Sunesis Pharmaceuticals

EHA data released

Clinical update

Pharma & biotech

24 June 2019

Price	US$0.62
Market cap	US$45m

Net cash ($m) at 31 March 2019		18.8

Shares in issue	72.5m
Free float	97.5%
Code	SNSS

Primary exchange	NASDAQ
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	(45.4)	(35.7)	(71.4)
Rel (local)	(47.0)	(37.8)	(73.4)

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US$2.45

US$0.24

Business description

Sunesis Pharmaceuticals is a pharmaceutical company focused on oncology. Its lead asset is vecabrutinib, a Bruton’s tyrosine kinase inhibitor for chronic lymphocytic leukemia for Imbruvica-refractory patients. The program is entering a dose-escalation Phase Ib/II. It has also developed TAK-580 with partner Takeda, and the preclinical PDK1 inhibitor SNS-510.

Next events

Vecabrutinib dosing complete

H219

Analyst

Nathaniel Calloway

+1 646 653 7036

healthcare@edisongroup.com

Edison profile page

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

Sunesis provided an update at the European Hematology Association (EHA) meeting on its ongoing Phase Ib/II study of vecabrutinib in patients with B-cell malignancies, providing detailed data on the first three cohorts (25mg, 50mg and 100mg). The data were consistent with previous reports: no safety red flags were observed, and there were indications of activity. The data did not show partial responses or better at the current dose, but four patients (of 20) demonstrated stable disease, including three out of five evaluable CLL patients with C481S mutations.

Year end	Revenue ($m)	PBT* ($m)	EPS* ($)	DPS ($)	P/E (x)	Yield (%)
12/17	0.7	(35.5)	(1.45)	0.00	N/A	N/A
12/18	0.2	(26.6)	(0.75)	0.00	N/A	N/A
12/19e	0.0	(28.6)	(0.39)	0.00	N/A	N/A
12/20e	0.0	(33.2)	(0.43)	0.00	N/A	N/A

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

Dosing to continue

The data from the latest release continue to be consistent with an active drug dosed below its efficacy threshold. Vecabrutinib effectively binds its target BTK and reduces the formation of phosphorylated BTK (pBTK), and this translates into an inhibition of serum cytokines. Moreover, the activity of the drug appears to correlate in patients with higher C481S mutation frequency, suggesting that it is effective in evading this resistance mechanism. However, we expect more robust clinical responses to be found in higher doses.

No surprises in safety

The safety data from the latest release are roughly similar to those we have seen previously for the drug: the majority of adverse events (AEs) were hematologic in nature, as expected with this patient population. The GI profile continues to look attractive compared to Imbruvica. Although we expect the rate of AEs to increase with higher doses, we are not seeing any red flags at this time.

The drug class advances

ArQule also released data from the dosing study of its non-covalent BTK inhibitor ARQ-531 at the EHA meeting. Multiple patients had partial responses including four of six evaluable C481S CLL patients. Although ArQule and Sunesis may be future competitors, at this stage we view the positive ArQule data as a validation of this drug class and the strategy of using non-covalent BTK inhibitors for this resistant population. We expect increasing interest in this class as a whole going forward.

Valuation: $244m or $2.94 per diluted share

Our valuation has increased by a small amount to $244m or $2.94 per diluted share from $241m or $2.92 previously, due to advancing our NPVs and offset by lower net cash. We have not adjusted our probability of success for vecabrutinib at this time, but the new data increase confidence in our assumptions.

Dosing keeps marching along

Sunesis provided an interim update on the data from its ongoing Phase Ib/II study of vecabrutinib for the treatment of B-cell malignancies at the EHA annual meeting in June 2019. Vecabrutinib is a non-covalent inhibitor of Bruton’s tyrosine kinase (BTK), similar to the standard-of-care drug Imbruvica (ibrutinib), but with potential activity in resistant patients. The non-covalent nature of vecabrutinib allows it to bind to BTK harbouring cysteine-481 (C481) mutations, which are presumed to be a major Imbruvica resistance mechanism. The drug is being tested for a range of B-cell cancers but, given the prevalence and treatment patterns, we expect chronic lymphocytic leukemia (CLL) to be the most important indication clinically and commercially, and a majority of patients on this study had this disease (19/23). All patients enrolled in the study had prior BTK therapy, as well as multiple other treatments.

