test tube close up

Qinprezo/Dacogen combo stands up

Sunesis Pharmaceuticals 22 June 2016 Update

Sunesis Pharmaceuticals

Qinprezo/Dacogen combo stands up

Clinical update

Pharma & biotech

22 June 2016

Price

US$0.58

Market cap

US$50m

Net cash ($m) at 31 March 2016

28.3

Shares in issue

86.9m

Free float (%)

53.4

Code

SNSS

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

22.0

(0.1)

(79.0)

Rel (local)

19.9

(1.9)

(78.8)

52-week high/low

US$3.6

US$0.5

Business description

Sunesis Pharmaceuticals is a pharmaceutical company focused on oncology. Its lead asset is Qinprezo, a chemotherapy for AML in the approval process in the EU. The company has also developed SNS-062, a BTK inhibitor for CLL for Imbruvica refractory patients, currently in Phase I.

Next events

TAK-580 Phase Ib/II

H216

SNS-062 Phase I/II start

Q416-Q117

Final EMA decision

H117

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

Sunesis reported results from an Phase Ib/II study sponsored by MD Anderson during the European Hematology Association meeting in June 2016, detailing the effect of a combination of Qinprezo and Dacogen for the frontline treatment of patients with acute myeloid leukemia (AML) and those with myelodysplastic syndrome (MDS) unfit for intensive therapy. The 63-person open-label trial demonstrated a median overall survival of 16.1 months at the 70mg/m2 Qinprezo dose, over twice that of either of the drugs alone.

Year end

Revenue
($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/14

5.7

(43.0)

(0.72)

0.0

N/A

N/A

12/15

3.1

(36.7)

(0.50)

0.0

N/A

N/A

12/16e

2.4

(35.9)

(0.40)

0.0

N/A

N/A

12/17e

1.7

(49.5)

(0.53)

0.0

N/A

N/A

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

Lower Qinprezo dose outperformed higher dose

The trial protocol was amended following a high rate of mucositis from 90mg/m2 Qinprezo (on days one and four of a five-day cycle) to 70mg/m2, both in combination with 20mg/m2 Dacogen (daily). The patients on the lower Qinprezo dose showed a substantially improved overall survival at 16.1 months compared to 5.5 months and reduced early death (at eight weeks) to 5% from 27%.

Performance maintained in risky karyotypes

36 patients on the study had intermediate or high-risk karyotypes, and the overall complete response rate for this population was 72%. This is similar to the response rate for the trial as a whole (75%) and the overall response rate (including partial responses) seen in the data presented by AbbVie on its next-generation treatment Venclexta in combination with Dacogen or Vidaza in the same population.

CHMP EU Rel/Ref AML opinion expected around YE16

Sunesis is still on course to receive the opinion of the CHMP on its EU approval package for Qinprezo in elderly relapsed and refractory AML around the end of 2016. The company has received its first round of questions from the EMA and is currently in a clock-stop, although we do not foresee any delays in the process.

Valuation: Increased to $156.2m or $1.80/basic share

We are increasing our valuation to $156.2m or $1.80 per basic share ($1.46 per diluted share), from $150.1m or $1.74 per basic share ($1.41 per diluted share). This increase reflects the encouraging results from the Qinprezo/Dacogen combination study and a potential new path to approval in frontline AML, as reflected by a 5% increase in probability of approval. This is partially offset by an increase in clinical trial costs to accommodate a Qinprezo/Dacogen combination arm. Sunesis ended Q116 with $40.0m in cash and securities. We forecast that the company will need $95m in additional financing before 2021 profitability.

Qinprezo/Dacogen combo: 16.1 month median survival

Sunesis released results at the European Hematology Association (EHA) meeting in June 2016, detailing the results from a Phase I/II trial of Qinprezo (vosaroxin) in combination with Dacogen (decitabine, Otsuka) in patients with AML and high-risk MDS. This is an ongoing open-label investigator-sponsored trial being conducted by MD Anderson Cancer Center. The target population of the trial is previously untreated patients over 60 unsuitable for intensive chemotherapy. A total of 63 patients were enrolled in the trial, the majority (56, 89%) with AML and with a median age of 69.

Dacogen is currently only approved in the US for the treatment of MDS, although it is approved in the EU for newly diagnosed AML patients over 65 with unfavorable cytogenetics (see our initiation report on Sunesis for a discussion of the Dacogen EU approval).

