Synta Pharmaceuticals Inc. Reports Operating Results (10-Q)
SYNTA PHARMACEUTICALS CORP. is a biopharmaceutical company focused on discovering developing and commercializing small molecule drugs to extend and enhance the lives of patients with severe medical conditions including cancer and chronic inflammatory diseases. Synta has a unique chemical compound library an integrated discovery engine and a diverse pipeline of clinical- and preclinical-stage drug candidates with distinct mechanisms of action and novel chemical structures. All Synta drug candidates were invented by Synta scientists using our compound library and drug discovery capabilities. Synta has a partnership with GlaxoSmithKline for the joint development and commercialization of its lead investigational drug candidate elesclomol which is in a global pivotal Phase 3 clinical trial for the treatment of metastatic melanoma. Synta Pharmaceuticals Inc. has a market cap of $91.6 million; its shares were traded at around $2.7 with and P/S ratio of 35. Highlight of Business Operations: In addition to raising capital from financing activities, we have also received substantial capital from partnering activities. In October 2007, we entered into a global collaborative development, commercialization and license agreement, or the GSK Agreement, with GlaxoSmithKline, or GSK, for the joint development and commercialization of elesclomol, one of our oncology drug candidates. On June 10, 2009, following the suspension of our global Phase 3 clinical trial of elesclomol plus paclitaxel in metastatic melanoma, called the SYMMETRY trial, we received written notice from GSK of their intent to terminate the GSK Agreement. In December 2008, we entered into a collaborative license agreement, or the Roche Agreement, with Hoffmann-La Roche, or Roche, for our CRACM inhibitor program, which is currently in the lead optimization stage. As of June 30, 2009, we have received $150.2 million in nonrefundable partnership payments under these agreements with GSK and with Roche, including $96 million in upfront payments, $50 million in operational milestones and $4.2 million in research and development funding, which, together with the net cash proceeds from equity financings and the exercise of common stock warrants and options, provided aggregate net cash proceeds of approximately $431.6 million. We have also generated funds from government grants, equipment lease financings and investment income. Currently, we are actively engaged in partnership discussions for a number of our programs, which we expect will provide us with additional financial resources.
Pursuant to the agreement, we received a nonrefundable upfront license payment of $16 million in January 2009, which was recorded as a collaboration receivable as of December 31, 2008. Roche will pay all of our research costs, with a minimum of $9 million in committed research support, and all of our development costs for compounds nominated for clinical development. As of June 30, 2009, we have received approximately $4.2 million in research and development support under the Roche Agreement. We are eligible to receive additional payments, for each of three licensed products, should specified development and commercialization milestones be successfully achieved. Development milestones across multiple indications of up to $245 million could be earned for the first product, and up to half of this amount could be earned for each of the second and third products. Commercialization milestones of up to $170 million could be earned for each of three products. In addition, all commercial costs will be paid by Roche. We will receive tiered royalties on sales of all approved, marketed products. Roche may terminate the agreement on a licensed compound-by-licensed compound basis upon providing advance written notice, but may not do so with respect to all licensed compounds until after a specified date.
On March 12, 2009, we committed to a restructuring plan that consisted primarily of an immediate workforce reduction of approximately 90 positions, to a total of approximately 130 positions, to better align our workforce to our revised operating plans following the suspension of our SYMMETRY clinical trial. In the first quarter of 2009, we recorded a restructuring charge of approximately $1.2 million for severance and estimated benefits continuation costs and outplacement services. The restructuring charges were recorded in accordance with Statement of Financial Accounting Standards, or SFAS, No. 146, Accounting for Costs Associated with Exit or Disposal Activities. In addition, we paid approximately $0.2 million in unused paid-time off that had been recognized as expense prior to the restructuring, including $0.1 million in the year ended December 31, 2008 and $0.1 million in the first quarter of 2009. As of June 30, 2009, approximately $1.3 million of the total estimated $1.4 million in restructuring related payments had been paid. The remaining payments are anticipated to be paid by the end of the third quarter of 2009.
product development milestones and operational milestones as collaboration revenue using the time-based model over the same performance period. We recognize as revenue on the date the milestone is achieved the portion of the milestone payment equal to the applicable amount of the performance period that has elapsed as of the date the milestone is achieved, with the balance being deferred and recognized on a straight-line basis over the remaining development period. As of June 30, 2009, we had achieved a total of $50 million in nonrefundable operational milestones, including $40 million in the year ended December 31, 2008 that were paid by GSK in the fourth quarter of 2008 and $10 million in the three months ended March 31, 2009 that was paid by GSK in March 2009. The $50 million in operational milestones achieved to-date include $45 million related to the development of elesclomol for the treatment of metastatic melanoma and $5 million related to the development of elesclomol in another cancer indication. In the three months and six months ended June 30, 2009 and 2008, we recognized $2.2 million, $1.3 million, $5.1 million and $2.7 million, respectively, of license and milestone revenue under the GSK Agreement. In the third quarter of 2009, the period the termination will be effective, we will have approximately $116 million in remaining deferred revenue from upfront payments and milestones received under the GSK Agreement, all of which will be recorded as non-cash license and milestone revenue as we will have no further obligation for deliverables under the GSK Agreement.
Reimbursements of development costs to us by GSK are recorded as cost sharing revenue in the period in which the related development costs are incurred. Reimbursements by us to GSK for costs GSK incurs under the development program are recorded as a reduction of cost sharing revenue in the period in which the costs are incurred by GSK in accordance with EITF No. 01-09. Reimbursement of GSK\'s costs in an amount in excess of collaboration revenues otherwise recognized by us in a reporting period may result in negative revenue. Based on the guidance of EITF No. 99-19, we have determined that we are acting as a principal under the GSK Agreement and, as such, record these amounts as collaboration revenue. In the three months and six months ended June 30, 2009 and 2008, we recognized, as a reduction to revenue, $1.3 million, $2.0 million, $3.4 million and $2.0 million, respectively, of net cost sharing reimbursements to GSK under the GSK Agreement as we are solely responsible for funding 100% of the development costs of elesclomol for the treatment of metastatic melanoma until a specified limit of expenses has been incurred, after which continuing development costs are shared by GSK with us responsible for a modest share of the costs. We believe that the requirement to pay the accumulated GSK expenses does not survive termination of the GSK Agreement and we expect to write-off approximately $10 million of collaboration payables in the third quarter of 2009.
Our net loss for the three months and six months ended June 30, 2009 and 2008 includes $1.0 million, $1.8 million, $2.2 million and $3.9 million of compensation costs, respectively, and no income tax benefit related to our stock-based compensation arrangements for employee and non-employee awards. As of June 30, 2009, the total amount of unrecognized stock-based compensation expense was $7.0 million, which will be recognized over a weighted average period of 2.1 years.
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