Sunesis Pharmaceuticals — Vecabrutinib not to progress, SNS-510 elevated

Sunesis Pharmaceuticals — Vecabrutinib not to progress, SNS-510 elevated

Sunesis announced on 23 June that it would not be advancing vecabrutinib to the Phase II portion of its Phase Ib/II study following the results from its highest dose (500mg) cohort. The cohort had three stable disease (SD) responses out of six patients enrolled in the cohort, and Sunesis determined that this level of activity was not sufficient to warrant advancing the program. The company will now refocus efforts on developing its PDK1 inhibitor SNS-510, for which it expects to file an IND by the end of 2020.

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Sunesis Pharmaceuticals

Vecabrutinib not to progress, SNS-510 elevated

Clinical update

Pharma & biotech

26 June 2020

Price

US$0.31

Market cap

US$35m

Net cash ($m) at 31 March 2020

23.4

Shares in issue

111.4m

Free float

59%

Code

SNSS

Primary exchange

NASDAQ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(28.2)

(31.4)

(51.0)

Rel (local)

(31.2)

(44.9)

(53.7)

52-week high/low

US$1.11

US$0.28

Business description

Sunesis Pharmaceuticals is a pharmaceutical company focused on oncology. Its lead asset is SNS-510, an inhibitor of PDK1 in preclinical studies for a range of solid and hematologic tumors. It recently discontinued the development program for its previous lead asset vecabrutinib. It has also developed pan-Raf inhibitor TAK-580, currently licensed to DOT Therapeutics.

Next events

SNS-510 IND filing

By year end FY20

Analyst

Nathaniel Calloway

+1 646 653 7036

Sunesis Pharmaceuticals is a research client of Edison Investment Research Limited

Sunesis announced on 23 June that it would not be advancing vecabrutinib to the Phase II portion of its Phase Ib/II study following the results from its highest dose (500mg) cohort. The cohort had three stable disease (SD) responses out of six patients enrolled in the cohort, and Sunesis determined that this level of activity was not sufficient to warrant advancing the program. The company will now refocus efforts on developing its PDK1 inhibitor SNS-510, for which it expects to file an IND by the end of 2020.

Year end

Revenue ($m)

PBT*
($m)

EPS*
($)

DPS
($)

P/E
(x)

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

(16.6)

(0.14)

0.0

N/A

N/A

12/21e

0.0

(19.9)

(0.16)

0.0

N/A

N/A

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

An unfortunate event, but moving forward

Vecabrutinib is the company’s non-covalent BTK inhibitor, which is being examined for the treatment of relapsed and refractory B-cell malignancies such as chronic lymphocytic leukemia (CLL). The aim was that the drug would show activity in patients who had progressed on previous covalent BTK therapy, such as Imbruvica (ibrutinib, AbbVie, Janssen). Three of six patients on the 500mg cohort had SD at the first response assessment (cycle 4), but one of these subsequently relapsed. In the end, one patient from the previous 300mg cohort developed a partial response (PR), but this was not sufficient to justify advancing the program to Phase II.

SNS-510 now on top

Sunesis will now refocus its efforts on the development of SNS-510, its PDK1 inhibitor currently in IND-enabling studies. PDK1 is an enzyme involved in the receptor tyrosine kinase (RTK) activation pathway and implicated in a range of solid and hematologic tumors. The company previously identified heightened activity in cancers with alterations in CDKN2A, which is common in breast and other cancers. Sunesis has been testing it in combination with CDK4/6 (in breast cancer cell lines), KRAS G12C (in KRAS-mutant cancer cells) and BCL-2 (in lymphoma cells).

Valuation: Lowered to $47.2m or $0.36 fully diluted

We have lowered our valuation of Sunesis to $47.2m or $0.36 per diluted share from $188.7m or $1.56 per diluted share. We have fully removed vecabrutinib from our models. This reduction is offset by lower unallocated costs going forward ($10m from $22m) to reflect reduced overhead in light of the discontinuation and other cost-cutting measures that we expect to be put in place. We model a loss of $16.6m for 2020, from $28.5m previously. We expect the company to have a cash runway into 2021, but to require an additional $60m (from $115m) to reach profitability.

