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Multiple upcoming readouts on vecabrutinib

Sunesis Pharmaceuticals 12 March 2020 Update
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Sunesis Pharmaceuticals

Multiple upcoming readouts on vecabrutinib

Earnings update

Pharma & biotech

12 March 2020

Price

US$0.63

Market cap

US$70m

Net cash ($m) at 31 December 2019

29.1

Shares in issue

111.4m

Free float

60%

Code

SNSS

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.3)

101.0

0.0

Rel (local)

8.7

130.3

1.5

52-week high/low

US$1.74

US$0.28

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 in a dose-escalation Phase Ib/II. It has also developed pan-Raf inhibitor TAK-580, and the preclinical PDK1 inhibitor SNS-510.

Next events

400mg cohort readout

March 2020

500mg cohort readout

Q220

Analyst

Nathaniel Calloway

+1 646 653 7036

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

Sunesis provided an update on its ongoing dosing study of vecabrutinib on its 2019 earning conference call: the first response assessment for the 400mg cohort will be available later in March and the 500mg readout should be available in Q220. Sunesis noted one patient on the 300mg arm is on his eighth line of treatment and his response has developed to a 47% response (from 41% at the last update), just shy of a partial response (PR).

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

0.0

(28.5)

(0.24)

0.0

N/A

N/A

12/21e

0.0

(35.7)

(0.29)

0.0

N/A

N/A

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

400mg readout in March, 500mg in Q2

Definitive evidence (or evidence of absence) of efficacy in the Phase Ib/II study of vecabrutinib remains elusive and the waiting continues, but we appear to be close to concrete answers surrounding the potential efficacy of the drug. Although there has been limited efficacy data to date, the 47% tumor burden reduction in an ongoing 300mg patient is highly suggestive that the drug is active. Although it is just shy of a PR, this is unlikely to have been a spontaneous response, especially considering that the patient’s response continues to develop. The upcoming release of data on the 400mg cohort will be on three CLL patients

500mg cohort over-enrolling at physician request

One of our concerns has been that progress in the development of other non-covalent BTK inhibitors (such as ARQ 531 from ArQule) would have a negative impact on enrolment in the vecabrutinib study. We are pleased therefore that the company reported that the 500mg cohort is over-enrolling: six patients have passed the safety evaluation period (six is the number specified in the protocol), but more are being evaluated for enrolment at the request of investigators, who have identified additional patients interested in the study. Of those enrolled to date, two patients have progressed and four remain on treatment.

Deals made for TAK-580 and vosaroxin

During the last quarter the company signed two licensing deals. After an agreement with Takeda, it transferred the rights for TAK-580 to DOT Therapeutics, which paid $2m upfront, with $57m in downstream precommercial milestones and royalties on sales. Also, the company licensed vosaroxin to Denovo Biopharma for $0.2m upfront and $57m in commercial and regulatory milestones and royalties.

Valuation: Lowered to $238.7m or $1.94/diluted share

We have lowered our valuation to $238.7m or $1.94 per diluted share, from $257m or $2.08 per diluted share. This is driven primarily by a reduced valuation for TAK-580 ($6m from $21m). The company ended 2019 with $29.2m in net cash.

Progress but no payout

Sunesis continues to advance its Phase Ib/II clinical study for vecabrutinib by enrolling patients in its dose escalation. The trial is fully enrolled at this point with six patients in the highest planned dosing cohort (although there is little preventing them from escalate to even higher doses through a protocol amendment if needed). The most recent update did not provide additional efficacy data since the last (December 2019) update on the 300mg cohort, aside from the fact that one patient in the 300mg cohort who was previously reported to have a 41% tumor burden reduction response has continued to show further improvement into a 47% tumor burden reduction response. This is just shy of the 50% cut-off for considering the patient to show a PR. The patient is currently on his eighth cycle. The fact that this patient has responded and continues to respond to treatment is very encouraging, because it is unlikely that such a continued and improving response would occur spontaneously, especially in the heavily pre-treated population that this study is enrolling. Although we note that without multiple instances of patients responding to treatment, we cannot definitively rule this (likelihood of spontaneous reduction) out.

We are also encouraged that patients and investigators continue to be interested in the study as evidenced by the over-enrolment in the highest (500mg) cohort. We are avoiding speculation that this is indicative of anything other than continued confidence in the study, but we are pleased to see that there seem to be few issues identifying new patients.

The company will report initial data from the 400mg cohort by the end of March 2020, and data from the 500mg cohort in Q220. If there is definitive evidence of efficacy, we expect the study enrolment to expand for the Phase II portion of the trial, with a planned enrolment of 120 patients. We expect to update our assumptions following these data releases.

The company also announced some progress in its preclinical-stage SNS-510 program, suggesting it had seen interesting data when examining the activity of the drug in various combinations. It mentioned inhibitors of CDK4/6, KRAS G12C and BCL2 in cell lines of breast cancer, KRAS-mutant and lymphoma respectively. This research follows up the findings presented in October 2019 on genetic biomarkers predicting activity with SNS-510. We hope to hear more regarding these combination data in the future as they might be indicative of future directions for the program.

