Sunesis Pharmaceuticals — A slight delay

The company provided an update of its ongoing Phase Ib/II clinical trial of vecabrutinib on its year-end FY17 conference call. The trial is currently in the dose escalation portion, examining between 25mg and 500mg twice a day, with plans to expand the study into Phase II once the appropriate dose is found. Progression may be triggered either when the maximum tolerated dose (MTD) or another lower dose with sufficient efficacy is found.

The company announced that in the second dosing cohort (50mg) a patient was unable to proceed due to an adverse event (AE). Whenever a patient is unable to continue treatment due to an AE that cannot be ruled out as non-drug related, this is counted as a dose-limiting toxicity (DLT). As a result, the 50mg cohort was expanded with three additional patients (the standard ‘3+3’ dose escalation trial protocol). Per the protocol, if an additional DLT is observed, 50mg will be considered above the MTD.

The company did not provide any additional detail on the nature or severity of the AE that triggered the withdrawal. We believe that it is premature to draw conclusions regarding the tolerability of the drug as the 3+3 trial design is crafted to adapt to unforeseen terminations of treatment. However, because additional patients will need to be enrolled in this arm, the company has delayed its guidance for completion of the dosing study to fall 2018 from mid-2018.

The company also mentioned that one patient in the 50mg cohort progressed before he or she could complete the study. This detail is not surprising given the severity of these patients and the fact that the 50mg dose is below the expected effective dose (100-300mg).

The company has also added additional clinical sites to the trial and expanded the enrolment criteria to include diffuse large B-cell lymphoma of the activated B-cell subtype (DLBCL-ABC) and follicular lymphoma (FL). This amendment was made to the clinical trial protocol in January 2018. The inclusion of these other indications should speed trial enrolment to help the company maintain the guidance toward completion in fall 2018. However, it may potentially complicate the evaluation of efficacy. Imbruvica is not currently approved for either of these cancers and it is therefore unlikely that these patients will harbour the C481S resistance mutation. This being said, Imbruvica has shown activity in the ABC subtype of DLBCL.1 Likewise, there are signals of activity in FL, but limited to particular genetic subtypes.2 The inclusion of these indications should not affect the interpretation of the dosing data and it should therefore increase the likelihood of delivering the Phase II dose on time. The main focus of the program is on patients with the C841S mutation, but vecabrutinib also has potential activity and is planned to also be examined in unmutated individuals. In addition, if any efficacy is seen in these new indications, the company could potentially include them in the expansion portion of the study.

At the American Society of Hematology annual meeting in December 2017, Sunesis presented some preliminary data from its first dosing cohort in the Phase Ib/II trial. It should be noted that the dose examined in the data (25mg twice a day) is 20 times lower than the maximum that will be examined on the study (500mg twice a day) and we expect a dose well below this will be moved forward. Of the three patients examined, two had C481S mutations. This is important because it provides additional confirmation in practice that a large fraction of patients developing Imbruvica resistance via this mechanism. This is in line with results obtained in other independent studies.3

These results did not provide any efficacy data, given its preliminary nature. However, the company was able to provide some pharmacologic data demonstrating that the drug was well absorbed and inhibited the generation of phosphorylated BTK (pBTK), the core mechanism of BTK inhibitors. It was found that even at this low dose, the drug effectively inhibited the enzyme and that this inhibition became more pronounced with repeated dosing (Exhibit 1). This provides additional evidence that the drug is working as designed, and is potent, even at this low dose. 85% inhibition of BTK has previously been identified as sufficient for clinical activity during studies of AstraZeneca’s BTK inhibitor Calquence (acalabrutinib).4

The study also provided some safety data: AEs included low grade headache, back pain, cytopenias and infection. It is hard to draw any conclusions regarding the safety of the drug at this point given the low dose. Cytopenias and infection are on-target AEs for this class and were common in trials of Imbruvica.

We have increased our valuation of Sunesis to $237.8m or $6.92 per basic share from $125.9m or $3.68 per basic share. We have decreased the federal corporate tax rate to 20% in accordance with the new US legislation. We have updated our launch pricing assumptions for SNS-510 from $101,000 to $130,000 and for TAK-580 to $146,000 from $138,000 to bring them in line with recent pricing trends for Zydelig (idelalisib, Gilead) and Tafinlar (dabrafinib, GSK) respectively. As previously, our pricing assumes a further 2% yearly growth in prices until launch. We have decreased our gross/net discount for vecabrutinib to 20% (from 30%) to bring it in line with our estimates for Imbruvica (ibrutinib, AbbVie/Janssen). Another factor affecting our valuation is the continued strong growth in Imbruvica market share, which has limited impact on our peak sales estimates but has lifted near-term sales estimates of Imbruvica-resistant patients. We have also advanced our NPVs to the most recent period and adjusted for new net cash. These effects are partially offset by a delay in our expected commercialization of SNS-510 given the company guidance to an IND filing in 2019.

The company reported results for year-end FY17 on 8 March 2018 and results were largely within our expectations. The company reported losses of $35.5m for the year, driven largely by $21.5m in R&D spending. This spending was slightly lower than previous years ($22.9m in 2016, $23.7m in 2015) largely because of the deprioritization of vosaroxin. We expect R&D spending to remain relatively steady ($20m in 2018) in the near term as the company progresses the ongoing vecabrutinib Phase Ib/II study. The company paid down and refinanced its debt, leaving $7.2m in notes payable (at 8.54%+LIBOR). Principal payments will start in October 2018, unless the company can raise at least $6.5m in additional capital from equity (which will delay principal payments until January 2019). We expect the company to require at least $135m in additional financing before profitability in 2023, which we record as illustrative debt ($25m, $20m, $30m, $40m and $20m in 2018-2022 respectively).