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Synta (NASDAQ:SNTA) launched a phase I trial in 2004 for the evaluation of elesclomol in combination with paclitaxel in advanced solid tumors. The trial enrolled 35 highly-pretreated patients, who received paclitaxel in combination with escalating doses of elesclomol. There were two partial responses (5.7%), one patient with kaposi’s sarcoma and another patient with ovarian cancer in addition to 15 patients who achieved stable disease. Because this was a combination trial, there was no way of knowing whether elesclomol had a synergistic effect with paclitaxel. Nevertheless, there was evidence that elesclomol can sensitize tumors to chemotherapy, as some of the patients who responded to the treatment had previously progressed during treatment with paclitaxel alone. Another important observation was that elesclomol and paclitaxel can be safely co-administered. Elesclomol then entered three phase II trials in melanoma, non-small-cell lung cancer [NSCLC] and soft tissue sarcoma. Both the NSCLC and the sarcoma trials failed to show a benefit from adding elesclomol to paclitaxel. The melanoma trial, on the other hand, produced a very impressive set of data.

The melanoma trial started as a single arm trial, enrolling 20 patients who received elesclomol and paclitaxel. There were 11 (55%) patients with stable disease, which was enough to trigger the second stage of the trial, a randomized, placebo controlled study. It is interesting to note that historical response rates of paclitaxel in metastatic melanoma are higher with a partial response rate of 7%-15%, but despite the modest activity and prior failures, Synta decided to carry on with the randomized phase II portion. The phase II study included 81 patients with stage IV metastatic melanoma with one or no prior chemotherapy treatment, and each patient was randomized to receive either paclitaxel+ placebo or paclitaxel+elesclomol. The primary endpoint of the study was progression-free survival [PFS].

According to results published in September of 2006, patients in the combination arm had a median PFS of 3.7 months compared with 1.8 months in the control arm, while the addition of elesclomol to paclitaxel did not result in increased side effects. As noted, the difference in PFS was statistically significant, making the trial one of the most important events in the field of metastatic melanoma. The 6 month PFS rate was also substantially higher in the combination arm (35%) than in the control arm (15%). A benefit of less than 2 months might appear insignificant, but considering that the typical PFS and survival times for these patients are 2 months and 6-9 months, respectively, an addition of two months represent a remarkable achievement.

Elesclomol also managed to increase objective response rate from 3.6% in the paclitaxel arm to 15.1% in the combination arm, but this difference was not statistically significant (although it trended toward being statistically significant). On the overall survival front, results were very encouraging although the majority (19 out of 28) of patients in the placebo arm crossed over to the treatment arm, compromising the differences between the two arms. The 53 patients from the combination arm had a median OS of 12 months, compared to 7.8 months of the 28 patients of the control arm (including patients who crossed over after progression). The actual difference between the cohorts might have been even greater had no cross over been allowed, as the median survival of the 9 patients who did not cross over was only 5.6 months. Importantly, the crossover design allowed patients who initially received paclitaxel alone to receive elesclomol plus paclitaxel only following evidence of disease progression, so the integrity of the data with respect to the primary endpoint, PFS, was not compromised.

The safety profile of elesclomol has been flawless from the early preclinical experiments to the recent phase II trial, as there was almost no increase in side effects. Having a synergistic effect without increasing side effects is a huge advantage for an investigational oncology drug. Ideally, physicians would like to use multiple chemo drugs simultaneously, but in many cases, combining multiple drugs takes its toll in the form of increased side effects. Consequently, investigators are limited in the number and doses of chemo drugs they can administer to patients in the same regimen. One of the characteristics which made targeted therapies such as monoclonal antibodies and tyrosine kinase inhibitors so popular is their excellent safety profile, which enables their addition to standard chemotherapy regimens. Likewise, the opportunity to combine elesclomol with other chemo drugs seems substantial going forward.

