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On track with vecabrutinib

Sunesis Pharmaceuticals 18 May 2018 Update (1-4pgs)
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Sunesis Pharmaceuticals

On track with vecabrutinib

Earnings update

Pharma & biotech

18 May 2018

Price

US$2.73

Market cap

US$94m

Net cash ($m) at March 2018

18.1

Shares in issue

34.4m

Free float

55%

Code

SNSS

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.2)

(54.3)

(12.2)

Rel (local)

(3.7)

(54.1)

(23.9)

52-week high/low

US$7.4

US$1.8

Business description

Sunesis Pharmaceuticals is a pharmaceutical company focused on oncology. Its lead asset is SNS-062, a BTK 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 Phase II dose announced

Autumn 2018

TAK-580 program update

Mid-/late 2018

SNS-510 IND filing

2019

Analysts

Nathaniel Calloway

+1 646 653 7036

Maxim Jacobs

+1 646 653 7027

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

On the Q118 conference call, Sunesis provided an update of its ongoing vecabrutinib Phase Ib/II trial. The study is continuing to enrol the 50mg cohort in the dose-ranging Phase I portion of the study. This cohort was previously expanded to six patients per the protocol due to an adverse event, but no further dose-limiting events have been reported. The company reiterated guidance that the dose ranging would be complete in autumn 2018 and that it will present preliminary efficacy data at a medical conference.

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

(35.2)

(0.98)

0.00

N/A

N/A

12/19e

0.0

(38.4)

(1.02)

0.00

N/A

N/A

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

Vecabrutinib 50mg cohort expansion ongoing

The company previously announced the 50mg cohort would be expanded following a dose limiting toxicity (DLT) that was observed in the study, which is the standard protocol for this trial design. We remain confident that it is too early to draw conclusions about the safety or tolerability of the drug given that this was an isolated occurrence; the continued enrolment of this cohort without incident to date supports this.

Phase II to examine multiple angles

The primary focus of the vecabrutinib development program has been examining if it is active in ibrutinib refractory patients, particularly those with the C481S mutation. However, Sunesis will be using data from the Phase I portion of the trial to inform what cohorts to examine in Phase II. These also include patients refractory to venetoclax and those whose disease has progressed via Richter’s transformation to more severe B-cell malignancies.

Continued commitment to expanding pipeline

Although vecabrutinib remains the company’s main focus, Sunesis has restated its commitment to expanding its portfolio. It previously partnered its pan-Raf inhibitor TAK-580 to Takeda and expects an update on the program before the end of 2018. It is also in IND-enabling studies of its PDK1 inhibitor SNS-510, which it states will ready for IND filing in 2019.

Valuation: Small change to $236.6m or $6.88/share

Our valuation has changed negligibly to $236.6m or $6.88 per basic share from $237.8m or $6.92 per share. This was largely driven by advancing our NPVs to the most recent period and offset by lower net cash ($18.1m vs $24.5m). We have delayed our expected commercialization of SNS-510 to 2024 from 2023. We expect the company to require $135m in additional financing before profitability in 2023.

Vecabrutinib on target for autumn readout

Sunesis provided an update of its vecabrutinib Phase Ib/II clinical trial in its Q118 earnings release and conference call. Vecabrutinib is a non-covalent Bruton’s tyrosine kinase (BTK) inhibitor, being investigated for a range of B-cell malignancies. There are two approved BTK inhibitors: Imbruvica (ibrutinib, AbbVie/Janssen) with sales of approximately $3.2bn in 2017, and Calquence (acalabrutinib, AstraZeneca), which was launched in October 2017 (with negligible sales). However, when patients progress on these drugs, they develop the C481S mutation in BTK as the most common form of drug resistance. Vecabrutinib seeks to treat these refractory patients and is known to bind and inhibit this mutant BTK at nanomolar concentrations. The biggest target market under investigations is refractory chronic lymphocytic leukemia (CLL) patients with the C481S mutation, and this will be one arm of the upcoming Phase II portion of the trial. However, there is also potential in a range of other indications, including CLL in the front line as well as other B-cell malignancies. The company recently expanded the enrolment in the trial to include diffuse large B-cell lymphoma (DLBCL) and follicular lymphoma. One potential market for patients that have DLBCL is those that have undergone Richter’s transformation, an event in which a patient with CLL spontaneously develops the much more aggressive DLBCL. The company stated that patients following Richter’s transformation are being considered for an arm in the upcoming Phase II. The company also stated that it may examine patients following progression on Venclexta (venetoclax, AbbVie/Roche), a Bcl-2 inhibitor making inroads into the CLL market.

