After PhIII failure Synta announces merger, shifts R&D focus

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After ditching a lung cancer study and axing 20% of its staff last year, Synta Pharmaceuticals ($SNTA) is looking towards a new future as it announces a merger with Madrigal.

Lexington, MA-based Synta Pharmaceuticals will merge with the privately-held Fort Washington, PA-headquartered Madrigal Pharmaceuticals, with Synta keen to get access to Madrigal’s name and NASH candidate.

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Synta has traditionally been focused on oncology but the company has had a rough year, losing its CEO Anne Whitaker in August after just 9 months at the helm, which itself came after it took the ax to some of its research projects and 20% of its staff.

Things got worse in October when it terminated a Phase III trial of its second-line lung cancer candidate ganetespib, in use with chemotherapy, after analysis found it would do no better than chemotherapy alone--a decision that plunged the biotech into penny-stock territory. The drug is still set for testing in ovarian, breast and blood cancers this year, but its future remains uncertain.

The decision to merge with Madrigal (and change its name to “Madrigal Pharmaceuticals” while moving its corporate HQ to Philadelphia) will now likely pivot the company’s focus away from oncology and see it move its attention to developing small-molecule drugs in cardiovascular-metabolic diseases and non-alcoholic steatohepatitis (NASH).

Madrigal’s main attraction is its lead NASH compound, MGL-3196, which is currently moving into midstage trials as a once-daily pill for fatty liver disease. It is also targeting a genetic condition which causes very high levels of cholesterol, known as heterozygous and homozygous familial hypercholesterolemia (FH).

The drug works as a liver-directed selective thyroid hormone receptor-ß (THR-ß) agonist. Early-stage data for the drug has shown a favorable safety profile, according to the company. It was originally in-licensed from Roche ($RHHBY).

Madrigal said it has designed Phase II clinical programs to establish proof of concepts in both NASH and FH, with data readouts for each program anticipated throughout 2017. In NASH preclinical models, MGL-3196 reduced hepatic triglycerides and markers of inflammation and fibrosis.

Synta joins a long and growing list of biotechs and pharma moving in on the NASH space, which analysts believe could be worth $40 billion in the next decade.

Intercept ($ICPT), Gilead ($GILD) and French biotech Genfit are just some of the players in this emerging field which aim to develop the first ever treatments for the liver scarring disease--a disease caused predominately by the rising rates of obesity and diabetes.

The new company will see Paul Friedman become its chairman and CEO. Friedman is currently the director at Synta and was formerly the CEO of Incyte ($INCY).

Under the terms of the merger, Synta will acquire all outstanding shares of Madrigal in exchange for around 253.9 million newly issued shares of Synta common stock.

When the deal is done, Synta’s shareholders will own 36% of the combined company, while Madrigal shareholders will own 64 per cent. The merger is expected to close by the end of the third quarter.

On top of this, an investor syndicate, which includes Bay City Capital, Fred Craves--Founder of Bay City Capital--and SQN LLC, has committed to invest up to $9 million in Madrigal prior to the closing of the merger, as collateral for the ongoing trials of MGL-3196.

“Following an extensive review of strategic alternatives, Synta’s Board of Directors believes that a merger with Madrigal Pharmaceuticals offers shareholders the most compelling opportunity for enhancing long-term value,” said Keith Gollust, chairman of Synta.

Synta shares jumped 60% this morning on the news (as of 11:50 EDT), although given its troubles the biotech's market cap is only $58 million. 

-see the release

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