SYNERGY PHARMACEUTICALS, INC. (Form: 10-K, Received: 03/01/2017 17:15:02)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

ý ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2016

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35268

SYNERGY PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)



Delaware		33-0505269
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

420 Lexington Avenue, Suite 2012, New York, New York 10170

(Address of principal executive offices) (Zip Code)

(212) 297-0020

(Registrant’s telephone number)

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, $0.0001 par value		The NASDAQ Global Select Market

Securities registered pursuant to section 12(g) of the Act:

Title of class: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ý		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $579,050,005 as of June 30, 2016, based upon the closing price on the NASDAQ Global Select market reported for such date.

The number of the registrant’s shares of common stock outstanding was 223,115,542 as of March 1, 2017 .

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive proxy statement for our 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.

Table of Contents

SYNERGY PHARMACEUTICALS INC.

FORM 10-K

TABLE OF CONTENTS



PART I		3
Item 1.	Business	3
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	34
Item 2.	Properties	34
Item 3.	Legal Proceedings	34
Item 4.	Mine Safety Disclosure	35
PART II		36
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	36
Item 6.	Selected Financial Data	39
Item 7.	Management’s Discussion and Analysis of Financial Condition And Results of Operations	40
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 8.	Financial Statements and Supplementary Data	48
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	48
Item 9A.	Controls and Procedures	48
Item 9B.	Other Information	51
PART III		52
Item 10.	Directors, Executive Officers and Corporate Governance	52
Item 11.	Executive Compensation	52
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	52
Item 13.	Certain Relationships and Related Transactions, and Director Independence	52
Item 14.	Principal Accountant Fees and Services	52
PART IV		53
Item 15.	Exhibits and Financial Statement Schedules	53
Item 16.	Form 10K Summary	56
SIGNATURES		57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE		F-1

Table of Contents

PART I

This Report on Form 10-K for Synergy Pharmaceuticals Inc. may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are characterized by future or conditional verbs such as “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. Such statements are only predictions and our actual results may differ materially from those anticipated in these forward-looking statements. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Factors that may cause such differences include, but are not limited to, those discussed under Item 1A. Risk Factors and elsewhere in this Form 10-K for the year ended December 31, 2016 , as filed with the Securities and Exchange Commission, including the uncertainties associated with product development, the risk that products that appeared promising in early clinical trials do not demonstrate safety and efficacy in larger-scale clinical trials, the risk that we will not obtain approval to market our products, the risks associated with dependence upon key personnel and the need for additional financing. We do not assume any obligation to update forward-looking statements as circumstances change.


ITEM 1.	BUSINESS

Unless the context requires otherwise, the words “Synergy,” “the Company,” “we,” “us,” refer to Synergy Pharmaceuticals Inc. and, where appropriate, our subsidiaries. TRULANCE™ is a trademark of Synergy Pharmaceuticals Inc. Any other trademarks reference in this Form 10-K are the property of their respective owners. All rights reserved.

Business Overview

We are a biopharmaceutical company focused on the development and commercialization of novel gastrointestinal (GI) therapies. We have pioneered discovery, research and development efforts around analogs of uroguanylin, a naturally occurring and endogenous human GI peptide, for the treatment of GI diseases and disorders. We discovered, are developing and control 100% worldwide rights to our proprietary uroguanylin analog platform.

Our first and only commercial product, plecanatide, is approved in the United States (U.S.), under the trademark name TRULANCE™, for the treatment of adults with chronic idiopathic constipation, or CIC. The U.S. Food and Drug Administration, or FDA, approved TRULANCE on January 19, 2017. The recommended adult dosage of TRULANCE is 3 mg taken orally, once daily, with or without food. TRULANCE will be available in the U.S. the first quarter of 2017. In addition, we are developing TRULANCE for the treatment of adults with irritable bowel syndrome with constipation (IBS-C) and plan to file a new drug application supplement with clinical data (sNDA) for TRULANCE in IBS-C in the first quarter of 2017. We are also exploring opioid-induced constipation (OIC) as a potential lifecycle growth opportunity for TRULANCE.

Dolcanatide, our second product candidate, is being evaluated for inflammatory bowel disease (IBD). In January 2016, we announced positive proof-of-concept with dolcanatide in a phase 1b trial evaluating 28 patients with mild-to-moderate ulcerative colitis. We plan to meet with regulatory agencies to discuss next steps in development for dolcanatide in mild-to-moderate ulcerative colitis. In November 2014, we reported successful proof-of-concept with dolcanatide in a double-blind, placebo-controlled phase 2 trial in 289 patients with OIC, demonstrating the utility of our uroguanylin analog platform in OIC.

Table of Contents

Uroguanylin Analog Platform

CIC and IBS-C

CIC and IBS-C are chronic, functional GI disorders that afflict millions of people worldwide. An estimated 33 million adults suffer from CIC and 12 million adults suffer from IBS-C in the U.S. alone.

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. Many patients attempt to manage CIC symptoms with improved diet, fiber, and over-the-counter laxatives; however, these options can be ineffective or may not provide long-term relief. For those patients with persistent symptoms, prescription therapy is recommended. Many patients taking prescription medications fail to respond to therapy, or suffer from treatment-related adverse events, such as nausea and diarrhea.

Irritable bowel syndrome (IBS) is characterized by recurrent abdominal pain associated with 2 or more of the following criteria: 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 as measured by the Bristol Stool Form Scale (BSFS): constipation (IBS-C), diarrhea (IBS-D), or mixed (IBS-M). Those within the IBS-C subtype experience Bristol types 1 or 2 (hard or lumpy) stools more than 25 percent of the time they have an abnormal bowel movement, and Bristol types 6 or 7 (loose or watery) stools less than 25 percent of the time they have an abnormal bowel movement. Some of the IBS treatment approaches recognized by the American College of Gastroenterology (ACG), including specialized diets, fiber, and psychological interventions, may not always effectively address abdominal pain and discomfort experienced by these patients. While there are prescription drug options, not all patients find complete relief, and many struggle with adverse events.

TRULANCE

TRULANCE is the first drug designed to replicate the function of uroguanylin. Uroguanylin, a guanylate cyclase-C (GC-C) receptor agonist, is thought to work in a pH-sensitive manner primarily in the small intestine to stimulate fluid secretion. Uroguanylin stimulates fluid secretion into the lumen of the intestinal tract and maintains stool consistency that is necessary for normal bowel function. With the exception of a single amino acid, TRULANCE is structurally identical to uroguanylin and is the only treatment that is thought to replicate the pH-sensitive activity of human uroguanylin. The single amino acid substitution results in improved (8x) binding affinity and therefore increases the potency of TRULANCE over uroguanylin.

TRULANCE for CIC

The FDA has approved TRULANCE for the treatment of adults with CIC. The efficacy and safety of TRULANCE was evaluated in the largest Phase 3 CIC clinical trials to date, which included more than 2,600 patients in two randomized, 12-week, double-blind, placebo-controlled studies of TRULANCE.

Over 12 weeks, patients treated with TRULANCE achieved a significantly greater efficacy responder rate — the primary endpoint defined by the FDA for regulatory approval in CIC — in both studies compared to placebo (Study 1: 21% vs. 10%; Study 2: 21% vs. 13%, p<0.005 for both studies). Efficacy responders were defined as patients who had at least three complete

Table of Contents

spontaneous bowel movements (CSBMs) in a given week and an increase of at least one CSBM over baseline in the same week for at least nine weeks out of the 12-week period, including at least three of the last four weeks.

Over 12 weeks, patients who received TRULANCE in both studies also had improvements as compared to placebo in stool frequency (as measured by the number of spontaneous bowel movements per week), stool consistency (as measured by the Bristol Stool Form Scale) and straining with bowel movements.

In an integrated analysis of both studies, diarrhea was the most common adverse reaction, reported in 5% of patients treated with TRULANCE compared to 1% of patients treated with placebo. Overall discontinuation rates were low among patients treated with TRULANCE and placebo (4% vs. 2%, respectively) and the most common adverse reaction leading to discontinuation was diarrhea (2% for TRULANCE compared to 0.5% in placebo).

The recommended adult dosage of TRULANCE is 3 mg taken orally, once daily, with or without food. TRULANCE can be swallowed whole or crushed in applesauce for those who are unable to swallow medication.

TRULANCE will be available in the U.S. in the first quarter of 2017.

TRULANCE for IBS-C

The most common adverse event was diarrhea which occurred in 3.2% of patients in 3 mg and 3.7% of patients in 6 mg dose groups compared to 1.3% of placebo-treated patients. Four patients in the trial (0.4%) experienced serious adverse events but there was no imbalance across treatment groups in either incidences or individual serious adverse events. Overall, the rates of withdrawal from treatment because of an adverse event were low (1.9% in 3 mg and 1.8% in 6 mg dose groups compared to 0 in placebo) and discontinuations due to diarrhea were infrequent (0.8% in 3 mg and 1.6% in 6 mg dose groups compared to 0 in placebo).

On December 22, 2016, we announced top-line results from the second of two pivotal phase 3 trials evaluating the efficacy and safety of TRULANCE in 1,054 adult patients with IBS-C. Preliminary analysis of the data indicates that both TRULANCE 3 mg and 6 mg doses met the study's primary endpoint showing statistical significance in the percentage of patients who were Overall Responders compared to placebo during the 12-week treatment period (30.2% in 3 mg and 29.5% in 6 mg dose groups compared to 17.8% in placebo; p<0.001 for 3 mg and p<0.001 for 6 mg).

The most common adverse event was diarrhea which occurred in 5.4% of patients in 3 mg and 4.3% of patients in 6 mg dose groups compared to 0.6% of placebo-treated patients. Ten patients in the trial (<1.0%) experienced serious adverse events but there was no imbalance across treatment groups in either incidences or individual serious adverse events. Overall, the rates of withdrawal from treatment because of an adverse event were low (2.6% in 3 mg and 2.3% in 6 mg dose groups compared to 0.8% in placebo) and discontinuations due to diarrhea were infrequent (1.7% in 3 mg and 1.2% in 6 mg dose groups compared to 0 in placebo).

The IBS-C pre-NDA meeting with the FDA was completed in September 2016. We plan to file a New Drug Application Supplement with Clinical Data (sNDA) for TRULANCE in IBS-C in the first quarter of 2017 and we expect a 10-month review period from submission. We plan to present additional Phase 3 data from the two IBS-C trials at an appropriate scientific meeting later this year.

TRULANCE Launch Update

We are focused on three key strategic imperatives to achieve our objective of ensuring that TRULANCE is ready for launch this quarter:


•	Product Readiness


•	Market and Brand Readiness


•	Organizational Readiness

Table of Contents

Product Readiness


•	Established a robust supply chain process and quality management system.


•	Implemented our third party logistics (3PL) distribution network.


•	Trade and sample stock manufactured and on-track for launch this quarter.


•	Launching TRULANCE 3 mg in an innovative 30-count blister pack.

Market and Brand Readiness


•	We are very encouraged by the feedback we have received from our market research, advisory boards and field-based customer meetings.


◦	Completed extensive market research with more than 2,700 healthcare providers and over 5,300 patients.


◦	Conducted multiple advisory boards with national and regional GI key opinion leaders, other healthcare providers and payers.


◦	Since January 2016, our market access team has been meeting with key payer customers that represent over 230 million covered lives in the U.S.


•	Initiated pre-launch multimedia and digital campaigns to drive company awareness and disease education, focusing on current unmet needs of patients with CIC.


•	Finalized TRULANCE core marketing strategies and launch tactics, including a compliant, value-optimizing, cost effective promotional mix to reach the broadest universe of prescribers.


•	Co-pay card programs and other patient assistance programs in place which will help us achieve access in 2017.


•	Finalized pricing strategy for TRULANCE and will launch with a wholesale acquisition cost (WAC) of $353.48.

Organizational Readiness


•	Utilizing a hybrid sales model to reach key prescribers and influencers at launch.


◦	Less than 20% of prescribers in the U.S. currently account for over 70% of the branded constipation prescription market. These prescribers, which include gastroenterologists and primary care physicians, will be the focus of our field force at launch.


•	Hired Synergy Regional Business Directors averaging 11 years of management experience and over 10 years in relevant GI fields.


•	Hired Synergy Regional GI Account Specialists averaging 13 years of pharmaceutical experience and 8.5 years of GI experience.


•	Partnered with Publicis Touchpoint Solutions, Inc. who have hired highly experienced sales representatives that will be fully dedicated to TRULANCE at launch.


◦	Our Publicis Touchpoint sales representatives have an average of 11.5 years of pharmaceutical experience, and nearly 6 years of GI experience, with over 90% coming from other peer GI and PCP companies.


•	Medical education efforts have been ongoing since March 2016.

Dolcanatide (SP-333)

Dolcanatide, our second uroguanylin analog, is currently being explored for inflammatory bowel disease (IBD). Dolcanatide is designed to be an analog of uroguanylin with enhanced resistance to standard digestive breakdown by proteases in the intestine. We have demonstrated the potential anti-inflammatory role of uroguanylin and uroguanylin analogs in a number of preclinical colitis models. In these earlier animal studies, oral treatment with dolcanatide was shown to ameliorate DSS- and TNBS-induced acute colitis in murine models and ameliorate spontaneous colitis in T-cell receptor alpha knockout mice.

On January 11, 2016, we announced positive phase 1b data with dolcanatide in a double-blind, placebo-controlled, four-week study evaluating 28 patients with mild-to-moderate ulcerative colitis. Analysis of the data indicates clear signals of improvement in dolcanatide-treated patients compared with placebo-treated patients. Dolcanatide was also safe and well-tolerated. We plan to meet with regulatory agencies to discuss next steps in development for dolcanatide in mild-to-moderate ulcerative colitis.

On November 19, 2014 we announced positive top-line results from a phase 2 trial assessing safety, efficacy and dose-response of three different once-daily oral dolcanatide tablets (1.0, 3.0 and 6.0 mg) compared with placebo in 289 patients with Opioid Induced Constipation (OIC). Analysis of the data indicates dolcanatide met the study’s primary endpoint and demonstrated statistically significant improvement in mean change from baseline in the number of spontaneous bowel

Table of Contents

movements (SBMs) during Week 4 of the treatment period. Dolcanatide was safe and well tolerated at all doses. We are exploring OIC as a potential lifecycle growth opportunity for TRULANCE.

Competition

The biopharmaceutical industry is characterized by rapidly evolving technology and intense competition. Our competitors include major pharmaceutical and biotechnology companies focusing on GI such as Ironwood Pharmaceuticals, Inc., Allergan plc, Takeda Pharmaceuticals America, Inc., Sucampo Pharmaceuticals, Inc., AstraZeneca, Valeant Pharmaceuticals International, Inc. and Shire, Plc. Most of our competitors have financial, technical and marketing resources significantly greater than our resources. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint ventures. We are aware of certain development projects for products to prevent or treat certain diseases targeted by us. The existence of these potential products or other products or treatments of which we are not aware, or products or treatments that may be developed in the future, may adversely affect our ability to market the products we develop.

Research and Development Expenses

Research and development costs include expenditures in connection with operating an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, regulatory and scientific consulting fees, as well as contract research, patient costs, drug formulation and tableting, data collection, monitoring, clinical trial insurance. Research and development expenses for the year ended December 31, 2016 were approximately $89.6 million , as compared to approximately $78 million and $83.3 million for the years ended December 31, 2015 and 2014, respectively.

In accordance with FASB ASC Topic 730-10-55, Research and Development, we recorded prepaid research and development costs of approximately $0.5 million as of December 31, 2016 and $3.1 million as of December 31, 2015 , for nonrefundable pre-payments for production of drug substance, analytical testing services and clinical trial costs for our drug candidates. In accordance with this guidance, we expense deferred research and development costs when drug compound is delivered or services are performed.

Manufacturing and Supply

We currently manage our global supply and distribution of TRULANCE through third party contract manufacturers. It is our objective to produce safe, pure and effective medicine. TRULANCE production consists of three phases-manufacture of (i) the active pharmaceutical ingredient, or API (sometimes referred to as drug substance), (ii) manufacture of drug product and (iii) manufacture of packaged finished goods, as well as distribution agreements. We have entered into arrangements with third party manufacturers for the production of TRULANCE. We continue to pursue additional commercial supply agreements with additional manufacturers for TRULANCE for U.S. and worldwide use. We believe our commercial suppliers will have the capabilities to produce TRULANCE in accordance with current good manufacturing practices, or GMP, on a sufficient scale to meet our commercial needs.

Patents and Proprietary Rights

We are able to protect our technology from unauthorized use by third parties only to the extent that it is covered by valid and enforceable patents or is effectively maintained as a trade secret or is protected by confidentiality agreements. Accordingly, patents or other proprietary rights are an essential element of our business.

As of December 31, 2016 we have 21 issued United States patents related to guanylate cyclase agonists. Two of these patents cover the composition-of-matter of TRULANCE and were issued on May 9, 2006 and September 21, 2010; they will expire in 2023 and 2022, respectively. The patent that issued on May 9, 2006 has claims directed to the species of TRULANCE, whereas the patent that issued on September 21, 2010 has claims directed to a genus of peptides that are identical in length to TRULANCE and is inclusive of TRULANCE. A third patent covers the composition-of-matter of dolcanatide issued on February 1, 2011 and expires in 2028. A fourth patent granted October 11, 2011 covers the composition-of-matter of certain analogs related to TRULANCE and dolcanatide and will expire in 2029. A fifth patent granted February 14, 2012 covers certain methods of treating inflammatory bowel disease using TRULANCE and will expire in 2022. A sixth patent granted January 28, 2014 covers methods of stimulating water transport in the gastrointestinal tract using TRULANCE and will expire in 2022. A seventh patent granted June 26, 2012 covers an additional composition-of-matter related to certain analogs of TRULANCE and dolcanatide and will expire in 2029. An eighth patent granted on January 22, 2013 covers another composition-of-matter related to certain analogs of TRULANCE and will expire in 2029. A ninth patent granted on July 30,

Table of Contents

2013 covers another composition-of-matter related to certain analogs of TRULANCE and will expire in 2029. Another three patents that also cover compositions-of-matter related to certain analogs of TRULANCE were issued on February 5, 2013, October 29, 2013, and March 4, 2014 and will expire in 2029. A thirteenth patent granted May 6, 2014 covers certain methods of treating a variety of gastrointestinal and other disorders using dolcanatide and will expire in 2029. A fourteenth patent granted December 2, 2014 and covers composition-of-matter of dolcanatide and expires in 2028. A fifteenth patent granted on March 3, 2015 and covers methods of use of TRULANCE and expires in 2030. A sixteenth patent granted July 28, 2015 covers an additional composition-of-matter related to certain analogs of TRULANCE and dolcanatide and will expire in 2028. Another two patents granted on January 19, 2016 and February 23, 2016 cover composition-of-matter of dolcanatide and certain analogs of TRULANCE and dolcanatide and will expire in 2028. A nineteenth patent granted November 8, 2016 covers compositions containing TRULANCE or dolcanatide and 5-aminosalicyclic acid and will expire in 2034. A twentieth patent granted November 29, 2016 covers analogs related to TRULANCE and will expire in 2029. A twenty-first patent granted January 17, 2017 covers method of colonic cleansing using dolcanatide.

Furthermore, we have three allowed US applications. One of the allowed applications (US application number 14/001,638) relates to the methods of manufacture of TRULANCE. According to the issue notification, the patent is expected to grant on February 28, 2017. The patent will expire in 2032. The two other allowed applications relate to the formulations and method of using TRULANCE for treating constipation. A Notice of Allowance was mailed on February 10, 2017 for US14/845,644 and a Notice of Allowance was mailed on February 24, 2017 for US13/421,769. They are both projected to expire in 2031.

In addition, we have eight granted foreign patents which cover the composition-of-matter of TRULANCE and expire in 2022. These foreign patents cover Austria, Belgium, Switzerland, Cyprus, Germany, Denmark, Spain, Finland, France, the United Kingdom, Greece, Hong Kong, Ireland, Italy, Liechtenstein, Luxembourg, Monaco, the Netherlands, Portugal, Sweden, Turkey, Armenia, Azerbaijan, Belarus, Kazakhstan, the Kyrgyz Republic, Moldova, the Russian Federation, Tajikistan, Turkmenistan, Canada, China and Japan. We also have nine granted foreign patents that cover the composition-of-matter related to dolcanatide that expire in 2028. These patents cover Switzerland, Germany, Denmark, Spain, France, the United Kingdom, Ireland, Italy, the Netherlands, Hong Kong, Armenia, Azerbaijan, Belarus, Kazakhstan, the Kyrgyz Republic, Moldova, the Russian Federation, Tajikistan, Turkmenistan, China, Australia, Japan and Mexico. We also have five foreign patents that cover composition-of-matter of certain analogs related to TRULANCE and methods of use to treat Ulcerative Colitis that expire in 2029. These patents cover Australia, Hong Kong, France, Germany, Italy, Spain and the United Kingdom. We also have two foreign patents that cover composition-of-matter of certain analogs related to TRULANCE and methods of use to treat gastrointestinal disorders and expires in 2029. These patents cover Australia, France, Germany, Italy, Spain, United Kingdom and Hong Kong. We also have six foreign patents related to TRULANCE that cover treatment and prevention of Hypercholesterolemia and expire in 2030. These patents cover Australia, China, Japan, Mexico, France, Germany, Italy, Spain and the United Kingdom. We also have three patents related to gastrointestinal specific formulations of TRULANCE and dolcantide. These patents cover Australia, Japan, Germany, France, Italy, Spain and the United Kingdom. We also have one patent related to manufacture of TRULANCE. This patent covers Australia.

Additionally, as of the date of this report on Form 10-K, we have 17 pending United States utility patent applications; and 82 pending foreign patent applications relating to TRULANCE and dolcanatide, various derivatives and analogs of TRULANCE and dolcanatide, and their uses and manufacture.

In April 2010, two parties filed an opposition to one of our granted European patents with the European Patent Office. An opposition hearing was held December 14, 2011, which resulted in the European Patent Office issuing the following statement: “Account being taken of the amendments made by the patent proprietor during the opposition proceedings, the patent and the invention to which it relates are found to meet the requirements of the European Patent Convention (Art.101(3)(a)EPC).” In particular, the composition-of-matter claim covering TRULANCE was upheld.

On September 14, 2012 we entered into a binding letter of intent with Ironwood Pharmaceuticals, Inc. (“Ironwood”), pursuant to which we and Ironwood agreed to enter into a definitive license agreement giving us an exclusive worldwide license to Ironwood’s method of use patents on TRULANCE. The letter of intent contemplates a low single digit royalty on net sales of TRULANCE and both parties agreed not to challenge each other’s patents covering certain GC-C agonists, except that we retain the right to challenge Ironwood’s method of use patents on TRULANCE.

During 2013, we transferred ownership of all FV-100 intellectual property rights we acquired from Bristol-Myers Squibb Company (“BMS”), in August 2012, to ContraVir Pharmaceuticals, Inc., our former majority-owned subsidiary which we spun off to our shareholders on February 18, 2014. The FV-100 assets acquired by ContraVir from us were licensed from University College Cardiff Consultants Limited (“Cardiff”) pursuant to the terms of that certain Patent and Technology License Agreement, dated as of February 2, 2005, between Cardiff and Contravir Research Incorporated, an entity with no prior

Table of Contents

relationship with us (“CRI”), as amended March 27, 2007, which ContraVir assumed from us (the “Cardiff Agreement”). Cardiff and Rega Foundation (“Rega”) were originally the joint owners of the patent rights. Pursuant to the terms of an agreement, dated September 24, 1998, as amended December 23, 2004, Cardiff received from Rega an exclusive, irrevocable worldwide license to manufacture, use, sell, or otherwise deal in or with products utilizing the patent rights, including the right to grant sublicenses thereunder. We assumed the obligations under the Cardiff Agreement from BMS pursuant to the terms of the BMS Agreement. BMS assumed the obligations under the Cardiff Agreement from Inhibitex Inc. (“Inhibitex”) upon its acquisition of Inhibitex in January 2012. Inhibitex assumed the obligations under the Cardiff Agreement upon its acquisition of FermaVir Pharmaceuticals, Inc. (“FermaVir”) in September 2010. FermaVir was the successor to CRI in a merger consummated in August 2005.

Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.

While trade secret protection is an essential element of our business and we have taken security measures to protect our proprietary information and trade secrets, we cannot give assurance that our unpatented proprietary technology will afford us significant commercial protection. We seek to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interests in intellectual property arising from their work for us. All employees sign an agreement not to engage in any conflicting employment or activity during their employment with us and not to disclose or misuse our confidential information. However, it is possible that these agreements may be breached or invalidated, and if so, there may not be an adequate corrective remedy available. Accordingly, we cannot ensure that employees, consultants or third parties will not breach the confidentiality provisions in our contracts, infringe or misappropriate our trade secrets and other proprietary rights or that measures we are taking to protect our proprietary rights will be adequate.

In the future, third parties may file claims asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will assert such claims against us or against the licensors of technology licensed to us, or whether those claims will harm our business. If we are forced to defend ourselves against such claims, whether they are with or without merit and whether they are resolved in favor of, or against, our licensors or us, we may face costly litigation and the diversion of management’s attention and resources. As a result of such disputes, we may have to develop costly non-infringing technology or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, or at all.

Government Regulation

In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food and Drug Administration, and Cosmetic Act and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. The FDA has very broad enforcement authority and failure to abide by applicable regulatory requirements can result in administrative or judicial sanctions being imposed on us, including warning letters, refusals of government contracts, clinical holds, civil penalties, injunctions, restitution, disgorgement of profits, recall or seizure of products, total or partial suspension of production or distribution, withdrawal of approval, refusal to approve pending applications, and criminal prosecution.

FDA Approval Process

Our product candidates are regulated by the FDA as drugs. No manufacturer may market a new drug until it has submitted a New Drug Application, or NDA, to the FDA, and the FDA has approved it. The steps required before the FDA may approve an NDA generally include:


•	preclinical laboratory tests and animal tests conducted in compliance with FDA’s good laboratory practice requirements;


•	development, manufacture and testing of active pharmaceutical product and dosage forms suitable for human use in compliance with current good manufacturing practices, or GMP;


•	the submission to the FDA of an investigational new drug application, or IND, for human clinical testing, which must become effective before human clinical trials may begin;


•	adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for its specific intended use(s);

Table of Contents


•	the submission to the FDA of a New Drug Application, or NDA; and


•	FDA review and approval of the NDA.

Preclinical tests include laboratory evaluation of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate. The conduct of the pre-clinical tests must comply with federal regulations and requirements including good laboratory practices. We must submit the results of the preclinical tests, together with manufacturing information, analytical data and a proposed clinical trial protocol to the FDA as part of an IND, which must become effective before we may commence human clinical trials. The IND will automatically become effective 30 days after its receipt by the FDA, unless the FDA raises concerns or questions before that time about the conduct of the proposed trials. In such a case, we must work with the FDA to resolve any outstanding concerns before clinical trials can proceed. We cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trials. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board for approval. An institutional review board may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the institutional review board’s requirements or may impose other conditions.

Clinical trials involve the administration of the product candidate to humans under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control. Clinical trials are typically conducted in three sequential phases, though the phases may overlap or be combined. In Phase 1, the initial introduction of the drug into healthy human subjects, the drug is usually tested for safety (adverse effects), dosage tolerance and pharmacologic action, as well as to understand how the drug is taken up by and distributed within the body. Phase 2 usually involves studies in a limited patient population (individuals with the disease under study) to:


•	evaluate preliminarily the efficacy of the drug for specific, targeted conditions;


•	determine dosage tolerance and appropriate dosage as well as other important information about how to design larger Phase 3 trials; and


•	identify possible adverse effects and safety risks.

Phase 3 trials generally further evaluate clinical efficacy and test for safety within an expanded patient population. The conduct of the clinical trials is subject to extensive regulation, including compliance with good clinical practice regulations and guidance.

The FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. We may also suspend clinical trials at any time on various grounds.

The results of the preclinical and clinical studies, together with other detailed information, including the manufacture and composition of the product candidate, are submitted to the FDA in the form of an NDA requesting approval to market the drug. FDA approval of the NDA is required before marketing of the product may begin in the U.S. If the NDA contains all pertinent information and data, the FDA will “file” the application and begin review. The FDA may “refuse to file” the NDA if it does not contain all pertinent information and data. In that case, the applicant may resubmit the NDA when it contains the missing information and data.

Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of new drug applications. Most such applications for non-priority drug products are reviewed within 10 months. The review process, however, may be extended by FDA requests for additional information, preclinical or clinical studies, clarification regarding information already provided in the submission, or submission of a risk evaluation and mitigation strategy. The FDA may refer an application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. Before approving an NDA, the FDA will typically inspect the facilities at which the product candidate is manufactured and will not approve the product candidate unless GMP compliance is satisfactory. FDA also typically inspects facilities responsible for performing animal testing, as well as clinical investigators who participate in clinical trials. The FDA may refuse to approve an NDA if applicable regulatory criteria are not satisfied, or may require additional testing or information. The FDA may also limit the indications for use and/or require post-marketing testing and surveillance to monitor the safety or efficacy of a product. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Table of Contents

The testing and approval process requires substantial time, effort and financial resources, and our product candidates may not be approved on a timely basis, if at all. The time and expense required to perform the clinical testing necessary to obtain FDA approval for regulated products can frequently exceed the time and expense of the research and development initially required to create the product. The results of preclinical studies and initial clinical trials of our product candidates are not necessarily predictive of the results from large-scale clinical trials, and clinical trials may be subject to additional costs, delays or modifications due to a number of factors, including difficulty in obtaining enough patients, investigators or product candidate supply. Failure by us to obtain, or any delay in obtaining, regulatory approvals or in complying with requirements could adversely affect the commercialization of product candidates and our ability to receive product or royalty revenues.

Other Regulatory Requirements

After approval, drug products are subject to extensive continuing regulation by the FDA, which include company obligations to manufacture products in accordance with Good Manufacturing Practice, or GMP, maintain and provide to the FDA updated safety and efficacy information, report adverse experiences with the product, keep certain records and submit periodic reports, obtain FDA approval of certain manufacturing or labeling changes, and comply with FDA promotion and advertising requirements and restrictions. Failure to meet these obligations can result in various adverse consequences, both voluntary and FDA-imposed, including product recalls, withdrawal of approval, restrictions on marketing, and the imposition of civil fines and criminal penalties against the NDA holder. In addition, later discovery of previously unknown safety or efficacy issues may result in restrictions on the product, manufacturer or NDA holder.

We and any manufacturers of our products are required to comply with applicable FDA manufacturing requirements contained in the FDA’s GMP regulations. GMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation. The manufacturing facilities for our products must meet GMP requirements to the satisfaction of the FDA pursuant to a pre-approval inspection before we can use them to manufacture our products. We and any third-party manufacturers are also subject to periodic inspections of facilities by the FDA and other authorities, including procedures and operations used in the testing and manufacture of our products to assess our compliance with applicable regulations.

With respect to post-market product advertising and promotion, the FDA imposes a number of complex regulations on entities that advertise and promote pharmaceuticals, which include, among others, standards for direct-to-consumer advertising, promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as “off-label use”), industry- sponsored scientific and educational activities, and promotional activities involving the internet. Failure to comply with FDA requirements can have negative consequences, including adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.

Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, risk minimization action plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product.

Outside the United States, our ability to market a product is contingent upon receiving marketing authorization from the appropriate regulatory authorities. The requirements governing marketing authorization, pricing and reimbursement vary widely from jurisdiction to jurisdiction. At present, foreign marketing authorizations are applied for at a national level, although within the European Union registration procedures are available to companies wishing to market a product in more than one European Union member state.

We are also subject to various environmental, health and safety regulations including those governing laboratory procedures and the handling, use, storage, treatment, and disposal of hazardous materials. From time to time, and in the future, our operations may involve the use of hazardous materials.

Table of Contents

Employees

As of March 1, 2017 , we had 116 employees. Approximately 20 were in our scientific and drug development organization, 12 were in technical operations and quality assurance, 56 were in our sales and commercial team, and 28 were in general and administrative functions. None of our employees are represented by a labor union, and we consider our employee relations to be good.

Our Website

Our website address is www.synergypharma.com. Information found on our website is not incorporated by reference into this report. We make available free of charge through our website our Securities and Exchange Commission, or SEC, filings furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Table of Contents


ITEM 1A.	RISK FACTORS

The risks described below are not the only ones we face. Additional risks we are not presently aware of or that we currently believe are immaterial may also impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained or incorporated by reference into this Form 10-K, including our financial statements and related notes.

Risks Related to Our Business

We are largely dependent on the commercial success of TRULANCE in the U.S. for the foreseeable future. We cannot guarantee when, or if, we will attain profitability or positive cash flows.

We plan to begin selling TRULANCE in the U.S. in the first quarter of 2017. The commercial success of TRULANCE depends on a number of factors, including:


•	the effectiveness of TRULANCE as a treatment for adult patients with CIC;


•	the size of the treatable patient population;


•	the effectiveness of the sales, managed markets and marketing efforts by us;


•	the adoption of TRULANCE by physicians, which depends on whether physicians view it as a safe and effective treatment for adult patients with CIC;


•	our success in educating and activating adult CIC patients to enable them to more effectively communicate their symptoms and treatment history to their physicians;


•	our ability to both secure and maintain adequate reimbursement for, and optimize patient access to, TRULANCE by providing third party payers with a strong value proposition based on the existing burden of illness associated with CIC and the benefits of TRULANCE;


•	the effectiveness of our partners' distribution networks;


•	the occurrence of any side effects, adverse reactions or misuse, or any unfavorable publicity in these areas, associated with TRULANCE; and


•	the development or commercialization of competing products or therapies for the treatment of CIC, or their associated symptoms.

Our revenues from the commercialization of TRULANCE are subject to these factors, and therefore may be unpredictable from quarter-to-quarter. Ultimately, we may never generate sufficient revenues from TRULANCE to reach or maintain profitability for our company or to sustain our anticipated levels of operations.

TRULANCE may cause undesirable side effects or have other properties that could limit its commercial potential.

The most commonly reported adverse reaction in the Phase III placebo-controlled trials for TRULANCE in CIC and IBS-C was diarrhea. Severe diarrhea was reported in 2% or less of the TRULANCE-treated patients, and its incidence was similar between the IBS-C and CIC populations in these trials. If we or others identify previously unknown side effects, if known side effects are more frequent or severe than in the past, if we or others detect unexpected safety signals for TRULANCE or any products perceived to be similar to TRULANCE, or if any of the foregoing are perceived to have occurred, then in any of these circumstances:


•	sales of TRULANCE may be impaired;


•	regulatory approvals for TRULANCE may be denied, restricted or withdrawn;


•	we may decide to, or be required to, send product warning letters or field alerts to physicians, pharmacists and hospitals;


•	reformulation of the product, additional nonclinical or clinical studies, changes in labeling or changes to or reapprovals of manufacturing facilities may be required;


•	we may be precluded from pursuing additional development opportunities to enhance the clinical profile of TRULANCE within its indicated populations, as well as be precluded from studying TRULANCE in additional indications, populations and formulations;


•	our reputation in the marketplace may suffer; and

Table of Contents


•	government investigations or lawsuits, including class action suits, may be brought against us.