The trial was initiated with patients receiving 90mg/m2 Qinprezo twice per cycle in combination with Dacogen at 20mg/m2 per day in a five-day cycle. However, the Qinprezo dose was reduced to 70mg/m2 following a high rate of grade 3 mucositis (four out of 16 patients in the Phase II portion of the trial). Interestingly this lower dose showed substantially increased median survival compared to the higher 90mg/m2 dose (Exhibit 1). The 70mg/m2 dose almost tripled the median survival for these patients to 16.1 months. The median survival for patients on the same regimen of Dacogen alone was 7.7 months.1 23 of the 41 patients in the 70mg/m2 cohort are still alive and being monitored and the median overall survival for this group could potentially increase.

  Kantarjian HM et al. (2012) Multicenter, Randomized, Open-Label, Phase III Trial of Decitabine Versus Patient Choice, With Physician Advice, of Either Supportive Care or Low-Dose Cytarabine for the Treatment of Older Patients With Newly Diagnosed Acute Myeloid Leukemia J Clin Oncol. 30(21), 2670-2677.

Exhibit 1: Qinprezo in combination with Dacogen and Dacogen alone, overall survival

Source: Sunesis. Note: Dacogen data is historical.

Although the difference in median survival between doses was substantial, the results were not entirely surprising considering the patient population selected for this trial was not suitable for chemotherapy, and although these drugs are more tolerable than the intense 7+3 regimen (cytarabine and daunorubicin) standard of care for AML, adverse events are not uncommon. Consistent with this, the rate of adverse events during the trial was high (Exhibit 2). A majority of patients (82%) experienced mucositis, although the reduction in dose appeared to reduce the rate of grade 3 or 4 mucositis from 25% in the 90mg/m2 arm to 17% at the lower dose. The rate of early death (at less than eight weeks on study) was also substantially reduced by going to a lower dose: 27% on 90mg/m2 arm compared to 5% on 70mg/m2 (Exhibit 3). This difference in death rates is likely treatment related and could account for the difference in overall survival between the two doses.

Another element of the safety profile is the high rate of grade 3 and 4 infections observed during the trial. 56% of patients on the trial had major infections, while 3% and 10% had fungal or other infections. Infectious disease is common in patients with these disorders because by their very nature the treatments are myelosuppressive. In previous studies, Dacogen alone resulted in 61% of patients acquiring grade 3 or higher of pneumonia or bronchopneumonia, compared to 48% in patients treated with the standard of care low-dose cytarabine.1 Similarly, during the Phase II REVEAL-1 trial of Qinprezo, 24 (45%) patients got sepsis, 28 (25%) got pneumonia, and 10 (20%) got other infections of grade 3 or higher on 72/90mg/m2 respectively.2

Exhibit 2: Adverse events from Qinprezo and Dacogen in AML and MDS

 

G1/2

G3/4

Total (%)

Bilirubin

33

8

41 (67)

Diarrhea

2

0

2 (3)

Mucositis

39

11

50 (82)

Nausea/Vomiting

9

1

10 (16)

Fungal infections

0

2

2 (3)

Major infections (pneumonia, sepsis)

0

34

34 (56)

Other infections

0

6

6 (10)

Source: Sunesis. Note: Reflects data from both dosing cohorts.

The response rates observed in the trial were better than either Qinprezo or Dacogen alone in similar populations (Exhibit 3). These previous trials only examined patients with AML, although because the fraction of patients with MDS in the current trial is small, we believe this comparison is appropriate. Although detailed breakdowns of response rates that are directly comparable to previous studies are currently unavailable for the two different dosing regimens, the combined complete response (CR) rate was 49% for the current trial compared to 25-30% for Qinprezo alone or 16% for Dacogen alone. When incomplete platelet responses (CRp) are included in this analysis, the rate increases to 66%, which is higher than the combined rates for Qinprezo and Dacogen alone, suggesting the potential of synergy.

Exhibit 3: Responses to Qinprezo and Dacogen, study comparison

Current study

Stuart et al2

  Stuart RK et al. (2014) REVEAL-1, a phase 2 dose regimen optimization study of vosaroxin in older poor-risk patients with previously untreated acute myeloid leukaemia. Brit J Haematol 168, 796-805.

Kantarjian et al1

All pts

Qin 70
+ Dac 20

Qin 90
+ Dac 20

Qin 72

Qin 90

Dac 20

TC

N

63

41

22

29

20

242

243

CR

49%

N.R.

N.R.

31%

25%

16%

7%

CR + CRp

66%

N.R.

N.R.

35%

25%

18%

8%

CR + CRp + CRi

75%

76%

73%

N.R.

N.R.

28%

11%

Median OS

N.R.

16.1

5.5

7.7

5.5

7.7

5.0

Early death (4 weeks)

0%

0%

0%

7%

10%

N.R.

