real catalyst last year (rescheduled to this year as shown above), the stock had little to no chance clear the purchased price of $4.23 in time frame needed for the holders of the locked shares to profit. By shorting from under $5 a share, the shorts are in big profit at this time. By covering these shorts in mass, this will allow them to lock in the massive short profit, while perhaps selling some of the unlocked shares at a small profit or loss, depending on how high their short cover can sling shot the stock.
Additionally,
Synergy expects top-line data results from the first phase 3 CIC trial in 2Q 2015. The company plans to file its first NDA with plecanatide in the CIC indication in the fourth quarter of this year. Plecanatide 3.0 and 6.0 mg doses are also being evaluated in the ongoing phase 3 registration program for irritable bowel syndrome with constipation (IBS-C).
It serves the holders of the unlocked shares no purpose to sell into a lower price, when it's a high probability the stock will run up into the Q2 catalyst, which is a major catalyst. For example, Ironwood (IRWD) has a similar drug, but many consider Synergy's solution to be superior, provided of course the Phase 3 data print out proves to be positive. Ironwood currently has a market cap in excess of $2B, so we can see the importance of Synergy's catalyst considering its current valuation sits around $300M.
In the video here, I will go over the chart in detail, and show why I think Synergy will see a significant rally soon.
