Synta Pharmaceuticals Corp. Q4 2007 Earnings Call Transcript

Mar.20.08 | About: Synta Pharmaceuticals (SNTA)

Synta Pharmaceuticals Corp. (NASDAQ:SNTA)

Q4 2007 Earnings Call

March 20, 2008 10:00 am ET

Executives

Rob Kloppenburg - VP of IR and Corporate Communications

Safi Bahcall - President and CEO

Keith Erhlich - VP and CFO

Eric Jacobson - SVP and CMO

Jim Barsoum - SVP of Research

Analysts

Mike King - Rodman & Renshaw

Jason Kantor - RBC Capital Markets

Jim Reddoch - Friedman, Billings, Ramsey

Joel Sendek - Lazard Capital Markets

Robyn Karnauskas - Bear Stearns

Operator

Good day and welcome to the Synta Pharmaceuticals Fourth Quarter and Year-end 2007 Financial Results Conference Call. (Operator Instructions)

At this time, for opening remarks, I would now like to turn the conference over to Rob Kloppenburg, Vice President of Investor Relations and Corporate Communications at Synta Pharmaceuticals. Please go ahead, sir.

Rob Kloppenburg

Hello and thank you all for taking the time to join us today. With me are Dr. Safi Bahcall, President and Chief Executive Officer of Synta Pharmaceuticals; Keith Erhlich, our Vice President and Chief Financial Officer; Dr. Eric Jacobson, Synta's Senior Vice President and Chief Medical Officer; and, Dr. Jim Barsoum, the Senior Vice President of Research.

This morning we issued a press release that reported results for the fourth quarter and full year ended December 31, 2007. This release can be found on our website at www.syntapharma.com.

Before we go any further, I'd like to remind everyone that we will be making forward-looking statements during this teleconference call. Such statements, including statements relating to the timing and progress of clinical trials, and further financial guidance for 2008, reflect our current views with respect to future events, and are based on assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Risks and uncertainties include the risks that the results of completed clinical trials may not necessarily be predictive of results in a larger, later stage clinical trials, and the other risks and uncertainties described under Risk Factors in our Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission.

Synta undertakes no obligation to publicly update forward-looking statements, whether because of new information, future events or otherwise, except as required by law.

I will now turn the call over to Dr. Bahcall, after which we will open the floor to questions. Safi?

Safi Bahcall

Thank you, Rob, and thank you all for joining us this morning. Today, I'll briefly review progress we've made since our last call, and also provide an overview of what you can expect from Synta in 2008. However, before I do that, I want to provide a strategic context for this discussion. In terms of product pipeline, the market opportunity and financial strength, we believe Synta today is in a very attractive strategic position.

Our lead product, elesclomol is in Phase 3 clinical trail in melanoma with data expected within the next 12 months. This is a confirmatory trial that mirrors the design of our prior positive Phase 2b trial. In stage for metastatic melanoma with median survival of six to nine months and preferred first-line treatment being a clinical trial, we are clearly targeting a severe need in an underserved market. We have the opportunity to define first-line standard-of-care to transform the treatment paradigm. This is a very exciting opportunity.

In addition to the opportunity in first-line melanoma and other applications to melanoma, such as second-line (inaudible). We have strong reason to believe the oxidative stress-induction mechanism will apply to other cancer types. We are eagerly looking forward to initiating new clinical trials for elesclomol later this year.

Finally, following elesclomol, we have a strong pipeline of promising drug candidates, all internally generated, that are advancing rapidly. We believe this pipeline, and our discovery engine, provide a foundation for long-term sustainable growth for many years to come.

The strength of our pipeline and the size of the market opportunities are two important elements of our strategic position. The third important element is our partnership with GSK for elesclomol. This agreement strengthens our balance sheet, reduces our cost, provides nearly a $1 billion in potential milestone payments, and strongly enhances our ability to launch and market the compound in multiple indications.

This partnership puts us in a strong financial and operating position with the cash and capabilities to advance and expand the reach of elesclomol, to advance the other drugs in our pipeline, and to take us from where we are today through product launch and ultimately to a fully integrated multi-product commercial organization.

