Feuerstein's Biotech-Stock Mailbag: Synta

(Editor's note: Come see Adam Feuerstein at the Money Show in San Francisco. Adam will be speaking to attendees on Friday, Aug. 8, at 2:15 p.m. ("Biotech Investing for Individuals: How to Turn Geeky Science Into Fat Profits"); on a lunch panel on Saturday, Aug. 9, at 12:35 p.m. ("Tech and Biotech: Picks and Pans for 2008 and Beyond"); and on Sunday, Aug. 10, at 8 a.m. ("Biotech Investing for Individuals: How to Turn Geeky Science Into Fat Profits").

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Let's rip open the Biotech Mailbag, starting with an email from Manish R., who asks:

"Can you please post your insight on Synta Pharmaceuticals' (SNTA Quote) probability for success on its phase III trial for elesclomol? Considering that they did a double-blinded phase II trial with excellent results for first-line patients, I would think that the phase III results would be confirmatory. However, the stock price currently does not reflect this."

Elesclomol is perhaps the most promising melanoma drug currently in late-stage clinical trials, especially now that Medarex's (MEDX Quote) melanoma drug has run into trouble.

And bless my heart, Synta ran a randomized, controlled phase II study of elesclomal in melanoma patients, which produced positive -- and statistically significant -- results. The company used this data to design its ongoing phase III study.

I've long bemoaned the dearth of such quality phase II studies in cancer drug development, so Synta definitely gets a gold star in my book. And as Manish implies in his email above, the strong phase II data for elesclomal should boost the odds for positive results from the phase III study.

Yet, Synta's stock does seem stuck in neutral, essentially flat for the year at $6 and change, with a fairly sizable short interest to boot.

What gives? Well, let's not forget that we're talking about metastatic melanoma here. Nothing works in advanced melanoma, or I should say, no new drug has worked in a really long time. Melanoma has become such an elusive drug target that the "default" bet is to assume that elesclomal will ultimately fail.

Synta is also on an aggressive time line to get the phase III study enrolled by the end of the year, and that should lead to top-line results in the first quarter 2009. In this market, where, at best, small-cap biotech stocks are merely tolerated but not embraced, the elesclomal data are still a bit on the dark side of the investment horizon for many investors.

I went through the positive and potential negatives of the elesclomal phase II data last October, right after Synta signed its partnership agreement with GlaxoSmithKline (GSK Quote). Subsequent data presentations continue to back up the drug's potential in melanoma, although some questions and concerns persist.