The clinical study is in the dose-escalation period, and patients have been enrolled in the first four dosing cohorts (25mg, 50mg, 100mg and 200mg), but only enrolment data were provided for the highest dose cohort. The data provided an activity assessment of the first three cohorts, the most detailed look to date into the potential efficacy of this drug. Cohorts 1–3 enrolled 20 patients total, four of whom achieved a stable disease – all CLL patients, three of whom had C481S mutation. The C481S patient with the strongest response (47% decrease in lesion size) was also one of two evaluable patients who was previously treated with Venclexta (venetoclax, AbbVie/Roche). This observation is important because Venclexta is becoming established as a treatment following Imbruvica progression, and recently received approval for first-line CLL in May 2019. Additionally, one patient with Waldenstrom macroglobulinemia (WM) showed a clinical benefit. All of these data are important because they are the first signs of efficacy we would expect with an active drug, suggesting that vecabrutinib is clinically active in these populations.

Interestingly, the activity of the drug appears to scale with the allelic frequency of the C481 mutation. The company provided a brief analysis of the patients with a C481S mutation on the study, showing that those with more copies of the mutation (the variant allelic frequency VAF) had more pronounced responses to the drug (Exhibit 1). All the patients on the study previously progressed on another BTK inhibitor, and these data suggest that those whose progression is driven by a C481 mutation can potentially be treated with vecabrutinib (and likewise if it is not the driving factor, these patients may be harder to treat). The company’s own enrolment data continue to support this as a major resistance mechanism, with the mutation present in 61% of patients examined.

Exhibit 1: Change in lesion size vs C481S allelic frequency

Source: Sunesis. Note: SPD = sum of the product of the (lesion) diameters. VAF = variant allelic frequency.

We would expect these responses to become more pronounced as the dosing of the drug continues. The company provided pharmacokinetic data on the first three cohorts, together with some data showing that plasma exposure is linear over the range investigated (Exhibit 2). The company provided data that showed that the plasma Cmin (the lowest concentration before readministering the drug) in the 100mg cohort was 873ng/mL (from the four evaluable patients), which is short of the 1,000ng/mL threshold the company expects to be necessary for sufficient clinical activity. However, the linearity of these observations suggests that higher doses will likely yield higher exposures. We therefore expect more robust demonstrations of efficacy in the forthcoming higher doses.

Exhibit 2: Vecabrutinib Cmin plasma concentrations

Source: Sunesis. Note: Cmin plasma concentrations for 25mg (n=3), 50mg (n=10) and 100mg (n=4), respectively.

Although the clinical study has not yet reached dosing levels with pronounced clinical remissions, the data are supportive of clinical activity. In addition to the response data provided, the company provided supportive pharmacodynamic data showing that the formation of pBTK was inhibited (average 81% after the first dose and 80% at the end of the first cycle) and that chemokine production was widely inhibited, as would be expected with an active BTK inhibitor. We expect this to continue to develop into clinical responses as the clinical program progresses.

Safety update

The data presented at EHA provided the most up-to-date glimpse of the safety profile of the drug. The profile was largely consistent with previous reports, the most common treatment emergent adverse events (TEAEs) being hematologic in nature (anaemia 40%, neutropenia 30%, etc), which is to be expected in this patient population. GI adverse events continue to be uncommon (nausea 15%, diarrhea 10%, constipation 10%), compared to what is seen for Imbruvica (51% diarrhea, 31% nausea, 25% constipation, etc). Additionally, there were no serious adverse events that were deemed study related (out of a total of eight). This safety profile may continue to progress with higher doses, but currently there are no red flags.

Where do we stand now?

Unfortunately absent from the EHA poster are any definitive efficacy data that signal the viability of this drug in the clinic, such as partial or complete responses. However, it is worth noting that everything that has been observed to date is consistent with an active drug, and the absence of this evidence is in no way evidence of absence. It is encouraging to see early signs of efficacy such as an impact on cytokines at these doses, as well as pharmacokinetic data suggesting that the drug can continue to be dosed at higher concentrations.

These data arrive in the backdrop of increasing prominence for non-covalent BTK inhibitors as a class. There were also presentations at EHA for both Aptose’s and ArQule’s non-covalent BTK inhibitors. The Aptose presentation was on preclinical data, but quickly follows the recent initiation of the company’s own Phase I CLL study in May 2019. The ArQule drug, also in a Phase I dosing study, showed multiple patients with partial responses, including four out of six CLL patients in the current dosing arm. Although ArQule is ostensibly in competition with Sunesis, we view these data as validation of this class of molecule, and supportive of potential efficacy for vecabrutinib, given their shared mechanisms. Moreover, these results serve to promote the class as a whole, which may improve downstream valuations as awareness of their utility increases.

Valuation

Our valuation has increased by a small amount to $244m or $2.94 per diluted share, from $241m or $2.92 previously. The valuation was lifted by rolling forward our NPVs and offset almost completely by lower net cash ($17.6m at the end of Q119 vs $24.7m estimated previously).

We have not adjusted our vecabrutinib model at this time, although we find the data release encouraging and it confirms our current assessment. We expect to update our valuation for the molecule with the release of efficacy data at higher doses, which the company expects to share later in 2019.