One piece of data that looks “suspicious” is the fact that the 19 patients who crossed over had better median survival (14.3 months) than the patients in the combination arm. This is in contrast to the expectation that these patients would have a slightly lower survival rate, but such “glitches” can be explained by the small number of patients and the fact that the investigators had no influence on the number and identity of the crossover patients. Another piece of data that caught investigators’ eye is the median PFS among patients who had received no previous chemotherapy prior to the trial (first line patients), as these patients had an impressive median PFS of 7.1 months in the combination arm compared to 1.8 months in the placebo arm. However, first line patients accounted for less than half of the patients in the combination arm, and about a third in the placebo arm, so it is still premature to conclude anything from this data.

Despite the promising results, the elesclomol trial drew criticism with respect to several issues. The first issue was the size of the control arm, which consisted of only 28 patients because the randomization was done at a 2:1 ratio. The second issue was the limited response in the control arm, as different regimens of single-agent paclitaxel achieved double digit response rates as first and second line therapy in several single arm phase II trials. In addition, a closer examination of the patients in each cohort showed an imbalance between the two cohorts with respect to disease stage. The combination arm had a lower percentage (53%) of M1c patients, than the control arm (75%). M1c patients have metastases in distant organs (except lungs), and are known to have worse prognosis, with overall survival at the lower end of the 6-9 month range.

These issues should not be taken lightly but at the end of the day, none cast a real shadow on the phase II results. The small size of the control arm is clearly an issue, but this is the nature of controlled phase II trials. A control arm of 100 patients could be much more credible, but that would turn the trial into a mini-phase III trial with the associated financial and timing implications. In addition, having a statistically significant difference over a small control arm is still better than a large single arm study with promising results. With regard to the uneven patient distribution, a retrospective analysis of the elesclomol trial showed that there was no difference between PFS the M1c patients had and that of overall trial population, so these patients did not have a negative effect on the overall PFS in the control arm. The relatively low response rate in the control arm is constantly being addressed by company management at investor conferences. Although a response rate of 3.6% is one of the lowest response rates in recent metastatic melanoma trials, it is important to realize that in melanoma, response rate poorly correlates with PFS and overall survival. Paclitaxel did manage to achieve a double-digit response rate in previous trials, but the median PFS in these trials was not always superior to that of the control arm in the present trial. A recently published scientific article that analyzed results from 42 phase II trials in metastatic melanoma found that the median PFS was 1.7 months, very similar to the PFS of the control arm. Although only one out the 42 trials included paclitaxel, all available therapies are considered equally ineffective in metastatic melanoma, which implies that data from this meta-analysis represents the performance of every chemo regimen, including paclitaxel. The authors of the review even stated that what had motivated them to conduct the analysis was the need for better assessment benchmarks for melanoma trials, since response rate has not provided a “reliable indicator of meaningful survival benefits”.

In October 2007, Synta signed a long-anticipated partnership deal with British drug maker, GlaxoSmithKline (GSK). Similar to other partnership deals between small American biotech companies and European pharmaceutical companies, the deal included an upfront payment ($80 million), joint development and profit sharing in the US and double digit royalties on sales outside the US as well as up to $1 billion in milestones and other payments, that cover the development of elesclomol for multiple indications.

Synta and GSK launched a phase III trial (the SYMMETRY trial) in November of 2007. The trial includes the exact same dosing of elesclomol and paclitaxel and is expected to enroll 630 patients, who will be randomized to receive either paclitaxel + elesclomol or paclitaxel + placebo. The phase III trial is being conducted under the terms of a Special Protocol Assessment, and the primary endpoint is PFS. This means the FDA tentatively agreed to approve elesclomol if the SYMMETRY trial shows a statistically significant benefit in PFS, regardless of other endpoints, such as overall survival.

