Sunesis Pharmaceuticals

Progressing with EMA and pipeline

Quarterly update

Pharma & biotech

3 August 2016

Price	US$0.69
Market cap	US$60m

Net cash ($m) 30 June 2016		18.8

Shares in issue	87.0m
Free float	53%
Code	SNSS

Primary exchange	NASDAQ
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	25.5	36.6	(49.6)
Rel (local)	22.3	31.8	(51.0)

52-week high/low

US$1.47

US$0.450

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. Sunesis has also developed SNS-062, a BTK inhibitor for CLL for Imbruvica refractory patients, currently in Phase Ia.

Next events

TAK-580 Phase Ib/II results	Q316
SNS-062 Phase Ia results	September 2016
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

healthcare@edisongroup.com

Edison profile page

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

On 29 July 2016, Sunesis announced financial results for Q216 and provided updated guidance on the Qinprezo and SNS-062 development programs. The company reported a net loss of $10.4m for the quarter on the back of $6.6m in R&D spending. It also announced that it had met the EMA to clarify some of the questions submitted as part of the Qinprezo MAA process. Additionally, Sunesis announced that the first clinical trial data on BTK inhibitor SNS-062 will be released at a medical conference in September 2016.

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	(37.0)	(0.42)	0.0	N/A	N/A
12/17e	1.7	(49.1)	(0.53)	0.0	N/A	N/A

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

Company met EMA about application questions

The three-month minimum clock stop for the MAA has passed and we expect Sunesis to respond in the coming months. The meeting with the EMA to clarify the questions asked in the process is not surprising given that previous approvals for AML in Europe have not been made on the typical intent-to-treat analyses due to the severity of the disease and lack of treatments.

Target: European partner at time of CHMP opinion

Sunesis has stated that it is seeking a partner for commercialization of Qinprezo in Europe and to support the further development of the drug beyond the initial relapsed and refractory elderly AML indication. The company has said it is in negotiations with multiple partners, with discussions at the due diligence stage. It is targeting an announcement at or around the CHMP opinion expected in H117.

SNS-062 first in human data in September 2016

Sunesis’s BTK inhibitor SNS-062 is currently in a Phase Ia dose ranging study in healthy humans, and Sunesis has announced that initial results from the study will be reported at an ESH medical conference on 9-11 September 2016. These results will inform the design of the Phase Ib/II study planned to start around the end of 2016.

Valuation: $153.8m or $1.77 per basic share

We have slightly decreased our valuation to $153.8m or $1.77 per basic share ($1.42 per diluted share), from $156.2m or $1.80 per basic share ($1.46 per diluted share). The decrease reflects a lower net cash balance for Q216 ($18.8m) and a slight increase in our R&D spending assumptions ($24m from $23m for FY16). This is offset by rolling over our NPVs to Q216. We maintain that Sunesis will need $95m in additional financing to reach profitability in 2021. We will likely update our valuation based on the EMA decision and the conclusion of the European partnering process.

Steady progress on European application and partner

On 29 July 2016 Sunesis provided a corporate update and the Q216 financial results. The company is at a critical juncture as it advances the Qinprezo MAA for acute myeloid leukemia (AML) in Europe and courts potential partners for its commercialization there.

As of the end of July 2016, the application is more than three months into the first question and answer phase of the application (day-120 questions), and the company is still preparing its response to the EMA. The minimum clock stop for this stage is three months, so we should expect the company to submit a response to the EMA in the coming months.

Sunesis announced that as part of this process it has met with the EMA for clarification regarding its requests, but did not provide specific guidance on the timeline for the submission. This may reflect some of the complexities associated with this application. Only two drugs (Vidaza and Dacogen) have been approved for AML in Europe in the last decade, both of which, similar to Qinprezo, did not show a statistically significant survival benefit in the intent-to-treat population of their clinical trials. These approvals rested on the analysis of subsets of patients stratified by risk factors and other treatments. The EMA’s willingness to consider these analyses is somewhat of a special situation due to the severity and lack of viable treatment options for AML.