N.R.

Early death (8 weeks)

11%

5%

27%

17%

30%

32%

28%

Source: Sunesis, Stuart et al., Kantarjian et al. Note: Stuart and Kantarjian studies done exclusively in first line AML patients unfit for chemotherapy. TC= Treatment choice, predominantly low-dose cytarabine (n=215); N.R. = not reported.

Recently AbbVie presented data on the use of its Bcl-2 inhibitor Venclexta (venetoclax) in combination with Dacogen or Vidaza (azacitidine) for the treatment of a similar patient population at the American Society of Clinical Oncology (ASCO) meeting in June 2016.3 The Phase Ib/II trial focused on the front-line treatment of AML patients unfit for intensive therapy with intermediate or poor-risk karyotypes and found an overall response rate (ORR, CR + CR with incomplete marrow recovery [CRi] + partial response [PR]) of 76% in this population (n=34). By comparison in the Sunesis trial, patients with intermediate or high-risk karyotypes (n=36) showed a 72% response rate with a more stringent definition of ORR (CR + CRi + CRp). We find these results to be comparable to the extent that parallels can be drawn between the two studies, considering the Qinprezo study includes a small number of MDS patients.

  ASCO 2016 abstract #7009

Sunesis announced during the presentation of these results that it intends to perform a follow-up Phase III study comparing Qinprezo plus Dacogen to both Qinprezo plus cytarabine and the 7+3 regimen in frontline AML. A program or programs of this design could potentially be used to support approval in the US or EU for a frontline indication in elderly patients, although we see the approval environment for AML in Europe as significantly more forgiving considering previous approvals for Vidaza and Dacogen for AML there.

Upcoming events

The most impactful upcoming event expected for Sunesis is the decision from CHMP regarding the approvability of Qinprezo in Europe for relapsed and refractory AML patients over 60. We expect the decision around YE16, but, although unlikely, variations in the length of clock-stop periods during the EMA review process could delay the decision. Based on the precedent of Dacogen and Vidaza approval in Europe, we have a favorable outlook (60% chance of approval) for the ultimate decision (see our previous report for a detailed comparison). It is unlikely, however, that there will be additional feedback from the EMA or the company regarding the proceedings until the CHMP decision.

We additionally expect TAK-580 results to be reported by partner Takeda in H216, and the initiation of the SNS-062 Phase I/II clinical program around YE16.

Valuation

We are increasing our valuation to $156.2m or $1.80 per basic share ($1.46 per basic share), from $150.1m or $1.74 per basic share ($1.41 per diluted share). We have increased the probability of success in front-line AML in the US (from 20% to 25%) and Europe (from 40% to 45%) because we find the Dacogen combination data encouraging and the proposed three-arm Phase III follow-up trial could provide an additional route to approval. We see the US approval as higher risk because of a history of approval denials for AML including for Dacogen and Vidaza, whereas in Europe Dacogen and Vidaza have been approved for classes of AML. This increase in success probability is partially offset by an increase in the predicted spending for the trial of approximately 50% or $9m to support the additional arm (accounted for under US and EU frontline AML lines in our NPV). The remaining changes to our model reflect the advancement of our NPVs to Q216 and the change in net cash.

Exhibit 4: Valuation of Sunesis

Development Program

Clinical stage

Expected commercialization

Prob. of success

Launch year

Launch Pricing ($, WAC)

Peak sales ($m)

Patent/exclusivity protection

Royalty/ margin

rNPV ($m)

Qinprezo, Rel/Ref AML EU

MAA submitted

Partnered

60%

2017

53,000

190

2027

30%

$59

Qinprezo, Frontline AML EU

Phase III

Partnered

45%

2021

57,000

220

2027

30%

$22

Qinprezo, MDS EU

Phase I/II

Partnered

30%

2021

57,000

152

2027

30%

$9

Qinprezo, Rel/Ref AML US

Phase III

Partnered

30%

2021

82,000

175

2028

30%

$12

Qinprezo, Frontline AML US

Phase III

Partnered

25%

2021

82,000

269

2028

30%

$15

Qinprezo, MDS US

Phase I/II

Partnered

25%

2021

82,000

174

2028

30%

$9

TAK-580

Phase Ib

Licensed to Takeda

15%

2021

138,000

727

2032

15%

$22

SNS-062

Preclinical

Proprietary

10%

2022

152,000

605

2034

45%

$37

SNS-229

Preclinical

Proprietary

5%

2022

101,000

320

2031

44%

$5

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

($62)

Total

 

 

 

 

 

 

 

 

$128

Net cash and equivalents (Q116) ($m)

