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SNS-062 looks good so far

Sunesis Pharmaceuticals 16 September 2016 Update

Sunesis Pharmaceuticals

SNS-062 looks good so far

Clinical data

Pharma & biotech

16 September 2016

Price

US$4.35

Market cap

US$63m

Net cash ($m) at 30 June 2016

18.8

Shares in issue

14.5m

Free float

100%

Code

SNSS

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

10.7

27.0

(35.9)

Rel (local)

10.6

22.7

(43.7)

52-week high/low

US$7.3

US$2.7

Business description

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

Next events

TAK-580 Phase Ib/II results

Q316

SNS-062 Phase Ib/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 released the first-in-human clinical data for SNS-062, its reversible non-covalent inhibitor of Bruton’s tyrosine kinase (BTK), at a scientific conference in September 2016. The results from the 32-subject, placebo-controlled Phase Ia trial validated the notion that a non-covalent inhibitor could have a viable pharmacokinetic and pharmacodynamic profile and showed a favorable safety profile. The company will be advancing the drug into a Phase Ib/II B-cell malignancy trial following these results.

Year
end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

Yield
(%)

12/14

5.7

(43.0)

(4.30)

0.0

N/A

N/A

12/15

3.1

(36.7)

(3.02)

0.0

N/A

N/A

12/16e

2.4

(37.0)

(2.53)

0.0

N/A

N/A

12/17e

1.7

(49.1)

(3.20)

0.0

N/A

N/A

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

BTK successfully inhibited in humans

Unlike Imbruvica (ibrutinib, AbbVie), and the vast majority of other BTK inhibitors that have been studied, SNS-062 does not irreversibly bind to its target. Because of this, it retains activity against a mutant BTK (C481S) that emerges with resistance to covalent inhibitors. This study demonstrated for the first time in humans that SNS-062 can achieve the same levels of inhibition as Imbruvica with the different binding mode.

Adverse events similar to placebo

The rate of adverse events in the active arm (33%) was similar to placebo (38%), and all adverse events were of grade 1, except for a single patient with grade 2 headache and fatigue. Headache was the most common treatment-related adverse event. A single patient on the active arm experienced supraventricular tachycardia (racing heart), although it was short and asymptomatic.

Moving forward with twice-a-day dosing

An inhibition of BTK of over 85% was observed for approximately 12 hours on every dosing regimen examined in this study. This level is expected to be appropriate for clinical activity and the company is moving forward with development to a Phase Ib/II study with twice-a-day dosing.

Valuation: Increased to $194m or $13.36 per share

We have increased our valuation to $194m or $13.36 per basic share, from $154m or $10.60 per basic share (reverse split adjusted). The increase is entirely due to an adjustment to our probability of success for SNS-062 from 10% to 20% based on the recent clinical results. We now estimate the value of the program at $78m. We expect to update our valuation in the future with further clinical results and with the upcoming EMA approval decision for Qinprezo.

First-in-human data look good

Sunesis has announced the results of the first study of SNS-062 in humans. SNS-062 is an inhibitor of Bruton’s tyrosine kinase (BTK) being examined for the treatment of B-cell malignancies. The class of BTK inhibitors gained traction with the approval and commercial success of Imbruvica, which had sales of over $1bn in 2015. However, unlike Imbruvica and the vast majority of other BTK inhibitors being developed, SNS-062 does not covalently and irreversibly bind to its target. A cysteine in the binding pocket of BTK forms a permanent bond with Imbruvica, which increases the activity of that drug, but this cysteine can become mutated to serine (C481S) rendering the drug ineffective. This mutation has been observed as an emergent resistance mechanism in patients receiving Imbruvica, but SNS-062 still effectively binds this mutant, suggesting that it could work in these resistant patients or be used as a front-line treatment to avoid this resistance mechanism.

Sunesis released the results of a Phase Ia healthy volunteer study of SNS-062 via a poster at the Second International Conference on New Concepts in B-Cell Malignancies on 10 September 2016. The clinical trial examined the pharmacokinetic and pharmacodynamic profile and adverse events in volunteers following a single dose of the drug at four different dosing levels (from 50mg to 300mg) or with placebo. Six volunteers received drug for each active arm (n=24 total for SNS-062) and eight received placebo. These results, although from a small set of healthy people, are very important for evaluating the viability of this drug, because the mechanism of action has already been validated and the unknowns are largely associated with the pharmacokinetic, pharmacodynamic and safety profile of the molecule.

