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Synta Pharmaceuticals Corp.(NASDAQ:SNTA)

Q1 2008 Earnings Call

May 14, 2008 10:00 am ET

Executives

Rob Kloppenburg - VP, IR, Corp. Comm.

Safi Bahcall - President and CEO

Keith Ehrlich - VP and CFO

Eric Jacobson - SVP and Chief Medical Officer

Jim Barsoum - SVP of Research

Analysts

Mike King - Rodman & Renshaw

Jason Kantor - RBC Capital Markets

Joel Sendek - Lazard Capital Markets

Jim Reddoch - FBR

Robyn Karnauskas - Bear Stearns

Operator

Good day and welcome to the Synta Pharmaceuticals first quarter 2008 financial results conference call. Today's conference call is being recorded and webcast.

At this time for opening remarks, I would like to turn the call over to Rob Kloppenburg, Vice President of Investor Relations and Corporation 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 Ehrlich, 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 first quarter ended March 31, 2008. This release can be found on our website at www.syntapharma.com.

Before we go any further, I would 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 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 risk that the results of completed clinical trials may not necessarily be predictive of results in 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. It has been a little over seven weeks since our last call and Analyst Day, so we will keep our remarks brief, and get to questions quickly. The growing awareness of our results today for our lead product, Elesclomol in Melanoma, combined with a recent decrease in the number of competing trials, have led to what we see is a growing enthusiasm in the Melanoma community for our Phase 3 trial. We have seen a substantial increase in requests from new sites to participate in the trial. We are considering this requests case-by-case and may increase the total number of sites to meet this demand.

We have also seen what we believe is a fairly high enrollment productivity, meaning patients screened and enrolled per active site. On the timelines for this trial, there are no changes to what we previously announced. We plan to complete enrollment by the end of the year, with data availability shortly thereafter. We will update timing further as we get closer.

We also continue to be excited by the potential for Elesclomol for treating cancers beyond melanoma. As you may recall, there was nothing specific to melanoma about the mechanism of action. We believe that cancers with high oxidative stress levels, which include not only melanoma, but also prostate, ovarian, and breast cancers are likely to be most sensitive to Elesclomol. We are eager to begin trials in these new indications.

As we previously guided, we expect to introduce our sodium salt formulation in the second half of this year, which will allow us greater flexibility to conduct trials in a wider range of cancers. There is also no change to our previously announced plans to initiate trials in one or more cancer indications by the end of this year. We will have more details as we get closer to starting these trials. As some of you may remember, our Phase 2b trial in melanoma, included both first line and second line patients.

At ASCO later this month, Dr. David Lawson of Emory will be presenting a poster, that analyzes data from first line patients in the trial, which is the same patient group being studied in our Phase 3 trial. Top line data have been previously presented, the poster will provide additional details.

Later this year we expect to present some additional clinical data for Elesclomol, including an integrated safety analysis from all trials conducted to-date, as well as maturing survival data from the Phase 2b trial. Also later this year, we expect publication in peer reviewed journals, of our paper with our Phase 2b trial results, and a paper on preclinical data supporting the oxidative stress mechanism.

We are seeing good progress as well with our earlier stage oncology and anti-inflammatory programs. We are currently enrolling subjects in two ongoing Phase 1 trials of STA-9090, our novel Hsp90 inhibitor in solid tumors and as we previously guided are preparing for initiating a trial in hematologic indications later this year. The drug has been well tolerated to-date in the Phase 1 studies, and we continue to dose escalate. We are continuing the preclinical development of STA-9584, our vascular disrupting agent for cancer.

Finally on the inflam side , we are advancing Apilimod, our oral inhibitor of the cytokines IL-12 and IL-23, in an ongoing Phase 2a trial in rheumatoid arthritis, and we are advancing our CRAC ion channel inhibitor program, which is an oral potent inhibitor of the production of TNF-alpha and interleukin-2. We will have more to say on these programs later this year.

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

Keith Ehrlich

Thank you, Safi and good morning everyone. In the first quarter of 2008, we recognized $1.3 million of collaboration revenue in connection with our partnership agreement with GSK that we entered into in October 2007.