Any of the above occurrences would harm or prevent sales of TRULANCE, increase our expenses and impair our ability to successfully commercialize TRULANCE.

Furthermore, as we explore development opportunities to enhance the clinical profile of TRULANCE through additional clinical trials, the number of patients treated with TRULANCE within and outside of its current indications or patient populations may expand, which could result in the identification of previously unknown side effects, increased frequency or severity of known side effects, or detection of unexpected safety signals. As a result, regulatory authorities, healthcare practitioners, third party payers or patients may perceive or conclude that the use of TRULANCE is associated with serious adverse effects, undermining our commercialization efforts.

In addition, the FDA-approved label for TRULANCE contains a boxed warning about its use in pediatric patients. TRULANCE is contraindicated in pediatric patients less than 6 years of age based on nonclinical data from studies in neonatal mice approximately equivalent to human pediatric patients less than 2 years of age. There is also a warning advising physicians to avoid the use of TRULANCE in pediatric patients 6 to less than 18 years of age. This warning is based on data in young juvenile mice and the lack of clinical safety and efficacy data in pediatric patients of any age group.

We will need to raise substantial additional capital to fund our operations, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our development programs or commercialization efforts or even discontinue or curtail our operations.

During the year ended December 31, 2016 , our operating activities used net cash of approximately $129.8 million . During the year ended December 31, 2015 and December 31, 2014 , our operating activities used net cash of approximately $101.0 million and $89.1 million , respectively. We had no available-for-sale securities as of December 31, 2016 and available-for-sale securities of $50.1 million as of December 31, 2015 , which consists of U.S. Government securities with maturities of less than one year. In addition, as of December 31, 2016 and December 31, 2015 our cash and cash equivalents was $82.4 million and $61.7 million , respectively, consisting of checking accounts and short-term money market mutual funds.

Purchasing commercial quantities of pharmaceutical products, and developing product candidates and conducting clinical trials are expensive and uncertain. Circumstances, our strategic imperatives, or opportunities to create or acquire new programs, as well as maturities, redemptions or repurchases of our outstanding Notes, could require us to, or we may choose to, seek to raise additional funds.

The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:


•	the level of underlying demand for TRULANCE by prescribers and patients in the U.S.;


•	the costs associated with commercializing TRULANCE in the U.S.;


•	the costs of maintaining and expanding sales, marketing and distribution capabilities for TRULANCE;


•	the rate of progress, the cost of our clinical trials and the other costs associated with our product development programs;


•	the costs and timing of in-licensing additional products or product candidates or acquiring other complementary companies;


•	the status, terms and timing of any collaboration, licensing, co-commercialization or other arrangements;


•	the timing of any regulatory approvals of our product candidates;


•	whether the holders of our outstanding Notes hold the notes to maturity without conversion into our common stock and whether we are required to repurchase our Notes prior to maturity upon a fundamental change, as defined in the indenture governing the Notes; and


•	whether we seek to redeem or repurchase all or part of our outstanding Notes through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions, by tender offer or otherwise.

We will need to raise additional capital to fund our future operations and we cannot be certain that funding will be available on acceptable terms on a timely basis, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that may impact our ability to conduct our business. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of our product candidates or our commercialization efforts. We also may be required to:

Table of Contents


•	seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; and/or


•	relinquish license or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms.

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

Our consolidated financial statements as of December 31, 2016 have been prepared under the assumption that we will continue as a going concern for the next twelve months. Our independent registered public accounting firm has issued a report that includes an explanatory paragraph referring to our recurring and continuing losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. Our consolidated financial statements as of December 31, 2016 did not include any adjustments that might result from the outcome of this uncertainty.

We have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future.

As of December 31, 2016 , we had an accumulated deficit of approximately $583 million . We expect to incur significant and increasing operating losses for the next several years as we expand our research and development, continue our clinical trials of TRULANCE for the treatment of GI disorders, acquire or license technologies, advance other product candidates into clinical development, including dolcanatide, complete clinical trials, seek regulatory approval, prepare for the launch of TRULANCE and, if we receive FDA approval, commercialize our other product candidates. Because of the numerous risks and uncertainties associated with product development efforts, we are unable to predict the extent of any future losses or when we will become profitable, if at all. If we are unable to achieve and then maintain profitability, the market value of our common stock will likely experience significant decline.

Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Our product candidates may not prove to be safe and efficacious in clinical trials and may not meet all the applicable regulatory requirements needed to receive regulatory approval. In order to receive regulatory approval for the commercialization of our product candidates, we must conduct, at our own expense, extensive preclinical testing and clinical trials to demonstrate safety and efficacy of these product candidates for the intended indication of use. Clinical testing is expensive, can take many years to complete, if at all, and its outcome is uncertain. Failure can occur at any time during the clinical trial process.

The results of preclinical studies and early clinical trials of new drugs do not necessarily predict the results of later-stage clinical trials. The design of our clinical trials is based on many assumptions about the expected effects of our product candidates, and if those assumptions are incorrect may not produce statistically significant results. Preliminary results may not be confirmed on full analysis of the detailed results of an early clinical trial. Product candidates in later stages of clinical trials may fail to show safety and efficacy sufficient to support intended use claims despite having progressed through initial clinical testing. The data collected from clinical trials of our product candidates may not be sufficient to support the filing of an NDA or to obtain regulatory approval in the United States or elsewhere. Because of the uncertainties associated with drug development and regulatory approval, we cannot determine if or when we will have an approved product for commercialization or achieve sales or profits.

Delays in clinical testing could result in increased costs to us and slow down our product development.

We may experience delays in clinical testing of our product candidates. We do not know whether planned clinical trials will begin on time, will need to be redesigned or will be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval to commence a clinical trial, in securing clinical trial agreements with prospective sites with acceptable terms, in obtaining institutional review board approval to conduct a clinical trial at a prospective site, in recruiting patients to participate in a clinical trial or in obtaining sufficient supplies of clinical trial materials. Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, competing clinical trials and new drugs approved for the conditions we are investigating. Clinical investigators will need to decide whether to offer their patients enrollment in clinical trials of our product candidates versus treating these patients with commercially available drugs that have established safety and efficacy

Table of Contents

profiles. Any delays in completing our clinical trials will increase our costs and slow down our product development and timeliness and approval process.

We may be required to suspend or discontinue clinical trials due to unexpected side effects or other safety risks that could preclude approval of our product candidates.

Our clinical trials may be suspended at any time for a number of reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the clinical trial patients. In addition, the FDA or other regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the clinical trial patients.

Administering any product candidate to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities denying further development or approval of our product candidates for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe for human use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in our clinical trials. Any of these events could prevent us from achieving or maintaining market acceptance of TRULANCE and could substantially increase commercialization costs.

If we fail to comply with healthcare regulations, we could face substantial enforcement actions, including civil and criminal penalties and our business, operations and financial condition could be adversely affected.

As a developer of pharmaceuticals, even though we do not intend to make referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse, false claims and patients' privacy rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse laws and patient privacy laws of both the federal government and the states in which we conduct our business.

The laws include:

•

the federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;


•	federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us which provide coding and billing information to customers;


•	the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;


•	the Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug manufacturing and product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples; and

•

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.

If our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert management's attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

Table of Contents

If we are unable to satisfy regulatory requirements, we may not be able to commercialize our product candidates.

We need FDA approval prior to marketing our product candidates in the U.S. If we fail to obtain FDA approval to market our product candidates, we will be unable to sell our product candidates in the U.S. and we will not generate any additional revenue.

The FDA's review and approval process, including among other things, evaluation of preclinical studies and clinical trials of a product candidate as well as the manufacturing process and facility, is lengthy, expensive and uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence from well-designed and well-controlled pre- clinical testing and clinical trials that the product candidate is both safe and effective for each indication for which approval is sought. Satisfaction of these requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product. We cannot predict if or when we will submit future NDAs for approval for our product candidates currently under development. Any approvals we may obtain may not cover all of the clinical indications for which we are seeking approval or may contain significant limitations on the conditions of use. If any of these events occur it could prevent us from achieving or maintaining market acceptance of our products and could substantially increase commercialization costs.

The FDA has substantial discretion in the NDA review process and may either refuse to file our NDA for substantive review or may decide that our data is insufficient to support approval of our product candidates for the claimed intended uses. Even if we receive regulatory approvals, the FDA may subsequently seek to withdraw approval of our NDA if we determine that new data or a reevaluation of existing data show the product is unsafe for use under the conditions of use upon the basis of which the NDA was approved, or based on new evidence of adverse effects or adverse clinical experience, or upon other new information. If the FDA does not approve our NDA or withdraws approval of our NDA, the FDA may require that we conduct additional clinical trials, preclinical trials or manufacturing studies and submit that data before it will reconsider our application. Depending on the extent of these or any other requested studies, approval of any applications that we submit may be delayed by several years, may require us to expend more resources than we have available, or may never be obtained at all.

We may also be subject to a wide variety of foreign regulations governing the development, manufacture and marketing of our products. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior to marketing the product in those countries. The approval process varies and the time needed to secure approval in any region such as the European Union or in a country with an independent review procedure may be longer or shorter than that required for FDA approval. We cannot assure you that clinical trials conducted in one country will be accepted by other countries or that an approval in one country or region will result in approval elsewhere.

If TRULANCE is unable to compete effectively with marketed drugs targeting similar indications as TRULANCE, our commercial opportunity will be reduced or eliminated.

We face competition generally from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Small or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize GI drugs that are safer, more effective, have fewer side effects or are less expensive than TRULANCE.

TRULANCE will compete with at least two currently approved prescription therapies for the treatment of CIC, Amitiza and Linzess. In addition, over-the-counter products are also used to treat certain symptoms of CIC and IBS-C. We believe other companies are developing products that will compete with TRULANCE should they be approved by the FDA. To our knowledge, other potential competitors are in earlier stages of development. If potential competitors are successful in completing drug development for their product candidates and obtain approval from the FDA, they could limit the demand for TRULANCE. We expect that our ability to compete effectively will depend upon our ability to:


•	maintain a proprietary position for our products and manufacturing processes and other related product technology;


•	attract and retain key personnel;


•	ensure competitive patient access to our products in the U.S. based on any required discounts and rebates to payors;


•	develop relationships with physicians prescribing these products; and


•	build an adequate sales and marketing infrastructure for TRULANCE.

Table of Contents

Because we will be competing against significantly larger companies with established track records, we will have to demonstrate that, based on clinical data, side-effect profiles and other factors, our products are competitive with other products. If we are unable to compete effectively in the GI drug market and differentiate our products from other marketed GI drugs, we may never generate meaningful revenue.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our product candidates, conduct our clinical trials and commercialize our products and product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We are highly dependent upon our senior management and scientific staff. The loss of one or more of our senior management could delay or prevent the successful completion of any planned or ongoing clinical trials, any ongoing regulatory activities with FDA or the commercialization of our products and product candidates.

The competition for qualified personnel in the biotechnology and pharmaceuticals field is intense. We will need to hire additional personnel as we expand our commercial and supply chain activities. We may not be able to attract and retain quality personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and other companies.

We will need to increase the size of our organization, and we may experience difficulties in managing growth.

We are a small company with 116 employees as of March 1, 2017 . To continue our clinical trials and to commercialize our products and product candidates, we will need to expand our employee base for managerial, operational, financial and other resources. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Over the next 12 months, we plan to add additional employees to assist us with our commercial programs. Our future financial performance and our ability to commercialize our products and product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:


•	manage development efforts effectively;


•	manage our commercialization activities effectively;


•	integrate additional management, administrative, manufacturing and sales and marketing personnel;


•	maintain sufficient administrative, accounting and management information systems and controls; and


•	hire and train additional qualified personnel.

We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results and impact our ability to achieve commercial and development milestones.

We are currently building our commercial organization. If we are unable to establish a direct sales force in the U.S. to promote our products, the commercial opportunity for our products may be diminished.

We are currently building our commercial organization. We will incur significant additional expenses and commit significant additional management resources to establish our own sales force. We may not be able to establish these capabilities despite these additional expenditures. We will also have to compete with other pharmaceutical and biotechnology companies to recruit, hire and train sales and marketing personnel. If we elect to rely on third parties to sell our products and product candidates in the United States, we may receive less revenue than if we sold our products directly. In addition, although we would intend to use due diligence in monitoring their activities, we may have little or no control over the sales efforts of those third parties. In the event we are unable to develop our own sales force or collaborate with a third party to sell our products and product candidates, we may not be able to commercialize our products and product candidates which would negatively impact our ability to generate revenue.

We may need to rely on third parties to market and commercialize TRULANCE and our product candidates in international markets.

Currently, we do not have any plans to enter international markets. In the future, if appropriate regulatory approvals are obtained, we may commercialize TRULANCE and our product candidates in international markets. However, we have not decided how to commercialize TRULANCE and our product candidates in those markets. We may decide to build our own sales force or sell our products through third parties. If we decide to sell TRULANCE and our product candidates in international markets through a third party, we may not be able to enter into any marketing arrangements on favorable terms or

Table of Contents

at all. In addition, these arrangements could result in lower levels of income to us than if we marketed TRULANCE and our product candidates entirely on our own. If we are unable to enter into a marketing arrangement for TRULANCE and our product candidates in international markets, we may not be able to develop an effective international sales force to successfully commercialize those products in international markets. If we fail to enter into marketing arrangements for our products and are unable to develop an effective international sales force, our ability to generate revenue would be limited.

If the manufacturers upon whom we rely fail to produce TRULANCE and our other product candidates, including dolcanatide, in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the development and commercialization of our products and product candidates.

We do not currently possess internal manufacturing capacity. We currently utilize the services of contract manufacturers to manufacture our clinical supplies and commercial products. With respect to the manufacturing of TRULANCE, we have executed supply agreements with contract manufacturers sufficient to meet our foreseeable clinical trial and commercial requirements. If any of our suppliers were to limit or terminate production or otherwise fail to meet the quality or delivery requirements needed to satisfy the supply, the process of locating and qualifying alternate sources could require up to several months, during which time our production could be delayed. Any curtailment in the availability of TRULANCE would have a material adverse effect on our business, financial position and results of operations. In addition, because regulatory authorities must generally approve raw material sources for pharmaceutical products, changes in raw material suppliers may result in production delays or higher raw material costs.

Since the commercial manufacturing process is single sourced for Active Pharmaceutical Ingredient, or API, and Drug Product, we are at risk during launch and after launch until we establish secondary suppliers. We continue to pursue additional API and drug product supply agreements with other contract manufacturers. We may be required to agree to minimum volume requirements, exclusivity arrangements or other restrictions with the contract manufacturers. We may not be able to enter into long-term agreements on commercially reasonable terms, or at all. If we change or add manufacturers, the FDA and comparable foreign regulators may require approval of the changes. Approval of these changes could require new testing by the manufacturer and compliance inspections to ensure the manufacturer is conforming to all applicable laws and regulations, including good manufacturing practices, or GMP. In addition, the new manufacturers would have to be educated in or independently develop the processes necessary for the production of our products and product candidates. Peptide manufacturing is a highly specialized manufacturing process. While we believe we will have long term arrangements with a sufficient number of contract manufacturers, if we lose a manufacturer, it would take us a substantial amount of time to identify and develop a relationship, and seek regulatory approval, where necessary, for an alternative manufacturer.

The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products may encounter difficulties in production, particularly in scaling up production. These problems include difficulties with production costs and yields, quality control, including stability of the product and quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign regulations. In addition, any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with conducting our clinical trials and, depending upon the period of delay, require us to commence new clinical trials at significant additional expense or to terminate a clinical trial.

We are responsible for ensuring that each of our contract manufacturers comply with the GMP requirements of the FDA and other regulatory authorities from which we seek to obtain product approval. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. The approval process for NDAs includes a review of the manufacturer's compliance with GMP requirements. We are responsible for regularly assessing a contract manufacturer's compliance with GMP requirements through record reviews and periodic audits and for ensuring that the contract manufacturer takes responsibility and corrective action for any identified deviations. Manufacturers of TRULANCE and other product candidates, including dolcanatide, may be unable to comply with these GMP requirements and with other FDA and foreign regulatory requirements, if any. While we will oversee compliance by our contract manufacturers, ultimately we will not have control over our manufacturers' compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of TRULANCE or other product candidates is compromised due to a manufacturers' failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize TRULANCE or other product candidates, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of TRULANCE or other product candidates, entail higher costs or result in us being unable to effectively commercialize TRULANCE or other product candidates. Furthermore, if our manufacturers fail to deliver the

Table of Contents

required commercial quantities on a timely basis and at commercially reasonable prices, we may be unable to meet demand for any approved products and would lose potential revenues.

Materials necessary to manufacture TRULANCE and our product candidates may not be available on commercially reasonable terms, or at all, which may delay the development and commercialization of TRULANCE and our product candidates.

We rely on the third-party manufacturers of TRULANCE and our product candidates to purchase from third-party suppliers the materials necessary to produce the bulk APIs and product candidates for our clinical trials, and we rely on such manufacturers to purchase such materials to produce the APIs and finished products for any commercial distribution of TRULANCE. Suppliers may not sell these materials to our manufacturers at the time they need them in order to meet our required delivery schedule or on commercially reasonable terms, if at all. We do not have any control over the process or timing of the acquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements for the production of these materials. If we, or our manufacturers, are unable to purchase these materials, the commercial launch of TRULANCE will be delayed or there would be a shortage in supply of such product, which would harm our ability to generate revenues from such product and achieve or sustain profitability.

Product validation will be the first time TRULANCE will be run at full scale commercial batch and this product will be used for commercial distribution. If the validation batches are not executed flawlessly our commercial launch will be jeopardized.

TRULANCE may not gain acceptance among physicians, patients and the medical community, thereby limiting our potential to generate revenues.

The degree of market acceptance of any approved product by physicians, healthcare professionals and third-party payors and our profitability and growth will depend on a number of factors, including:


•	demonstration of safety and efficacy;


•	changes in the practice guidelines and the standard of care for the targeted indication;


•	relative convenience and ease of administration;


•	the prevalence and severity of any adverse side effects;


•	budget impact of adoption of our product on relevant drug formularies


•	the availability, cost and potential advantages of alternative treatments, including less expensive generic drugs;


•	pricing, reimbursement and cost effectiveness, which may be subject to regulatory control;


•	effectiveness of our or any of our partners' sales and marketing strategies;


•	the product labeling or product insert required by the FDA or regulatory authority in other countries; and


•	the availability of adequate third-party insurance coverage or reimbursement.

If any product candidate that we develop does not provide a treatment regimen that is as beneficial as, or is perceived as being as beneficial as, the current standard of care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other regulatory authorities, likely will not achieve market acceptance. Our ability to effectively promote and sell any approved products will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price and our ability to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, patients and third-party payors, our ability to generate revenues from that product would be substantially reduced. In addition, our efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, may be constrained by FDA rules and policies on product promotion, and may never be successful.

Guidelines and recommendations published by various organizations can impact the use of our products and product candidates.

Government agencies promulgate regulations and guidelines directly applicable to us and to our products and product candidates. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the health care and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations or guidelines suggesting

Table of Contents

the reduced use of our products and product candidates or the use of competitive or alternative products that are followed by patients and health care providers could result in decreased use of our products and product candidates.

We face potential product liability exposure, and, if claims brought against us are successful, we could incur substantial liabilities.

The use of our product candidates in clinical trials and the sale of marketed products expose us to product liability claims. Currently, we are not aware of any anticipated product liability claims with respect to our products or product candidates. In the future, an individual may bring a liability claim against us if one of our products or product candidates causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against the product liability claim, we may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:


•	decreased demand for our approved products;


•	impairment of our business reputation;


•	withdrawal of clinical trial participants;


•	costs of related litigation;


•	initiation of investigations by regulators;


•	substantial monetary awards to patients or other claimants;


•	distraction of management's attention from our primary business;


•	product recalls;


•	loss of revenue; and


•	the inability to commercialize our product candidates.

We currently have product liability insurance coverage for the commercial sale of TRULANCE and for the clinical trials of our product candidates which is subject to industry-standard terms, conditions and exclusions. Our current insurance coverage may prove insufficient to cover any liability claims brought against us. In addition, because of the increasing costs of insurance coverage, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy liabilities that may arise. A successful product liability claim or series of claims could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

Our failure to successfully discover, acquire, develop and market additional product candidates or approved products could impair our ability to grow.

As part of our growth strategy, we intend to develop and market additional products and product candidates. We are pursuing various therapeutic opportunities through our pipeline. We may spend several years completing our development of any particular current or future internal product candidate, and failure can occur at any stage. The product candidates to which we allocate our resources may not end up being successful. In addition, because our internal research capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select, discover and acquire promising pharmaceutical product candidates and products. Failure of this strategy would impair our ability to grow.

The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all. In addition, future acquisitions may entail numerous operational and financial risks, including:


•	disruption of our business and diversion of our management's time and attention to develop acquired products or technologies;


•	incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;


•	higher than expected acquisition and integration costs;


•	difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;

Table of Contents


•	increased amortization expenses;


•	assumption of known and unknown liabilities;


•	impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and


•	inability to motivate key employees of any acquired businesses.

Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities.

Even though TRULANCE is approved by the FDA for the treatment of adults with CIC, it faces post-approval development and regulatory requirements, which will present additional challenges.

In January 2017, the FDA approved TRULANCE as a once-daily treatment for adult men and women suffering from CIC. TRULANCE will be subject to ongoing FDA requirements governing the labeling, packaging, storage, advertising, promotion, recordkeeping and submission of safety and other post-market indications. Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with GMP regulations. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with a facility where the product is manufactured, a regulatory agency may impose restrictions on that product or the manufacturer, including requiring implementation of a risk evaluation and mitigation strategy program, withdrawal of the product from the market or suspension of manufacturing. If we, our partners or the manufacturing facilities for TRULANCE fail to comply with applicable regulatory requirements, a regulatory agency may:


•	issue warning letters or untitled letters;


•	impose civil or criminal penalties;


•	suspend or withdraw regulatory approval;


•	suspend any ongoing clinical trials;


•	refuse to approve pending applications or supplements to applications submitted by us;


•	impose restrictions on operations, including costly new manufacturing requirements; or


•	seize or detain products or require us to initiate a product recall.

Even though TRULANCE is approved for marketing in the U.S. as TRULANCE, we may never receive approval to commercialize TRULANCE or our other product candidates outside of the United States.

In the future, we may seek to commercialize TRULANCE and/or our other product candidates, including dolcanatide, in foreign countries outside of the United States. In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other jurisdictions regarding safety and efficacy. Approvals procedures vary among jurisdictions and can involve product testing and administrative review periods different from, and greater than, those in the United States. The time required to obtain approval in other jurisdictions might differ from that required to obtain FDA approval. The regulatory approval process in other jurisdictions may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval in one jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory processes in others. Failure to obtain regulatory approvals in other jurisdictions or any delay or setback in obtaining such approvals could have the same adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that TRULANCE or our other product candidates may not be approved for all indications for use included in proposed labeling or for any indications at all, which could limit the uses of TRULANCE or other product candidates and have an adverse effect on our products' commercial potential or require costly post-marketing studies.

We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to seek or obtain regulatory approval for or commercialize our product candidates.

We have agreements with third-party contract research organizations, or CROs, under which we have delegated to the CROs the responsibility to coordinate and monitor the conduct of our clinical trials and to manage data for our clinical programs. We, our CROs and our clinical sites are required to comply with current Good Clinical Practices, or GCPs,

Table of Contents

regulations and guidelines issued by the FDA and by similar governmental authorities in other countries where we are conducting clinical trials. We have an ongoing obligation to monitor the activities conducted by our CROs and at our clinical sites to confirm compliance with these requirements. In the future, if we, our CROs or our clinical sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations, and will require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.

Reimbursement may not be available for TRULANCE or our product candidates, which would impede sales.

Market acceptance and sales of TRULANCE and our product candidates may depend on coverage and reimbursement policies and health care reform measures. Decisions about formulary coverage as well as levels at which government authorities and third-party payers, such as private health insurers and health maintenance organizations, reimburse patients for the price they pay for our products as well as levels at which these payors pay directly for our products, where applicable, could affect whether we are able to commercialize these products. We cannot be sure that reimbursement will be available for any of these products. Also, we cannot be sure that coverage or reimbursement amounts will not reduce the demand for, or the price of, our products. We have not commenced efforts to have our product candidates reimbursed by government or third party payors. If coverage and reimbursement are not available or are available only at limited levels, we may not be able to commercialize our products.

In recent years, officials have made numerous proposals to change the health care system in the United States. These proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing of drugs to government control. In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. If our products are or become subject to government regulation that limits or prohibits payment for our products, or that subjects the price of our products to governmental control, we may not be able to generate revenue, attain profitability or commercialize our products.

As a result of legislative proposals and the trend towards managed health care in the United States, third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. They may also impose strict prior authorization requirements and/or refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly-approved drugs, which in turn will put pressure on the pricing of drugs.

We will incur significant liability if it is determined that we are promoting any "off-label" use of TRULANCE.

Physicians are permitted to prescribe drug products and medical devices for uses that are not described in the product's labeling and that differ from those approved by the FDA or other applicable regulatory agencies. Such "off-label" uses are common across medical specialties. Although the FDA and other regulatory agencies do not regulate a physician's choice of treatments, the FDA and other regulatory agencies do restrict communications on the subject of off-label use. Companies are not permitted to promote drugs or medical devices for off-label uses. Accordingly, we do not permit promotion of TRULANCE in the U.S. for use in any indications other than CIC or in any patient populations other than adult men and women. Similarly, we do not permit promotion of any other approved product we develop, license, co-promote or otherwise partner for any indication, population or use not described in such product's label. The FDA and other regulatory and enforcement authorities actively enforce laws and regulations prohibiting promotion of off-label uses and the promotion of products for which marketing approval has not been obtained. A company that is found to have promoted off-label uses will be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.

Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful, non-misleading, and non-promotional scientific exchange concerning their products. We intend to engage in medical education activities and communicate with healthcare providers in compliance with all applicable laws, regulatory guidance and industry best practices. Although we believe we have put in place a robust compliance program,

Table of Contents

which is designed to ensure that all such activities are performed in a legal and compliant manner, we cannot be certain that our program will address all areas of potential exposure and the risks in this area cannot be entirely eliminated.

If we fail to comply with healthcare and other regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

TRULANCE is marketed in the U.S. and is covered by federal healthcare programs; and, as a result, certain federal and state healthcare laws and regulations pertaining to product promotion and fraud and abuse are applicable to, and may affect, our business. These laws and regulations include:


•	federal healthcare program anti-kickback laws, which prohibit, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;


•	federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, information or claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, and which may apply to us for reasons including providing coding and billing advice to customers;


•	the federal Health Insurance Portability and Accountability Act of 1996, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;


•	the Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product and medical device marketing, prohibits manufacturers from marketing such products for off-label use and regulates the distribution of samples;


•	federal laws that require pharmaceutical manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under government healthcare programs;


•	the so-called "federal sunshine" law, which requires pharmaceutical and medical device companies to monitor and report certain financial interactions with physicians and other healthcare professionals and healthcare organizations to the federal government for re-disclosure to the public; and

•

state law equivalents of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, state transparency laws and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.

Our global activities are subject to the U.S. Foreign Corrupt Practices Act which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. We are also subject to similar anti-bribery laws in the other countries in which we do business.

If our operations are found to be in violation of any of the laws described above or any other laws, rules or regulations that apply to us, we will be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, rules or regulations, we cannot be certain that our program will address all areas of potential exposure and the risks in this area cannot be entirely eliminated, particularly because the requirements and government interpretations of the requirements in this space are constantly evolving. Any action against us for violation of these laws, rules or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business, as well as damage our business or reputation. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, fraud and reporting laws may prove costly.

Table of Contents

Healthcare reform and other governmental and private payer initiatives could hinder or prevent our products's or product candidates' commercial success.

The U.S. government and other governments have shown significant interest in pursuing continued healthcare reform. Any government-adopted reform measures could adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from governmental agencies or other third party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce health care costs may adversely affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.

New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise our research and development programs. The pricing and reimbursement environment may change in the future and become more challenging due to several reasons, including policies advanced by the current executive administration in the United States, new healthcare legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably.

For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the PPACA has substantially changed the way healthcare is financed by both government health plans and private insurers, and significantly impacts the pharmaceutical industry. The PPACA contains a number of provisions that are expected to impact our business and operations in ways that may negatively affect our potential revenues in the future. For example, the PPACA imposes a non-deductible excise tax on pharmaceutical manufacturers or importers that sell branded prescription drugs to U.S. government programs which we believe will increase the cost of our products. In addition, as part of the PPACA's provisions closing a funding gap that currently exists in the Medicare Part D prescription drug program (commonly known as the "donut hole"), we will be required to provide a discount on branded prescription drugs equal to 50% of the government-negotiated price, for drugs provided to certain beneficiaries who fall within the donut hole. Similarly, PPACA increases the level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1% and requires collection of rebates for drugs paid by Medicaid managed care organizations. The PPACA also includes significant changes to the 340B drug discount program including expansion of the list of eligible covered entities that may purchase drugs under the program. At the same time, the expansion in eligibility for health insurance benefits created under PPACA is expected to increase the number of patients with insurance coverage who may receive our products. While it is too early to predict all the specific effects the PPACA or any future healthcare reform legislation will have on our business, they could have a material adverse effect on our business and financial condition.

Congress periodically adopts legislation like the PPACA and the Medicare Prescription Drug, Improvement and Modernization Act of 2003, that modifies Medicare reimbursement and coverage policies pertaining to prescription drugs. Implementation of these laws is subject to ongoing revision through regulatory and sub regulatory policies. Congress also may consider additional changes to Medicare policies, potentially including Medicare prescription drug policies, as part of ongoing budget negotiations. While the scope of any such legislation is uncertain at this time, there can be no assurances that future legislation or regulations will not decrease the coverage and price that we may receive for our proposed products. Other third-party payors are increasingly challenging the prices charged for medical products and services. It will be time consuming and expensive for us to go through the process of seeking coverage and reimbursement from Medicare and private payors. Our proposed products may not be considered cost-effective, and coverage and reimbursement may not be available or sufficient to allow us to sell our proposed products on a profitable basis. Further federal and state proposals and health care reforms are likely which could limit the prices that can be charged for the product candidates that we develop and may further limit our commercial opportunities. Our results of operations could be materially adversely affected by proposed healthcare reforms, by the Medicare prescription drug coverage legislation, by the possible effect of such current or future legislation on amounts that private insurers will pay and by other health care reforms that may be enacted or adopted in the future.

In September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA's exercise of this authority could result in delays or increased costs following the commercial launch of TRULANCE for the treatment of adult men and women suffering from CIC and could result in potential restrictions on the sale and/or distribution of TRULANCE, even in its approved indication and patient populations.

Table of Contents

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners, as well as personally identifiable information of clinical trial participants and employees. Similarly, our business partners and third party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information, including our data being breached at our business partners or third-party providers, could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation which could adversely affect our business.

It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our product candidates, and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges. We will only be able to protect our product candidates from unauthorized making, using, selling and offering to sell or importation by third parties to the extent that we have rights under valid and enforceable patents or trade secrets that cover these activities.

For example:


•	others may be able to make compounds that are competitive with our products but that are not covered by the claims of our patents;


•	we may not have been the first to make the inventions covered by our pending patent applications;


•	we may not have been the first to file patent applications for these inventions;


•	others may independently develop similar or alternative technologies or duplicate any of our technologies;


•	it is possible that our pending patent applications will not result in issued patents


•	it is possible that our issued patents could be narrowed in scope, invalidated, held to be unenforceable, or circumvented;


•	we may not develop additional proprietary technologies that are patentable; or


•	the patents of others may have an adverse effect on our business.

We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our technology.

If we choose to go to court to stop someone else from using the inventions claimed in our patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if we were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other party's activities do not infringe our rights to these patents.

Furthermore, a third party may claim that we are using inventions covered by the third party's patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and technical

Table of Contents

personnel. There is a risk that a court would decide that we are infringing the third party's patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having violated the other party's patents. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.

Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications or that we were the first to invent the technology. Our competitors have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies. If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the PTO, to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentaries, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

We have not yet registered trademarks for the company name "Synergy Pharmaceuticals," TRULANCE or other potential drug names for plecanatide in all our potential markets, and failure to secure those registrations could adversely affect our ability to market TRULANCE, other product candidates and our business.

We have applied to register trademarks for our company name and for TRULANCE in the United States and other jurisdictions, but may not have covered all potential markets. Our trademark applications have received registrations in some jurisdictions. Our remaining trademark applications may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the United States and in foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Oppositions or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. In jurisdictions where we have not yet filed trademark applications, we may be conflicted from obtaining registration if/when we do file trademark applications due to third party conflicts. Failure to secure trademark registrations in the United States and in foreign jurisdictions could adversely affect our ability to market TRULANCE, our other product candidates and our business.

We received a demand letter from a large pharmaceutical company, or PharmCo, demanding that we withdraw our applications for TRULANCE in the United States and elsewhere, claiming that the mark is too similar to a mark used in connection with products and services related to diabetes. On November 2, 2016, we entered into a Trademark Consent Agreement pursuant to which PharmCo agreed to our use and registration of the TRULANCE mark in connection with products for the treatment of constipation and irritable bowel syndrome and related conditions in oral tablet form. We agreed not to use such TRULANCE or any mark including the term TRULANCE or commencing with the letters TRUL on or in connection with products and services related to diabetes or any product involving subcutaneous injection and, where possible, to amend our trademark filings to include the limitation "all of the aforesaid excluding pharmaceutical preparations for the

Table of Contents

treatment of diabetes." PharmCo has reserved its right to object and take legal action in the event we use a mark with the prefix TRU in connection with drugs in the diabetes field.

In addition, an opposition has been filed in the European Union to our application to register SYNERGY PHARMACEUTICALS.

Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete.

Because we operate in the highly technical field of research and development of small molecule drugs, we rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others will not develop the same or similar technologies on their own. We have taken steps, including entering into confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers, manufacturers and other advisors, to protect our trade secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party's relationship with us. We also typically obtain agreements from these parties that provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Risks Related to the Convertible Senior Notes

The indenture for our senior convertible notes, or the Notes, contains covenants limiting our financial and operating flexibility.

