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Sunesis Pharmaceuticals (NASDAQ:SNSS)

Q1 2014 Earnings Call

May 07, 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

Marko K. Kozul - Leerink Swann LLC, Research Division

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Nicholas Bishop - Cowen and Company, LLC, Research Division

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

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

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Sunesis Pharmaceuticals Earnings Conference Call. My name is Lisa, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Eric Bjerkholt, Executive Vice President of Corporate Development and Finance and Chief Financial Officer. Please proceed.

Eric H. Bjerkholt

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

During today's call, Dan will review recent corporate events. Joe will provide an update on commercial launch planning. Adam will provide an overview of the ongoing programs and I will discuss first quarter 2014 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. 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

Yes, thanks, Eric. Good morning, and thank you for joining us. It's a very exciting time for us here at Sunesis. Right now, we stand at the cusp of realizing a key milestone: the readout of our pivotal Phase III VALOR trial. With a positive outcome, this event will transform an area of unmet medical need that has seen little innovation in the last 4 decades. VALOR, of course, 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, it's the largest study ever conducted in this indication and it's well powered to demonstrate a clinically meaningful improvement in overall survival. Our readout will occur after reaching 562 events in this trial and locking the study database. Currently, we anticipate the data readout will occur in the second half of the year, meaning either the third quarter or the fourth quarter. The updated guidance for unblinding of this trial, it reflects a slowing rate of events among the pool of patients in follow-up. With more than 95% of the events having occurred already, the team has made substantial progress on data cleanup and are well prepared for the upcoming readout. With VALOR approaching this transformative milestone, we have begun investing in the U.S. launch plan, including the hiring of a seasoned leadership team for both commercial and medical science functions. We recently established a medical science affairs team, including 4 home office and field-based professionals who are now, among other things, working closely in the field with leading AML key opinion leaders, preparing for a managed access program and supporting an ongoing publication plan. Additionally, on the development front, we've been actively supporting leading investigators to explore vosaroxin in additional patient settings and in novel combinations. We also have expanded our pipeline with earlier stage assets through the successful acquisition of worldwide rights to 2 new proprietary oncology kinase inhibitor programs, and together with our collaborator-funded programs, these provide us with a broad pipeline of novel differentiated therapeutics. Collectively, all of these efforts take us closer to our ultimate goal of becoming a leading integrated oncology company.

And supporting this progress of our corporate strategy is a strong balance sheet. It was reinforced by $43 million equity financing, which we completed in March. And we also may provide $95 million in additional proceeds from potential warrant exercises following a positive VALOR readout. This capital would substantially fund our future regulatory filing expenses, as well as U.S. commercial launch costs for vosaroxin.

So with that, I will now turn the call over to Joe to discuss the status of our U.S. plan.

Joseph I. DePinto

Thank you, Dan. It has been an exciting first 90 days at Sunesis. We are currently refining the U.S. launch plan, including investments in programs and personnel that we plan to make prior to and following a positive VALOR readout. Our current efforts leverage an experienced, internal team plus vendors and consultants as we progress our plans for development of a scientific platform, brand building, market research and market access and pricing projects. There's a lot to be done, of course, but I am confident with clinically relevant data, which VALOR was designed to deliver, we will generate significant interest among AML-treating physicians.

Health care practitioners regard AML as a truly frustrating and challenging disease with no new therapeutic treatment options to address the significant unmet needs of their patients. One success I want to share is that we recently secured FDA clearance for a trademark for the vosaroxin product, Qinprezo. We believe Qinprezo will serve us well on a global basis. Last year, the EMA approved this proprietary name, and now with the FDA approving it, 2 of the largest regulatory agencies in the world have cleared it for use. I look forward to meeting with many of you and updating you on our commercial progress in the future.

I will now turn the call over to Adam to discuss Qinprezo and our clinical strategy.

Adam R. Craig

Thank you, Joe, good morning, everyone. As is emphasized by the proximity of the VALOR data readout, Qinprezo is one of the most advanced and promising therapies in development for AML. Treatment of this disease is often challenging, particularly in the readout's refractory setting among patients unable to tolerate more aggressive therapy. The goal is to find an appropriate balance of response to therapy, durability of response and safety. To date, Qinprezo has demonstrated in our Phase II program a promising clinical profile characterized by good remission rates, lower early mortality, long duration of response and encouraging survival outcomes.

