Sunesis Signs Deal, Improves Pipeline Prospects

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South San Francisco based Sunesis (NASDAQ:SNSS) announced a license agreement on April 5 with Millennium Pharmaceuticals to develop its pan-Raf kinase inhibitor. Under the terms of this deal, Sunesis received $4 million upfront and potentially $60 million in milestones as well as royalties. Millennium will pay for all costs of the Phase I trial, after which Sunesis will have the option to co-develop and co-promote the drug, gaining better royalty terms as a result.

I spoke by phone with President and CEO Dan Swisher about the Millennium deal. Dan was upbeat about the prospects of the b-RAF inhibitor licensed to Millennium. This asset had been jointly owned by Biogen Idec (NASDAQ:BIIB) and Sunesis. In November last year, Biogen decided to refocus on neurology and exit oncology; the two companies then worked together to find a new partner for the compound, leading to the Millennium deal. A second oncology compound was also part of the deal but its target was undisclosed. It is still in pre-clinical studies.

Dan tells me the RAF compound is the culmination of six years of pre-clinical research. He believes its potent activity against all three RAF isozymes may give it a leg up against specific b-RAF inhibitors such as the highly touted Plexxikon drug, noting that the Plexxikon compound showed very good responses initially but patients often encountered drug resistance after the first year of treatment. By potently inhibiting a-RAF, b-RAF, and c-RAF, Dan believes their candidate has the potential for a more durable response.

The first order of business will be for Millennium to get the compound into the clinic, which is expected later this year. It will first be tested in patients with advanced solid tumors; the "low hanging fruit" would be melanomas with mutated b-RAF, Dan says. This of course, is the indication being pursued for Plexxikon’s b-RAF inhibitor, PLX4032. Development will be led by Millennium so he wasn’t able to tell me much about their future development plans except to say they will be looking into doing some combination studies.

Sunesis has the right to opt in to co-develop the compound after Phase I, which Dan likens to a "free option" because indeed, the company will have contributed no funds up to that point. The decision will then be made based on the data, the company’s portfolio, and cash resources.

The company is currently focusing most of its resources on its late stage compound, vosaroxin, for the treatment of relapsed AML. The trial, termed VALOR began enrolling patients in the U.S. last December and will soon begin adding patients in 13 countries around the world. Vosaroxin has shown good Phase II activity in combination with the chemotherapy cytarabine, extending overall survival about two-fold over historical results. The Phase III trial will compare vosaroxin + cytarabine vs. cytarabine alone, with survival as the primary endpoint.

One aspect of the trial I like is the interim analysis set for the middle of 2012. At that time, the Data Safety Monitory Board will analyze the data and decide if the trial is futile or successful- either case would lead to an early end. The board can also allow the trial to continue unchanged; or if it appears promising but insufficient powered, the trial size can be increased by 50% from its current target enrollment of 450 patients. Final data is expected to be available in 2013.

With what seems almost like a haphazard drug approval process by the FDA, investors often feel assured by a Special Protocol Accessment (SPA), a type of written agreement with the FDA on the design and planned analysis for a clinical trial. While Sunesis doesn’t have an SPA for the VALOR trial, Dan assures me the company has been in constant communication with the FDA with consistent feedback regarding their trial design. He also suggested SPAs may be less important for what he terms a "conservative clinical trial" that has survival as the primary endpoint.

Sunesis is not the only company to flout the conventional wisdom. Calistoga Pharmaceuticals also initiated its Phase III without an SPA. In that case, the CEO did not want to wait the six-month processing time in order to stay ahead of the competition.

AML has been a graveyard for drug developers of late. According to Dan, there have been no new drugs to treat the disease in 30 years. If data for vosaroxin holds up from its Phase II trial, the standard of care for patients after the fist relapse will change drastically. With no competing drugs, the company estimates potential vosaroxin sales, if approved, could range between about $400-$600 million.

With over $50 million in the bank, Sunesis has ample cash to fund its operations; dilution will not be an immediate concern. The Phase II vosaroxin data looks good, with the caveat being it was a single arm trial. For investors able to stomach some risk, Sunesis looks cheap for a promising Phase III company.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SNSS over the next 72 hours.