The indenture for the Notes contains covenants that will restrict our ability and the ability of certain of our subsidiaries to:


•	declare or pay any dividends on our or our subsidiaries' capital stock;


•	redeem or repurchase capital stock, or prepay or repurchase subordinated debt.

These restrictive covenants could limit our ability to pursue our growth plans, restrict our flexibility in planning for, or reacting to, changes in our business and industry and increase our vulnerability to general adverse economic and industry conditions. We may enter into additional financing arrangements in the future, which could further restrict our flexibility.

Any defaults of covenants contained in the Notes may lead to an event of default under the Notes and the indenture. We may not be able to pay any amounts due to holders of the Notes in the event of such default, and such default may significantly impair our ability to satisfy our obligations under the Notes.

We will not make any adjustment to the conversion rate for Notes converted in connection with a fundamental change, and noteholders will not be compensated for any lost value of their Notes as a result of such transaction.

We will not increase or make any other adjustment to the conversion rate upon a conversion of Notes in connection with a fundamental change or similar event. Therefore, noteholders will not be compensated for any lost value of their Notes as a result of such transaction.

Table of Contents

The Notes are effectively subordinated to any of our future secured debt and any liabilities of our subsidiaries.

The Notes will rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to our trade payables and other future unsecured indebtedness that is not so subordinated; effectively junior to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all future indebtedness (including trade payables) incurred by our subsidiaries. In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure debt ranking senior or equal in right of payment to the Notes will be available to pay obligations on the Notes only after the secured debt has been repaid in full. There may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding.

Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

Recent regulatory actions may adversely affect the trading price and liquidity of the Notes.

We expect that investors in, and potential purchasers of, the Notes may employ, or seek to employ, an arbitrage strategy with respect to the Notes. Investors that employ an arbitrage strategy with respect to the Notes typically implement that strategy by selling short the common stock underlying the Notes and dynamically adjusting their short position while they hold the Notes. Investors may also implement this hedging strategy by entering into swaps on our common stock in lieu of or in addition to short selling the common stock.

The Securities and Exchange Commission, or SEC, and other regulatory and self-regulatory authorities have implemented various rules and may adopt additional rules in the future that may impact those engaging in short selling activity involving equity securities (including our common stock), including Rule 201 of SEC regulation SHO, the Financial Industry Regulatory Authority, Inc.'s "Limit Up-Limit Down" program, market-wide circuit breaker systems that halt trading of stock for certain periods following specific market declines, and rules stemming from the enactment and implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Past regulatory actions, including emergency actions or regulations, have had a significant impact on the trading prices and liquidity of equity-linked instruments. Any governmental action that similarly restricts the ability of investors in, or potential purchasers of, the Notes to effect short sales of our common stock could similarly adversely affect the trading price and the liquidity of the Notes.

Volatility in the market price and trading volume of our common stock could adversely impact the trading price of the Notes.

The stock market in recent years has experienced significant price and volume fluctuations that have often been unrelated to the operating performance of companies. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section and elsewhere in this Form 10-K or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability. A decrease in the market price of our common stock would likely adversely impact the trading price of the Notes. The market price of our common stock could also be affected by possible sales of our common stock by investors who view the Notes as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the trading prices of the Notes. This may result in greater volatility in the trading price of the Notes than would be expected for non-convertible debt securities.

Subject to certain limitations, we continue to have the ability to incur debt; if we incur substantial additional debt, these higher levels of debt may affect our ability to pay the principal of and interest on the Notes.

Subject to certain limitations, we and our subsidiaries may be able to incur substantial additional debt in the future, some of which may be secured debt. The indenture governing the Notes does not restrict our ability to incur additional subordinated indebtedness or require us to maintain financial ratios or specified levels of net worth or liquidity. If we incur substantial

Table of Contents

additional indebtedness in the future, these higher levels of indebtedness may affect our ability to pay the principal of and interest on the Notes, or any fundamental change purchase price, and our creditworthiness generally.

We may not have the ability to raise the funds necessary to purchase the Notes as required upon a fundamental change, and our future debt may contain limitations on our ability to purchase the Notes.

Following a fundamental change as defined, holders of Notes will have the right to require us to purchase their Notes for cash. A fundamental change may also constitute an event of default or prepayment under, and result in the acceleration of the maturity of, our then-existing indebtedness. We cannot assure noteholders that we will have sufficient financial resources, or will be able to arrange financing, to pay the fundamental change purchase price in cash with respect to any Notes surrendered by holders for purchase upon a fundamental change. In addition, restrictions in our then existing credit facilities or other indebtedness, if any, may not allow us to purchase the Notes upon a fundamental change. Our failure to purchase the Notes upon a fundamental change when required would result in an event of default with respect to the Notes which could, in turn, constitute a default under the terms of our other indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the Notes.

Some significant restructuring transactions may not constitute a fundamental change, in which case we would not be obligated to offer to purchase the Notes.

Upon the occurrence of a fundamental change as defined, noteholders have the right to require us to purchase their Notes. However, the fundamental change provisions will not afford protection to holders of Notes in the event of certain transactions that could adversely affect the Notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings or acquisitions initiated by us would not constitute a fundamental change requiring us to repurchase the Notes. In addition, holders will not be entitled to require us to purchase their Notes upon a significant change in the composition of our board. In the event of any such transaction, holders of the Notes would not have the right to require us to purchase their Notes, even though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting holders of the Notes.

Future sales of our common stock in the public market could lower the market price for our common stock and adversely impact the trading price of the Notes.

In the future, we may sell additional shares of our common stock to raise capital. In addition, a substantial number of shares of our common stock are reserved for issuance upon the exercise of stock options and warrants and upon conversion of the Notes. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock. The issuance and sale of substantial amounts of common stock, or the perception that such issuances and sales may occur, could adversely affect the trading price of the Notes and the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

The Notes may not have an active market, and the price may be volatile, so noteholders may be unable to sell their Notes at the price they desire or at all.

The Notes are a new issue of securities for which there is currently no active trading market. We cannot be certain that a liquid market will develop for the Notes, that noteholders will be able to sell any of the Notes at a particular time (if at all) or that the prices they receive if or when noteholders sell the Notes will be above their initial offering price. In addition, we do not intend to apply to list the Notes on any securities exchange or for inclusion of the Notes on any automated dealer quotation system. The initial purchasers have advised us that they intend to make a market in the Notes, but they are not obligated to do so and may discontinue any market-making in the Notes at any time in their sole discretion and without notice. Future trading prices of the Notes on any market that may develop will depend on many factors, including our operating performance and financial condition, prevailing interest rates, the market for similar securities and general economic conditions.

Moreover, even if noteholders are able to sell their Notes, they may not receive a favorable price for their Notes. Future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, our operating results, the price of our common stock and the market for similar securities. Historically, the market for convertible debt has been subject to disruptions that have caused volatility in prices. It is possible that the market for the Notes will be subject to disruptions that may have a negative effect on the holders of the Notes, regardless of our prospects or financial performance.

Table of Contents

Any adverse rating of the Notes may negatively affect the trading price and liquidity of the Notes and the price of our common stock.

We do not intend to seek a rating on the Notes. However, if a rating service were to rate the Notes and if such rating service were to assign the Notes a rating lower than the rating expected by investors or were to lower its rating on the Notes below the rating initially assigned to the Notes or otherwise announce its intention to put the Notes on credit watch, the trading price or liquidity of the Notes and the price of our common stock could decline.

The conversion rate of the Notes may not be adjusted for all dilutive events.

The conversion rate of the Notes is subject to adjustment for certain events, including, but not limited to, the issuance to all or substantially all holders of our common stock of stock dividends, certain rights, options or warrants, capital stock, indebtedness, assets or cash, and subdivisions and combinations of our common stock, and certain issuer tender or exchange offers as defined. However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash, that may adversely affect the trading price of the Notes or the common stock. An event that adversely affects the value of the Notes may occur, and that event may not result in an adjustment to the conversion rate.

The Notes are protected by restrictive covenants only to a limited extent.

The indenture governing the Notes does not contain any financial or operating covenants or restrictions on the payment of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. The indenture does not contain covenants or other provisions to afford protection to holders of the Notes in the event of a fundamental change except as defined. We could engage in many types of transactions, such as acquisitions, refinancings or recapitalizations that could substantially affect our capital structure and the value of the Notes and shares of our common stock but may not constitute a fundamental change that permits holders to require us to purchase their Notes. For these reasons, noteholders should not consider the covenants in the indenture or the fundamental change purchase feature of the Notes as significant factors in evaluating whether to invest in the Notes.

The issuance of shares of common stock upon conversions of the Notes will dilute the ownership interest of our existing stockholders, including holders who had previously converted their Notes.

The issuance of shares of common stock upon the conversion of some or all of the Notes will dilute the ownership interests of our existing stockholders. Any sales in the public market of such shares of our common stock could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could depress the price of our common stock.

Noteholders are not entitled to any rights with respect to our common stock, but are subject to all changes made with respect to our common stock to the extent noteholders convert their Notes and receive shares of our common stock.

Holders who convert their Notes will not be entitled to any rights with respect to our common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock) until the conversion date relating to such Notes, but holders of Notes will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our second amended and restated certificate of incorporation, as amended or our amended and restated by-laws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the conversion date with respect to any Notes surrendered for conversion, then the holder surrendering such Notes will not be entitled to vote on the amendment, although such holder will nevertheless be subject to any changes affecting our common stock.

Upon conversion of the Notes, holders may receive less valuable consideration than expected because the value of our common stock may decline after they exercise their conversion right but before we settle our conversion obligation.

Under the Notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrenders Notes for conversion until the date we settle our conversion obligation.

Upon conversion of the Notes, we will be required to deliver the shares of our common stock, together with cash for any fractional share, on the third business day following the relevant conversion date. Accordingly, if the price of our common stock decreases during this period, the value of the shares that noteholders receive will be adversely affected and would be less than the conversion value of the Notes on the conversion date.

Table of Contents

The fundamental change purchase feature of the Notes may delay or prevent an otherwise beneficial attempt to take over our company.

The terms of the Notes require us to offer to purchase the Notes for cash in the event of a fundamental change, as defined. A non-stock takeover of our company may trigger the requirement that we purchase the Notes. This feature may have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors.

The market price of our common stock may be volatile and adversely affected by several factors.

The market price of our common stock could fluctuate significantly in response to various factors and events, including:


•	the commercial performance of TRULANCE in the U.S.;


•	any third-party coverage and reimbursement policies for TRULANCE;


•	market conditions in the pharmaceutical and biotechnology sectors;


•	our ability to execute our business plan;


•	announcements regarding regulatory developments with respect to our product candidates;


•	announcements concerning product development results, including clinical trial results, or intellectual property rights of others;


•	developments, litigation or public concern about the safety of TRULANCE or our potential products;


•	our issuance of additional securities, including debt or equity or a combination thereof, necessary to fund our operating expenses;


•	announcements of technological innovations or new products by us or our competitors;


•	loss of any strategic relationship;


•	industry developments, including, without limitation, changes in healthcare policies or practices or third-party reimbursement policies;


•	deviations in our operating results from any guidance we may provide or the estimates of securities analysts;


•	economic and other external factors effecting U.S. or global equity markets;


•	period-to-period fluctuations in our financial results; and


•	discussion of us or our stock price in the financial or scientific press or in online investor communities.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future. Any return on investment in shares of common stock may be limited to the value of our common stock.

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our capital stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on any investment in shares of our common stock will only occur if the common stock price appreciates.

A sale of a substantial number of shares of the common stock may cause the price of our common stock to decline.

If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market it may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of biotechnology and biopharmaceutical companies. These broad market fluctuations may cause the market price of our common stock to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of our securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management's attention and resources, which could adversely affect our business.

Table of Contents

Our quarterly and annual operating results may fluctuate significantly.

We expect our operating results to be subject to frequent fluctuations. Our net loss and other operating results will be affected by numerous factors, including:


•	the level of underlying demand for TRULANCE in the U.S. and wholesalers' buying patterns;


•	the costs associated with commercializing TRULANCE in the U.S.;


•	variations in the level of expenses related to our development programs;


•	any excess or obsolete inventory or asset impairments and associated write-downs;


•	initiation or completion of clinical trials;


•	any intellectual property infringement lawsuit in which we may become involved;


•	regulatory developments affecting our product candidates;


•	our execution of any collaborative, licensing or similar arrangements, and the timing of payments under these arrangements;


•	any material lawsuit in which we may become involved; and


•	interest payments on our outstanding Notes.

If our operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly or annual fluctuations in our operating results may, in turn, cause the price of our common stock to fluctuate substantially.

Our ability to use our net operating loss carry forwards may be subject to limitation.

Generally, a change of more than 50% in the ownership of a company's stock, by value, over a three-year period constitutes an ownership change for U.S. federal income tax purposes. An ownership change may limit our ability to use our net operating loss carryforwards attributable to the period prior to the change. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax liability for us. At December 31, 2016, we had net operating loss carryforwards aggregating approximately $520.7 million. We have determined that an ownership change occurred as of April 30, 2003 pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. In addition, the shares of our common stock that we issued from July 14, 2008 through July 8, 2010 have resulted in an additional ownership change. As a result of these events and other prospective dilutive events our ability to utilize our operating loss carry forwards is and may be further limited.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to accounting controls and procedures, or if we discover material weaknesses and deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent auditors addressing these assessments. If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.

Our certificate of incorporation and bylaws and Delaware law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price, and the value of the Notes, to decline.

Our second amended and restated certificate of incorporation, as amended and our amended and restated bylaws and Delaware law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders or holders of the Notes. We are authorized to issue up to 20,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board

Table of Contents

of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock and the Notes. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.

Provisions of our second amended and restated certificate of incorporation, as amended and our amended and restated bylaws and Delaware law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder or holder of the Notes might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our second amended and restated certificate of incorporation, as amended and amended and restated bylaws and Delaware law, as applicable, among other things:


•	provide the board of directors with the ability to alter the bylaws without stockholder approval;


•	place limitations on the removal of directors; and


•	provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum.

We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits "business combinations" between a publicly-held Delaware corporation and an "interested stockholder," which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's voting stock for a three-year period following the date that such stockholder became an interested stockholder. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with our board. These provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock and the value of the Notes to decline.


ITEM 1B.	UNRESOLVED STAFF COMMENTS

None


ITEM 2.	PROPERTIES

Our corporate headquarters is located at 420 Lexington Avenue, New York, NY 10170. On June 30, 2014, we entered into a Lease Amendment of our New York office, adding contiguous office space to our existing lease and extending our existing lease for additional three years to March 31, 2022, to be coterminous with our new space. This lease amendment results in total monthly rent of approximately $80,000 on straight line basis, prospectively.

In addition, we lease office space for operations in Wayne, Pennsylvania under a lease through November 30, 2017, at a monthly rate of approximately $10,000.

We also maintain a research and development laboratory and several offices in the Bucks County Biotechnology Center in Doylestown, Pennsylvania under a lease that expired on January 31, 2017, at a monthly rate of approximately $3,700. We expect to transition this operation during 2017 to other locations or contract research organizations.

Rent expense for the years ended December 31, 2016 , 2015 and 2014 totaled approximately $1,365,000 , $909,000 and $651,000, respectively.


ITEM 3.	LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.

There are currently no pending legal proceedings to which we or any of our subsidiaries is a party or of which any of its property is the subject that we believe will have, individually or in the aggregate, a material adverse effect on our business,

Table of Contents

financial condition or operating results. As far as we are aware, no governmental authority is contemplating any such proceeding.


ITEM 4.	MINE SAFETY DISCLOSURES

Not Applicable.

Table of Contents

PART II


ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Prices

From August 11, 2008 until February 18, 2011, our common stock was quoted on the Over the Counter Bulletin Board under the symbol “SGYP.OB.” From February 22, 2011 until November 30, 2011 our common stock was traded on the OTC QB under the symbol “SGYP.” On December 1, 2011 our common stock began trading on The NASDAQ Capital Market under the symbol “SGYP”. On February 21, 2013 our common stock began trading on The NASDAQ Global Market under the symbol “SGYP”. On January 2, 2014 our common stock began trading on The NASDAQ Global Select Market under the symbol “SGYP”.

The following table shows the reported high and low closing prices per share for our common stock as reported on The NASDAQ Global Select Market during the periods indicated.



	High		Low
Year Ended December 31, 2015
First quarter	$	4.68	$	2.75
Second quarter	$	9.52	$	3.35
Third quarter	$	9.56	$	5.20
Fourth quarter	$	6.66	$	5.62
Year Ended December 31, 2016
First quarter	$	5.37	$	2.59
Second quarter	$	4.11	$	2.67
Third quarter	$	5.83	$	3.61
Fourth quarter	$	6.09	$	4.14

Holders of Common Stock

As of March 1, 2017 , we had 638 holders of record of our common stock.

Dividends

Historically, we have not declared or paid any cash dividends to the holders of our common stock and we do not expect to pay any such dividends in the foreseeable future as we expect to retain our future earnings for use in the operation and expansion of our business.

On January 28, 2014, our Board of Directors declared a stock dividend of .0986 ContraVir shares for each share of our common stock held as of the record date of February 6, 2014, which was distributed on February 18, 2014.

Corporate Performance Graph

The following performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.

Table of Contents

The following graph compares the performance of our common stock to the NASDAQ Stock Market (U.S.), the NASDAQ Pharmaceutical Index, the Russell 3000 index and the Russell 3000 Biotechnology Index from August 11, 2008 (the first date that shares of our common stock were publicly traded) through December 31, 2016 . The comparison assumes $100 was invested after the market closed on August 11, 2008 in our common stock and in each of the foregoing indices, and it assumes reinvestment of dividends, if any.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

Among the NASDAQ Stock Market (U.S.),

the NASDAQ Pharmaceutical Index, the Russell 3000 Index, Russell 3000 Biotechnology Index,

and Synergy Pharmaceuticals, Inc.

Equity Compensation Information

The following table summarizes information about our equity compensation plans as of December 31, 2016 .



Plan Category	(a) Number of Shares of Common Stock to be Issued upon Exercise of Outstanding Options	Weighted-Average Exercise Price of Outstanding Options		Number of Options Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
Equity Compensation Plans Approved by Stockholders	26,107,067	$	4.14	4,392,933
Equity Compensation Plans Not Approved by Stockholders (1)	1,760,104	$	0.50	—
Total	27,867,171			4,392,933

________________________________________________________________________


(1)	Consists of options issued in conjunction with sales of our common stock as well as for consulting and professional services.

On June 8, 2015, our stockholders approved an increase in the number of our common stock shares reserved for issuance under the Plan from 15,000,000 to 30,000,000. As of December 31, 2016 , there were 25 , 783,567 stock options outstanding under the 2008 Equity Compensation Incentive Plan, or Plan, and 323,500 options outstanding under the 2009 Directors Option

Table of Contents

Plan, or Directors Plan, with 4,216,433 stock options available for future issuance under the Plan and 176,500 stock options available under the Directors Plan.

Table of Contents


ITEM 6.	SELECTED FINANCIAL DATA

The following table sets forth our selected consolidated financial data and has been derived from our audited consolidated financial statements. Consolidated balance sheets as of December 31, 2016 and 2015 , as well as consolidated statements of operations for the years ended December 31, 2016 , 2015 and 2014 , and the report thereon are included elsewhere in this Annual Report on Form 10-K. The information below should be read in conjunction with our audited consolidated financial statements and the notes to such statements, included below in Item 8, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included below in Item 7. Historical results are not necessarily indicative of the results to be expected in the future (in thousands except share and per share data).



	Year Ended December 31,
	2016			2015			2014			2013			2012
Revenues	$	—		$	—		$	—		$	—		$	—

Costs and Expenses:
Research and development	89,562			78,028			83,274			50,630			29,294
Purchased in-process research and development	—			—			—			—			1,000
Selling, general and administrative	55,724			21,794			11,004			11,681			7,941
Loss from Operations	(145,286		)	(99,822		)	(94,278		)	(62,311		)	(38,235		)
Other Income/(Loss)
Interest and investment expense, net	(13,390		)	(17,284		)	(2,875		)	38			218
Debt conversion expense	(40,158		)	—			—			—			—
State R&D tax credits	121			—			83			—			506
Change in fair value of derivative instruments-warrants	106			(394		)	1,362			149			(1,933		)
Total Other Loss	(53,321		)	(17,678		)	(1,430		)	187			(1,209		)
Net Loss	$	(198,607	)	$	(117,500	)	$	(95,708	)	$	(62,124	)	$	(39,444	)

Basic and diluted	164,437,548			105,570,960			94,276,178			85,220,458			61,702,277
Net Loss per Common Share, Basic and Diluted
Net loss per common share, basic and diluted	$	(1.21	)	$	(1.11	)	$	(1.02	)	$	(0.73	)	$	(0.64	)



	December 31,
	2016		2015			2014			2013		2012
Consolidated Balance Sheet Data:

Cash and cash equivalents and available-for-sale securities	$	82,387	$	111,750		$	196,367		$	68,157	$	32,502

Working capital	$	59,486	$	95,476		$	181,872		$	56,199	$	26,734

Total assets	$	89,852	$	115,929		$	201,008		$	72,558	$	37,405

Total stockholders’ equity/(deficit)	$	37,541	$	(55,213	)	$	(5,159	)	$	55,348	$	24,832

Table of Contents


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion together with the Financial Statements, related Notes and other financial information included elsewhere in this Report on Form 10-K. The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” and elsewhere in this Form 10-K. To the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of our Company, please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in forward-looking statements and thus you should not unduly rely on these statements.

The following discussion should be read in conjunction with our consolidated financial statements and other financial information appearing elsewhere in this annual report. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking statements. You can identify these statements by forward-looking words such as “plan,” “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future and thus you should not unduly rely on these statements.

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk Factors” in our Annual Report on Form 10-K as of and for the year ended December 31, 2016 and other periodic reports filed with the United States Securities and Exchange Commission (“SEC”). Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company’s actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in forward-looking statements and thus you should not unduly rely on these statements.

Business Overview

Our first and only commercial product, TRULANCE, is approved in the United States (U.S.), under the trademark name TRULANCE, for the treatment of adults with chronic idiopathic constipation, or CIC. The U.S. Food and Drug Administration, or FDA, approved TRULANCE on January 19, 2017. The recommended adult dosage of TRULANCE is 3 mg taken orally, once daily, with or without food. TRULANCE will be available in the U.S. in the first quarter of 2017. In addition, we are developing TRULANCE for the treatment of adults with irritable bowel syndrome with constipation (IBS-C) and we plan to file a new drug application supplement with clinical data (sNDA) for TRULANCE in IBS-C in the first quarter of 2017. We are also exploring opioid-induced constipation (OIC) as a potential lifecycle growth opportunity for TRULANCE.

Table of Contents

Recent Developments

TRULANCE (plecanatide)


•	On January 19, 2017, we announced TRULANCE was approved by the U.S. FDA for the treatment of adult patients with CIC. The recommended adult dosage of TRULANCE is 3 mg taken orally, once daily, with or without food. TRULANCE can be swallowed whole or crushed in applesauce for those who are unable to swallow medication. TRULANCE will be available in the U.S. in the first quarter of 2017.


•	On February 7, 2017, we announced that the American Journal of Gastroenterology published detailed results from a pivotal Phase 3 trial that demonstrated the efficacy and safety of TRULANCE (plecanatide) for the treatment of adults with chronic idiopathic constipation (CIC).

•

On December 22, 2016, we announced top-line results from the second of two pivotal Phase 3 trials evaluating the efficacy and safety of TRULANCE in 1,054 adult patients with IBS-C. Preliminary analysis of the data indicates that both TRULANCE 3 mg and 6 mg doses met the study's primary endpoint showing statistical significance in the percentage of patients who were Overall Responders compared to placebo during the 12-week treatment period (30.2% in 3 mg and 29.5% in 6 mg dose groups compared to 17.8% in placebo; p<0.001 for 3 mg and p<0.001 for 6 mg). The most common adverse event was diarrhea which occurred in 5.4% of patients in 3 mg and 4.3% of patients in 6 mg dose groups compared to 0.6% of placebo-treated patients. Ten patients in the trial (<1.0%) experienced serious adverse events but there was no imbalance across treatment groups in either incidences or individual serious adverse events. Overall, the rates of withdrawal from treatment because of an adverse event were low (2.6% in 3 mg and 2.3% in 6 mg dose groups compared to 0.8% in placebo) and discontinuations due to diarrhea were infrequent (1.7% in 3 mg and 1.2% in 6 mg dose groups compared to 0 in placebo).

•

On December 9, 2016, we announced top-line results from the first of two pivotal phase 3 trials evaluating the efficacy and safety of TRULANCE in 1,135 adult patients with irritable bowel syndrome with constipation (IBS-C). Preliminary analysis of the data indicates that both TRULANCE 3 mg and 6 mg doses met the study's primary endpoint showing statistical significance in the percentage of patients who were Overall Responders compared to placebo during the 12-week treatment period (21.5% in 3 mg and 24.0% in 6 mg dose groups compared to 14.2% in placebo; p=0.009 for 3 mg and p<0.001 for 6 mg). The most common adverse event was diarrhea which occurred in 3.2% of patients in 3 mg and 3.7% of patients in 6 mg dose groups compared to 1.3% of placebo-treated patients. Four patients in the trial (0.4%) experienced serious adverse events but there was no imbalance across treatment groups in either incidences or individual serious adverse events. Overall, the rates of withdrawal from treatment because of an adverse event were low (1.9% in 3 mg and 1.8% in 6 mg dose groups compared to 0 in placebo) and discontinuations due to diarrhea were infrequent (0.8% in 3 mg and 1.6% in 6 mg dose groups compared to 0 in placebo)

TRULANCE Launch Update

We are focused on three key strategic imperatives to achieve our objective of ensuring that TRULANCE is ready for launch this quarter:


•	Product Readiness


•	Market and Brand Readiness


•	Organizational Readiness

Product Readiness


•	Established a robust supply chain process and quality management system.


•	Implemented our third party logistics (3PL) distribution network.


•	Trade and sample stock manufactured and on-track for launch this quarter.


•	Launching TRULANCE 3 mg in an innovative 30-count blister pack.

Market and Brand Readiness


•	We are very encouraged by the feedback we have received from our market research, advisory boards and field-based customer meetings.


◦	Completed extensive market research with more than 2,700 healthcare providers and over 5,300 patients.


◦	Conducted multiple advisory boards with national and regional GI key opinion leaders, other healthcare providers and payers.


◦	Since January 2016, our market access team has been meeting with key payer customers that represent over 230 million covered lives in the U.S.

Table of Contents


•	Initiated pre-launch multimedia and digital campaigns to drive company awareness and disease education, focusing on current unmet needs of patients with CIC.


•	Finalized TRULANCE core marketing strategies and launch tactics, including a compliant, value-optimizing, cost effective promotional mix to reach the broadest universe of prescribers.


•	Co-pay card programs and other patient assistance programs in place which will help us achieve access in 2017.


•	Finalized pricing strategy for TRULANCE and will launch with a wholesale acquisition cost (WAC) of $353.48.

Organizational Readiness


•	Utilizing a hybrid sales model to reach key prescribers and influencers at launch.


◦	Less than 20% of prescribers in the U.S. currently account for over 70% of the branded constipation prescription market. These prescribers, which include gastroenterologists and primary care physicians, will be the focus of our field force at launch.


•	Hired Synergy Regional Business Directors averaging 11 years of management experience and over 10 years in relevant GI fields.


•	Hired Synergy Regional GI Account Specialists averaging 13 years of pharmaceutical experience and 8.5 years of GI experience.


•	Partnered with Publicis Touchpoint Solutions, Inc. who have hired highly experienced sales representatives that will be fully dedicated to TRULANCE at launch.


◦	Our Publicis Touchpoint sales representatives have an average of 11.5 years of pharmaceutical experience, and nearly 6 years of GI experience, with over 90% coming from other peer GI and PCP companies.


•	Medical education efforts have been ongoing since March 2016.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2016 AND DECEMBER 31, 2015

We had no revenues during the year ended December 31, 2016 and 2015 because we did not have any commercial biopharmaceutical products for those periods.

Research and development expenses for the year ended December 31, 2016 (“Current Year Period”) increased approximately $11.6 million or 14.9% , to approximately $89.6 million from approximately $78.0 million for the year ended December 31, 2015 (“Prior Year Period”). This increase in research and development expenses was due primarily to greater spending on IBS-C studies, expenses related to filing our CIC NDA in January 2016, additional compensation, consulting services, and TRULANCE API and drug product manufacturing costs for validation batches prepared in anticipation of our commercial launch of TRULANCE for CIC during the first quarter of 2017. The increase in compensation reflects the growth of our Medical Affairs activity and the cost of building a technical operations function fully prepared for the anticipated commercial launch of TRULANCE during first quarter 2017.

The following table sets forth our research and development expenses directly related to our product candidates, as well as indirect costs, for the year ended December 31, 2016 and 2015 . Direct expenses include external costs associated with chemistry, manufacturing and controls including costs of drug substance and product formulation, as well as preclinical studies and clinical trial costs.



	($ in thousands)		($ in thousands)
Drug candidates	Year Ended December 31, 2016		Year Ended December 31, 2015
TRULANCE (plecanatide)	$	73,472	$	65,170
Dolcanatide	1,536		5,026
Total direct costs	75,008		70,196
Total indirect costs	14,554		7,832
Total Research and Development	$	89,562	$	78,028

Table of Contents

Indirect costs were approximately $14.6 million in the Current Year Period, as compared to approximately $7.8 million during the Prior Year Period representing an increase of approximately $6.8 million which was primarily due to an increase in employee compensation of $2.8 million , higher stock-based compensation of $1.0 million , and $4.9 million increase in consulting services related to ERP system upgrade and packaging design, offset by a decrease of approximately $1.9 million due to the transition of clinical drugs to inventory capitalization. The increase in compensation reflects the cost of building a Technical Operations function for the anticipated commercial launch of TRULANCE during first quarter 2017.

Selling, general and administrative expenses increased approximately $33.9 million or 155.5% , to $55.7 million for the Current Year Period from approximately $21.8 million for the Prior Year Period. These increased expenses primarily reflect the cost of building a commercial organization prepared to launch TRULANCE during first quarter 2017. These costs included approximately a $22.5 million increase in marketing and sales expenses related to commercial preparedness and planning, a $1.7 million increase in consulting, a $5.7 million increase in compensation and benefit costs, and a $1.8 million increase in stock-based compensation expense

As of December 31, 2016 we had 92 full-time employees compared to 41 full-time employees at December 31, 2015 .

Net loss for the Current Year Period was $198.6 million compared to a net loss of $117.5 million for the Prior Year Period. In addition to the operating items discussed above, this increase in our net loss of $81.1 million or 69% was primarily a result of debt conversion expense of approximately $40.2 million resulting from our March and November 2016 convertible notes exchanges, partially offset by a decrease of approximately $3.9 million in interest expense and amortization of deferred debt costs, both related to our convertible notes.

YEARS ENDED DECEMBER 31, 2015 AND DECEMBER 31, 2014

We had no revenues during the year ended December 31, 2015 and 2014 because we did not have any commercial biopharmaceutical products during those periods.

Research and development expenses for the year ended December 31, 2015 decreased by approximately $5.3 million or 6%, to approximately $78 million from approximately $83.3 million for the year ended December 31, 2014. This decrease in research and development expenses was largely attributable to a reduction in clinical trial activities in dolcanatide. The following table sets forth our research and development expenses related to our product candidates for the year ended December 31, 2015 and 2014. Direct expenses are external costs associated with chemistry, manufacturing and controls including costs of drug substance and product formulation, as well as preclinical studies and clinical trial costs.



	($ in thousands)		($ in thousands)
Drug candidates	Year Ended December 31, 2015		Year ended December 31, 2013
TRULANCE (plecanatide)	$	65,170	$	64,871
Dolcanatide	5,026		10,944
Total direct cost	70,196		75,815
Total indirect cost	7,832		7,459
Total Research and Development	$	78,028	$	83,274

Indirect research and development costs are comprised of in-house staff compensation, facilities, depreciation, stock-based compensation and research and development support services are not directly allocated to specific drug candidates. Indirect costs were approximately $7.8 million in the year ended December 31, 2015, as compared to approximately $7.5 million during the year ended December 31, 2014 representing an increase of $0.3 million which were primarily due to higher stock-based compensation expenses and scientific consulting fees.

Selling, general and administrative expenses increased approximately $10.8 million or 98%, to approximately $21.8 million for the year ended December 31, 2015 from approximately $11.0 million for the year ended December 31, 2014. These increased expenses were primarily the result of higher employee stock-based compensation of approximately $7.3 million for the year ended December 31, 2015, as compared to $2.8 million for the year ended December 31, 2014, as well as an increase in expenses related to commercial activities including marketing, advertising and sales, of approximately $5.0 million for the year ended December 31, 2015 as compared to the year ended December 31, 2014.

Net loss for the year ended December 31, 2015 was approximately $117.5 million as compared to a net loss of approximately $95.7 million incurred for the year ended December 31, 2014. This increase in our net loss of approximately

Table of Contents

$21.8 million or 23% was a result of the increases in operating expenses discussed above, plus higher interest expense and amortization of financing costs of approximately $17.3 million for the year ended December 31, 2015, as compared to $2.9 million for the year ended December 31, 2014, and changes in fair value of derivative instruments-warrants of $0.4 million during the year ended December 31, 2015, as compared to a gain on derivative instruments-warrants of approximately $1.4 million during the year ended December 31, 2014, offset by a reduction of $5.3 million in Research and development expenses for the year ended December 31, 2015 as compared to the year ended December 31, 2014.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2016 , we had approximately $82.4 million in cash and cash equivalents, compared to approximately $111.8 million in cash, cash equivalents and available for sale securities as of December 31, 2015 . Net cash used in operating activities was $129.8 million for the year ended December 31, 2016 as compared to $101.0 million for the year ended December 31, 2015 and $89.1 million for the year ended December 31, 2014 . Net cash provided by financing activities was $100.7 million for the year ended December 31, 2016 as compared to $16.4 million for the year ended December 31, 2015 and $217.1 million for the year ended December 31, 2014 . As of December 31, 2016 we had working capital of $59.5 million , as compared to working capital of $95.5 million on December 31, 2015 .

On March 18, 2016, we announced the closing of separate, privately-negotiated exchanges with eligible holders of approximately 50% of our outstanding 7.50% Convertible Senior Notes (“Notes”) due 2019. At the closing, and in satisfaction of the consideration for $79.8 million in aggregate principal amount of the Notes, we issued 35.3 million shares of our common stock (the “Shares”). We also issued approximately 872,000 Shares in payment of accrued and unpaid interest on Notes accepted in the Exchanges from the applicable last interest payment date to, but not including, March 28, 2016. A total of 25.6 million shares carried a conversion price of $3.11 pursuant to the existing terms of the Notes.

