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A shift of gears

Sunesis Pharmaceuticals 20 August 2020 Update
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Sunesis Pharmaceuticals

A shift of gears

Earnings update

Pharma & biotech

20 August 2020

Price

US$0.28

Market cap

US$51m

Net cash ($m) at June 2020 + offering

30.1

Shares in issue

180.9m

Free float

49%

Code

SNSS

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.3)

(35.7)

(67.4)

Rel (local)

(9.5)

(44.3)

(71.7)

52-week high/low

US$1.11

US$0.26

Business description

Sunesis Pharmaceuticals is a pharmaceutical company focused on oncology. Its lead asset is SNS-510, an inhibitor of PDK1 in preclinical studies for a range of solid and hematologic tumors. It recently discontinued the development program for its previous lead asset vecabrutinib. It has also developed pan-Raf inhibitor TAK-580, currently licensed to DOT Therapeutics.

Next events

SNS-510 IND submission

H121

Analyst

Nathaniel Calloway

+1 646 653 7036

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

Sunesis’s task in realigning the company towards its new lead asset SNS-510 is twofold. First, it is examining the precise direction it intends to take the drug, and it has found synergies both with certain genetic subtypes of cancer as well as with other cancer drugs. Secondly, the company is both raising capital and reducing costs in order to provide the drug a runway into the clinic, and it estimates that it has cash through most of 2021.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/18

0.2

(26.6)

(0.75)

0.0

N/A

N/A

12/19

2.1

(23.3)

(0.27)

0.0

N/A

N/A

12/20e

0.1

(19.9)

(0.14)

0.0

N/A

N/A

12/21e

0.0

(19.9)

(0.11)

0.0

N/A

N/A

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

Steering the direction for SNS-510

Sunesis is engaged in a range of activities in preparation to bring SNS-510 to the clinic. The company is currently performing the studies to support an IND application, which is planned to be submitted by H121. Part of the process will also be determining the precise patient subgroup it intends to target. The company has publicized that cancers mutated in CDKN2A have a higher susceptibility to the drug, and it is also examining if there are any useful combinations with other cancer drugs. On the company’s conference call, CDK4/6, KRAS and Bcl-2 were mentioned as targets.

Putting gas in the tank

Sunesis additionally has the financial goal of providing sufficient capital to get SNS-510 into the clinic and get early results. The company previously announced that it was reducing its headcount by 30%, which should extend the runway. Additionally, in July 2020 the company raised $12.6m net in a public offering (60m shares at $0.23). Following the offering, the company paid off all of its existing debt ($5.7m with principal and fees). Sunesis predicts that it currently has enough cash to bring it through most of 2021, which will give the company enough time to get the drug into the clinic and perhaps have some early insights.

Valuation: Increased to $54.4m

We have increased our valuation to $54.4m from $47.2m previously, although it is lower on a per share basis: $0.28 per diluted share from $0.36. This is largely due to higher net cash following the offering ($30.1m estimated net cash, from $23.4m previously). We have reduced our financing requirement for the company to $50m (from $60m): $20m in 2021 and $30m in 2023 (both modelled as illustrative debt).

The focus is on SNS-510

Sunesis is currently realigning its focus to its new lead asset SNS-510, and preparing the drug to enter the clinic. The company is currently conducting IND-enabling studies and intends to submit an IND application in H121. We expect the drug to enter a Phase I dosing study shortly thereafter.

The drug is an inhibitor of PDK1, a key effector of the PI3K/AKT pathway. Although PDK1 inhibitors are a novel class, this pathway has been deeply implicated in the pathology of cancer growth and metastasis. There have been multiple approvals of PI3K inhibitors targeting this same pathway for the treatment of a range of cancers. Part of the work the company is currently engaged in while designing its future clinical studies is assessing which patient populations would benefit the most from SNS-510. The company has identified a number of genetic markers that signal susceptibility to the drug, most notably mutations in cyclin-dependent kinase inhibitor 2A (CDKN2A). 44% of cell lines where the drug was active harbored mutations or deletions in this protein. The company is also examining if the drug should be used in combination with any other cancer treatments. It noted that synergies have been seen with CDK4/6 inhibitors such as Ibrance (Palbociclib, Pfizer), and that inhibitors of KRas (in development) and Bcl-2 (eg Venclexta, AbbVie/Roche) may also show synergies. These experiments are ongoing, and we expect further clarity as the drug approaches the clinic.

Aiming for efficiency

As the company shifts gears towards concentrating on SNS-510, many of its recent activities have been focused on providing the program the longest runway possible. In July, the company performed an offering of 59,999,999 shares at $0.23 ($13.8m gross, $12.6m net). The company used some of the proceeds of this raise to eliminate its outstanding debt in a $5.7m payment (net of fees), also in July.

