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Synta Pharmaceuticals Drops 34 Percent on Disappointing Data

In Monday trading, shares of Synta Pharmaceuticals (NASDAQ: SNTA) dropped 34 percent on more than ten times average volume.

Synta Pharmaceuticals is a biopharma stock that specializes in treating cancer and chronic inflammatory diseases. The company reported results from its phase 2b/3 second-line non-small cell lung cancer trial with experimental treatment, Ganetespib.

Why did the stock lose more than one-third of its market value? This is a case where good wasn’t good enough. The company reported results that were positive and statistically significant. Cancer patients had a median survival rate of 9.8 months compared to 7.4 months without the addition of Ganetespib.

For patients that were diagnosed six or more months prior to the start of the study, survival rates were 10.7 months compared to 6.4 months for placebo patients.

The problem is that the results are good but not extraordinary. A terminal cancer patient who gains an extra two to four months with loved ones is certainly significant and exciting but from a financial standpoint, the financials don’t add up. Asking a patient to spend a large amount of money for an extra two months doesn’t provide a large enough value over traditional chemotherapy.

There are concerns that the FDA won’t be impressed either and gaining approval for a Phase III trial may prove difficult. Assuming that the results of the trial would be similar, Synta will have trouble convincing the FDA to approve a drug that offers such a small extension of a patient’s lifespan.

Since February, the stock has lost 66 percent of its value. It formed a head and shoulders pattern that led to a large-scale selloff once the right should was formed. Prior to the news on Monday, the stock was showing signs of consolidation indicating that some upside might be ahead.

At its closing level, technicians will watch for evidence that the selloff was overdone.

Disclosure: At the time of this writing, Tim Parker had no position in the equities mentioned.

[stock-tools exchange="NASDAQ" symbol="SNTA" image_height="180" image_width="300"]

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