The following discussion should be read in conjunction with our condensed consolidated financial statements and other financial information appearing elsewhere in this quarterly 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.

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, 2011 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 Synergy, please be advised that Synergy's actual financial condition, operating results and business performance may differ materially from that projected or estimated by Synergy in forward-looking statements.

Overview

We are a biopharmaceutical company focused primarily on the development of drugs to treat gastrointestinal, or GI, disorders and diseases. Our lead product candidate is plecanatide (formerly called SP-304), a guanylyl cyclase C, or GC-C, receptor agonist, to treat GI disorders, primarily chronic constipation, or CC, and constipation-predominant- irritable bowel syndrome, or IBS-C. CC and IBS-C are functional gastrointestinal disorders that afflict millions of sufferers worldwide. CC is primarily characterized by constipation symptoms but a majority of these patients report experiencing bloating and abdominal discomfort as among their most bothersome symptoms. IBS-C is characterized by frequent and recurring abdominal pain and/or discomfort associated with chronic constipation. We are also developing SP-333, our second generation GC-C receptor agonist for the treatment of gastrointestinal inflammatory diseases, such as ulcerative colitis, or UC.

Plecanatide

We are currently developing plecanatide, a synthetic hexadecapeptide designed to mimic the actions of the GI hormone uroguanylin, for the treatment of CC and IBS-C. Plecanatide is an agonist of GC-C receptor.

Plecanatide is covered by a U.S. patent issued on May 9, 2006 with respect to composition of matter that expires on March 25, 2023, subject to possible patent term extension, and a U.S. patent issued on September 21, 2010 with respect to composition of matter that expires on June 9, 2022, subject to possible patent term extension. We have filed patent applications to broaden our patent estate covering GC-C receptor agonists.

On October 24, 2011, we initiated dosing of patients in a Phase II/III clinical trial of plecanatide to treat chronic constipation. This study is being conducted at 110 sites in the United States and is designed to enroll 880 patients with CC who will be treated with one of three doses of plecanatide (0.3, 1.0 or 3.0 mg) or placebo taken once daily over a period of 12 weeks. The study's primary objective is the measure of complete spontaneous bowel movements, or CSBMs, using a responder analysis. The trial will also cover spontaneous bowel movements, or SBMs, and daily constipation symptoms, as well as the impact of plecanatide on disease-specific quality of life measures. On April 9, 2012, we announced that we have reached the halfway mark for total enrollment in the clinical trial with over 800 patients screened, resulting in a total of 440 randomized enrolled patients to date. We anticipate completing enrollment in the third quarter of 2012 and reporting top line data in the fourth quarter of 2012.

We are also preparing to initiate a Phase IIb clinical trial of plecanatide for the treatment of IBS-C in patients during 2012.

SP-333

We are also developing a second generation GC-C receptor analog, SP-333, which is currently in pre-clinical development for the treatment of gastrointestinal inflammatory diseases. SP-333 is a synthetic analog of uroguanylin, a natriuretic hormone which is normally produced in the body's intestinal tract. Deficiency of this hormone is thought to be one of the primary reasons for the formation of polyps that can lead to colon cancer, as well as debilitating and difficult-to-treat GI inflammatory disorders such as UC and Crohn's disease. We plan to submit an Investigational New Drug application, or IND, to the U.S. Food and Drug Administration, or FDA, and intend to initiate a Phase 1 clinical trial of SP-333 in volunteers during the second half of 2012. The study is planned to be conducted at 40 U.S. sites and enroll over 300 patients.

Recent Developments

On May 9, 2012, we closed an underwritten public offering of 10,000,000 shares of common stock at an offering price of $4.50 per share. The gross proceeds from this offering were $45 million, before deducting underwriting discounts and commissions and other offering expenses of $2,952,930. We also granted the underwriters a 45-day option to purchase up to an additional 1,500,000 shares of common stock at an offering price of $4.50 per share to cover over-allotments, if any. On June 6, 2012 the underwriters exercised of the over-allotment option resulting in additional gross proceeds of $6,750,000, before deducting underwriting discounts, commissions and other offering expenses of $405,000, bringing total gross proceeds from the offering to $51,750,000 and net proceeds of $48,387,070.

On July 20, 2012, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Callisto Pharmaceuticals, Inc. ("Callisto"). Pursuant to the Merger Agreement, following the satisfaction or waiver of each of the applicable conditions set forth in the Merger Agreement, Callisto and we will merge (the "Merger"), whereupon Callisto's separate corporate existence will cease and we will continue as the surviving corporation of the Merger. Callisto is our largest shareholder and is a development stage biopharmaceutical company focused primarily on the development of drugs to treat gastrointestinal disorders and diseases.

