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Sunesis shines at ASH

Sunesis Pharmaceuticals 13 December 2016 Update

Sunesis Pharmaceuticals

Sunesis shines at ASH

Clinical update

Pharma & biotech

13 December 2016

Price

US$3.7

Market cap

US$77m

Net cash ($m) at September 2016

9.90

Shares in issue

20.9m

Free float

76%

Code

SNSS

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.3

(20.1)

(28.6)

Rel (local)

1.7

(20.5)

(32.3)

52-week high/low

US$6

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

Qinprezo Day 180 questions

December 2016

Qinprezo CHMP opinion

Spring 2017

SNS-062 Phase Ib/II start

Q117

TAK-580 Phase Ib/II results

2017

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 new data on SNS-062 as and Qinprezo at the American Society of Hematology (ASH) meeting in December 2016. The Phase Ia trial of SNS-062 was completed and the company reported positive food effect data as well as an expanded safety data set without significant adverse events. New results of the Qinprezo VALOR trial were presented, demonstrating a durable response in acute myeloid leukemia (AML) patients over 60 with a median follow-up of 39.9 months.

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

2.5

(38.4)

(2.45)

0.0

N/A

N/A

12/17e

1.7

(48.7)

(2.40)

0.0

N/A

N/A

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

SNS-062 profile looks good for advancement

The company is investigating SNS-062 for the treatment of chronic lymphocytic leukemia (CLL) and presented data at ASH on 12 new volunteers, which demonstrated that the drug lacks a significant food effect (unlike Imbruvica) and has a moderate CYP3A4 interaction. Importantly as well, adverse events were mild, improving the safety data set, and no instances of tachycardia (like in the first data set) were observed.

Other data at ASH illuminates Imbruvica resistance

A presentation at ASH gave more detail into the rates of progressive CLL following treatment with Imbruvica, highlighting the potential utility of SNS-062. In the study of 308 patients from Imbruvica clinical trials, 55 of the 136 patients available for follow-up after 40.5 months had progressive CLL. Of these 76% of the patients available for genetic testing had C481 mutations, conferring resistance to Imbruvica, establishing this as the primary mechanism of resistance.

Qinprezo provides a durable benefit

The company also presented additional follow-up data from the patients on the Phase III VALOR trial in AML, which showed a durable survival benefit in patients over 60. Additionally, the survival benefit appears to be independent of subsequent hematopoietic cell transplantation. We believe that both of these factors strengthen the application package for EMA approval in spring 2017.

Valuation: $217m or $10.40 per basic share

We have increased our valuation to $217m from $194m, although the value per share has dropped to $10.40 per basic share ($8.36 diluted) from $13.36 ($10.72) as a result of the dilution from the $26m offering in October 2016. Following the offering, we estimate the company had approximately $35m in cash and equivalents, which we expect to finance the company through 2017. We expect hat that company will need an additional $65m to reach break-even in 2021.

ASH update

SNS-062 Phase Ia complete

Sunesis released expanded results from the ongoing Phase Ia study of SNS-062 for the treatment of chronic lymphocytic leukemia (CLL) at the American Society of Hematology (ASH) meeting in December 2016. SNS-062 is an inhibitor of Bruton’s tyrosine kinase (BTK), a protein important for the activation and proliferation of B-cells. This mechanism has been validated by the success of Imbruvica (ibrutinib, Janssen/AbbVie), which had sales of approximately $850m in Q316. Unlike Imbruvica, SNS-062 does not form a covalent bond with the protein and is active in patients with the C481S mutation that confers resistance to covalent inhibitors.

The company previously reported the results from the dose ranging portion of the study in healthy volunteers (see our previous report), which reported on the safety and anti-BTK activity in 32 heathy volunteers receiving either SNS-062 or placebo. In short, these results showed 85% or greater inhibition of BTK activity at all doses (50mg to 300mg) for at least 12 hours following administration. 33% of patients who received active drug had an adverse event, 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.

The current results expanded on this data set by examining the effect of food as well and drug interactions. In the food-effect study, 24 volunteers were given 200mg of SNS-062 in either a fed or fasted state. Food delayed the absorption of SNS-062 by approximately two hours, although the total abortion (as measured by the area under the curve, AUC) and elimination of the drug were unchanged (Exhibit 1). By comparison, Imbruvica shows a two- to four-fold increase in peak concentration and a two-fold increase in AUC when given with food. These results suggest that SNS-062 may be able to provide more consistent inhibition of BTK and therefore avoid the over- and under-dosing that Imbruvica is susceptible to.

