This is a continuation of my evaluation of Synta Pharmaceuticals. You can find the first 5 posts in the Synta Pharmaceuticals stock evaluation category.

As I’ve said before, I’m a scientist, not a business major, so feel free to point out in the comments any errors in thinking you find. I guess that goes for the science based posts as well.

As with all small biotech companies, Synta has yet to make a profit. They’ve financed their research and clinical trials through $195.4 million in private placements of common stock (venture capital) and $40.0 million from private placement of Series A convertible stock. They recently (2/6/07) went public and that brought in around $46 million. Additionally, early on, they received some money from government grants.

At the end of September, 2006, Synta had $57.6 million in the bank. Their burn rate for 2005 was $71.2 million offset a little by $2.3 million in investment income. Fourteen million was attributable to research and clinical trials pertaining to STA-4783 and $27.5 million was attributable to apilimod. The larger spending on aplimod is because it went through (failed) phase 3 clinical trials for psoriasis and Crohn’s disease in 2005.

So with about $103 million ($57.6+$46) in the bank and a burn rate of $71.2, Synta doesn’t have much time before they’ll run out of money. They estimate that they will need $40 to $60 million to complete the phase 3 trial for the melanoma drug (STA-4783), so I think the current burn rate will likely be the same or higher than 2005. The melanoma trial is supposed to start in mid-2007, with results for the primary endpoint at the end of 2008 and FDA approval (hopefully) in 2009. I guess if they reach their primary endpoint they will likely be able to get more financing (although the share value will be diluted), so they really just need to be able to make it through the end of 2008. It’s going to be a close call.

One problem with evaluating the financials of Synta at this point is that the numbers in the prospectus are fairly old (Sept 2006) and they haven’t filled a quarterly report yet, so it’s hard to get a firm grasp on when exactly the money will run out.

Next up on babybiotechs.com: The market for the drugs in the pipeline.

Filed under: Synta Pharmaceuticals (SNTA) | 1 Comment »

This is a continuation of my evaluation of Synta Pharmaceuticals. You can find the first 4 posts in the Synta Pharmaceuticals stock evaluation category.

Synta is a fairly small biotech company. As of the middle of January, they had 141 full time employees, 108 of which were engaged in research and development. Over half of those hold M.D. or Ph.D. degrees, which seems a little top heavy to me.

Synta was founded by Safi R. Bahcall, Ph.D. and Lan Bo Chen, Ph.D. Prior to becoming Synta’s CEO, Dr. Bachall was a consultant at McKinsey & Co, so he understands the business side of biotechnology. He also co-founded a biotech company focused on ion channel research, which was acquired by Synta in December 2002.

Dr. Chen is a Professor of Pathology, Emeritus, at Harvard Medical School and the Dana-Farber Cancer Institute. He is the Chairman of Synta’s scientific advisory board and seems to be the scientific side of the founding of the company. He has also co-founded multiple biotech companies that have been purchased (for stock) by Synta. I haven’t gone back and looked at the history of these transactions (with both Drs. Bahcall’s and Chen’s companies), but I get the impression that it was mostly a consolidation of multiple companies that the founders were associated with.

Before the IPO, Dr. Bahcall owned 7.8% of the shares and Dr. Chen owned 12%. The largest owner was Bruce Kovner with 27.4% of the companies shares. Caxton Corporation (a hedge fund) owns 26.9% of the company through CxSynta LLC, which is managed by Bruce Kovner. With that kind of money in the company, Kovner is obviously on the board of directors and has a high stake in the performance of the company.

Three of the members of the board (including Kovner, but not the two founders) bought an additional one million shares (1/5th of those made available) at $10 each during the IPO, so they clearly have faith in the company and think that it’s current value is around $10/share. While it would have been nice to see the co-founders investing more money, I’m more interested in Kovner’s investment (he bought $7.2 million worth) since he’s more of a business man and is less likely to be investing more just because it is his company.