As a result of the Merger, each outstanding share of Callisto common stock will be converted into the right to receive 0.17 of one share of our common stock (the "Exchange Ratio") as set forth in the Merger Agreement and the 22,295,000 shares of ours held by Callisto will be canceled. Under the terms of the Merger Agreement at closing, we will issue, and Callisto stockholders will receive in a tax-free exchange, shares of our common stock such that Callisto stockholders will own approximately 38.3 percent of the combined company on a pro forma basis and our stockholders will own approximately 61.7 percent. Each share of Synergy Common Stock received in connection with the Merger shall be subject to a lock-up beginning on the effective date of the Merger and ending on the earlier of (i) eighteen (18) months after such date or (ii) a Change in Control (as defined in the Merger Agreement).

The consummation of the Merger is subject to various customary closing conditions, including but not limited to, (i) approval by Callisto's and our stockholders, (ii) the Registration Statement on Form S-4 shall have been declared effective by the SEC and (iii) the shares of our common stock to be issued in the Merger shall have been approved for listing on The NASDAQ Capital Market. Upon consummation of the Merger the related party balances due from Callisto, $1,936,609 as of June 30, 2012, will be eliminated in consolidation. Callisto's common stock currently trades on the Over the Counter Bulletin Board under the symbol "CLSP.OB", and Callisto's recent filings with the SEC are available at http://www.sec.gov.

FINANCIAL OPERATIONS OVERVIEW

From inception through June 30, 2012, we have sustained cumulative net losses of $87,190,110. From inception through June 30, 2012, we have not generated any revenue from operations and expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, if at all.

Our product development efforts are thus in their early stages and we cannot make estimates of the costs or the time they will take to complete. The risk of completion of any program is high because of the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.

CRITICAL ACCOUNTING POLICIES

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 AND SUPPLEMENTARY DATA of our Annual Report on Form 10-K as of and for year ended December 31, 2011, filed with the SEC on March 15, 2012. There have been no changes to our critical accounting policies since December 31, 2011.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

For a discussion of our contractual obligations see (i) our Financial Statements and Notes To Consolidated Financial Statements-Note 7. Commitments and Contingencies, and (ii) Item 7 Management Discussion and Analysis of Financial Condition and Results of Operations- Contractual Obligations and Commitments, included in our Annual Report on Form 10-K as of December 31, 2011 and changes in contractual obligations and commitments as reported in our Form 10-Q for the three months ended and as of March 31, 2012. There have been no changes in our contractual obligations and commitments during the three months ended June 30, 2012.

OFF-BALANCE SHEET ARRANGEMENTS

We had no off-balance sheet arrangements as of June 30, 2012.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2012 AND 2011

We had no revenues during the three months ended June 30, 2012 and 2011 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.

Research and development expenses for the three months ended June 30, 2012 ("Current Quarter") increased $5,271,818 or 224%, to $7,626,268 from $2,354,450 for the three months ended June 30, 2011("Prior Year Quarter"). This increase in research and development expenses was largely attributable to continuing the development of our plecanatide and SP-333 product candidates. The following table sets forth our research and development expenses directly related to our product candidates for the three months ended June 30, 2012 and 2011. These expenses were primarily external costs associated with chemistry, manufacturing, controls including costs of drug substance and product (CMC), as well as preclinical studies and clinical trial costs, as follows:

Three Months Ended

                             June 30,
Drug candidates        2012          2011
Plecanatide         $ 6,044,000   $ 2,019,000
SP-333                  848,000             -
Total direct cost   $ 6,892,000   $ 2,019,000

In addition, indirect research and development costs related to in-house staff compensation, facilities, depreciation, share-based compensation and research and development support services are not directly allocated to specific drug candidates. These indirect costs increased approximately $400,000 due to higher compensation, employee benefits, and scientific, regulatory advisory fees of $ 735,000 in the Current Quarter, as compared to $335,000 during the Prior Year Quarter.

General and administrative expenses increased $394,086 or 26%, to $1,918,488 for the Current Quarter from $1,524,402 for the three months ended June 30, 2011. These increased expenses were primarily the result of (i) higher compensation and related employee benefits of approximately $624,000 in the Current Quarter as compared to $430,000 during the Prior Year Quarter, (ii) higher facilities cost of approximately $305,000 in the Current Quarter as compared to $187,000 during the Prior Year Quarter and (iii) higher corporate legal services of approximately $246,000 for the Current Quarter, as compared to $153,000 for the Prior Year Quarter, as a result increased intellectual property related costs.

