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Sunesis Pharmaceuticals (NASDAQ:SNSS)

Q4 2013 Earnings Call

March 06, 2014 11:00 am ET

Executives

Eric H. Bjerkholt - Chief Financial Officer, Principal Accounting Officer, Executive Vice President of Corporate Development & Finance and Corporate Secretary

Daniel N. Swisher - Chief Executive Officer, President and Director

Joseph I. DePinto - Chief Commercial Officer and Executive Vice President

Adam R. Craig - Chief Medical Officer and Executive Vice President of Development

Analysts

Eric Schmidt - Cowen and Company, LLC, Research Division

Marko K. Kozul - Leerink Swann LLC, Research Division

Matthew J. Andrews - Wells Fargo Securities, LLC, Research Division

Christian Richard - Merlin Nexus

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2013 Sunesis Pharmaceuticals Earnings Conference Call. My name is Britney, and I'll be the operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

At this time, I will now like to turn the presentation over to your host for today, Mr. Eric Bjerkholt. Please, proceed, sir.

Eric H. Bjerkholt

Thank you, Britney, and thank you for joining us today. With me from Sunesis are Dan Swisher, President and Chief Executive Officer; Dr. Adam Craig, Executive Vice President, Development and Chief Medical Officer; and Joe DePinto, Executive Vice President and Chief Commercial Officer.

During today's call, Dan will review recent corporate events, Adam will provide an overview of the ongoing Phase III VALOR study and other clinical programs, Joe will touch upon our commercialization planning process, and I will discuss fourth quarter and full year 2013 financial results. We will then open the call for questions.

Before we begin, let me remind you that during today's conference call, we will be making forward-looking statements that represent the company's intentions, expectations or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's press release and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. Furthermore, information discussed on today's call is accurate as of today, and we do not intend to update.

With that, let me turn the call over to Dan.

Daniel N. Swisher

Thanks, Eric. Good morning. Thanks to all of you for joining today on our fourth quarter and full year 2013 financial results and corporate highlights conference call. Our progress since the beginning of 2013 has brought success across multiple fronts with vosaroxin and other business initiatives, including the expansion of our pipeline, recent financing and the appointment of Joe DePinto as our Chief Commercial Officer.

Central to this progress is vosaroxin and the fully enrolled Phase III VALOR trial. Today, we stand at the cusp of realizing a goal, which has been long overdue, and that's the transformation of AML treatment with a new standard of care. VALOR is our Phase III randomized double-blind placebo-controlled pivotal trial in first relapse or primary refractory acute myeloid leukemia. With over 700 patients enrolled, this trial is the largest study ever conducted in this indication. It is well powered to demonstrate a clinically meaningful improvement in overall survival. We look forward to top line results expected in the third quarter of this year.

Beyond VALOR, we support a broad program of exploring the use of vosaroxin in additional patient settings and in novel combinations with current treatment standards through ongoing investigator-sponsored trials at leading U.S. centers. Among the important readouts from this program is data from an ongoing Phase Ib/II study sponsored by MD Anderson Cancer Center, which is looking at the combination of vosaroxin and decitabine in older patients with previously untreated AML or high-risk MDS.

As we announced this morning, data from this study will be presented on April 8 at the upcoming AACR Annual Meeting in San Diego. Tolerability and initial clinical activity in these difficult-to-treat patients are very encouraging and suggest important clinical potential for this combination. Adam will speak to this in a moment along with our other R&D initiatives.

Another important step forward for our business strategy was the expansion of our pipeline with global licenses to 2 unique kinase inhibitor programs. As we announced this January, we began looking for opportunities in the oncology/hematology space to complement our core vosaroxin franchise. The BTK and PDK1 programs we licensed afford us exactly this opportunity. These programs supplement the ongoing collaborator-funded partnerships with Biogen Idec and Millennium, which include MLN2480 currently enrolling patients in a melanoma cohort expansion phase at the previously defined maximum-tolerated dose. We look forward to the potential of these programs to address significant unmet needs in hematology, oncology and immunology.

