The market’s reaction to a fourth-quarter earnings report has likely provided a trading opportunity on a microcap biotech company with a potentially explosive future. Synergy Pharmaceuticals (NSDQ: SGYP), a biotech company specializing in drugs for gastrointestinal conditions, is making the leap from development-stage company to one with a potential blockbuster drug on the market. The shares dropped last week after a bigger-than-expected loss in the most recent quarter, but investors may be missing a great opportunity to profit given the company’s future based on its recently approved drug Trulance.

One of the most frequent complaints doctors get from patients is constipation. An estimated 45 million people, nearly 14% of the U.S. population, suffer from constipation, whether the cause is unknown or related to other medications or irritable bowel syndrome. As a result, based on numbers alone, Trulance has the potential to become a blockbuster drug. More important, there is no single medication that works well on a majority of patients. Indeed, it is this personal idiosyncrasy of effect that offers Trulance the potential for a big splash in the market. Do the math: If Trulance is effective in 1% of this group (450,000 patients) and costs $358 for a one month supply, the monthly revenue would be $161 million, or $1.9 billion per year. That’s greater than Synergy’s current market cap of $1.1 billion!

Synergy has enough cash to launch Trulance, but there’s little room for error. The company reported $82 million of cash on its balance sheet at the end of 2016, and a recent secondary stock offering netted $121.6 million, with liabilities totaling $52 million. The bright side is that if the medication works better than its main competition, Allergan’s Linzess, revenue should start to roll in over the next two quarters. Synergy has never made any money and is not expected to turn a profit for at least two more quarters. Estimates for the first quarter call for a loss of 16 cents per share, compared to a loss of 51 cents per share for the same period in 2016, and a loss of 31 cents per share in the fourth quarter last year. Full-year revenue is estimated at $34 million.

Having assembled a robust supply chain, Synergy is already distributing medication samples to physicians. The drug is packaged in a 30-day blister pack to ensure patient compliance, and the company is targeting physicians who are most likely to be high-volume prescribers to help flood the market with the medication. Trulance is competitively priced, and the company has received a good response from insurers and third-party payers about the price. This is a big deal these days considering the huge effect drug pricing has on company earnings.

There are no guarantees that Trulance will be a winner, as any number of things could go wrong, ranging from a sudden decline in medication reimbursement to myriad potential and unforeseen problems with the drug itself once it is released to the public. But barring something unexpected, Synergy’s Trulance is about to hit the market, which means the company’s odds of having better-than-expected quarterly results for at least the next two quarters are well above average. This is because earnings comparisons will go from losses to quite possibly significant improvements in revenue as Trulance prescriptions start to ramp up.

We already own Synergy in the Breakthrough Tech Portfolio, so we are adding an options recommendation for short-term traders looking for a quick profit opportunity. Buy the Synergy Pharmaceuticals (NSDQ: SGYP) April 21, 2017 $5.50 call option up to $0.60..

Symbol SGYP170421C00005500

I have a position in Synergy. 

—Joe Duarte and Jim Pearce

Playing the AR and VR Rally

Himax Technologies (NSDQ: HIMX) is poised to rally strongly this year after losing nearly a third of its value in 2016. Microsoft, maker of one of the most popular augmented reality systems and a key Himax client, saw slower demand for its HoloLens systems last year. That, coupled with a first-quarter 2016 earnings miss and several analysts downgrading Himax drove the shares consistently lower in 2016.

This year has been nearly a mirror image of last year, as the shares drifted before jumping sharply higher last month. Himax announced that it had beaten its fourth-quarter earnings estimate by 4 cents, while its revenue of $203.4 million blew the consensus out of the water. Microsoft is also getting ready to launch its HoloLens system for consumers sooner than expected and for a lower price than many anticipated.

Currently, only a developer version of the system, costing about $3,000, is available, but the consumer version is expected to be less than half that price. Even with its earlier release date, the consumer HoloLens still may not hit the shelves until next year or even 2019. But considering how production delays have hampered the release of other systems, Microsoft will want to kick off production earlier, which is excellent news for Himax.

So far, Immersion’s (NSDQ: IMMR) 2017 is looking a lot like Himax’s 2016. When Immersion reported final-quarter results last week, total revenue had dropped 44% to $9.3 million. Immersion also reported a net loss of $1.32 per share, compared to a net gain of 4 cents in the same period last year. Management also issued weaker-than-expected guidance for 2017, predicting a net loss of between 76 cents and $1.05, on revenue between $38 million and $42 million.

Although investors weren’t happy about this news, it’s important to keep in mind that both augmented and virtual reality are still in their infancy. Like personal computers decades ago, many potential users are still trying to figure out the value of the systems, which are slowly gaining followers.

While consumer demand for AR and VR technologies still appears weak, interest from businesses is rising. A Tech Pro Research survey conducted last year found that 67% of businesses were considering using alternative reality technology in the future, with  47% interested in incorporating virtual reality into future operations.

A report from marketing firm IDC also forecasts that combined revenue for AR and VR will reach $162 billion by 2020. AR and VR revenue totaled only about $5.2 billion last year, so this potentially explosive growth makes the PC boom seem humdrum by comparison.

It’s too soon to say which companies will come out on top, but given how inexpensive many AR and VR stocks are right now, it’s worth picking up a few prominent players, like Himax and Immersion, to increase your chances of winning big from one of them. Plus, Immersion will turn around just like Himax did.

Buy Immersion and Himax Technologies up to $12 and $15, respectively.

—Ben Shepherd