On May 5, 2016 we announced that we had entered into definitive agreements with certain institutional investors to sell 29,948,334 shares of common stock at a price of $3.00 per share. The shares were offered and sold directly to institutional investors by us in a registered direct offering conducted without an underwriter or placement agent. The gross proceeds from the offering were approximately $89.8 million . The offering closed on May 6, 2016.

In November 2016 we exchanged $55.7 million in aggregate principal amount of the Notes, representing approximately 70% of the outstanding aggregate principal amount of Notes, for 20.5 million shares of our common stock, with a total of 17.9 million shares representing the conversion price of $3.11 pursuant to the existing terms of the Notes. The amortization of deferred debt costs was accelerated consistent with the 70% reduction of aggregate principal amount this transaction represented, and resulted in additional interest expense of approximately $2 million. We recognized debt conversion expense of $40.2 million representing 12.2 million shares for the year ended December 31, 2016 . As of December 31, 2016 , $23.5 million of the Notes remain outstanding.

From January 1, 2016 through December 31, 2016 warrants to purchase 2,430,657 shares of common stock were exercised, yielding proceeds to us of $11.3 million.

On January 31, 2017, we entered into an underwriting agreement with Cantor Fitzgerald & Co., as representative of the several underwriters, to issue and sell 20,325,204 shares of our common stock in an underwritten public offering pursuant to a Registration Statement on Form S-3 (File No. 333-205484) and a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the “Offering”). The public offering price was $6.15 per share of Common Stock. The Offering closed on February 6, 2017, yielding net proceeds of approximately $121.6 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

On February 28, 2017, we received consents from certain holders of our Notes to enter into a Supplemental Indenture which eliminates certain restrictive covenants from the Indenture related to the Notes. The restrictive covenants eliminated from the Indenture are Limitation on Indebtedness, Future Financing Rights for Certain Investors and Licensing Limitations. On February 28, 2017, we entered into the Supplemental Indenture with Wells Fargo, N.A., as trustee. We paid an aggregate of approximately $1.6 million to such holders for the consent.

On March 1, 2017, we exchanged approximately $4 million aggregate principal amount of the Notes for approximately 1.5 million shares of our common stock, with a total of approximately 1.3 million shares representing the conversion price of $3.11 pursuant to the existing terms of the Notes. As of March 1, 2017, approximately $19.5 million of the Notes remain outstanding.

Notwithstanding our recent sale of common stock, we will be required to raise additional capital to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash

Table of Contents

expenditure levels. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to (i) conduct, delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms.

Our consolidated financial statements as of December 31, 2016 have been prepared under the assumption that we will continue as a going concern for the next twelve months. Our independent registered public accounting firm has issued a report as of December 31, 2016 that includes an explanatory paragraph referring to our recurring and continuing losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate sufficient levels of revenue. Our consolidated financial statements as of December 31, 2016 do not include any adjustments that might result from the outcome of this uncertainty.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table is a summary of contractual obligations for the periods indicated that existed as of December 31, 2016 , and is based on information appearing in the notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.



($ in thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 years
Long term debt obligations ⁽¹⁾	$	28,665	$	1,755	$	26,910	$	—	$	—
Operating leases	5,896		1,065		3,303		1,528		—
Purchase obligations—principally employment and consulting services ⁽²⁾	7,285		3,561		3,724		—		—
Purchase obligations—major vendors ⁽³⁾	138,619		131,381		7,238		—		—

Total obligations	$	180,465	$	137,762	$	41,175	$	1,528	$	—

___________________________________________________________________________


(1)	Represents Senior Convertible Notes, including interest. See Note 4 to our Consolidated Financial Statements.


(2)	Represents salary, bonus, and benefits for employment and consulting agreements with remaining terms greater than one year.


(3)	Represents amounts that will become due upon future delivery of supplies, drug substance and test results from various suppliers, under open purchase orders. Generally these purchase orders represents commitments to suppliers with cancellation provisions that allow early termination with notice, penalties and payment of certain non-cancelable vendor commitments.

OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of December 31, 2016 .

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our accounting policies are described in Item 8. Financial Statements—Note 2 Basis of Presentation and Accounting Policies . The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We believe that the following discussion represents our critical accounting policies.

Table of Contents

Financial Instruments - Cash, Cash Equivalents and Marketable Securities

All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Our marketable securities consist solely of investments in U.S. Treasury and Government Agency Notes and have been classified and accounted for as available-for-sale. Management determines the appropriate classification of our investments at the time of purchase and reevaluates the available-for-sale designations as of each balance sheet date. Cash equivalents and marketable securities are carried at amounts that approximate fair value due to their short-term maturities. We consider the declines in market value of our marketable securities investment portfolio to be temporary in nature. Fair values were determined for each individual security in the investment portfolio. When evaluating the investments for other-than-temporary impairment, we reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and our intent to sell, or whether it is more likely than not we will be required to sell, the investment before recovery of the investment’s amortized cost basis. For the year ended December 31, 2016 and 2015 , we did not consider any of our investments to be other-than-temporarily impaired.

Inventories

Inventory is stated at the lower of cost or market with cost determined under the first-in, first-out basis.

We capitalize inventories manufactured in preparation for initiating sales of a product candidate when the related product candidate is considered to have a high likelihood of regulatory approval and the related costs are expected to be recoverable through sales of the inventories. In determining whether or not to capitalize such inventories, we evaluate, among other factors, information regarding the product candidate's safety and efficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook for commercial sales. In addition, we evaluate risks associated with manufacturing the product candidate and the remaining shelf life of the inventories.

Costs associated with developmental products prior to satisfying the inventory capitalization criteria are charged to research and development expense as incurred.

There is a risk inherent in these judgments and any changes in these judgments may have a material impact on our financial results in future periods.

Research and Development

Our research and development costs are expensed as incurred. These include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, regulatory and scientific consulting fees, as well as contract research, patient costs, drug formulation and tableting, data collection, monitoring, and clinical trial insurance. While certain of our research and development costs may have future benefits, our policy of expensing all research and development expenditures is predicated on the fact that we have no history of successful commercialization of biopharmaceutical products to base any estimate of the number of future periods that would be benefited.

The Company accounts for prepaid research and development expenses in accordance with ASC Topic 730, Research and Development (“ASC Topic 730”), which requires that non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts are recognized as an expense. As of December 31, 2016 and 2015 we had $0.5 million and $3.1 million respectively, of such deferred amounts, which are included in Prepaid expenses and other current assets on our consolidated balance sheets.

Share-Based Compensation

We rely heavily on incentive compensation in the form of stock options to recruit, retain and motivate directors, executive officers, employees and consultants. Incentive compensation in the form of stock options and restricted stock units is designed to provide long-term incentives, develop and maintain an ownership stake and conserve cash during our development stage.

Table of Contents

Share-based compensation is recognized as an expense in the financial statements based on the grant date fair value. Upon adoption of ASC Topic 718 “Compensation—Stock Compensation” , we selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on observed interest rate appropriate for the expected term of our employee stock options. Forfeiture rates and option term are estimated based on our historical experience plus management’s judgment, at the time of grant.

Fair value of financial instruments

In accordance with Accounting Standards Codification (“ASC”) Subtopic 820-10, we measure certain assets and liabilities at fair value on a recurring basis using the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three tiers include:


•	Level 1, defined as observable inputs such as quoted prices for identical assets in active markets;


•	Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and


•	Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring management to develop its own assumptions based on best estimates of what market participants would use in pricing an asset or liability at the reporting date.

Financial instruments consist of cash and cash equivalents, marketable securities, accounts payable and derivative instruments. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short term nature, except for derivative instruments which are marked to market at the end of each reporting period.

The Senior Convertible Notes are stated at their carrying value at December 31, 2016 and 2015 . Carrying value approximates fair value because we believe we could obtain borrowings at December 31, 2016 at comparable interest rates as these November 2014 Senior Notes.

Warrants

We have issued common stock warrants in connection with the execution of certain equity financings. The fair value of certain warrants, deemed to be derivative instruments, is recorded as a derivative liability under the provisions of FASB ASC 815 Derivatives and Hedging (“ASC 815”) upon issuance. Subsequently the liability is adjusted to fair value as of each reporting period and the changes in fair value of derivative liabilities are recorded in the consolidated statement of operations under the caption “Change in fair value of derivative liabilities.”

The fair value of warrants deemed to be derivative instruments is determined using the Black-Scholes or Binomial option-pricing models using varying assumptions regarding volatility of our common share price, remaining life of the warrant, and risk-free interest rates at each period end. We thus use model-derived valuations where significant value drivers are unobservable to third parties to determine the fair value and accordingly classify such warrants in Level 3 per ASC 820. At December 31, 2016 and 2015 the fair value of such warrants was approximately $216,000 and $322,000 , respectively, which we classified as a long term derivative liability on our balance sheets.

As of December 31, 2016 we had no available-for-sale securities and as of December 31, 2015 our available-for-sale securities are classified as Level 1 per ASC 820.


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our cash, cash equivalents and available for sale securities primarily consist of securities issued by the U.S. Treasury, deposits, and money market mutual funds. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk.

Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates, particularly because our investments are in short-term money marketable funds and US treasury and U.S.

Table of Contents

government sponsored entity securities. Due to the short-term maturities of our investment portfolio and the relatively low risk profile of our investments, we do not believe a sudden change in interest rates would have a material effect on the fair market value of our portfolio, nor our operating results or cash flows.

We do not believe our cash, cash equivalents investments, and available for sale securities have significant risk of default or illiquidity, however, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits. Given the current instability of financial institutions, we cannot provide assurance that we will not experience losses on these deposits.

Foreign Currency Risk

We have no operations outside the U.S. and do not hold any foreign currency denominated financial instruments.

Effects of Inflation

We do not believe that inflation and changing prices during the years ended December 31, 2016 , 2015 and 2014 had a significant impact on our results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The full text of our audited consolidated financial statements as of December 31, 2016 and 2015 , and for the years ended December 31, 2016 , 2015 and 2014 begins on page F-1 of this Annual Report on Form 10-K.


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

N/A


ITEM 9A.	CONTROLS AND PROCEDURES

a) Disclosure Controls and Procedures

Our chief executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2016 . The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the company’s management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective, at the reasonable assurance level, in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Table of Contents

b) Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a process designed by, or under the supervision of, a company’s principal executive and principal financial officer and effected by the our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:


(1)	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;


(2)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made in accordance with authorizations of management and directors of the company; and


(3)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible enhancements to controls and procedures.

We conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our principal executive officer and principal financial officer conclude that, at December 31, 2016 , our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting at December 31, 2016 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which appears herein.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial officer conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded there were no such changes during the quarter ended December 31, 2016 .

Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Synergy Pharmaceuticals Inc.

New York, New York

We have audited Synergy Pharmaceuticals Inc.'s (the “Company”) internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Synergy Pharmaceuticals Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Synergy Pharmaceuticals Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016 , based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Synergy Pharmaceuticals Inc. as of December 31, 2016 and 2015 , and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2016 and our report dated March 1, 2017 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

New York, New York

March 1, 2017

Table of Contents


ITEM 9B.	OTHER INFORMATION

None.

Table of Contents

PART III


ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We have adopted a formal Code of Business Conduct and Ethics applicable to all Board members, executive officers and employees. A copy of that code is available on our corporate website at http://www.synergypharma.com. A copy of our Code of Business Conduct and Ethics will also be provided free of charge upon request to: Secretary, Synergy Pharmaceuticals Inc. 420 Lexington Avenue, Suite 2012, New York, NY 10170. The content on our website is not incorporated by reference into this Annual Report on Form 10-K.

Information required by this item is incorporated by reference from our proxy statement for our 2017 Annual Meeting of Stockholders.


ITEM 11.	EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from our proxy statement for our 2017 Annual Meeting of Stockholders.


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference from our proxy statement for our 2017 Annual Meeting of Stockholders.


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference from our proxy statement for our 2017 Annual Meeting of Stockholders.


ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference from our proxy statement for our 2017 Annual Meeting of Stockholders.

Table of Contents

PART IV


ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


(a)	List of Documents Filed as a Part of This Report:



Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015	F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2016	F-4
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for each of the three years in the period ended December 31, 2016	F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2016	F-6
Notes to Consolidated Financial Statements	F-7


(b)	Index to Financial Statement Schedules:

All schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.


(c)	Index to Exhibits

The Exhibits listed below are identified by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K. The Exhibits designated by an asterisk (*) are management contracts or compensatory plans or arrangements required to be filed pursuant to Item 15.



Exhibit No.			Description
3.1			Second Amended and Restated Certificate of Incorporation of Synergy Pharmaceuticals Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed June 19, 2015).

3.2			Amendment to the Second Amended and Restated Certificate of Incorporation of Synergy Pharmaceuticals Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 17, 2013).

3.3			Second Amendment to the Second Amended and Restated Certificate of Incorporation of Synergy Pharmaceuticals Inc. (incorporated by reference to Exhibit 3.1 to Form 10-K filed March 15, 2012).

3.4			Amended and Restated Bylaws

4.1			2008 Equity Compensation Incentive Plan (incorporated by reference to Exhibit 4.1 to Form 8-K filed July 18, 2008)*

4.2			2009 Directors Stock Option Plan (incorporated by reference to Exhibit 4.2 to Form 10-K filed March 15, 2010)*

Table of Contents




4.3			Form of Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.6 to Form S-3 filed November 24, 2009).

4.4			Form of Warrant in connection with June 30, 2010 financing (incorporated by reference to Exhibit 4.1 to Form 8-K filed July 7, 2010).

4.5			Form of Warrant in connection with October 1, 2010 financing (incorporated by reference to Exhibit 4.1 to Form 8-K filed October 5, 2010).

4.6			Form of Warrant in connection with March 4, 2011 financing (incorporated by reference to Exhibit 4.1 to Form 8-K filed March 10, 2011).

4.7			Form of Warrant in connection with October 4, 2011 financing (incorporated by reference to Exhibit 4.1 to Form 8-K filed October 6, 2011).

4.8			Form of Warrant in connection with October 14, 2011 financing (incorporated by reference to Exhibit 4.1 to Form 8-K filed October 14, 2011).

4.9			Form of Warrant in connection with November 17, 2011 financing (incorporated by reference to Exhibit 4.1 to Form 8-K filed November 15, 2011).

4.10			Indenture related to the 7.50% Convertible Senior Notes due 2019, dated as of November 3, 2014, by and between Synergy Pharmaceuticals Inc. and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed November 3, 2014).

4.11			Form of 7.50% Convertible Senior Note due 2019 (incorporated by reference to Exhibit 4.2 to Form 8-K filed November 3, 2014).

4.12			First Supplemental Indenture dated as of February 28, 2017 between Synergy Pharmaceuticals Inc. and Wells Fargo, National Association, as Trustee.

10.1			Form of Executive Non-statutory Stock Option Agreement (incorporated by reference to Exhibit 10.4 to Form 8-K filed July 18, 2008)*

10.2			Form of Non-Executive Non-statutory Stock Option Agreement (incorporated by reference to Exhibit 10.5 to Form 8-K filed July 18, 2008)*

10.3			Fifth Amended and Restated Executive Employment Agreement dated as of December 29, 2016 between Synergy Pharmaceuticals, Inc. and Gary S. Jacob *

10.4			Third Amended and Restated Executive Employment Agreement dated as of January 7, 2015 between Synergy Pharmaceuticals, Inc. and Kunwar Shailubhai (incorporated by reference to Exhibit 10.4 to Form 10-K filed March 16, 2015)*

10.5			Master Services Agreement dated July 20, 2010 (incorporated by reference to Exhibit 10.1 to Form 10-Q filed November 9, 2010)**

10.6			Master Services Agreement dated August 5, 2010 (incorporated by reference to Exhibit 10.2 to Form 10-Q filed November 9, 2010)**

10.7			Asset Purchase Agreement dated August 17, 2012 between Synergy Pharmaceuticals Inc. and Bristol-Myers Squibb Company (incorporated by reference to Exhibit 10.7 to Form 10-K filed March 18, 2013)**

10.8			Amended and Restated Executive Employment Agreement dated as of July 12, 2013 between Synergy Pharmaceuticals Inc. and Patrick H. Griffin, M.D., FACP (incorporated by reference to Exhibit 10.9 to Form 10-K filed March 16, 2015).*

10.9			Executive Employment Agreement dated as of May 29, 2015 between Synergy Pharmaceuticals Inc. and Troy Hamilton (incorporated by reference to Exhibit 10.11 to Form 10-K filed February 25, 2016).*

10.10			Amendment to the Amended and Restated Executive Employment Agreement dated as of January 18, 2016 by and between Synergy Pharmaceuticals Inc. and Patrick H. Griffin, M.D., FACP (incorporated by reference to Exhibit 10.12 to Form 10-K filed February 25, 2016).*

10.11			Amendment to Third Amended and Restated Executive Employment Agreement dated January 18, 2016 by and between Synergy Pharmaceuticals Inc. and Kunwar Shailubhai (incorporated by reference to Exhibit 10.13 to Form 10-K filed February 25, 2016).*

10.12			Amendment to Executive Employment Agreement dated January 18, 2016 by and between Synergy Pharmaceuticals Inc. and Troy Hamilton (incorporated by reference to Exhibit 10.14 to Form 10-K filed February 25, 2016).*

Table of Contents



10.13			Form of Exchange Agreement Related to 7.50% Convertible Senior Notes (incorporated by reference to Exhibit 99.1 to Form 8-K filed March 18, 2016).

10.14			Form of Securities Purchase Agreement dated May 4, 2016 (incorporated by reference to Exhibit 10.1 to Form 8-K filed May 5, 2016).

14			Code of Business Conduct and Ethics

21			List of Subsidiaries

23			Consent of BDO USA, LLP, Independent Registered Public Accounting firm

31.1			Certification of Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act

31.2			Certification of Principal Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2			Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101			Financial statements from the annual report on Form 10-K of Synergy for the year ended December 31, 2016, filed on March 1, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Stockholders Equity (Deficit) (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements tagged as blocks of text.

____________________________________________________________________________


*	Indicates a management contract or compensatory plan or arrangement.


**	Portions of this exhibit were omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to a request for confidential treatment.

Table of Contents

ITEM 16. FORM 10K SUMMARY

None.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.



		SYNERGY PHARMACEUTICALS INC.
		(Registrant)

Date:	March 1, 2017	By:	/s/ GARY S. JACOB
			Gary S. Jacob
			President, Chairman of Board, and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



Signature	Title	Date

/s/ GARY S. JACOB	President, Chairman of the Board, and Chief Executive Officer	March 1, 2017
Gary S. Jacob	(Principal Executive Officer)

/s/ BERNARD F. DENOYER	Senior Vice President, Finance and Secretary	March 1, 2017
Bernard F. Denoyer	(Principal Financial and Accounting Officer)

/s/ MELVIN K. SPIGELMAN	Director	March 1, 2017
Melvin K. Spigelman

/s/ ALAN JOSLYN	Director	March 1, 2017
Alan Joslyn

/s/ THOMAS H. ADAMS	Director	March 1, 2017
Thomas H. Adams

/s/ JOHN BRANCACCIO	Director	March 1, 2017
John Brancaccio

/s/ TIMOTHY CALLAHAN	Director	March 1, 2017
Timothy Callahan

/s/ RICHARD DALY	Director	March 1, 2017
Richard Daly

Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SYNERGY PHARMACEUTICALS, INC.

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015	F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2016	F-4
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for each of the three years in the period ended December 31, 2016	F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2016	F-6
Notes to Consolidated Financial Statements	F-7

F-1

Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Synergy Pharmaceuticals Inc.

New York, New York

We have audited the accompanying consolidated balance sheets of Synergy Pharmaceuticals Inc. (the “Company”) as of December 31, 2016 and 2015 and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2016 . These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Synergy Pharmaceuticals Inc. at December 31, 2016 and 2015 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 , in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring losses from operations and will continue to have large losses in the future that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Synergy Pharmaceuticals Inc.’s internal control over financial reporting as of December 31, 2016 , based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 1, 2017 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

New York, New York

March 1, 2017

F-2

Table of Contents

SYNERGY PHARMACEUTICALS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)



	December 31, 2016			December 31, 2015
ASSETS
Current Assets:
Cash and cash equivalents	$	82,387		$	61,653
Available-for-sale securities	—			50,097
Inventories	5,640			—
Prepaid expenses and other current assets	889			3,305
Total Current Assets	88,916			115,055
Property and equipment, net	593			531
Security deposits	343			343
Total Assets	$	89,852		$	115,929
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current Liabilities:
Accounts payable	$	15,584		$	13,263
Accrued expenses	13,552			4,328
Interest payable on senior convertible notes	294			1,988
Total Current Liabilities	29,430			19,579
Senior convertible notes, net	22,665			151,241
Derivative financial instruments, at estimated fair value-warrants	216			322
Total Liabilities	52,311			171,142
Commitments and contingencies (Note 8)
Stockholders’ Equity/(Deficit):
Preferred stock, Authorized 20,000,000 shares and none outstanding, at December 31, 2016 and December 31, 2015	—			—
Common stock, par value of $.0001, 350,000,000 shares authorized at December 31, 2016 and December 31, 2015. Issued and outstanding 202,737,860 shares and 113,694,606 shares at December 31, 2016 and December 31, 2015, respectively.	20			11
Additional paid-in capital	620,513			329,161
Accumulated deficit	(582,992		)	(384,385		)
Total Stockholders’ Equity/(Deficit)	37,541			(55,213		)
Total Liabilities and Stockholders’ Equity/(Deficit)	$	89,852		$	115,929

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Table of Contents

SYNERGY PHARMACEUTICALS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)



	Year Ended December 31,
	2016			2015			2014
Revenues	$	—		$	—		$	—

Costs and Expenses:
Research and development	89,562			78,028			83,274
Selling, general and administrative	55,724			21,794			11,004
Loss from Operations	(145,286		)	(99,822		)	(94,278		)
Other Income/(Loss)
Interest and investment expense, net	(13,390		)	(17,284		)	(2,875		)
Debt conversion expense	(40,158		)	—			—
State R&D tax credits	121			—			83
Change in fair value of derivative instruments-warrants	106			(394		)	1,362
Total Other Loss	(53,321		)	(17,678		)	(1,430		)
Net Loss	$	(198,607	)	$	(117,500	)	$	(95,708	)

Weighted Average Common Shares Outstanding
Basic and Diluted	164,437,548			105,570,960			94,276,178

Net Loss per Common Share, Basic and Diluted	$	(1.21	)	$	(1.11	)	$	(1.02	)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Table of Contents

SYNERGY PHARMACEUTICALS INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)

(In thousands, except share amounts)



	Common Shares	Common Stock, Par Value		Additional Paid in Capital			Deficit Accumulated			Non-Controlling Interest			Total Stockholders’ Equity/(Deficit)
Balance, December 31, 2013	90,182,115	10		226,515			(171,177		)	—			55,348

Common stock issued pursuant to a controlled equity “at-the-market” sales agreement	6,417,650	1		30,699			—			—			30,700
Fees and expenses related to controlled equity sales	—	—		(846		)	—			—			(846		)
Stock based compensation expense	—	—		4,722			—			—			4,722
Exercise of stock options	9,999	—		36			—			—			36
Private placement of ContraVir common stock	—	—		3,224			—			—			3,224
Fees and expenses associated with ContraVir Private Placement	—	—		(15		)	—			—			(15		)
Fair value of ContraVir warrants issued in connection with private placement	—	—		(880		)	—			—			(880		)
Noncontrolling interest of ContraVir	—	—		—			—			(1,622		)	(1,622		)
Distribution of ContraVir common stock to Synergy shareholders	—	—		(1,740		)	—			—			(1,740		)
Elimination of noncontrolling interest of ContraVir upon distribution	—	—		—			—			1,622			1,622
Net loss for the period	—	—		—			(95,708		)	—			(95,708		)

Balance, December 31, 2014	96,609,764	$	11	$	261,715		$	(266,885	)	$	—		$	(5,159	)

Common stock issued pursuant to a controlled equity “at-the-market” sales agreement	3,435,998	—		14,672			—			—			14,672
Fees and expenses related to controlled equity sales	—	—		(404		)	—			—			(404		)
Common stock issued in connection with exercise of stock options	269,720	—		1,142			—			—			1,142
Common stock issued in connection with exercise of warrants	189,412	—		1,012			—			—			1,012
Shares issued in connection with conversion of Senior Convertible Debentures	13,179,712	—		40,989			—			—			40,989
Change in fair value of warrants due to expiration of certain warrants	—	—		244			—			—			244
Stock based compensation expense	—	—		9,724			—			—			9,724
Stock issues in exchange for certain intellectual property	10,000	—		67			—			—			67
Net loss for the period	—	—		—			(117,500		)	—			(117,500		)

Balance, December 31, 2015	113,694,606	$	11	$	329,161		$	(384,385	)	$	—		$	(55,213	)
Shares issued in connection with conversion of Senior Convertible Debentures	44,432,408	4		137,937			—			—			137,941
Debt conversion expense	12,161,671	1		40,157			—			—			40,158
Transaction fees on Note conversions	—	—		(711		)	—			—			(711		)
Common stock issued in connection with exercise of stock options	70,185	—		222			—			—			222
Common stock issued in connection with exercise of warrants	2,430,656	1		11,330			—			—			11,331
Common stock issued in registered direct offering, net of issuance costs	29,948,334	3		89,842			—			—			89,845
Stock based compensation expense	—	—		12,575			—			—			12,575
Net loss for the period	—	—		—			(198,607		)	—			(198,607		)
Balance, December 31, 2016	202,737,860	$	20	$	620,513		$	(582,992	)	$	—		$	37,541

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Table of Contents

SYNERGY PHARMACEUTICALS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



	Year Ended December 31,
	2016			2015			2014
Cash Flows From Operating Activities:
Net loss	$	(198,607	)	$	(117,500	)	$	(95,708	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	233			163			120
Amortization of deferred debt costs	6,921			4,566			411
Stock-based compensation expense	12,575			9,724			4,722
Value of common stock issued for patent license	—			67			—
Accretion of discount/premium on available for sale securities	—			(109		)	130
Change in fair value of derivative instruments—warrants	(106		)	394			(1,362		)
Common stock issued for interest on Notes	2,445			—			—
Debt conversion expense	40,158			—			—
Changes in operating assets and liabilities:
Inventories	(5,640		)	—			—
Security deposits	—			(180		)	(69		)
Accounts payable and accrued expenses	11,546			1,867			316
Prepaid expenses and other current assets	2,416			531			(124		)
Accrued interest expense on senior convertible notes	(1,694		)	(512		)	2,500
Total Adjustments	68,854			16,511			6,644
Net Cash used in Operating Activities	(129,753		)	(100,989		)	(89,064		)
Cash Flows From Investing Activities:
Net sales (purchases) of available-for-sale securities	50,097			(200		)	—
Additions to property and equipment	(297		)	(50		)	(173		)
Repayment on ContraVir loan receivable	—			—			455
Net Cash provided by (used in) Investing Activities	49,800			(250		)	282
Cash Flows From Financing Activities:
Proceeds of sale of common stock	89,845			14,672			30,700
Proceeds of sale of common stock — ContraVir	—			—			3,224
Issuance of Senior Convertible Debentures	—			—			200,000
Fees and expenses — note conversions	(711		)	—			—
Payment for debt financing costs	—			—			(12,747		)
Fees and expenses — sale of common stock	—			(404		)	(861		)
Proceeds from exercise of warrants	11,331			1,012			—
Proceeds from exercise of stock options	222			1,142			36
Distribution associated with ContraVir Spinoff	—			—			(3,230		)
Net Cash provided by Financing Activities	100,687			16,422			217,122
Net increase (decrease) in cash and cash equivalents	20,734			(84,817		)	128,340
Cash and cash equivalents at beginning of period	61,653			146,470			18,130
Cash and cash equivalents at end of period	$	82,387		$	61,653		$	146,470
Supplementary disclosure of cash flow information:
Cash paid for interest on senior convertible notes	$	5,939		$	13,379		$	—
Cash paid for taxes	$	45		$	258		$	55
Supplementary disclosure of non-cash investing and financing activities:
Distribution of net assets of ContraVir				$	—		$	84
Conversion of senior convertible notes to Synergy Common Stock	$	137,941		$	40,989		$	—

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Table of Contents

SYNERGY PHARMACEUTICALS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business Overview

Synergy Pharmaceuticals Inc. ("the Company" or "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 and endogenous human GI peptide, for the treatment of GI diseases and disorders. Synergy discovered, is developing and controls 100% worldwide rights to its proprietary uroguanylin analog platform that includes one commercial product, TRULANCE, and a second lead product candidate, dolcanatide. TRULANCE is now approved in the United States for the treatment of adults with chronic idiopathic constipation. Synergy has also completed two Phase 3 clinical trials of TRULANCE for the treatment of adults with irritable bowel syndrome with constipation and the company plans to file a new drug application supplement with clinical data (sNDA) in the first quarter of 2017. Dolcanatide is being explored for ulcerative colitis.

2. Basis of Presentation, Accounting Policies and Going Concern

These consolidated financial statements include Synergy Pharmaceuticals Inc., a Delaware corporation, and subsidiaries: (1) Synergy Advanced Pharmaceuticals, Inc. (2) IgX, Ltd (Ireland—inactive) (henceforth “Synergy”), and (3) ContraVir Pharmaceuticals, Inc. (“ContraVir”) through February 18, 2014. All intercompany balances and transactions have been eliminated.

On January 31, 2017, Synergy entered into an underwriting agreement with Cantor Fitzgerald & Co., as representative of the several underwriters, to issue and sell 20,325,204 shares of common stock of the Company in an underwritten public offering pursuant to a Registration Statement on Form S-3 (File No. 333-205484) and a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the “Offering”). The public offering price was $6.15 per share of Common Stock. The Offering closed on February 6, 2017, yielding net proceeds of approximately $121.6 million , after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.

Notwithstanding the Company's recent equity financing, Synergy will be required to raise additional capital within the next year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. Synergy cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that Synergy raises additional funds by issuing equity securities, Synergy’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact Synergy’s ability to conduct business. If Synergy is unable to raise additional capital when required or on acceptable terms, Synergy may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that Synergy would otherwise seek to develop or commercialize ourselves on unfavorable terms.

F-7

Table of Contents

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Actual results could differ from those estimates.

Cash, Cash Equivalents and Marketable Securities

All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. As of December 31, 2016 , the amount of cash and cash equivalents was approximately $82.4 million and consists of checking accounts and short-term money market mutual funds. As of December 31, 2015 , the amount of cash and cash equivalents was approximately $61.7 million and consisted of checking accounts and short-term money market funds with U.S. commercial banks. At any point in time, the Company’s balance of cash and cash equivalents may exceed federally insured limits.

The Company’s did not own any marketable securities as of December 31, 2016 and held approximately $50.1 million in marketable securities as of December 31, 2015 which consist of U.S. Treasury and U.S. government sponsored entity securities with maturities of less than one year, and have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the available-for-sale designations as of each balance sheet date. As of December 31, 2015 gross unrealized losses were not material. The Company recognized no net realized gains or losses for the year ended December 31, 2016 and 2015 . Fair values were determined for each individual security in the investment portfolio. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. During the year ended December 31, 2016 and 2015 , the Company did not recognize any impairment charges.

Inventories

Inventories are stated at the lower of cost or market with cost determined under the first-in, first-out basis.

Synergy capitalizes inventories manufactured in preparation for initiating sales of a product candidate when the related product candidate is considered to have a high likelihood of regulatory approval and the related costs are expected to be recoverable through sales of the inventories. In determining whether or not to capitalize such inventories, Synergy evaluates, among other factors, information regarding the product candidate's safety and efficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook for commercial sales. In addition, Synergy evaluates risks associated with manufacturing the product candidate and the remaining shelf life of the inventories.

Costs associated with developmental products prior to satisfying the inventory capitalization criteria are charged to research and development expense as incurred.

There is a risk inherent in these judgments and any changes in these judgments may have a material impact on our financial results in future periods.

Revenue recognition

In May 2014, the FASB issued a comprehensive new revenue recognition standard. The new standard outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard is designed to create greater comparability for financial statement users across industries, jurisdictions and capital markets and also requires enhanced disclosures. The new standard will be effective for the Company beginning January 1, 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting period

presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized

at the date of initial application (the cumulative catch-up transition method).

F-8

Table of Contents

We are in the initial stages of our evaluation of the impact of the new standard on our accounting policies, processes, and system requirements as we will begin the commercial launch of our product during the first quarter of 2017. Furthermore, we have made and will continue to make investments in systems to enable timely and accurate reporting under the new standard. While we continue to assess the potential impacts of the new standard, we do not know or cannot reasonably estimate the impact of the new standard on our financial statements at this time.

Derivative Instruments

The Company’s derivative liabilities are related to warrants issued in connection with financing transactions and are therefore not designated as hedging instruments. All derivatives are recorded on the Company’s balance sheet at fair value in accordance with current accounting guidelines for such complex financial instruments. Changes in fair value are recorded in the Company’s statement of operations.

Fair Value of Financial Instruments

In accordance with Accounting Standards Codification (“ASC”) Subtopic 820-10, the Company measures certain assets and liabilities at fair value on a recurring basis using the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three tiers include:


•	Level 1, defined as observable inputs such as quoted prices for identical assets in active markets;


•	Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and


•	Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring management to develop its own assumptions based on best estimates of what market participants would use in pricing an asset or liability at the reporting date.

The value of Senior Convertible Notes are stated at their carrying value at December 31, 2016 and 2015 . Carrying value approximates fair value because the Company believes it could obtain borrowings at December 31, 2016 at comparable interest rates as these November 2014 Senior Notes, therefore, the carrying value approximates fair value.

Property, equipment and depreciation

Expenditures for additions, renewals and improvements are capitalized at cost. Depreciation is computed on a straight-line method based on the estimated useful lives of the related assets. The estimated useful lives of the major classes of depreciable assets are 2 to 5 years for equipment and furniture and fixtures. Leasehold improvements are depreciated over the remaining useful life of the lease. Expenditures for repairs and maintenance are charged to operations as incurred. Synergy periodically evaluates whether current events or circumstances indicate that the carrying value of its depreciable assets may not be recoverable.

Income Taxes

Income taxes have been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes result from differences between the financial statement and tax bases of Synergy’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment of whether or not a valuation allowance is required often requires significant judgment.

Contingencies

In the normal course of business, Synergy is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental liability, and tax matters. In accordance with FASB ASC Topic 450, Accounting for Contingencies (“ASC Topic 450”), Synergy records accruals for such loss contingencies when it is probable that a liability will be incurred

F-9

Table of Contents

and the amount of loss can be reasonably estimated. Synergy, in accordance with this guidance, does not recognize gain contingencies until realized. For a discussion of contingencies, see Note 7, Commitments and Contingencies below.