Licensing deals for TAK-580 and vosaroxin

Over the last period the company was able to realize some value from two of its lower priority assets. The pan-Raf inhibitor TAK-580 was investigated at Takeda for a range of tumors in multiple combination therapies, and later in a focused study on pediatric glioma. In December 2019, Sunesis agreed to Takeda assigning TAK-580 to DOT Therapeutics, and Sunesis then out licensed its global TAK-580 rights to DOT Therapeutics, which paid Sunesis $2m upfront and could further pay Sunesis up to $57m in precommercial milestones and royalties downstream. We view it as a positive that the company was able to realize some value out of this program. However, we are tempering our expectations for TAK-580 given Takeda’s decision to divest the asset. We have very little information regarding DOT Therapeutics, but expect to learn more regarding the program and this company in future.

The company was also able to license its legacy asset vosaroxin to Denovo Biopharma for $0.2m in cash and $57m in commercial and regulatory milestones and royalties. Although the upfront payment is small for this asset, we previously attached no value to the program outside of such a partnership. Additionally, Denovo is pursuing a biomarker-based approach in which patients are pre-screened for drug activity before dosing, which may alleviate some of the limitations encountered for vosaroxin in clinical trials.

Valuation

We have lowered our valuation to $238.7m or $1.94 per diluted share, from $257m or $2.08 per diluted share. This is driven primarily by a reduced valuation for TAK-580 ($6m from $21m), because we have lowered the probability of success for the program to 5% from 10%. Our probability of success is lower because the divestment from Takeda is indicative of potential downward revisions to the viability of this asset. Moreover, we expect DOT Therapeutics to have substantially fewer resources to advance the drug. We still model the drug being advanced for pediatric glioma in the absence of any additional information from the new sponsor, but may change this in the future. Additionally, our unallocated costs have increased slightly to $22m from $16m to reflect current trends and we include lower net cash ($29.2m from $32.8 last quarter), and these factors are offset by rolling forward our NPVs.

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

5%

2025

500,000

600

2032

10%

$6

Vecabrutinib

Phase Ib/II

Proprietary

20%

2024

152,000

666

2034

55%

$199

SNS-510

IND ready

Proprietary

10%

2025

130,000

344

2031

51%

$26

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

($22)

Total

 

 

 

 

 

 

 

 

210

Net cash and equivalents (YE19) ($m)

29.1

Total firm value ($m)

238.7

Total basic shares (m)

111.4

Value per basic share ($)

$2.14

Convertible Pref stock (m)

19.7

Total diluted shares (m)

131.1

Value per diluted share ($)

1.94

Source: Sunesis Pharmaceuticals reports, Edison Investment Research

Financials

Sunesis reported operational expenses of $25.4m for 2019. However, these were offset by revenue recognized through its licensing deals signed at the end of the year, and the company recorded $2.07m in revenue for the year. It ended the period with $34.6m in gross cash ($29.1m net after $5.5m in notes payable), which we expect to be sufficient for the company for 2020 and the completion of vecabrutinib dosing. We have increased the amount we expect the company to need to raise to reach profitability to $115m ($30m in 2021, $40m in 2022 and $45m in 2023) from $100m previously.

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

0

0

Cost of Sales

0

0

0

0

Gross Profit

237

2,073

0

0

Research and development

(14,615)

(15,412)

(17,480)

(20,878)

Selling, general & administrative

(11,332)

(9,949)

(10,505)

(11,820)

EBITDA

 

 

(25,719)

(23,288)

(27,985)

(32,697)

Operating Profit (before GW and except.)

 

(25,710)

(23,288)

(27,985)

(32,697)

Intangible Amortisation

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(25,710)

(23,288)

(27,985)

(32,697)

Net Interest

(905)

(42)

(467)

(3,029)

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(26,615)

(23,330)

(28,452)

(35,726)

Profit Before Tax (IFRS)

 

 

(26,615)

(23,330)

(28,452)

(35,726)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(26,615)

(23,330)

(28,452)

(35,726)

Profit After Tax (IFRS)

(26,615)

(23,330)

(28,452)

(35,726)

Average Number of Shares Outstanding (m)

35.6

87.1

117.0

122.2

EPS - normalised ($)

 

 

(0.75)

(0.27)

(0.24)

(0.29)

EPS - IFRS ($)

 

 

(0.75)

(0.27)

(0.24)

(0.29)

Dividend per share ($)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

124

918

10

19

Intangible Assets

0

0

0

0

Tangible Assets

11

3

10

19

Other

113

915

0

0

Current Assets

 

 

15,200

36,322

12,914

10,894

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

13,696

34,625

11,217

9,197

Other

1,504

1,697

1,697

1,697

Current Liabilities

 

 

(11,323)

(9,416)

(5,549)

(6,409)

Creditors

(3,927)

(3,951)

(5,549)

(6,409)

Short term borrowings

(7,396)

(5,465)

0

0

Long Term Liabilities

 

 

(8)

(281)

(5,746)

(35,746)

Long term borrowings

0

0

(5,465)

(35,465)

Other long term liabilities

(8)

(281)

(281)

(281)

Net Assets

 

 

3,993

27,543

1,629

(31,242)

CASH FLOW

Operating Cash Flow

 

 

(24,404)

(22,185)

(23,401)

(32,011)

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

0

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(18,061)

22,897

(23,408)

(32,020)

Opening net debt/(cash)

 

 

(24,546)

(6,300)

(29,160)

(5,752)

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)

(5,752)

26,268

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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