For the quarter ended March 31st, 2008, we reported a net loss to common shareholders of $17.7 million, or $0.52 per basic and diluted share, compared to a net loss to common shareholders of $74.9 million, or $2.61 per basic and diluted share for the same quarter in 2007. Included in the net loss to common shareholders for the quarter ended March 31st, 2007, was a one-time non-cash charge of $58.6 million, for the fair value of the beneficial conversion feature of our preferred stock, which we recognized upon the conversion of the preferred stock in connection with our IPO in February 2007.

The net loss before this one-time non-cash charge was $17.7 million and $16.4 million, in the quarters ended March 31st, 2008 and 2007 respectively. R&D costs increased from $13.5 million in the first quarter of 2007, to $16.2 million in the first quarter of 2008.

This increase was principally due to costs incurred in the advancement of our Elesclomol program, including the SYMMETRY trial that was initiated in the third quarter of 2007, and in the sodium salt formulation, in support of planned clinical trials in other indications beginning in the second half of 2008. These increases were offset in part by costs incurred in the first quarter of 2007, in connection with our Phase 2a trial in RA, as well as the costs of preclinical efforts leading to two Phase 1 trials for STA-9090, that were initiated in the fourth quarter of 2007.

G&A expenses increased from $3.5 million in the first quarter of 2007, to $3.6 million in the first quarter of 2008. In the preparation of our first quarter financial statements, we corrected a prior period error in our interpretation of accounting rule EITF-0019, as it was applied to non-employee stock options. The effect of this correction is a reclassification of $1.8 million from liabilities to additional paid in capital in the first quarter of this year, with a corresponding non-cash charge of $553,000. Due to the immateriality of this charge, there has been no modification to our 2007 financial statements.

The company ended the first quarter of 2008 with $99.2 million in cash, compared to $115.6 million at the end of 2007. Based upon our current operating plans, there is no change in our financial guidance, and we expect to end 2008 with between $60 million and $75 million cash. This includes $40 million to $50 million in anticipated operational progress milestone payments from GSK as we previously guided, and assumes no further income from other partnerships or financing events.

Safi Bahcall

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

Question-and-Answer Session

Operator

Thank you, Dr. Bahcall. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions) Thank you. And our first question comes from the line of Mike King with Rodman & Renshaw. Please proceed with your question.

Mike King - Rodman & Renshaw

Hi, good morning, guys. Thanks for taking my question.

Safi Bahcall

Good morning, Mike.

Mike King - Rodman & Renshaw

Just a couple of quick ones. Safi, with regards to the ASCO presentation by Lawson, that will not have, include final mortality data in that presentation?

Eric Jacobson

Hi, Mike. This is Eric Jacobson.

Mike King - Rodman & Renshaw

Hey, Eric.

Eric Jacobson

No, that will not be focusing on overall survival.

Mike King - Rodman & Renshaw

And then I guess I missed where the final survival data would be? I know you said later in '08. Have you specified the venue?

Eric Jacobson

We have not specified the venue. As you know, we presented overall survival last year. We just have follow-up now.

Mike King - Rodman & Renshaw

Right.

Eric Jacobson

Following patients for two years, and that's going to be presented later this year.

Mike King - Rodman & Renshaw

Okay. Will a publication have, where will it cut off the survival? Is that going to be at one year in the article?

Eric Jacobson

We are not really going into details about what is in that publication, but as of our previous presentations, we were cutting it off at one year.

Mike King - Rodman & Renshaw

Okay. And then just could I get your thoughts on, it's great that things are going well with the enrollment. Just when enrollment goes more quickly than companies expect, oftentimes patients are enrolled that don't specifically meet the entry criteria. How can we be sure as investors that these patients are being QAed, and that they are in fact meeting the specifications of the enrollment and exclusive criteria?

Eric Jacobson

Mike, these patients are all meeting all of the formal inclusion criteria. We have very close monitoring of the sites. We have an IVRS system that the sites have to put criteria in to, in order for them to enter into the trial. So, between our close monitoring by the CRAs and the IVRS system, we are quite confident that these patients are meeting our formal inclusion criteria.

Mike King - Rodman & Renshaw

Thanks very much. I will get back in queue.

Operator

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

Jason Kantor - RBC Capital Markets

Hi. Thanks for taking my question. The enrollment you are saying is going quite well, and do you anticipate that it is possible that this could actually enroll faster than your current guidance or is that unlikely?