Importantly, Qinprezo has provided a bridge to stem cell transplantation for many responders. Transplant is a critical goal named [ph] in our treatment as it has curative intent.

A positive outcome with the VALOR trial will serve as an important step in demonstrating Qinprezo's potential as an oncology therapeutic. Qinprezo is a first-in-class anticancer quinolone derivative with distinct characteristics compared to anthracyclines, which are broadly used in the treatment of hematologic and solid tumors. The unique profile of Qinprezo has led to an expanded interest in studying it, both alone and in combination in a variety of hematologic settings.

To date, we have explored this potential through investigator-sponsored trials at leading institutions such as the MD Anderson Cancer Center, Weill Cornell, New York-Presbyterian Hospital and Washington University.

At the ACL meeting in San Diego this April, we presented encouraging data from the ongoing Phase IB, Phase II MD Anderson-Sponsored trial of Qinprezo and decitabine in previously untreated patients with AML or high-risk MDS. These data, the first new clinical data on Qinprezo in several years, demonstrated higher-than-expected response rates and good tolerability. Furthermore, the data highlighted the potential for combining agents with non-overlapping toxicity profiles and distinct anti-leukemic activity. Whereas Qinprezo is a novel first-in-class anticancer quinolone derivative, decitabine inhibits DNA methyltransferase activity, resulting in hypermethylation and cell cycle arrest. We look forward to presenting additional data from this study on Monday, June 2, at the ASCO annual meeting in Chicago.

As we prepare for the unblinding of the VALOR data, we continue to make significant progress with the preparation of both NDA and MAA submissions. As to our pipeline, we're excited to have the 2 new proprietary programs to complement our collaborator-funded partnerships with Biogen Idec and Millennium. These programs, the BTK program and the PDK1 program, both address compelling areas within oncology. Our decision to acquire global licenses to each, followed an extensive review of novel and differentiated oncology licensing opportunities, in which these emerged as the most promising. We look forward to the potential of our proprietary and collaborator-funded programs to address unmet needs in oncology and immunology, and expect to discuss them in more detail as the year progresses.

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

Eric H. Bjerkholt

Thanks, Adam. I will recap financials announced this morning beginning with our cash position. We ended the quarter with $70.7 million in cash compared to $39.3 million at the end of 2013. The increase of $31.4 million was primarily due to the net proceeds of $45 million from equity financings and from warrant and stock option exercises, partially offset by $11.4 million of net cash used in operating activities and $2.3 million of principal payments against notes payable. As of March 31, our total debt stood at $16 million.

For the income statement, revenue for the 3 months ended March 31, 2014 and '13, was $2 million. Revenue in both years was due to deferred revenue recognized under the royalty agreement with Royalty Pharma.

R&D expense was $7.6 million for the 3 months ended March 31, as compared to $7.4 million for the same period last year. The increase between the periods include increases in personnel, manufacturing and consulting costs, partially offset by a reduction in clinical trial expenses.

G&A expense for the 3 months ended March 31 was $3.4 million as compared to $2.4 million for the previous year. The increase in 2014 was primarily due to a higher personnel cost, including noncash stock-based compensation expense.

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. Lisa?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Marko Kozul with Leerink Partners.

Marko K. Kozul - Leerink Swann LLC, Research Division

The first one, I wanted to ask you if you could maybe walk us through what additional pipeline data sets will be seen prior to the Qinprezo, VALOR unblinding?

Daniel N. Swisher

Good, Marko. This is Dan. Yes, thanks for that call. So I think the next set of data is going to be clearly the MD Anderson study update, which will be presented at ASCO on Monday afternoon, June 2. And we do expect that some of the additional data both from our internal pipeline, at least, on the preclinical side and then hopefully with some Phase II data from the Biogen -- sorry, the Millennium pan-Raf program, that we will see some of that data in the second half of the year. I can't kind of precisely comment on how that will intersect with the VALOR readout since that could be in either Q3 or Q4, but it'd be very coincident with that outcome.

