GSK pays up to $1bn for melanoma drug

GlaxoSmithKline, the world's second largest pharmaceutical group, has signed a development deal with Synta Pharmaceuticals that could be worth up to $1.1bn (£540m) to the US biotechnology group – almost three times its current market value.

The deal will see GSK pay $80m upfront for the rights to develop STA-4783, a treatment for skin cancer-causing melanomas. GSK was convinced to invest in the drug on the strength of data provided by Phase II trials, and Synta will be entitled to further payments should the drug be granted regulatory approval.

The other payments include $135m if the drug is approved by the FDA, $450m if its indication is widened and $300m linked to sales. GSK will also buy $45m of Synta's stock once certain milestones are reached.

Although metastatic melanomas are treatable if caught in early stage, if left untreated they have a very high fatality rate. According to the American Cancer Society, melanomas account for just 7 per cent of skin cancers but result in 75 per cent of fatalities. STA-4783 is injected into patients and works by elevating oxidative stress levels, triggering the death of cancerous cells.

The deal adds to a busy pipeline of oncological products at GSK – it has at least 10 others in or entering Phase III trials. Moncef Slaoui, GSK's chairman of research and development, said: "The data we have seen from the Phase II trials conducted by Synta have given us confidence in the potential of STA-4783 as a novel means of treating metastatic melanoma."

Despite the Synta deal, GSK shares closed 4p lower at 1,311p as they continued to suffer over the future of another GSK drug, the controversial diabetes blockbuster Avandia. Meanwhile, in New York, shares in the Nasdaq-listed Synta were also out of favour, falling 9.1 per cent to $9.32. However, the shares have more than doubled in value over the past month on the back of speculation over the STA-4783 development deal.