Exclusively for InvestorIdeas.com
February 15, 2007
Initial public offerings (IPOs) that see lots of insider buying as soon as they come out have been doing well, so let’s try another one.
I typically like to see big purchases – millions of dollars worth -- with these to make them work. That’s what we have with a Lexington, MA-based biotech company called Synta Pharmaceuticals (SNTA).
An early-stage drug development company, Synta has a rich library of chemical compounds, small molecules and plant extracts that it mines for drugs that may some day battle scourges like skin cancer or inflammation-related ailments like rheumatoid arthritis.
The company has two potential drugs moving into late-stage clinical trials, plus two in preclinical studies, and another in very early-stage development.
Insiders vs. the market
Synta came public on February 6. It opened in a range of $9-$10, and it’s been there ever since. Three days after the start of trading, directors and line officers purchased over $10 million of the stock for $10 share – where you can buy it now.
Besides the sheer size, another thing makes these purchases attractive. The stock had to be discounted by more than 30% from its proposed $14-$16 range to get the deal done. Plus the deal size had to be cut. That may sound like bad news, but the combo of insider buying on a deal that had to be discounted is bullish, to me. That’s because some of the best insider-buy stocks are the ones favored by insiders while the market is not so certain. That’s the case here.
Here’s another plus. Synta hasn’t given up marketing rights to partners in exchange for cash. Instead, it owns the rights to all of its potential drugs in all markets and for all potential uses. Often, emerging biotech companies have to swap rights to some markets in exchange for cash to survive. Synta will probably have to do that at some point. But it’s a comfort to know it hasn’t yet. This means it has an ace in the hole for when it needs to raise cash – instead of what might be a more dilutive follow-on offer or secondary.
Here’s a look at what therapies the company has in the pipeline.
Cancer drugs
Synta’s most advanced drug, which goes by the code name STA-4783 for now, is a compound that battles cancer by stressing out cells. It causes something called “oxidative stress.” The stress is more pronounced in cancer cells than in normal cells. It also causes more damage to cancer cells. What’s more, the response makes cancer cells more vulnerable to attack by the immune system and to a natural process in the body called “programmed cell death.” Many cancers occur because programmed cell death gets derailed, so too many cells grow.
The compound STA-4783 seems to work well in combination with a chemotherapy treatment called paclitaxel, which is sold by Bristol-Myers Squibb under the name Taxol. In phase II trials, Synta has found that this one-two punch helps people with a form of skin cancer called metastatic melanoma. Melanoma is one of the deadliest forms of cancer when it is not caught early enough and removed.
Synta has “fast track” status for this compound with the Food and Drug Administration (FDA) -- for the treatment of metastatic melanoma. The company hopes to start Phase III trials in the middle of this year. It also plans to start Phase II trials on other forms of cancer this year.
Another potential anti-cancer drug in the pipeline is called STA-9090. It inhibits something in the body called “heat shock protein 90.” This protein regulates the activity of “signaling proteins,” like kinase proteins, that trigger uncontrolled cell growth. In preclinical trials, this compound has been effective in animal models of human cancers. The company hopes to file an “investigational new drug” application with the FDA in the first half of this year.
A third anti-cancer compound, called STA-9584, may work by disrupting the blood vessels that supply tumors with oxygen and nutrients. It seems to work against established blood vessels, unlike “anti-angiogenesis” cancer therapies in use today like Avastin, developed by Genentech (DNA). Avastin only stops the development of new blood vessels for tumors. This drug is in very early-stage “preclinical” development.
Inflammatory disease treatments
Inflammatory diseases like rheumatoid arthritis, Crohn's disease, multiple sclerosis and psoriasis are typically caused by an immune system gone awry. While the immune system normally protects the body, in autoimmune diseases it attacks the body's own tissues.
Synta has two possible treatments here:
- Apilimod regulates the inflammation pathways used in some autoimmune and inflammatory diseases. Apilimod has failed against two inflammatory diseases -- psoriasis and Crohn's disease. But Synta thinks it may work against rheumatoid arthritis and a disease called common variable immunodeficiency. This is a disease in which antibodies aren’t produced correctly, which can lead to infections and other problems. Apilimod is in Phase II trials. The company expects results this year.
- Another potential drug helps produce cells and substances which block inflammation. This one has a tongue-twister of a name: Calcium release-activated calcium (CRAC) Ion Channel Inhibitor.
Like most early-stage biotech companies, Synta faces many hurdles besides proving that these compounds work. If they do actually work, it then has to move on to manufacturing and marketing, and finding partners to work with. All of these things take time – which means you have to be patient if you buy this stock. That said, the stocks of biotech companies can move up sharply way before they ever get a product to market, as they clear research and partnership hurdles along the way.
The bottom line : Biotech companies are always risky and speculative. But when you see insiders plow so much money into one, it increases the chances of success, even if that still doesn’t make them a sure bet. With a number of catalysts set to occur this year for Synta, I’d buy right here.
Disclaimer At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site. For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