Concurrently with the EMA question and answer process, the company has been seeking a European partner “who is motivated, well resourced, and experienced,” according to management. Additionally it announced on the conference call that it has advanced to the due diligence stage of negotiation with several partners. The company is targeting a partnership at or around the time of the CHMP decision on Qinprezo.

Finally, the company provided an update on the progress of the development of its Bruton's tyrosine kinase (BTK) inhibitor SNS-062 for the treatment of B-cell malignancies. The drug is currently in a Phase Ia dose escalation study in healthy volunteers. The company announced that it expects the first series of results to be presented at the European School of Haematology (ESH) New Concepts in B-cell Malignancies meeting on September 9th to 11th, 2016. Additionally, if an appropriate dose can be found, the company expects to initiate a Phase Ib/II study around the end of 2016.

Financial results and forecasts

Sunesis reported a net loss of $10.4m for the quarter ending in June 2016, corresponding to an operational cash burn of $9.4m. This spending rate is a slight reduction on a sequential basis from Q116 ($10.7m), but very close to the average for the four previous quarters ($9.4m). SG&A spending continues to decrease on a sequential basis ($4.0m vs $4.3m in Q116), reflecting a pullback that has been in effect since mid-2015 following the decision to focus approval efforts for Qinprezo in Europe. R&D spending was $6.6m for the quarter, which is a slight increase over Q116 ($6.2m) and likely reflects the initiation of the SNS-062 Phase Ia clinical study in healthy volunteers that occurred in late March 2016. This R&D spending was slightly higher than our predictions, and we have adjusted our estimates for the year to $24m from $23m with a smaller increase in later years.

The company completed the note offering initiated in March 2016 and received the final payment of $2.5m (out of the total of $15m) associated with the transaction. Repayment of this debt will begin in Q217 over the subsequent 36 months, which is reflected in our forecasts. The proceeds of the loan were used to repay $8m in previous debt and interest, providing a net (after offering costs) $6.8m toward operations. The company ended the quarter with $33m in cash and investments, which management guided should be sufficient to finance operations through mid-2017.

We currently forecast that the company will require an additional $95m in financing to reach profitability in 2021 ($30m in 2017, $30m in 2018, and $35m in 2020). This financing requirement is in addition to the $87.5m in approval and sales milestones we currently model over this period ($37.5m for TAK-580 approval, $50m in Qinprezo approval and sales milestones). We currently record this financing as illustrative debt in our models.

Valuation

We have slightly decreased our valuation to $153.8m or $1.77 per basic share ($1.42 per diluted share), from $156.2m or $1.80 per basic share ($1.46 per diluted share). This reduction reflects lower net cash ($18.8m vs $28.3m) compared to Q116 and the increase in near-term R&D spending. These effects are offset by rolling over our NPV calculations to Q216. Otherwise, our valuation calculations remain unchanged, as other factors are in line with our expectations. The total number of dilutive shares has been increased to reflect the 1.2m warrants issued with the March 2016 notes. These warrants are currently in the money with an exercise price of $0.5409. We may update our valuation in the future to reflect the progress of the Qinprezo MAA or partnering discussions, as well as following the presentation of SNS-062 Phase Ia data.

Exhibit 1: 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 Ia	Proprietary	10%	2022	152,000	605	2034	45%	$38
SNS-229	Preclinical	Proprietary	5%	2022	101,000	320	2031	44%	$5
Unallocated costs (discovery programs, administrative costs, etc.)									($61)

Total									$135
Net cash and equivalents (Q216) ($m)									$18.8
Total firm value ($m)									$153.8
Total basic shares (m)									87.0
Value per basic share ($)									$1.77
Convertible Pref stock (m)									20.2
Warrants (m)									1.2
Total diluted shares (m)									108.5
Value per diluted share									$1.42

Source: Edison Investment Research, Sunesis Pharmaceuticals reports

Exhibit 2: 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 Amortization		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)		52.2	60.1	72.9	87.9	91.9
EPS - normalised ($)		(0.66)	(0.72)	(0.50)	(0.42)	(0.53)
EPS - IFRS ($)		(0.66)	(0.72)	(0.50)	(0.42)	(0.53)
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

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

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

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

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

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

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

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New Zealand

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