Exhibit 1: Food effect of SNS-062

Source: Sunesis Pharmaceuticals

The effect of the Cytochrome p450 3A4 (CYP3A4) inhibitor itraconazole was also measured. A large number of drugs are metabolized in the body through CYP3A4 dependent pathways, and inhibitors of this enzyme can significantly increase the effect of certain drugs. Moreover, a large number of pharmaceuticals as well as some naturally occurring molecules in food are inhibitors of this enzyme. The drug interaction study investigated 24 volunteers who received 25mg of SNS-062 in combination with itraconazole and found that the peak concentration of SNS-062 was increased approximately two-fold and the total exposure (AUC) was increased seven-fold. This indicates that the drug is indeed degraded by CYP3A4, and care should be taken by patients to avoid these interactions. We do not see this necessarily as a limitation for the success of this program considering that this is a relatively common finding, especially among drugs used to treat cancer, including Imbruvica.

The adverse event profile observed in these newest arms to the study were largely similar to what has been previously observed. Of note is that although a single case of asymptomatic supraventricular tachycardia was seen in the highest dose from the previous results, this event has not been subsequently observed.

The importance of developing therapies to address the emergent problem of ibrutinib resistance was highlighted at the ASH meeting. The role of C481 mutations in progressive CLL has been established, but there were a number of reports linking this mechanism to other hematologic malignancies such as diffuse large B cell lymphoma and Waldenstrom’s macroglobulinemia. Another poster at the conference presented the results of the follow-up of 308 patients who were enrolled in clinical studies of Imbruvica in CLL.1 Of the 136 patients evaluable at the time of the report (40.5 months median follow-up), 55 had progressive CLL. 36 of the 46 patients (76%) evaluable for DNA sequencing had C481 mutations.

  Woyach JA, et al, the Development and Expansion of Resistant Subclones Precedes Relapse during Ibrutinib Therapy in Patients with CLL, Am. Soc. Hem. 2016 Annual Meeting.

Qinprezo shows durable effects

The company also released an updated survival analysis of patients from the VALOR study of Qinprezo (vosaroxin) for the treatment of acute myeloid leukemia (AML). The company reported the overall survival (OS) of patients 60 years and older treated with Qinprezo and cytarabine has maintained superiority over placebo and cytarabine with a median follow-up time of 39.9 months (Exhibit 2).

Exhibit 2: Extended OS data for Qinprezo + cytarabine

Source: Sunesis Pharmaceuticals

Importantly the company also released an analysis of the effect of subsequent transplantation on the survival of patients over 60 (Exhibit 3). The analysis found that Qinprezo improved survival regardless of whether a patient was followed up with hematopoietic cell transplantation (HCT). This analysis is important because the approval of Vidaza and Dacogen in Europe depended on an analysis of the effect of subsequent therapy in both cases, because subsequent treatments such as HCT often reduced the separation between drug and placebo. Sunesis did not release a complete statistical analysis of the data, but we find the fact that a treatment effect is apparent both with and without transplantation as supportive.

Exhibit 3: Effect of HCT on OS with Qinprezo + cytarabine

Source: Sunesis Pharmaceuticals

Timelines looking forward

The most prominent near-term catalyst for Sunesis is the completion of the EMA application process. The company is scheduled to receive the Day 180 set of outstanding questions by the end of 2016, at which point the company will have up to three months to respond, followed shortly by a CHMP opinion. This puts the approval decision for Qinprezo around the end of Q117. Another catalyst is the initiation of the Phase Ib/II study of SNS-062, which we expect in early 2017 following IND approval. And finally, we expect a readout from the TAK-580 Phase Ib dose ranging study being performed by Takeda in 2017. TAKI-580 is being investigated in combination with an array of other agents (including nivolumab, paclitaxel, irinotecan, etc) for the treatment of solid tumors. Data from this program was initially expected sooner in 2016, but due to delays given the manifold nature of the study, with many combinations and indications, dosing has taken longer than expected.

Valuation

We have increased our valuation to $217m from $194m, although the value per share has dropped to $10.40 per basic share ($8.36 diluted) from $13.36 ($10.72) as a result of the October 2016 offering of shares ($26m for 5.7m common stock and preferred stock convertible into 1.6m shares). The increase in valuation is attributable to an increase in net cash (from $18.8 to $35.8m including the value of the offering) and advancing our NPVs to the most recent quarter. We are not adjusting any of our sales or risk assumptions at this point.

