Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SNSS > SEC Filings for SNSS > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for SUNESIS PHARMACEUTICALS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for SUNESIS PHARMACEUTICALS INC


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition as of September 30, 2012 and results of operations for the three and nine months ended September 30, 2012 and 2011 should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in our other Securities and Exchange Commission, or SEC, filings, including our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 14, 2012.

This discussion and analysis contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which involve risks, uncertainties and assumptions. All statements, other than statements of historical facts, are "forward-looking statements" for purposes of these provisions, including without limitation any statements relating to our strategy, including our plans with respect to unblinding the VALOR trial, presenting clinical data and initiating clinical trials, our future research and development activities, including clinical testing and the costs and timing thereof, sufficiency of our cash resources, our ability to raise additional funding when needed, any statements concerning anticipated regulatory activities or licensing or collaborative arrangements, our research and development and other expenses, our operations and legal risks, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "anticipates," "believe," "continue," "estimates," "expects," "intend," "look forward," "may," "could," "seeks," "plans," "potential," or "will" or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those set forth under "Risk Factors," and elsewhere in this report. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. All forward-looking statements included in this report are based on information available to us on the date of this report, and we assume no obligation to update any forward-looking statements contained in this report.

In this report, "Sunesis," the "Company," "we," "us," and "our" refer to Sunesis Pharmaceuticals, Inc. and its wholly-owned subsidiary, except where it is made clear that the term means only the parent company.

Overview

We are a biopharmaceutical company focused on the development and commercialization of new oncology therapeutics for the treatment of solid and hematologic cancers. Our efforts are currently focused primarily on the development of vosaroxin for the treatment of acute myeloid leukemia, or AML. In December 2010, we commenced enrollment of a Phase 3, multi-national, randomized, double-blind, placebo-controlled, pivotal trial of vosaroxin in combination with cytarabine in patients with relapsed or refractory AML, or the VALOR trial.

The VALOR trial is designed to evaluate the effect of vosaroxin in combination with cytarabine, a widely used chemotherapy in AML, on overall survival as compared to placebo in combination with cytarabine, and is being conducted at more than 110 study sites in the U.S., Canada, Europe, Australia and New Zealand.

In September 2012, following the recommendation of the trial's independent Data and Safety Monitoring Board, or DSMB, after their completion of a single, pre-planned interim analysis of unblinded efficacy and safety data sets from the VALOR trial, we implemented a one-time, 225 patient sample size increase to the VALOR trial, bringing target enrollment to 675 patients. This pre-determined sample size increase is designed to maintain adequate statistical power over a broader range of survival outcomes. We anticipate reaching full enrollment of the VALOR trial in 2013, and unblinding in the first half of 2014, after reaching 562 events in the trial and final database lock.

We are also preparing final clinical study reports and publications for two completed clinical trials of vosaroxin: (a) the Phase 2 portion of a Phase 1b/2 trial of vosaroxin in combination with cytarabine for the treatment of patients with relapsed or refractory AML, and (b) a Phase 2 trial in previously untreated patients age 60 years or older with AML, or REVEAL-1, which explored three dosing schedules of vosaroxin.

In March 2012, patient dosing commenced in the LI-1 Trial, a Phase 2/3 randomized, controlled, multi-center trial evaluating novel treatment regimens against low-dose cytarabine, or LD Ara-C, in patients older than 60 years with AML or high-risk myelodysplastic syndrome, or MDS. In this Cardiff University sponsored trial, several treatments, including two regimens containing vosaroxin, will be evaluated in a randomized Phase 2 design with key endpoints including complete remission, 12-month survival, and overall survival. Treatment arms meeting efficacy criteria as determined by the Data Monitoring and Ethics Committee will be expanded and will continue to enroll patients up to a maximum of 200 per arm, with a primary endpoint of overall survival.

In June 2012, we received a pre-commercialization event-based payment of $1.5 million from Biogen Idec for the advancement of pre-clinical work under the Restated Biogen Idec Agreement.


