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Synta Pharmaceuticals Corp. (NASDAQ:SNTA)

Q2 2008 Earnings Call Transcript

August 7, 2008 10:00 am ET

Executives

Rob Kloppenburg - VP, IR and Corporate Communications

Safi Bahcall – President and CEO

Keith Ehrlich - VP, Finance and Administration and CFO

Eric Jacobson - SVP, Clinical Research and Regulatory Affairs and Chief Medical Officer

Analysts

Mike King - Rodman & Renshaw

Jason Kantor - RBC Capital Markets

Joel Sendek - Lazard Capital Markets

Derek Jellinek – SIG

Andrew Vaino - Roth Capital Partners

Robyn Karnauskas, Deutsche Bank

Operator

Good day and welcome to the Synta Pharmaceuticals Second 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 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 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 second quarter ended June 30, 2008. This release can be found on our Web site 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 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

Thanks Rob and thank you all for joining us this morning. We've had a very busy and productive second quarter. I will highlight some of the most significant developments then turn it over to Keith for a financial update and then open up the call for questions.

First of all, we have been making good progress with our registration program for Elesclomol, our lead cancer drug. Over the past several months, we've seen a substantial increase in enrollment in our Phase 3 SYMMETRY trial to a monthly rate that is among the highest we are aware of for large melanoma trial. We believe this is due to the growing acceptance of the strength of our Phase 2b data, the growing scientific data package behind the mechanism and its potential in melanoma, as well as a decrease in the number of competing trials. If this trend continues, we would expect to complete enrollment of the SYMMETRY trial by the end of the year or first quarter, which would be an impressive achievement for a trial of this size and a reflection of the hard work and abilities of everyone associated with the trial, particularly our clinical and operational teams and the investigators in sites participating in the study.

To date, there have been two independent Data Monitoring Committee safety reviews. On both occasions the recommendation has been to continue the SYMMETRY trial as planned. Coming up in the fourth quarter, we expect the interim, safety, and non-futility analysis of the PFS data to take place by the Data Monitoring Committee. The process for the review will follow the pre-specified charter agreed to with the FDA as part of our SPA. As a reminder, the company is quarantined from this analysis. At no time do we see the results, at no time do we have access to any unblinded data, the DMC will meet, review the data and let us know their recommendation. The charter specifies rules for recommending either to stop the study for futility or to continue the trial. There is no early stopping rule for efficacy. Once we have received the DMC recommendation, we would expect to issue a brief release. Following the DMC review, assuming the recommendation is to continue, we estimate completing our target enrollment of 630 patients by the end of year or first quarter and meeting our goal of conducting the primary PFS endpoint analysis in early 2009. PFS is the primary endpoint of this trial. Therefore, once these final results are available, we would expect to review the results with the DMC and the FDA. Should those results be positive, our intention is to proceed with filing an NDA with the FDA as soon as possible.

Beyond our main registration program for Elesclomol, which is our highest priority, we, together with our partner have been actively developing clinical plans for new indications. While melanoma represents a tremendous unmet medical need and a wide open market opportunity, we are equally excited by the potential for Elesclomol in other high oxidative stress cancers. Our preclinical data very clearly supports usage in additional indications. These indications represent a very substantial growth opportunity, something that both we and our partner clearly recognize. Our plan, as we have previously stated, has been to initiate new trials once the new formulation of Elesclomol was ready. The second-generation sodium salt formulation is water-soluble and does not require combining with a paclitaxel-Cremophor solution. We have made good progress with this new formulation and are on track to initiate a new trial with a sodium salt in a new indication in the fourth quarter. We will have more to say about the choice of indication and trial design details as we get closer to initiation. In 2009, we expect to initiate a broad range of clinical trials with this new formulation and we will have a lot more to say about those choices later.

Finally, we are making good progress on many other aspects of Elesclomol, on our other programs and in growing our organization. For Elesclomol, we are continuing to build scientific and medical awareness. The presentation at ASCO on the benefits seen in first-line patients was well received, as was our global investigator meeting. Two-year overall survival data will be presented at ESMO in Stockholm in September, our paper on the mechanism of action has been accepted in a peer-reviewed journal and will be published later this month. We expect publication of the Phase 2b trial results later this year.

