An ASCO Bio-Pharma Catalyst Trade With A Promising Leukemia Drug

As I've referred to in previous articles, this time of the year the spotlight turns to the June ASCO meetings in Chicago, IL. ASCO stands for the American Society of Clinical Oncology and is the premier event for oncology professionals including researchers, physicians, and pharmaceutical companies. The message from ASCO is, "Collaborating to Conquer Cancer."

The following company presenting this year (June 4th) sparks my interest as an investor/trader who would like to see progress for this horrible disease:

Sunesis Pharma (NASDAQ:SNSS). 5/8/12 pps: $2.70. Market cap: $125.95M.

To combine with the possible catalyst trade opportunity of presenting at ASCO, Sunesis just announced on May 3rd that the European Commission has granted orphan drug designation to vosaroxin, the company's lead development candidate; for the treatment of Acute Myeloid Leukemia (AML).

The designation provides for 10 years of marketing exclusivity in all EU member countries following product approval. Vosaroxin has previously received orphan drug and fast track designations from the U.S. Food and Drug Administration (FDA).

With the orphan drug designations for vosaroxin in both the EU and USA, I feel there are a lot of exciting things happening for Sunesis. One thing that increases my interest when looking at pharmaceutical companies is when I hear they are working on an indication that has seen next to zero progress recently. According to the CEO Daniel Swisher, there have been no new drugs to treat this disease in 30 years. If data for vosaroxin confirms the Phase III trials, the standard of care for patients who relapse from this form of Leukemia will change drastically. With no competing drugs, the company estimates potential vosaroxin sales, if approved, could range from $400-$600 million annually.

Let's take a look on what Sunesis says about vosaroxin:

Vosaroxin: A Novel Anticancer Agent

Vosaroxin is a first-in-class anticancer quinolone derivative, or AQD, a class of compounds that has not been used previously for the treatment of cancer. Vosaroxin exerts potent anticancer activity through a mechanism that involves intercalation into DNA and an inhibition of topoisomerase II activity that results in replication-dependent, site-selective double-strand breaks in DNA. The DNA damage induced by vosaroxin is analogous to that of the quinolone antibiotics in bacterial cells.

Topoisomerase II enzymes are essential for the survival of eukaryotic cells. By cleaving and then re-ligating double-strand breaks, they maintain DNA topology during replication and support chromosome condensation, decondensation, and segregation.

Vosaroxin blocks the re-ligation of topoisomerase II-induced double-strand breaks at selective sites in DNA. This leads to G2 arrest and cell death by apoptosis.

Vosaroxin is differentiated chemically and mechanistically from other clinically active topoisomerase II inhibitors. It is not a P-glycoprotein (P-gp) substrate, thereby evading the most common mechanism for multidrug resistance. This may contribute to the vosaroxin activity observed in anthracycline-resistant patients. Other important attributes that differentiate vosaroxin from existing therapies are its targeted DNA damage, p53 family independence, limited distribution to normal tissues relative to anthracyclines, and a more chemically stable molecular structure. These attributes may contribute to vosaroxin's broad therapeutic profile in patients with various tumor types.

The mechanism of action of vosaroxin contrasts with the more promiscuously intercalative tetracyclic core of the anthracyclines, and this may lead to an improved toxicity profile. In addition, anthracyclines are also associated with significant production of reactive oxygen species (ROS), which have been linked to cardiotoxicity. By comparison, the vosaroxin naphthyridine core is less chemically reactive and produces few ROS, potentially reducing the risk of cardiotoxicity.

Let's take a look on what Sunesis says about its Phase III clinical studies on vosaroxin:

We are currently evaluating vosaroxin in our Phase III VALOR trial, a multi-national, randomized, double-blind, placebo-controlled, pivotal trial of vosaroxin in combination with cytarabine in patients with relapsed or refractory AML. We are in the survival follow-up stage of two fully-enrolled clinical trials of vosaroxin: the Phase II portion of a Phase Ib/II trial of vosaroxin in combination with cytarabine for the treatment of patients with first relapsed or primary refractory AML, and a Phase II trial (known as REVEAL-1) in previously untreated elderly patients with AML, which explored three different dose schedules. In addition, we completed a Phase 2 single agent trial of vosaroxin in platinum-resistant ovarian cancer patients in 2010, which explored three different dose cohorts.

