Synta Pharma Proceeds with Clinical Trial Print E-mail
Tuesday, 17 March 2009 08:50
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Synta Pharma: Price: $1.94; Market Cap (MM): $65.8
Market Perform; Simos Simeonidis, Ph.D. - Senior Biotech Analyst, Rodman & Renshaw

Synta moves forward with investment in Phase I/II trial before GSK decision  

The News: Synta announced this morning that they have dosed the first patient in an open-label, dose-finding, safety and efficacy Phase I/II study with twice-weekly, IV STA-9090, their Hsp90 inhibitor, in patients with hematologic malignancies. The company also guided they are planning on initiating additional trials with STA-9090 in other indications later this year.

Two interpretations of today"s news: We are somewhat perplexed the company has decided to go ahead with investing in an additional trial of an early stage compound this soon after the recent Elesclomol news, despite the lack of clarity on the future of the compound, and given the lack of visibility on additional funding from GlaxoSmithKline (GSK, Not Rated).

1) One way to interpret this move could be as the company believing very strongly in the potential of STA-9090 and has decided to place a significant bet behind its development, given that this is the third trial with STA-9090, with more to come this year, and the fact that we do not see any additional source of funding for Synta in the foreseeable future. Given the recent move to cut its workforce by 42%, we would have expected management to wait for the analysis of the Elesclomol data and GSK's decision before deciding on their next move.

2) Another way to interpret the move to go ahead with this trial would be that the company has some sense of the future of Elesclomol and the GSK partnership and either feel that A) "the GSK partnership is over, we are moving on to our next compound, we will move it forward by ourselves, get it to proof of concept and

we can either partner it or raise money to fund it later", or B) "the partnership will probably be salvaged and

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we will continue to invest in our early stage programs, since GSK will continue to pay for Elesclomol
"

Expected newsflow from Synta:

1) An analysis of the Elesclomol Phase III trial on what may have caused the imbalance of deaths will occur in the upcoming weeks, followed by

2) GSK's decision on whether to give the compound back to Synta and

end the partnership or continue its development and,

3) the company's guidance on what its plans are going forward.

We would expect management to explore strategic alternatives that may eventually return some value to current SNTA holders, including A) bringing in a later stage asset through a potential merger (or reverse merger), and/or B) the sale of the company's remaining assets, and the return of cash to existing shareholders. We continue to believe that given the current market environment, it would be unwise for the company to continue spending in unproven and highly risky, early stage programs.

Assuming Elesclomol is finished, what areSynta's assets right now? Given that the analysis of the data from the trial has not yet been completed, we believe there is always a small theoretical chance (we would estimate it at no more than 5%), that following the analysis of the full dataset from the trial, an explanation could arise that could exonerate Elesclomol for its role in the excess deaths in the trial and that could thus justify further development of the compound. However, we believe that this possibility is miniscule and believe that Elesclomol's development is over. Assuming this is the case, we are taking a look at Synta's remaining assets:

1. Cash: Between $75M or ~$2/share as of today ($65-$70M at YE08, plus $16M from Roche, $10M from GlaxoSmithKline, minus ~$15-$20 we assume has already been spent in '09), but with significant burn in order to further develop any other of their compounds.

2. The Roche (RHHBY, Not Rated) partnership (CRACM inhibitors): This program is certainly interesting having received some validation through the Roche partnership and could potentially be significant in a few years, but it is still a high-risk discovery effort, and thus too early to assign any significant value to in terms of share price. This is especially true in the current market environment, when investors assign little value to even late stage programs.

3. Apilimod: enrolling a Phase IIa for Rheumatoid Arthritis.

4. Hsp90 inhibitor (STA-9090): currently enrolling three Phase I trials in solid tumors and hematologic malignancies, but facing a potentially crowded development space with other more advanced Hsp90 inhibitors, including Infinity's IPI-504 (INFI, Market Outperform) and BMS' Tanespimycin (BMY, Not Rated).

Maintaining our Market Perform Rating: Based on the recent developments, i.e. the end (for all practical purposes) of the company's only advanced program, and since the only value near-term we see in the shares is in the company's cash position, which we estimate at about $2/share, we view SNTA shares as fairly valued and maintaining our Market Perform rating. We expect shares to trade below cash for the foreseeable future and we do not see a reason to own SNTA shares at this point, given that Synta in its current structure is-at best-an early Phase I/II company with still significant burn and 130 employees.




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