Supporting all these efforts is a strong balance sheet. We ended 2013 with $39.3 million of cash, to which we added net proceeds of approximately $40 million from an underwritten public offering announced last week. This financing, which included the sale of units consisting of 1 share of common stock and 2 warrants struck at premiums to market, was designed to capture the value embedded in the upcoming transformative milestone, mainly the unblinding of VALOR expected in Q3. Additionally, it secures ready access to additional financing post to positive unblinding to substantially fund regulatory filings, U.S. commercial launch costs and further development of our pipeline. The warrants, if fully exercised, will provide an additional $95 million in approximate net proceeds within the next 24 months.

Before turning the call over to Adam to discuss vosaroxin and our clinical strategy, I would like to introduce Joe DePinto, who recently joined us as Executive Vice President and Chief Commercial Officer. We are pleased to have Joe on the Sunesis team. He brings 2.5 decades' worth of experience in global commercial operations, including leadership roles in oncology marketing, sales and strategic planning for companies such as J&J, IMCLONE, Dendreon and Abraxis. Joe was appointed as part of our plan to become a leading integrated oncology company. In addition to his experience, I'm impressed with the passion he shares with all of us to address significant unmet needs, and in the process, realize vosaroxin's and the company's full potential. Joe?

Joseph I. DePinto

Thank you, Dan. I'm pleased to be here today. My decision to join Sunesis was driven by the significant opportunity for vosaroxin to set a new standard of care in AML, similar to the way that VELCADE and REVLIMID have ushered in new areas of care in other hematology and oncology indications. This opportunity has attracted a great deal of attention in the oncology community, and working alongside a truly talented, thoughtful and dedicated management team was the deciding factor in my joining Sunesis.

As we begin to build out our commercial strategies and expand our understanding of this very underserved area of care, I look forward to updating the market on our progress and to meeting many of you in person. I also look forward to building out a preeminent U.S. commercial team, one with the ability to not only successfully introduce vosaroxin in AML, but to also realize its full potential in other indications while continuing to advance other high-value pipeline candidates to market.

With that, I will turn the call over to Adam.

Adam R. Craig

Thank you, Joe, and good morning, everyone. As my colleagues have pointed out, within the AML landscape, vosaroxin is among the most advanced and promising therapies in development. Treatment of this disease is often challenging, particularly in the relapsed/refractory setting and among patients unable to tolerate more aggressive therapy. The development goal is to find a perfect balance of response to therapy, durability of response and appropriate safety.

To date, vosaroxin has demonstrated a promising clinical profile, characterized by good remission rates, low early mortality, long duration of response and encouraging survival outcomes. Importantly, vosaroxin has provided a bridge to stem cell transplantation for many responders. Transplant is a critical objective in AML treatment as it has curative potential. We remain on track for reaching the transformational milestone for Sunesis, the unblinding of the VALOR trial expected in Q3. With a positive outcome, vosaroxin will serve -- or VALOR will serve as validation of vosaroxin's significant potential in AML.

Vosaroxin is a first-in-class molecule with activity distinct in the anthracyclines, broadly used in the treatment of hematologic and solid tumors. Vosaroxin's unique profile and clinical data have led to an expanded interest in starting vosaroxin alone and in combination in settings well beyond the VALOR relapsed/refractory indication. To date, we are exploring this potential through investigator-sponsored trials at leading institutions, including the MD Anderson Cancer Center, Weill Cornell New York-Presbyterian and Washington University.

We have seen early success with this initiative, most recently with the initiation of the Phase II cohort of the Phase Ib/II and the Anderson study of vosaroxin, decitabine in older patients with untreated AML and high-risk MDS. As we announced today, initial data from this ongoing study will be presented at the American Association for Cancer Research meeting on April 8. As noted in the abstract, we have seen higher-than-expected remission rates along with a favorable toxicity profile for the drug combination.

