RBC Capital Markets expects that Synta Pharmaceuticals Corp.'s (NASDAQ: SNTA) upcoming phase 2 data for ganetespib or STA-9090 in combination with docetaxel in non-small cell lung cancer could help investors more accurately assess the potential for ganetespid.

We continue to be encouraged by ganetespid’s progress into more advanced trials and its demonstrated safety relative to Hsp90 inhibitors from other companies. Upcoming Phase 2 data at at American Society of Clinical Oncology (ASCO) could help investors more accurately assess the potential for ganetespid. A forecast partnership could be a catalyst, but with three possible programs and multiple potential structures, it is unclear what the impact of a deal could be, said Jason Kantor, an analyst at RBC Capital Markets.

Ganetespib is a potent inhibitor of heat shock protein 90 that is structurally unrelated to earlier Hsp90 inhibitors such as 17-AAG, and has shown superior activity to these agents in preclinical studies.

Synta will report data from 100 patients with non-small cell lung cancer (NSCLC) and roughly 30 patients with Gastrointestinal Stromal Tumors (GIST). Previously reported NSCLC data from 33 patients who did not have a mutated KRAS or EGFR showed 3 partial responses and 10 patients with tumor shrinkage.

In Kantor's view, although the single agent response rate was modest (9 percent), it demonstrated a clear sign of efficacy. Better patient selection could increase response rate, and he expects more data on molecular markers of activity.

Based primarily on preclinical synergy and anecdotal evidence of clinical activity, Synta Pharmaceuticals intends to start a 240-patient Phase IIb trial in NSCLC comparing Taxotere with or without ganetespid.

Kantor said the Phase 2b portion will be used to identify the best population to expand the trial into a pivotal Phase 3. Preliminary results from a portion of the patients in the Phase 2b could come in first quarter of 2012.

Synta Pharmaceuticals expects to partner ganetespid, elesclomol and/or the calcium release-activated calcium modulator (CRACM) inhibitor programs. Partnerships for ganetespid or elesclomol are likely to be regional while Synta would expect a broader deal for the CRACM inhibitor. The recently completed financing should enhance Synta's negotiating position.

Synta's revenue of $1.6 million were modestly lower and operating expenses of $13.4 million higher than forecast driving a loss of $0.29 versus Kantor's loss at $0.27. The key metric is cash, which increased to pro forma $75 million (including $35 million from an April financing) or about $1.50 per share, sufficient to fund operations into 2012 assuming no further partnerships or financings.

Our primary valuation is a probability-weighted sales multiple analysis. We assign a relatively conservative 5 times sales multiple to each of four sales scenarios: a niche product ($150 million); a winner ($500 million); a standard blockbuster ($1 billion); and a large blockbuster ($2 billion), probability weight these scenarios, assume a 17 percent royalty, apply a risk rate of 35 percent, and discount back five periods to arrive at a value of about $5 per share, said Kantor.

Synta Pharmaceuticals stock is trading up 2.45 percent at $5.85 on the NASDAQ Stock Market at 9:49 am EDT.

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