Exhibit 3: 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)
TAK-580	Phase I/II	Licensed to Takeda	10%	2025	500,000	603	2032	15%	$20
Vecabrutinib	Phase Ib/II	Proprietary	20%	2023	152,000	666	2034	56%	$196
SNS-510	IND ready	Proprietary	10%	2025	130,000	344	2031	51%	$24
Unallocated costs (discovery programs, administrative costs, etc.)									($15)

Total									$225
Net cash and equivalents (Q119) ($m)									$18.8
Total firm value ($m)									$243.7
Total basic shares (m)									72.5
Value per basic share ($)									$3.36
Convertible pref stock (m)									11.4
Warrants and options (m)									4.3
Total diluted shares (m)									88.2
Value per diluted share ($)									$2.94

Source: Sunesis reports, Edison Investment Research.

Financials

The company reported Q119 financials largely within expectations. The operational loss for the period was $5.7m. We expect operating losses to increase in the coming quarters once the vecabrutinib study advances to the Phase II portion, and we currently forecast an operating loss of $28.1m for 2019. Our financing forecasts remain unchanged at this time, and we expect the company to require an additional $115m ($40m in 2020, $40m in 2021 and $35m in 2022) to complete its clinical program and reach profitability.

Exhibit 4: Financial summary

	$000s	2017	2018	2019e	2020e
Year end 31 December		US GAAP	US GAAP	US GAAP	US GAAP
PROFIT & LOSS
Revenue		669	237	0	0
Cost of Sales		0	0	0	0
Gross Profit		669	237	0	0
Research and development		(21,540)	(14,615)	(16,427)	(17,230)
Selling, general & administrative		(13,548)	(11,332)	(11,672)	(12,022)
EBITDA		(34,428)	(25,719)	(28,107)	(29,261)
Operating Profit (before GW and except.)		(34,419)	(25,710)	(28,098)	(29,252)
Intangible Amortisation		0	0	0	0
Exceptionals/Other		0	0	0	0
Operating Profit		(34,419)	(25,710)	(28,098)	(29,252)
Net Interest		(1,039)	(905)	(512)	(3,928)
Other (change in fair value of warrants)		0	0	0	0
Profit Before Tax (norm)		(35,458)	(26,615)	(28,610)	(33,180)
Profit Before Tax (IFRS)		(35,458)	(26,615)	(28,610)	(33,180)
Tax		0	0	0	0
Deferred tax		0	0	0	0
Profit After Tax (norm)		(35,458)	(26,615)	(28,610)	(33,180)
Profit After Tax (IFRS)		(35,458)	(26,615)	(28,610)	(33,180)

Average Number of Shares Outstanding (m)		24.5	35.6	74.0	77.3
EPS - normalised ($)		(1.45)	(0.75)	(0.39)	(0.43)
EPS - IFRS ($)		(1.45)	(0.75)	(0.39)	(0.43)
Dividend per share ($)		0.0	0.0	0.0	0.0

BALANCE SHEET
Fixed Assets		1,401	124	2	0
Intangible Assets		0	0	0	0
Tangible Assets		20	11	2	0
Other		1,381	113	0	0
Current Assets		32,933	15,200	7,814	17,750
Stocks		0	0	0	0
Debtors		0	0	0	0
Cash		31,750	13,696	6,215	16,151
Other		1,183	1,504	1,599	1,599
Current Liabilities		(8,901)	(8,789)	(1,435)	(1,494)
Creditors		(1,697)	(1,393)	(1,435)	(1,494)
Short term borrowings		(7,204)	(7,396)	0	0
Long Term Liabilities		(112)	(8)	(5,998)	(45,998)
Long term borrowings		0	0	(5,990)	(45,990)
Other long term liabilities		(112)	(8)	(8)	(8)
Net Assets		25,321	6,527	383	(29,742)

CASH FLOW
Operating Cash Flow		(36,142)	(24,404)	(24,709)	(30,057)
Net Interest		0	0	0	0
Tax		0	0	0	0
Capex		(26)	0	0	(7)
Acquisitions/disposals		0	0	0	0
Financing		32,930	6,343	18,634	0
Dividends		0	0	0	0
Other		0	0	0	0
Net Cash Flow		(3,238)	(18,061)	(6,075)	(30,064)
Opening net debt/(cash)		(28,153)	(24,546)	(6,300)	(225)
HP finance leases initiated		0	0	0	0
Exchange rate movements		0	0	0	0
Other		(369)	(185)	0	0
Closing net debt/(cash)		(24,546)	(6,300)	(225)	29,839

Source: Sunesis reports, Edison Investment Research

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United States

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

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