Our position today and vision for the future make our immediate priorities for 2008 quite clear. Our top priority is excellence in the execution of our Phase 3 program. The second priority is advancing the potential of our pipeline to create long-term sustainable growth. This includes initiating new trials for elesclomol, continuing development of apilimod in RA, advancing our Hsp90 inhibitor, which is currently in two Phase 1 trials, and bringing our other programs closer to the clinic.

I will now turn the call over to Eric to provide some additional specifics for each program

Eric Jacobson

Thank you, Safi. I will summarize where we are with each program, and what you can expect over the course of the year. We have initiated the majority of clinical sites for our Phase 3 trial for elesclomol, and are now actively screening and enrolling patients across four continents; North America, Europe, South America, and Australia.

We have set ourselves an ambitious goal of completing enrollment by the end of the year. While this is an aggressive goal, the quality and strength of our Phase 2b data, the attractive safety profile, and the lack of treatment options for patients with Stage 4 melanoma, make this an appealing trial for both patients and physicians.

There are no changes to our timeline guidance of completing enrollment by the end of the year, data availability shortly thereafter, NDA filing in the first half of 2009, and product launch by the end of 2009. In order to maintain the integrity of this pivotal trial, we do not plan to comment on any ongoing aspects of the trial or enrollment beyond updating our timeline guidance.

I want to make a point about the trial design, since we are often asked this question. As you know, the primary endpoint is PFS. The final endpoint analysis is triggered when two criteria have been satisfied. First, a minimum number of PFS events must have occurred. That number is determined by assuming 90% statistical power to detect an improvement from three-month PFS in the control group to five-month PFS in the treatment group.

With these assumptions, the trial required a minimum of approximately 160 events. We believe this is a conservative powering based on what we saw in the Phase 2b trial in first-line patients, which was 1.8-month in the control group, and 7.1-month in the treatment group.

Secondly, and importantly, our SPA requires enrolling the last patient before conducting the primary PFS analysis. Because of this, the data cutoff is not necessarily event-driven and may be enrollment-driven. This means that the final power may be much greater 90%, and, in fact, our projections suggest the power may be closer to 99%.

In the second half of this year, an interim safety and non-futility analysis will be conducted by an independent Data Monitoring Committee. The company will be blinded to this analysis. The DMC will provide us with a recommendation to continue or stop the trial.

In the second half of this year, we also expect to initiate new trials of elesclomol with the sodium salt formulation. A current form of elesclomol is mixed and co-administered with paclitaxel. The new formulation, dissolved in water or saline, will allow us to explore combinations with other anti-cancer agents, as well as being a single agent.

As we have said previously, we believe that oxidative stress induction is an exciting new anti-cancer approach. We believe that cancers that are most vulnerable to an oxidative stress inducer, such as elesclomol, are the ones that have the highest levels of oxidative stress, the ones where cancer cells are closest to the breaking point separating survival and apoptosis. These cancers include, in addition to melanoma, breast, prostrate, ovarian, pancreatic, and hematological malignancies.

We believe the favorable safety profile of elesclomol and the potential for synergy with frontline agents create a very attractive development path and sizable growth opportunities. A fuller discussion of elesclomol and the mechanism of oxidative stress will be presented next week at our Analyst Day in New York on Tuesday, March 25.

Our second cancer drug is STA-9090, our Hsp90 inhibitor. That compound is enrolling well in two ongoing Phase I dose-escalating trials in solid tumors. The goal of these trials is to identify the appropriate dose and schedule for further developments. Timing and location for presenting results from this program depend, as with all Phase I trial, on how high we need to escalate the dose.

We, and our investigators and academic collaborators, are excited by what we have seen with this compound and have, therefore, decided to initiate a third trial in hematological cancers later this year.

Apilimod, or STA-5326, is an oral inhibitor of cytokines IL-12 and IL-23, and is our most advanced drug for inflammatory diseases. This past quarter we completed analysis of our Phase 2a biomarker study in rheumatoid arthritis and reviewed those results with the investigator. The results showed encouraging signs of clinical and biomarker activity.

