Sunesis Pharmaceuticals — A new BTK for a new day

Sunesis Pharmaceuticals — A new BTK for a new day

Sunesis remains on track to complete the dose-escalation portion of its Phase Ib/II clinical trial for lead compound SNS-062, an oral Bruton’s tyrosine kinase (BTK) inhibitor, in patients with confirmed Imbruvica resistance in mid-2018, and present initial safety and efficacy interim data in Q218. In addition, Sunesis is moving forward with SNS-510, a PDK1 inhibitor with potential activity across multiple tumor types, and we expect a decision from Takeda on the advancement of pan-Raf inhibitor TAK-580 by mid- to late 2018. Sunesis completed a $20m offering of common and preferred stock in October 2017. We value Sunesis at $125.9m or $3.68.

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Sunesis Pharmaceuticals

A new BTK for a new day

Company outlook

Pharma & biotech

16 November 2017

Price

US$2.67

Market cap

US$91m

Net cash ($m) at 30 September 2017

5.3

Shares in issue

34.2m

Free float (%)

95%

Code

SNSS

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

20.3

17.6

(36.4)

Rel (local)

19.7

13.0

(46.0)

52-week high/low

US$4.3

US$1.8

Business description

Sunesis Pharmaceuticals is a pharmaceutical company focused on oncology. Its lead asset is SNS-062, a BTK inhibitor for CLL for Imbruvica refractory patients. The program is entering a dose escalation Phase Ib/II. It has also developed TAK-580 with partner Takeda, and the preclinical PDK1 inhibitor SNS-510.

Next events

Presentation at ASH

December 2017

SNS-062 dosing update

Mid-2018

TAK-580 option decision

Mid/late 2018

Analysts

Nathaniel Calloway

+1 646 653 7036

Maxim Jacobs

+1 646 653 7027

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

Sunesis remains on track to complete the dose-escalation portion of its Phase Ib/II clinical trial for lead compound SNS-062, an oral Bruton’s tyrosine kinase (BTK) inhibitor, in patients with confirmed Imbruvica resistance in mid-2018, and present initial safety and efficacy interim data in Q218. In addition, Sunesis is moving forward with SNS-510, a PDK1 inhibitor with potential activity across multiple tumor types, and we expect a decision from Takeda on the advancement of pan-Raf inhibitor TAK-580 by mid- to late 2018. Sunesis completed a $20m offering of common and preferred stock in October 2017. We value Sunesis at $125.9m or $3.68.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/15

3.1

(36.7)

(3.02)

0.0

N/A

N/A

12/16

2.5

(38.0)

(2.42)

0.0

N/A

N/A

12/17e

0.7

(35.9)

(1.48)

0.0

N/A

N/A

12/18e

0.0

(34.6)

(0.96)

0.0

N/A

N/A

Note: *PBT and EPS are normalized, excluding amortization of acquired intangibles, exceptional items and share-based payments.

SNS-062 Phase Ib/II readout approaching

The first data on the efficacy of SNS-062 is expected as part of the interim readout from the dosing portion of the Phase Ib/II trial. The data are planned to be presented at a major conference in mid-2018. Sunesis will also provide an update on the program at the American Society of Hematology (ASH) conference in December 2017.

Growing market for BTK inhibitors

The FDA recently approved AstraZeneca’s Calquence (acalabrutinib), a covalent BTK inhibitor for the treatment of mantle cell lymphoma (MCL), and only the second BTK inhibitor to receive approval. Similar to Imbruvica, Calquence forms a covalent bond that causes the same C481S mutation that can render the drug ineffective. In preclinical studies, SNS-062 maintained potent inhibitory activity against C481S BTK mutations resistant to inhibition by Imbruvica and Calquence.

SNS-510 is a “go”

The company announced on its Q317 call that it will be moving forward with SNS-510 to IND enabling studies, as opposed to SNS-229 as we previously modeled. This decision was made on the basis of a more favorable therapeutic index and toxicology, according to the company. We have increased our probability of success to 10% (from 5%) to reflect the advancement of this program.

Valuation: Increased to $125.9m or $3.68/basic share

We have increased our valuation to $125.9m, from $93.0m, although it is reduced on a per-share basis to $3.68 ($3.06 diluted) from $3.96 ($2.33 diluted). This is driven by rolling forward our NPVs, the increase in the probability of success of SNS-510, and recent offerings to the effect of $24.6m (17m new shares fully diluted since last report). We forecast $135m in capital will be needed before profitability in 2023. We expect to provide an update to our valuation following Takeda’s option on TAK-580 and SNS-062 Phase Ib results in 2018.

Investment summary

Company description: Cancer- focused biotech

Sunesis Pharmaceuticals is an oncology company focused on the development of novel small molecule therapeutics. It was incorporated in 1998 and has been public since 2005, although since this time it has shifted away from drug discovery purely to development. In 2017, Sunesis refocused its efforts from vosaroxin (Qinprezo), after withdrawing its EMA marking application, to its new lead asset SNS-062, an oral non-covalent inhibitor of Bruton’s tyrosine kinase (BTK) that binds with potential efficacy in Imbruvica-resistant chronic leukemia (CLL) patients. Approximately 25% or more of those treated with Imbruvica develop resistance and this number is expected to increase with more patients on the drug for an extended amount of time. Recently, the company initiated a Phase Ib/II dose escalation clinical trial with seven planned cohorts in patients with confirmed Imbruvica-resistance. The target completion date for the dose escalation portion is mid-2018. Sunesis is also developing SNS-510, a preclinical pan-cancer inhibitor of PDK1 that may work in resistant populations, and has licensed TAK-580, a pan-Raf inhibitor for solid tumors, to Takeda.

