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).
Written by
Sunesis Pharmaceuticals |
Multiple upcoming readouts on vecabrutinib |
Earnings update |
Pharma & biotech |
12 March 2020 |
Share price performance
Business description
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Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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 |
|||||||
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 |
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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
|
|
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