Synergy Pharmaceuticals Inc (NASDAQ:SGYP) Is Undervalued

Irrationality is commonplace in the biotech space, and some of the best opportunities derive from the phenomenon. Rarely, however, does this irrationality present itself to such a dramatic degree as we are seeing in Synergy Pharmaceuticals Inc (NASDAQ:SGYP) right now.The company is down more than 40% on its January highs, despite picking up a regulatory green light from the FDA for its lead development asset. It's capitalized to a point that near term dilution isn’t an issue and it just submitted a secondary application to the agency in the US for an expansion in the market for the above mentioned approved asset.We'll get to each of these in more detail shortly. First, why is the company down?There's only one real explanation for the current price, given the above inputs, and that's market disappointment. Earlier on this year, and indeed running through the latter quarter of 2016, markets expected Synergy to be acquired by a bigger name. Allergan plc Ordinary Shares (NYSE:AGN) was among the favorites, but not alone on the list of potential suitors.Over the last few months, and primarily due to the company raising cash back at the beginning of the year (subsequent to its drug approval), these buyout rumors have died down. Basically, markets bought up the company on the buyout rumors and then sold the company on the raise announcement on the assumption that the fact had become that Synergy was set to go it alone with its just approved asset.That's reasonable, to a degree. There's almost certainly a higher potential (and definitely a nearer-term potential) for Synergy's drug, a gastrointestinal complications asset called Trulance, if it's got some deep pockets behind it. The drug's potential aside, there's also a good chance may of the shares that had loaded up ahead of the Trulance PDUFA had done so in anticipation of an approval announcement followed by a takeover (and the premium to share price any such takeover would bring).Again, that these shorter term players would pull out, and that we'd see a resulting dip in price, is reasonable. For said dip to continue into a sustained decline, however, is not.For those not familiar with Trulance, the FDA approved it in January for the treatment of Chronic Idiopathic Constipation (CIC). This is a 35 million Americans-sized market and the current standard of care (SOC) in the space is effective but brings about diarrhea in 16% of patients. Trulance is as effective but only causes diarrhea in 5% of patients. Whichever way you spin it, there's a clear benefit to patients, and it holds this edge in a massive potential market.The company also just submitted for approval in Irritable Bowel Syndrome with Constipation (IBS-C), based on data from more than 2,100 patients spread across two phase III trials, with similarly low diarrhea AE rates. This is a more than $1 billion market, expected to grow to $1.6 billion by 2025.So why is this company down?In short, we don't know. Outside of the takeover disappointment (and investors should realize that a takeover is very much still on the table here), there's some concern over management, and there's an upcoming shareholder meeting around which markets are a little concerned over future dilutive proposals.Other than that, however, things look good. It might take the company a little longer to gain market share than it would if a big name was pushing Trulance, but that it will get there we have no doubt.Supportive of this, here are some Trulance prescription numbers as compared to Linzess' launch numbers. To us, that looks pretty good.Nothing is a sure thing in this space, of course. This one's about as close as they come, however. We'll be watching this one closely for any sign of markets picking up on the discrepancy and revaluing to accommodate this recognition.We will be updating our subscribers as soon as we know more. For the latest updates on SGYP, sign up below!Disclosure: We have no position in SGYP and have not been compensated for this article.