Valuation: $125.9m or $3.68 per basic share

We have increased our valuation of Sunesis to $125.9m up from $93.0m, although it has reduced on a per-share basis to $3.68 ($3.06 diluted) from $3.96 ($2.33 diluted) as a result of the October offering. This increase in total value is driven by rolling forward our NPVs to the most recent quarter as well as the increase in the probability of success (to 10% from 5%) of the SNS-510 program to reflect clinical progress. The increase in share counts represents dilution from recent offerings.

Financials: Estimated $37m in cash

Sunesis reported an operational loss of $9.9m for Q317, up from $8.5m for Q316, primarily due to the continuation of the SNS-062 clinical trial and a one-time milestone payment to Biogen of $2.5m. The company completed a secondary offering of common and preferred stock (worth $20m gross) in October 2017 as well as continuing its at-the-market facility for a total of $24.6m net proceeds. This has reduced our expected financing requirement to $135m (from $155m) before profitability in 2023. A portion of this financing need should be provided by milestone and upfront payments associated with the development of TAK-580. We predict significant future increases in cash burn with the advancement of the SNS-062 and SNS-510 clinical programs, although we expect decreases in 2018 due to the discontinuation of spending on vosaroxin.

Sensitivities: Early stage development risks

Sunesis has a set of sensitivities indicative of the combination of risks due to its very early stage development pipeline and its potential near-term commercialization. We believe the company’s new lead therapeutic, SNS-062, has significant profit potential because it is wholly owned by Sunesis, it is based on a mechanism with established efficacy, and it is substantially differentiated from competitors. However, even with the established mechanism of action, we predict a 20% probability of approval considering the exceptionally low success rate for development of small molecule targeted oncology drugs and the lack of efficacy data in humans. Moreover, there is a high degree of uncertainty surrounding the market of Imbruvica refractory patients, considering the eventual size of this population is largely unknown at this point. Additionally, the survival for these patients is typically measured in months, presenting issues initiating them on a new therapy. The remainder of the Sunesis pipeline is very early stage, and carries the associated clinical risk. We assign probabilities of approval of 15% and 10% for the TAK-580 and SNS-510 programs, respectively, neither of which have established in-human efficacy.

A BTK on the path of least resistance

Sunesis is a clinical-stage biopharmaceutical company developing oncology therapeutics. The company is advancing its kinase-inhibitor pipeline, with an emphasis on establishing its lead therapeutic, SNS-062, an oral non-covalent inhibitor of Bruton’s tyrosine kinase (BTK) for the treatment of chronic lymphocytic leukemia (CLL) and other B-cell cancers. In January of this year, the US FDA accepted the Investigational New Drug (IND) application for SNS-062. The company expects to present safety and efficacy data from the dose escalation portion of its Phase Ib/II trial in patients with confirmed Imbruvica-resistance in mid-2018. Sunesis has two additional early stage programs. SNS-510 is a preclinical phosphoinositide dependent protein kinase 1 (PDK1) inhibitor being investigated for solid and hematological tumors. PDK1 is a novel target that could have improved efficacy in tumors with PI3K and PTEN mutations, which are exceptionally common (30-50% of certain cancers). We previously reported on the preclinical molecule SNS-229 from the PDK1 inhibitor program, although SNS-510 has supplanted the earlier compound as the lead due to an improved profile. Lastly, Sunesis has out-licensed the Phase Ib/II pan-Raf inhibitor TAK-580 to Takeda. Pan-Raf inhibitors are a new class of drug that avoids the paradoxical enhancement of tumor growth in some patients that take B-Raf inhibitors.

Exhibit 1: Sunesis pipeline

Product

Indication

Class

Phase

Catalyst

Timing

Commercial advantage

SNS-062

CLL

BTK inhibitor

Phase I/II

Phase Ib data

2018

Non-covalent inhibitor effective in Imbruvica resistant tumors

SNS-510

Pan cancer

PDK1 inhibitor

Preclinical

IND preparation

2018

Potential efficacy similar to PI3K inhibitors, resistant to PI3K, PTEN mutations

TAK-580

Solid tumors/melanoma

Pan-Raf inhibitor

Phase I

Phase Ib data

2018

Avoids “paradoxical activation” present in B-Raf inhibitors, effective in Ras mutants

Source: Sunesis Pharmaceuticals

SNS-062: The lead development program

Sunesis is developing SNS-062 as a treatment for CLL, in particular for patients refractory to Imbruvica (ibrutinib; AbbVie, Janssen). CLL is a hematologic malignancy indicated by the proliferation of mature B-cell lymphocytes and the clinical course of CLL can vary from indolence with a relatively normal life expectancy to a rapidly progressive disease leading to an early death. There are an estimated 20,110 new patients in the US in 2017 (4.7 per 100,000 on an age-adjusted basis).1 The treatment of B-cell malignancies has been an area of substantial investment and it has been transformed over the past decade by the development of new, targeted drugs for these diseases. One of the greatest successes in this field was the development of Imbruvica by Pharmacyclics (acquired by AbbVie in May 2015, partnered with Janssen). The drug was approved in 2013 with accelerated approval following a three-year Phase III trial and it retails for approximately $130,000. Imbruvica substantially improved the standard of care for relapsed and refractory CLL by more than doubling the survival rate for these patients (HR=0.43 vs ofatumumab at 18 months). Imbruvica is also approved in mantle cell lymphoma (MCL) and Waldenström’s macroglobulinemia (WM). In 2016, sales more than doubled following approval of label expansion to front-line CLL treatment and worldwide sales are approximately $2.2bn.

