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

healthcare@edisongroup.com

Edison profile page

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

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