Filed under: Synta Pharmaceuticals (SNTA) | 1 Comment »

This is a continuation of my evaluation of Synta Pharmaceuticals. You can find the first 3 posts in the Synta Pharmaceuticals stock evaluation category.

I won’t cover the rest of Synta’s drugs in too much detail since they are all relatively early in the pipeline, but here’s a synopsis on each:

STA-9090

STA-9090 is an inhibitor of the heat shock protein (Hsp90). Heat shock proteins in cells are responsible for making sure that other proteins fold correctly. Misfolded proteins are usually not functional, so inhibiting heat shock proteins will likely kill the cells. Many cancer cells have elevated levels of Hsp90, so this may be a way to kill cancer cells selectively. There is a lot of redundancy in the heatshock pathway, so I would be a little worried that lowering just one protein may have little effect on cell survival. On the other hand, Synta reports that STA-9090 has high toxicity (not a good thing) in preclinical animal studies, so maybe it does a good job at killing, but isn’t that specific. One advantage of attacking the heat shock proteins is that the drug can likely be used in conjunction with other treatments that affect other pathways, so it might not need to have that high of a kill rate to be effective. Synta expects to file an IND with the FDA in the first half of 2007.

STA-9584

Tumors require blood vessels to grow and even survive. If their network of blood vessels is cut off, the tumor can’t receive nutrients and the cells in the tumor will eventually die. Synta is developing a small molecule which disrupts existing vascular. This approach seems more promising than ant-angiogenesis drugs that just inhibit the formation of new vessels but can’t really kill the cells already in the tumor. The biggest thing to overcome will likely be selectivity (you don’t want to kill all your vascular system). I would imagine that they are planning on using it on tumors that can be injected into.

CRAC Channel Inhibitor

The Calcium Release - Activated Calcium (CRAC) channel is a protein complex on the surface of immune cells. CRAC channels allow calcium to enter the cells which causes activation of T-lymphocytes, mast cells, and other blood cells. The lack of activation allows for suppression of the immune system which could be used to treat graft-versus-host disease (GVHD), allergies, asthma and other immune disorders.

Ability to increase the pipeline

It’s really hard to analyze a companies ability to increase their pipeline. It’s a little bit of luck, and a little bit of skill, but the companies rarely give you a good picture of how much they’ve got of each. They’ve discovered 5 drugs in the 6 years since they were founded, so the rate of discovery seems pretty good. Some other thoughts:

They seem to use small molecules as drugs, which will almost always work better than biologicals (although harder, in my opinion, to find good candidates)

Their chemical library contains over 100,000 compounds for doing high throughput screens, but then again, so does everyone else.

Synta is large enough that they can do in vivo tests of the safety, efficacy, and pharmaceutical properties of candidate compounds in animal models. Not needing to rely on 3rd parties is a definite plus.

So, overall Synta’s preclinical pipeline looks OK. There’s nothing here to blow your pants off, but the drugs are all early in the pipeline. If I had to put my money on one of them, I’d bet on STA-9584, although the CRAC channel inhibitor looks promising as well.

With the analysis of the science for Synta done, next up at babybiotechs.com is the business side of Synta Pharmaceuticals. It may take me longer to plow through this area (since that’s not where my training lies) so please bear with me. I’ll try to keep to the same posting schedule, but the sections might be shorter.

Filed under: Synta Pharmaceuticals (SNTA) | 1 Comment »

This is a continuation of my evaluation of Synta Pharmaceuticals. You can find the first 2 posts in the Synta Pharmaceuticals stock evaluation category.

Chronic Inflammatory Diseases

IL-12 and a related protein, IL-23, are cytokines (signaling protein that gets transfered from one cell to another) which stimulates T-cells in the the immune system. T-cells normally attack bacteria and other microorganisms that enter the body. In chronic inflammatory diseases, which includes Crohn’s disease, rheumatoid arthritis, psoriasis, and multiple sclerosis among others, cells in the body express too much of the cytokine IL-12. This stimulates the T-cells to attack the body and an inflammation occurs. If you can stop the IL-12 from signaling to the T-cells, you can stop the inflammation. Typically this inhibition is carried out with antibodies to IL-12, which bind to the cytokine and inhibit its function. But antibodies can have problems with being degraded while in the bloodstream before they reach their target as well as problems with getting them into the patient at a high enough concentration to be effective. In general, small molecules make much better drugs.