  National Cancer Institute.

Imbruvica was the first marketed drug to target Bruton’s tyrosine kinase (BTK), a protein expressed in B-cells, and important for their activation and maturation in response to antigen binding. When the antibody being expressed by a particular B-cell binds to a pathogen or foreign substance, this triggers the cell to continue expressing this antibody and multiply, such that sufficient antibodies are present to fight the invader. This pathway is frequently mutated in B-cell malignancies leading to the out-of-control proliferation of these cells. However, an interesting facet of BTK is that because it is present solely in leukocytes, it can be inhibited (or functionally absent as in the case of X-linked agammaglobulinemia) and patients are immune suppressed but otherwise phenotypically normal.

Imbruvica has only been approved as a first-line indication for CLL since March 2016, and therefore the degree of patient exposure to the drug has been limited. 25% of patients developed resistance to the drug at 26 months in early trials, and this number is expected to increase the longer it is in use.2 The precise mechanism of this resistance is an area of active investigation, and a recent report identified a particular mutation to BTK (cysteine-481 to serine) is frequently present in resistant individuals.3 This particular amino acid residue is critical because it forms an irreversible covalent bond with Imbruvica and is essential for the drug’s potency. It is the position at which Imbruvica forms a covalent bond to BTK, and its mutation dramatically affect the potency of the drug (Exhibit 2). There is also increasing evidence that the vast majority of these resistant patients, up to 80%, harbor the C481S mutation that SNS-062 can address.

  Byrd JC, et al. (2013) Targeting BTK with ibrutinib in relapsed chronic lymphocytic leukemia. N. Engl. J. Med. 369, 32-42.

  JA Woyach, RR Furman (2014) Resistance mechanisms for the Bruton's tyrosine kinase inhibitor ibrutinib. NEJM. 370;24, 2286-94.

Exhibit 2: Comparison of Imbruvica and SNS-062 binding to wild type and mutant BTK

Kinase inhibition

Inhibition of activated BTK formation

IC50 (nM)

BTK

Mutant BTK

Fold change

BTK

Mutant BTK

Fold change

Imbruvica

0.58

25.2

43.4

0.016

25.5

>1,000

SNS-062

2.9

4.5

1.6

0.57

0.8

1.4

Source: Sunesis

Sunesis has developed a next-generation BTK inhibitor, SNS-062. Unlike Imbruvica, SNS-062 does not form a covalent bond with cysteine-481 of BTK, but retains significant binding affinity to both native and mutant forms of the enzyme. Moreover, it prevents the generation of activated BTK (auto-phosphorylated BTK, pBTK) in the presence of the mutant, whereas this effect is completely lost by Imbruvica. This positions SNS-062 as a potential treatment for Imbruvica resistant forms of the disease. The most recent report suggests the cysteine-481 mutation is present in approximately 80% of these remissions (leaving 20% of Imbruvica patients appropriate for SNS-062).4

  Kami J. Maddocks, MD1; Amy S. Ruppert (2015) Etiology of Ibrutinib Therapy Discontinuation and Outcomes in Patients With Chronic Lymphocytic Leukemia. JAMA Oncol. 1(1): 80-87.

Phase Ia results

Sunesis presented the results of a Phase Ia healthy volunteer study of SNS-062 via a poster at the Second International Conference on New Concepts in B-Cell Malignancies in September 2016. The clinical trial examined the pharmacokinetic and pharmacodynamic profile and adverse events in volunteers following a single dose of the drug at four different dosing levels (from 50mg to 300mg) or with placebo. Six volunteers received drug for each active arm (n=24 total for SNS-062) and eight received placebo. Although these results are from a small set of healthy volunteers, we consider them very important for evaluating the viability of this drug, because the mechanism of action has already been validated and the unknowns are largely associated with the pharmacokinetic, pharmacodynamic and safety profile of the molecule.

The primary endpoint of the trial was safety, and in general, the adverse event (AE) profile was similar between patients who received drug and those who received placebo (Exhibit 3). 33% of patients who received active drug had an AE, compared to 38% in the placebo arm. The adverse events observed in the trial were all mild (grade 1) except for a single patient on the 300mg arm who reported grade 2 fatigue and headache. Also, an important AE to note is that a single patient reported supraventricular tachycardia (racing heart) on the 300mg arm. Although the event was asymptomatic and resolved in 20 seconds, adverse events related to heart rhythm have been associated with BTK inhibitors in the past and patients receiving Imbruvica experience atrial fibrillation at a rate of 6% to 9%, typically after prolonged exposure. Importantly, the trial also monitored patients via laboratory blood testing and via electrocardiogram, and no other abnormalities were found. We expect hematological AEs to emerge with repeated dosing, consistent with molecules of this class and the drug’s mechanism of action. Additionally, we expect the differences in AEs between SNS-062 and other drugs of this class to become clearer with repeated dosing. In fact, Imbruvica has off-target epidermal growth factor (EGFR) activity, and drugs that primarily target EGFR such as Tarceva (erlotinib, Roche) and Iressa (gefitinib, AstraZeneca) are associated with gastrointestinal and dermatological AEs, not unlike Imbruvica.

