Synergy Misrepresented Side-Effects of Constipation Drug, Derivative Action Says

(CN) – Shareholders claim in a derivative action that Synergy Pharmaceuticals Inc. misrepresented the side effects of a constipation drug.

According to the complaint, filed on April 27 in Manhattan Supreme Court by shareholders Michael Ecker and Constance Klein, Synergy’s board members claimed the drug Trulance, used to treat sufferers of  chronic idiopathic constipation or “CIC,” had a distinct advantage over the company’s two major competitors.

Marino Garcia, Synergy’s executive vice president and chief strategy officer, made the claim during a healthcare conference call, according to the lawsuit. Garcia claimed Trulance stood out above the competition in preventing patients from having diarrhea or hard stools, but Trulance allegedly does nothing to prevent those side effects.

In addition, Synergy board members assured shareholders that the company was on track for long term financial success. Meanwhile, Synergy allegedly failed to disclose it was unable to meet a loan agreement to obtain a second installment from a $300 million finance agreement.

The agreement required Synergy to have $128 million in cash or cash equivalence to receive a second tranche of the loan, which Synergy did not have.

The 34-page complaint says that in order to reach that goal to secure the loan, Synergy would have to issue additional shares and dilute stockholders’ stake in the company.

After a drop in Trulance prescriptions over a short period of time, Synergy’s share price fell approximately 8.4 percent, equating to a loss of approximately $56.2 million. After the market downturn, Synergy filed a registration statement for the issuance of new shares within the company.

News of the share offering was oddly timed, however, because two months earlier the company had announced that the non-dilutive loan would fund commercialization of Trulance, according to the complaint.

“This was shocking  news to shareholders, myself included, who thought a recently arranged $300 million debt facility removed any short or near term funding needs for the company,” said  Bret Jensen of seekingalpha.com

Plaintiffs claim that Synergy’s actions caused irreparable damage to the company’s image and for the foreseeable future Synergy will suffer from the “liar’s discount.”

Shareholders are represented by Todd H. Henderson and Melissa A. Fortunato with Bragar Eagel & Squire in New York.

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