In contrast to the phase II study, the phase III trial will accrue only first-line patients. This decision makes a lot of sense because it may improve the chances of success without significantly limiting the addressable market. In the phase II combination arm, first line patients had a much higher median PFS than second line patients (7.1 Vs. 2.8 months), even though there was no difference between the two patient populations in the control arm. Some might claim that the lack of difference in the control arm implies that the dramatic difference between first and second line patients in the combination arm is unrealistic. Nevertheless, it is highly unlikely that first line patients will have a worse performance than the overall patient population, so there is no real risk. Unfortunately, due to the extremely bad prognosis of metastatic melanoma, most patients relapse very shortly after the first treatment and succumb to the disease several months later. Therefore, the SYMMETRY trial covers the vast majority of the metastatic melanoma market. In addition, if proven effective in first line metastatic melanoma, elesclomol will likely be used off-label for second and third-line patients as well. Phase III trials in metastatic melanoma are extremely short as a result of the very low survival rate, so the company expects to have the PFS data already in the beginning of 2009. Positive PFS data will enable the company to file an IND by mid 2009 and get elesclomol approved by the end of that year, regardless of overall survival, which will be available only one year later.

At this point of time, the only agent that might pose a threat to elesclomol is Onyx’s (ONXX) Nexavar®, which is also being evaluated in a phase III trial in first line metastatic melanoma in combination with chemotherapy. The primary endpoint of this trial is overall survival, which is, naturally, a more challenging endpoint. In light of the higher bar and the recent failure the same regimen experienced in a prior phase III trial, expectations are low. The trial should produce overall survival data in 2009.

The Financial Value Of Elesclomol

Due to the lack of effective treatments, any drug that offers even a slight benefit in metastatic melanoma should see very strong market acceptance and a steep ramp up in sales. Thus, although metastatic melanoma is not as prevalent as lung or breast cancer, the commercial opportunity it represents is still substantial. The worldwide incidence of melanoma is rising rapidly with an annual increase of 3–7%, although the increase in mortality is very modest. There aren’t exact numbers on the incidence of metastatic melanoma, but the number is probably similar to the number of death cases per year, which is estimated at 48,000 deaths worldwide, 8,400 of which are in the US and over 16,000 are in Europe.

Assuming a treatment cost of $10,000 per patient, the total market opportunity for elesclomol is around $500 million. The partnership with GSK entails co-promotion rights in the US and double digit royalties outside of the American market. If Synta gets 45% of US sales and 19% royalties on sales outside of the US, assuming high market penetration in the US and Europe (75% and 85% respectively), its maximal revenues from these geographies total $45.3 million per year. The expansion to additional geographies should add only another $16.7 million, because the majority of patients in developing countries will not be able to afford the treatment. This results in maximal annual revenues of $62 million, excluding milestone payments of approximately $20 million on average per year. The company expects to use $85-90 million for operations in 2008. Assuming this burn rate going forward, as the company has ambitious clinical development plans for elesclomol and additional compounds, Synta will still be cash flow negative if it does not find additional revenue sources.

* 45% of sales in the US, 19% of sales outside of the US

A P/S ratio of 9 leads to a market cap of $740 million, which translates into a share price of 22$. This is the maximal value of elesclomol in metastatic melanoma, assuming the above pricing, royalties and penetration rates. This valuation excludes other clinical programs for elesclomol or other compounds, and although Synta has several irons in the fire, there is still no meaningful data from any of these programs. A P/S of 9 is somewhat lower than other companies that derive sales from a single drug such as Onyx (NASDAQ:ONXX), not to mention Millennium (MLNM), who was just bought at a price equals to 16 times 2008 (expected) sales. The problem with Synta is that despite its diverse pipeline, it does not have additional near-term clinical events on the horizon that are substantial enough to be taken into account. For example, by the time Onyx got its first FDA approval for renal cancer, it had Nexavar in multiple advanced trials, including two phase III trials in liver cancer and melanoma, on top of dozens of phase II clinical trials in lung, breast, pancreatic and ovarian cancers, among others. In contrast, Synta does not seem to have the deep pipeline with value-creating programs that would support price appreciation further beyond the $22 level in 2009-2010.

With respect to additional developments that may generate limited value for the company, there are several potential catalysts in 2008.