Based on those results, we have decided to enroll an additional cohort of patients in order to explore a higher dose. We expect to complete enrollment of this cohort by the end of the year and make further decisions about this program by then, or the early part of next year.

In addition to our three clinical stage programs, we are enthusiastic about the data from our earlier stage programs, our vascular disrupting agent, STA-9584 for treating cancer, and our CRAC ion channel inhibitor for treating inflammatory diseases.

And now, I will turn the call back over to Safi.

Safi Bahcall

Thank you, Eric. Our goal is to create a pipeline that provides strong long-term growth opportunities beyond elesclomol. We believe that the programs Eric just discussed, and others we are working on, create the foundation for a very strong pipeline.

We are fortunate to have the resources that allow us to advance each of these programs to the next set of value driving milestone. Because we have the capital and the capabilities, and because we believe in these programs, our inclination generally is to retain the right to these programs for Synta. That being said, we do look at interesting partnership opportunities, and if they fit with our objectives, we may choose to partner additional program.

I will now turn the call over to Keith Ehrlich, our Chief Financial Officer.

Keith Ehrlich

Thank you, Safi, and good morning.

In the fourth quarter of 2007, we began recognizing revenue under our partnership agreement with GSK. The $80 million upfront payment we received in November 2007, together with the $260,000 estimated value of an option to require GSK to purchase $25 million of our common stock, is being recognized over a performance period estimated as the 15-year period through the earliest exploration of the related patents.

In the fourth quarter and year ended 2007, we recognized $743,000 of collaboration revenue. Going forward, the expected collaboration revenue recognition from the upfront payment and the option will be $1.3 million per quarter.

For the quarter ended December 31st, 2007, we reported a net loss to common shareholders of $15.5 million or $0.46 per share, compared to a net loss to common shareholders of $13.3 million or $0.60 per share for 2006.

For the year ended December 31st, 2007, we reported a net loss to common shareholders of $122.1 million or $3.76 per share, compared to a net loss to common shareholders of $59.1 million or $2.66 per share for 2006. Included in the net loss to common shareholders for the year ended December 31st, 2007 was a non-cash charge of $58.6 million for the beneficial conversion of preferred stock in connection with our IPO in February 2007. In 2006, there was a non-cash charge for accrued preferred stock dividends of $1.9 million. The net loss before the non-cash charges was $63.5 million and $57.3 million in the years ended December 31st, 2007 and 2006, respectively.

R&D costs increased from $50.5 million in 2006 to $52 million in 2007. This increase was principally due to costs incurred in initiating our SYMMETRY trial in 2007, offset by reduced costs associated with completion of a Phase 2b trial for apilimod, as well as completing pre-clinical development for STA-9090.

G&A expenses increased from $8.6 million in 2006 to $14.9 million in 2007, principally as a result of the incremental legal, accounting, D&O insurance, investor relations and compliance costs incurred in connection with operating as newly public company in 2007. The expansion of our business and commercial development activities also contributed to this increase.

The company ended 2007 with $115.6 million in cash, compared to $46.8 million at the end of 2006. At the end of 2007, our cash and cash equivalents consisted of cash deposited in a highly rated financial institution in the United States, and in short-term money market funds. Subsequent to year-end, we transferred our invested funds to a short-term US treasury money market fund.

Based upon our current operating plans, we expect to end 2008 between $60 million and $75 million. This includes the $40 million to $50 million in anticipated operational progress milestone payments from GSK, as we previously guided, and assume no further income from other partnerships or financing events.

Safi Bahcall

Thanks, Keith. I will conclude by just saying that with the Phase 3 drug, high quality clinical data, the opportunity to define first-line standard of care in a devastating disease, strong cash position, a strong partnership, and a rapidly advancing pipeline, these are very exciting times for Synta. And I want to thank all of our employees and collaborators who are working so hard to bring our drugs to patients.

I will now open the call to questions and discussion. Operator?