Table of Contents

We own worldwide development and commercialization rights to vosaroxin. In April 2012, the European Commission granted orphan drug designation to vosaroxin for the treatment of AML, which may provide for 10 years of marketing exclusivity in all member countries of the European Union following product approval for this indication in Europe. In 2009, vosaroxin received orphan drug designation for the treatment of AML from the U.S. Food and Drug Administration, or FDA. In February 2011, the FDA granted fast track designation to vosaroxin for the potential treatment of relapsed or refractory AML in combination with cytarabine. During 2012 to date, we have been granted the following key patents for vosaroxin:

In February 2012, the U.S. Patent and Trademark Office, or USPTO, granted us a patent covering certain vosaroxin hydrate forms, which is due to expire in 2028. Corresponding applications are pending in other major markets, including Europe, Japan, Australia and Canada.

In March 2012, the USPTO granted us a patent covering certain compositions related to vosaroxin, which is due to expire in 2030. Corresponding patent applications are pending internationally.

Recent Financial History

Royalty Agreement

On March 29, 2012, we entered into a Revenue Participation Agreement, or the Royalty Agreement, with RPI Finance Trust, or RPI, an entity related to Royalty Pharma. On September 18, 2012, as a result of the recommendation by the DSMB to increase the sample size for the VALOR trial, RPI made a $25.0 million cash payment to us in exchange for a 6.75% royalty on any future net sales of vosaroxin. In conjunction with the Royalty Agreement, we issued two five-year warrants to RPI, each to purchase 1,000,000 shares of our common stock, at exercise prices of $3.48 and $4.64 per share, respectively.

Loan Agreement

On October 18, 2011, we entered into a Loan and Security Agreement (the "Loan Agreement") with Oxford Finance LLC, Silicon Valley Bank and Horizon Technology Finance Corporation (collectively, the "Lenders"), and received the first tranche of $10.0 million from the Lenders. On September 19, 2012, following the recommendation by the DSMB to increase the sample size for the VALOR trial, we drew the second tranche of $15.0 million from the Lenders. In connection with this drawdown, we issued warrants to purchase an aggregate of 194,915 shares of our common stock to the Lenders at an exercise price of $3.85 per share. Payments under both tranches are monthly in arrears and interest-only until February 1, 2013, followed by 32 equal monthly payments of principal and interest through the scheduled maturity date of October 1, 2015.

Equity Financing

In April 2010 and August 2011, we entered into two controlled equity offering sales agreements with Cantor Fitzgerald & Co. ("Cantor"), pursuant to each of which we could issue and sell shares of our common stock having an aggregate offering price of up to $20.0 million from time to time through Cantor acting as agent and/or principal (the "2010 Cantor Facility" and the "2011 Cantor Facility", respectively, and collectively the "Cantor Facilities"). We agreed to pay Cantor a commission of 3.0% of the gross proceeds from sales under each facility.

In the three months ended September 30, 2012, we sold an aggregate of 3,218,041 shares of common stock under the Cantor Facilities at an average price of approximately $4.79 per share for gross proceeds of $15.4 million and net proceeds of $15.0 million, after deducting Cantor's commission. From October 1, 2012 through October 7, 2012, we sold an aggregate of 407,272 shares of common stock through the 2011 Cantor Facility at an average price of approximately $5.99 per share for gross and net proceeds of $2.4 million.

During October 2012, an aggregate of 496,420 warrants that were issued in connection with the underwritten offering completed in October 2010 were exercised for cash at $2.52 per share, resulting in proceeds of $1.3 million.

Capital Requirements

We have incurred significant losses in each year since our inception. As of September 30, 2012, we had cash, cash equivalents and marketable securities of $76.6 million and an accumulated deficit of $441.0 million. We expect to continue to incur significant losses for the foreseeable future as we continue the development process and seek regulatory approvals for vosaroxin.

We believe that we currently have the resources to fund our operations to the end of 2014. We will need to raise substantial additional capital to complete the development of and potentially commercialize vosaroxin, and expect to finance our future cash needs primarily through equity issuances, debt arrangements, a possible license, collaboration or other similar arrangement with respect to development and/or commercialization rights to vosaroxin, or a combination of the above. However, we do not know whether additional funding will be available on acceptable terms, or at all. If we are unable to raise required funding on acceptable terms or at all, we will need to reduce operating expenses, enter into a collaboration or other similar arrangement with respect to development and/or commercialization rights to vosaroxin, outlicense intellectual property rights to vosaroxin, sell unsecured assets, or a combination of the above, or be forced to delay or reduce the scope of our vosaroxin development program, potentially including the VALOR trial, and/or limit or cease our operations.


