Vecabrutinib study advances

Sunesis Pharmaceuticals 7 February 2019 Update
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Sunesis Pharmaceuticals

Vecabrutinib study advances

Clinical update

Pharma & biotech

7 February 2019

Price

US$0.50

Market cap

US$30m

Net cash ($m) Q318 + offering

31.6

Basic shares in issue

60.4m

Free float

84.6%

Code

SNSS

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

13.7

(63.0)

(91.6)

Rel (local)

5.4

(62.6)

(91.7)

52-week high/low

US$7.4

US$0.2

Business description

Sunesis Pharmaceuticals is a pharmaceutical company focused on oncology. Its lead asset is vecabrutinib, a Bruton’s tyrosine kinase inhibitor for chronic lymphocytic leukemia 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

Vecabrutinib clinical update

Q219

Analyst

Nathaniel Calloway

+1 646 653 7036

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

In January 2019 Sunesis announced that its Phase Ib/II study of vecabrutinib for B-cell cancers advanced to the 100mg cohort. The company experienced a series of unavoidable clinical delays in the 50mg arm but was eventually able expand the number of clinical sites and overenroll the cohort. The 100mg dose is the first that is expected to potentially provide indications of efficacy and Sunesis will provide a clinical update in Q219.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/16

2.5

(38.0)

(2.42)

0.00

N/A

N/A

12/17

0.7

(35.5)

(1.45)

0.00

N/A

N/A

12/18e

0.2

(28.3)

(0.80)

0.00

N/A

N/A

12/19e

0.0

(31.1)

(0.49)

0.00

N/A

N/A

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

Advancement in line with expectations

The announcement of the advancement of the Phase Ib/II study confirms both company guidance and our expectations. The delays in the 50mg arm of the study were not indicative of any issues with the drug in our assessment and instead were a reflection of unavoidable clinical risks. These included a per-protocol cohort expansion followed by early progression in a series of patents. As the 50mg dose was below the effective dose (expected between 100mg and 300mg), it was too early to draw conclusions on safety or efficacy, but the upcoming 100mg dose should provide more insight.

Further progress expected to be smoother

The company instituted a series of amendments to its clinical trial in 2018 that should enhance the ability of the program to progress smoothly. It added three clinical sites, bringing the total to eight. This should aid enrolment, and the company was able to overenroll the 50mg cohort. We expect the company to continue to overenroll. Additionally, Sunesis expanded the indications being examined in the study to include diffuse large B-cell lymphoma and follicular lymphoma. Although no patients from these indications yet have been treated, we expect inclusion to also improve enrolment and for any data on these diseases to illuminate to potential future indications beyond the main target of chronic lymphocytic leukemia (CLL).

Valuation: $243m or $4.02 ($2.97 diluted)

Following the recent financing, our valuation is now $243m or $4.02 per basic share ($2.97 diluted) from $224m and $5.99 ($4.98 diluted). The company priced an offering of 23m shares of common stock and 17,000 shares of convertible preferred stock (equivalent to 17m common) at $0.50 per common share or equivalent for gross proceeds of $20m, providing a cash runway into 2020. We expect the company to require an additional $115m before profitability in 2023.

100mg at long last

In early January 2019 Sunesis announced that the ongoing Phase Ib/II study of vecabrutinib had advanced to the 100mg dosing cohort. The company quickly filled the three required slots in early January, with the first doses expected to be received in the following two to four weeks. The BTK inhibitor is being examined for CLL and a series of other B-cell malignancies, and the previous 50mg cohort was plagued by unforeseen and unavoidable delays throughout 2018. An ALT elevation prevented a patient from receiving the required number of doses, triggering a cohort expansion to six patients (per the 3+3 dose escalation protocol). Of the new patients, three progressed before they could be evaluated. In 2018 the company expanded the number of clinical sites on the study (to eight), which should improve enrolment; this may have been reflected in the fact that the company was able to ultimately overenroll the 50mg cohort. If the company continues to overenroll the 100mg and later arms, this should hedge against further setbacks. The increase in clinical sites is also important for the eventual progression of the trial to the Phase II portion of the study, once the effective dose has been identified.

The company expects the active dose of the drug to be found in the range of 100mg to 300mg, meaning the 100mg cohort could show signs of efficacy. Even if 100mg is not the optimal dose, we expect increasing signs of clinical activity; at the 50mg level, the company presented data showing a reduction in cytokine production (ASH 2018), a downstream indicator of BTK inhibition. Given that the clinical mechanism of BTK inhibition has already been vetted with Imbruvica (ibrutinib), we find even early signs of activity to be highly encouraging. The company stated that it will provide a clinical update at a medical conference in Q219.