Exhibit 3: Adverse event profile of SNS-062

SNS-062

Placebo
(n=8)

50mg (n=6)

100mg n=6)

200mg (n=6)

300mg (n=6)

All active (n=24)

Headache

4

67%

0

0%

0

0%

1

17%

5

21%

2

25%

Supraventricular tachycardia

0

0%

0

0%

0

0%

1

17%

1

4%

0

0%

Constipation

0

0%

1

17%

0

0%

0

0%

1

4%

0

0%

Nausea

0

0%

0

0%

1

17%

0

0%

1

4%

2

25%

Diarrhea

0

0%

0

0%

0

0%

0

0%

0

0%

1

13%

Fatigue

0

0%

0

0%

0

0%

1

17%

1

4%

0

0%

Bronchitis

0

0%

0

0%

0

0%

1

17%

1

4%

0

0%

Orthostatic hypotension

0

0%

0

0%

0

0%

1

17%

1

4%

0

0%

Total patients with AE

4

67%

1

17%

1

17%

2

33%

8

33%

3

38%

Source: Sunesis

Sunesis also reported initial pharmacokinetic and pharmacodynamic data from the active arms of the trial, which included both blood concentrations (Exhibit 4) and the degree of BTK inhibition (Exhibit 5) following dosing. Patients were followed for up to 72 hours and the results showed that the molecule had a long half-life in humans (eight to 17 hours depending on dose), and that at the plasma levels observed in this study, BTK inhibition of 85% or more was seen for approximately 12 hours for all the doses studied. 85% inhibition of BTK has previously been identified as sufficient for clinical activity during studies of AstraZeneca’s BTK inhibitor Calquence (acalabrutinib), which received FDA approval in October 2017 for the treatment of mantle cell lymphoma (MCL).5 This profile presents the possibility of a twice-a-day dosing regimen, which the company has proposed using when moving forward with clinical trials.

  Byrd JC, et al. (2016) Acalabrutinib (ACP-196) in Relapsed Chronic Lymphocytic Leukemia. N Engl J Med. 374, 323-32

Exhibit 4: Plasma concentrations of SNS-062

Exhibit 5: BTK inhibition by SNS-062

Source: Sunesis

Source: Sunesis

Exhibit 4: Plasma concentrations of SNS-062

Source: Sunesis

Exhibit 5: BTK inhibition by SNS-062

Source: Sunesis

Preclinical results presented in April 2017 further demonstrate that SNS-062 inhibits BTK signaling in primary chronic lymphocytic leukemia (CLL) cell lines and remains unaffected by the C481S mutation. Sunesis announced in July 2017 that the first patient had been dosed in the Phase Ib/II clinical trial of SNS-062 in patients with relapsed and refractory chronic lymphocytic leukemia (CLL) and other B-cell malignancies (Waldenstrom’s macroglobulinemia and mantle cell lymphoma). The current Phase Ib/II study is a dose escalation trial with seven planned dosing cohorts, and once the maximum tolerated dose is found, it will expand into a total estimated enrolment of 124 patients. The study will enroll patients who have progressed and have documented C481S mutations. The program is taking place at some of the leading cancer institutes in the US: U.C. Irvine Cancer Center, the Ohio State University Comprehensive Cancer Center, Dana-Faber Cancer Institute, MD Anderson Cancer Center and Weill Cornell Cancer Center. The company has announced that it will provide a program update at the American Society of Hematology (ASH) Conference in December, and will present data from the Phase Ib dosing portion of the trial in mid-2018.

Market and competitive environment

Imbruvica was approved for the first-line treatment of CLL in March 2016, expanding its previous label for relapsed and refractory CLL or those patients carrying the 17p chromosomal deletion. This development substantially increased the number of patients on the drug (increasing US sales from $659m in 2015 to $1.6bn in 2017) and consequently we expect the number of resistant patients to increase. Additionally, patients who become resistant to Imbruvica during front-line treatment should be healthier and more fit to receive follow-up treatments. AstraZeneca’s Calquence, approved for the treatment of MCL in October 2017, will directly rival Imbruvica, and we expect it to expand into the CLL indication. Phase III results of Calquence in CLL are expected in the 2019-20 time frame.

Assuming that 20% of new CLL patients will develop a cysteine-481 mutation, this corresponds to a present day market of approximately $400m in the US per year that patients remain on the drug. We currently assume that patients will remain on the drug for approximately 18 months, although at the moment, there is little insight into this number, as it is highly dependent on efficacy. With the current standard of care, survival times are very short following Imbruvica resistance.6

  Kami J. Maddocks, MD1; Amy S. Ruppert (2015) Etiology of Ibrutinib Therapy Discontinuation and Outcomes in Patients With Chronic Lymphocytic Leukemia. JAMA Oncol. 1(1): 80-87.

There are at least 14 other BTK inhibitors in clinical development. Ten of these inhibitors form covalent bonds to BTK similar to Imbruvica, and therefore are susceptible to the same cysteine-481 mutation that leads to Imbruvica resistance. Potential competitors in the Imbruvica resistance space include non-covalent BTK inhibitors such as Genentech’s GDC-0853, Loxo’s LOXO-305 and ArQule’s ARQ-531. In contrast, entrance of irreversible BTK inhibitors, such as the recent approval of Calquence from AstraZeneca, could drive an expansion of the market and therefore more resistant individuals. Because they share the same cysteine-481 dependent mechanism, they should induce the same resistance as Imbruvica. We expect the drug’s composition of matter patent (9,029,359) to provide market exclusivity through the early 2030s (2034 in our model, based on a five-year Hatch-Waxman extension).