Table of Contents

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes during the nine months ended September 30, 2012 to our critical accounting policies and significant judgments and estimates as disclosed in our management's discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2011.

Overview of Revenues

We have not generated, and do not expect to generate in the foreseeable future, any revenue from sales of commercial products.

License and other revenue

In March 2012, we entered into the Royalty Agreement with RPI, pursuant to which we received a non-refundable payment of $25.0 million. Of the $25.0 million, $3.1 million represents the fair value of the warrants granted under the Royalty Agreement and was recorded as additional paid-in capital. The remaining $21.9 million was categorized as deferred revenue and is being amortized to revenue over the related performance period of the Royalty Agreement.

In March 2011, we entered into three agreements as part of a series of agreements among Biogen Idec MA Inc., or Biogen Idec, Millennium Pharmaceuticals, Inc., a wholly-owned subsidiary of Takeda Pharmaceutical Company Limited, or Millennium, and ourselves:

A license agreement with Millennium, or the Millennium Agreement, pursuant to which we granted Millennium exclusive licenses for the development of our oral, selective pan-Raf kinase inhibitor and one additional undisclosed kinase inhibitor program in oncology that were previously a part of our August 2004 collaboration agreement with Biogen Idec, or the Original Biogen Idec Agreement. Under this agreement, we may in the future receive up to $59.3 million in pre-commercialization event-based payments related to the development of the first two indications for each of the licensed products directed against the two exclusively licensed targets, and royalty payments depending on future product sales. The Millennium Agreement also provides us with future co-development and co-promotion rights. In September 2011, we announced that Millennium had initiated a Phase 1 clinical study of an oral investigative drug selective for pan-Raf kinase inhibition, MLN2480, which was licensed to them under the Millennium Agreement.

An amendment and restatement of the Original Biogen Idec Agreement, or the Restated Biogen Idec Agreement, to provide for the discovery, development and commercialization of small molecule inhibitors of a unique preclinical kinase inhibitor program involved in immunology. In June 2012, we announced that we had received a pre-commercialization event-based payment of $1.5 million from Biogen Idec for the advancement of pre-clinical work under this agreement. We are eligible to receive up to an additional $58.5 million in pre-commercialization event-based payments related to the development of the first two indications for licensed products against the specified immunology target under the Restated Biogen Idec Agreement, and royalty payments depending on future product sales. We also retain future co-development and co-promotion rights.

A termination and transition agreement with Biogen Idec and Millennium, which included a provision for an upfront, non-refundable payment of $4.0 million to us, which we received in April 2011.

We cannot predict whether we will receive any additional pre-commercialization event-based or royalty payments from these agreements in the foreseeable future, or at all.

Overview of Operating Expenses

Research and Development expense. Research and development expense consists primarily of clinical trial costs, which include payments for work performed by our contract research organizations, clinical trial sites, labs and other clinical service providers and for drug packaging, storage and distribution; drug manufacturing costs, which include costs for producing drug substance and drug product, and for stability and other testing; personnel costs for related permanent and temporary employees; other outside services and consulting costs; and payments under license agreements. We expense all research and development costs as they are incurred.

We are currently focused on the development of vosaroxin for the treatment of AML. Based on results of translational research, our own and investigator-sponsored trials, regulatory and competitive concerns and our overall financial resources, we anticipate that we will make determinations as to which indications to pursue and patient populations to treat in the future, and how much funding to direct to each indication, which will affect our research and development expense.

If we engage a development or commercialization partner for our vosaroxin program, or if, in the future, we acquire additional product candidates, our research and development expenses could be significantly affected. We cannot predict whether future licensing or collaborative arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Under the Restated Biogen Idec Agreement and the Millennium Agreement, we have the right to participate in co-development and co-promotion activities for the related product candidates. If we were to exercise our option on one or more product candidates, our research and development expense would increase significantly.


