An argument against "They're waiting for a better deal" Part 1
The response to the concerns that Synta has yet to find a partner for development of the Ganetespib drug is that they're waiting to prove it further in order to get a much better deal. Let's explore this theory a bit.
The management team of a publicly traded company has one mandate above all others: maximize shareholder value. In some companies this can be done in many ways, but for a speculative biotech with no product to sell, there are really only 2 variables to control:
1. Potential. The more potential, the more valuable the company. Having 1 great drug in the pipeline is good. Having 5 is much better.
2. Uncertainty. The more uncertainty, the less valuable the company. Worrying about how the company will fund its efforts is bad. Having the security to work at full capacity is good.
The task is clear: increase potential, decrease uncertainty. Let's assume what most of us would like to believe: Ganetespib is a blockbuster, game changing drug. We knew that at this time last year, just about one year ago from today actually, when the phase 2 data was published. The board was quite excited:
And Synta themselves seemed to have the right idea about what needed to be done:
"We have been encouraged by the partnership interest in these and other, earlier-stage programs at the company and are confident we will conclude one or more partnership agreements this year. We anticipate partnerships contributing substantial resources and complementary activities to our programs."
Partnerships are great because they increase potential and decrease uncertainty at the same time. With such encouraging results, without getting greedy, it is reasonable to expect that a prospective partner bring Synta enough money to fund not just Ganetespib research, but research for all the drugs in the pipeline, just as was done during the Roche partnership for Elesclomol (and where would Synta be right now without the potential of Ganetespib?)
Had they received and accepted such a partnership, all of the following would have been avoided:
* April 2011 direct offering of 7,191,731 shares. * January 2012 secondary offering of 8,050,000 shares. * Azimuth deal would be expired, instead of looming 8,106,329 shares of additional dilution before May 2012.
This amounts to over 40% of the potential float we will see in a couple of months, nearly doubling the float. And the fear of additional dilution is removed, and development of the potential of the entire pipeline is running at full speed, instead of the current state where everything but Ganetespib and Elesclomol is all but ignored. So it's not unreasonable to suggest that, at minimum, Synta would be worth twice what it is today with such a partnership.
I am in the camp that believes that ganetespib is worth between 10 and 50 billions, compared to other drugs out there on the market. It sounds crazy, but believing the data readouts so far it cant be sold for much less if the drug holds what it promises.
For Pfizer its a little like this; its better to pay 10 bill for something that works than 5 bill for something that surely works. Big decicions have to be justified for the shareholders and then price isnt an issue. They know that Gante is increasing a lot in price for every minute.
Waiting for a full year to try and get a sweeter partnership deal would require the value of the partnership to be double what it would have been just one year earlier in order for shareholders receive the same benefit. Would a prudent company, with one prominent failure already to its name, really have the chutzpah to believe that such a strategy is the best course of action?
Only two possible scenarios make sense to me.
1. Synta has tried to obtain such a reasonable partnership, but has failed. This would imply that, either there is something with Ganetespib that is not public knowledge that keeps prospective partners from signing a deal, that those prospective partners have misgivings with working with a company with the history of Synta, or both.
2. Synta has actually turned down such a reasonable partnership in order to wait for something better to come along. This would prove that management is arrogant and incompetent to go against the strategy that they've previously announced last February.
If you are long, you'd better hope that the answer is #1, because with that at least there is hope. But I think there's a 50% chance that the situation is really #2, in which case longs are in for nothing but pain.
Could also simply be a negotiating tactic. They reached an impasse with their current prospective partner(s), and are frustrated enough to look for a new partner, and/or use the threat of a new partner as leverage.
Also - it is worth noting that they are most likely negotiating with a Japanese, or Asian partner, who are notoriously glacially slow in their negotiations.