$28.3

Total firm value ($m)

$156.2

Total basic shares (m)

86.9

Value per basic share ($)

$1.80

Convertible Pref stock (m)

20.2

Total diluted shares (m)

107.1

Value per diluted share

$1.46

Source: Edison Investment Research, company reports

Financials

Sunesis ended Q116 with $40.0m in cash and marketable securities and $11.7m in debt following the April 2016 debt offering and refinancing of existing debt. Results for the quarter were largely within our estimates, and we are not updating our 2016 numbers at this time except to reflect Q116 results and an updated share count. We have increased R&D spending in 2017 and onward by approximately $1.5m per year to reflect the increased cost of the proposed front-line AML development plan, partially offset by reductions in other R&D spending unallocated to individual programs. We still predict that the company will need $95m in additional financing to reach profitability in 2021, and record this as illustrative debt in our model ($30m in 2017, $30m in 2018, and $35m in 2020).

Exhibit 5: Financial summary

$'000s

2013

2014

2015

2016e

2017e

Year end 31 December

US GAAP

US GAAP

US GAAP

US GAAP

US GAAP

PROFIT & LOSS

Revenue

 

 

7,956

5,734

3,061

2,441

1,697

Cost of Sales

0

0

0

0

(3,353)

Gross Profit

7,956

5,734

3,061

2,441

(1,656)

Research and development

(28,891)

(27,665)

(23,701)

(23,066)

(29,013)

Selling, general & administrative

(10,838)

(23,112)

(18,662)

(13,997)

(14,416)

EBITDA

 

 

(31,701)

(41,312)

(35,764)

(34,552)

(45,089)

Operating Profit (before GW and except.)

(31,681)

(41,283)

(35,737)

(34,545)

(45,085)

Intangible Amortisation

0

0

0

0

0

Exceptionals/Other

0

0

0

0

0

Operating Profit

(31,681)

(41,283)

(35,737)

(34,545)

(45,085)

Net Interest

(2,917)

(1,719)

(939)

(1,362)

(4,419)

Other (change in fair value of warrants)

0

0

0

0

0

Profit Before Tax (norm)

 

 

(34,598)

(43,002)

(36,676)

(35,907)

(49,504)

Profit Before Tax (IFRS)

 

 

(34,598)

(43,002)

(36,676)

(35,907)

(49,504)

Tax

0

0

0

0

0

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(34,598)

(43,002)

(36,676)

(35,907)

(49,504)

Profit After Tax (IFRS)

(34,598)

(43,002)

(36,676)

(35,907)

(49,504)

Average Number of Shares Outstanding (m)

52.2

60.1

72.9

89.6

93.6

EPS - normalised ($)

 

 

(0.66)

(0.72)

(0.50)

(0.40)

(0.53)

EPS - IFRS ($)

 

 

(0.66)

(0.72)

(0.50)

(0.40)

(0.53)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

33

42

14

7

3

Intangible Assets

0

0

0

0

0

Tangible Assets

23

42

14

7

3

Other

10

0

0

0

0

Current Assets

 

 

40,492

44,204

46,988

20,086

8,476

Stocks

0

0

0

0

0

Debtors

0

0

0

0

0

Cash

39,293

42,981

46,430

19,385

7,775

Other

1,199

1,223

558

701

701

Current Liabilities

 

 

(25,858)

(19,395)

(12,728)

(2,250)

(2,217)

Creditors

(16,840)

(10,138)

(4,894)

(2,250)

(2,217)

Short term borrowings

(9,018)

(9,257)

(7,834)

0

0

Long Term Liabilities

 

 

(12,737)

(2,563)

(610)

(14,185)

(44,185)

Long term borrowings

(9,025)

0

0

(14,185)

(44,185)

Other long term liabilities

(3,712)

(2,563)

(610)

0

0

Net Assets

 

 

1,930

22,288

33,664

3,658

(37,923)

CASH FLOW

Operating Cash Flow

 

 

(37,423)

(43,181)

(38,731)

(33,846)

(41,609)

Net Interest

0

0

0

0

0

Tax

0

0

0

0

0

Capex

0

(48)

0

0

0

Acquisitions/disposals

0

0

0

0

0

Financing

12,570

56,277

43,826

0

0

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net Cash Flow

(24,853)

13,048

5,095

(33,846)

(41,609)

Opening net debt/(cash)

 

 

(46,966)

(21,250)

(33,724)

(38,596)

(5,200)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

(863)

(574)

(223)

450

0

Closing net debt/(cash)

 

 

(21,250)

(33,724)

(38,596)

(5,200)

36,410

Source: Edison Investment Research, company reports

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