Net loss for the Current Quarter was $10,588,448 as compared to a net loss of $4,556,509 incurred for the Prior Year Quarter. This increase in our net loss of $6,031,939, or 132% was a result of the increases in operating expenses discussed above, and the loss resulting from the change in fair value of derivative instruments-warrants of $1,317,347 during the Current Quarter, as compared to $697,660 during the Prior Year Quarter.

SIX MONTHS ENDED JUNE 30, 2012 AND 2011

We had no revenues during the six months ended June 30, 2012 and 2011 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.

Research and development expenses for the six months ended June 30, 2012 ("Current Period") increased $9,131,832 or 238%, to $12,964,408 from $3,832,576 for the six months ended June 30, 2011("Prior Year Period"). This increase in research and development expenses was largely attributable to continuing the development of our plecanatide and SP-333 product candidates. The following table sets forth our research and development expenses directly related to our product candidates for the six months ended June 30, 2012 and 2011. These direct expenses were primarily external costs associated with chemistry, manufacturing, controls including drug substance and product (CMC), as well as preclinical studies and clinical trial costs, as follows:

                         Six Months Ended
                             June 30,
Drug candidates         2012          2011
Plecanatide         $ 10,677,000   $ 3,180,000
SP-333                   954,000             -
Total direct cost   $ 11,631,000   $ 3,180,000

In addition, indirect research and development costs related to in-house staff compensation, facilities, depreciation, share-based compensation and research and development support services are not directly allocated to specific drug candidates were $681,000 higher due

to (i) higher compensation and employee benefits of $963,000 in the Current Period, as compared to $549,000 during the Prior Year Period, as a result of increased staffing levels required to support the our Phase II/III trial which was initiated in October 2011 and (ii) higher scientific and regulatory advisory fees and expenses of $370,000 in the Current Period, as compared to $103,000 during the Prior Year Period, as we are now planning the IND filings for two new clinical studies.

General and administrative expenses increased $227,588 or 6%, to $3,649,616 for the Current Period from $3,422,028 for the Prior Year Period. These increased expenses were primarily the result of higher facilities cost of approximately $605,000 in the Current Period as compared to $397,000 during the Prior Year Period.

Net loss for the Current Period was $ 17,581,092 as compared to a net loss of $8,258,789 incurred for the Prior Year Period. This increase in our net loss of $9,322,303, or 113% was a result of the increases in operating expenses discussed above, and losses resulting from the change in fair value of derivative instruments-warrants of $1,309,401 during the Current Period, as compared to $1,036,375 during the Prior Year Period.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2012 we had $27,426,900 of cash and cash equivalents on hand as compared to $13,244,883 of cash and cash equivalents on hand as of December 31, 2011. In addition, on June 30, 2012 we held $20,160,576 in available-for-sale securities, US Treasury Bills and Notes, whereas we had no such investments as of December 31, 2011. As of June 30, 2012 we had working capital of $40,065,845 as compared to working capital of $11,561,286 as of December 31, 2011.

On May 9, 2012, we closed an underwritten public offering of 10,000,000 shares of common stock at an offering price of $4.50 per share. The gross proceeds from this offering were $45 million, before deducting underwriting discounts and commissions and other estimated offering expenses of $2,952,930. We also granted the underwriters a 45-day option to purchase up to an additional 1,500,000 shares of common stock at an offering price of $4.50 per share to cover over-allotments, if any. On June 6, 2012 the underwriters exercised all of the over-allotment option resulting in additional gross proceeds of $6,750,000, before deducting underwriting discounts, commissions and other offering expenses of $405,000, bringing total gross proceeds from the offering to $51,750,000.

We will be required to raise additional capital to complete the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. Recent worldwide economic conditions, as well as domestic and international equity and credit markets, have significantly deteriorated and may remain depressed for the foreseeable future. These developments will make it more difficult to obtain additional equity or credit financing, when needed. 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 conduct business.

If we are unable to raise additional capital when required or on acceptable terms, we 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 we would otherwise seek to develop or commercialize ourselves on unfavorable terms.

Our condensed consolidated financial statements as of June 30, 2012 and December 31, 2011 have been prepared under the assumption that we will continue as a going concern for the next twelve months. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the negative outcome of this uncertainty.