Research and Development

Research and development costs include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, regulatory and scientific consulting fees, as well as contract research, patient costs, drug formulation and tableting, data collection, monitoring, and clinical trial insurance.

In accordance with FASB ASC Topic 730-10-55, Research and Development , Synergy recorded prepaid research and development costs of approximately $0.5 million and $3.1 million as of December 31, 2016 and December 31, 2015 , respectively, of pre-payments for production of drug substance, analytical testing services and clinical trial monitoring for its drug candidates. In accordance with this guidance, Synergy expenses these costs when drug substance is delivered and/or services are performed.

Loss Per Share

Basic and diluted net loss per share is presented in conformity with ASC Topic 260, Earnings per Share , (“ASC Topic 260”) for all periods presented. In accordance with this guidance, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. Diluted weighted-average shares are the same as basic weighted-average shares because shares issuable pursuant to the exercise of stock options and warrants would have been antidilutive.

The Senior Convertible Notes (the"Notes") face value of $23.5 million is convertible into 7,560,772 shares of common stock at December 31, 2016 , the effect of which was excluded from the calculation of diluted loss per share because it was antidilutive. As of December 31, 2015 , the face value of these Notes was $159 million and was convertible into 51,128,939 shares of common stock, the effect of which was excluded from the calculation of diluted loss per share because it was antidilutive. As of December 31, 2014, the carrying value of the Notes was $200 million and was convertible into 64,308,680 shares of common stock the effect of which was excluded from the calculation of diluted loss per share because it was antidilutive.

The following table sets forth potential common shares issuable upon the exercise of outstanding options, the exercise of warrants, and the conversion of the Senior Convertible Notes, all of which have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive, including the impact on dilutive net loss per share of in-the-money warrants as per ASC 260-10-45-35 through ASC 260-10-45-37:



	Year Ended December 31, 2016	Year Ended December 31, 2015	Year Ended December 31, 2014
Stock Options	27,867,171	20,953,375	16,567,020
Warrants	919,690	4,726,823	5,647,203
Senior Convertible Notes	7,560,772	51,128,939	64,308,680
Total shares issuable upon exercise or conversion	36,347,633	76,809,137	86,522,903

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company adopted this ASU and anticipates that due to losses, the excess tax benefits will not affect expense since these amounts have not, and will not be applicable. The Company also expects to continue its policy to estimate the forfeiture rate after adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued ASU 2016-02 to increase transparency and comparability amo ng organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, a lessee will recognize in the statement

F-10

Table of Contents

of financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. The amendments of this ASU are effective for reporting periods beginning after December 15, 2018, with early adoption permitted. An entity will be required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The adoption of ASU 2016-02 is not expected to have a material impact on the Company’s consolidated financial statements and disclosures.

3. Acquisitions and Stockholders’ Equity (Deficit)

On January 28, 2014, our board of directors approved the distribution of 9,000,000 shares of the issued and outstanding shares of common stock of ContraVir Pharmaceuticals, Inc., our subsidiary (“ContraVir”), on the basis of 0.0986 shares of ContraVir common stock for each share of our common stock held on the record date, February 6, 2014 (the “Distribution”). (See below.)

As a result of the Distribution, an adjustment was made to the exercise price of all outstanding warrants in accordance with their terms and accordingly the exercise price decreased approximately $0.011 per share on the record date. As of December 31, 2016 there were 919,690 warrants outstanding with a weighted average exercise price of $5.24 per share pre-Distribution and $5.22 per share as adjusted.

On March 5, 2014, Synergy entered into Amendment No. 1 (the “Amendment”) to its Controlled Equity Offering Sales (“ATM”) Agreement, dated June 21, 2012 (as amended, the “Agreement”), with Cantor Fitzgerald & Co., as sales agent (“Cantor”), pursuant to which the Company may offer and sell, from time to time, through Cantor shares of the Company’s common stock, par value 0.0001 per share (the “Shares”), up to an additional aggregate offering price of $50.0 million . The Company will pay Cantor a selling agent fee of up to 3.0% of the gross sales price per share sold and has agreed to provide Cantor with customary indemnification and contribution rights. As of July 10, 2015, the Form S-3 registration statement related to the Agreement expired, effectively terminating the Company’s ATM program.

From January 1, 2014 through December 31, 2014, Synergy sold 6,417,650 shares of common stock, pursuant to the ATM Agreement with Cantor, yielding gross proceeds of $30.7 million , at an average selling price of $4.78 per share. Selling agent fees related to above financings from January 1, 2014 through December 31, 2014 were $0.8 million .

From January 1, 2015 through December 31, 2015, Synergy sold 3,435,998 shares of common stock, pursuant to the ATM Agreement with Cantor, yielding gross proceeds of $14.7 million , at an average selling price of $4.27 per share. Selling agent fees related to above financings from January 1, 2015 through December 31, 2015 were $0.4 million .

On June 8, 2015, Synergy amended its Articles of Incorporation and increased the number of shares of its common stock authorized for issuance from 200,000,000 to 350,000,000 shares.

On July 2, 2015, Synergy filed a “shelf” registration statement on Form S-3 to offer and sell, from time to time in one or more offerings, any combination of common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities, having an aggregate initial offering price not exceeding $250,000,000 . The registration statement was declared effective by the SEC on July 15, 2015. This shelf registration does not currently encompass a Controlled Equity Sales (ATM) program.

From January 1, 2015 through December 31, 2015 warrants to purchase 189,412 shares of common stock were exercised, yielding proceeds to the Company of $1.0 million . In addition employee stock options to purchase 269,720 shares of common stock were exercised yielding proceeds of $1.1 million .

On March 18, 2016, Synergy entered into an exchange agreement for the exchange of $79.8 million in aggregate principal amount of the Notes, representing approximately 50% of the outstanding aggregate principal amount of Notes, for 35.3 million shares of Synergy's common stock, with a total of 25.6 million shares representing the conversion price of $3.11 pursuant to the existing terms of the Notes. Synergy also issued approximately 872,000 shares at the five day average share price of $2.81 in payment of accrued and unpaid interest of $2.4 million on Notes accepted in the Exchanges, with such shares included in the Shares issued in connection with conversion of Senior Convertible Debentures in the Consolidated Statement of Changes in Stockholders' Equity/(Deficit). In addition, Synergy issued 9.6 million shares of common stock as an inducement for Note holders to convert their Notes into Synergy common stock and recognized debt conversion expense of $25.6 million in the exchange.

F-11

Table of Contents

In November 2016 Synergy exchanged $55.7 million in aggregate principal amount of the Notes, representing approximately 70% of the outstanding aggregate principal amount of Notes, for 20.5 million shares of Synergy's common stock, with a total of 17.9 million shares representing the conversion price of $3.11 pursuant to the existing terms of the Notes. The amortization of deferred debt costs was accelerated consistent with the 70% reduction of aggregate principal amount this transaction represented, and resulted in additional interest expense of approximately $2 million . The Company recognized debt conversion expense of $14.5 million representing 2.6 million shares in the exchange.

From January 1, 2016 through December 31, 2016 , $135.5 million aggregate principal amount of the Notes was converted into approximately 56.6 million shares of Synergy common stock.

On May 5, 2016 , Synergy announced that it had entered into definitive agreements with certain institutional investors to sell 29,948,334 shares of common stock at a price of $3.00 per share. The shares were offered and sold directly to institutional investors by the Company in a registered direct offering conducted without an underwriter or placement agent. The gross proceeds from the offering were approximately $89.8 million . The offering closed on May 6, 2016.

From January 1, 2016 through December 31, 2016 warrants to purchase 2,430,657 shares of common stock were exercised, yielding proceeds to us of $11.3 million .

ContraVir

Private Placement

On February 4, 2014, Synergy’s wholly owned subsidiary, ContraVir Pharmaceuticals, Inc. (ContraVir) entered into a securities purchase agreement with accredited investors to sell securities and raise gross proceeds of approximately $3.2 million in a private placement and incurred expenses of $15,000 related to this placement. ContraVir sold 9,485,294 units to the investors with each unit consisting of one share of ContraVir’s common stock and one warrant to purchase an additional one half share of ContraVir’s common stock. The purchase price paid by the investors was $0.34 for each unit. The 4.7 million warrants expire after six years and are exercisable at $0.37 per share. Based upon the ContraVir’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity” ContraVir recorded approximately $0.88 million of derivative liability on the warrants issued in connection with this transaction.

Spin-off

On February 18, 2014, Synergy completed the distribution of the ContraVir common stock (its previous wholly-owned subsidiary) to Synergy’s stockholders on a pro rata basis with a stock dividend of .0986 ContraVir shares for each Synergy common stock share held as of the record date of February 6, 2014.

Synergy accounted for this distribution according to FASB ASC Topic 505-60, Spinoffs and reverse spinoffs by eliminating ContraVir’s net assets of approximately $1.7 million , with a corresponding decrease in additional paid in capital and the non-controlling interest of $1.6 million .

Net assets of ContraVir eliminated in connection with this spin-off was as follows:

F-12

Table of Contents



($ in thousands)	Balance February 18, 2014
Assets
Cash	$	3,230
Prepaid expense	6
Total assets	3,236
Accounts payable and other liabilities	(107		)
Note Payable to Synergy	(455		)
Due to Synergy	(54		)
Derivative financial instruments, at estimated fair value-warrants	(880		)

Total Liabilities	(1,496		)
Net assets	$	1,740

As a result of the ContraVir distribution, an adjustment was made to the exercise price of all our outstanding warrants in accordance with their terms. Accordingly the exercise price decreased approximately $0.011 per share on the record date. As of December 31, 2016 , there were 919,690 of our non-public warrants outstanding with a weighted average exercise price of $5.24 per share pre-Distribution and $5.22 per share as adjusted.

4. Senior Convertible Notes

On November 3, 2014, Synergy closed a private offering of $200 million aggregate principal amount of 7.50% Convertible Senior Notes due 2019, (the "Notes"), including the full exercise of the over-allotment option granted to the initial purchasers to purchase an additional $25 million aggregate principal amount of the Notes, interest payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2015. The net proceeds from the offering were $187.3 million after deducting the initial purchasers’ discounts and offering expenses.

The Notes are unsecured. Interest expense, not including amortization of deferred debt costs, for the year ended December 31, 2016 and December 31, 2015 was $6.7 million and $12.9 million , respectively. Accrued interest payable was $0.3 million and $2.0 million as of December 31, 2016 and December 31, 2015 , respectively.

The Notes will mature on November 1, 2019, unless earlier purchased or converted. The Notes are convertible, at any time, into shares of Synergy’s common stock at an initial conversion rate of 321.5434 shares per $1,000 principal amount of notes, which is equivalent to the original conversion price of $3.11 per share. Subsequent to the exchange described below, the principal balance of the Notes at December 31, 2016 was $23.5 million as compared to $159.0 million at December 31, 2015 .

Debt costs associated with the sale of the Notes of $12.7 million have been deferred and are being recognized as expense over the expected term of the Notes, calculated using the effective interest rate method. Amortization expense, including amortization associated attributable to reduction of the principal due to the conversion of the debentures on a prorated basis for year ended December 31, 2016 and December 31, 2015 was $6.9 million and $4.6 million , respectively. The remaining deferred debt costs have been presented as a reduction of the Notes in accordance with the newly adopted Accounting Standards Update (“ASU”) No. 2015-3 “ Simplifying the Presentation of Debt Issuance Costs” .

On March 18, 2016 Synergy entered into an agreement (the "Exchange") for the exchange of $79.8 million in aggregate principal amount of the Notes, representing approximately 50% of the outstanding aggregate principal amount of Notes, for 35.3 million shares of Synergy's common stock, with a total of 25.6 million shares representing the conversion price of $3.11 pursuant to the existing terms of the Notes. Synergy also issued approximately 872,000 shares at the five day average share price of $2.81 in payment of accrued and unpaid interest of $2.4 million on Notes accepted in the Exchanges, from the applicable last interest payment date to, but not including, March 28, 2016. The amortization of deferred debt costs was accelerated consistent with the 50% reduction of aggregate principal amount this transaction represented, and resulted in additional interest expense of approximately $3.6 million . GAAP requires that such conversions be treated as induced conversions with an expense recognized equal to the fair value of the 9.6 million shares transferred in the transaction in excess of the fair value of the securities issuable pursuant to the original conversion terms, with such fair value being measured as of the date the inducement offer is accepted by the convertible debt holder. Accordingly, the Company recognized a debt conversion expense of $25.6 million for the quarter ended March 31, 2016.

F-13

Table of Contents

In November 2016 Synergy exchanged $55.7 million in aggregate principal amount of the Notes, representing approximately 70% of the outstanding aggregate principal amount of Notes, for 20.5 million shares of Synergy's common stock, with a total of 17.9 million shares representing the conversion price of $3.11 pursuant to the existing terms of the Notes. The amortization of deferred debt costs was accelerated consistent with the 70% reduction of aggregate principal amount this transaction represented, and resulted in additional interest expense of approximately $2 million . The Company recognized a debt conversion expense of $14.5 million representing 2.6 million shares for the quarter ended December 31,2016.

A summary of quarterly activity and balances associated with the Notes and related deferred debt costs is presented below ($ in thousands):



	Notes Balance			Deferred Debt Costs			Notes, net of Deferred Debt Costs
Balance at issuance November 1, 2014	$	200,000		$	12,747		$	187,253
Less: amortization two months ended December 31, 2014				(411		)	411
Balance December 31, 2014	200,000			12,336			187,664
Less: amortization three months ended March 31, 2015				(617		)	617
Balance March 31, 2015	200,000			11,719			188,281
Less: amortization three months ended June 30, 2015 ⁽¹⁾				(1,899		)	1,899
Conversions	(22,213		)	—			(22,213		)
Balance June 30, 2015	177,787			9,820			167,967
Less: amortization three months ended September 30, 2015 ⁽¹⁾				(1,544		)	1,544
Conversions	(18,776		)	—			(18,776		)
Balance, September 30, 2015	159,011			8,276			150,735
Less: amortization three months ended December 31, 2015				(506		)	506
Balance December 31, 2015	159,011			7,770			151,241
Less: amortization three months ended March 31, 2016 ⁽¹⁾				(4,153		)	4,153
Conversions	(79,829		)	—			(79,829		)
Balance, March 31, 2016	79,182			3,617			75,565
Less: amortization three months ended June 30, 2016				(253		)	253
Balance, June 30, 2016	79,182			3,364			75,818
Less: amortization three months ended September 30, 2016				(252		)	252
Balance, September 30, 2016	79,182			3,112			76,070
Less: amortization three months ended December 31, 2016 ⁽¹⁾				(2,263		)	2,263
Conversions	(55,668		)	—			(55,668		)
Balance, December 31, 2016	$	23,514		$	849		$	22,665

_____________________

(1) Includes accelerated amortization of deferred debt costs attributable to conversions and exchanges

5. Accounting for Share-based Payments

Stock Options

ASC Topic 718 “Compensation—Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. Synergy accounts for shares of common stock, stock options and warrants issued to employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received.

The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “ Equity -Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date

F-14

Table of Contents

at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.

Synergy adopted the 2008 Equity Compensation Incentive Plan (the “Plan”) during the quarter ended September 30, 2008. Stock options granted under the Plan typically vest after three years of continuous service from the grant date and have a contractual term of ten years . On June 8, 2015, Synergy amended its 2008 Equity Compensation Incentive Plan and increased the number of shares of its common stock reserved for issuance under the Plan from 15,000,000 to 30,000,000 .

Stock-based compensation has been recognized in operating results as follows:



	Year Ended December 31,
($ in thousands)	2016		2015		2014
Included in research and development	$	3,451	$	2,452	$	1,914
Included in general and administrative	9,124		7,272		2,808
Total stock-based compensation expense	$	12,575	$	9,724	$	4,722

The unrecognized compensation cost related to non-vested stock options outstanding at December 31, 2016 , net of expected forfeitures, was approximately $18.4 million to be recognized over a weighted-average remaining vesting period of approximately 1.4 years . This unrecognized compensation cost does not include amounts related to 2,159,500 shares of stock options which vest and will be measured upon a change of control.

The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions during the periods indicated.



	Year Ended December 31,
	2016	2015	2014
Risk-free interest rate	1.13%-2.19%	1.46%-2.02%	1.78%-2.30%
Dividend yield	—	—	—
Expected volatility	50%-60%	50%-80%	52%-60%
Expected term (in years)	6 years	6 years	6 years

Risk - free interest rate —Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of the Company’s stock options.

Dividend yield —Synergy has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.

Expected volatility —Based on the historical volatility of Synergy stock.

Expected term —Synergy has had minimal stock options exercised since inception. The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment , (“SAB No. 107”), which averages an award’s weighted-average vesting period and expected term for “plain vanilla” share options. Under SAB No. 107, options are considered to be “plain vanilla” if they have the following basic characteristics: (i) granted “at-the-money”; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.

The Company will continue to use the simplified method for the expected term until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, the Company has “plain-vanilla” stock options, and therefore used a simple average of the vesting period and the contractual term for options granted subsequent to January 1, 2006 as permitted by SAB No. 107.

Forfeitures —ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Synergy estimated future unvested option forfeitures based on its historical experience.

F-15

Table of Contents

The weighted-average fair value per share of all options granted for the years ended December 31, 2016 , 2015 and 2014 estimated as of the grant date using the Black-Scholes option valuation model was $1.93 , $3.79 and $1.98 per share, respectively.

A summary of stock option activity and of changes in stock options outstanding under the Plan is presented below:



	Number of Options		Exercise Price Per Share	Weighted Average Exercise Price Per Share		Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Term
Balance outstanding, December 31, 2013	11,324,049		$0.44-20.01	$	3.31	$	37,521	6.94 years
Granted	5,528,000		$2.83-4.24	$	3.47	$	—
Exercised	(9,999	)	$3.40-3.95	$	3.58	$	25
Forfeited	(275,030	)	$4.24-20.01	$	13.42	$	—

Balance outstanding, December 31, 2014	16,567,020		$0.44-17.79	$	3.20	$	8,949	7.29 years
Granted	4,961,112		$2.94-9.33	$	6.51	$	—
Exercised	(269,720	)	$2.98-6.28	$	4.24	$	904
Forfeited	(305,037	)	$2.98-9.45	$	6.22	$	—

Balance outstanding, December 31, 2015	20,953,375		$0.44-9.12	$	3.86	$	42,438	7.15 years
Granted	7,537,000		$2.93-5.63	$	3.99	$	—
Exercised	(70,185	)	$2.94-4.61	$	3.17	$	143
Forfeited	(553,019	)	$2.98-9.12	$	5.98	$	—
Balance outstanding, December 31, 2016 ⁽¹⁾	27,867,171		$0.44-9.12	$	3.78	$	65,618	7.05 years

Exercisable, at December 31, 2016	12,732,928		$0.44-9.12	$	3.88	$	33,626	6.16 years

__________________________

(1) Number of options represented above includes 2,159,500 options vesting upon a change of control, granted between November 20, 2009 and June 22, 2010. The fair value at the date of grant was approximately $28.6 million . Because the probability of a change of control transaction is not predictable no stock-based compensation expense associated with these options has been recognized since the grant date.

6. Income Taxes

At December 31, 2016 , Synergy has net operating loss carry forwards (“NOLs”) aggregating approximately $520 million , which, if not used, expire beginning in 2018 through 2036. The utilization of these NOLs is subject to limitations based on past and future changes in ownership of Synergy pursuant to Internal Revenue Code Section 382. The Company has determined that ownership changes have occurred for Internal Revenue Code Section 382 purposes and therefore, the ability of the Company to utilize its NOLs is limited. The Company has no other material deferred tax items. Based upon our analysis, we believe it is more likely than not that the net deferred tax assets will not be realized in the future. Accordingly, a full valuation allowance on the net deferred tax assets has been recorded. Synergy records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. As a result of this valuation allowance there are no income tax benefits reflected in the accompanying consolidated statements of operations to offset pre-tax losses.

The provisions of FASB ASC Topic 740-10-30-7, Accounting for Income Taxes were adopted by Synergy on January 1, 2007 and had no effect on Synergy’s financial position, cash flows or results of operations upon adoption, as Synergy did not have any unrecognized tax benefits. Synergy’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense, and none have been incurred to date. Synergy has no uncertain tax positions subject to examination by the relevant tax authorities as of December 31, 2016 and December 31, 2015 . Synergy files U.S. and state income tax returns in

F-16

Table of Contents

jurisdictions with varying statutes of limitations. The 2012 through 2015 tax years generally remain subject to examination by federal and most state tax authorities. The Internal Revenue Service is currently auditing the 2013 and 2015 tax years. So far, there are no changes to the returns. There are no on-going state tax audits but the 2012 through 2015 tax years remain subject to examination by most state authorities.

Synergy periodically files for and receives certain state and local research and development tax credits. As of December 31, 2016 the Company had no outstanding refundable tax credits due. During the years ended December 31, 2016 Synergy reported $121,000 as other income in the Company’s statement of operations. During the year ended December 31, 2015 Synergy reported no other income in the Company’s statement of operations, and during the year ended December 31, 2014 Synergy reported $83,000 as other income in the Company’s statement of operations.

7. Commitments and Contingencies

Lease agreements

Synergy's corporate offices in New York are leased through March 2022. The total monthly rent on this space is approximately $80,000 on straight line basis, prospectively.

Synergy also maintained a research and development laboratory and several offices in the Pennsylvania Biotechnology Center in Doylestown, Pennsylvania under a lease that expired on January 31, 2017, at a monthly rate of approximately $3,700 . Synergy expects to transition this operation during 2017 to other locations or contract research organizations.

In addition, we lease office space for commercial and technical operations in Wayne, Pennsylvania under a lease through November 30, 2017, at a monthly rate of approximately $10,000 .

Rent expense was $1,365,000 , $909,000 and $651,000 for the years ended December 31, 2016, 2015 and 2014 respectively.

Change in Control and Severance Agreements

The Company has agreements with employees which provide for payouts in the event that the Company consummates a change in control. At December 31, 2016 , the amount of compensation for which the Company would be liable as a result of this event is approximately $8,400,000 , as set forth in the agreements. These employees are also entitled to full vesting of their outstanding equity awards. As of December 31, 2016 and 2015 , no amounts have been accrued.

F-17

Table of Contents

Contractual obligations and commitments

The following table is a summary of contractual obligations for the periods indicated that existed as of December 31, 2016 .



($ in thousands)	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 years
Long term debt obligations ⁽¹⁾	$	28,665	$	1,755	$	26,910	$	—	$	—
Operating leases	5,896		1,065		3,303		1,528		—
Purchase obligations—principally employment and consulting services ⁽²⁾	7,285		3,561		3,724		—		—
Purchase obligations—major vendors ⁽³⁾	138,619		131,381		7,238		—		—

Total obligations	$	180,465	$	137,762	$	41,175	$	1,528	$	—

_____________________________________________________________________________


(1)	Represents Senior Convertible Notes, including interest. See Note 4 to our Consolidated Financial Statements.


(2)	Represents salary, bonus, and benefits for employment and consulting agreements with remaining terms greater than one year.


(3)	Represents amounts that will become due upon future delivery of supplies, drug substance and test results from various suppliers, under open purchase orders. Generally these purchase orders represents commitments to suppliers with cancellation provisions that allow early termination with notice, penalties and payment of certain non-cancelable vendor commitments.

Litigation

There are currently no pending legal proceedings to which Synergy or any of its subsidiaries is a party, or of which any of its property is the subject, that the Company believes will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. As far as the Company is aware, no governmental authority is contemplating any such proceeding.

8. Research and Development Expense

The Company records inventory, manufactured for sale of a product candidate, when the product candidate is considered to have a high likelihood of regulatory approval and the related costs are expected to be recoverable through sales. In determining whether or not to record such inventories, the Company evaluates, among other factors, information regarding the product candidate's safety and efficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook for commercial sales. Prior to October 1, 2016, all costs associated with batches of inventory and manufactured for sale of our product candidates, were charged to research and development as incurred. Beginning in the fourth quarter of 2016, we began capitalizing inventory costs for TRULANCE in preparation for its planned launch in the U.S.

9. Derivative Financial Instruments

Synergy Derivative Financial Instruments

Effective January 1, 2009, the Company adopted provisions of ASC Topic 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity” (“ASC Topic 815-40”). ASC Topic 815-40 clarifies the determination of whether an instrument issued by an entity (or an embedded feature in the instrument) is indexed to an entity’s own stock, which would qualify as a scope exception under ASC Topic 815-10.

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Synergy has determined that certain warrants issued in connection with sale of its common stock must be classified as derivative instruments. In accordance with ASC Topic 815-40, these warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value are being recorded in the Company’s statement of operations. The Company estimates the fair value of certain warrants using the Black-Scholes option pricing model in order to determine the associated derivative

F-18

Table of Contents

instrument liability and change in fair value described above. The range of assumptions used to determine the fair value of the warrants at each period end was:



	Year Ended December 31, 2016			Year Ended December 31, 2015			Year Ended December 31, 2014
Fair value of Synergy common stock	$	6.09		$	5.67		$	3.05
Expected warrant term	1.2 years			2.2 years			0.49-3.9 years
Risk-free interest rate	1.03		%	1.18		%	0.08%-1.32%
Expected volatility	50		%	50%-80%			52%-60%
Dividend yield	—			—			—

Fair value of stock is the closing market price of the Company’s common stock at the end of each reporting period when the derivative instruments are marked to market. Expected volatility is a management estimate of future volatility, over the expected warrant term, based on historical volatility of Synergy’s common stock. The warrants have a transferability provision and based on guidance provided in SAB 107 for instruments issued with such a provision, Synergy used the full contractual term as the expected term of the warrants. The risk free rate is based on the U.S. Treasury security rates for maturities consistent with the expected remaining term of the warrants at the date quarterly revaluation.

The following table sets forth the components of changes in the Synergy’s outstanding warrants which were deemed derivative financial instruments and the associated liability balance for the periods indicated:



Date	Description	Warrants		Derivative Instrument Liability (in thousands)
12/31/2014	Balance of derivative financial instruments liability	858,469		$	172

3/31/2015	Change in fair value of warrants during the quarter	—		268
6/30/2015	Change in fair value of warrants during the quarter	—		1,541
6/30/2015	Expiration of warrants	(324,000	)	—
9/30/2015	Change in fair value of warrants during the quarter	—		(1,445		)
9/30/2015	Exercise of warrants	(30,000	)	—
9/30/2015	Expiration of warrants	(2,469	)	(3		)
12/31/2015	Change in fair value of warrants during the quarter	—		30
12/31/2015	Exercise of warrants	—		—
12/31/2015	Expiration of warrants	(292,000	)	(241		)
12/31/2015	Balance of derivative financial instruments liability	210,000		322

3/31/2016	Change in fair value of warrants during the 3 months ended March 31, 2016	—		(260		)
6/30/2016	Change in fair value of warrants during the 3 months ended June 30, 2016	—		22
9/30/2016	Change in fair value of warrants during the 3 months ended September 30, 2016	—		87
12/31/2016	Change in fair value of warrants during the 3 months ended December 31, 2016	—		45

12/31/2016	Balance of derivative financial instruments liability	210,000		$	216

F-19

Table of Contents

10. Fair Value Measurements

The following table presents the Company’s liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of December 31, 2015 and December 31, 2016 :

($ in thousands)



Description	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2015		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Balance as of December 31, 2016
Derivative liabilities related to Warrants	$	—	$	—	$	322	$	322	$	—	$	—	$	(106	)	$	216

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the year ended December 31, 2016 and December 31, 2015 :

($ in thousands)



Description	Balance as of December 31, 2014		(Gain) or loss recognized in earning from Change in Fair Value		Expiration of warrants			Balance as of December 31, 2015		(Gain) or loss recognized in earning from Change in Fair Value			Balance as of December 31, 2016
Derivative liabilities related to Warrants	$	172	$	394	$	(244	)	$	322	$	(106	)	$	216

The unrealized gains or losses on the derivative liabilities are recorded as a change in fair value of derivative liabilities in the Company’s statement of operations. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, Synergy reviews the assets and liabilities that are subject to ASC Topic 815-40. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

11. Property and Equipment

Property and equipment consists of leasehold improvements, which are recorded at cost. The Company depreciates the costs when the property placed into service, using the straight-line method over the shorter of the life of asset and the remaining term of the underlying lease.

Furniture and equipment includes laboratory, testing and computer equipment and furniture and fixtures. All are stated at cost, with useful lives ranging from 2 - 5 years, depreciated on a straight line basis. Leasehold improvements are primarily related to Synergy’s corporate headquarters in New York City and are being amortized over the life of the lease. Depreciation and amortization expense for the years ended December 31, 2016 , 2015 and 2014 were approximately $233,000 , $163,000 and $120,000 , respectively.



($ in thousands)	December 31, 2016			December 31, 2015
Furniture and equipment	$	357		$	243
Leasehold improvement	665			674
Less accumulated depreciation and amortization	(429		)	(386		)
Property and equipment, net	$	593		$	531

F-20

Table of Contents

12. Quarterly Consolidated Financial Data (Unaudited)



	Quarter Ended
	March 31, 2016			June 30, 2016			September 30, 2016			December 31, 2016
	(dollars in thousands, except share and per share data)
Revenues	$	—		$	—		$	—		$	—

Costs and Expenses:
Research and development	21,175			26,611			24,610			17,166
Selling, general and administrative	6,375			10,249			13,872			25,232
Loss from Operations	(27,550		)	(36,860		)	(38,482		)	(42,398		)
Other Loss
Interest and investment income/(expense), net	(7,036		)	(1,673		)	(1,674		)	(3,007		)
Debt conversion expense	(25,615		)	—			—			(14,543		)
Tax credits	—			—			—			126
Change in fair value of derivative instruments—warrants	260			(23		)	(87		)	(45		)
Total Other Loss	(32,391		)	(1,696		)	(1,761		)	(17,469		)
Net loss	$	(59,941	)	$	(38,556	)	$	(40,243	)	$	(59,867	)

Weighted Average Common Shares Outstanding—basic and diluted (a)	117,626,669			168,127,144			179,786,580			190,093,786

Net Loss per Common Share—basic and diluted (a)	$	(0.51	)	$	(0.23	)	$	(0.22	)	$	(0.31	)

_____________________________________________________________________________


(a)	Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year.



	Quarter Ended
	March 31, 2015			June 30, 2015			September 30, 2015			December 31, 2015
	(dollars in thousands, except share and per share data)
Revenues	$	—		$	—		$	—		$	—

Costs and expenses:
Research and Development	18,198			19,525			20,424			19,881
General and administrative	4,606			7,394			2,728			7,066
Loss from operations	(22,804		)	(26,919		)	(23,152		)	(26,947		)

Other income
Interest and investment income/(expense), net	(4,317		)	(5,207		)	(4,291		)	(3,469		)
Change in fair value of derivative instruments—warrants	(268		)	(1,542		)	1,446			(30		)
Total other income/(loss)	(4,585		)	(6,749		)	(2,845		)	(3,499		)
Net Loss	$	(27,389	)	$	(33,668	)	$	(25,997	)	$	(30,446	)

Weighted Average Common Shares Outstanding—basic and diluted (a)	96,683,525			100,343,637			111,328,339			113,678,306

Net Loss per Common Share, basic and diluted (a):	$	(0.28	)	$	(0.34	)	$	(0.23	)	$	(0.27	)

____________________________________________________________________________


(a)	Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year.

F-21

Table of Contents

13. Subsequent Events

On February 28, 2017, Synergy received consents from certain holders of its Notes to enter into a Supplemental Indenture which eliminates certain restrictive covenants from the Indenture related to the Notes. The restrictive covenants eliminated from the Indenture are Limitation on Indebtedness, Future Financing Rights for Certain Investors and Licensing Limitations. On February 28, 2017, we entered into the Supplemental Indenture with Wells Fargo, N.A., as trustee. We paid an aggregate of approximately $1.6 million to such holders for the consent.

F-22

AMENDED AND RESTATED BYLAWS

SYNERGY PHARMACEUTICALS INC.

A Delaware Corporation

ARTICLE I: OFFICES

SECTION 1.1 Registered Office.

The registered office of Synergy Pharmaceuticals Inc. ("Corporation") shall be at Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The registered agent of the corporation in the State of Delaware at such address is The Corporation Trust Company.

SECTION 1.2 Principal Office.

The principal office for the transaction of the business of the Corporation shall be 420 Lexington Avenue, Suite 1609, New York, New York 10170, or otherwise as set forth in a resolution adopted by the Board.

SECTION 1.3 Other Offices.

The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require.

ARTICLE II: MEETINGS OF STOCKHOLDERS

SECTION 2.1 Place of Meetings.

All annual meetings of stockholders and all other meetings of stockholders shall be held either at the principal office of the Corporation or at any other place within or without the State of Delaware that may be designated by the Board pursuant to authority hereinafter granted to the Board.

SECTION 2.2 Annual Meetings.

Annual meetings of stockholders of the Corporation for the purpose of electing directors and for the transaction of such other business as may properly come before such meetings may be held at such time and place and on such date as the Board shall determine by resolution.

SECTION 2.3 Special Meetings.

A special meeting of the stockholders for the transaction of any proper business may be called at any time exclusively by the Board or the Chairman.

SECTION 2.4 Notice of Meetings.

Except as otherwise required by law, notice of each meeting of stockholders, whether annual or special, shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to such stockholder personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to such stockholder at such stockholder's post office address furnished by such stockholder to the Secretary of the Corporation for such purpose, or, if such stockholder shall not have furnished an address

to the Secretary for such purpose, then at such stockholder's post office address last known to the Secretary, or by transmitting a notice thereof to such stockholder at such address by telegraph, cable, wireless or facsimile. Except as otherwise expressly required by law, no publication of any notice of a meeting of stockholders shall be required. Every notice of a meeting of stockholders shall state the place, date and hour of the meeting and, in the case of a special meeting, shall also state the purpose for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder to whom notice may be omitted pursuant to applicable Delaware law or who shall have waived such notice, and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken.

SECTION 2.5 Fixing Date for Determination of Stockholders of Record.

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action other than to consent to corporate action in writing without a meeting, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any such other action. If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders the Board shall not fix such a record date, then the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

SECTION 2.6 Quorum.

Except as otherwise required by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of stockholders of the Corporation or any adjournment thereof. Subject to the requirement of a larger percentage vote, if any, contained in the Certificate of Incorporation, these Bylaws or by statute, the stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding any withdrawal of stockholders that may leave less than a quorum remaining, if any action taken (other than adjournment) is approved by the vote of at least a majority in voting interest of the shares required to constitute a quorum. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called.

SECTION 2.7 Voting.

(A) Each stockholder shall, at each meeting of stockholders, be entitled to vote, in the manner prescribed by the Corporation's Certificate of Incorporation, in person or by proxy each share of the stock of the Corporation that has voting rights on the matter in question and that shall have been held by such stockholder and registered in such stockholder's name on the books of the Corporation:

(i) on the date fixed pursuant to Section 2.5 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting; or

(ii) if no such record date shall have been so fixed, then (a) at the close of business on the business day next preceding the day upon which notice of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the business day next preceding the day upon which the meeting shall be held.