STA-5326, an IL-12 inhibitor

STA-5326 (also called apilimod) is a small molecule that acts differently than IL-12 antibodies. The drug acts by inhibiting the transcription of IL-12 so that less mRNA is made. Lowering the mRNA levels results in decreased production and secretion of IL-12. Inhibition of transcription is achieved by preventing c-Rel from entering the nucleus where it acts as a transcription factor and helps stimulate IL-12 mRNA production.

The fact that it can be administered orally is a huge boost since patients (myself included) generally don’t like to have to inject themselves and I believe that all the other IL-12 inhibitors must be administered by injection.

Phase 2 clinical trials for both psoriasis and Crohn’s disease failed, which is a little worrisome, but diseases within the grouping of chronic inflammatory diseases are different enough that it’s probably worth conducting additional trials on other diseases. The psoriasis trial may have failed because the drug is taken orally and the drug may not be potent enough to reach the skin in high enough concentrations. Synta is considering making a topical version to test in an additional clinical trial for psoriasis.

STA-5326 is currently in two separate phase 2a trials, one for rheumatoid arthritis and another for patients with common variable immunodeficiency (CVID). The rheumatoid arthritis trial is only enrolling 20 patients which is probably a sign of their cash flow issues. It may not be enough to get a statistical difference, but they believe they can get enough data by measuring markers of inflammation to make it a positive trial. The second trial for CVID is being done in conjunction with the NIH and my bet is the trial is primarily being done to get the drug approved for CVID so that it can be used off-label for other diseases. Some CVID patients have gastrointestinal manifestations that are believed to be associated with high levels of IL-12 expression in the digestive tract. So they should be able to easily establish the effectiveness of STA-5326 in lowering IL-12 levels. Results for both are expected in 2007.

Next up on babybiotechs.com: The rest of Synta’s pipeline.

Filed under: Synta Pharmaceuticals (SNTA) | 1 Comment »

I’ve read quite a few interesting posts about clinical trials in the last few days and I thought I’d share them with you.

• Eye on FDA has a good post about FDA approval letters.  Mark points out that companies have all the say on how much of the content of the letter gets released and highlights the different types of spins that companies put in their press releases.
• Richard of Centient Biotech Investor points out that researchers can come to completely different results.  While not directly about clinical trials, the post has some interesting information about what end-points (survival, lack of tumor growth, etc) should be used for trials.
• Lastly PharmaGossip points out an excerpt from the book The End of Medicine on how one might trade drug company stock by timing phase 2 clinical trial announcements.  I’m more of a “find a good stock and hold it until it’s overvalued” kind of person, but it does present an idea on when their might be buying opportunities during the dips in prices.

Feel free to add any of your favorites in the comments.

Filed under: Evaluating Clinical Trials | 1 Comment »

In my last post, I mentioned that Synta had shown a doubling of progression-free survival in their STA-4783 phase 2b trial on melanomas. I thought I’d take a break from analyzing Synta and figure out if progression-free survival is really the best endpoint for them to be using (and is a doubling really all that great). I’m not a clinician nor do I have a background in running clinical trials, so if there’s anyone out there that wants to chime in, feel free to do so in the comments.

Here’s what InteliHealth reports as the definition of progression-free survival:

This term defines the length of time during and after treatment that the cancer does not grow. Progression-free survival includes the amount of time patients have experienced a complete response or a partial response, as well as the amount of time patients have experienced stable disease.