Exhibit 4: 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)

Qinprezo, Rel/Ref AML EU

MAA submitted

Partnered

60%

2017

53,000

190

2027

30%

$62

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%

$81

SNS-229

Preclinical

Proprietary

5%

2022

101,000

320

2031

44%

$5

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

($61)

Total

 

 

 

 

 

 

 

 

$181

Net cash and equivalents (Q316 + offering) ($m)

$35.8

Total firm value ($m)

$217.1

Total basic shares (m)

20.9

Value per basic share ($)

$10.40

Convertible Pref stock (m)

4.9

Warrants (m)

0.3

Total diluted shares (m)

26.1

Value per diluted share ($)

$8.36

Source: Edison Investment Research, Sunesis Pharmaceuticals reports

Financials

Sunesis reported an operational loss of $8.5m for Q316, with the majority of the expense associated with R&D ($5.3m), although this is a reduction from previous quarters ($6.2m in Q1 and $6.6 in Q2). We have slightly increased our 2016 spending estimates by $1.2m to $39.5m because SG&A cost control was lower than expected for Q3 ($3.9m). The company ended the quarter with $24.3m in cash and investments, offset by $14.4m in debt, which was subsequently supplemented with the $26m offering in October. The company has stated that the offering will go towards regulatory filings for Qinprezo, development of SNS-062, and general purposes. We have adjusted our future financing schedule in light of the recent offering and reduced the funding requirement from $95m to $65m: $10m in 2017, $20m in 2018, and $35m in 2020, in addition to the $87.5m in approval and sales milestones we model ($37.5m for TAK-580 approval, $50m in Qinprezo licensing payments and milestones).

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

2,470

1,697

Cost of Sales

0

0

0

0

(3,353)

Gross Profit

7,956

5,734

3,061

2,470

(1,656)

Research and development

(28,891)

(27,665)

(23,701)

(24,201)

(29,536)

Selling, general & administrative

(10,838)

(23,112)

(18,662)

(15,303)

(15,762)

EBITDA

 

 

(31,701)

(41,312)

(35,764)

(36,895)

(46,958)

Operating Profit (before GW and except.)

(31,681)

(41,283)

(35,737)

(36,886)

(46,954)

Intangible Amortisation

0

0

0

0

0

Exceptionals/Other

0

0

0

0

0

Operating Profit

(31,681)

(41,283)

(35,737)

(36,886)

(46,954)

Net Interest

(2,917)

(1,719)

(939)

(1,554)

(1,760)

Other (change in fair value of warrants)

0

0

0

0

0

Profit Before Tax (norm)

 

 

(34,598)

(43,002)

(36,676)

(38,439)

(48,713)

Profit Before Tax (IFRS)

 

 

(34,598)

(43,002)

(36,676)

(38,439)

(48,713)

Tax

0

0

0

0

0

Deferred tax

0

0

0

0

0

Profit After Tax (norm)

(34,598)

(43,002)

(36,676)

(38,439)

(48,713)

Profit After Tax (IFRS)

(34,598)

(43,002)

(36,676)

(38,439)

(48,713)

Average Number of Shares Outstanding (m)

8.7

10.0

12.2

15.7

20.3

EPS - normalised ($)

 

 

(3.97)

(4.30)

(3.02)

(2.45)

(2.40)

EPS - IFRS ($)

 

 

(3.97)

(4.30)

(3.02)

(2.45)

(2.40)

Dividend per share ($)

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

33

42

14

5

1

Intangible Assets

0

0

0

0

0

Tangible Assets

23

42

14

5

1

Other

10

0

0

0

0

Current Assets

 

 

40,492

44,204

46,988

43,657

8,466

Stocks

0

0

0

0

0

Debtors

0

0

0

0

0

Cash

39,293

42,981

46,430

42,817

7,626

Other

1,199

1,223

558

840

840

Current Liabilities

 

 

(25,858)

(19,395)

(12,728)

(6,251)

(7,313)

Creditors

(16,840)

(10,138)

(4,894)

(2,501)

(2,313)

Short term borrowings

(9,018)

(9,257)

(7,834)

(3,750)

(5,000)

Long Term Liabilities

 

 

(12,737)

(2,563)

(610)

(10,719)

(15,719)

Long term borrowings

(9,025)

0

0

(10,606)

(15,606)

Other long term liabilities

(3,712)

(2,563)

(610)

(113)

(113)

Net Assets

 

 

1,930

22,288

33,664

26,692

(14,565)

CASH FLOW

Operating Cash Flow

 

 

(37,423)

(43,181)

(38,731)

(36,325)

(41,441)

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

25,955

0

Dividends

0

0

0

0

0

Other

0

0

0

0

0

Net Cash Flow

(24,853)

13,048

5,095

(10,370)

(41,441)

Opening net debt/(cash)

 

 

(46,966)

(21,250)

(33,724)

(38,596)

(28,461)

HP finance leases initiated

0

0

0

0

0

Exchange rate movements

0

0

0

0

0

Other

(863)

(574)

(223)

235

0

Closing net debt/(cash)

 

 

(21,250)

(33,724)

(38,596)

(28,461)

12,980

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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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

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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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