Synta: Share Price Not Reflecting Ganetespib Value Proposition

I would suggest that investors take a look at Synta Pharmaceuticals (SNTA) for investment purposes, ahead of several catalysts upcoming in 2013 and 2014. SNTA's lead drug is called Ganetespib, a Heat Shock Protein 90 (HSP90) inhibitor being tested in roughly 20 clinical trials across a variety of cancer types.

HSP90 Inhibitors: One Shot, Multiple Goals

HSP90 is a chaperone protein that binds to client proteins in a cell and supports their activation by aiding in their folding and stabilization. As such, a drug that can inhibit the HSP90 protein can prevent the activation of the client proteins, degrade them, and lead to cell death. In essence, HSP90 inhibitors in a cancer cell can block multiple cancer pathways at once, mitigating the need for specific inhibitors to target each separately. However, as HSP90 is downstream and the client proteins are upstream, HSP90 inhibitors can also be sequenced or combined with inhibitors of specific protein classes (ALK, EGFR, RAF, HER2, VEGFR, and others) to improve the prognosis for cancer patients. Also, since HSP90 is observed across a multitude of tumor types, HSP90 inhibitors can potentially be developed to treat various forms of cancer.

Galaxy Trial Design

The most advanced of SNTA's HSP90 studies is a Phase IIb/Phase III study called Galaxy evaluating Ganetespib as second line treatment for Grade IIIb/IV non-small cell lung cancer (NSCLC). The study which is testing Ganetespib and Docetaxel against Docetaxel alone has an operationally adaptive design which means that results from the biomarker driven Phase IIb portion of the study will be used to enrich Phase III enrollment. Study biomarkers include presence of high LDH and mutated KRAS. The co-primary end-points of the trial are Progression Free Survival (NYSE:PFS) in the KRAS+ and elevated LDH sub-populations, and secondary endpoints include PFS and Overall Survival (O/S) in all adenocarcinoma patients. The Phase IIb and Phase III parts will enroll 240 and 500 patients, respectively.

Updated Galaxy Data Presented at ESMO 2012

Interim results (n=172) from the Phase IIb part of the trial evaluating adenocarcinoma patients were reported at the 2012 European Society of Medical Oncology (ESMO) meeting. Patients demonstrated median PFS of 2.8 months vs. 4.2 months (p=0.076) and median ORR of 8% vs. 16% (p=0.078) for the Docetaxel alone arm compared to the Ganetespib and Docetaxel arm, respectively. Note that the delta between the two arms for PFS and ORR was not statistically significant at the time of the data readouts, however since the data is still maturing that could change in the final analysis.

Additionally, although, the median O/S was not reached in the treatment arm (was 7.4 months for the comparator arm), Kaplan-Meier curves of the two groups diverged at 100 days (in case of the completely enrolled patient group in each arm and those that were followed for over 6-months) representing a clear favorable O/S benefit signal. The drug was safe and tolerable and number of patients presenting with ocular toxicities at 5% in the treatment arm was significantly lower than those experienced with other HSP90 inhibitors. Adverse events were mostly Grade 1/Grade 2 level fatigue and diarrhea and limited Grade 3/Grade 4 neutropenia. The preliminary data indicates that Ganetespib is most likely to benefit patients suffering from adenocarcinoma and those whose tumors were diagnosed more than 180 days ago at time of study enrollment. SNTA is set to release an updated data read on the Phase IIb in 1H2013 with final results expected by YE2013.

Galaxy Phase III Enrollment to Begin in Early 2013

The Phase III part of the Galaxy trial will enroll 500 adenocarcinoma patients with advanced disease that have had one prior round of chemotherapy. Patients will be randomized 1:1 to receive Ganetespib + Docetaxel or Docetaxel alone. The design, dose, and schedule of the Phase IIb part of the study will be replicated in the Phase III portion of the study, thereby de-risking trial results to some extent. The primary end-point of the trial will be median O/S. Interim data from the study will be reported in 1H2014 with complete analysis expected by YE2014.

HSP90 Inhibitors: Competitive Landscape

Ganetespib's primary competitor in the KRAS+ NSCLC sub-population will be Selumetinib a MEK inhibitor which has completed Phase II testing. The drug is undergoing clinical advancement under Astra Zeneca (NYSE:AZN) that out-licensed global rights to the compound from Array Pharmaceuticals (NASDAQ:ARRY). In final results from the Phase II study that investigated Selumetinib + Docetaxel against Docetaxel alone, the treatment arm demonstrated statistically significant PFS benefit (5.3 months vs. 2.1 months) and ORR (37.2% vs. 0%) against the comparator arm. However, the O/S data from the study did not reach statistical significance. Still, the Selumetinib final Phase II data appears more robust when compared with interim results from the KRAS+ sub-population of the Galaxy Phase IIb, but the trial is still ongoing, with a data update expected in 1H2013 (final PFS) and a complete analysis anticipated only in 2H2013 (final O/S). Note that Selumetinib is being developed in lung cancer to treat KRAS+ NSCLC whereas Ganetespib is under investigation as treatment for several categories of NSCLC with KRAS+ NSCLC representing a niche opportunity. The safety and tolerability profile of Ganetespib with a lower incidence of Grade III/Grade IV adverse events is favorable when compared with Selumetinib.