Marko K. Kozul - Leerink Swann LLC, Research Division

Dan, I guess, I'm wondering if VALOR comes in the fourth quarter, what might we see in the third quarter as far as updates?

Daniel N. Swisher

Yes, I'll not get into that sort of level of precision or guidance. And again, I just want to emphasize that we've just -- we've broadened our guidance. We haven't -- we're not trying to signal that it's definitively coming in the fourth quarter. It's either the third or the fourth quarter. It's just that the remaining events in the study are a little less hard to predict.

Marko K. Kozul - Leerink Swann LLC, Research Division

Perfect. And I think I heard you say that over 95% of the events have occurred but there's a slowing in the remaining 5%. Could you possibly opine as to why or what might be driving the longer progression?

Daniel N. Swisher

Yes, I'm going to let Adam comment on that.

Adam R. Craig

Yes, it's an important question, Marko, so thank you. The majority of the patients remaining on study now have had transplant, and it will be my expectation that they would survive longer than the patients who haven't had transplant on study. So I think that's having an impact and that probably is explaining why there is a slowing in the rate of events. However, obviously, transplant's good, a good outcome for patients on study. So I'm pleased overall that patients are living longer at this time because it means they're benefiting from the study. Obviously, we're blinded to the data, and we can't tell exactly what they've had. But patients -- if patients get transplant in this study, that's a good thing.

Operator

Your next question comes from the line of Adnan Butt with RBC Capital Markets.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Just a follow-up on the timing. So when you say events in third quarter or fourth quarter, are you also implying that, that's when the top line release could take place? Or could that be a month or 2 down the road? And then secondly, on the BTK inhibitor program, maybe Adam or somebody else can shed some light on how you foresee developing it.

Daniel N. Swisher

Sure. Thanks, Adnan. Yes, just maybe to comment and then have Adam follow-up, both on the -- sort of the unblinding but also the pipeline programs. So the way the unblinding works is once we've reached the prespecified event, then we need a certain number of weeks to fully lock the database, which includes full assessment of all of the remaining patients on study, all the survivors. And so the analysis actually has run pretty quickly and we would expect -- we have to, obviously, choreograph this with a medical conference, where we want to present the full data set. But we would love to provide top line results soon after that analysis has been run in terms of having met, hopefully, the primary endpoint with overall survival. And then providing much further data sets, including sets around the strata at a major medical conference. Adam?

Adam R. Craig

Yes, with respect to the BTK program, we've already said that the plan is to file an IND at the early part next year. We're on track for that. We have some final IND-enabling studies that have started and the package will be prepared towards the end of the year or in the early part of next year for submission to the FDA, and with a view to starting a Phase I study.

Daniel N. Swisher

On PDK?

Adam R. Craig

The PDK? The PDK program is a little less advanced. By the end of the year, we hope to have identified a clinical candidate to move forward. On the nonclinical side, the data is very encouraging. I like -- I very much like this target. And we'll -- with a clinical candidate towards the end of the year, we can then move into our IND-enabling studies.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

Adam? Adam, can I have a follow-up question on the events? So the 5% of the events that are remaining that haven't occurred yet, how meaningful can they be? What kind of an impact can they have potentially on the trial?

Adam R. Craig

Well, I think, as I said earlier, these patients are patients who've received transplantation. It gives us a very good idea of the impact of transplantation on how patients in the vosaroxin study we do. We've always hoped and said that we've believed vosaroxin will be a bridge to transplantation. It's an opportunity for patients to get a therapy that has curative intent. So I think it's very meaningful. This set of patients is very, very meaningful. It's going to give us a very good idea how, in clinical practice, patients do. Because clinicians in practice will want to get their patients to transplant. So if we can be part of that, then I think it's very meaningful.

Daniel N. Swisher

I think if you step back, Adnan, the relapse refractory population, we know, is a very-difficult-to-treat population and cytarabine alone, is a fairly low response rate. And so the hope is, by putting the 2 drugs together, we're improving that response rate in a good risk-benefit way and the responses are very quality responses that are durable, and the patients that are eligible are bridging successfully to long-term transplant. And that's where we start to gain that further insight by following this pool of patients in follow-up a little further.