Two other ISTs are ongoing: a Phase I/II trial of vosaroxin alone in adult patients with previously treated intermediate to a high-risk MDS and a Phase I/II trial of vosaroxin in combination with a [ph] decitabine in patients with ongoing treatment for MDS. The first is being conducted at Weill Cornell Medical College in New York-Presbyterian Hospital under the direction of Dr. Gail Roboz. The second is being conducted at the Washington University School of Medicine under the direction of Dr. Meagan Jacoby. From these studies, we expect to see a growing body of clinical data emerge as the year progresses, data which will help elucidate vosaroxin's potential in disease areas which prognosis remains unacceptably poor. The data will serve to inform the further development of vosaroxin.

I want to also briefly touch on our pipeline programs. In January, we announced the licensing of 2 programs for molecules acting against cycline pathways known to drive a variety of hematologic and solid tumor malignancies, BTK and PDK1. Both targets, we believe, are very compelling and offer either a distinct development pathway, as with the BTK program, or an entirely novel [ph] promising anti-cancer target, as with the PD1 -- PDK1 program. We expect to discuss these programs in far more detail as the year progresses and as they make their way through towards the clinic. Added to vosaroxin and MLN2480, our pipeline now includes a growing proprietary portfolio programs spanning all stages of development and bearing both near- and long-term potential for value.

With that, let me turn the call over to Eric.

Eric H. Bjerkholt

Thanks, Adam. I'll recap financials announced this morning beginning with our cash position. We ended the year with $39.3 million in cash compared to $71.2 million at the end of 2012. The decrease of $31.9 million was primarily due to $37.4 million of net cash used in operating activities and $7.2 million of principal payments against notes payable, partially offset by net proceeds of $12.5 million from sales of common stock through our aftermarket facility and from exercise of warrants, stock options and stock purchase rights.

Earlier this week, we closed a $43 million public offering for net proceeds of approximately $40 million. In addition to providing capital for our commercial development and regulatory goal leading up to the unblinding of VALOR, this financing is designed to provide an important source of funds post a successful unblinding to fund regulatory filings, commercial launch costs and further development of vosaroxin and our kinase inhibitor pipeline. As Dan mentioned, the warrants, if fully exercised, will provide an additional $95 million in net proceeds.

For the income statement, revenue from the 3 months and year ended December 31, 2013, was $2 million and $8 million as compared to $2 million and $3.8 million for the same period in 2012. Revenue in both years are due to deferred revenue recognized under the royalty agreement with Royalty Pharma. R&D expenses decreased to $6.9 million and $28.9 million for the 3 months and year ended December 31, 2013, as compared to $7.6 million and $29.2 million for the same period the year before. The decreases in 2013 were primarily due to lower drug manufacturing and other outside services and consulting costs. G&A expenses for the 3 months and year ended December 31, 2013, were $2.7 million and $10.8 million as compared to $2.5 million and $9.2 million for the previous year. The increases in 2013 were primarily due to higher professional services and personnel costs.

In summary, we are well capitalized and have the resources and operating team and momentum to execute on our corporate objectives. With that, I will open the call to your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Eric Schmidt with Cowen and Company.

Eric Schmidt - Cowen and Company, LLC, Research Division

Congrats on the AACR abstract. Actually, I had a question on that abstract, maybe for Adam. I was hoping he could put into context what we've seen for the combination, the 89% response rate and 53-day-plus median duration response. Give us some context relative to what we might expect for decitabine alone.

Adam R. Craig

Yes. Thank you, Eric, for the question. I'll give you what the MD -- I'll let you know what the MD Anderson sets up with respect to their expectation. They would expect a response rate, in the sense, of around 25% for decitabine alone. And for any drug combination, they would expect to double that to around 50%. As -- with respect to the duration of response, I think it's a little bit too early to comment on that. And if I may, I'd like to wait until we see the post for AACR.

