Today Synta Pharmaceuticals (SNTA) entered into a merger agreement with privately-held Madrigal Pharmaceuticals. Under the terms of the agreement Madrigal will merge with a wholly owned subsidiary of Synta in an all-stock transaction. This is a pretty good merger for Synta, especially after many trial failures with its drug ganetespib against many targets including lung cancer. 

The newly combined company will focus its efforts on multiple phase 2 trials, and because of this merger will have the cash to fund these trials. The company will focus on cardiovascular metabolic diseases, especially in a NASH indication. NASH stands for non-alcoholic steatohepatitis and as the name suggests it's a fatty liver disease -- disease not because of excessive liquor use. Madrigal's lead NASH drug is already in Phase 2.

This NASH indication is now being sought after by many biotechnology companies both big and small. Gilead (GILD) recently acquired a privately-held company called Nimbus for $1.2 billion. The big one that many are watching is Intercept Pharmaceuticals (ICPT), which saw a huge surge in its share price a few years ago after announcing positive phase 2 results in its NASH indication using its drug obeticholic acid. A few other companies in phase 2 testing are Galectin Therapeutics (GALT), Galmed Pharmaceuticals (GLMD), and Conatus Pharmaceuticals (CNAT).

In the deal announced today, Madrigal shareholders will receive shares in Synta and will own 64% of the combined company, which will be called Madrigal Pharmaceuticals, with the deal expected to close in Q3.

Synta, a penny stock, rose almost 68% in today's trading following the news, to 41 cents.