Table of Contents

General and Administrative expense. General and administrative expense consists primarily of personnel costs for the related employees, including non-cash stock-based compensation; professional service costs, including fees paid to outside legal advisors, marketing consultants and our independent registered public accounting firm; facilities expenses; and other administrative costs.

Results of Operations

Revenue

Total revenue was $0.3 million and $1.8 million for the three and nine months ended September 30, 2012, as compared to $1.0 million and $5.0 million for the same periods in 2011. Revenue in the nine months ended September 30, 2012 included $1.5 million received from Biogen Idec in June 2012 for the advancement of pre-clinical work under the Restated Biogen Idec Agreement and $0.3 million of deferred revenue recognized in the three months ended September 30, 2012 related to the Royalty Agreement with RPI.

Revenue in the three months ended September 30, 2011 was due to the recognition of $1.0 million of revenue associated with the license of certain intellectual property rights to SARcode. Revenue in the nine months ended September 30, 2011 also included the upfront payment of $4.0 million to us for the termination of the Original Biogen Idec Agreement and the permitted assignment of assets and rights to Millennium as provided in the Millennium Agreement, which occurred in March 2011. We expect revenue to be lower in 2012 than in 2011.

Research and Development Expense

Research and development expense was $6.9 million and $21.6 million for the three and nine months ended September 30, 2012, as compared to $6.2 million and $16.2 million for the same periods in 2011, substantially all relating to the vosaroxin development program. The increase of $0.7 million between the comparable three month periods was primarily due to increases of $0.4 million in clinical trial expenses and $0.3 million in consulting costs related to the VALOR trial. The increase of $5.4 million between the comparable nine month periods was primarily due to increases of $2.6 million in clinical trial expenses, $2.0 million in outside services and consulting costs, and $0.8 million in personnel costs. We expect research and development expense to be higher in 2012 than in 2011 as we continue the development of vosaroxin.

General and Administrative Expense

General and administrative expense was $2.3 million and $6.7 million for the three and nine months ended September 30, 2012, as compared to $2.2 million and $6.1 million for the same periods in 2011. The increases of $0.1 million and $0.6 million between the comparable three and nine month periods were primarily due to higher non-cash stock-based compensation expenses.

Interest Expense

Interest expense was $0.4 million and $1.0 million for the three and nine months ended September 30, 2012, as compared to nil for the same periods in 2011. The interest expense in the 2012 periods was due to the draw-downs under the Loan Agreement with the Lenders.

Other Income (Expense), Net

Net other expense was $8.1 million and $12.4 million for the three and nine months ended September 30, 2012, as compared to net other income of $2.4 million and $6.0 million for the same periods in 2011. The amounts for each period were primarily comprised of non-cash charges or credits for the revaluation of warrants issued in the October 2010 underwritten offering, or the 2010 Offering.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have funded our operations primarily through the issuance of common and preferred stock, debt financings, the receipt of funds from our collaboration partners, the sale of revenue participation rights, and from research grants.

Our cash, cash equivalents and marketable securities totaled $76.6 million as of September 30, 2012, as compared to $44.1 million as of December 31, 2011. The increase of $32.5 million was primarily due to the receipt of $25.0 million from RPI; the draw-down of the second tranche loan of $15.0 million from the Lenders; net proceeds from sales of our common stock under the Cantor Facilities of $15.3 million; and proceeds from the exercise of warrants, stock options and stock purchase rights of $0.5 million, partially offset by other net operating cash outflows.


Table of Contents

On September 18, 2012, pursuant to the Royalty Agreement we entered into with RPI on March 29, 2012, and as a result of the recommendation by the DSMB to increase the sample size for the VALOR trial, RPI made a $25.0 million cash payment to us in exchange for a 6.75% royalty on any future net sales of vosaroxin.

On September 19, 2012, we drew down the $15.0 million second tranche from the Lenders under the Loan Agreement. Payments under both tranches are monthly in arrears and interest-only until February 1, 2013, followed by 32 equal monthly payments of principal and interest through the scheduled maturity date of October 1, 2015. A final payment equal to 3.75% of the aggregate amount drawn will be due on October 1, 2015, or earlier under certain conditions.