Operator

Our next question comes from the line of Nicholas Bishop with Cowen & Company.

Nicholas Bishop - Cowen and Company, LLC, Research Division

Just, actually, one quick one. I wonder if you could remind me about the exact number of required of events. I have in my notes that it was 562 based on the original plan of enrolling, I think, 650 patients but, of course, you enrolled more patients than that. So is it proportionately increased through the same fraction of the number of patients actually enrolled or is it still 562?

Adam R. Craig

It's still 562, Nick.

Daniel N. Swisher

Yes, Nick, before the sample size increase, it was 375. And so with a 50% increase in the sample size, there was also a corresponding, in the statistical plan, a 50% increase in the events to 562.

Nicholas Bishop - Cowen and Company, LLC, Research Division

Okay. So I guess that implies that's about 79% of the total patients in the trial experiencing an event, so by -- that implies that you'll be doing an analysis when 21% of patients are still alive. So in the Phase II trial, we saw about 26% of patients getting a transplant, suggesting that kind of last 5% or so using a drug arm are going to have to experience an event after a transplant. So now, I guess, just looking at the Phase II data, is the extension in timelines in VALOR consistent with what you'd expect based on that? Or was there any surprises?

Adam R. Craig

We're blinded, Nick, obviously. And we look at both arms as just one blended data set. It's hard to say. Have I seen any surprises to date? No, I haven't. But we don't -- we're not unblinded, so it's very difficult to make an assessment. We can only look at it very superficially from above.

Operator

Our next question comes from the line of Mara Goldstein with Cantor Fitzgerald.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

I have 2 also related to just -- to the timing of the outcome. And you had mentioned that 95% of the events have already occurred, and I'm wondering if when you updated the guidance sort of last quarter, expecting now, possibly third quarter readout as opposed to second quarter, what percent are you able to share with us? What percentage of events had occurred at that time that you were looking at?

Daniel N. Swisher

Yes, just a point of clarification, Mara, I said, more than 95%, so it's not precisely 95%. So I think the key thing we wanted to get across is there's not a lot of events that are remaining. Obviously, we're hopeful that the patients that are benefiting on study continue to benefit. But it gets a little harder to predict as you're getting out on the tail of the survival curves, which is what we hoped for. And that's the hope of relapsed/refractory AML therapy is that you can induce a response and the patient has the possibility of moving to the tail of the survival curve and having a much better outcome. And we're not going to go back in time and try to give sort of the event number. It has been slowing on a monthly basis, kind of consistent with fewer patients in follow-up and the patients in follow-up, the majority of them being in transplant.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

Okay. I'm sorry, you said the majority but I though you said before, all of those patients. So I mean...

Daniel N. Swisher

Not all of the patients, no. We said majority.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

Oh majority, okay. And -- sorry.

Daniel N. Swisher

Just to clarify, I mean, patients who go into remission with or without transplant, that's a positive impact on survival from other studies so, right.

Mara Goldstein - Cantor Fitzgerald & Co., Research Division

And I'm just curious in terms of your market research around sort of, broadly speaking, the rate of patients who do progress to transplant as a background rate in this setting.

Joseph I. DePinto

When we look at the marketplace, obviously, there's been a variety of different treatments. There's not a consistent way of treating AML in the United States, so what happens is there's no standard of care. So everybody has a little different approach, even at the cancer centers that are across the street from each other can have a different way of treating the relapsed/refractory setting, Mara. But what we've seen is that, that's the ultimate goal. To say I know an exact number based on market research really doesn't exist from the research we have. Because of the difference in standard of care and the different site-to-site and what they're using in some of these therapies, it makes it really difficult to pin down. But again, the research we have said is the bridge to transplant is a significant upside for these patients and a goal of therapy of the physicians that they see in the market as quite valuable. And we are enthusiastic that, hopefully, Qinprezo will have that opportunity to deliver that post the VALOR trial in a successful trial.