Eric Schmidt - Cowen and Company, LLC, Research Division

Is the median duration on the abstract not mature? Or what does that 53-plus day mean?

Adam R. Craig

Well, we do expect to see around 20 or more evaluable patients for the AACR meeting so to some degree isn't immature. The abstract refers to non-evaluable patients, so it's a little bit early to look at that.

Eric Schmidt - Cowen and Company, LLC, Research Division

Okay. So that's 20-plus total patients at the meeting itself, right?

Adam R. Craig

That's what we're expecting, correct, yes.

Eric Schmidt - Cowen and Company, LLC, Research Division

Okay. And then a question on the VALOR study. I can imagine you're now on the flatter part of the mortality curve where we're seeing fewer and fewer events. And given, potentially, some of these patients can go on to transplantation and live for many years, just kind of wondering how confident you might be in the phase -- sorry, in the Q3 timing for unveiling the data.

Daniel N. Swisher

Yes. Thanks, Eric. I'll start with that, and Adam, if you want to weigh in, too. But we're sort of monitoring very closely the event rate, and it is good news for the patients that they are living longer. And we are, as you say, kind of on that flatter part of the curve. We feel we're 90% confident that we're going to reach the 506 -- 562nd event and lock the database within Q3. But it's an ongoing event rate that we're monitoring very closely, and we'll continue to serve update if needed. But for now, I would think our best estimate is Q3. Adam, you want to...

Adam R. Craig

Yes, I agree. I think it's correct. It's a good estimate, and as you say, it could be a number of patients who have events that decline over time. So we will keep a very close eye on it. And I echo what Dan said, if we keep a very close eye on it, and we watch it very closely, and as of today, Q3 is a reasonable estimate.

Eric Schmidt - Cowen and Company, LLC, Research Division

Okay. And one more question. The press release, Dan, alludes to some certain composition patents [indiscernible] on vosaroxin. Can you provide a little more detail there?

Daniel N. Swisher

Sure. I'm going to ask our IP expert, Mr. Bjerkholt, to address that one.

Eric H. Bjerkholt

Yes. So we've [indiscernible] continued prosecution of our patent portfolio is bearing fruit, not just in the U.S. but also increasingly x U.S. And the specific composition claims you're referring have to do with high-purity vosaroxin, which is the API and product that's being used in the clinic and has been for the last few years, and there's some impurities that need to be controlled to a very low level to prevent the formation of visible particles in our product. And those -- the absence of those impurities is covered by that patent -- there's 2 patent families, actually, that cover that high-purity profile.

Eric Schmidt - Cowen and Company, LLC, Research Division

Okay. You had one issue, so this is the second family now issuing?

Eric H. Bjerkholt

Correct.

Operator

And your next question comes from the line of Marko Kozul with Leerink Partners.

Marko K. Kozul - Leerink Swann LLC, Research Division

So just a follow-up on Eric's question and Adam, your response. The 25% that MD Anderson sets as their internal benchmark, was that -- just to be clear, is that overall response rate or is that CR, CRp?

Adam R. Craig

That's overall response rate.

Marko K. Kozul - Leerink Swann LLC, Research Division

Terrific. And then...

Adam R. Craig

I would...

Marko K. Kozul - Leerink Swann LLC, Research Division

Go ahead.

Adam R. Craig

Yes. As you put in your note yesterday, the experience of Phase III in this disease setting of CR and CRp was 17.8% in a large over-400-patient study.

Marko K. Kozul - Leerink Swann LLC, Research Division

Understood. And any segmentation there amongst the MDS versus the ML patients? Or is that percentage grouping both types of patients together?

Adam R. Craig

It's grouping patients together. The numbers are pretty small in this abstract. We will hopeful see more in April marker [ph].