(B) Shares of the Corporation's own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation the pledgor shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or the pledgee's proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the Delaware General Corporation Law, as the same exists or may hereafter be amended (the "DGCL").

(C) Subject to the provisions of the Corporation's Certificate of Incorporation, any such voting rights may be exercised by the stockholder entitled thereto in person or by such stockholder's proxy appointed by an instrument in writing, subscribed by such stockholder or by such stockholder's attorney thereunto authorized and delivered to the secretary of the meeting. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless such stockholder shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of stockholders at which a quorum is present, all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon. The vote at any meeting of stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by such stockholder's proxy, if there be such proxy, and it shall state the number of shares voted.

SECTION 2.8 Inspectors of Election.

Prior to each meeting of stockholders, the Chairman of such meeting shall appoint an inspector(s) of election to act with respect to any vote. Each inspector of election so appointed shall first subscribe an oath faithfully to execute the duties of an inspector of election at such meeting with strict impartiality and according to the best of such inspector of election's ability. Such inspector(s) of election shall decide upon the qualification of the voters and shall certify and report the number of shares represented at the meeting and entitled to vote on any question, determine the number of votes entitled to be cast by each share, shall conduct the vote and, when the voting is completed, accept the votes and ascertain and report the number of shares voted respectively for and against each question, and determine, and retain for a reasonable period a record of the disposition of, any challenge made to any determination made by such inspector(s) of election. Reports of inspector(s) of election shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The inspector(s) of election need not be stockholders of the Corporation, and any officer of the Corporation may be an inspector(s) of election on any question other than a vote for or against a proposal in which such officer shall have a material interest. The inspector(s) of election may appoint or retain other persons or entities to assist the inspector(s) of election in the performance of the duties of the inspector(s) of election.

SECTION 2.9 Advance Notice of Stockholder Proposals and Stockholder Nominations.

Nominations of persons for election to the board of directors of the Corporation and the proposal of business to be considered by the stockholders may be made at any meeting of stockholders only (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board, or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in these bylaws, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.9.

To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date or if the Corporation has not previously held an annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of a postponement or adjournment of an annual meeting to a later date or time commence a new time period for the giving of a stockholder's notice as described above.

Such stockholder's notice shall set forth (I) as to each person whom the stockholder proposes to nominate for election or reelection as a director (a) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (or any successor thereto) and Rule 14a-11 thereunder (or any successor thereto) (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (b) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated, (c) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (d) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; and (e) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the United States Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board, (II) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (III) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (a) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, and (b) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner. In addition, the stockholder making such proposal shall promptly provide any other information reasonably requested by the Corporation. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 2.9(A). The Chairman of any such meeting shall direct that any nomination or business not properly brought before the meeting shall not be considered.

SECTION 2.10 Action Without Meeting.

Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may, if such action has been earlier approved by the Board, be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

ARTICLE III: BOARD OF DIRECTORS

SECTION 3.1 General Powers.

Subject to any requirements in the Certificate of Incorporation, these Bylaws, or of the DGCL as to action which must be authorized or approved by the stockholders, any and all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be under the direction of, the Board to the fullest extent permitted by law. Without limiting the generality of the foregoing, it is hereby expressly declared that the Board shall have the following powers, to wit:

(A) to select and remove all the officers, agents and employees of the Corporation, prescribe such powers and duties for them as may not be inconsistent with law, the Certificate of Incorporation or these Bylaws, fix their compensation, and require from them security for faithful service;

(B) to conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, the Certificate of Incorporation or these Bylaws, as it may deem best;

(C) to change the location of the registered office of the Corporation in Section 1.1 hereof; to change the principal office and the principal office for the transaction of the business of the Corporation from one location to another as provided in Section 1.2 hereof; to fix and locate from time to time one or more offices of the Corporation within or without the State of Delaware as provided in Section 1.3 hereof; to designate any place within or without the State of Delaware for the holding of any meeting or meetings of stockholders; and to adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, and in its judgment as it may deem best, provided such seal and such certificate shall at all times comply with the provisions of law;

(D) to authorize the issuance of shares of stock of the Corporation from time to time, upon such terms and for such considerations as may be lawful;

(E) to borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust and securities therefor; and

(F) by resolution adopted by a majority of the whole Board to designate an executive and other committees of the Board, each consisting of one or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committee or committees shall be conducted.

SECTION 3.2 Number and Term of Office.

(A)

The Board of Directors shall consist of one or more members, the exact number of which shall initially be fixed by the Incorporator and thereafter from time to time by the Board of Directors. Except as provided in Section 3.6 of this Article, directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders, and each director so elected shall hold office until the next Annual Meeting and until his successor is duly elected and qualified, or until his earlier resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders.

SECTION 3.3 Chairman of the Board.

The Chairman of the Board, when present, shall preside at all meetings of the Board and all meetings of stockholders. The Chairman of the Board shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

SECTION 3.4 Election of Directors.

The directors shall be elected by the stockholders of the Corporation, and at each election, the persons receiving the greater number of votes, up to the number of directors then to be elected, shall be the persons then elected. The election of directors is subject to any provision contained in the Certificate of Incorporation relating thereto, including any provision regarding the rights of holders of preferred stock to elect directors.

SECTION 3.5 Resignations.

Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, it shall take effect immediately upon receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 3.6 Vacancies.

Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, removal, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office.

SECTION 3.7 Place of Meeting.

The Board or any committee thereof may hold any of its meetings at such place or places within or without the State of Delaware as the Board or such committee may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting. Directors may participate in any regular or special meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board or such committee can hear each other, and such participation shall constitute presence in person at such meeting.

SECTION 3.8 Regular Meetings.

Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine.

SECTION 3.9 Special Meetings.

Special meetings of the Board for any purpose or purposes shall be called at any time by the Chairman of the Board or, if the Chairman of the Board is absent or unable or refuses to act, by the Chief Executive Officer or the President, and may also be called by any two members of the Board. Except as otherwise provided by law or by these Bylaws, written notice of the time and place of special meetings shall be delivered personally or by facsimile to each director, or sent to each director by mail or by other form of written communication, charges prepaid, addressed to such director at such director's address as it is shown upon the records of the Corporation, or, if it is not so shown on such records and is not readily ascertainable, at the place in which the meetings of the directors are regularly held. In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company in the County in which the principal office for the transaction of the business of the Corporation is located at least 48 hours prior to the time of the holding of the meeting. In case such notice is delivered personally or by facsimile as above provided, it shall be delivered at least 24 hours prior to the time of the holding of the meeting. Such mailing, telegraphing, delivery or facsimile transmission as above provided shall be due, legal and personal notice to such director. Except where otherwise required by law or by these Bylaws, notice of the purpose of a special meeting need not be given. Notice of any meeting of the Board shall not be required to be given to any director who is present at

such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 3.10 Quorum and Manner of Acting.

Except as otherwise provided in these Bylaws, the Certificate of Incorporation or by applicable law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided any action taken is approved by at least a majority of the required quorum for such meeting. In the absence of a quorum, a majority of directors present at any meeting may adjourn the same from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. The directors shall act only as a Board, and the individual directors shall have no power as such.

SECTION 3.11 Action by Unanimous Written Consent.

Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if consent in writing is given thereto by all members of the Board or of such committee, as the case may be, and such consent is filed with the minutes of proceedings of the Board or of such committee.

SECTION 3.12 Compensation.

Directors, whether or not employees of the Corporation or any of its subsidiaries, may receive an annual fee for their services as directors in an amount fixed by resolution of the Board plus other compensation, including options to acquire capital stock of the Corporation, in an amount and of a type fixed by resolution of the Board, and, in addition, a fixed fee, with or without expenses of attendance, may be allowed by resolution of the Board for attendance at each meeting, including each meeting of a committee of the Board. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor.

SECTION 3.13 Committees.

The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board and subject to any restrictions or limitations on the delegation of power and authority imposed by applicable law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board. Unless the Board or these Bylaws shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by the chairman of the committee or by any two members thereof; otherwise, the provisions of these Bylaws with respect to notice and conduct of meetings of the Board shall govern.

SECTION 3.14 Affiliated Transactions.

Notwithstanding any other provision of these Bylaws, each transaction, or, if an individual transaction constitutes a part of a series of transactions, each series of transactions, proposed to be entered into between the Corporation, on the one hand, and any affiliate of the Corporation, on the other hand, must be approved by the Board. For the purposes of this Section 3.14, (a) "affiliate" shall mean (i) any person that, directly or indirectly, controls or is controlled by or is under common control with the Corporation, (ii) any other person that owns, beneficially, directly or indirectly, twenty percent (20%) or more of the outstanding capital shares,

shares or equity interests of the Corporation, or (iii) any officer or director of the Corporation; (b) "person" shall mean and include individuals, corporations, general and limited partnerships, stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other entities and governments and agencies and political subdivisions thereof; and (c) "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, through the ownership of voting securities, partnership interests or other equity interests.

ARTICLE IV: OFFICERS

SECTION 4.1 Officers.

The officers of the Corporation shall be a Chief Executive Officer, a President, one or more Vice Presidents (the number thereof and their respective titles to be determined by the Board), a Secretary, a Chief Financial Officer, and such other officers as may be appointed at the discretion of the Board in accordance with the provisions of Section 4.3 hereof.

SECTION 4.2 Election.

The officers of the Corporation, except such officers as may be appointed or elected in accordance with the provisions of Sections 4.3 or 4.5 hereof, shall be chosen annually by the Board at the first meeting thereof after the annual meeting of stockholders, and each officer shall hold office until such officer shall resign or shall be removed or otherwise disqualified to serve, or until such officer's successor shall be elected and qualified.

SECTION 4.3 Other Officers.

In addition to the officers chosen annually by the Board at its first meeting, the Board also may appoint or elect such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board may from time to time specify, and shall hold office until such officer shall resign or shall be removed or otherwise disqualified to serve, or until such officer's successor shall be elected and qualified.

SECTION 4.4 Removal and Resignation.

Except as provided by DGCL Section 141(k), any officer may be removed, either with or without cause, by resolution of the Board, at any regular or special meeting of the Board, or, except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any officer or assistant may resign at any time by giving written notice of his resignation to the Board or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein, or, if the time is not specified, upon receipt thereof by the Board or the Secretary, as the case may be; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 4.5 Vacancies.

A vacancy in any office because of death, resignation, removal, disqualification or any other cause may be filled by the vote of the majority of the directors present at any meeting in which a quorum is present, or pursuant to Section 3.11 of these Bylaws.

SECTION 4.6 Chief Executive Officer.

The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board has been appointed and is present. The Chief Executive Officer

shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and affairs of the Corporation. The Chief Executive Officer shall also perform such other duties and have such other powers as the Board of Directors may designate from time to time.

SECTION 4.7 President.

The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board has been appointed and is present or, in the absence of the Chairman of the Board, the Chief Executive Officer has been appointed and is present. Subject to the provisions of these Bylaws and to the direction of the Board of Directors and Chief Executive Officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of President or which are delegated to him by the Board of Directors. The President shall have the power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision and direction of all the other officers, employees and agents of the corporation.

SECTION 4.8 Vice President.

Each Vice President shall have such powers and perform such duties with respect to the administration of the business and affairs of the Corporation as are commonly incident to their office or as may from time to time be assigned to such Vice President by the Chairman of the Board, or the Board, or the Chief Executive Officer, or the President, or as may be prescribed by these Bylaws. In the absence or disability of the Chairman of the Board, the Chief Executive Officer and the President, the Vice Presidents in order of their rank as fixed by the Board, or if not ranked, the Vice President designated by the Board, shall perform all of the duties of the Chairman of the Board, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board.

SECTION 4.9 Secretary.

(A) The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the Corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board shall designate from time to time.

(B) The Secretary shall keep, or cause to be kept, at the principal office of the Corporation or such other place as the Board may order, a book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at meetings of directors, the number of shares present or represented at meetings of stockholders, and the proceedings thereof.

(C) The Secretary shall keep, or cause to be kept, at the principal office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the name of each stockholder, the number of shares of each class held by such stockholder, the number and date of certificates issued for such shares, and the number and date of cancellation of every certificate surrendered for cancellation.

SECTION 4.10 Chief Financial Officer.

The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer. The Chief Financial Officer, subject to the order of the Board, shall have the custody of all funds and securities of the Corporation. The Chief

Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board or the Chief Executive Officer shall designate from time to time.

ARTICLE V: CORPORATE INSTRUMENTS, CHECKS,

DRAFTS, BANK ACCOUNTS, ETC.

SECTION 5.1 Execution of Corporate Instruments.

The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the Corporation the corporate name without limitation, or enter into contracts on behalf of the Corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the Corporation. Such authority may be general or confined to specific instances, and unless so authorized by the Board or by these Bylaws, no officer, agent, or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount.

SECTION 5.2 Checks, Drafts, Etc.

All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require.

SECTION 5.3 Deposits.

All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation.

SECTION 5.4 General and Special Bank Accounts.

The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient.

ARTICLE VI: SHARES AND THEIR TRANSFER

SECTION 6.1 Certificates for Stock.

Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class or series of shares of the stock of the Corporation owned by such owner. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman

of the Board, the Chief Executive Officer, the President or any Vice President, and by the Secretary. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such an officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class or series of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.4 hereof.

SECTION 6.2 Transfers of Stock.

Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by such holder's attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.3 hereof, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.

SECTION 6.3 Regulations.

The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them.

SECTION 6.4 Lost, Stolen, Destroyed, and Mutilated Certificates.

In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof satisfactory to the Board of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do.

SECTION 6.5 Issue of Certificates; Book-Entry System.

The Board of Directors may make such additional rules and regulations, not inconsistent with the Bylaws or the Certificate of Incorporation, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the corporation. Further, the corporation may participate in one or more systems under which certificates for shares of stock are replaced by electronic book-entry pursuant to such rules, terms and conditions as the Board of Directors may approve and subject to applicable law, notwithstanding any provisions to the contrary set forth in this Article.

ARTICLE VII: INDEMNIFICATION

SECTION 7.1 Indemnification of Directors and Officers.

To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (provided that the effect of any such amendment shall be prospective only) (the "Delaware Law"), a director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as a director. The Corporation shall indemnify, in the manner and to the fullest extent permitted by the Delaware Law (but in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), any person (or the estate of any person) who is or was a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. The Corporation may, to the fullest extent permitted by the Delaware Law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against such person. The Corporation may create a trust fund, grant a security interest or use other means (including without limitation a letter of credit) to ensure the payment of such sums as may become necessary or desirable to effect the indemnification as provided herein. To the fullest extent permitted by the Delaware Law, the indemnification provided herein shall include expenses as incurred (including attorneys' fees), judgments, fines and amounts paid in settlement and any such expenses shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person seeking indemnification to repay such amounts if it is ultimately determined that he or she is not entitled to be indemnified. Notwithstanding the foregoing or any other provision of this Section 7.1, no advance shall be made by the Corporation if a determination is reasonably and promptly made by the Board by a majority vote of a quorum of disinterested Directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested Directors so directs) by independent legal counsel to the Corporation, that, based upon the facts known to the Board or such counsel at the time such determination is made, (a) the party seeking an advance acted in bad faith or deliberately breached his or her duty to the Corporation or its stockholders, and (b) as a result of such actions by the party seeking an advance, it is more likely than not that it will ultimately be determined that such party is not entitled to indemnification pursuant to the provisions of this Section 7.1. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent permitted by the Delaware Law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, the Corporation's Bylaws, vote of stockholders or disinterested directors, or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. The Corporation may, but only to the extent that the Board of Directors may (but shall not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Section 7.1 as it applies to the indemnification and advancement of expenses of directors and officers of the Corporation.

SECTION 7.2 Indemnification of Employees and Agents.

Subject to Section 7.1, the Corporation may, but only to the extent that the Board may (but shall not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VII as they apply to the indemnification and advancement of expenses of directors and officers of the Corporation.

SECTION 7.3 Enforcement of Indemnification.

The rights to indemnification and the advancement of expenses conferred above shall be contract rights. If a claim under this Article VII is not paid in full by the Corporation within 60 days after written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of such claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expenses of prosecuting or defending such suit. In (i) any

suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its Board, independent legal counsel or stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board, independent legal counsel or stockholders) that the indemnitee has not met such applicable standard of conduct, shall either create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VII or otherwise shall be on the Corporation.

ARTICLE VIII: MISCELLANEOUS

SECTION 8.1 Seal.

The Board shall adopt a corporate seal, which shall be in the form set forth in a resolution approved by the Board.

SECTION 8.2 Waiver of Notices.

Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice.

SECTION 8.3 Amendments.

Except as otherwise provided herein, by law, or in the Certificate of Incorporation, these Bylaws or any of them may be altered, amended, repealed or rescinded and new Bylaws may be adopted by the Board or by the stockholders at any annual or special meeting of stockholders, provided that notice of such proposed alteration, amendment, repeal, recession or adoption is given in the notice of such meeting of stockholders.

Execution Version

SYNERGY PHARMACEUTICALS INC.

AND

WELLS FARGO BANK, NATIONAL ASSOCIATION,

as Trustee

FIRST SUPPLEMENTAL INDENTURE

Dated as of February 28, 2017

Indenture

Dated as of November 3, 2014

7.50% Convertible Senior Notes due 2019

THIS FIRST SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as of February 28, 2017, is between Synergy Pharmaceuticals Inc., a Delaware corporation, as issuer (the “Company”), and Wells Fargo Bank, National Association, a national banking association, as trustee (the “Trustee”).

W I T N E S S E T H:

WHEREAS, the Company and the Trustee executed and delivered an Indenture, dated as of November 3, 2014, where the Company duly authorized the issuance of its 7.50% Convertible Senior Notes due 2019 (the “Notes”), initially in an aggregate principal amount not to exceed $200,000,000, and in order to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company duly authorized the execution and delivery of the Indenture (the “Indenture”);

WHEREAS, the Company has the consent of the Holders of at least a majority of the aggregate principal amount of the Notes outstanding (the “Consent Solicitation Statement”), and has been authorized by the resolutions of the Board of Directors and the Trustee, to amend the Indenture for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture, pursuant to Articles 8 and 10 of the Indenture; and

WHEREAS, the Company has delivered to the Trustee an Officer’s Certificate and Opinion of Counsel pursuant to Section 10.05 of the Indenture to the effect that the execution and delivery of this Supplemental Indenture is authorized or permitted under the Indenture, that all conditions precedent provided for in the Indenture to the execution and delivery of this Supplemental Indenture to be complied with by the Company have been complied with and that this Supplemental Indenture is the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms;

NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:

In consideration of the premises herein set forth, the Company and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders from time to time of the Notes, as applicable, as follows:

ARTICLE 1
AMENDMENTS TO INDENTURE

Section 1.01 Amendments to Article 4 . The Indenture is hereby amended by deleting the following Sections of the Indenture and all references thereto in their entirety:

Section 4.09 (Indebtedness);

Section 4.11 (Future Financings); and

Section 4.12 (Licensing Restrictions).

ARTICLE 2
MISCELLANEOUS PROVISIONS

Section 2.01 Defined Terms . For all purposes of this Supplemental Indenture, except as otherwise defined or unless the context otherwise requires, terms used in capitalized form in this Supplemental Indenture and defined in the Indenture have the meanings specified in the Indenture.

Section 2.02 Indenture . Except as amended hereby, the Indenture and the Notes are in all respects ratified and confirmed and all the terms shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Notes heretofore or hereafter authenticated and delivered under the Indenture shall be bound hereby and all terms and conditions of both shall be read together as though they constitute a single instrument, except that in the case of conflict the provisions of this Supplemental Indenture shall control.

Section 2.03 Governing Law . THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

Section 2.04 Successors . All agreements of the Company in this Supplemental Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.

Section 2.05 Duplicate Originals . All parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. It is the express intent of the parties to be bound by the exchange of signatures on this Supplemental Indenture via telecopy or other form of electronic transmission.

Section 2.06 Severability . In case any one or more of the provisions in this Supplemental Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law.

Section 2.07 Trustee Disclaimer . The Trustee accepts the amendments of the Indenture effected by this Supplemental Indenture and agrees to execute the trust created by the Indenture as hereby amended, but on the terms and conditions set forth in the Indenture, including the terms and provisions defining and limiting the liabilities and responsibilities of the Trustee, which terms and provisions shall in like manner define and limit its liabilities and responsibilities in the performance of the trust created by the Indenture as hereby amended, and without limiting the generality of the foregoing, the Trustee shall not be responsible in any manner whatsoever for or with respect to any of the recitals or statements contained herein, all of which recitals or statements are made solely by the Company, and the Trustee makes no

representation with respect to any such matters. Additionally, the Trustee makes no representations as to the validity or sufficiency of this Supplemental Indenture.

Section 2.08 Effectiveness . The provisions of this Supplemental Indenture shall be effective only upon execution and delivery of this instrument by the parties hereto. Notwithstanding the foregoing sentence, the provisions of this Supplemental Indenture shall become operative only upon the closing of the Consent Solicitation Statement, with the result that the amendments to the Indenture effected by this Supplemental Indenture shall be deemed to be revoked retroactive to the date hereof if such closing shall not occur. The Company shall notify the Trustee promptly after the occurrence of such closing or promptly after the Company shall determine that such closing will not occur.

Section 2.09 Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction thereof.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first written above.



SYNERGY PHARMACEUTICALS INC.
By:	/s/ Gary S. Jacob
Name: Gary S. Jacob
Title: CEO



WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:	/s/ Mark F. McLaughlin
Name: Mark F. McLaughlin
Title: Vice President

FIFTH AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

This FIFTH AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") dated December 29, 2016 by and between Synergy Pharmaceuticals Inc., a company incorporated under the laws of Delaware (the "Company"), and Gary S. Jacob, Ph.D., an individual (the "Executive") with reference to the following facts:

WHEREAS, Executive serves as the President and Chief Executive Officer of the Company which is engaged in the business of developing and marketing drug products;

WHEREAS, the Executive has previously entered into an employment agreement with the Company as of March 11, 2009 , as amended by the Amended and Restated Employment Agreement with the Company as of February 10, 2010, the Second Amended and Restated Employment Agreement with the Company as of May 2, 2011, the Third Amended and Restated Employment Agreement with the Company as of December 28, 2012 and the Fourth Amended and Restated Executive Employment Agreement with the Company as of January 7, 2015, as amended (collectively, the “Prior Employment Agreement”); and

WHEREAS, the parties wish to enter into a new Agreement between the Executive and the Company in its entirety, on the terms and conditions contained in this Agreement, which will supersede the Prior Employment Agreement and all prior agreements and understandings between the parties, oral or written.

NOW THEREFORE, in consideration of the foregoing facts and mutual agreements set forth below, the parties, intending to be legally bound, agree as follows:

1. Employment . The Company hereby agrees to employ Executive, and Executive hereby accepts such employment and agrees to perform Executive's duties and responsibilities in accordance with the terms and conditions hereinafter set forth.

1.1

Duties and Responsibilities . Executive shall serve as Chief Executive Officer and President. During the Employment Term, Executive shall perform all duties and accept all responsibilities incident to such positions and other appropriate duties as may be assigned to Executive by the Company's Board of Directors (the “Board”) from time to time. Executive shall also serve as a director of the Company if requested by the Board, and as an officer of one or more of the Company's subsidiaries without any additional compensation. The Company shall retain full direction and control of the manner, means and methods by which Executive performs the services for which he is employed hereunder and of the place or places at which such services shall be rendered. The Executive also agrees that in the absence of a Chief Accounting Officer, he will sign various federal and state securities filings as the Company's principal accounting officer.

1.2

Employment Term . The term of Executive's employment under this Agreement commences as of January 1, 2013 (the "Effective Date") and shall continue until December 31, 2019, unless earlier terminated in accordance with Section 4 hereof. The term of Executive's employment shall be automatically renewed for successive one (1) year periods until the Executive or the Company delivers to the other party a written notice of their intent not to renew the "Employment Term," such written notice to be delivered at least sixty (60) days prior to the expiration of the then-effective "Employment Term" as that term is defined below. The period commencing as of the Effective Date and ending December 31, 2019 or such later date to which the term of Executive's employment under the Agreement shall have been extended is referred to herein as the "Employment Term" and the end of the Employment Term is referred to herein as the “Expiration Date.”

1.3

Extent of Service . During the Employment Term, Executive agrees to use Executive's best efforts to carry out the duties and responsibilities under Section 1.1 hereof and to devote substantially all Executive's business time, attention and energy thereto. Executive further agrees not to work either on a part-time or independent contracting basis for any other business or enterprise during the Employment Term without the prior written consent of the Board, which consent shall not be unreasonably withheld.

1.4

Base Salary . The Company shall pay Executive a base salary (the "Base Salary") at the annual rate of $556,200 (U.S.) payable at such times as the Company customarily pays its other senior level executives (but in any event no less often than monthly). The Base Salary shall be subject to all state, federal, and local payroll tax withholding and any other withholdings required by law. The Executive’s Base Salary may be increased, but not decreased by the Board or the Compensation Committee of the Board (the “Compensation Committee”) Once increased, such increased amount shall constitute the Executive’s Base Salary and shall not be decreased.


1.5	Incentive Compensation .

(a)

Incentive Compensation . Executive shall be eligible to earn a cash bonus of up to 50% of his base salary for each calendar year during the Employment Term (such 50% amount, the “Target Bonus”) at the discretion of the Company’s Board of Directors, or if the Board organizes a compensation committee, such committee (the “Committee”). Executive’s bonus, if any, shall be subject to all applicable tax and payroll withholdings. The bonus shall be determined on or before March 1 of each year and paid on or before April 14 of each year.

(b) Realization Bonus .

(i) In the event during the Term of this Agreement the Company enters into either a out-license agreement for any of its technology that grants exclusive marketing rights to a third party (and the license fees the Company contracts to receive (disregarding any contingencies to such payment) equals or exceeds $50 million) or enters into a joint venture in which the Company contributes such rights to the joint venture, in each case where the Enterprise Value (defined below) equals or exceeds the minimum value of $250 million, the Company shall accrue a bonus determined by multiplying the Enterprise Value (defined below) in the case of a joint venture or the sum of the license fees actually received in the case of an out license, as the case may be, by 0.5% (one half percent).

(ii) In the event during the Term of this Agreement the Company

(A)

engages in (i) a merger transaction as a result of which the stockholders of the Company existing immediately before the consummation of such merger beneficially own less than 20% of the stock of the ultimate parent of the surviving entity immediately after the consummation of the merger, where the Enterprise Value equals or exceeds a minimum value of $400 million or (ii) a sale of substantially all of the assets of the Company, where the Enterprise Value equals or exceeds a minimum value of $400 million, the Executive shall accrue a bonus in an amount determined by multiplying the Enterprise Value by 2.5% (a “Sale Transaction”); or

(B)

engages in (i) a merger transaction as a result of which the stockholders of the Company existing immediately before the consummation of such merger beneficially own less than 20% of the stock of the ultimate parent of the surviving entity immediately after the consummation of the merger, where the Enterprise Value equals or exceeds a minimum value of $1 billion or (ii) a Sale Transaction where the Enterprise Value equals or exceeds a minimum value of $1 billion, the Executive shall accrue a bonus in an amount determined by multiplying the Enterprise Value by 3.5% ; or

(C)

engages in (i) a merger transaction as a result of which the stockholders of the Company existing immediately before the consummation of such merger beneficially own less than 20% of the stock of the ultimate parent of the surviving entity immediately after the consummation of the merger, where the Enterprise Value equals or exceeds a minimum value of $2.0 billion or (ii) a Sale Transaction where the Enterprise Value equals or exceeds a minimum value of $2.0 billion, the Executive shall accrue a bonus in an amount determined by multiplying the Enterprise Value by 4.5% ; or

(D)

engages in (i) a merger transaction, as a result of which the stockholders of the Company existing immediately before the consummation of such merger beneficially own 20% or more of the stock of the ultimate parent of the surviving entity immediately after the consummation of the merger, where the Enterprise Value of the Company (either at the effective date of the transaction or 12 months after the effective date of the transaction) equals or exceeds a minimum value of $250 million or (ii) a sale of substantially all of the assets of the Company, where the Enterprise Value equals or exceeds a minimum value of $250 million, the Executive shall accrue a bonus in an amount determined by multiplying the Enterprise Value by 2.5% (a “Combination Transaction”).

(iii) The accrued bonuses shall be payable to Executive (a) in the same form of the consideration received by the Company’s stockholders in full contemporaneously at the closing of any joint venture, Sale Transaction or Combination Transaction; or (b) in cash 5 business days after the Company’s receipt of license fees at the rate of 0.5% of license fees actually received. The expiration or termination of this Agreement shall not terminate or diminish the Executive’s right to receive bonus payments with respect to out license fees collected or the consummation of any joint venture, Sale Transaction or Combination Transaction after the termination or expiration of this Agreement provided the Company has entered into an agreement for such a transaction any time during the Employment Term or 90 days thereafter.

(iv) The “Enterprise Value” in the case of a Change in Control in which consideration is payable to the Company in respect of its assets or business, shall mean the total cash and non-cash (including, without limitation, the assumption of debt) consideration received by the Company or in the case of a Change in Control in which consideration is payable to the Company’s stockholders, the total cash and non-cash (including, without limitation, the assumption of debt) consideration payable to the Company’s stockholders. “Enterprise Value” shall also include, if applicable, any cash or non-cash consideration payable to the Company or to the Company’s stockholders on a contingent, earnout or deferred basis. To the extent that any consideration in a transaction is not received in cash upon the consummation of the Change in Control, the value of such non-cash consideration for purposes of calculating the Enterprise Value will be determined by the independent Board of Directors of the Company prior to the Change in Control in good faith in consultation with an independent investment bank or financial advisor retained by Board of Directors in connection with the Change in Control transaction. In the event that less than 100% of the stock or assets of the Company is purchased in the Change in Control transaction, the Enterprise Value shall be extrapolated from the percentage of the Company’s capital stock or assets impacted in such Change in Control transaction to determine if the applicable threshold was exceeded, but the Transaction Fee shall be calculated based on the actual consideration received by the Company or shareholders, as the case may be. Section 1.5(b), however, shall not apply to any event resulting in a Change in Control in which neither the Company nor its stockholders receives consideration either upon, or in connection with, the occurrence or consummation of the event resulting in a Change in Control.

(v) For purposes of Section 1.5(b)(ii)(C), Enterprise Value at any time subsequent to the effective date of a transaction shall be computed by reference to the market capitalization of the combined entity (based on an average closing price of the combined entities common stock for a period of 20 consecutive trading days) multiplied by the quotient of the number of combined entities shares of common stock and common stock equivalents issued to the Company’s stockholders in the transaction divided by the total number of shares of the common stock and common stock equivalents outstanding on the effective date of the transaction, on a fully diluted basis.

(c) Options . The Compensation Committee will consider grants of options to the Executive no less frequently than annually commencing January 1, 2013.

(d) Executive Benefits . The Executive shall be entitled to participate in all executive benefit or incentive compensation plans now maintained or hereafter established by the Company for the purpose of providing compensation and/or benefits to executives of the Company and any supplemental retirement, salary continuation, stock option, deferred compensation, supplemental medical or life insurance or other bonus or incentive compensation plans. Unless otherwise provided herein, the Executive’s participation in such plans shall be on the same basis and terms as other similarly situated executives of the Company. No additional compensation provided under any of such plans shall be deemed to modify or otherwise affect the terms of this Agreement or any of the Executive’s entitlements hereunder.

1.6

Other Benefits . During the Employment Term, Executive shall be entitled to participate in all employee benefit plans and programs made available to the Company's senior level executives as a group or to its employees generally, as such plans or programs may be in effect from time to time (the "Benefit Coverages"), including, without limitation, medical, dental, hospitalization, short-term and long-term disability and life insurance plans, accidental death and dismemberment protection and travel accident insurance. Executive shall be provided office space and staff assistance appropriate for Executive's position and adequate for the performance of his duties.

1.7

Reimbursement of Expenses; Vacation; Sick Days and Personal Days . Executive shall be provided with reimbursement of expenses related to Executive's employment by the Company on a basis no less favorable than that which may be authorized from time to time by the Board, in its sole discretion, for senior level executives as a group. Executive shall be entitled to vacation and holidays in accordance with the Company's normal personnel policies for senior level executives, but not less than three (3) weeks of vacation per calendar year, provided Executive shall not utilize more than ten (10) consecutive business days without the express consent of the Board of Directors. Unused vacation time will be forfeited as of December 31 of each calendar year of the Employment Term. Executive shall be entitled to no more than an aggregate of ten (10) sick days and personal days per calendar year.


1.8	No Other Compensation . Except as expressly provided in Sections 1.4 through 1.7, Executive shall not be entitled to any other compensation or benefits.

2. Confidential Information . Executive recognizes and acknowledges that by reason of Executive's employment by and service to the Company before, during and, if applicable, after the Employment Term, Executive will have access to certain confidential and proprietary information relating to the Company's business, which may include, but is not limited to, trade secrets, trade "know-how," product development techniques and plans, formulas, customer lists and addresses, financing services, funding programs, cost and pricing information, marketing and sales techniques, strategy and programs, computer programs and software and financial information (collectively referred to as "Confidential Information"). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and Executive covenants that he will not, unless expressly authorized in writing by the Company, at any time during the course of Executive's employment use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Executive also covenants that at any time after the termination of such employment, directly or indirectly, he will not use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Executive or except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. All written Confidential Information (including, without limitation, in any computer or other electronic format) which comes into Executive's possession during the course of Executive's employment shall remain the property of the Company. Except as required in the performance of Executive's duties for the Company, or unless expressly authorized in writing by the Company, Executive shall not remove any written Confidential Information from the Company's premises, except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Upon termination of Executive's employment, the Executive agrees to return immediately to the Company all written Confidential Information (including, without limitation, in any computer or other electronic format) in Executive's possession. As a condition of Executive's continued employment with the Company and in order to protect the Company's interest in such proprietary information, the Company shall require Executive's execution of a Confidentiality Agreement and Inventions Agreement in the form attached hereto as Exhibit "B", and incorporated herein by this reference.

