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Synta Pharmaceuticals Corp. (SNTA) Message Board

  • pyramidhunt pyramidhunt Sep 20, 2012 12:45 AM Flag

    Anyone have the information from the Wall Street Trascript relatd to snta

    Interesting report but it cost $175 and it would be interested on what they think about snta and why. Most of us already know that the most value in a biotech is often created after positive phase 2 results. Appreciate it if anyone can share the report.

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    • Finally, on the small-cap area, a name that we're starting to talk more about is Synta Pharmaceuticals. Synta is a development-stage company moving into Phase III with what's called an Hsp90 inhibitor, and Hsp90 is a chaperone, essentially a bodyguard, for key oncogenic proteins in cancer cells, and by targeting Hsp90, you could get different drivers of cancer growth in different tumor types. And this is a highly leverageable platform where Synta is studying the drug in 20 different trials and where we think they've got a best-in-class drug in this Hsp90 space. We expect significant data flow from the company over the next 12 months in breast cancer, melanoma and lung cancer. And they have the prospect to really move more broadly into all solid tumors as well as blood cancer. So we think Synta is a name over the next 12 months that will do very well.

      • 1 Reply to pyramidhunt
      • TWST: Would you begin with a brief introduction to your coverage universe, including some of the specific biotech and pharmaceutical companies you follow?

        Dr. Birchenough: We cover 22 small-, mid- and large-cap biotech companies with four large caps, three midcaps and 17 small caps. Our focus has historically been on oncology drug developments, rheumatology drug development, metabolic disease and orphan diseases. And that continues to be our focus today, but in particular, oncology drug development.

        Some of the names we cover are — our top picks right now are Celgene (CELG) and Gilead (GILD) on the large-cap side; Regeneron (REGN), Onyx (ONXX) and United Therapeutics (UTHR) on the midcap side; Ariad (ARIA), Synta (SNTA) and Rigel (RIGL), and Isis (ISIS) as well, on the small-cap side.

        TWST: You prefer U.S. biotech stocks relative to U.S. pharma stocks. Please tell us your reasons for that view.

        Dr. Birchenough: If you look over the last several years, the valuations for U.S. biotech stocks have contracted substantially, where if we look at valuation relative to forward earnings, the valuations are pretty close between U.S. biotech and U.S. pharma. But with U.S. biotech, what you get that you don’t get with U.S. pharma is a more sustainable growth pattern for legacy products. We don’t see the patent cliffs that we see for large pharma, you see better pricing power outside the U.S. and bigger opportunities for international growth, and we think you see a greater degree of innovation, which ultimately is what drives value. And the bottom line is we think there are higher barriers to entry that are established by large U.S. biotech companies than we see with large pharma.

        TWST: What are some of the most exciting new drugs or technologies coming out of your companies investors would want to be aware of?

        Dr. Birchenough: I think the biggest things thematically that we're seeing from a technology perspective is continued focus on molecular diagnostics guiding molecular therapeutics in oncology, in particular. And so what we're starting to see is companies succeeding at identifying key drivers of cancer-cell growth, identifying with diagnostics what those drivers are, and targeting those patients specifically with highly effective drugs. This is an area that we think we're going to continue to see growth in and where most of the oncology studies that are starting right now are being done with molecular diagnostics and better-characterized patients and more targeted drugs targeted at these oncogenic drivers of disease.

        TWST: What are some of the industry-specific metrics you use to evaluate biotech and pharma companies investors in the space should also be sure to understand and analyze?

        Dr. Birchenough: I think when you look at the U.S. biotech group and you're trying to figure out where to invest, I think you want to look at the maturity of the company — whether they're preclinical, whether they're development stage, Phase I through Phase III, whether they're commercial safe. I think you want to look at how well they understand their drugs, how well characterized the drugs are in earlier-stage development because, historically, companies have not spent enough time characterizing the drugs well enough and have ended up running into toxicity problems later in development.

        So I think you want to look at companies and how well they characterize the drugs in early development. You look at whether these are small molecule pharmaceuticals or if they are large molecule biologics, and large molecule biologics tend to have longer patent life and are more resistant to generic erosion, so there's a preference there for the larger biologic molecules.