Daniel N. Swisher

The thing in the abstract and what you should probably continue to see in the study is that it's a preponderance of AML patients, and then these high-risk MDS are borderline AML patients. They're 10-plus percent blast...

Adam R. Craig

Yes, some of them have quite high blast counts.

Marko K. Kozul - Leerink Swann LLC, Research Division

My next question is, when might you be in position to take the next step in running a company-sponsored study here, and what might that look like? And can you go straight into Phase III?

Adam R. Craig

That discussion continues, Marko. We still need the study to mature and add more patients, and it's still got some ways to run. We also need the data from the other studies to mature. We have other studies in the MDS area. Once we all have that, if the trial continues to show -- the areas [ph] continues to show promise, then we'll be able to look at it with respect to moving it forward. It's just too early at this stage. The trial is only about halfway through.

Daniel N. Swisher

Yes. So Marko, I think, I mean, a corporate initiative is -- beyond a positive VALOR is to support investigator interest at a number of leading institutions in a number of multiple settings. What's fun about the Dacogen trial, this is our first new combination to put vosaroxin together since combining with cytarabine. And so there's a number of other interesting combinations we want to see, including the ongoing Vidaza study. And I think we kind of look at that full dataset, we look at where the market is, and we very much ambitiously want to get some additional studies going post VALOR, both with investigators and within the company.

Marko K. Kozul - Leerink Swann LLC, Research Division

Great. And I guess my last question, if you could just give us a quick update on some of the other ISTs and maybe roughly when we might expect some data?

Adam R. Craig

They both started after the MD Anderson study. They -- we haven't -- we're not going to give an update on enrollment today. But they are progressing well. And I am in discussions with the investigators with respect to presenting data. I don't have a time or date for you for that at the moment.

Daniel N. Swisher

I think it's more likely toward the end of the year just because we're in the dose-escalation phases still with both those trials.

Operator

And your next question comes from Matthew Andrews with Wells Fargo.

Matthew J. Andrews - Wells Fargo Securities, LLC, Research Division

Just a follow-up on Eric's. As it relates to the evaluation of the blinded survival rates, is this something that you look at on a weekly basis or possibly monthly? Just curious how often you do that analysis. And then second of all, can you discuss the scientific rationale and maybe some of the preclinical data for why you think 062, your BTK inhibitor, could have a role in patients who have failed ibrutinib or PI3K inhibitor?

Adam R. Craig

Sure. To answer your question on how often we look at events, we look at them regularly every week, but we conduct formal survival suites every 1 to 2 months. And so that gives us a pretty accurate picture of where we are with survival. With respect to the 062, it's -- thank you for the question because it is an important point to make; 062 does not bind BTK covalently like ibrutinib, and it doesn't bind to the cysteine measurement residue that is associated with resistance to ibrutinib. It binds in a different place in to BTK. So we're seeing -- in that way, it's normally 2 drugs and it potential to be active in patients who have failed ibrutinib. We're also obviously interested in exploring effectivity in patients who have failed PI3 kinase inhibitors as well.

Operator

And your next question comes from the line of Adnan Butt of RBC Capital Markets.

Unknown Analyst

This is Jeff [ph] for Adnan. Just out of curiosity, for the events that are taking longer, has management of AML changed with better supportive care or move to transplant?

Adam R. Craig

No. I don't think there's any change in supportive care. I think the study is just taking longer to read out than we predicted. I don't see it as a negative. It could be a positive. But it's just -- it's a large study. There's lot of events to collect. And I don't think it reflects in any way the standard care or in any way the progression to transplant. And I did -- I've said this a number of times, I did look at the enrollment pre and post the interim to make sure there was no bias in patients or any change in enrollment, and there wasn't. So the study's been pretty consistent throughout its conduct. So I'm not concerned by any changes in standard of care or transplantation. I think they had been consistent throughout the study.

Unknown Analyst

Okay. And moving to the combination studies for the ISTs with vosaroxin. Is there a preference in the combination of which drug, with like Dacogen or is it Vidaza, as the labels are different?