Exhibit 6: BTK inhibitors

Drug

Company

Status

Lead indication

Binding mode

Imbruvica

AbbVie

Approved

CLL, MCL, WM

Covalent

Calquence

AstraZeneca

Approved

MCL

Covalent

BGB-3111

BeiGene

Phase III

WM

Covalent

Spebrutinib

Celgene

Phase II

RA

Covalent

PRN1008

Principia

Phase II

Pemphigus vulgaris

Covalent

BMS-986142

Bristol-Myers Squibb

Phase II

RA

Non-covalent

Evobrutinib

Merck KGaA

Phase II

RA

Covalent

ONO/GS-4059

Ono/Gilead

Phase II

CLL, Sjogren’s

Covalent

SNS-062

Sunesis

Phase I/II

CLL, MCL, WM

Non-covalent

GDC-0853/ (RG7845)

Genentech/Roche

Phase I/II

RA, lupus

Non-covalent

HM71224

Lilly/Hanmi

Phase I

RA

Covalent

ARQ-531

ArQule

Phase I

CLL, DBCL, MCL, WM

Non-covalent

TAK-020

Takeda

Phase I

RA

Covalent

PRN2246

Principia

Preclinical

CNS

Covalent

LSK9985

LSK BioPharma

Preclinical

RA; BTK & Jak3 inhibitor

Covalent

LOXO-305

Loxo Oncology

Preclinical

B cell lymphoma

Non- covalent

BTKwt

X-Rx

Preclinical

Inflammation

Covalent

Source: BioCentury, ClinicalTrials.gov, Edison Investment Research

Pipeline decisions

Sunesis has two additional early stage programs: a phosphoinositide dependent protein kinase 1 (PDK1) inhibitor program comprised of two drug candidates, SNS-510 and SNS-229, that target hematological and solid tumors by way of the same mechanism of action; and TAK-580, a pan-Raf inhibitor program. The company announced on its Q317 call that it will be moving forward with SNS-510 as it planned to take only one PDK1 inhibitor to clinic and in preclinical studies SNS-510 demonstrated a favorable therapeutic index and toxicology over SNS-229, although it has released no data. Our previous reports focused on SNS-229, but this information should apply equally to SNS-510 as both share a mechanism of action, which is the extent of our knowledge of the compounds.

SNS-510

The receptor tyrosine kinase (RTK) signaling pathway has been central to the development of targeted cancer therapies for the past two decades. RTKs are a class of protein that respond to signals from growth factors and other signaling molecules, but mutations in this pathway can lead to a constitutive growth signal that is characteristic of cancer. Drugs have been developed targeting the receptor itself (for instance Herceptin targeting HER2), as well as the downstream effectors of RTKs in the so-called PI3K/AKT pathway, for instance PI3K (Gilead’s Zydelig) and mTOR (Pfizer’s Torisel). The RTK pathway is central to the pathology of a wide array of different cancer types, as evidenced by the indications this class of drug has been approved for in both solid tumor and hematologic malignancies. One of the multiple downstream pathways from RTK is the PI3K/AKT pathway, which has been a topic of considerable development interest due to its role in promoting cancer cell survival and metastasis.

Sunesis has developed SNS-510 as an inhibitor of PDK1, a previously unstudied target in the PI3K/AKT pathway. PDK1 is an effector of PI3K, and therefore it is reasonable to expect an efficacy profile similar to PI3K inhibitors like Zydelig (idelalisib, Gilead). Zydelig was approved for the treatment of B-cell malignancies such as CLL and non-Hodgkin lymphoma. Because the RTK pathway is implicated in such a broad array of cancers, SNS-510 could potentially have many applications. However, the drug would be uniquely effective in malignancies where PI3K or PTEN is frequently mutated such as breast cancer (27% PI3K mutation frequency), or endometrial cancer (38% PTEN mutation frequency). In these cases a PDK inhibitor could potentially limit the effect of these mutations as it is the immediate downstream effector of these proteins. A potential risk to this program is opportunistic infections among patients, considering that inhibition of this pathway by Zydelig is associated with this risk. In early 2016, a series of deaths in clinical trials involving Zydelig prompted Gilead to terminate further clinical development. In spite of this, the drug had sales of $168m for 2016.

There are no other PDK1 inhibitors in development to our knowledge. Sunesis has completed SNS-510 non-GLP toxicology studies, and is currently engaged in IND enabling studies. The drug was initially developed in a collaboration with Biogen Idec, whose rights were acquired by Takeda. Sunesis will owe royalties and $9.2m in development milestones to Takeda for these rights. It is protected by composition of matter patent 8,778,977.

Exhibit 7:PI3K/AKT and Ras/Raf pathways

Source: Edison Investment Research

TAK-580

There has been substantial success recently developing and getting approval for inhibitors of the oncogene B-Raf. There are currently three B-Raf targeted medications approved in the US (Nexavar, Bayer, €870m worldwide sales in 2016; Zelboraf, Roche, CHF213m; Tafinlar, Novartis, $672m) and at least four others in development. B-Raf is a very common oncogene that is mutated in 20% of cancers. When mutated it activates a pathway that triggers uncontrolled growth of cells.