History of vecabrutinib

The goal with vecabrutinib was to develop an inhibitor of Bruton’s tyrosine kinase (BTK) that would retain activity after progression on other BTK inhibitors such as Imbruvica. The drug non-covalently binds to BTK, and the company hoped that this would allow it to retain activity in patients with mutations in cysteine-481 (C481), a common resistance mechanism for approved covalent BTK inhibitors (including Imbruvica). It is one of several such non-covalent BTK inhibitors currently in clinical development, which include ARQ-531 (ArQule, Merck) and LOXO-305 (Loxo, Eli Lilly).

The drug previously showed BTK binding and inhibition in preclinical studies and in humans in a Phase Ia study of healthy volunteers. It has been in a Phase Ib/II dose escalation/expansion study since 2017, which showed indications of potential efficacy at some of the earlier tested dose levels, but the hope was that these would develop into robust responses in higher doses. Sunesis previously reported results from dosing cohorts ranging from 25mg to 400 mg, which showed nine SD responses from 18 evaluable patients, including multiple SD responses that were tantalizingly close to being PRs. In the most recent press release, the company announced that one of these patients from the 300mg cohort subsequently developed a PR by cycle 11.

The aim was that that these responses would continue to improve at higher doses and translate into more consistent responses. However, the data seen in the 500mg cohort were not sufficient to warrant advancing the program to Phase II. Three of the six patients enrolled in the cohort had an SD response, but none saw a reduction in tumor burden. Given the lack of improvement in responses at higher doses, Sunesis will complete the ongoing Phase Ib portion of the study, but not advance the drug further.

It is difficult to draw conclusions about the reasons why the drug underperformed. The clinical results from the Phase Ib study do not comport with the previous pharmacokinetics and biochemical activity seen in the Phase Ia healthy volunteer study, which showed inhibitions of phospho-BTK (pBTK) generation of up to 85% at concentrations above 100mg per patient. The number of patients with stable disease in the higher dose cohorts also suggests some degree of activity, but there was no clear dose response. We expect Sunesis to present a more complete picture of these data in the future at a medical conference, which may answer some of these questions.

Realigning efforts to advance SNS-510

The decision to discontinue the clinical program for vecabrutinib will free up resources to develop SNS-510, the company’s inhibitor of phosphoinositide-dependent kinase 1 (PDK1). PDK1 is an enzyme central to the malignancy of a range of different cancers given its importance in many growth-signaling pathways. It serves as the junction between PI3K and AKT signaling pathways, both of which have been areas of intense drug development for cancer. Moreover, the company has indicated that the drug inhibits PIP3-independent pathways (outside of the PI3K axis) that may have implications for cancer treatment.

The drug has potential in a range of different solid and hematologic cancers, and Sunesis has invested recently in characterizing this activity profile. It presented results in autumn 2019 characterizing the activity in 320 cell lines in 20 tumor types (the OncoPanel).

The study identified 59 cell lines that were sensitive to the drug, with activity across a range of cancer types. Sunesis was able to correlate response to SNS-510 with mutational data from the OncoPanel, which pointed to the protein cyclin-dependent kinase inhibitor 2A (CDKN2A). 44% of cell lines where the drug was active harbored mutations or deletions in this protein. This is an interesting new result, because it is currently unclear exactly why this particular protein would underpin activity of a PDK1 inhibitor as it is not part of the canonical pathway. CDKN2A is a protein important for regulating the cell cycle and division, a class of protein that is heavily implicated in cancer and cancer treatment. It has previously been identified as an oncogene, with a focus on familial melanoma.

The company also previously announced that it is investigating SNS-510 in combination with a series of different drugs for different cancer types. It has tested the drug in combination with inhibitors of CDK4/6, KRAS G12C, and BCL-2 in cell lines of breast cancer, KRAS-mutant cancer, and lymphoma respectively (although no data have been released yet). Sunesis stated that it intends to release more detailed preclinical information on these studies at a medical conference in H220, which we expect to inform the future direction that it takes with the drug. It expects to file an IND by the end of 2020 to support initiation of clinical studies in 2021.

Valuation

We have removed vecabrutinib from our model, which has reduced the valuation of Sunesis to $47.2m or $0.36 per diluted share from $188.7m or $1.56 per diluted share. This is partially offset by a reduction in unallocated costs ($10m from $22m) to reflect reduced overhead going forward to extend the cash runway (more details below). Sunesis ended Q120 with $23.4m in net cash, compared with $29.1m at end FY19. We currently model SNS-510 for breast cancer and assume an aggressive timeline, which is contingent on accelerated approval for a genetically defined subset of patients. We may adjust our assumptions for the program in the future when more information regarding its activity profile and future clinical plans become available.