We continue to advance our other pipeline programs, including STA-9090, our Hsp90 inhibitor, and two ongoing solid tumor Phase 1 studies are enrolling well and continue to dose escalate. The drug has been well tolerated to date and we're encouraged by what we are seeing in these studies. We are on track to initiate a Phase 1/2 trial of STA-9090 in hematologic cancers in the fourth quarter.

Finally, I was very pleased to announce this quarter the hiring of Michael Bailey, who led commercial operations at ImClone. At ImClone he built an organization that drove a blockbuster oncology product launch. We are thrilled to have him join us at Synta, where we look forward to Michael achieving similar success with Elesclomol.

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

Keith Ehrlich

Thank you, Safi, and good morning everyone. Our major focus today as a company is the development of our lead drug candidate, Elesclomol. The Elesclomol development costs form the majority of our total R&D expenses. As you know, this program is partnered with GSK and under our partnership agreement, we share responsibility for total worldwide development costs. Under the terms of our agreement Elesclomol development costs, including the melanoma Phase 3 program, are split according to an agreed targeted percentage. We pay what has been described in our filings as a modest share of total costs. The remainder, which represents the substantial majority, is paid by GSK. The agreement with GSK also specifies an initial period during which we are responsible for all melanoma development costs, up to a pre-specified limit. During this period, GSK is responsible for operational milestone payments to us totaling up to $50 million. These payments essentially cover their share of the melanoma costs. Following the initial period, additional costs incurred for the program will no longer be our sole responsibly. They will be shared with GSK on an ongoing basis according to the agreed targeted percentage. We estimate that this transition will occur in the second quarter of 2009.

From an accounting standpoint, payments by GSK to Synta are recorded as cost-sharing revenue and costs incurred by GSK in support of the Elesclomol program are recorded by Synta as a reduction in cost-sharing revenue. In the second quarter of 2008, we recognized $1.3 million of license and milestone revenue in connection with our partnership agreement with GSK that we entered into in 2007. This was offset by $1.9 million of net cost-sharing reimbursements to GSK under the agreement resulting in net collaboration revenue of negative $631,000. Please note that this cost-sharing reimbursement to GSK is not payable by Synta until final completion of the SYMMETRY trial and therefore does not affect current Synta cash flow.

For the quarter ended June 30, 2008, we reported a net loss to common shareholders of $22.7 million or $0.67 per basic and diluted share compared to a net loss to common shareholders of $16.7 million or $0.50 per basic and diluted share for the same quarter during 2007. R&D costs increased from $13.6 million in the second quarter of 2007 to $18.3 million in the second quarter of 2008. This increase was principally due to costs related to our clinical program, including the SYMMETRY trial, the development of the sodium salt formulation of Elesclomol, as well as our two Phase 1 trials of STA-9090. G&A expenses increased from $3.9 million in the second quarter of 2007 to $4.0 million in the second quarter of 2008. The company ended the second quarter of 2008 with $79.4 million in cash compared to $115.6 million at the end of 2007.

Based upon our current operating plans, we have maintained our financial guidance. We expect to end 2008 with between $60 million and $75 million in 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. Under the terms of our agreement with GSK, Synta will be eligible for a milestone payment of $25 million upon achieving the primary endpoint for the SYMMETRY trial or upon determination by Synta and GSK to file for regulatory approval. Based upon our current estimates, we expect to conduct this primary endpoint analysis in early 2009.

Finally, as noted in our press release, we filed an S-3 shelf registration with the SEC this morning. This universal shelf registration allows us to sell up to $150 million of various types of securities over a three-year period. As we have said in the past, we have no immediate plans for a financing given the current general market conditions because we have sufficient financial resources available for our current needs. However, we feel that filing a shelf registration at this time provides us with financing option going forward, should circumstance change or opportunities develop. The terms of any sale would be announced in a filing with the SEC at the time of any such sale.

I will now turn the call back to Safi.