Question-and-Answer Session

Operator

Thank you, Dr. Bahcall. (Operator Instructions) Our first question comes from the line of Mike King with Rodman & Renshaw. Please proceed with your question.

Mike King - Rodman & Renshaw

Can you hear me?

Safi Bahcall

Yeah.

Mike King - Rodman & Renshaw

I am sorry. I have this tendency to disconnect myself. You gave me a fright there. Congratulations on your progress throughout the year, apologies for my voice, I am fighting a cold. Just thanks for the color on the execution of the SYMMETRY trial. I was wondering if you guys could perhaps talk about a couple of things: so you need 160 events, and if we just do some rough math depending on how you want to look at the outcomes; if you take an average between the two, whether it’s three to go in the five or 1.8 go in the seven, we are looking at a range of about a four to five month time period before you could get the requisite 160 events after last patient enrolled. Is that an appropriate way to think about it?

Safi Bahcall

Mike, this is Safi: let me just clarify the way this trial is designed, which is that we can unblind the data to the analysis after the last patient is enrolled. So, if the last patient is enrolled on Monday we can do the analysis on Tuesday. The point is that we can begin that analysis before the last patient is enrolled; in other words, do the data cut off and begin all the process before then. So, in fact, we would expect to have data shortly after completing enrollment and we wouldn't need to wait five months after completing enrollment. Is that?

Mike King - Rodman & Renshaw

Well, no. What I am saying is, there is sort of a minimum number enrolled to get 160 events, followed?

Safi Bahcall

Right. So, let me just give you an example. If enrollment is going to finish in month X, and you have 160 events month, X minus three months before them, then you would start your analysis around, and then do your data cut off before then. But, by the time you reach enrollment you are looking at a database which has at least 160 events, and you would have your data shortly after completing enrollment.

Mike King - Rodman & Renshaw

Okay, so you would do the data cut off, but the analysis wouldn't be done till the last, so you don't have to spend alpha constantly looking at the data, is that correct?

Safi Bahcall

That's correct. You never look at unblinded data until the last patient has been enrolled.

Mike King - Rodman & Renshaw

Okay. So that maintains the integrity of these statistics.

Safi Bahcall

That's right.

Mike King - Rodman & Renshaw

Okay. That's great, that's certainly helpful. Okay, so that answers my question, which was going to be if you stop, if you announce that you've hid your requisite PFS events, and you've had a benefit, then how do you keep the study blinded, but, obviously, you are not going to do that till everyone's enrolled.

Safi Bahcall

That's right. No one looks at unblinded data until after the study is enrolled.

Mike King - Rodman & Renshaw

Okay. So let's say the day after the last patient is enrolled, you have a significant effect on PFS, then what happens? The control arm rolls to active drug or what happens after that end point?

Safi Bahcall

It would be reviewed by an independent data monitoring committee; we may very well want to discuss that with the FDA before any decisions are made. There is certainly no plan and nothing in the trial to stop it early.

Mike King - Rodman & Renshaw

Right. No, I am not asking about stopping early, but all I am saying is that, are people on the control arm going to be given the opportunity to cross over?

Safi Bahcall

There is nothing in the design in the current trial to allow a crossover. If patients are going to be crossed over, it would have to be because the trial has been stopped early.

Mike King - Rodman & Renshaw

Got it. Understood. Okay. And then my next question is, you have talked about doing other tumor types with the new sodium salt formulation, but I am wondering, since you had in the Phase 2b benefiting both treatment naïve and treatment experienced patients, why would it not make sense to go immediately to a second-line, melanoma population.

Safi Bahcall

We've been approached by many folks in the melanoma community to do exactly that, and that is something we are very seriously considering.

Mike King - Rodman & Renshaw

But are you telling me that, is it wrong to think that that's a kind of a path of least resistance before you might do, whatever other [cancer] sensitive tumor types.

Safi Bahcall

There is very-very high need for second-line therapy in melanoma. I think we've got a lot of the interest and enthusiasm in the melanoma community and a lot of familiarity with this compound in the melanoma community. So it certainly is a very attractive path to look at second line melanoma. Looking at other cancer types is also something that is of importance, so both of those are on our priority list.