Daniel N. Swisher

Thanks, Mara. And just as a reminder to all of you, when we first set out on this study, we did a very careful screening of sites to be in the study, around 15 countries we selected. And one of the key criteria is that they had strong transplant track records and services, so that those patients who were candidates and got benefit from therapy could bridge to transplant. And that's what we're seeing on a blinded basis from the patients remaining on study.

Operator

[Operator Instructions] Your next question comes from the line of Matthew Andrews with Wells Fargo securities.

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

Just 3 quick ones for me. Dan, can you tell us when the next analysis will occur? Two, if the unblinding occurs in Q4, do you still believe you can complete the rolling submission by the end of the year? And then just following up lastly on Nick's question, historically, what percent of patients on intermediate dose of cytarabine actually move onto allogeneic transplant?

Daniel N. Swisher

So on the time of the next analysis, I'll let Adam comment further, but we use these conference calls as an opportunity to provide an update and when our own analysis is showing that there could be a potential shift in the guidance we've given. We just want to be very timely on getting that guidance into the market. So by broadening the guidance to Q3 and Q4, we feel very comfortable we'll be within that range. The analysis continues, and on an ongoing basis, as events occur and the data cleanup is going extremely well. In terms of how that sort of fits into regulatory timelines and regulatory preps -- do you want to say a word about that, Adam?

Adam R. Craig

It depends on the timing of the last event, Dan. It's difficult to answer that question. It very much depends on timing of the last event and how quickly we get in to see the FDA for pre-NDA meeting. So I can't really answer that question. What we -- what I do know is during this time, we are working very hard and we have done a lot of preparation in the CMC in the nonclinical sections of the NDA. So by the time we do unblind, the focus will be on the clinical data and the presentation of it. But I can't really answer that until I know the date of the last event.

Daniel N. Swisher

I think we're hopeful with strong clinical data that the FDA and the regulatory agencies broadly are going to be working with us to move that forward. So we're going to do everything we can to be prepared for putting in a quality submission. And the other aspect that we're actively working toward with our medical affairs team is a managed access plan to provide therapy to select centers and patients who could benefit from that while we await regulatory action. And then, on the last question -- sorry, Matthew?

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

Just what is the historical clinical data suggested for the control arm? What proportion of those patients would you believe would move on to an allo transplant?

Adam R. Craig

It's -- as Joe said, there's a lot of variability in the data. If we look at the CLASSIC I study, I think it was around 20% for the control arm on the CLASSIC I. You look at our Phase II data, as it has already been said, it was around 26% -- it was 26%. So it depends on the type of study that's being conducted. So I'd say a number around 20% would be a reasonable expectation here for a control arm.

Operator

There are no additional questions. I would now like to turn the presentation back over to Dan Swisher for closing remarks.

Daniel N. Swisher

Yes, thanks. Thanks, all, for participating on the call. We're very excited by the recent momentum behind Qinprezo and VALOR and our other studies, and we look forward to this being a very transformative year for us in 2014.

We're actively transitioning to the next phase of our corporate life cycle, which is a regulatory commercial stage and positioning Sunesis to become what we envision, this leading integrated oncology company with worldwide rights to a high-valued late stage asset, and now a deepening R&D product pipeline of both proprietary and collaborator-funded programs. And we are actively preparing for, with a positive VALOR readout, to move for expeditiously on several important next steps. First is, as Adam mentioned, this initiation of a pre-NDA meeting with the FDA, followed by a rolling NDA submission. And I think the key thing here is quality submission, actively preparing for it and it's going to be the review cycle of the FDA as well, which hopefully will be very motivated in this setting of unmet medical need. The second, with Joe's leadership is to build out of an experienced U.S. oncology commercial organization and on the medical affairs side, and so having this -- a bit of additional time right now has given us that opportunity to really prepare for that successful introduction, which would be the first new branded therapy in this market in many years. So we're completing our prelaunch activities and continuing to make progress across the other 5 pipeline programs.

So I want to thank all of you. I know many of you will be coming to ASCO. We've got some events and activities and a presentation around that, and so look forward to seeing you -- many of you in person. And in the meantime, if you have a question for any of us, please give us a call. Thanks for participating.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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