3. Non-Competition; Non-Solicitation .

3.1

Non-Compete . The Executive hereby covenants and agrees that during the term of this Agreement and for a period of one year following the end of the Employment Term, the Executive will not, without the prior written consent of the Company, directly or indirectly, on his own behalf or in the service or on behalf of others, whether or not for compensation, engage in any business activity, or have any interest in any person, firm, corporation or business, through a subsidiary or parent entity or other entity (whether as a shareholder, agent, joint venturer, security holder, trustee, partner, Executive, creditor lending credit or money for the purpose of establishing or operating any such business, partner or otherwise) with any Competing Business in the Covered Area. For the purpose of this Section 3.1, (i) "Competing Business" means any biotechnology or pharmaceutical company, any contract manufacturer, any research laboratory or other company or entity (whether or not organized for profit) that has, or is seeking to develop, one or more products or therapies that is related to guanylyl cyclase receptor agonists and (ii) "Covered Area" means all geographical areas of the United States and foreign jurisdictions where the Company then has offices and/or sells its products directly or indirectly through distributors and/or other sales agents. Notwithstanding the foregoing, the Executive may own shares of companies whose securities are publicly trades, so long as such securities do not constitute more than one percent (1%) of the outstanding securities of any such company.

3.2

Non-Solicitation . The Executive further agrees that as long as the Agreement remains in effect and for a period of one (1) year from its termination, the Executive will not divert any business of the Company and/or its affiliates or any customers or suppliers of the Company and/or the Company's and/or its affiliates' business to any other person, entity or competitor, or induce or attempt to induce, directly or indirectly, any person to leave his or her employment with the Company.

3.3

Remedies . The Executive acknowledges and agrees that his obligations provided herein are necessary and reasonable in order to protect the Company and its affiliates and their respective business and the Executive expressly agrees that monetary damages would be inadequate to compensate the Company and/or its affiliates for any breach by the Executive of his covenants and agreements set forth herein. Accordingly, the Executive agrees and acknowledges that any such violation or threatened violation of this Section 3 will cause irreparable injury to the Company and that, in addition to any other remedies that may be available, in law, in equity or otherwise, the Company and its affiliates shall be entitled to obtain injunctive relief against he threatened breach of this Section 3 or the continuation of any such breach by the Executive without the necessity of proving actual damages.

4. Termination .

4.1 Termination Without Cause or for Good Reason .

(a)

If this Agreement is terminated by the Company other than for Cause (as defined in Section 4.4 hereof) or as a result of Executive’s death or Permanent Disability (as defined in Section 4.2 hereof), or if Executive terminates his employment for Good Reason (as defined in Section 4.1(b) hereof) prior to the Expiration Date, Executive shall receive or commence receiving as soon as practicable in accordance with the terms of this Agreement:

(i)

a severance payment (the “Severance Payment”), which amount shall be paid in a cash lump sum within ten (10) days of the date of termination, in an amount equal to the higher of the aggregate amount of the Executive's Base Salary for the then remaining term of this Agreement or twelve times the average monthly Base Salary paid or accrued during the three full calendar months immediately preceding such termination;

(ii)

expense compensation, which shall be paid in a lump sum payment within ten (10) days of the date of termination, in an amount equal to the higher of the aggregate amount of the sum of average monthly cost during the three full months immediately preceding such termination of Executive’s reimbursed expenses set forth in Section 1.7 for the then remaining term of this Agreement or twelve times the sum of average monthly cost during the three full months immediately preceding such termination of Executive’s reimbursed expenses set forth in Section 1.7;


(iii)	immediate vesting of all unvested stock options and the extension of the exercise period of such options to the earlier of the longest period permitted by the Company’s stock option plans or ten years following the Termination Date;


(iv)	payment in respect of compensation earned but not yet paid (the “Compensation Payment”) which amount shall be paid in a cash lump sum within ten (10) days of the date of termination; and


(v)	payment of the cost of comprehensive medical insurance for Executive for the greater of the then remaining term of this Agreement or for a period of twelve months following the termination.

If Executive’s employment is terminated by the Company other than for Cause (as defined in Section 4.4 hereof) or as a result of Executive’s death or Permanent Disability (as defined in Section 4.2 hereof), or if Executive terminates his employment for Good Reason (as defined in Section 4.1 (b) hereof), and if such termination of employment occurs within one year following a Change of Control (as defined in Section 4.5 hereof), then, in addition to the payments and benefits set forth above in Sections 4.1(a)(i) – (v), Executive shall receive, within 30 days after the termination, a payment equal to the Target Bonus (as defined in Section 1.5 hereof) for the calendar year in which the termination occurs, prorated to reflect the portion of the year during which Executive was employed.


(b)	For purposes of this Agreement, “Good Reason” shall mean any of the following (without Executive’s express prior written consent):


(i)	Any material breach by Company of any provision of this Agreement, including any material reduction by Company of Executive’s duties or responsibilities (except in connection with the termination of Executive’s employment for Cause, as a result of Permanent Disability, as a result of Executive's death or by Executive other than for Good Reason);


(ii)	A reduction by the Company in Executive’s Base Salary or any failure of the Company to reimburse Executive for material expenses described in Section 1.7;


(iii)	The failure by the Company to obtain the specific assumption of this Agreement by any successor or assign of Company as provided for in Section 8.6 hereof;


(iv)	Moving the principal offices of Company to a location outside of the Metropolitan New York Area; or


(v)	Upon a Change of Control of Company (as such term is hereinafter defined).


(c)	The following provisions shall apply in the event compensation provided in Section 4.1(a) becomes payable to the Executive:

(i)

if the severance compensation provided for in subsection 4.1(a) above cannot be finally determined on or before the tenth day following such termination, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company of the minimum amount of such compensation and shall pay the remainder of such compensation (together with interest at the Federal short-term rate provided in Section 1274(d)(7)(C)(1) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event the amount of the estimated payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive payable on the fifth day after demand by the Company (together with interest at the Federal short-term rate provided in Section 1274(d)(7)(C)(1) of the Code).

(ii)

If the payment of the Total Payments (as defined below) will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Code, the Company shall pay the Executive on or before the tenth day following the Date of Termination, an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on Total Payments and any federal and state and local income tax and Excise Tax upon the payment provided for by this paragraph, shall be equal to the Total Payments. For purposes of determining whether any of the payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) any payments or benefits received or to be received by the Executive in connection with a Change in Control of the Company or the Executive’s termination of employment, whether payable pursuant to the terms of Section 10 of this Agreement or any other plan, arrangement or agreement with the Company, its successors, any person whose actions result in a Change in Control of the Company or any corporation affiliated (or which, as a result of the completion of transaction causing such a Change in control, will become affiliated) with the Company within the meaning of Section 1504 of Code (the “Total Payments”) shall be treated as “parachute payments” within the meaning of Section 28OG(b)(2) of the Code, and all “excess parachute payments” within the meaning of Section 28OG(b)(1) shall be treated as subject to the Excise Tax, unless, in the opinion of tax counsel selected by the Company’s independent auditors and acceptable to the Executive, the Total Payments (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 28OG(b)(4) of the Code either in their entirety or in excess of the base amount within the meaning of Section 28OG(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (B) the amount of the Total Payments that shall be treated as subject to the Excise Tax shall be equal to the lesser of (I) the total amount of the Total Payments or (II) the amount of excess parachute payments or benefit shall be determined by the Company’s independent auditors in accordance with the principles of Section 28OG(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence an the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive’s employment, the Executive shall repay to the Company at the time the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment that can be repaid such that the Executive remains whole on an after-tax basis following such repayment (taking into account any reduction in income or excise taxes to the Executive from such repayment) plus interest on the amount of such repayment at the Federal short-term rate provided in Section 1274(d)(1)(C)(i) of the Code. In the event the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive’s employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined.


4.2	Permanent Disability . If Executive becomes totally and permanently disabled (as defined in the Company’s disability benefit plan applicable to senior executive officers as in effect on the date thereof) (“Permanent Disability”), Company or Executive may terminate this Agreement on written notice thereof, and Executive shall receive or commence receiving, as soon as practicable:


(a)	amounts payable pursuant to the terms of the disability insurance policy or similar arrangement which Company maintains for the Executive, if any, during the term hereof;


(a)	the Compensation Payment which shall be paid to Executive as a cash lump sum within 30 days of such termination; and


(b)	immediate vesting of all unvested stock options.


4.3	Death . In the event of Executive’s death during the term of his employment hereunder, Executive's estate or designated beneficiaries shall receive or commence receiving, as soon as practicable in accordance with the terms of this Agreement:


(a)	compensation equal to one year’s Base Salary (calculate by multiplying the average monthly Base Salary paid or accrued for the three full calendar months immediately such event, which shall be paid within 30 days of such termination;


(b)	any death benefits provided under the Executive benefit programs, plans and practices in which the Executive has an interest, in accordance with their respective terms;


(c)	the Compensation Payment which shall be paid to Executive’s estate as a cash lump sum within 30 days of such termination; and


(c)	such other payments under applicable plans or programs to which Executive's estate or designated beneficiaries are entitled pursuant to the terms of such plans or programs.

4.4

Voluntary Termination by Executive: Discharge for Cause . The Company shall have the right to terminate this Agreement for Cause (as hereinafter defined). In the event that Executive’s employment is terminated by Company for Cause, as hereinafter defined, or by Executive other than for Good Reason or other than as a result of the Executive’s Permanent Disability or death, prior to the Termination Date, Executive shall be entitled only to receive, as a cash lump sum within 30 days of such termination, the Compensation Payment. As used herein, the term “Cause” shall be limited to (a) willful malfeasance or willful misconduct by Executive in connection with the services to the Company in a matter of material importance to the conduct of the Company's affairs which has a material adverse affect on the business of the Company, or (b) the conviction of Executive for commission of a felony. For purposes of this subsection, no act or failure to act on the Executive’s part shall be considered “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Termination of this Agreement for Cause pursuant to this Section 4.4 shall be made by delivery to Executive of a copy of a resolution duly adopted by the affirmative vote of all of the members of the Board of Directors called and held for such purpose (after 30 days prior written notice to Executive and reasonable opportunity for Executive to be heard before the Board of Directors prior to such vote), finding that in the good faith business judgment of such Board of Directors, Executive was guilty of conduct set forth in any of clauses (a) through (b) above and specifying the particulars thereof.

5. Change In Control .

5.1

Definition. For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if (i) there shall be consummated (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company’s Common Stock immediately prior to the merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (ii) the stockholders of the Company shall approve any plan or proposal for the liquidation or dissolution of the Company, or (iii) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”)), other than the Company or any executive benefit plan sponsored by the Company, or such person on the Effective Date hereof is a 20% or more beneficial owner, shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 20% or more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, or (iv) at any time during a period of two consecutive years, individuals who at the beginning of such period, constituted the Board of Directors of the Company shall cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company’s stockholders of each new director during such two-year period was approved by a vote of at least two-thirds of the directors then still in office, who were directors at the beginning of such two-year period.

5.2

Rights and Obligations . If a Change in Control of the Company shall have occurred while the Executive is an officer of the Company, the Executive shall be entitled to the compensation provided in Section 4.1(a) of this Agreement upon the subsequent termination of this Agreement by either the Company, or the Executive within two years of the date upon which the Change in Control shall have occurred, unless such termination is a result of (i) the Executive’s death; (ii) the Executive’s Disability; (iii) the Executive’s Retirement; or (iv) the Executive’s termination for Cause.

6. Assignment . This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of Executive and the assigns and successors of Company, but neither this Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by Executive (except by will or by operation of the laws of intestate succession or by Executive notifying the Company that cash payment be made to an affiliated investment partnership in which Executive is a control person) or by Company, except that Company may assign this Agreement to any successor (whether by merger, purchase or otherwise) to all or substantially all of the stock, assets or businesses of Company, if such successor expressly agrees to assume the obligations of Company hereunder.

7. Indemnification .

Executive, as such and as a Director of the Company, shall be indemnified by the Company against all liability incurred by the Executive in connection with any proceeding, including, but not necessarily limited to, the amount of any judgment obtained against Executive, the amount of any settlement entered into by the Executive and any claimant with the approval of the Company, attorneys’ fees, actually and necessarily incurred by him in connection with the defense of any action, suit, investigation or proceeding or similar legal activity, regardless of whether criminal, civil, administrative or investigative in nature (“Claim”), to which he is made a party or is otherwise subject to, by reason of his being or having been a director, officer, agent or employee of the Company, to the full extent permitted by applicable law and the Certificate of Incorporation of the Company.. Such right of indemnification will not be deemed exclusive of any other rights to which Executive may be entitled under Company’s Certificate of Incorporation or By-laws, as in effect from time to time, any agreement or otherwise.

8. General Provisions .

8.1

Modification: No Waiver . No modification, amendment or discharge of this Agreement shall be valid unless the same is in writing and signed by all parties hereto. Failure of any party at any time to enforce any provisions of this Agreement or any rights or to exercise any elections hall in no way be considered to be a waiver of such provisions, rights or elections and shall in no way affect the validity of this Agreement. The exercise by any party of any of its rights or any of this elections under this Agreement shall not preclude or prejudice such party from exercising the same or any other right it may have under this Agreement irrespective of any previous action taken.


8.2	Notices . All notices and other communications required or permitted hereunder or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail as follows (provided that notice of change of address shall be deemed given only when received):

If to the Company, to:

Synergy Pharmaceuticals Inc.

420 Lexington Avenue, Suite 2012

New York, NY 10070

If to Executive, to:

Gary S. Jacob, Ph.D.

171 East 84 ^th Street, #16J

New York, NY 10028

Or to such other names or addresses as the Company or Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section.


8.3	Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York.


8.4	Further Assurances . Each party to this Agreement shall execute all instruments and documents and take all actions as may be reasonably required to effectuate this Agreement.

8.5

Severability . Should any one or more of the provisions of this Agreement or of any agreement entered into pursuant to this Agreement be determined to be illegal or unenforceable, then such illegal or unenforceable provision shall be modified by the proper court or arbitrator to the extent necessary and possible to make such provision enforceable, and such modified provision and all other provisions of this Agreement and of each other agreement entered into pursuant to this Agreement shall be given effect separately from the provisions or portion thereof determined to be illegal or unenforceable and shall not be affected thereby.

8.6

Successors and Assigns . Executive may not assign this Agreement without the prior written consent of the Company. The Company may assign its rights without the written consent of the executive, so long as the Company or its assignee complies with the other material terms of this Agreement. The rights and obligations of the Company under this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company, and the Executive's rights under this Agreement shall inure to the benefit of and be binding upon his heirs and executors. The Company's subsidiaries and controlled affiliates shall be express third party beneficiaries of this Agreement.


8.7	Entire Agreement. This Agreement supersedes all prior agreements and understandings between the parties, oral or written. No modification, termination or attempted waiver shall be valid unless in writing, signed by the party against whom such modification, termination or waiver is sought to be enforced.


8.8	Counterparts; Facsimile . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original, and all of which taken together shall constitute one and the same instrument. This Agreement may be executed by facsimile with original signatures to follow.

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first written above.



EXECUTIVE:		SYNERGY PHARMACEUTICALS INC.
/s/ Gary S. Jacob		/s/ Bernard Denoyer
Gary S. Jacob, Ph.D.		Bernard Denoyer, Senior Vice President, Finance

SYNERGY PHARMACEUTICALS INC.

CODE OF BUSINESS CONDUCT AND ETHICS


1.	Introduction

We are committed to maintaining the highest standards of ethical, honest and legal business conduct. This Code of Business Conduct and Ethics (“Code”) reflects the business practices and principles of behavior that support this commitment. We expect all employees, including officers, and directors of Synergy Pharmaceuticals Inc. and its subsidiaries (which are referred to in the Code, collectively, as “Synergy”) to read and understand the Code and its application to the performance of his or her business responsibilities. References in the Code to employees are intended to include officers and, as applicable, directors.

Officers, managers and other supervisors are expected to develop in employees a sense of commitment to the spirit, as well as the letter, of the Code. Supervisors are also expected to ensure that all agents and contractors conform to Code standards when working for or on behalf of Synergy. The compliance environment within each supervisor’s assigned area of responsibility will be a significant factor in evaluating the quality of that individual’s performance. In addition, any employee who makes an exemplary effort to implement and uphold our legal and ethical standards may be recognized for that effort in his or her performance review. Nothing in the Code alters the at-will employment policy of Synergy.

The Code addresses conduct that is particularly important to ensure proper dealings with the people and entities with which we interact, but reflects only a part of our commitment. From time to time, we may adopt additional policies and procedures with which our employees, officers and directors are expected to comply, if applicable to them. However, it is the responsibility of each employee to apply common sense, together with his or her own highest personal ethical standards, in making business decisions where there is no stated guideline in the Code.

Action by members of your family, significant others or other persons who live in your household (referred to in the Code as “family members”) also may potentially result in ethical issues to the extent that they involve Synergy’s business. For example, acceptance of inappropriate gifts by a family member from one of our suppliers could create a conflict of interest and result in a Code violation attributable to you. Consequently, in complying with the Code, you should consider not only your own conduct, but also that of your family members, significant others and other persons who live in your household.

You should not hesitate to ask questions about whether any conduct could violate the Code, voice concerns or clarify gray areas. Section 26, “Compliance Standards and Procedures”, below details the compliance resources available to you. In addition, you should be alert to possible violations of the Code by others and you have the duty to report any known or suspected violations of the Code, without fear of any form of retaliation, as further described in Section 26, “Compliance Standards and Procedures” .

Violations of the Code will not be tolerated. Any employee who violates the standards in the Code may be subject to disciplinary action, which, depending on the nature of the violation and the

history of the employee, may range from a warning or reprimand to and including termination of employment and, in appropriate cases, civil legal action or referral for criminal prosecution.


2.	Honest and Ethical Conduct

Our policy is to promote high standards of integrity by conducting our affairs in an honest and ethical manner. The integrity and reputation of Synergy depends on the honesty, fairness and integrity brought to the job by each person associated with us. Unyielding personal integrity is the foundation of corporate integrity.


3.	Legal Compliance

Obeying the law, both in letter and in spirit, is the foundation of this Code. Our success depends upon each employee operating within legal guidelines and cooperating with local, national and international authorities. Each Synergy employee has an obligation, and is expected, to comply with the law, including, but not limited to, in connection with activities associated with their official responsibilities as a Synergy employee. We expect employees to understand the legal and regulatory requirements applicable to their business units and areas of responsibility. We will not tolerate any activity that violates any laws, rules, or regulations, including, without limitation, those applicable to Synergy. This includes, without limitation, laws covering the conduct of our clinical and preclinical studies, commercial bribery and kickbacks, marketing, copyrights, trademarks and trade secrets, protection of third party/former employer confidential information, information privacy, insider trading, illegal political contributions, antitrust prohibitions, foreign corrupt practices, offering or receiving gratuities, environmental hazards, employment discrimination or harassment, occupational health and safety, false or misleading financial information or misuse of corporate assets. The fact that, in some countries, certain laws are not enforced or that violation of those laws is not subject to public criticism will not be accepted as an excuse for noncompliance. If any doubt exists about whether a course of action is lawful, you should seek advice immediately from either the Healthcare Compliance Officer or the Corporate Compliance Officer.

Disregard of the law, whether in connection with your official responsibilities as a Synergy employee or otherwise, will not be tolerated. Violation of domestic or foreign laws, rules and regulations may subject an individual, as well as Synergy, to civil and/or criminal penalties. Violation of domestic or foreign laws, rules and regulations may also subject an individual to disciplinary action by Synergy as further described in Section 26, “Compliance Standards and Procedures”. You should be aware that your conduct and records, including emails, are subject to internal and external audits, and to discovery by third parties in the event of a government investigation or civil litigation. It is in everyone’s best interests to know and comply with our legal and ethical obligations. Nothing in any other section of this Code shall be interpreted, or deemed, to narrow or limit your obligations under this section or Synergy’s actions in response to a failure to satisfy such obligations.


4.	Insider Trading

All employees must comply with Synergy’s Insider Trading Policy, which explicitly states that employees who have access to confidential (or “inside”) information are not permitted to use or share that information for stock trading purposes or for any other purpose except to conduct our business. All

nonpublic information about Synergy or about companies with which we do business is considered confidential information. To use material non-public information in connection with buying or selling securities, including “tipping” others who might make an investment decision on the basis of this information, is unethical and illegal. Employees must exercise the utmost care when handling material inside information.


5.	International Business & Trade Laws

Our employees are expected to comply with the applicable laws in all countries to which they travel, in which they operate and where we otherwise do business, including laws prohibiting bribery, corruption or the conduct of business with specified individuals, companies or countries. The fact that in some countries certain laws are not enforced or that violation of those laws is not subject to public criticism will not be accepted as an excuse for noncompliance. In addition, we expect employees to comply with U.S. laws, rules and regulations governing the conduct of business by its citizens and corporations outside the U.S.

The U.S. and other countries where Synergy does business have laws that restrict or prohibit doing business with certain countries and parties. Likewise, many countries also restrict or prohibit transactions involving certain products and technologies. These U.S. laws, rules and regulations, which extend to all our activities outside the U.S., include:


•	U.S. Embargoes, which generally prohibit U.S. companies, their subsidiaries and their employees from doing business or traveling to countries, subject to sanctions imposed by the U.S. government (currently, Cuba, Iran, North Korea, Sudan and Syria), as well as specific companies and individuals identified on lists published by the U.S. Treasury Department;


•	Export Controls, which restrict travel to designated countries or prohibit or restrict the export of goods, services and technology to designated countries, denied persons or denied entities from the U.S., or the re-export of U.S. origin goods from the country of original destination to such designated countries, denied companies or denied entities; and


•	Anti-Boycott Compliance, which prohibits U.S. companies from taking any action that has the effect of furthering or supporting a restrictive trade practice or boycott that is fostered or imposed by a foreign country against a country friendly to the U.S. or against any U.S. person.

If you have a question as to whether an activity is restricted or prohibited, you should make every effort to seek assistance from the Corporate Compliance Officer or Healthcare Compliance Officer before taking any action, including giving any verbal assurances that might be regulated by international laws.


6.	Anti-Corruption Laws

The Foreign Corrupt Practices Act (the “FCPA”) prohibits Synergy and its employees and agents from offering or giving money or any other item of value to win or retain business or to influence any act or decision of any governmental official, political party, candidate for political office or official of a public international organization. Doctors employed by government-funded hospitals who serve on formulary committees and employees of health authorities can be considered government officials for purposes of the FCPA. Stated more concisely, the FCPA prohibits the payment of bribes, kickback or

other inducements to foreign officials. This prohibition also extends to payments to a sales representative or agent if there is reason to believe that the payment will be used indirectly for a prohibited payment to foreign officials. In addition, the FCPA’s books and records provisions make it illegal to improperly record transactions subject to the FCPA. Violation of the FCPA is a crime that can result in severe fines and criminal penalties, as well as disciplinary action by Synergy as further described in Section 26, “Compliance Standards and Procedures”.

Certain small facilitation or “grease” payments to foreign officials may be permissible under the FCPA if customary in the country or locality and intended to secure routine governmental action. Governmental action is “routine” if it is ordinarily and commonly performed by a foreign official and does not involve the exercise of discretion. For instance, “routine” functions would include setting up a telephone line. To ensure legal compliance, all facilitation payments must receive prior written approval from Synergy’s Corporate Compliance Officer or Healthcare Compliance Officer and must be clearly and accurately reported as a business expense.

We must also comply with all local anti-bribery and corruption laws. In the event local laws and the FCPA differ, the stricter set of laws should be followed. For example, the U.K. Bribery Act prohibits small facilitation or “grease” payments that may be permissible under the FCPA. Please notify Synergy’s Corporate Compliance Officer or Healthcare Compliance Officer if you have any questions concerning these laws.


7.	Antitrust

Antitrust laws of the U.S. and other countries are designed to protect consumers and competitors against unfair business practices and to promote and preserve competition. Our policy is to compete vigorously and ethically while complying with all antitrust, monopoly, competition or cartel laws in all countries, states or localities in which Synergy conducts business. If you are responsible for areas of the business where these laws apply, you must be aware of them and their implications, including how they apply in the country where you operate. Antitrust laws impose severe penalties for certain types of violations, including criminal penalties and potential fines and damages of millions of dollars, which may be tripled under certain circumstances. You should consult Synergy’s Corporate Compliance Officer or Healthcare Compliance Officer with any questions you may have concerning compliance with these laws. The following is a summary of actions that are violations of applicable antitrust laws:


•	Price Fixing. Synergy may not agree, formally or informally, with its competitors to raise, lower or stabilize prices or any element of price, including discounts and credit terms, or establish or fix the price at which a customer may resell a product.


•	Limitation of Supply. Synergy may not agree, formally or informally, with its competitors to limit its production or restrict the supply of its services.


•	Allocation of Business. Synergy may not agree, formally or informally, with its competitors to divide or allocate markets, territories or customers.


•	Monopolies. Synergy may not engage in any behavior that can be construed as an attempt to monopolize through anti-competitive conduct.


•	Boycott. Synergy may not agree, formally or informally, with its competitors to refuse to sell or purchase products from third parties. In addition, Synergy may not prevent a customer from purchasing or using non-Synergy products or services.


•	Tying. Synergy may not require a customer to purchase a product that it does not want as a condition to the sale of a different product that the customer does wish to purchase.


8.	Meetings with Competitors

Employees should exercise caution in meetings with competitors when discussing marketed products and services. For purposes of this section, co-promotion and research collaboration partners are not considered competitors. Any meeting with a competitor may give rise to the appearance of impropriety. As a result, if you are required to meet with a competitor and have questions concerning proper topics for discussion, you should consult the Corporate Compliance Officer with any questions. You should try to meet with competitors in a closely monitored, controlled environment for a limited period of time. The contents of your meeting should be fully documented. Specifically, you should avoid any communications with a competitor, regardless of how innocent or casual the exchange may be and regardless of the setting, whether business or social, regarding:


•	Prices;


•	Costs;


•	Market share;


•	Allocation of sales territories;


•	Profits and profit margins;


•	Supplier’s terms and conditions;


•	Product or service offerings;


•	Terms and conditions of sale;


•	Production facilities or capabilities;


•	Bids for a particular contract or program;


•	Selection, retention or quality of customers;


•	Distribution; or


•	Methods or channels.


9.	Professional Organizations and Trade Associations

Employees should be cautious when attending meetings of professional organizations and trade associations at which customers (e.g. healthcare professionals), potential referral sources, or competitors

are present. Attending meetings of professional organizations and trade associations is both legal and proper, if such meetings have a legitimate business purpose. At such meetings, you should not


•	Discuss pricing policy or other competitive terms, plans for new or expanded facilities or any other proprietary, competitively sensitive information; or


•	Engage in pre-approval promotion and off-label marketing.

Even joking about inappropriate topics, such as pricing strategies, could be misinterpreted or misreported. If the conversation includes any of the above topics, you should promptly leave the conversation and report the incident to your supervisor, Synergy’s Healthcare Compliance Officer or Corporate Compliance Officer. Unless authorized as part of your job responsibilities, you are required to notify your supervisor prior to attending any meeting of a professional organization or trade association where participation relates to Synergy products or services.


10.	Environment; Health and Safety

Synergy is committed to providing a safe and healthy working environment for its employees and to avoiding adverse impact and injury to the environment and the communities in which it does business. Synergy employees must comply with all applicable environmental, health and safety laws, regulations and Synergy standards. It is your responsibility to understand and comply with the laws, regulations and policies that are relevant to your job. Failure to comply with environmental, health and safety laws and regulations can result in civil and criminal liability against you and Synergy, as well as disciplinary action by Synergy as further described in Section 26, “Compliance Standards and Procedures”.


10.1.	Environment

All Synergy employees should strive to conserve resources and reduce waste and emissions through recycling and other energy conservation measures. Federal law imposes criminal liability on any person or company that contaminates the environment with any hazardous substance that could cause injury to the community or environment. Violation of environmental laws can involve monetary fines and imprisonment. We expect employees to comply with all applicable environmental laws. You have a responsibility to promptly report any known or suspected violations of environmental laws or any events that may result in a discharge or emission of hazardous materials.


10.2.	Health and Safety

Synergy is committed not only to comply with all relevant health and safety laws, but also to conduct business in a manner that protects the safety of its employees. All employees are required to comply with all applicable health and safety laws, regulations and policies relevant to their positions. If you have a concern about unsafe conditions or tasks that present a risk of injury to you, please report these concerns immediately to your supervisor, the Human Resources Department, the Corporate Compliance Officer or the Healthcare Compliance Officer.


11.	Employment Practices

Synergy pursues fair employment practices in every aspect of its business. The following is intended to be a summary of our employment policies and procedures. Copies of Synergy’s detailed policies, including its Employee Handbook, are available from the Human Resources Department. Synergy employees must comply with all applicable labor and employment laws, including anti-discrimination laws and laws related to freedom of association and privacy. It is your responsibility to understand and comply with the laws, regulations and policies that are relevant to your job. Failure to comply with labor and employment laws can result in civil and criminal liability against you and Synergy, as well as disciplinary action by Synergy as further described in Section 26, “Compliance Standards and Procedures”.


12.	The Food, Drug and Cosmetic Act (the “FDCA”) and Interactions with the U.S. Food and Drug Administration (the “FDA”)


12.1.	General

Synergy’s product candidates and its operations are subject to extensive and rigorous regulation by the FDA. The FDA regulates many areas of Synergy’s operations, including the research, preclinical and clinical testing, and development of medical devices; the submission of data and other information to support FDA approval; the manufacturing, testing and labeling of medical devices; the promotion, distribution, and sale of our medical devices (including the provision of samples to physicians); and the reporting of adverse events and other information to the FDA. The FDA also regulates the export of medical devices manufactured in the U.S. to international markets and the import to the U.S. of medical devices manufactured outside of the U.S. Violation of these laws and regulations can result in: severe civil and criminal penalties; adverse publicity for Synergy; total or partial suspension of production of a Synergy product; withdrawal of a Synergy product from the market; exclusion of Synergy or individuals employed by Synergy from participation in federal health care programs; and disciplinary action by Synergy against the responsible individuals, as further described in Section 26, “Compliance Standards and Procedures”.


12.2.	Compliance with the FDCA and FDA Laws and Regulations

Synergy employees with responsibilities in the areas governed by the FDCA and the FDA are required to understand and comply with these laws and regulations. These employees are expected to have a thorough understanding of the laws, regulations and other relevant standards applicable to their job positions, and to comply with those requirements. In particular, any promotional discussion and promotional information used or distributed must be complete accurate and not misleading. Product claims must be consistent with approved labeling and prescribing information. In addition, when discussing approved products, fair and balanced information must be provided – describing all safety information fully and accurately and never misrepresenting or minimizing it in any way. Synergy has developed standard operating procedures and provides regular training to aid employees in understanding and complying with the requirements of the FDCA and the FDA. If any doubt exists regarding whether your job

position or a particular course of action is governed by these laws and regulations, you should seek advice immediately from your supervisor and Synergy’s Healthcare Compliance Officer.


13.	Harassment and Discrimination


13.1.	General

Synergy is committed to providing equal opportunity and fair treatment to all individuals on the basis of merit, without discrimination because of race, color, religion, national origin, sex (including pregnancy), sexual orientation, age, disability, veteran status or other characteristic protected by law. Synergy also prohibits harassment based on these characteristics in any form, whether physical or verbal and whether committed by supervisors, non-supervisory personnel or non-employees. Harassment may include, but is not limited to, offensive sexual flirtations, unwanted sexual advances or propositions, verbal abuse, sexually or racially degrading words, or the display in the workplace of sexually suggestive or racially degrading objects or pictures.


13.2.	Employee Reporting Requirements

If you have any complaints about discrimination or harassment, or witness or observe any harassment occurring in the workplace, report such conduct to your supervisor, the Human Resources Department, the Corporate Compliance Officer or the Healthcare Compliance Officer. All complaints will be treated with sensitivity and discretion. Your supervisor, the Human Resources Department, the Corporate Compliance Officer, the Healthcare Compliance Officer and Synergy will protect your confidentiality to the extent possible, consistent with law and Synergy’s need to investigate your concern. Synergy strictly prohibits retaliation against an employee who, in good faith, files a complaint. Where our investigation uncovers harassment or discrimination, we will take prompt corrective action, which may include disciplinary action by Synergy as further described in Section 26, “Compliance Standards and Procedures” .


13.3.	Management Reporting Requirements

Any member of management who has reason to believe that an employee has been the victim of harassment or discrimination or who receives a report of alleged harassment or discrimination is required to report it to the Corporate Compliance Officer or the Healthcare Compliance Officer immediately.


14.	Alcohol and Drugs

Synergy is committed to maintaining a drug-free work place. All Synergy employees must comply strictly with Synergy policies regarding the abuse of alcohol and the possession, sale and use of illegal substances. Drinking alcoholic beverages is prohibited while on duty or on the premises of Synergy, except at specified Synergy-sanctioned events. Possessing, using, selling or offering illegal drugs and other controlled substances without a valid prescription is prohibited under all circumstances while on duty or on the premises of Synergy. Likewise, you are prohibited from reporting for work, or driving a Synergy vehicle or any vehicle on Synergy business, while under the influence of alcohol or any illegal drug or controlled substance.


15.	Violence Prevention and Weapons

The safety and security of Synergy employees is vitally important. Synergy will not tolerate violence or threats of violence in, or related to, the workplace. If you experience, witness or otherwise become aware of a violent or potentially violent situation that occurs on Synergy’s property or affects Synergy’s business you must immediately report the situation to your supervisor, the Human Resources Department, Synergy’s Corporate Compliance Officer, or Synergy’s Healthcare Compliance Officer.

Synergy does not permit any individual to have weapons of any kind on Synergy property or in vehicles, while on the job or off-site while on Synergy business. This is true even if you have obtained legal permits to carry weapons. The only exception to this policy applies to security personnel who are specifically authorized by Synergy management to carry weapons.


16.	Conflicts of Interest

We respect the rights of our employees to manage their personal affairs and investments and do not wish to impinge on their personal lives. At the same time, employees should avoid conflicts of interest that occur when their personal interests may interfere in any way with the performance of their duties or the best interests of Synergy. A conflicting personal interest could result from an expectation of personal gain now or in the future or from a need to satisfy a prior or concurrent personal obligation. We expect our employees to be free from influences that conflict with the best interests of Synergy. Even the appearance of a conflict of interest where none actually exists can be damaging and should be avoided.

If you have any questions about a potential conflict or if you become aware of an actual or potential conflict, and you are not an officer or director of Synergy, you should discuss the matter with your supervisor and with Synergy’s Corporate Compliance Officer (as further described in Section 17, “Corporate Opportunities” ). Supervisors may not resolve conflict of interest matters without first seeking the approval of the Corporate Compliance Officer and filing with the Corporate Compliance Officer a written description of the activity. If the supervisor is involved in the potential or actual conflict, you should discuss the matter directly with the Corporate Compliance Officer. Officers and directors may seek authorization from the Board of Directors.