Mike King - Rodman & Renshaw

Great. I'll get back in queue, thanks.

Operator

Our next question comes from the line of Jason Kantor with RBC Capital Markets. Please proceed with your question.

Jason Kantor - RBC Capital Markets

Thanks. Question on the cash burn guidance. It seems, if you bring in $40 million to $50 million, you are really projecting quite a significant step-up in expenses. I guess the question is, do you see that spread more or less equally over the quarters, or are you ending the year on a R&D budget that's close to double where you are now?

Eric Jacobson

Well, I think that you're right in the ramp-up, as we really get going in this trial and preparing for the NDA submission. I think you'll see a regular ramp-up through the year as the trial comes on-stream. As you know, as we said, we will probably expect to be fully enrolled by the end of the year.

Jason Kantor - RBC Capital Markets

I guess not a lot of history in terms of giving annual guidance -- the IPO just last year. But what is your general, I don't know, theory on this? I mean is this extremely conservative? It seems like you're projecting very aggressive expense ramp, and I'm just not sure how to interpret that.

Safi Bahcall

Jason, this is Safi. I wouldn't say it's a very aggressive ramp. If you consider where we are, which is a Phase III international pivotal study for a drug that we all think could be a very, very big drug that transforms achievement of this disease, I think we're spending in a pretty economical and efficient way to get this drug to the point where we could submit a good regulatory package. So, I think this is a very reasonable and economical budget. That being said, as Keith said, we have a fairly wide range in our guidance, and we end the year with what is a very good cash position for moving all of our programs forward.

Jason Kantor - RBC Capital Markets

Okay. And then, in terms of the funding from Glaxo, what is that going to be tied to and should we think of that as being more backend weighted in the year?

Safi Bahcall

We can't really say anything more besides what we've said in the filings, which is that it's tied to operational progress milestones.

Jason Kantor - RBC Capital Markets

Okay. All right. Great. So, we should expect the data then most likely in early part of 2009 in the first quarter?

Safi Bahcall

Yeah. What we've said is our target is completing the enrollment by the end of the year and having data shortly thereafter. So it could be by the end of the year or the early part of '09.

Jason Kantor - RBC Capital Markets

Okay. Great. Thank you very much.

Operator

Our next question comes from the line of Jim Reddoch with Friedman, Billings, Ramsey. Please proceed with your question.

Jim Reddoch - Friedman, Billings, Ramsey

Good morning. A couple of quick questions on the upcoming non-futility analysis. By the way, I like the way you call it a non-futility rather than a futility analysis, something with the glass half full. So what triggers this analysis and is it more of a PFS or OS or just enrollment-driven analysis? And then, also, how will you announce it? It just seems like it would be possibly material to tell us all that it's continuing. Thanks.

Eric Jacobson

This is Eric Jacobson. The interim analysis is conducted when the trial has achieved its certain fraction of the number of PFS events that are required based on our powering assumptions. And, then that's reviewed unblinded by the DMC. We remain blinded to all that data, and then the DMC will basically give us a recommendation as to whether to continue or stop the trial.

Safi Bahcall

And we would expect to announce just what the final conclusion of that was.

Jim Reddoch - Friedman, Billings, Ramsey

Okay, guys. So we will hear about that. And then, what's the criteria for apilimod continuing in RA? Is this mix part of the development a randomized design. Thanks.

Safi Bahcall

Well, the trial is a placebo controlled, randomized design, currently. As we noted, we saw some encouraging data from the initial cohorts of patients, we are adding an additional cohort. The primary endpoint is a biomarker endpoint based on synovial tissue analysis. And basically, we are looking at the biomarker and the tissue, as well as clinical endpoints and then we will review that data with the investigators and the advisors, and decide next steps for development.

Jim Reddoch - Friedman, Billings, Ramsey

In terms of your R&D spending breakdown, how much would you say if you were not developing apilimod? Not that it's not a good drug, but I am just curious about the breakup.