However, a major limiting factor in the efficacy of B-Raf inhibitors is that they can have a detrimental effect when a mutation in the upstream signaling protein Ras is mutated. Cancers with a Ras mutation have a very similar phenotype to B-Raf mutations and activate the same pathway, but the signal is transduced through all three Raf isoforms (A-Raf, B-Raf, and C-Raf aka Raf1). The presence of a B-Raf inhibitor paradoxically enhances this response by encouraging the association of B-Raf with other isoforms. Because Ras mutations are exceptionally common in certain cancers (eg 34% of colon cancer, 57% of pancreatic cancer), the potential application for B-Raf inhibitors is limited to only certain cancer indications where paradoxical activation is not an issue.

TAK-580 was developed as a pan-Raf inhibitor by Sunesis and inhibits all Raf isoforms, therefore preventing the activation of the pathway even in the presence of Ras mutations. The drug was developed in collaboration with Biogen Idec and is out-licensed to Takeda, which is investigating the drug for a range of tumors in Phase Ib in six different drug combinations. Sunesis stated that it expects a go or no-go decision from Takeda regarding the program by mid- to late 2018. Sunesis is entitled to up to $57.5m in development milestones from the collaboration, of which some undisclosed portion would be triggered upon the initiation of a registration trial. Eli Lilly is currently the only other major pharmaceutical company with a pan-Raf in clinical trials (Phase I). It is protected by composition of matter patent 8,802,657.

Sensitivities

Sunesis has a set of sensitivities indicative of the combination of risks due to its very early stage development pipeline and its potential near-term commercialization. We believe the company’s new lead therapeutic, SNS-062, has significant potential because it is based on a mechanism with established efficacy and is differentiated from competitors. However, even with the established mechanism of action, we predict a 20% probability of approval considering the exceptionally low success rate for development of small molecule targeted oncology drugs and the lack of efficacy data in humans. Moreover, there is a high degree of uncertainty surrounding the market of Imbruvica refractory patients, considering the eventual size of this population is largely unknown at this point. Additionally, the survival for these patients is typically measured in months, presenting issues initiating them on a new therapy. The remainder of the Sunesis pipeline is very early stage, and carries the associated clinical risk. The TAK-580 and SNS-510 programs, while principled in design, are largely untested, and we assign probabilities of approval of 15% and 10% respectively.

Although Sunesis voluntarily recalled the EMA application for vosaroxin for the treatment of AML, there remains some possibility that the drug could be approved with new data, although the company has stepped away from internal development of the drug for the time being. There are two ongoing investigator-sponsored trials (at Vanderbilt-Ingram Cancer Center and University Hospital, Angers) that will continue as planned and could build a future value proposition for the asset. However, company investment into the program will be purely supportive to these investigator-sponsored studies in the future.

Sunesis also has risks associated with the continuing financing of the company. We predict that it will need an additional $135m to reach profitability in 2023, which may result in significant dilution, unless the company institutes significant cost reductions. The company spent $6.8m on R&D and $3.2m on SG&A in Q317, both of which figures are high for a company at this development stage.

Valuation

We have increased our valuation of Sunesis to $125.9m up from $93.0m, although it has reduced on a per share basis to $3.68 ($3.06 diluted) from $3.96 ($2.33 diluted) as a result of the October offering. This increase in valuation is driven by rolling forward our NPVs to the most recent quarter, an increase in net cash, and the increase in the probability of success of the SNS-510 program to 10% from 5%, following the company’s decision to move forward with the drug candidate. The reduction in basic share value is due to an increased share count following the October offering, bringing the total estimated number of shares to 34.2m (45.5m diluted).

We estimate peak sales of $604m for SNS-062, which represents 50% penetration into the US and European market of BTK inhibitor refractory patients with a C481S mutation. We currently assume pricing on par with Imbruvica ($130,000 per year on drug, adjusted for future growth of 2% per year), with a net sales discount of 30%, and an expected time on drug of 18 months, although these values are subject to change based on efficacy. Although a lead indication has not been announced for SNS-510, and the potential indications for this drug are wide (both solid and hematologic tumors) we currently use breast cancer as our target market. We include only metastatic patients with PI3K mutations, which corresponds to approximately 7% of patients. Our launch pricing is $101,000 based on Zydelig and adjusted for price growth to launch in 2022. We model TAK-580 achieving 10% penetration into the melanoma market. We assume a launch pricing of $138,000 for a one-year course of treatment, which is in line with other Raf inhibitors (adjusted for price growth).

Exhibit 8: Sunesis valuation

Development Program

Clinical stage

Expected Commercialization

Prob. of success

Launch year

Launch Pricing ($)

Peak sales ($m)

Patent/Exclusivity Protection

Royalty/ Margin

rNPV ($m)

TAK-580

Phase Ib

Licensed to Takeda

15%

2021

138,000

727

2032

15%

$24

SNS-062

Phase Ib/II

Proprietary

20%

2022

152,000

604

2034

45%

$91

SNS-510

IND ready

Proprietary

10%

2022

101,000

320

2031

44%

$16

Unallocated costs (discovery programs, administrative costs, etc.)