Safi Bahcall

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

Question-and-Answer Session

Operator

(Operator instructions) our first question comes from the line of Mike King with Rodman & Renshaw

Mike King - Rodman & Renshaw

Hey, good morning. Can you hear me okay?

Safi Bahcall

Yes we can hear you, Mike.

Mike King - Rodman & Renshaw

Okay, quick question. Safi. Let's assume that the trial runs to a successful conclusion in early 2009 with the PSF endpoints, tell us then what happens, I assume all patients on the (inaudible) will then be offered to be crossed over to Elesclomol and what kind of statistical problems will that create, in terms of ultimately seeing a survival benefit?

Safi Bahcall

Hey, Mike. I'm going to turn this over to Eric in a second. But just to clarify, the decision or recommendation to cross over would be up to Data Monitoring Committee, which would certainly be reviewing the results at that point. Just as a reminder, the analysis that we would do for PFS in the first quarter or an early part of '09 is a final analysis for PFS, but it is not the final analysis for OS. So, in that sense, it is interim for OS and we would be talking to the DMC about --

Mike King - Rodman & Renshaw

Right, understood.

Safi Bahcall

Got anything to add, Eric?

Eric Jacobson

Well, this is Eric Jacobson. Mike, I think that, number one, this data goes to the DMC and we get an independent recommendation. Number two, we would plan, and this is already in our pre-specified charter, to discuss the results with the FDA before making any change to the conduct of the trial. So we would have not only the recommendation of the DMC, but discussion with the FDA before any change.

Mike King - Rodman & Renshaw

Right, but that's going to take time and I would imagine that people would want to, if the trial is successful, they'd want to -- why would you want to remain on placebo?

Eric Jacobson

Well I can understand that point. However, I want to remind you that at the time when the analysis is made the trial will be fully enrolled and there will be some time between the data analysis and discussions. So, at that point, it's unclear whether there would be any need to cross over patients.

Mike King - Rodman & Renshaw

Okay and then just a quick question about scanning, can you remind us of the frequency of the scans and how they may be similar or different than the frequency of scanning in Phase 2?

Eric Jacobson

The scanning per the protocol is done every other cycle. The scanning is based on the date of randomization for the patients.

Mike King - Rodman & Renshaw

So every other cycle means every eight weeks?

Eric Jacobson

Every eight weeks.

Mike King - Rodman & Renshaw

Would that be the same as Phase 2?

Eric Jacobson

It was the same as Phase 2, yes.

Mike King - Rodman & Renshaw

Okay, thanks very much.

Operator

Our next question comes from the line of Jason Kantor with RBC Capital Markets

Jason Kantor - RBC Capital Markets

Hi there. You said that your rate of enrollment has accelerated and that you would describe it as about the highest that you are aware of for any large melanoma study, which begs the question why isn't this enrolling ahead of schedule. Presumably you wouldn't have, in your previous guidance, assume that you would achieve such a high level of enrollment and it seems that, in the language here, you're opening the possibility that enrollment actually won't complete by year-end '08. Is that your expectation?

Safi Bahcall

Yes, this is Safi. When we set the target goal before we started the study December, we, I think a few quarters ago, announced that we had a delayed start in initiating the study. So, based on that, we've said consistently that December would be an ambitious goal. Based on what we've seen, we've been very encouraged lately with the enrollment rates, which are among the highest that we're aware of for any large melanoma trial, but we wanted to give ourselves some flexibility, because you just never know what happens over holidays or in a summer slowdown. So we're confident that we'll meet the enrollment goal, if the trend that we're seeing continues, either by the end of the year or slipping into first quarter next year. In either case, that puts us in a position to meet our original objective of conducting the primary endpoint analysis in the early part of '09.

Jason Kantor - RBC Capital Markets

Just to be clear, do you mean Q1 when you say early part of '09?

Safi Bahcall

It's a little hard to get more specific until we have fully understood the enrollment rate and the event rate and understand exactly when we push the button, but it could be Q1. I think that's likely. It might spill over into Q2. It's just hard to get more specific right now.