Valuation

Our valuation has increased to $243m from $224m following the stock offering in January, but has decreased on a per share basis to $4.02 per basic share ($2.97 diluted) from $5.99 ($4.98 diluted). Otherwise our model remains unchanged. We expect to update our valuation with increasing evidence regarding the activity of vecabrutinib, and advancement to the Phase II portion of the study.

Exhibit 1: Valuation of Sunesis

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 I/II

Licensed to Takeda

10%

2025

500,000

603

2032

15%

19

Vecabrutinib

Phase Ib/II

Proprietary

20%

2023

152,000

666

2034

56%

187

SNS-510

IND ready

Proprietary

10%

2024

130,000

361

2031

51%

25

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

(20)

Total

 

 

 

 

 

 

 

 

211

Net cash and equivalents (Q318 + offering) ($m)

31.6

Total firm value ($m)

242.8

Total basic shares (m)

60.4

Value per basic share ($)

4.02

Convertible pref stock (m)

23.3

Warrants and options (m)

3.7

Total diluted shares (m)

87.4

Value per diluted share* ($)

2.97

Source: Edison Investment Research, Sunesis reports. Note: *Includes $17m cash on exercise of warrants and option.


Financials

On 17 January, the company announced the pricing of the offering of common and preferred stock with gross proceeds of $20m. The offering included 23m shares of common stock and 17,000 shares (equivalent to 17m common shares) of convertible preferred stock at an offering price of $0.50 per common share or equivalent. Based on our financial projections, this should provide a cash runway throughout 2019 and into 2020. The company ended Q318 with $20.2m in cash (and $7.3m in debt). We have adjusted our financing schedule as a result and expect the company to need $115m in additional capital to reach profitability in 2023 ($40m in 2020, $40m in 2021, $35m in 2022), down from $135m previously.

Exhibit 2: Financial summary

$'000s

2016

2017

2018e

2019e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

2,536

669

237

0

Cost of Sales

0

0

0

0

Gross Profit

2,536

669

237

0

Research and development

(22,881)

(21,540)

(15,123)

(17,485)

Selling, general & administrative

(16,115)

(13,548)

(12,575)

(12,952)

EBITDA

 

 

(36,313)

(34,428)

(27,470)

(30,447)

Operating Profit (before GW and except.)

(36,302)

(34,419)

(27,461)

(30,438)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(36,302)

(34,419)

(27,461)

(30,438)

Net Interest

(1,721)

(1,039)

(826)

(632)

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(38,023)

(35,458)

(28,287)

(31,069)

Profit Before Tax (IFRS)

 

 

(38,023)

(35,458)

(28,287)

(31,069)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(38,023)

(35,458)

(28,287)

(31,069)

Profit After Tax (IFRS)

(38,023)

(35,458)

(28,287)

(31,069)

Average Number of Shares Outstanding (m)

15.7

24.5

35.6

63.4

EPS - normalised ($)

 

 

(2.42)

(1.45)

(0.80)

(0.49)

EPS - IFRS ($)

 

 

(2.42)

(1.45)

(0.80)

(0.49)

Dividend per share ($)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

3

1,401

11

2

Intangible Assets

0

0

0

0

Tangible Assets

3

20

11

2

Other

0

1,381

0

0

Current Assets

 

 

43,231

32,933

14,523

6,495

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

42,588

31,750

13,221

5,193

Other

643

1,183

1,302

1,302

Current Liabilities

 

 

(5,814)

(8,901)

(1,414)

(1,554)

Creditors

(2,481)

(1,697)

(1,414)

(1,554)

Short term borrowings

(3,333)

(7,204)

0

0

Long Term Liabilities

 

 

(11,271)

(112)

(7,400)

(7,400)

Long term borrowings

(11,102)

0

(7,396)

(7,396)

Other long term liabilities

(169)

(112)

(4)

(4)

Net Assets

 

 

26,149

25,321

5,720

(2,457)

CASH FLOW

Operating Cash Flow

 

 

(36,962)

(36,142)

(24,839)

(26,828)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

0

(26)

0

0

Acquisitions/disposals

0

0

0

0

Financing

26,111

32,930

6,303

18,800

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(10,851)

(3,238)

(18,536)

(8,028)

Opening net debt/(cash)

 

 

(38,596)

(28,153)

(24,546)

(5,825)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

408

(369)

(185)

0

Closing net debt/(cash)

 

 

(28,153)

(24,546)

(5,825)

2,203

Source: Company data, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Sunesis Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Sunesis Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Sunesis Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Sunesis Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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