Adam R. Craig

I think while preclinical data shows that the combination of vosaroxin with either of the hypomethylating agents, Vidaza or Dacogen. When they're combined, there was synergy between the 2 agents. So that's why we're exploring both drug -- both combinations. The MD Anderson data is just more mature. As Dan said, we're very much looking forward to seeing the data come out of Washington University because that's the combination with decitabine. At this time, we don't have a preference. We're just very interested in looking at both sets of data.

Daniel N. Swisher

I'd say within the MD Anderson Center, they do have a preference more for decitabine. So obviously, it's worth doing the study in this combination with decitabine so we can make some cross comparison to the recent experience with Dacogen alone. And that's where they have these internal benchmarks and expectations, and we can really tease out is there truly a clinical benefit from this combination, which early data suggests there is.

Unknown Analyst

And last question is, with the recent offering, can you give us the share count?

Eric H. Bjerkholt

Well, the share count will be updated when we file the 10-K later today. But you can take the share count as of the end of the third quarter for now and add 4.65 million, which was the number of shares sold in this offering.

Unknown Analyst

And that's approximately?

Eric H. Bjerkholt

That would get you to close to 60 million.

Operator

And your next question comes from the line of Chris Richard with Merlin Nexus.

Christian Richard - Merlin Nexus

I had one very quick question for Adam or anyone else who knows. Are HMAs used in the community with either anthracyclines or etoposide or other topo II poisons? We haven't been able to find any open studies. Is there -- was there any limitation? They must have been studied at some point. Could you speak to that?

Adam R. Craig

I'll answer and maybe Joe has perspective as well. Some of our data in looking at clinical trials, HMAs are used off-label extensively. We can see that. Most of the patients we have had on studies have prior HMAs of having a single agent. But that's the commonest in the AML set, in particular, the older patients. Joe?

Joseph I. DePinto

Chris, it's Joe. Thanks, for the question. So from a community standpoint, what you see with the hypomethylating agent is that they're being used in a variety of different ways because it's really not a standard of care in this space. So physicians have a bit of skepticism or frustration in this area, and they would use a compound like the HMAs to help these patients. And there's no sort of standard that consistently is being used right now in the community. That's something, as vosaroxin continues to progress in the clinical trials and goes to market, that we hope to be able to really capitalize on as a standard of care.

Daniel N. Swisher

I think as far as combinations in clinical studies, we need to look a little further at that as well. I mean there have been, I think in the past, combinations with clofarabine and with HDACs. So they are combinable agents, but it's showing very promising with our anticancer quinolone derivative platform.

Operator

[Operator Instructions] There are no further questions in the queue at this time.

Daniel N. Swisher

So if you can -- this is Dan. So I'll just say a few words just to wrap up. It's been an exciting beginning of 2014. We really appreciate all of your time for listening into this.

Obviously, very excited about the momentum behind vosaroxin in our pipeline. We're looking forward to 2014 being a transformative year, and key to this is being ready with a positive outcome to move forward into the next stage of our corporate development and become an integrated company. And so we're poised in putting the work and plans in place so that we can, following a VALOR readout, initiate a pre-NDA meeting with the FDA followed by a rolling NDA submission with our fast-track status. We're working in Europe and look forward to getting a pediatric investigational plan accepted with the EMEA (sic) [EMA], which is the necessary step to complete before our future filing. The ongoing clinical readout from our IST program, this will be very informative as we think about our next steps with Joe's leadership to build out an experienced U.S. oncology commercial organization and completing some key prelaunch activities and then progress across our expanded pipeline programs, including clinical data from MLN2480.

So it should be a fun year, I hope we see many of you in the coming months and thanks again for your time and attention.

Operator

Ladies and gentlemen, that concludes the presentation for today's conference. You may now, all, disconnect, and have a wonderful day.

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