Eric Jacobson

Well, this is Eric Jacobson again. We are pleased with how enrollment is going. We are pleased with the enthusiasm of the medical community and the investigators. Right now, we are not changing our guidance, and we still anticipate to complete enrollment by the end of the year.

Jason Kantor - RBC Capital Markets

Okay. And in terms of these payments that could come, $40 million to $50 million in payments, what would be the trigger for these payments? Would these be recognized as milestones, as would typically be in this collaboration, or is this somehow reimbursement or funding? How is it flowing through the P&L?

Safi Bahcall

These are milestone payments. This is Safi again. Those are milestone payments that have to do with operational events during the course of the year. We are not allowed to get into more details of the specifics of what those events are, but they -- Keith, do you want to talk about how they get accounted for?

Keith Ehrlich

Yes. As the milestones are achieved, the milestone itself is recognized over the life of the contract, which is estimated to be about 15 years, and each time a milestone is achieved, the period of time that has passed is amortized in as a catch-up to the P&L, and then the remainder is amortized over the remaining period of that 15 year estimated contract period.

Eric Jacobson

Just want to add one thing, which is that we are pleased with the enrollment rate that we are seeing. We did have, as we mentioned on the last call, some delays in initiating sites outside of the U.S., just ordinary course of getting new countries familiar with the product. So, it is unlikely that we will be changing guidance to be earlier than expected.

Jason Kantor - RBC Capital Markets

Okay. And then I guess finally, are the milestones from GSK, in a positive scenario where you get a positive outcome, and then are able to file and get approval, are those sufficient to fund operations, or would you need to be doing some kind of financing before or after the positive data?

Eric Jacobson

We can't get into a lot of detail about the milestones that we would expect after a positive clinical outcome. We will have probably more to say about that next year, as we get closer to that event. But right now, we can't talk to it except to say that, we have a fairly typical sizable Phase 3 deal, and there are in those kind of deals, fairly substantial milestones based on positive clinical and regulatory outcomes.

Jason Kantor - RBC Capital Markets

Okay. Thank you.

Operator

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

Joel Sendek - Lazard Capital Markets

Hi, thanks. So Safi, just following up on what you just said about unlikely that you will increase the expectation for enrollment, could I maybe ask the opposite question, which is oftentimes when I see companies include additional sites that means enrollment is actually going slower. I just want to confirm that the new sites are due to demand, and not because you are maybe behind schedule a little bit.

Safi Bahcall

Joel, it is Safi. And there are several reasons to include new sites. One of them is, you are always adding and removing sites in an ongoing, continuous process throughout the course of a trial. You look at sites that are performing less well than expected, and you get them out of the study. You get indications of new sites that appear to have very high demand and very high patient population, and you add them back in. So, you are always going through a process of adding and removing sites during the course of the trial.

A second reason you would want to do that, is for building awareness within an important academic center, where we believe that would be important for the future development of the product. So, there are a combination of reasons to add and I wouldn't take that as indicating any one particular direction about enrollment guidance.

Joel Sendek - Lazard Capital Markets

Okay. So it is not due to maybe slow in the U.S., slow enrollment in the U.S.?

Safi Bahcall

Like I said, there are some sites that probably will be under performers, and we want those out.

Joel Sendek - Lazard Capital Markets

I get it. So you are switching them out?

Safi Bahcall

And then we will switch in new sites. So, there is always some of that going on in any trial.

Joel Sendek - Lazard Capital Markets

Okay. And then just a financial question, if I just run the guidance through at the midpoint, I am left with an estimate of around $25 million, and then let me just give you the numbers, 99, I am adding 45, and the milestones at the midpoint, and then subtracting out your burn guidance, that leaves me with about $25 million you will spend per quarter, and that's substantially higher than you spent in the first quarter. So, how should we model that out for the rest of the year? A trend up, or are you kind of at that run rate now?

Keith Ehrlich

I think it is reasonable to expect a trend up.

Joel Sendek - Lazard Capital Markets

Okay.

Keith Ehrlich

As we accelerate in the patient accruals through the year.