The most probable of these catalysts is the initiation of one or more clinical trials for elesclomol in additional types of cancer. The usual suspects are those associated with high levels of oxidative stress such as ovarian, breast and prostate cancers. Both Synta and GSK made it very clear that such trials, which will probably come along with some sort of milestone payments,will start already this year. The company will also seek label expansion in the melanoma market into the adjuvant setting, where treatment is given after surgery to reduce the risk of relapse. The market for adjuvant therapy represents a tremendous potential for elesclomol, because it is substantially larger than that of metastatic melanoma, and is currently poorly addressed by only one approved treatment. Nonetheless, meaningful results from these trials are at least 2-3 years away, so they are not likely to have a material impact this year.

Another catalyst, this time in the form of actual results, may come from the direction of other agents in Synta’s oncology pipeline. The most advanced of which, STA-9090, is currently in two phase I studies. The first trial is evaluating twice-a-week dosing of STA-9090 and the second trial is evaluating once-a-week dosing. A third trial is expected to begin in the second half of 2008. STA-9090 inhibits Heat Shock Protein 90 (Hsp90), a very promising target in cancer therapy due to its importance in tumor biology. Hsp90 has a role of stabilizing and preventing the breakdown of key cancer-associated proteins, such as growth factors and their receptors. Inhibition of Hsp90 may lead to a simultaneous disruption of multiple signaling pathways that are currently targeted by approved drugs, such as Gleevec®, Erbitux® and Tykerb®, making it a very attractive drug target. The recent Pfizer (PFE) acquisition of Serenex, which specializes purely in Hsp90 inhibitors and the ongoing clinical programs at Kosan (KOSN) and Biogen-Idec (BIIB) are examples for the ongoing activity in the field. The first STA-9090 trial started in November while the second one started in January, which means that even if they do generate positive data this year, it will be towards year end.

A third catalyst might stem from Synta’s activity in the inflammatory disease market. Apilimod, the company’s third drug in the clinic is currently in a placebo-controlled Phase II trial in rheumatoid arthritis [RA], one of the largest markets in the pharmaceutical industry. Unlike the two other catalysts, this is the only one that may lead to a second partnership deal, because it will have placebo-controlled efficacy data. However. it is important to note that apilimod failed to demonstrate clinical activity in previous clinical trials in psoriasis and Crohn’s disease. The company recently finished analyzing results from the first cohort in a phase II, which according to the company, included “encouraging signs of clinical and biomarker activity”. As a result, an additional cohort in which patients will receive a higher dose of apilimod is currently being recruited, with results expected toward the end of 2008.

While both STA-9090 and apilimod address very large markets, there is still no data that can be priced into the stock. As noted, elesclomol itself may have a very wide application in multiple tumor types, but it is still too early to factor in this potential as well. Until more light is shed on any of these clinical programs, the share price of Synta should be derived mainly from the potential of the melanoma trial.

At a current price of under $7, Synta has clear potential for a +200% rise upon positive results from the phase III trial. The important question is what are the odds of elesclomol to demonstrate a PFS improvement, based on available data. As I explained in the previous article, if Synta had not included a placebo arm in the phase II trial, the answer would have been very straight forward: Approaching zero. However, Synta’s clever trial design boosts elesclomol’s prospects and makes it the most promising agent for metastatic melanoma in decades. How promising? The highest I am willing to go in metastatic melanoma is a probability of approval of 45% despite the statistically significant difference, given the poor success rate in this indication. From there the math is pretty simple: 45%X 22$ =9.9$. Therefore, Synta should be trading at the 10$ level prior to the phase III results , representing a 45-50% increase from current levels.

In summary, elesclomol is one of the most exciting oncology investigational drugs, with a novel mechanism of action that may be applicable in numerous types of cancers. Although Synta has only begun to scratch the surface of elesclomol’s potential market, the upside potential in 2009-2010 is still limited due to the lack of additional advanced clinical trials. Approval for the treatment of metastatic melanoma should take the stock to 22$ as soon as mid 2009 but from that point there will be a gap of 1-2 years until Synta and GSK have meaningful results from additional indications for elesclomol. It remains to be seen whether in the above time frame other agents such as STA-9090 and apilimod will enable the company to generate more value for its shareholders.

Disclosure: Author is long SNTA.

Source: Will Synta Break A 30-Year Old Record? (Part II)