Interim Phase IIb Ganetespib Data vs. Final Phase II Selumetinib Data in KRAS+ NSCLC

Source: Interim Galaxy IIb Results June 2012; ASCO 2012 Selumetinib Abstract;

Additional HSP90 inhibitors under investigation for various forms of lung cancer have demonstrated significant ocular toxicities. AUY-922 from Novartis (NYSE:NVS) is under Phase II investigation for EGFR mutant and KRAS+ NSCLC. Debiopharm is currently running the Phase I/II HALO study to evaluate Debio0932 in EGFR+ NSCLC. Debio0932, if approved might have an advantage over HSP90 inhibitors in that it is an oral drug in a space populated with injectables. Astex Pharma's (NASDAQ:ASTX) AT13387 is currently being tested in a Phase II trial for ALK+ NSCLC.

Eye Toxicity Levels Observed With HSP90 Inhibitors

HSP90 Inhibitor Company Ocular Toxicity (%)
Ganetespib Synta <3%
AUY-922 Novartis 89%
AT13387 Astex >50%

Source: Synta ESMO 2012 Presentation

On Market Therapies for NSCLC

Currently marketed therapies (Bevacizumab, Pemetrexed, Erlotinib, and Crizotinib) have demonstrated moderate efficacy with either significant side effects or marginal survival benefits, and a couple of treatments are limited to certain sub-types of NSCLC. Additionally, there is a trend towards using multiple agents, in combination or sequenced, to improve the prognosis for lung cancer patients. Based on the promising preliminary data, Ganetespib appears to be a best in class effective compound with a superior safety and tolerability profile than other agents under development. Ganetespib restricts tumor metastasis by limiting cancer cell proliferation and is anti-angiogenic. Importantly, Ganetespib appears to be silencing the hypoxic effect seen with Bevacizumab, which although effective in destroying a large number of cancer cells makes those that survive more aggressive, leading to increased metastasis. Ganetespib data readouts from early trials and interim results from the Phase IIb Galaxy study have not yet shown the rebound effect seen not only in patients on Bevacizumab, but also in those on other tyrosine kinase inhibitors such as Crizotinib.

Partnership Opportunities Ahead and Near Term Share Dilution Risk Mitigated

Ganetespib is currently unpartnered in all indications and in all geographies and is patent protected until 2025. SNTA raised $60 million in a registered offering in December 2012 taking the outstanding shares count to ~67.7 million. Incorporating the company's pre-raise guidance for YE2012 cash and equivalents balance in a range of $38 to $40 million would mean the company begins 2013 with roughly $98 to $100 million on its balance sheet. Given, the company's typical burn rate, I estimate SNTA is well funded until YE2013.

SNTA Significantly Undervalued

There are roughly 225,000 and 400,000 new cases of lung cancer diagnosed in the U.S. and Europe every year. Out of the newly diagnosed cases ~85% are NSCLC, of which ~30% to ~40% are adenocarcinomas, the addressable market for Ganetespib in NSCLC. Based on these data points and assuming a revenue multiple of 5, a market penetration of 15%, and an estimated price of treatment/year of $45,000 in the U.S. and $34,000 in Europe, I estimate a $12.80/share value for Ganetespib in NSCLC. I have assumed a Probability of Success of 45% and discount rate of 20%. I have considered my revenue estimate for 2018 in the U.S. and 2019 in Europe respectively.

There is upside to my value/share if Ganetespib is used in combination therapy or sequenced with inhibitors of individual oncogenes (ALK, EGFR, ROS1 etc) as treatment for niche categories of NSCLC; and/or if the compound secures regulatory approval for one or more indications that it is currently being investigated in. In addition, my estimate for price of treatment/year is conservative and based on average treatment cost/year for Erlotinib and Pemetrexed. If SNTA decides to price Ganetespib (if approved) at a premium, revenue estimates and value/share for the drug would increase accordingly.

Ganetespib is also being examined in the Phase II Chiara study in ALK+ NSCLC. Based on 5x conservatively estimated 2019 U.S. and 2020 European revenues for the indication, I reach a value of $1.50/share for the drug if approved.

Combining the value/share for both indications I arrive at a 1-yr Price Target for SNTA of $14.30/share.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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