Vosaroxin has demonstrated objective tumor responses in a variety of tumor types and has been generally well tolerated. Clinical responses with single agent vosaroxin have been seen in these indications, as well as in non-small cell and small cell lung cancers. In addition, complete remissions have been observed in AML patients treated with vosaroxin in combination with cytarabine.

Vosaroxin is a replication-dependent DNA-damaging agent that induces G2 arrest and apoptosis (cell death). As a result, cancer cells, which are typically proliferative and resistant to pathways that eliminate damaged or aberrant cells, are no longer able to divide and the cells die. Based on our translational research and our understanding of vosaroxin's mechanism of action, vosaroxin has the potential to combine with other anticancer agents for the treatment of both advanced and earlier stage disease. Click here for more information on vosaroxin's mechanism of action.

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. They expect to enroll 450 evaluable patients in the VALOR trial at more than 100 study sites in the U.S., Canada, Europe, Australia and New Zealand. The trial is designed to have a 90% probability of detecting a difference in overall survival; its primary endpoint- reduce deaths by 40%. The trial also includes a single pre-specified interim analysis by the independent Data and Safety Monitoring Board, or DSMB, which is expected to occur in the third quarter of 2012.

This could be a huge breakthrough in my opinion when you think about mortality rates among approximately 13,000 in the U.S. alone who are diagnosed AML each year.

AML is a very sad disease to research and read about. It is way more prominent as people get older with the average age of those affected at approximately sixty. There is an inverse relationship between age and remission rates; the older people are, the tougher it is to survive. The treatment today consists of intense chemotherapy. During this treatment, the patient's blood cell counts will probably be dangerously low, and the patient may be very ill. Because of the elimination of healthy blood cells, the risk for internal bleeding exists, which may lead to death. Many also die from infection while battling AML. Drugs to raise white blood cell counts may be used to curb some of these risks.

The following two large pharmas have had some issues with their approved and marketed Leukemia drugs recently; let's take a look:

Sanofi (SNY)

In Febraury of this year, the company recalled 9,380 vials of the leukemia medicine Fludara because of a "lack of assurance of sterility," U.S. regulators said.

Genzyme, a unit of Paris-based Sanofi, notified customers of the recall of the intravenous drug on Jan. 31 and Feb. 1, the Food and Drug Administration said today in an enforcement report on its website.

The FDA last year, issued a warning regarding the safety of Bristol-Myers Squibb Company's (NYSE:BMY) leukemia drug Sprycel. Sprycel is indicated for treating certain adults suffering from chronic myeloid leukemia (CML) or acute lymphoblastic leukemia (ALL). The FDA stated in 2011 that treatment with the drug may elevate the risk of high blood pressure in the lungs' arteries. The disorder is referred to as pulmonary arterial hypertension (NYSE:PAH). The FDA also stated that due to high blood pressure the heart has to work harder to pump sufficient blood through the lungs.

The drug, which has treated approximately 32,882 patients since launch, blocks the action of an abnormal protein that causes tumor growth.

Two companies that come to mind with Leukemia drugs in Phase clinical are:

Ariad Pharma (ARIA) with its drug Ponatinib, a treatment for CML, which eventually could generate annual sales of more than $1 billion. It has been reported that Ponatinib will bypass Phase III clinical and be assigned an approval decision date from the FDA soon.

Ariad Pharma has seen its shares over the course of 3 years hit a 5 bagger, with shares currently trading over $16 a share. Ariad investors might be interested in looking into Vosaroxin, as Sunesis reminds me of Ariad a bit from 3 years ago, although Ponatinib will used to treat CML

Ariad investors might see the same opportunity with Sunesis many of them had with the Ariad stock when it was priced near the range of what Sunesis is currently selling for.

Novartis (NVS) Drugs: Gleevec and Tasigna.

The launch of Gleevec (imatinib) for the treatment of chronic myeloid leukemia in 2003 catapulted Novartis into a major oncology player and made the company into a poster child for oncologic success: an expensive, targeted therapy that payers point to as a treatment worthy of its price tag.

Gleevec's market exclusivity ends in about 3 years; Novartis' ability to extend the growth of its oncology franchise beyond that time-frame depends largely on its success in switching patients to a follow up, Tasigna (nilotinib).