Jason Kantor - RBC Capital Markets

Okay and the costs, the non-cash costs that you're incurring and you say [ph] you're not going to actually have to pay those to Glaxo until the completion of the study. Do you mean the completion of enrollment, the primary PFS data, or the overall survival data? When does the end of the study define?

Safi Bahcall

(inaudible) means the final end, so it is the final case study report. So that's well after enrollment, well after PFS data and well after OS data, so that's far off.

Jason Kantor - RBC Capital Markets

Okay. And then, finally, the $40 million to $50 million milestones and the $60 million to $75 million in cash, is that dependent at all in the completion of enrollment? Is that a critical milestone for you? So, if the completion of enrollment is in Q1 does that change it or put you at the low end of those numbers?

Safi Bahcall

We're confident about the $40 million to $50 million. I don't think the exact details of enrollment timing are going to impact those milestones in any significant way.

Jason Kantor - RBC Capital Markets

Okay. Thank you.

Operator

Our next question comes from the line of Joel Sendek, Lazard Capital Markets

Joel Sendek - Lazard Capital Markets

Hi, thanks. I had a question about the DMC review in the fourth quarter. Can you tell us more precisely when that might take place based on what you know now?

Safi Bahcall

It's hard to get much more specific. I'd say more likely it'd be toward the end of the fourth quarter.

Joel Sendek - Lazard Capital Markets

Okay and that's similar to the two reviews you had before?

Safi Bahcall

No, the two DMC reviews we've had up to now are entirely safety reviews.

Joel Sendek - Lazard Capital Markets

Okay.

Safi Bahcall

The one that's coming up is the only interim PFS analysis.

Joel Sendek -- Lazard Capital Markets

I see. Okay, great. And then I guess following up on the last question about the $40 million to $50 million from GSK, presumably that's since you're saying it is this year, if that's not associated with enrollment might it be associated with this DMC review?

Safi Bahcall

No, not that DMC meeting.

Joel Sendek - Lazard Capital Markets

Okay. Just wondering what else it could be. Any hints?

Safi Bahcall

We're contractually not able to get into the specifics.

Joel Sendek - Lazard Capital Markets

Okay. Alright, thanks anyway. And then on the other indications, can you give us some idea what the range of other cancer indications would be for the new formulation?

Safi Bahcall

Yes. We have always been excited about the high oxidative stress cancers based on the science that we've seen in the lab and what we've seen in the clinic, and as we've mentioned in the past, those include prostate, ovarian, breast cancer, as well as pancreatic and hematologic. And so you'll definitely hear more about that very soon.

Joel Sendek - Lazard Capital Markets

Okay. Thanks a lot.

Operator

Our next question comes from the line of Derek Jellinek with SIG. Please go ahead with your question.

Derek Jellinek - SIG

Great. Thanks for taking my question, guys. Just quickly following on the enrollment rates, I was just wondering if you've seen any delays enrolling ex-US sites. And actually, could you comment, Safi, on how many sites are currently up and enrolling and are you comfortable with the number of sites?

Safi Bahcall

Eric, you want to --?

Eric Jacobson

We'll, first of all, I think we've mentioned earlier that there were some regulatory delays in Europe at the beginning of the trial, but now all the European countries are up and running. As far as the total number of sites, we now have approximately 150 sites initiated, which was our initial target, so we've achieved our target as far as total number of sites.

Derek Jellinek - SIG

But do you see those sites being added to at all?

Eric Jacobson

Well, we do a continuous assessment about performance of sites. We also had tremendous interest from investigators worldwide in participating in the trial. So we are doing further assessments of potential sites and could add additional sites, based on the high degree of interest.

Derek Jellinek - SIG

Okay, great. And just looking at the -- thinking about the salt formulation of Elesclomol, have you guys completed the bridging study to compare the PK between the salt and free acid form and if so, what kind of results did you see from that?

Eric Jacobson

We had a previous salt formulation that was tested in the clinic. We did do a formal bridging study between those two formulations and showed bioequivalence. For other reasons that formulation did not go forward and now the new sodium salt formulation will go into the clinic in the fourth quarter of this year.