Additionally, the company has reduced its workforce by approximately 30%. In the short term, however, costs associated with R&D were significantly up in Q220: $4.3m from $3.7m in Q120. These costs are driven by the vecabrutinib Phase Ib study, which is currently being wound down. Sunesis’s overall Q220 operating loss was $6.3m. We expect its R&D expense to be lower in following periods, and forecast a total of $12.4m for the year (from previous estimates of $8.6m).

With these combined measures, the company has guided that it has sufficient cash through ‘most of 2021.’ We expect Phase I studies to be initiated shortly after IND submission in H121, so the program may be able to provide some early dosing data before the company needs to raise more capital. We forecast that the company will need $50m in additional capital, lowered from $60m previously, which is recorded as illustrative debt ($20m in 2021, $30m in 2023), to reach profitability in 2025.

Given the capital needs of starting new clinical programs, it is likely that the company will seek partners to advance it and defray some of these costs. The company is in the process of exploring ‘strategic alternatives’ as a pathway forward, which it states may include ‘asset in-licensing, partnering, and mergers and acquisitions’, which we expect will determine the future direction of the company.

Valuation

We have increased our valuation to $54.4m from $47.2m previously, although it is lower on a per share basis: $0.28 per diluted share from $0.36. The increase in the valuation is predominantly due to higher net cash ($30.1m pro-forma as of 30 June 2020, from $23.4m on 31 March previously) following the July offering. Additionally, we have rolled forward our NPVs, and this is offset by increases to unallocated costs as we adjust our R&D run rate.

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 DOT

5%

2025

500,000

600

2032

10%

$6.9

SNS-510

IND ready

Proprietary

10%

2025

130,000

344

2031

51%

$28.0

Unallocated costs (discovery programs, administrative costs, etc)

($10.5)

Total

 

 

 

 

 

 

 

 

$24.3

Pro-forma net cash and equivalents (Q220 cash & equivalents + offering minus debt repayment) ($m)

$30.1

Total firm value ($m)

$54.4

Total basic shares (m)

180.9

Value per basic share ($)

$0.30

Convertible Pref stock (m)

10.2

Total diluted shares (m)

191.2

Value per diluted share ($)

$0.28

Source: Sunesis Pharmaceuticals reports, Edison Investment Research

Exhibit 2: Financial summary

$'000s

2018

2019

2020e

2021e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

237

2,073

120

0

Cost of Sales

0

0

0

0

Gross Profit

237

2,073

120

0

Research and development

(14,615)

(15,412)

(12,438)

(10,507)

Selling, general & administrative

(11,332)

(9,949)

(7,649)

(7,879)

EBITDA

 

 

(25,719)

(23,288)

(19,967)

(18,385)

Operating Profit (before GW and except.)

(25,710)

(23,288)

(19,967)

(18,385)

Intangible Amortization

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(25,710)

(23,288)

(19,967)

(18,385)

Net Interest

(905)

(42)

93

(1,500)

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(26,615)

(23,330)

(19,874)

(19,885)

Profit Before Tax (IFRS)

 

 

(26,615)

(23,330)

(19,874)

(19,885)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(26,615)

(23,330)

(19,874)

(19,885)

Profit After Tax (IFRS)

(26,615)

(23,330)

(19,874)

(19,885)

Average Number of Shares Outstanding (m)

35.6

87.1

146.2

189.1

EPS - normalised ($)

 

 

(0.75)

(0.27)

(0.14)

(0.11)

EPS - IFRS ($)

 

 

(0.75)

(0.27)

(0.14)

(0.11)

Dividend per share ($)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

124

918

651

660

Intangible Assets

0

0

0

0

Tangible Assets

11

3

10

19

Other

113

915

641

641

Current Assets

 

 

15,200

36,322

25,386

27,057

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

13,696

34,625

23,674

25,345

Other

1,504

1,697

1,712

1,712

Current Liabilities

 

 

(11,323)

(9,416)

(3,898)

(3,560)

Creditors

(3,927)

(3,951)

(3,898)

(3,560)

Short term borrowings

(7,396)

(5,465)

0

0

Long Term Liabilities

 

 

(8)

(281)

0

(20,000)

Long term borrowings

0

0

0

(20,000)

Other long term liabilities

(8)

(281)

0

0

Net Assets

 

 

3,993

27,543

22,139

4,157

CASH FLOW

Operating Cash Flow

 

 

(24,404)

(22,185)

(17,867)

(18,320)

Net Interest

0

0

0

0

Tax

0

0

0

0

Capex

0

0

(7)

(9)

Acquisitions/disposals

0

0

0

0

Financing

6,343

45,082

12,623

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(18,061)

22,897

(5,251)

(18,329)

Opening net debt/(cash)

 

 

(24,546)

(6,300)

(29,160)

(23,909)

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

(185)

(37)

0

0

Closing net debt/(cash)

 

 

(6,300)

(29,160)

(23,909)

(5,580)

Source: Sunesis Pharmaceuticals reports, 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 research department of Edison 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 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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 research department of Edison 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 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

This document is prepared and provided by Edison 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.

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.

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

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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