        And I think overall the biggest thing is when you look at U.S. biotech or any therapeutic company, look for sustainability of their growth, and that comes down to patent protection. And you want to look at companies and whether they have extended patent protection or whether they have shorter claims, and how difficult it is to copy their drugs. So those are some of the things that we look at.

        You also want to look at therapeutic focus insofar as there are some therapeutic areas that are much tougher than others, and ultimately, you also want to look at relative valuation and what expectations are built into a stock. Historically, we've looked at a group of roughly 170 development-stage biotech companies over a four-year cycle, and categorized the companies by stage of development, therapeutic focus, whether they were internally developed compounds or externally in-licensed, and valuation to see if there were some trends in terms of where value is created. And what we found from that analysis is that companies — that most of the value was created in Phase II in establishing proof of concept, that, historically, as we finish one cycle — most of the value was created in areas away from oncology.

        And in terms of in-licensing versus internal development, there wasn’t really a difference in terms of that business strategy, but the internal development led to more stable stock prices, and valuation's always a difficult thing to look back historically and say, "We're at the right point to invest." But if you look at enterprise value relative to cash on hand, the sweet spot tended to be at a level around two times cash. So those are some of the metrics that we have explored historically and some of the ways to think about approaching the U.S. biotech group.

        TWST: What are the key headwinds on the horizon for biotech companies over the next 12 to 18 months, and which kinds of companies tend to have more or less exposure? What about for pharma companies?

        Dr. Birchenough: The headwinds tend to be company specific. But that being said, if we look at what the drivers have been of biotech outperformance, any reversal of some of those drivers could be headwinds. And so when we look at what's driven U.S. biotech outperformance over the last 12 months, it's really been a favorable macro environment, it's been what we've seen as a more favorable regulatory environment both with FDA and EMA, it's really been large-cap companies demonstrating that legacy products have sustainable growth over the longer term, and it’s been a record number of product successes. And so what could create headwinds would be if there's a change in the macro environment.

        When we look at the macro environment, we've got low GDP growth and we've got low interest rates, and when you tend to see situations where growth is hard to find elsewhere in the economy, biotech is very attractive. If we started to see growth from other aspects of the economy, the scarcity value for biotech growth might go away a bit. Biotech is a very capital-intensive industry, and so when interest rates are very low, biotech companies tend to do very well, and biotech’s been very successful recently in having a capital market that's been open to financing, so any closing of that financing window could be a headwind as well.

        On the regulatory side, we've seen an FDA that's very constructive around drug approvals. It's not to say that we're seeing timely drug approvals, but we're seeing where FDA has concerns, a more thorough vetting of those concerns and a willingness to work with companies to approve drugs. So the approval of some of the obesity drugs recently is a good example of the FDA being more constructive, so obviously, if we saw a regulatory environment where FDA started rejecting more drugs again and a pendulum shift, that would be a headwind, but it's not one we anticipate.

        But then, ultimately, it really comes down to product successes, and this is why headwinds are very individual, and certainly for the sector, if we had a string of product failures that might remind investors that this is a risky area of development, but you'd really need accumulative facts to represent a headwind. But ultimately, that's the biggest driver of the group are these individual product events, and it’s very company specific.

        TWST: Are there any common misconceptions, complexities or nuances about investing in biotech or pharma the average investor may not fully understand, but he or she should know before investing?

        Dr. Birchenough: Biotech is a very complicated area, an area with a lot of nuance that the average investor, I think, has been leery of historically and probably should continue to be leery of. That being said, there's been a maturity of the biotech sector that may be underappreciated insofar as there are many more commercial-stage companies that have been derisked that might fit into a generalist investor's portfolio, and is a more rational process of drug development that I alluded to previously, where companies are starting to better understand diseases at a molecular level, identify the drivers of disease better, and target more specifically with drugs those diseases, and so successes are more predictable.

        And so overall, we'd say this is still a risky area of development, but we think there are a greater proportion of companies that are now investable. I could probably say, historically, it was just a small number of large-cap companies, now we've got a very large group of midcap commercial-stage companies that are substantially derisked. So that may be underappreciated, and while it’s still complicated to develop drugs into succeeding clinical development, there is a more rational process now than what, historically, seemed to be more of a trial-and-error process.