Derek Jellinek -- SIG

Okay. And just quickly if I may on 9090, I was wondering if you can update us when we're going to see data from the Phase 1 study, the two Phase 1 studies? And any kind of color on the hematological cancer you're looking to target in Q4? I'm assuming maybe CML, given BCR-ABL as a client protein or AML given FLT3. Any kind of color on that?

Eric Jacobson

We haven't determined when we would be announcing data on our first two studies, but when we decided on what scientific venue we'll make that announcement. As far as the hematological study, the protocol is written for a host of hematological malignancies and certainly we're interested in some of the ones you've mentioned, based on mechanism.

Derek Jellinek - SIG

Okay and then quickly, if I may, Safi you said ESMO may be when you're going to report survival data from the Phase 2, any other upcoming data releases and scientific meetings? Thanks.

Eric Jacobson

Well, at ESMO we are presenting two-year survival data. We also have data on safety analysis for the compound across all our studies. And then we have our publication on mechanism of action that will be coming up and beyond that we have some other potential venues, but we haven't formally announced other venues to date.

Derek Jellinek - SIG

Okay, great. Thanks for taking the questions.

Operator

Our next question comes from the line of Andrew Vaino with Roth Capital Partners. Please go ahead with your question.

Andrew Vaino - Roth Capital Partners

Hey, thanks for taking my call. I just had a quick query on if we'll get any more information on the apilimod at any point soon.

Eric Jacobson

Well, as you know, we are initiating an additional cohort in our rheumatoid arthritis study. That study is open for enrollment and we won't be making any announcements about that until we are further along with that cohort.

Andrew Vaino - Roth Capital Partners

Okay. So, by open for enrollment can I assume then that means that you've not enrolled any patients yet or not dosed any patients yet?

Eric Jacobson

We have patients in screening and we anticipate we'll be dosing shortly.

Andrew Vaino - Roth Capital Partners

Okay, great. Thank you.

Operator

Our next question comes from the line of Robyn Karnauskas, Deutsche Bank. Please go ahead with your question.

Robyn Karnauskas - Deutsche Bank

Hi guys, congrats on the progress and thanks for taking my question. So I just wanted to know whether you've announced yet whether the number, the minimum number of events for the progression-free survival endpoint has been reached.

Safi Bahcall

No. We haven't announced that and part of our standard operating plan is that we don't discuss -- we don't have access to the -- we're quarantined from any ongoing operational aspects such as event rates and we certainly wouldn't expect to announce that.

Robyn Karnauskas - Deutsche Bank

Okay. So, I guess, you may not be able to answer this question either. But if the number of events has already occurred, then going into the futility analysis, how does that impact the potential outcome from that analysis, the minimum number of events for the final analysis has already occurred and we'll have all those at the meeting?

Safi Bahcall

Yes. Since we don't have any access to the data, it's pretty hard for us to speculate what they may or may not do. I mean, they'll have some number of events. They'll take a look at data. In the charter, there's only a specified stopping rule for futility. So, if they feel that, based on what they're seeing, there's an extremely low likelihood that the study will succeed, then they can recommend stopping the study. Otherwise, in the charter, all they can really recommend is to -- the intent is really to just recommend continuing the study unchanged.

Robyn Karnauskas - Deutsche Bank

Okay.

Safi Bahcall

Beyond that, we don't have access to the data. We couldn't really guess what they might or might not do when they see the actual results.

Robyn Karnauskas -- Deutsche Bank

Okay and then the last question is the futility analysis in that final meeting in the fourth quarter. What triggers that meeting?

Safi Bahcall

It's a combination of making the statistical group that's overseeing the trial, making sure that they have enough events for it to be a worthwhile meeting, as well as this is about the right time in the study that it's sufficiently in for the final data analysis but there are enough events. So it's kind of a combination of factors that this was about the right time.

Robyn Karnauskas - Deutsche Bank

Okay, great. Thanks.

Operator

There are no further questions in the queue. I'd like to hand the floor back over to Dr. Safi Bahcall for closing comments.

Safi Bahcall

Thanks everybody for your time today and we look forward to updating you on our next call.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.

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