Joel Sendek - Lazard Capital Markets

Okay. And then my final question is the sodium salt formulation, will that enable you to combine the drug with different chemotherapy regimens as well?

Safi Bahcall

Yes, that's the main advantage of the sodium salt. It will allow us to combine with other compounds such as taxotere, gemcitabine, carboplatin.

Joel Sendek - Lazard Capital Markets

Thank you.

Operator

Thank you. Our next question comes from the line of Jim Reddoch with FBR. Please proceed with your question.

Jim Reddoch - FBR

Good morning. Thanks. When will the non-futility analysis take place? And secondly, when will we see the first of the Phase 1 data from your Hsp90? Thanks.

Eric Jacobson

Jim, this is Eric Jacobson. We anticipate the first interim for non-futility to be conducted in the second half of this year. As far as the 9090 data, as you know, this is a dose escalating trial. We are continuing to dose escalate currently, so it is a little hard to estimate exactly when we will have data ready for discussion.

Jim Reddoch - FBR

But not at ASH?

Safi Bahcall

Not at ASH.

Operator

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

Robyn Karnauskas - Bear Stearns

Hi, thanks for taking my questions. Most of them have already been answered. A couple questions I guess on the new formulation. So, how do you plan to develop this? Will it be combined initially with the other chemotherapies? Do you have to do a PK study with the new formulation?

Eric Jacobson

We are working on our development plans currently for the new formulation. And I think it's safe to say we will, one advantage is that we can give this as monotherapy, so we do plan to do monotherapy dose escalation trials with the new formulation, and in addition plan to combine it with other agents, and other indications beyond melanoma.

Robyn Karnauskas - Bear Stearns

Can you give us a little color again remind us, what is the scientific support for evaluating the drug in other indications?

Eric Jacobson

I will turn that over to Jim Barsoum, Head of Research.

Jim Barsoum

This is Jim. Preclinically, the drug is effective in killing a variety of different cancer cell types, actually it has quite a broad range of activity. In our precancer modeling we have seen efficacy and vivo-efficacy across a wide range of tumor types. So, many cancer types are very sensitive to both Elesclomol and the combination of Elesclomol and other drugs.

And in terms of which are the most sensitive as we said publicly, we continue to feel strongly that those tumor types that are highest in oxidative stress, and most sensitive to a further increase in reactive oxidant species, are the most sensitive indications, including melanoma, prostate, breast, ovarian, and a few other cancer types. But in terms of the preclinical data supporting that, we see really broad activity that is not restricted to melanoma.

Robyn Karnauskas - Bear Stearns

Okay. Great. And last question for Safi, again on enrollment, so you mentioned on the last call that your goal was to get 150 sites online. I was just wondering, have you met that goal, or are you talking about getting additional sites on top of that 150 or --?

Safi Bahcall

We have got the vast majority of those sites active, and we may well add additional sites above and beyond the 150.

Robyn Karnauskas - Bear Stearns

Great, thanks.

Operator

Thank you. Our next question comes from the line of Mike King with Rodman & Renshaw. Please proceed with your question.

Mike King - Rodman & Renshaw

Thanks for taking the follow-up. Maybe just a quick question on apilimod and first look at the data?

Eric Jacobson

So Mike, you are talking about the Rheumatoid Arthritis data?

Mike King - Rodman & Renshaw

Yes.

Eric Jacobson

We have mentioned previously that with the dose and regiment that we used in the rheumatoid arthritis study, we saw positive biomarker data based on synovial tissue analysis, and that was encouraging enough to us and the investigator to go forward with investigating additional dose and regimens.

Mike King - Rodman & Renshaw

Okay. When are we going to see data from those additional dosing regimens? Will they be within the scope of '08, or are we looking into some time next year?

Eric Jacobson

This is an ongoing trial, and in an ongoing trial, we don't typically disclose data publicly. We don't anticipate having data for discussion this year, but it probably will be early next year.

Mike King - Rodman & Renshaw

Great, thank you.

Operator

Thank you. That concludes the question-and-answer session. I will now turn the conference back over to Dr. Bahcall for closing remarks.

Safi Bahcall

Thank you, everybody. We will end the call.

Operator

Ladies and gentlemen, this concludes today's call. You may disconnect your lines. Thank you for your participation.

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