No Emoji Could Hide This Drugmaker’s Woes

(Bloomberg Opinion) -- It turns out the Poop Troop wasn’t enough to save Synergy Pharmaceuticals Inc.

The company, which notoriously launched a cast of poop emojis last year in an effort to boost sales of its constipation medicine Trulance, is seeking bankruptcy protection after its debt became too much of a burden as that effort and others failed. Bausch Health Cos (formerly Valeant Pharmaceuticals) — itself a veteran of cute anthropomorphic bowel-related advertising — is now returning to its rich but rarely enriching history of dealmaking by seeking to acquire Synergy’s assets for $200 million. Only time will tell if Bausch actually got a deal here, or if it is once again purchasing garbage that no amount of marketing and commercial alchemy can turn into gold. 

Synergy was worth as much as $1.2 billion when Trulance was first approved, and the drug was greeted with excitement by investors. The real world never reciprocated.

No Emoji Could Hide This Drugmaker’s Woes

The problem doesn’t appear to have been the stigma around talking about bowel movements — an issue Synergy hoped to address with those (animated!) emojis — but rather a highly competitive market. Trulance has made little headway against better established drugs like Allergan PLC’s Linzess and Takeda Pharmaceutical Co.’s Amitiza. The medicine generated revenue of just $16.8 million in 2017, and this year’s sales are so sluggish that Synergy is on track to breach a debt covenant. 

Beyond reminding baby biotechs that they should largely avoid debt, Synergy’s collapse has other lessons. Launching a drug is hard. It’s far harder in a market dominated by highly experienced competitors with bigger budgets.

According to a recent analysis by Leerink analyst Geoffrey Porges, the number of medical conditions that have many potentially similar treatment options is set to balloon in the next few years. That is inevitably going to lead to commercial failures and pricing pressure. Not every flop will be as spectacular as Synergy’s. But biotech firms should exercise more caution in pursuing me-too drugs, and investors should be wary of overvaluing such medicines before they prove able to gain profitable market share. 

As for Bausch, this would be the company’s first major deal in years that wasn’t an asset sale aimed at paying down debt its former managers built by doing iffy acquisitions. In its Valeant days, the company often seized on potentially dubious assets in pursuit of value. But too often, they were cheap for a reason, or only valuable in the context of some unsustainable sales and pricing practices. Many apparent deals turned out to be over-pays. 

In the case of Synergy’s Trulance, $200 million isn’t a big price for a recently approved medicine. As adorable as the poop troop is, it’s possible that Trulance may do better under the auspices of a larger company with more experience. Bausch is no gut-drug neophyte — diarrhea drug Xifaxan is its best-selling medicine (and who can forget the animated intestine featured in the 2016 Super Bowl ad for the drug?). Trulance would give it a more complete portfolio.

But it’s also entirely possible that Trulance will never be anything but a flop. Bausch has too much debt and too many other products with questionable sales potential to spend $200 million on another failed rescue operation.

Synergy’s story is coming to an end. But its legacy as a cautionary tale may live on. 

For the record, the emoji gang included Mr. Smooth, Ploptimistic Peter, Runny Ron, and Sausage Sally.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

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