However, on Febraury 29th, 2012, Bloomberg reported that Gleevec and Tasigna has been recently shown to fight the deadly Ebola virus in laboratory experiments, suggesting the products could be used against a disease for which there are no treatments.

The two medicines stopped the release of viral particles from infected cells in lab dishes, a step that in a person may prevent Ebola from spreading in the body and give the immune system time to control it, researchers from the U.S. National Institute of Allergy and Infectious Diseases wrote in the journal Science Translational Medicine.

Balance Sheet
Total Cash (mrq): 44.12M
Total Cash Per Share (mrq): 0.94
Total Debt (mrq): 9.45M
Total Debt/Equity (mrq): 33.74
Current Ratio (mrq): 5.45
Book Value Per Share (mrq): 0.60

Another reason I feel Sunesis is poised for big things is the stability of their cash position and other portions of their financial statements. They ended 2011 with about $44 million dollars in cash and short term investments, with $9.45M in debt; reasonable.

% Held by Insiders: 37.20%
% Held by Institutions: 22.30%
Shares Short (as of Apr 13, 2012): 2.91M
Short Ratio (as of Apr 13, 2012): 4.60
Short % of Float (as of Apr 13, 2012): 9.80%
Shares Short (prior month): 2.40M

Sunesis has a solid representation of insiders who own 37.2% of the shares outstanding. Institutional ownership is also good at 22.3%. This combined with 9.8% short interest could produce a nice pop if further good news is released since these shorts would most likely cover their position.

One thing I found very interesting from their SEC reports is how they have structured several milestone payments. In collaboration with Millennium: The Takeda Oncology Company, Sunesis is eligible to receive up to $60 million dollars in pre-commercialization milestone payments to develop its pan-Raf kinase inhibitor. In this phase one trial, Millennium will pay Sunesis $4 million upfront and take care of the trial costs. I think it is a big benefit to Sunesis that they can collect up to $60 million dollars before this drug would even hit the market and also have the opportunity to collect royalty payments once approved. Many times, I see companies not receiving payments of this size until FDA approval, if ever. This should provide Sunesis with an ample supply of money to further along vosaroxin in clinical trials.

Shares Outstanding: 46.82M
Float: 26.54M

Market Cap: Roughly $125M; with a low $26.54M float, Sunesis is grossly under spec valued when considering the positive data seen in prior clinical trials of vosaroxin and its potential market value. Also

Date Research Firm Action From To
13-Apr-12 Cantor Fitzgerald Initiated Buy
6-Mar-12 Canaccord Genuity Initiated Buy

The above 2 firms have recently begun coverage on Sunesis, both recommending Sunesis as a buy, with Canter Fitzgerald slapping a $6 dollar price target on it, and Canaccord giving Sunesis a $4 dollar price target.

(Click to enlarge)

The stock price lately has been making higher lows and slightly lower highs in a wedge pattern. This is another case where some less experienced chart readers might see a head and shoulders pattern. The price would have to break below $2.40 a share for the H&S bearish pattern to confirm. As I watch stocks before they might become a pick of mine, I look for accumulation patterns, and shun those I see with distribution patterns. Here I see accumulation occurring here right before a possible break-out on heavy volume in my opinion; a move over 3 seems likely to me.

To summarize, Sunesis will gain a lot of exposure while presenting its phase 3 data on Vosaroxin at the ASCO meetings. I also strongly feel traders will have a nice shot some strong short term gains for the same reason.

I like the track Sunesis is currently on and in my opinion, I expect a short term stock price leading up to the June 4th presentation to hit around $3.15 a share, maybe a tad higher.

Sunesis might end up having a similar run to what Ariad Pharma has had the 3 years or so as these types of break-thru Leukemia treatments are very much needed. Sunesis might also present an attractive acquisition target for a large pharma wishing to increase its exposure in the oncological pharma space. With a market cap of $125M, Sunesis is extremely under speculation valued considering its technology here.

Price target opinions:

Short term pps: $3.15 Mid term pps: $4.25

1 Year pps target: $8; dependent on Sunesis progression with Vosaroxin. I might hold this one for a while as I think this one can make a nice run if the data continues to confirm on vosaroxin.

All chart and fundamental data sourced from Yahoo Finance.

Disclosure: I am long SNSS.

Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Always do you own complete due diligence before buying and selling any stock.

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