Factors that may be considered in evaluating a potential conflict of interest are, among others:


•	Whether it may interfere with the employee’s job performance, responsibilities or morale;


•	Whether the employee has access to confidential information;


•	Whether it may interfere with the job performance, responsibilities or morale of others within the organization;


•	Any potential adverse or beneficial impact on our business;


•	Any potential adverse or beneficial impact on our relationships with our customers or suppliers or other service providers;


•	Whether it would enhance or support a competitor’s position;


•	The extent to which it would result in financial or other benefit (direct or indirect) to the employee;


•	The extent to which it would result in financial or other benefit (direct or indirect) to one of our customers, suppliers or other service providers; and


•	The extent to which it would appear improper to an outside observer.

Although no list can include every possible situation in which a conflict of interest could arise, the following are examples of situations that may, depending on the facts and circumstances, involve conflicts of interests:

•

Employment by (including consulting for) or service on the board of a competitor, customer or supplier or other service provider. Activity that enhances or supports the position of a competitor to the detriment of Synergy is prohibited, including employment by or service on the board of a competitor. Employment by or service on the board of a customer or supplier or other service provider is generally discouraged and you must seek authorization from the Corporate Compliance Officer in advance if you plan to take such action.

•

Owning, directly or indirectly, a significant financial interest in any entity that does business, seeks to do business or competes with us. In addition to the factors described above, persons evaluating ownership for conflicts of interest will consider the size and nature of the investment; the nature of the relationship between the other entity and Synergy; the employee’s access to confidential information and the employee’s ability to influence Synergy’s decisions. If you would like to acquire a financial interest of that kind, you must seek approval in advance.


•	Soliciting or accepting gifts, favors, loans or preferential treatment from any person or entity that does business or seeks to do business with us. See Section 21, “Competition and Fair Dealing” , for further discussion of the issues involved in this type of conflict.


•	Soliciting contributions to any charity or for any political candidate from any person or entity that does business or seeks to do business with us.


•	Taking personal advantage of corporate opportunities. See Section 17, “Corporate Opportunities” , for further discussion of the issues involved in this type of conflict.


•	Moonlighting without permission.


•	Conducting our business transactions with your family member or a business in which you have a significant financial interest. Material related-party transactions approved by the Board of Directors and involving any executive officer or director will be publicly disclosed as required by applicable laws and regulations.


•	Exercising supervisory or other authority on behalf of Synergy over a co-worker who is also a family member. The employee’s supervisor and/or the Corporate Compliance Officer will consult with the Human Resources Department to assess the advisability of reassignment.

Loans to, or guarantees of obligations of, employees or their family members by Synergy could constitute an improper personal benefit to the recipients of these loans or guarantees, depending on the

facts and circumstances. Some loans are expressly prohibited by law, and applicable law requires that our Board of Directors approve all loans and guarantees to employees. As a result, all loans and guarantees by Synergy must be approved in advance by the Board of Directors.

Synergy’s officers may not, while they are employed by Synergy, accept offers to serve on boards of, or be concurrently employed by, any other for-profit organization (whether or not a competitor to Synergy) without prior authorization from our Board of Directors.


17.	Corporate Opportunities

You may not take personal advantage of opportunities for Synergy that are presented to you or discovered by you as a result of your position with us or through your use of corporate property or information. Even opportunities that are acquired privately by you may be questionable if they are related to our existing or proposed lines of business. Significant participation in an investment or outside business opportunity that is directly related to our lines of business must be pre-approved by Synergy’s Corporate Compliance Officer. You cannot use your position with us or corporate property or information for improper personal gain, nor can you compete with Synergy in any way.


18.	Interactions with the Government

Synergy may conduct business with the U.S., state and local governments and the governments of many other countries. Synergy is committed to conducting its business with all governments and their representatives with the highest standards of business ethics and in compliance with all applicable laws and regulations, including the special requirements that apply to communications with governmental bodies that have regulatory authority over our products and operations, such as the FDA, government contracts and government transactions. In your interactions with the government, you should:


•	Be forthright and candid at all times. No employee should intentionally misstate or omit any material information from any written or oral communication with the government.


•	Ensure that all required written submissions are made to the government and are timely, and that all written submissions, whether voluntary or required, satisfy applicable laws and regulations.


•	Not offer or exchange any gifts, gratuities or favors with, or pay for meals, entertainment, travel or other similar expenses for, government employees.

If your job responsibilities include interacting with the government, you are expected to understand and comply with the special laws, rules and regulations that apply to your job position as well as with any applicable standard operating procedures that Synergy has implemented. If any doubt exists about whether a course of action is lawful, you should seek advice immediately from your supervisor, Synergy’s Corporate Compliance Officer and Synergy’s Healthcare Compliance Officer.

Synergy cooperates with all government agencies in any request for information or facility visits in connection with government investigations. The Healthcare Compliance Officer represents Synergy in these investigations and will determine what information is appropriate to supply to investigators. If you are contacted by any government agency outside of the ordinary course of our business dealings with the

government, you should immediately notify your supervisor, Synergy’s Corporate Compliance Officer and Synergy’s Healthcare Compliance Officer.


19.	Political Contributions and Activities


19.1.	General

Synergy encourages its employees to participate in the political process as individuals. Employees should be careful to make it clear that their political views and actions are their own, and not made on behalf of Synergy. Synergy funds or assets shall not be used to make a political contribution to any political party or candidate, unless prior approval has been given by Synergy’s Corporate Compliance Officer.


19.2.	Guidelines

The following guidelines are intended to ensure that any political activity you pursue complies with this policy and to ensure that any political activity you pursue is done voluntarily and with your own resources and time:


•	Contribution of Funds . You may contribute your personal funds to political parties or candidates. Synergy will not reimburse you for personal political contributions.


•	Volunteer Activities . You may participate in volunteer political activities during non-work time. You may not participate in political activities during working hours.


•	Use of Synergy Facilities . Synergy’s facilities generally may not be used for political activities (including fundraisers or other activities related to running for office). However, Synergy may make its facilities available for limited political functions, including speeches by government officials and political candidates, with the approval of Synergy’s Corporate Compliance Officer.


•	Use of Synergy Name . When you participate in political affairs, you should be careful to make it clear that your views and actions are your own, and not made on behalf of Synergy. For instance, neither Synergy letterhead nor your Synergy email account should be used to send out personal letters in connection with political activities.


20.	Maintenance of Corporate Books, Records, Documents and Accounts; Financial Integrity; Public Reporting

Accurate and reliable records are crucial to our business and form the basis of our financial results, financial reports and other disclosures to the public. Our records are the source of essential data and information that guide business decision-making and strategic planning and are important in meeting our obligations to customers, suppliers, creditors, employees and others with whom we do business. The integrity of our records and public disclosure depends on the validity, accuracy and completeness of the information supporting the entries to our books of account. Therefore, all Synergy records must be complete, accurate and reliable in all material respects. The making of false or misleading entries, whether they relate to financial results or test results, is strictly prohibited. Synergy records include financial records, personnel records, records relating to our product development, clinical development,

manufacturing and regulatory submissions, time sheets, expense reports, invoices and all other records maintained in the ordinary course of our business. Accordingly, we require that:


•	No entry be made in our books and records that intentionally hides or disguises the nature of any transaction or of any of our liabilities, or misclassifies any transactions as to accounts or accounting periods;


•	Transactions be supported by appropriate documentation;


•	The terms of sales and other commercial transactions be reflected accurately in the documentation for those transactions and all such documentation be reflected accurately in our books and records;


•	Employees comply with our system of internal controls; and


•	No cash or other assets be maintained for any purpose in any unrecorded or “off-the-books” fund.

Our accounting records are also relied upon to produce reports for our management, stockholders and creditors, as well as for governmental agencies. In particular, we rely upon our accounting and other business and corporate records in preparing the periodic and current reports that we file with the Securities and Exchange Commission (the “SEC”). Securities laws require that these reports provide full, fair, accurate, timely and understandable disclosure and fairly present our financial condition and results of operations. Employees who collect, provide or analyze information for or otherwise contribute in any way in preparing or verifying these reports must (i) be familiar with and comply with our disclosure controls and procedures and internal control over financial reporting, and (ii) take all necessary steps to ensure that our financial disclosure is accurate and transparent and that our reports contain all of the information about Synergy that would be important to enable stockholders and potential investors to assess the soundness and risks of our business and finances and the quality and integrity of our accounting and disclosures. In addition:


•	No employee may take or authorize any action that would cause our financial records or financial disclosure to fail to comply with generally accepted accounting principles, the rules and regulations of the SEC or other applicable laws, rules and regulations;


•	All employees must cooperate fully with our Finance Department, as well as our independent public accountants and counsel, respond to their questions with candor and provide them with complete and accurate information to help ensure that our books and records, as well as our reports filed with the SEC, are accurate and complete; and


•	No employee should knowingly make (or cause or encourage any other person to make) any false or misleading statement in any of our reports filed with the SEC or knowingly omit (or cause or encourage any other person to omit) any information necessary to make the disclosure in any of our reports accurate in all material respects.

Any employee who becomes aware of any departure from these standards has a responsibility to report his or her knowledge promptly to a supervisor, Synergy’s Corporate Compliance Officer or the Chair of the Audit Committee or by using one of the other compliance resources described in Section 26,

“Compliance Standards and Procedures” , and/or in accordance with the provisions of Synergy’s Whistleblower Policy for Accounting and Auditing Matters Inaccurate, incomplete or untimely reporting can severely damage Synergy or result in legal liability and will not be tolerated. Synergy employees should be on guard for, and promptly report, any possibility of inaccurate or incomplete financial reporting. Particular attention should be paid to:


•	Financial results that seem inconsistent with the performance of the underlying business;


•	Transactions that do not seem to have an obvious business purpose; and


•	Requests to circumvent ordinary review and approval procedures.

Synergy’s executive officers have a special responsibility to ensure that all of our financial disclosures are full, fair, accurate timely and understandable. Any practice or situation that might undermine this objective should be reported to supervisor, Synergy’s Corporate Compliance Officer or the Chair of the Audit Committee or by using one of the other compliance resources described in Section 26, “Compliance Standards and Procedures”, and/or in accordance with the provisions of Synergy’s Whistleblower Policy for Accounting and Auditing Matters.

Synergy must retain certain types of documents and records for specific periods of time, because this is required under various laws and under Synergy’s contracts with clients and others. These periods of time, and the types of documents and records covered, may vary. Employees should not destroy or alter any document or record that may be the subject of any pending, threatened or likely claim, controversy or proceeding, whether investigative, administrative or judicial. Employees are subject to any document retention policies of Synergy then in effect. Any questions concerning Synergy’s document retention policies should be directed to the Corporate Compliance Officer.


21.	Competition and Fair Dealing

You should endeavor to deal fairly with customers, suppliers and competitors, and anyone else with whom you have contact in the course of performing your job. Employees should not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice.


21.1.	Relationships with Customers

Our business success depends upon our ability to foster lasting customer relationships. Synergy is committed to dealing with customers fairly, honestly and with integrity. Be aware that the Federal Trade Commission Act (the “FTCA”) provides that “unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are declared unlawful.” It is a violation of the FTCA to engage in deceptive, unfair or unethical practices and to make misrepresentations in connection with sales activities. Specifically, you should keep the following guidelines in mind when dealing with customers:


•	Information we supply to customers should be accurate and complete to the best of our knowledge. Employees should not deliberately misrepresent information to customers.


•	Customer gifts and entertainment, when permitted, should not exceed reasonable and customary business practice. Employees should not provide gifts or entertainment or other benefits to customers that could be viewed as an inducement to or a reward for, customer purchase decisions. See Section 21.4, “Meals, Gifts and Entertainment” , for additional guidelines in this area.


21.2.	Relationships with Suppliers

Synergy deals fairly and honestly with its suppliers. This means that our relationships with suppliers are based on price, quality, service and reputation, among other factors, and not on the receipt of special favors. Employees dealing with suppliers should carefully guard their objectivity. Specifically, no employee should accept or solicit any personal benefit from a supplier or potential supplier that might compromise, or appear to compromise, their objective assessment of the supplier’s products and prices. Employees can give or accept promotional items of nominal value or moderately scaled entertainment within the limits of responsible and customary business practice. See Section 21.4, “Meals, Gifts and Entertainment”, for additional guidelines in this area.


21.3.	Relationships with Competitors

We strive to outperform our competition fairly and honestly. Advantages over our competitors are to be obtained through superior performance of our products and services, not through unethical or illegal business practices. Acquiring proprietary information from others through improper means, possessing trade secret information that was improperly obtained, or inducing improper disclosure of confidential information from past or present employees of other companies is prohibited, even if motivated by an intention to advance our interests. If information is obtained by mistake that may constitute a trade secret or other confidential information of another business, or if you have any questions about the legality of proposed information gathering, you must consult the Healthcare Compliance Officer or Corporate Compliance Officer.

Synergy is committed to free and open competition in the marketplace. Employees should avoid actions that would be contrary to laws governing competitive practices in the marketplace, including federal and state antitrust laws. Such actions include misappropriation and/or misuse of a competitor’s confidential information or making false statements about the competitor’s business and business practices. For further discussion of appropriate and inappropriate business conduct with competitors, see Section 7, “Antitrust” .

21.4. Meals, Gifts and Entertainment

You shall not solicit or accept money, loans, credits, or prejudicial discounts, or accept gifts, entertainment, favors, or services from present or potential suppliers that might influence or appear to influence purchasing decisions.

You should make every effort to refuse or return a gift that is beyond Synergy’s permissible guidelines. If it would be inappropriate to refuse a gift or you are unable to return a gift, you should promptly report the gift to your supervisor. Your supervisor will bring the gift to the

attention of Synergy’s Healthcare Compliance Officer or Corporate Compliance Officer, who may require you to donate the gift to an appropriate community organization.

These principles apply to the conduct of our business everywhere in the world, even where certain practices are widely considered a “way of doing business.” If you conduct business in other countries, you must be particularly careful that gifts and entertainment are not construed as bribes, kickbacks or other improper payments. For clarity, a “bribe” is anything of value given in an attempt to affect a person’s actions or decisions in order to obtain or retain business or to secure an unfair business advantage. A “kickback” is the return of a sum already paid or due to be paid as a reward for awarding or fostering business. See Section 6, “Anti-Corruption Laws”, for a more detailed discussion of our policies regarding giving or receiving gifts related to business transactions in other countries. If you have any questions about whether it is permissible to accept a gift or something else of value, contact your supervisor, Synergy’s Healthcare Compliance Officer or Synergy’s Corporate Compliance Officer for additional guidance.

21.5. Gifts, Meals and Entertainment Provided To or By Non-Customers

Synergy recognizes that in some instances, gifts, meals and entertainment can provide an entirely appropriate means of furthering a business relationship. Appropriate business gifts, meals and entertainment are welcome courtesies designed to build relationships and understanding among business partners. Gifts, meals and entertainment, however, should not compromise, or appear to compromise, your ability to make objective and fair business decisions, and should not be (a) of excessive value, (b) in cash, (c) susceptible of being construed as a bribe or kickback, (d) made or received on a regular or frequent basis or (e) in violation of any laws.

It is your responsibility to use good judgment in this area. As a general rule, you may give or receive gifts, meals or entertainment to or from suppliers, vendors and other non-customers only if the gift, meal or entertainment is consistent with customary business practices and would not be viewed as an inducement to or reward for any particular business decision. All gifts, meals and entertainment expenses should be properly accounted for on expense reports. The following specific examples may be helpful:

Meals and Entertainment. You may occasionally accept or give meals, refreshments or other entertainment if:


•	The items are of reasonable value;


•	A primary purpose of the meeting or attendance at the event is business related; and


•	The expenses would be paid by Synergy as a reasonable business expense, if not paid for by another party.

Entertainment of reasonable value may include food and tickets for sporting and cultural events if they are generally offered to other suppliers or vendors.


•	Advertising and Promotional Materials : You may occasionally accept or give advertising or promotional materials of nominal value. All advertising and

promotional materials provided by Synergy employees must be approved in advance by the Healthcare Compliance Officer.


•	Personal Gifts : You may accept or give personal gifts of reasonable value that are related to recognized special occasions such as a graduation, promotion, new job, wedding, birth of a child, retirement or a holiday. A gift is also acceptable if it is based on a family or personal relationship and unrelated to the business involved between the individuals.


•	Gifts Rewarding Service or Accomplishment : You may accept a gift from a civic, charitable or religious organization specifically related to your service or accomplishment.

21.6. Gifts, Meals and Entertainment Provided To Customers

Synergy does not provide any gifts or entertainment to health care professionals or other customers, including, without limitation, “reminder” gifts, such as branded mugs, pens, and notepads. This prohibition applies irrespective of the cost of the item (there is no de minimis exception), and no company representative may use personal funds to provide anything of value to a health care professional that is otherwise prohibited. Synergy may provide occasional educational items to some health care professionals (except where state law further restricts or prohibits such gifts), but only if the value of the item (i) is less than $100, (ii) is used for physician or patient education, (iii) does not have independent value to a health care professional outside of his or her professional medical practice, and (iv) has been approved by the appropriate review process prior to use. Examples of such items include: medical textbooks, subscriptions to scientific journals, copies of treatment guides, anatomical models, informational brochures, and patient starter kits.

Meals with health care professionals and other customers are generally prohibited, with the following exceptions:

•

An occasional, modest meal may be provided in connection with an informational presentation, in an office or hospital setting or outside an office or hospital setting, when deemed appropriate, provided, (i) the place and manner are conducive to informational communication that provides scientific or educational value and (ii) the location and cost comply with the restrictions set forth in Synergy’s Travel and Entertainment Policy and Guidelines; and


•	The meal is not in any way intended to influence or attempt to influence the purchase of Synergy products reimbursable by a federal or state reimbursement system.

A number of states have adopted more stringent requirements regarding the provision of gifts and meals to health care professionals and other customers, and Synergy and its employees must also comply with these requirements.

The provision of entertainment or recreational items to health care professionals and other customers is strictly prohibited. A health care professional’s spouse or other guest(s) may not be invited to participate at an event where a meal is served, even if the health care professional offers

to pay for the meal, unless the guest would independently qualify as a health care professional for whom the informational presentation would be appropriate.

21.7. Gifts, Meals and Entertainment Provided To Government Employees

Gifts, meals, and entertainment may not be offered or exchanged under any circumstances to or with any employees of the United States, state or local governments. Under some statutes, such as the U.S. Foreign Corrupt Practices Act (further described under Section 6, “Anti-Corruption Laws” ), giving anything of value to a government official to obtain or retain business or favorable treatment is a criminal act subject to prosecution and conviction. If you have any questions about this policy, contact your supervisor, Synergy’s Healthcare Compliance Officer or Synergy’s Corporate Compliance Officer for additional guidance. For a more detailed discussion of special considerations applicable to dealing with the United States, state and local governments, see Section 18, “Interactions with the Government”.


22.	Protection and Proper Use of Synergy Assets

All employees are expected to protect our assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on our profitability. Our property, such as office supplies, computer equipment, buildings, reagents and products, are expected to be used only for legitimate business purposes, although incidental personal use may be permitted. You are also required to safeguard all electronic programs, data, communications and written materials from inadvertent access by others. You may not, however, use our corporate name, any brand name or trademark owned or associated with Synergy or any letterhead stationery for any personal purpose.

You may not, while acting on behalf of Synergy or while using our computing or communications equipment or facilities, either:


•	Access the internal computer system (also known as “hacking”) or other resource of another entity without express written authorization from the entity responsible for operating that resource; or


•	Commit any unlawful or illegal act, including harassment, libel, fraud, sending of unsolicited bulk email (also known as “spam”) in violation of applicable law, trafficking in contraband of any kind, or espionage.

If you receive authorization to access another entity’s internal computer system or other resource, you must make a permanent record of that authorization so that it may be retrieved for future reference, and you may not exceed the scope of that authorization.

Unsolicited bulk email is regulated by law in a number of jurisdictions. If you intend to send unsolicited bulk email to persons outside of Synergy, either while acting on our behalf or using our computing or communications equipment or facilities, you should contact your supervisor or the Corporate Compliance Officer for approval.

All data and communications transmitted or received to or by, or contained in, Synergy’s electronic or telephonic systems is the property of Synergy. Synergy property also includes all written

communications. You have no expectation of privacy with respect to these communications and data. To the extent permitted by law, Synergy has the ability, and reserves the right, to monitor, retain and review, with or without an employee’s or third party’s knowledge, consent or approval, all electronic and telephonic communication in accordance with applicable law. These communications may also be subject to disclosure to law enforcement or government officials.

You are also required to promptly report to your supervisor, Synergy’s Corporate Compliance Officer or Healthcare Compliance Officer the actual or suspected theft, damage or misuse of Synergy assets or property.


23.	Confidentiality

One of our most important assets is our confidential information. As an employee of Synergy, you may learn of information about Synergy that is confidential and proprietary. You also may learn of information before that information is released to the general public. Employees who have received or have access to confidential information should take care to keep this information confidential. Confidential information may include research, discovery and development activities, business, marketing and service plans, financial information, product design, source codes, and manufacturing ideas, designs, databases, corporate partner or customer lists, buy-side or sell-side activity, pricing strategies, personnel data, personally identifiable information pertaining to our employees, customers, patients, partners or other individuals (including, for example, names, addresses, telephone numbers and social security numbers), and similar types of information provided to us by our customers, suppliers and partners. This information may be protected by patent, trademark, copyright, privacy and trade secret laws.

In addition, because we interact with other companies and organizations, there may be times when you learn confidential information about other companies before that information has been made available to the public. You must treat this information in the same manner as you are required to treat our confidential and proprietary information. You must treat as confidential the fact that we have a current or potential interest in, or are involved with, another company.

You are expected to keep confidential and proprietary information confidential unless and until that information is released to the public through approved channels (usually through a press release, an SEC filing or a formal communication from a member of senior management, as further described in Section 24, “Corporate Communications Policy” ). Every employee has a duty to refrain from disclosing to any person confidential or proprietary information about us or any other company learned in the course of employment here, until that information is disclosed to the public through approved channels. This policy requires you to refrain from discussing confidential or proprietary information with outsiders and even with other Synergy employees, unless those fellow employees have a legitimate need to know the information in order to perform their job duties. Unauthorized use or distribution of this information could also be illegal and result in civil liability and/or criminal penalties.

You should also take care not to inadvertently disclose confidential information. Materials that contain confidential information, such as memos, notebooks, computer disks and laptop computers should be stored securely, both at the office and outside the office. Unauthorized posting or discussion of any information concerning our business, information or prospects on the Internet is prohibited. You may not participate in or discuss our business, information or prospects in any social networking service (such as

Facebook or Twitter), blog or chat room regardless of whether you use your own name or a pseudonym, or whether you access such locations from the office or outside the office. Be cautious when discussing sensitive information in public places such as elevators, airports, restaurants and “quasi-public” areas within Synergy, such as kitchens and restrooms. All Synergy emails, voicemails and other communications are presumed confidential and should not be forwarded or otherwise disseminated outside of Synergy, except where required for legitimate business purposes.

You should also be aware that important federal and state laws govern the use and disclosure of confidential information about patients, including Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and Health Information Technology for Economic and Clinical Health Act (“HITECH”). HIPAA and HITECH impose strict limitations on the use and disclosure of protected health information (“PHI”) by “covered entities” and their “business associates.” Although Synergy itself—when engaging in functions such as clinical research and sales and marketing—is not subject to HIPAA and HITECH, Synergy recognizes that many of the organizations with which it routinely interacts may be subject to these laws. It is important to recognize the sensitive nature of patient information and maintain its confidentiality.

•

Synergy representatives should avoid situations in which the representative may be exposed to PHI without an individual’s consent. In the event a health care professional (“HCP”) or other person exposes a representative to PHI, the representative should not document or reproduce the information in any media or form. The representative must strictly maintain the confidentiality of such information.


•	Synergy representatives should take reasonable steps to avoid inadvertently reviewing, seeing, hearing about, or otherwise learning about PHI when on-site at a covered entity and immediately return to the covered entity or destroy any paper or electronic copies of PHI that are inadvertently disclosed.

•

Synergy representatives should seek only de-identified data or non-patient identified prescriber data. Under limited and specific circumstances, and in consultation with Healthcare Compliance Officer, it may be appropriate for employees to receive certain “aggregated” or “de-identified” patient information from an HCP or other third party. “Aggregated” data is information about multiple individuals that is compiled and does not allow for the identification of any one individual. “De-identified” data is data that cannot be attributed to any specific individual or used to identify any individual and usually has been stripped of certain key identifiers which, either alone or in combination with other available information, could link the information with a specific individual or be used to identify a specific individual (including the individual’s name, many elements of the individual’s address, telephone number, and social security number, among others). HIPAA regulations include strict standards for what is “de-identified.” Accordingly, before assuming information is “de-identified,” consult the Healthcare Compliance Officer.

In addition to the above responsibilities, if you are handling information protected by any privacy policy published by us, such as our website privacy policy or that pertain to contractual agreements with partners or customers, then you must handle that information solely in accordance with the applicable policy.


24.	Corporate Communications Policy

Synergy’s Corporate Communications Policy sets forth the guidelines that all Synergy employees, consultants and representatives must follow in communicating information concerning Synergy to the general public or to financial analysts, company stockholders, potential investors or media representatives. In general, communications with stockholders, investors, the media and market analysts are restricted to members of the executive management team and Investor Relations Department. All inquiries from stockholders, potential investors, the media and market analysts must be directed to the Investor Relations Department for review and response by the appropriate representative.


25.	Waivers

Any waiver of this Code for executive officers (including, where required by applicable laws, our principal executive officer, principal financial officer, principal accounting officer or controller (or persons performing similar functions)) or directors may be authorized only by our Board of Directors or, to the extent permitted by the rules of NASDAQ, a committee of the Board, and will be disclosed to stockholders as required by applicable laws, rules and regulations (including, if required, the reasons for the waiver). Waivers by any other employee may be authorized only by Synergy’s Corporate Compliance Officer or Healthcare Compliance Officer.


26.	Compliance Standards and Procedures


26.1.	Compliance Resources

To facilitate compliance with this Code, we have implemented a program of Code awareness, education and review. We have established the positions of Corporate Compliance Officer and Healthcare Compliance Officer to oversee this program. The Corporate Compliance Officer, Dan Dunham, can be reached at ddunham@synergypharma.com, and the Healthcare Compliance Officer, Patrick Griffin, can be reached at pgriffin@synergypharma.com. These Compliance Officers are individuals to whom you can address any questions or concerns. In addition to fielding questions or concerns with respect to potential violations of this Code, the Compliance Officers are responsible for:


•	Investigating possible violations of the Code;


•	Educating new employees in Code policies;


•	Conducting initial education sessions for newly hired employees to provide introductory education regarding the Code no later than the first full quarter following the employee’s date of hire;


•	Conducting biennial education sessions to refresh employees’ familiarity with the Code;


•	Distributing copies of the Code annually to each employee with a reminder that each employee is responsible for reading, understanding and complying with the Code;


•	Updating the Code as needed and alerting employees to any updates, with appropriate approval of the Board of Directors, to reflect changes in the law, Synergy’s operations and in recognized best practices, and to reflect Synergy’s experience; and


•	Otherwise promoting a corporate culture that promotes responsible and ethical conduct.

Your most immediate resource for any matter related to the Code is your supervisor. He or she may have the information you need, or may be able to refer the question to another appropriate source. There may, however, be times when you prefer not to go to your supervisor. In these instances, you should feel free to discuss your concern with the Corporate Compliance Officer or Healthcare Compliance Officer. If you are uncomfortable speaking with either of the Compliance Officers because he or she works in your department or is one of your supervisors, or for any other reason, you please contact the Chair of the Audit Committee of the Board of Directors via e-mail to jbrancaccio@orchestramv.com. You may also report your concerns anonymously and without fear of reprisal by contacting the Company's Hotline administered by Lighthouse Services, Inc., an independent third party, via the following methods:


(1)	Toll-Free Telephone:


•	English speaking (USA and Canada): 844-280-0005


•	Spanish speaking (USA and Canada): 800-216-1288


•	Spanish speaking (Mexico): 01-800-681-5340


•	French speaking (Canada): 855-725-0002


(2)	Website: www.lighthouse-services.com/Synergy


(3)	E-mail: reports@lighthouse-services.com (must include company name with report)


(4)	Fax: 215-689-3885 (must include company name with report)

Reports should be as detailed and complete as possible and include references to any supporting documentation in order to allow effective and efficient investigation. Actions prohibited by this Code involving directors or executive officers must be reported directly to the Chair of the Audit Committee through the Company’s Helpline, the Synergy Online Complaint Form or via e-mail, as described above . Of course, if your concern involves potential misconduct by another person and relates to questionable accounting or auditing matters under Synergy’s Whistleblower Policy for Accounting and Auditing Matters, you may report that violation as set forth in such policy.


26.2.	Reporting Possible Violations; Anti-Retaliation Policy

Obligations to Make Reports and Procedures : If you encounter a situation or are considering a course of action and its appropriateness is unclear, discuss the matter promptly with your supervisor, the Corporate Compliance Officer, the Healthcare Compliance Officer or the Chair of the Audit Committee; even the appearance of impropriety can be very damaging and should be avoided. If you are aware of a suspected or actual violation of Code standards by others, you have a responsibility to report it. You are expected to promptly provide a compliance resource with a specific description of the violation that you believe has occurred, including any information you have about the persons involved and the time of the violation.

Supervisors must promptly report any complaints or observations of Code violations to the Corporate Compliance Officer, the Healthcare Compliance Officer or the Chair of the Audit Committee. If you believe your supervisor has not taken appropriate action, you should contact the Corporate Compliance Officer or the Healthcare Compliance Officer. The Corporate Compliance Officer or Healthcare Compliance Officer will investigate all reported possible Code violations promptly and with the highest degree of confidentiality that is possible under the specific circumstances. Neither you nor your supervisor may conduct any preliminary investigation, unless authorized to do so by the Corporate Compliance Officer or Healthcare Compliance Officer. Your cooperation in the investigation will be expected. As needed, the Corporate Compliance Officer or Healthcare Compliance Officer will consult with legal counsel, the Human Resources Department and/or the Board of Directors. The Corporate Compliance Officer or Healthcare Compliance Officer the shall promptly inform the Audit Committee of any concerns and complaints regarding questionable accounting or auditing matters and shall promptly inform the Chair of the Audit Committee of all other reported material violations of the Code, including, without limitation, those involving officers. We will strive to employ a fair process by which to determine violations of the Code.

Anti-Retaliation Policy : Whether you choose to speak with your supervisor, Synergy’s Corporate Compliance Officer, Synergy’s Healthcare Compliance Officer or the Chair of the Audit Committee, you should do so without fear of any form of retaliation. If you report in good faith a suspected violation under the Code or raise issues or concerns regarding Synergy’s business or operations, you may not be fired, demoted, reprimanded or otherwise harmed based solely on your reporting of the suspected violation, issues or concerns. In addition, if you report in good faith a suspected violation under the Code which you reasonably believe constitutes a violation of a federal statute by Synergy, or its agents acting on behalf of Synergy, to a federal regulatory or law enforcement agency, you may not be reprimanded, discharged, demoted, suspended, threatened, harassed or in any manner discriminated against in the terms and conditions of your employment based solely on the reporting of the suspected violation, regardless of whether the suspected violation involves you, your supervisor or senior management. We will take prompt disciplinary action against any employee who retaliates against you, up to and including termination of employment. This anti-retaliation policy is intended to protect you for your good faith reporting of the suspected or actual violation, but does not extend protection or provide a defense in the event of your own poor performance or violation or breach of the Code or the policies set forth in Synergy’s Employee Handbook or employee agreements.

Procedures Upon Violation of the Code : If the investigation indicates that a violation of the Code has probably occurred, we will take such action as we believe to be appropriate under the circumstances. If we determine that an employee is responsible for a Code violation, he or she will be subject to disciplinary action up to, and including, termination of employment and, in appropriate cases, civil action or referral for criminal prosecution. Appropriate action may also be taken to deter any future Code violations.


27.	Acknowledgment Process

Synergy requires each employee to sign an acknowledgment from time to time confirming that they have received the Code and understand that it represents a mandatory policy of Synergy. New employees are required to sign this acknowledgment as a condition of employment. Adherence to and support of the Code, as well as participation in related activities and training, are considered in decisions regarding hiring, promotion and compensation for all candidates and employees. The form of acknowledgement is attached as Exhibit A to the Code.

Exhibit A

SYNERGY PHARMACEUTICALS INC.

ACKNOWLEDGMENT OF RECEIPT AND REVIEW

To be signed and returned to the Corporate Compliance Officer.

I, _______________________, acknowledge and confirm that I have received and read a copy of the Synergy Pharmaceuticals Inc. Code of Business Conduct and Ethics. I understand the contents of the Code and I agree to comply with the policies and procedures set out in the Code. I understand that the Code represents a mandatory policy of Synergy.

I understand that I should approach Synergy’s Corporate Compliance Officer or the Healthcare Compliance Officer if I have any questions about the Code generally or any questions about reporting a suspected conflict of interest or other violation of the Code.

________________________

[SIGNATURE]

________________________

[PRINTED NAME]

________________________

[DATE]

Exhibit 21

Synergy Advanced Pharmaceuticals, Inc., a Delaware corporation



SMRH:226193008.1	1

Consent of Independent Registered Public Accounting Firm

Synergy Pharmaceuticals Inc.

New York, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S3 (No.333-214013, 333-205484 and 333-177730) and Form S-8 (No.333-193340 and 333-205057) of Synergy Pharmaceuticals Inc. (the “Company”) of our reports dated March 1, 2017, relating to the consolidated financial statements and the effectiveness of Synergy Pharmaceutical Inc.’s internal control over financial reporting, which appear in this Annual Report on Form 10-K. Our report on the financial statements contains an explanatory paragraph regarding the Company’s ability to continue as a going concern.

/s/ BDO USA, LLP

New York, New York

March 1, 2017

EXHIBIT 31.1

CERTIFICATIONS

I, Gary S. Jacob, certify that:


1)	I have reviewed this annual report on Form 10-K of Synergy Pharmaceuticals Inc. (the "Registrant");


2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	March 1, 2017	/s/ GARY S. JACOB
		Gary S. Jacob
		President, Chairman of Board, and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATIONS

I, Bernard F. Denoyer, certify that:


1)	I have reviewed this report on Form 10-K of Synergy Pharmaceuticals Inc. (the "Registrant");


2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;


4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:	March 1, 2017	/s/ BERNARD F. DENOYER
		Bernard F. Denoyer
		Senior Vice President, Finance

EXHIBIT 32.1

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Synergy Pharmaceuticals Inc. (the “Company”) on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary S. Jacob, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	March 1, 2017	/s/ GARY S. JACOB
		Gary S. Jacob
		President, Chairman of Board, and Chief Executive Officer

EXHIBIT 32.2

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Synergy Pharmaceuticals Inc. (the “Company”) on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bernard F. Denoyer, Senior Vice President, Finance of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Date:	March 1, 2017	/s/ BERNARD F. DENOYER
		Bernard F. Denoyer
		Senior Vice President, Finance