Safi Bahcall

It's a relatively minimal investment. I think we need to move on, because there are quite a lot of people on this call, in the queue.

Jim Reddoch - Friedman, Billings, Ramsey

Thanks.

Safi Bahcall

Thanks, Jim.

Operator

Our next question comes from the line of Joel Sendek with Lazard Capital Markets. Please proceed with your question.

Joel Sendek - Lazard Capital Markets

Hi, thanks. Good morning. Just wanted to talk about the enrollment a little bit further, so can you tell us, I mean you said that (inaudible) of your sites are initiated. Can you tell us what that number is? And if not, can you tell us when you expect to get the 450 sites up?

Safi Bahcall

We would expect to get the 450 sites up at some point within the next several weeks, beyond that we can't really comment.

Joel Sendek - Lazard Capital Markets

Okay. That's fair. And then as far as what you said about the power and how the power might go up in the event that you have more events, part of the last patients being enrolled. Is that suggesting that the enrollment might go a little bit slower than you initially thought? Or, am I reading too much into it. I mean, I know you're trying to or when you did the original trial design, did you calibrate it so you would plan to get 160 events around the time of the last patient enrolled. Can you talk a little bit about that?

Safi Bahcall

Yeah. I wouldn't have interpreted that, what we read today in the call is simply a point of clarification. It was exactly true before we started the trial, let's say, trial design point. And we just want to emphasize since we've gotten a number of the questions over the last few months that the trial may not necessarily be event-rate driven. So that you may end up with a lot more events than you need for a 90% power. And that just has to do with our agreement with the FDA and the SPA to not do the analysis until we've completed the enrollment of the last patient. It has nothing to do with anything ongoing with the trial, just clarifying the design and the requirements, of how the primary endpoint analysis gets conducted.

Joel Sendek - Lazard Capital Markets

Okay. That's good. I understand it now. And then the minimum power effectively is 95% and it could be much greater.

Safi Bahcall

The minimum power is 90% and it may well be much greater.

Joel Sendek - Lazard Capital Markets

90%. Okay. And my final question, just quickly on 9090, might we see any data on that this year? And if so where?

Safi Bahcall

What we said is we're not going to be at ASCO. And other than that, it's too early to say about other scientific meetings this year.

Joel Sendek - Lazard Capital Markets

Okay. Great. Thanks a lot.

Operator

Our next question comes from the line of Robyn Karnauskas with Bear Stearns. Please proceed with your question.

Robyn Karnauskas - Bear Stearns

Hi, guys. Thanks for taking my question. A lot of my questions have already been answered, but a few. I guess with the enrollment, I had to go back and belabor this point again. So if most of your sites are online, do you expect enrollments are going to speed up or just slowdown dramatically? If you've gotten most of the sites online, I see most high enrollment sites online.

Safi Bahcall

It generally needs trials. It's kind of a hockey stick at enrollment. You start off with a relatively low rate and it ramps up as sites get initiated, as they get more familiar with the drug as awareness grows around the world for the program. So, it's almost always a hockey stick.

Robyn Karnauskas - Bear Stearns

Okay. And then, are you planning on doing a separate study looking at any biomarker analysis, just to see if maybe there is a subpopulation or this drug might be most efficacious?

Safi Bahcall

That's another suggestion that investigators have come to us with for many different reasons, looking both at patients that are most likely to respond, but also to try and separate the effect of the potential immune component from other potential effect. So that is something that is also in our list of things to look at.

Robyn Karnauskas - Bear Stearns

Okay. My final question is regarding, again you've addressed that FDA has mentioned that PFS is probably sufficient for filing. Just wondering if there has been any update on that, or if you expect any update from the FDA and what their requirements are for PFS or having overall survival data included in the package?

Safi Bahcall

No, there haven't been any updates or communications since we started on this subject to the end point since we started the trial. We think the FDA has been very clear and consistent on PFS over the past several years.

Robyn Karnauskas - Bear Stearns

Okay, great. Thanks.

Safi Bahcall

Okay. Thank you everybody for joining us today, and that ends our call. Operator?

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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