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

Exhibit 1: Adverse event profile of SNS-062

SNS-062

Placebo
(n=8)

50mg (n=6)

100mg n=6)

200mg (n=6)

300mg (n=6)

All active (n=24)

Headache

4

67%

0

0%

0

0%

1

17%

5

21%

2

25%

Supraventricular tachycardia

0

0%

0

0%

0

0%

1

17%

1

4%

0

0%

Constipation

0

0%

1

17%

0

0%

0

0%

1

4%

0

0%

Nausea

0

0%

0

0%

1

17%

0

0%

1

4%

2

25%

Diarrhea

0

0%

0

0%

0

0%

0

0%

0

0%

1

13%

Fatigue

0

0%

0

0%

0

0%

1

17%

1

4%

0

0%

Bronchitis

0

0%

0

0%

0

0%

1

17%

1

4%

0

0%

Orthostatic hypotension

0

0%

0

0%

0

0%

1

17%

1

4%

0

0%

Total patients with AE

4

67%

1

17%

1

17%

2

33%

8

33%

3

38%

Source: Sunesis

Sunesis also reported initial pharmacokinetic and pharmacodynamic data from the active arms of the trial. The company reported both blood concentrations (Exhibit 2) and the degree of BTK inhibition (Exhibit 3) following dosing. Patients were followed for up to 72 hours. The results showed that the molecule had a long half-life in humans (eight to 17 hours depending on dose), and that at the plasma levels observed in this study, BTK inhibition of 85% or more was seen for approximately 12 hours for all the doses studied. 85% inhibition of BTK has previously been identified as sufficient for clinical activity during studies of BTK inhibitor acalabrutinib.1 This profile presents the possibility of a twice-a-day dosing regimen, which the company has proposed using when moving forward with clinical trials.

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

Exhibit 2: Plasma concentrations of SNS-062

Exhibit 3: BTK inhibition by SNS-062

Source: Sunesis

Source: Sunesis

Exhibit 2: Plasma concentrations of SNS-062

Source: Sunesis

Exhibit 3: BTK inhibition by SNS-062

Source: Sunesis

The Phase Ia study is still ongoing and later stages will evaluate the metabolism and food effects of SNS-062. However, the company has stated that based on these results it intends to move forward with a planned Phase Ib/II study in patients with B-cell malignancies. The proposed Phase Ib/II study will include patients with both native and mutated BTK to assess the activity of the drug. The trial is scheduled to start in Q416 or Q117.


Valuation

We have increased our valuation to $194m or $13.36 per basic share, from $154m or $10.60 per basic share (reverse split adjusted). This increase is due to an increase in the probability of success for the SNS-062 program from 10% to 20%. We consider the results from the Phase Ia trial significant because the mechanism of action of the drug is de-risked due to the prior success of Imbruvica and we believe these results contribute significantly to the case that the drug is active and that the adverse event profile is compatible with treatment. It should be noted that these results are based on a single dose in a small number of healthy individuals and there are still risks that repeated dosing may reveal additional adverse events that limit the drug’s utility, although these issues are typical for a drug at this stage of development. This being said, our current probability of success (20%) is higher than average for drugs at this development stage (typically 15%) to reflect the de-risking of an established mechanism and market. We expect to adjust our valuation following additional SNS-062 clinical results and with the EMA decision on the approval of Qinprezo in H117.

Exhibit 4: Sunesis valuation

Development Program

Clinical stage

Expected commercialization

Prob. of success

Launch year

Launch Pricing ($)

Peak sales ($m)

Patent/exclusivity protection

Royalty/ margin

rNPV
($m)

Qinprezo, Rel/Ref AML EU

MAA submitted

Partnered

60%

2017

53,000

190

2027

30%

$61

Qinprezo, Frontline AML EU

Phase III

Partnered

45%

2021

57,000

220

2027

30%

$23

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%

$16

Qinprezo, MDS US

Phase I/II

Partnered

25%

2021

82,000

174

2028

30%

$10

TAK-580

Phase Ib

Licensed to Takeda

15%

2021

138,000

727

2032

15%

$23

SNS-062

Phase Ib/II

Proprietary

20%

2022

152,000

605

2034

45%

$78

SNS-229

Preclinical

Proprietary

5%

2022

101,000

320

2031

44%

$5

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

($61)