        TWST: What is your take on current valuations? And when you combine valuations with your mid- to long-term outlook for the sectors, is this the right time to be buying biotech and pharmaceutical stocks?

        Dr. Birchenough: Notwithstanding the significant run we had in the group over the last 12 months, we still think that this is a very good time to be investing in U.S. biotech. Valuations appear very attractive when we look at the large caps and where they're trading at a multiple of earnings. We have several situations where there are substantial dislocations in valuation.

        One good example is Celgene, where Celgene right now is trading at roughly 13 times forward earnings, and they have the ability to grow earnings long term at a rate of 20% to 25%. That's a very specific example of an area of value dislocation, and we think over the next 12 months, you'll see a multiple expansion with Celgene. But more broadly, when we look at the group, we've got the large caps trading in that same range of 12 times to 13 times forward earnings and with growth prospects that justify a much higher multiple. So we still view valuations as attractive.

        We would say, however, as we're looking at some of the small, midcap companies, where valuation is a little more difficult to get a handle on, that a more stock-specific approach needs to be taken, and one needs to look at some of the companies that perhaps haven't moved as of yet that still have big events that drive it.

        TWST: What are your top picks in biotech and pharmaceuticals?

        Dr. Birchenough: So in the large-cap area, I think we'd highlight Gilead, which we think has several attractive opportunities. What we like about Gilead is the continued growth of their legacy franchise in HIV, and where we expect their dominance in HIV not just to continue, but to be expanded as they come forward with some very attractive life-extension products that we think can expand their opportunity further.

        And beyond that, we think that they are in the leadership position in terms of the next big area of antiviral therapy, and that is hepatitis C, and we think that they have the best-in-class direct antiviral for hepatitis C in their drug GS-7977. And ultimately, we think that that will be a significant growth driver for the company over the next decade, and where we'll have Phase III data next year that we think will establish a substantial lead over other companies in the hepatitis C space.

        Conceptually, when we look at the opportunity for Gilead in hepatitis C, it's a significant opportunity where there are 12 million patients in the U.S., Europe and Japan; where pricing for these direct antivirals are at roughly $50,000 per patient head, so you're looking at a $600 billion theoretical market opportunity, which won’t impact entirely, but it really represents a significant opportunity for Gilead, and again, we think they're in the leadership position.

        On the midcap side, our top pick right now is Onyx Pharmaceuticals, and Onyx is one of the few companies that could emerge from 2012 with three separate drugs for cancer on the market. They've had their drug Maxivar on the market partnered with Bayer (BAYN.DE) for the last six years or seven years, and that's a billion-dollar seller that generates substantial profits to Onyx.

        And now, they've just got what could be a bigger drug in carfilzomib approved for myeloma, where we know that the myeloma market can support drugs that can do multiple billion dollars in sales, and we think carfilzomib is a best-in-class drug that's wholly owned by Onyx, and where it can drive substantial earnings.

        Finally, they have a third drug called Regorafenib, which we think will get approved for colorectal cancer by year end, and that's a drug where they collect a very healthy royalty that will drop right to the bottom line. So overall, we think that Onyx has a rare combination of product diversification, commercial-stage opportunity and the prospects for sustained earnings growth that should attract investment.

        Finally, on the small-cap area, a name that we're starting to talk more about is Synta Pharmaceuticals. Synta is a development-stage company moving into Phase III with what's called an Hsp90 inhibitor, and Hsp90 is a chaperone, essentially a bodyguard, for key oncogenic proteins in cancer cells, and by targeting Hsp90, you could get different drivers of cancer growth in different tumor types. And this is a highly leverageable platform where Synta is studying the drug in 20 different trials and where we think they've got a best-in-class drug in this Hsp90 space. We expect significant data flow from the company over the next 12 months in breast cancer, melanoma and lung cancer. And they have the prospect to really move more broadly into all solid tumors as well as blood cancer. So we think Synta is a name over the next 12 months that will do very well.

 
SNTA
2.75-0.11(-3.85%)12:34 PMEST

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