Regarding the current status of the trial, the company is in the Phase Ib dose-ranging portion of the study, which will examine doses from 25mg to 500mg (or the maximally tolerated dose, MTD), although the effective dose is expected to be in the range of 100-300mg. The study is on the 50mg (second) cohort following an expansion of dose to six patients. This expansion was triggered by the protocol because of an adverse event that was counted as a potential DLT seen in a single patient. This form of dosing cohort expansion is not uncommon given the random nature of many adverse events, and that they are frequently not drug related. Imbruvica, for instance, had multiple DLTs in its dose-ranging study, which then never found an MTD. On the update, the company stated that the 50mg cohort continues to enrol well and it remains on track to announce the Phase II dose in autumn 2018. Additionally, the company stated it will be presenting interim data from the study at a medical conference around that time as well.

Valuation

Our valuation has changed negligibly to $236.6m or $6.88 per basic share from to $237.8m or $6.92. This was driven by advancing our NPVs to the most recent period and offset by lower net cash ($18.1m vs $24.5m). Additionally, we have delayed the commercialization of SNS-510 to 2024 from 2023 based on the guidance that the IND will be filed in 2019. Otherwise, our fundamental assumptions remain unchanged. We expect to update our valuation following data from the ongoing vecabrutinib trial and following any announcement regarding TAK-580 from Takeda.

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 Ib

Licensed to Takeda

15%

2021

146,000

777

2032

15%

$39

Vecabrutinib

Phase Ib/II

Proprietary

20%

2022

152,000

666

2034

56%

$181

SNS-510

IND ready

Proprietary

10%

2024

130,000

361

2031

51%

$23

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

($25)

Total ($m)

 

 

 

 

 

 

 

 

$218

Net cash and equivalents (Q118) ($m)

$18.1

Total firm value ($m)

$236.6

Total basic shares (m)

34.4

Value per basic share ($)

$6.88

Convertible Pref stock (m)

6.3

Warrants and Options

8.5

Total diluted shares

49.2

Value per diluted share ($)

5.54

Source: Sunesis reports, Edison Investment Research

Financials

Sunesis reported an operating loss of $7.1m for Q118, corresponding to R&D spending of $4.0m and G&A spending of $3.4m. We expect R&D to increase following advancement of the Phase Ib/II trial later in the year and forecast total R&D of $19.1m for 2018. The company ended the period with $25.4m in cash, partly offset by $7.3m in debt (at 8.54%+LIBOR). Principal payments will start in October 2018, unless the company can raise at least $6.5m in additional capital from equity (which will delay principle payments until January 2019). We expect the company to require at least $135m in additional financing before profitability in 2023, which we record as illustrative debt ($25m, $20m, $30m, $40m and $20m in 2018-2022 respectively).

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)

(19,074)

(19,295)

Selling, general & administrative

(16,115)

(13,548)

(13,634)

(14,043)

EBITDA

 

 

(36,313)

(34,428)

(32,480)

(33,347)

Operating Profit (before GW and except.)

(36,302)

(34,419)

(32,471)

(33,338)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(36,302)

(34,419)

(32,471)

(33,338)

Net Interest

(1,721)

(1,039)

(2,709)

(5,078)

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(38,023)

(35,458)

(35,180)

(38,416)

Profit Before Tax (IFRS)

 

 

(38,023)

(35,458)

(35,180)

(38,416)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(38,023)

(35,458)

(35,180)

(38,416)

Profit After Tax (IFRS)

(38,023)

(35,458)

(35,180)

(38,416)

Average Number of Shares Outstanding (m)

15.7

24.5

36.0

37.6

EPS - normalised ($)

 

 

(2.42)

(1.45)

(0.98)

(1.02)

EPS - IFRS ($)

 

 

(2.42)

(1.45)

(0.98)

(1.02)

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

35,718

21,448

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

42,588

31,750

34,238

19,968

Other

643

1,183

1,480

1,480

Current Liabilities

 

 

(5,814)

(8,901)

(1,670)

(1,702)

Creditors

(2,481)

(1,697)

(1,670)

(1,702)

Short term borrowings

(3,333)

(7,204)

0

0

Long Term Liabilities

 

 

(11,271)

(112)

(39,456)

(59,456)

Long term borrowings

(11,102)

0

(39,456)

(59,456)

Other long term liabilities

(169)

(112)

0

0

Net Assets

 

 

26,149

25,321

(5,397)

(39,708)

CASH FLOW

Operating Cash Flow

 

 

(36,962)

(36,142)

(29,914)

(34,270)

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

196

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(10,851)

(3,238)

(29,718)

(34,270)

Opening net debt/(cash)

 

 

(38,596)

(28,153)

(24,546)

5,218

HP finance leases initiated

0

0

0

0

Exchange rate movements

0

0

0

0

Other

408

(369)

(46)

0

Closing net debt/(cash)

 

 

(28,153)

(24,546)

5,218

39,488

Source: Sunesis reports, Edison Investment Research

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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Sunesis Pharms. 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Sunesis Pharms. 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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