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
($m)

TAK-580

Phase I/II

Licensed to DOT

5%

2025

500,000

600

2032

10%

$7

SNS-510

IND ready

Proprietary

10%

2025

130,000

344

2031

51%

$27

Unallocated costs (discovery programs, administrative costs, etc.)

($10)

Total

 

 

 

 

 

 

 

 

$24

Net cash and equivalents (Q120) ($m)

$23.4

Total firm value ($m)

$47.2

Total basic shares (m)

111.4

Value per basic share ($)

$0.42

Convertible Pref stock (m)

19.7

Total diluted shares

131.1

Value per diluted share

$0.36

Source: Sunesis reports, Edison Investment Research.

Financials

The company reported a net loss of $5.8m for Q120. Following the decision not to pursue a vecabrutinib Phase II study, we have significantly reduced our expected loss for 2020 to $16.6m from $28.5m. This reflects both the direct cost savings from not progressing vecabrutinib and other cost-cutting measures we expect to be put in place to reduce overhead and increase the cash runway. Sunesis ended Q120 with $23.4m net cash, which we model as sufficient to cover expenses into 2021. We expect the company to require an additional $60m in capital (from $115m previously) to bring SNS-510 to market, which we include on our balance sheet as illustrative debt ($30m in 2021 and $30m in 2023).

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)

(8,626)

(9,363)

Selling, general & administrative

(11,332)

(9,949)

(7,649)

(7,879)

EBITDA

 

 

(25,719)

(23,288)

(16,275)

(17,242)

Operating Profit (before GW and except.)

 

(25,710)

(23,288)

(16,275)

(17,242)

Intangible amortization

0

0

0

0

Exceptionals/Other

0

0

0

0

Operating Profit

(25,710)

(23,288)

(16,275)

(17,242)

Net Interest

(905)

(42)

(317)

(2,660)

Other (change in fair value of warrants)

0

0

0

0

Profit Before Tax (norm)

 

 

(26,615)

(23,330)

(16,592)

(19,901)

Profit Before Tax (IFRS)

 

 

(26,615)

(23,330)

(16,592)

(19,901)

Tax

0

0

0

0

Deferred tax

0

0

0

0

Profit After Tax (norm)

(26,615)

(23,330)

(16,592)

(19,901)

Profit After Tax (IFRS)

(26,615)

(23,330)

(16,592)

(19,901)

Average Number of Shares Outstanding (m)

35.6

87.1

117.0

122.2

EPS - normalized ($)

 

 

(0.75)

(0.27)

(0.14)

(0.16)

EPS - IFRS ($)

 

 

(0.75)

(0.27)

(0.14)

(0.16)

Dividend per share ($)

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

124

918

787

19

Intangible Assets

0

0

0

0

Tangible Assets

11

3

10

19

Other

113

915

777

0

Current Assets

 

 

15,200

36,322

21,014

33,961

Stocks

0

0

0

0

Debtors

0

0

0

0

Cash

13,696

34,625

19,317

32,264

Other

1,504

1,697

1,697

1,697

Current Liabilities

 

 

(11,323)

(9,416)

(3,397)

(3,574)

Creditors

(3,927)

(3,951)

(3,397)

(3,574)

Short term borrowings

(7,396)

(5,465)

0

0

Long Term Liabilities

 

 

(8)

(281)

(5,605)

(35,605)

Long term borrowings

0

0

(5,465)

(35,465)

Other long term liabilities

(8)

(281)

(140)

(140)

Net Assets

 

 

3,993

27,543

12,799

(5,199)

CASH FLOW

Operating Cash Flow

 

 

(24,404)

(22,185)

(15,301)

(17,043)

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

(15,308)

(17,052)

Opening net debt/(cash)

 

 

(24,546)

(6,300)

(29,160)

(13,852)

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)

(13,852)

3,201

Source: Sunesis reports, Edison Investment Research.


General disclaimer and copyright

This report has been commissioned by Sunesis Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Sunesis Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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New Zealand

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United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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1,185 Avenue of the Americas

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General disclaimer and copyright

This report has been commissioned by Sunesis Pharmaceuticals and prepared and issued by Edison, in consideration of a fee payable by Sunesis Pharmaceuticals. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Premier Foods — Innovation continues to drive growth

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