So basically progression-free survival measures how long it takes for the tumor (in this case) to start growing again. It seems like overall survival would be a better measure of a drugs effectiveness since curing the disease is the ultimate goal of medicine, but from the patients perspective, I’m not sure it’s all that bad of a measure. As I mentioned in the last post, the median survival for the late stage metastatic cancers is 6-9 months, so a doubling in progression-free survival means an extra few month of life.

This is what a graph of PFS looks like (this is from Synta’s phase 2 trial of STA-4783). The color circles are mine:

The X-axis is obviously days in the study. Progression-free Survival Probability could be labeled as “% of people in the study whose tumors started growing again” since that’s what it really is. The diamonds therefore represent the % of people in the study on any given day whose tumors hadn’t started growing. As you can see, all the people in the study eventually had tumors that started growing again. I circled the patients who seemed to have responded to STA-4783 in blue. Compare that part of the line to the part of the Paclitaxel alone I circled in red. The median progression free survival was 4.4 months for patients who received STA-4783 compared to 1.8 months with for those who didn’t. That’s a 58% increase, so that results in a hazard ratio of 0.42 (1-0.58=0.42). The P-value is a statistical test (2-sided log-rank test) which says that their is a 1.7% chance of this data occurring due to chance alone. We’d like to see that number below 5% (although the lower, the better), so it’s most likely that the difference is really due to the patients receiving the drug.

So, in my non-clinical, non-statistical expert opinion, it seems that PFS is a decent measure of a clinical trials end point.  And Synta seems to have met that goal pretty well in their clinical trial.

Filed under: Evaluating Clinical Trials | 1 Comment »

This is part two of the Investment report for Synta Pharmaceuticals.

Melanomas

Synta’s main drug is called STA-4783 which treats melanomas. Melanomas (skin cancer) affect 1 in almost 60 adults in the US in their lifetime. It affects over 60,000 people in the US every year and causes approximately 8,000 deaths. Since melanomas are on the surface and easily accessible, small tumors that haven’t spread (stages 0, I, and II) can be removed with with surgery. Drugs are mainly be used to treat stages IV and V cancers which have spread (become metastatic). Median survival for the late stage metastatic cancers is 6-9 months, so there is certainly a need for drugs to treat this stage of cancer.

STA-4783

Cancer cells often have higher levels of oxygen in them since they are actively growing. Once inside a cell STA-4783 acts on enzymatic pathways that increase oxygen radicals. These pathways change O₂ into O* (with extra electrons). The O* cause damage within the cell which results in an increased expression of heat shock proteins. The heat shock protein 70 (Hsp70) is expressed on the surface of the cell which stimulates the immune system (NK cells) to attack the tumor. Additionally, the O* can damage proteins, the DNA backbone, and cell membranes which, with enough damage, can cause the cell to initiate it’s own programed cell death (apoptosis). Because cancer cells typically contain more oxidative stress, the STA-4783 can act selectively by pushing cancer cells beyond the threshold required for programed cell death.

STA-4783 is administered intravenously (while the patient is hooked up to an IV) in combination with paclitaxel (Taxol), a microtubule inhibitor. Early phase I and II trials with 300 patients suggest that it works independently of the taxanes and that their combined effect is more than either of them individually (they have a synergistic effect). The early clinical data suggest that STA-4783 has low toxicity. Double blind phase 2b trials demonstrate a doubling of progression-free survival (PFS). They are setting up a large phase 3 trial right now and the FDA has given them fast track status for STA-4783, so hopefully a decision on approval will be quicker than normal.

Melanomas aren’t the only cancer cells with elevated oxygen levels. This drug therefore has potential to be used to treat other cancers. Synta reports pre-clinical data that suggests it is at least partially effective on breast, lung, lymphoma, and colon cancer cells as well. Additionally it can be combined with other treatments that are currently used (assuming they don’t act on the same oxygen radical stimulating pathway). They are planning to start phase two trials for other cancers (ovarian and/or non-small cell lung cancer) in 2007.