($35)

Total

 

 

 

 

 

 

 

 

$96

Net cash and equivalents (Q317 + offering + ATM) ($m)

$29.9

Total firm value ($m)

$125.9

Total basic shares (m)

34.2

Value per basic share ($)

$3.68

Convertible Pref stock (m)

6.8

Warrants and Options

4.5

Total diluted shares

45.5

Value per diluted share

$3.06

Source: Sunesis reports, Edison Investment Research

Financials

Sunesis reported an operational loss of $9.9m for Q317. This is up from $8.6m during the previous period, primarily due to the continuation of the SNS-062 clinical trial, as well as a one-time milestone payment of $2.5m to Biogen associated with the initiation of the Phase Ib/II clinical trial of SNS-062. Our R&D spending estimates have increased from our last report ($22.3m for 2017 from $19.7m) based on higher than expected development spending in Q317. We expect spending to further increase in coming quarters associated with the SNS-062 Phase Ib/II dose escalation trial as well advancement of SNS-510 molecule in IND enabling studies, although we expect slightly lower spending in 2018 R&D overall ($19.4m) from ending spending on vosaroxin.

The company completed a $20m financing in October 2017 of common and preferred stock (10m fully converted at $2.00) and 5m warrants (at $3.00). Combined with an ongoing at-the-market facility, the company raised a net $24.6m since the end of Q317, bringing estimated cash to $37.1m. This corresponds to $29.9m in net cash after deducting the company’s $7.2m in notes payable (due between 2017 and 2020). We currently project that the company will require $135m in additional funding (down from $155m in previous estimates) to reach profitability in 2023. This is in addition to the Takeda milestones ($57.5m), which we may integrate into our estimates following a decision from Takeda on the option to progress with the asset. Management has stated that the current cash should provide a runway into 2019, although we model a raise following the results from the SNS-062 trial in mid-2018 ($15m) to remove any overhangs.

Exhibit 9: Financial summary

$'000s

2013

2014

2015

2016

2017e

2018e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

7,956

5,734

3,061

2,536

669

0

Cost of Sales

0

0

0

0

0

0

Gross Profit

7,956

5,734

3,061

2,536

669

0

Research and development

(28,891)

(27,665)

(23,701)

(22,881)

(22,293)

(19,447)

Selling, general & administrative

(10,838)

(23,112)

(18,662)

(16,115)

(13,237)

(13,634)

EBITDA

 

 

(31,701)

(41,312)

(35,764)

(36,313)

(34,871)

(33,091)

Operating Profit (before GW and except.)

(31,681)

(41,283)

(35,737)

(36,302)

(34,861)

(33,081)

Intangible Amortisation

0

0

0

0

0

0

Exceptionals/Other

0

0

0

0

0

0

Operating Profit

(31,681)

(41,283)

(35,737)

(36,302)

(34,861)

(33,081)

Net Interest

(2,917)

(1,719)

(939)

(1,721)

(995)

(1,564)

Other (change in fair value of warrants)

0

0

0

0

0

0

Profit Before Tax (norm)

 

 

(34,598)

(43,002)

(36,676)

(38,023)

(35,855)

(34,645)

Profit Before Tax (IFRS)

 

 

(34,598)

(43,002)

(36,676)

(38,023)

(35,855)

(34,645)

Tax

0

0

0

0

0

0

Deferred tax

0

0

0

0

0

0

Profit After Tax (norm)

(34,598)

(43,002)

(36,676)

(38,023)

(35,855)

(34,645)

Profit After Tax (IFRS)

(34,598)

(43,002)

(36,676)

(38,023)

(35,855)

(34,645)

Average Number of Shares Outstanding (m)

8.7

10.0

12.2

15.7

24.2

36.0

EPS - normalised ($)

 

 

(3.97)

(4.30)

(3.02)

(2.42)

(1.48)

(0.96)

EPS - IFRS ($)

 

 

(3.97)

(4.30)

(3.02)

(2.42)

(1.48)

(0.96)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

33

42

14

3

1,354

9

Intangible Assets

0

0

0

0

0

0

Tangible Assets

23

42

14

3

19

9

Other

10

0

0

0

1,335

0

Current Assets

 

 

40,492

44,204

46,988

43,231

31,919

15,205

Stocks

0

0

0

0

0

0

Debtors

0

0

0

0

0

0

Cash

39,293

42,981

46,430

42,588

30,661

13,947

Other

1,199

1,223

558

643

1,258

1,258

Current Liabilities

 

 

(25,858)

(19,395)

(12,728)

(5,814)

(4,972)

(5,280)

Creditors

(16,840)

(10,138)

(4,894)

(2,481)

(1,404)

(1,689)

Short term borrowings

(9,018)

(9,257)

(7,834)

(3,333)

(3,568)

(3,591)

Long Term Liabilities

 

 

(12,737)

(2,563)

(610)

(11,271)

(3,476)

(14,789)

Long term borrowings

(9,025)

0

0

(11,102)

(3,408)

(14,721)

Other long term liabilities

(3,712)

(2,563)

(610)

(169)

(68)

(68)

Net Assets

 

 

1,930

22,288

33,664

26,149

24,824

(4,855)

CASH FLOW

Operating Cash Flow

 

 

(37,423)

(43,181)

(38,731)

(36,962)

(37,056)

(28,050)

Net Interest

0

0

0

0

0

0

Tax

0

0

0

0

0

0

Capex

0

(48)

0

0

(26)

0

Acquisitions/disposals

0

0

0

0

0

0

Financing

12,570

56,277

43,826

26,111

32,871

0

Dividends

0

0

0

0

0

0

Other

0

0

0

0

0

0

Net Cash Flow

(24,853)