Total

 

 

 

 

 

 

 

 

$175

Net cash and equivalents (Q216) ($m)

$18.8

Total firm value ($m)

$193.7

Total basic shares (m)

14.5

Value per basic share ($)

$13.36

Convertible pref stock (m)

3.4

Warrants (m)

0.2

Total diluted shares (m)

18.1

Value per diluted share ($)

$10.72

Source: Edison Investment Research, Sunesis Pharmaceuticals reports

Financials

Sunesis performed a one-to-six reverse stock split on 7 September 2016, resulting in approximately 14.5m common shares outstanding (and 17.8m including convertible preferred stock). The company ended Q216 with $33m in cash and investments and $14m in debt. We expect that the company will require $95m in additional financing to reach profitability in 2021 ($30m in 2017, $30m in 2018, and $35m in 2020) over and above the $87.5m in approval and sales milestones we model ($37.5m for TAK-580 approval, $50m in Qinprezo approval and sales milestones). This financing requirement is recorded as illustrative debt in our models, but may result in additional dilution if the company seeks this funding in equity markets.

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)

(24,201)

(29,536)

Selling, general & administrative

(10,838)

(23,112)

(18,662)

(13,997)

(14,416)

EBITDA

 

 

(31,701)

(41,312)

(35,764)

(35,666)

(45,612)

Operating Profit (before GW and except.)

(31,681)

(41,283)

(35,737)

(35,658)

(45,608)

Intangible Amortisation

0

0

0

0

0

Exceptionals/Other

0

0

0

0

0

Operating Profit

(31,681)

(41,283)

(35,737)

(35,658)

(45,608)

Net Interest

(2,917)

(1,719)

(939)

(1,384)

(3,461)

Other (change in fair value of warrants)

0

0

0

0

0

Profit Before Tax (norm)

 

 

(34,598)

(43,002)

(36,676)

(37,041)

(49,069)

Profit Before Tax (IFRS)

 

 

(34,598)

(43,002)

(36,676)

(37,041)

(49,069)

Tax

0

0

0

0

0

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(34,598)

(43,002)

(36,676)

(37,041)

(49,069)

Profit After Tax (IFRS)

(34,598)

(43,002)

(36,676)

(37,041)

(49,069)

Average Number of Shares Outstanding (m)

8.7

10.0

12.2

14.7

15.3

EPS - normalised ($)

 

 

(3.97)

(4.30)

(3.02)

(2.53)

(3.20)

EPS - IFRS ($)

 

 

(3.97)

(4.30)

(3.02)

(2.53)

(3.20)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

33

42

14

6

2

Intangible Assets

0

0

0

0

0

Tangible Assets

23

42

14

6

2

Other

10

0

0

0

0

Current Assets

 

 

40,492

44,204

46,988

19,141

4,320

Stocks

0

0

0

0

0

Debtors

0

0

0

0

0

Cash

39,293

42,981

46,430

18,310

3,489

Other

1,199

1,223

558

831

831

Current Liabilities

 

 

(25,858)

(19,395)

(12,728)

(5,966)

(7,244)

Creditors

(16,840)

(10,138)

(4,894)

(2,216)

(2,244)

Short term borrowings

(9,018)

(9,257)

(7,834)

(3,750)

(5,000)

Long Term Liabilities

 

 

(12,737)

(2,563)

(610)

(10,583)

(35,583)

Long term borrowings

(9,025)

0

0

(10,527)

(35,527)

Other long term liabilities

(3,712)

(2,563)

(610)

(56)

(56)

Net Assets

 

 

1,930

22,288

33,664

2,598

(38,505)

CASH FLOW

Operating Cash Flow

 

 

(37,423)

(43,181)

(38,731)

(34,954)

(41,071)

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

34

0

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net Cash Flow

(24,853)

13,048

5,095

(34,920)

(41,071)

Opening net debt/(cash)

 

 

(46,966)

(21,250)

(33,724)

(38,596)

(4,033)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

(863)

(574)

(223)

357

0

Closing net debt/(cash)

 

 

(21,250)

(33,724)

(38,596)

(4,033)

37,038

Source: Edison Investment Research, Sunesis Pharmaceuticals reports

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Sunesis Pharmaceuticals and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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