Next up on Babybiotechs.com: Synta’s IL-12/IL-23 Inhibitor, STA-5326

Filed under: Synta Pharmaceuticals (SNTA) | 6 Comments »

Basic Info

Website: http://www.syntapharma.com/
Stock symbol: SNTA
IPO date:2/6/07
Total shares outstanding:33.82M (5M offered at IPO)
Other reviews: Seeking Alpha

Drugs/Platforms

Drugs in trials:
STA-4783 starting Phase 3 trials for treatment of melastatic melanoma
STA-5326 in Phase 2 trials for the treatment of Rheumatoid Arthritus and CVID

Drugs in development:
STA-9090 a heat shock protein inhibitor for the treatment of cancer
STA-9584 a vascular disrupting agent for the treatment of cancer
CRAC Channel Inhibitor for potential treatment of graft-versus-host disease (GVHD), immune disorders, allergies, and asthma.

Financials

Income: Yeah right!
Cash on hand:62.9million (as of the end of 2005)
Burn Rate:68.9 million (for 2005)
These numbers are pre-IPO, we’ll get to the cash infusion from the IPO later.

Are their any numbers/info you’d like to see on this overview posts in the future?

Next up on babybiotechs.com: Syntana’s most promising drug, STA-4783.

Filed under: Synta Pharmaceuticals (SNTA) | Comment on this Post »

Before I get into evaluating stocks, I thought I’d talk today about my strategy for investing in small/startup biotech companies.

Drugs/Platform-High Probability of Success

Well, clearly this is the most important thing to evaluate and it’s where I’ll spend most of my time (then again, I’m a scientist, so maybe I’m biased). If the drug gets FDA approval, chances are really good that the stock is going to go up. So, we’re looking for drugs that will likely get approval, but we’ll still have to confirm that the drug has the chance to make money. If it’s got no competitor, great, but more likely we’ll have to figure out how much market share the drug can take if it’s only slightly better than its competitor; anything else is gravy.

We’ll take a look at the pipeline too, but companies don’t usually provide much information about drugs they have in the pipeline. We definitely want to invest in companies that have potential upcoming dugs, but they’re a long shot and years away at best, so drugs not currently in clinical trials won’t be counted towards potential share price. In short, we’ll count the lack of a pipeline as a strike against the company, but you don’t get any credit for having someone warming in the bullpen.

People-Money Before Brains

Now, you’d think that the most important thing in terms of management was how smart they are. While that’s important, and we’ll certainly take a look at it, I’m more interested in how invested the top management people are in the company. If their shirt is on the line, I figure our interests (share price) will be aligned. After a stock purchase, this is something to keep an eye on. If you see insider selling, it’s a good idea to reevaluate your position. On the other hand, if you see them buying more shares, it’s a sign they have confidence in their potential product; you might want to have a second look and add to your position.

Financials-Burn Rate Is King

Since the companies I’ll be evaluating generally don’t have any profits, the number one criteria for evaluating their financials is their burn rate. If they don’t have enough money to last until they get their first drug to market, they’re going to have to get more financing (by taking on a development partner, selling the rights to the product, or by offering more shares). This usually results in a lower share value because of the loss (or dilution) of the potential profits.

Bringing It All Together-A Formula

So assuming no red flags have popped up in the above sections we can use a simple formula for figuring out stock price:

(Drug market * Expected market share * Chance of getting to market)/ total shares=Expected earnings per share

Expected earnings per share * expected PE = Buy price

If the actual stock price is lower, then it’s a buying opportunity. Does that mean you should buy? Well, maybe, but maybe not. The two I put in bold are basically educated guesses. You have to feel comfortable that your guesses are correct. Also, you need to balance your risk. If a drug has a 5% chance of getting to market, it doesn’t really matter if it’s a current bargain, because it’s still a long shot. The law of averages says you need to invest in a lot of those (about 60) to make sure you’re going to make money.

Next up on babybiotechs.com: Synta Pharmaceuticals

Filed under: Investment Strategy | 1 Comment »