In the nine months ended September 30, 2012, we sold an aggregate of 3,306,541 shares of our common stock under the Cantor Facilities at an average price of approximately $4.74 per share for gross proceeds of $15.7 million and net proceeds of $15.3 million, after deducting Cantor's commission. As of September 30, 2012, the 2010 Cantor Facility had been fully utilized and $6.3 million of common stock remained available to be sold under the 2011 Cantor Facility.

Cash Flows

Net cash used in operating activities was $1.4 million for the nine months ended September 30, 2012, as compared to $15.6 million for the same period in 2011. Net cash used in the 2012 period resulted primarily from the net loss of $39.9 million, partially offset by net adjustments for non-cash items of $14.6 million (including expenses of $12.3 million for the revaluation of warrants issued in the 2010 Offering and $2.0 million of stock-based compensation), and changes in operating assets and liabilities of $23.9 million, primarily as a result of a net increase in deferred revenue of $21.6 million related to the receipt of the $25.0 million payment from RPI, and an increase of $2.3 million in accrued clinical expenses related to the VALOR trial. Net cash used in the 2011 period resulted primarily from the net loss of $11.4 million and net adjustments for non-cash items of $4.6 million (including a net credit of $5.7 million related to the revaluation of warrants issued in the 2010 Offering, partially offset by $0.9 million of non-cash stock-based compensation), partially offset by changes in operating assets and liabilities of $0.5 million, primarily as a result of an increase in accrued clinical expenses.

Net cash used in investing activities was $0.2 million for the nine months ended September 30, 2012, as compared to $9.2 million provided by investing activities for the same period in 2011. Net cash flows in both periods consisted primarily of proceeds from maturities of marketable securities offset by purchases of marketable securities.

Net cash provided by financing activities was $33.9 million for the nine months ended September 30, 2012, as compared to $4.1 million for the same period in 2011. Net cash provided in the 2012 period included net proceeds from the draw-down of the second tranche loan of $15.0 million from the Lenders; $15.3 million from sales of our common stock through the Cantor Facilities; $3.1 million of the $25.0 million payment allocated to the fair value of warrants issued to RPI, and $0.5 million from the exercise of warrants, stock options and stock purchase rights. Net cash provided in the 2011 period resulted primarily from sales of our common stock through the 2010 Cantor Facility.

Operating Capital Requirements

We expect to continue to incur substantial operating losses in the future. We will not receive any product revenue until a product candidate has been approved by the FDA or similar regulatory agencies in other countries, and has been successfully commercialized, if at all. We will need to raise substantial additional funding to complete the development of and potentially commercialize vosaroxin. Additionally, we may evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.

Our future funding requirements will depend on many factors, including but not limited to:

the rate of progress and cost of our clinical trials, including the VALOR trial in particular;

the need for additional or expanded clinical trials;

the timing, economic and other terms of any licensing, collaboration or other similar arrangement into which we may enter;

the costs and timing of seeking and obtaining FDA and other regulatory approvals;

the extent of our other development activities;

the costs associated with building or accessing commercialization and additional manufacturing capabilities and supplies;

the costs of acquiring or investing in businesses, product candidates and technologies, if any;

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

the effect of competing technological and market developments; and

the costs, if any, of supporting our arrangements with Biogen Idec and Millennium.


Table of Contents

While we believe we have the resources to fund our operations until the end of 2014, we may need to raise additional capital if costs of the VALOR trial exceed our current estimates. Until we can generate a sufficient amount of licensing or collaboration or product revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs primarily through equity issuances, debt arrangements, a possible license, collaboration or other similar arrangement with respect to development and/or commercialization rights to vosaroxin, or a combination of the above.

Our failure to raise significant additional capital in the future would force us to delay or reduce the scope of our vosaroxin development program, potentially including the VALOR trial, and/or limit or cease our operations. Any one of the foregoing would have a material adverse effect on our business, financial condition and results of operations.

Contractual Obligations
. . .
  Add SNSS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SNSS - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.