13,048

5,095

(10,851)

(4,211)

(28,050)

Opening net debt/(cash)

 

 

(46,966)

(21,250)

(33,724)

(38,596)

(28,153)

(23,685)

HP finance leases initiated

0

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

0

Other

(863)

(574)

(223)

408

(257)

0

Closing net debt/(cash)

 

 

(21,250)

(33,724)

(38,596)

(28,153)

(23,685)

4,365

Contact details

Revenue by geography

395 Oyster Point Boulevard
Suite 400
South San Francisco, CA 94080
US
+1 650 266-3500
www.sunesis.com

N/A

Contact details

395 Oyster Point Boulevard
Suite 400
South San Francisco, CA 94080
US
+1 650 266-3500
www.sunesis.com

Revenue by geography

N/A

Management team

CEO: Daniel N Swisher, Jr

CSO: Judy A Fox, PhD

Since December 2003, Daniel Swisher has served as chief executive officer and a member of the Sunesis board of directors, and president since August 2005. He joined the company in 2001 and served as chief business officer and chief financial officer until 2003. Prior to joining Sunesis, Mr Swisher served in various management roles, including senior vice president of sales and marketing for ALZA Corporation from 1992 to 2001. He serves as chairman of the board of Cerus Corporation and as a member of the board of Corcept Therapeutics Inc.

Judy A Fox, PhD, rejoined Sunesis in 2017 as chief scientific officer where she previously served as vice president, product & preclinical development. Prior to joining Sunesis, she was senior director in translational sciences at Chiron Corporation and established the pharmacological sciences department at Genencor International. Dr Fox began her industry career at Genentech, Inc.

VP Global Oncology Operations: Parvinder S Hyare

VP Technical Operations: Gene Jamieson

Parvinder S Hyare joined Sunesis in 2014 as vice president of market access. Prior to joining Sunesis, Mr Hyare was executive director, managed markets & reimbursement at AMAG Pharmaceuticals, Inc. and previously served as national sales director for that company from 2008-14. Prior to AMAG, Mr Hyare was region business director and also served in various management roles across sales and managed markets for Ortho Biotech, a division of Johnson & Johnson, from 2000-08.

Gene C Jamieson joined Sunesis in December 2010 as executive director of CMC and is now vice president of technical operations. Mr Jamieson joined Sunesis from AllyCMC, a CMC consulting services company, where he served as principal partner from 2009-10. Previously, he was executive director of product development at Jazz Pharmaceuticals, Inc. and vice president, pharmaceutical sciences, at NeurogesX, Inc. Mr Jamieson has developed diverse products with such companies as Centaur Pharmaceuticals, Nycomed Salutar Inc. and Novartis.

Management team

CEO: Daniel N Swisher, Jr

Since December 2003, Daniel Swisher has served as chief executive officer and a member of the Sunesis board of directors, and president since August 2005. He joined the company in 2001 and served as chief business officer and chief financial officer until 2003. Prior to joining Sunesis, Mr Swisher served in various management roles, including senior vice president of sales and marketing for ALZA Corporation from 1992 to 2001. He serves as chairman of the board of Cerus Corporation and as a member of the board of Corcept Therapeutics Inc.

CSO: Judy A Fox, PhD

Judy A Fox, PhD, rejoined Sunesis in 2017 as chief scientific officer where she previously served as vice president, product & preclinical development. Prior to joining Sunesis, she was senior director in translational sciences at Chiron Corporation and established the pharmacological sciences department at Genencor International. Dr Fox began her industry career at Genentech, Inc.

VP Global Oncology Operations: Parvinder S Hyare

Parvinder S Hyare joined Sunesis in 2014 as vice president of market access. Prior to joining Sunesis, Mr Hyare was executive director, managed markets & reimbursement at AMAG Pharmaceuticals, Inc. and previously served as national sales director for that company from 2008-14. Prior to AMAG, Mr Hyare was region business director and also served in various management roles across sales and managed markets for Ortho Biotech, a division of Johnson & Johnson, from 2000-08.

VP Technical Operations: Gene Jamieson

Gene C Jamieson joined Sunesis in December 2010 as executive director of CMC and is now vice president of technical operations. Mr Jamieson joined Sunesis from AllyCMC, a CMC consulting services company, where he served as principal partner from 2009-10. Previously, he was executive director of product development at Jazz Pharmaceuticals, Inc. and vice president, pharmaceutical sciences, at NeurogesX, Inc. Mr Jamieson has developed diverse products with such companies as Centaur Pharmaceuticals, Nycomed Salutar Inc. and Novartis.

Principal shareholders

(%)

BVF Inc.

7.18

Great Point Partners

7.17

NEA Management

6.05

Palo Alto Investors

5.42

Companies named in this report

AbbVie (ABBV), Janssen (JNJ), Celgene (CELG), Novartis (NVS), Bayer (BAYN), Roche (RHHBY), Genentech (DNA)

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Sunesis Pharmaceuticals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Sunesis Pharmaceuticals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Financials

OTC Markets Group — Growing revenues and investing for the future

OTC Markets Group’s (OTCM) third quarter results showed further progress with pre-tax profits up by 4% versus Q316 despite a 10% increase in operating expenses to support IT systems and new services. OTCQX and OTCQB received Blue Sky recognition from a further two states taking the total to 27 for OTCQX. Strategic alliances have been established that should help extend OTCM’s geographical reach and broaden the services offered to corporate clients.

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