The following discussion and analysis of our financial condition as of September
30, 2020 and results of operations for the three and nine months ended September
30, 2020 and 2019 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 (the "
SEC"), filings, including our Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the SEC on March 10, 2020.
This discussion and analysis contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Private Securities Litigation Reform Act of 1995, 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 the
continued development and potential of its kinase inhibitor pipeline, including
the additional preclinical findings and IND-enabling studies related to SNS-510;
Sunesis' strategy of addressing anticipated PI3Ki toxicities through dose
regiment optimization and strategies that mitigate glucose dysregulation; the
clinical and commercial potential of SNS-510; the anticipated submission of an
IND for SNS-510 and the timing thereof; Sunesis' ability to maximize stockholder
value through Sunesis' strategic review process; the therapeutic potential of
vecabrutinib and potential partnerships or licensing arrangements related to
vecabrutinib; Sunesis' ability to receive potential milestone or royalty
payments under license and collaboration agreements and the timing of receipt of
those payments, including those related to TAK 580 and vosaroxin; Sunesis'
ability to maintain and operate Sunesis' business, in light of the recent
COVID-19 pandemic; Sunesis' future research and development activities,
including clinical testing and the costs and timing thereof, the potential of
Sunesis' existing product candidates to lead to the development of commercial
products; sufficiency of Sunesis' cash resources and financial position;
developments and projections relating to Sunesis' competitors or Sunesis'
industry 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.
"Sunesis," "we," "us," and "our" refer to Sunesis Pharmaceuticals, Inc. and its
wholly-owned subsidiaries, except where it is made clear that the term means
only the parent company.
Overview
Sunesis is a biopharmaceutical company focused on the development of novel
targeted inhibitors for the treatment of hematologic and solid cancers. We are
developing SNS-510, a PDK1 inhibitor licensed from Millennium Pharmaceuticals,
Inc. ("Takeda Oncology"), a wholly-owned subsidiary of Takeda Pharmaceutical
Company Limited. SNS-510 interaction with PDK1 inhibits both PI3K signaling and
PIP3-independent pathways integral to many malignancies, and PDK1 can also be
overexpressed in breast, lung, prostate, hematologic and other cancers.
Evaluation of SNS-510 in the Eurofins Oncopanel™, a panel of >300 genomically
profiled cancer cell lines from diverse tissue origins, indicated that
CDKN2A-mutated tumors are particularly sensitive to SNS-510. CDKN2A alterations
are common in human cancers and may prove to be useful biomarkers for broad
investigation of SNS-510 as a monotherapy and in combination with other
anticancer agents. SNS-510 showed synergistic activity when combined with
inhibitors of CDK4/6, KRAS G12C, or BCL-2 in breast cancer, KRAS-mutant, and
lymphoma cell lines in vitro. In in vivo studies, SNS-510 demonstrated potent,
pathway-mediated antitumor activity in FLT3-mutated and wild-type AML xenograft
mouse models, as well as in a myc-activated lymphoma model. We are conducting
Investigational New Drug-enabling studies for SNS-510 and are addressing
expected PI3Ki toxicities through dose regimen optimization and strategies that
mitigate glucose dysregulation.
Our second program is vecabrutinib, a selective non-covalent inhibitor of
Bruton's Tyrosine Kinase, or BTK, with activity against both wild-type and
C481S-mutated BTK, the most common mutation associated with resistance to
covalent BTK inhibitors. In June 2020, we announced that we will not advance our
non-covalent BTK inhibitor vecabrutinib in the planned Phase 2 portion of the
Phase 1b/2 trial for adults with relapsed or refractory chronic lymphocytic
leukemia ("CLL") and other B-cell malignancies. The decision was made after
assessing the totality of the data including the 500 mg cohort, the highest dose
studied in the trial, as we found insufficient evidence of activity in the
BTK-inhibitor resistant disease population to move the program into Phase 2. We
have completed the Phase 1b portion of the Phase 1b/2 trial and are evaluating
the best path forward for vecabrutinib.
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In July 2020, we announced a reduction in workforce of approximately 30% of our
headcount to focus on development of our PDK1 inhibitor SNS-510. We have
incurred approximately $0.2 million in severance costs related to the reduction
in workforce in the third quarter of 2020. We are currently under corporate
review of strategic alternatives that can include asset in-licensing,
partnering, and mergers and acquisitions.
Impact of Coronavirus ("COVID-19") on Our Operations
In December 2019, a novel strain of coronavirus, otherwise known as COVID-19,
was reported in Wuhan, China. On March 11, 2020, the World Health Organization
(the "WHO") declared COVID-19 a pandemic, and on March 13, 2020, the United
States declared a national emergency with respect to the coronavirus outbreak.
This outbreak has severely impacted global economic activity, and many countries
and many states in the United States have reacted to the outbreak by instituting
quarantines, mandating business and school closures and restricting travel. Our
employees have been working from home since March 16, 2020, when California's
San Mateo County issued its first shelter-in-place order.
To date, our programs have not experienced significant COVID-19 related delays.
The continued COVID-19 pandemic may negatively impact our workforce and our
research and development activities.
As of the date of the filing of this quarterly report on Form 10-Q, management
is evaluating all options to conserve cash and to obtain additional debt or
equity financing and/or enter into collaborative arrangements or strategic
transactions, to permit the Company to continue operations. See Item 1A - "Risk
Factors" for additional information regarding the potential impact of the
COVID-19 pandemic on our business, results of operations and financial
condition.
Recent Financial History
Reverse Stock Split
On September 2, 2020, we effected a one-for-ten reverse split of our outstanding
common stock (the "Reverse Split"), as previously authorized and approved at the
annual meeting of stockholders on June 16, 2020. As a result of the Reverse
Split, every ten shares of common stock were combined into one share of common
stock. The Reverse Split affected the shares of our common stock: (a)
outstanding immediately prior to the effective time of the Reverse Split, (b)
available for issuance under our equity incentive plans, (c) issuable upon the
exercise of outstanding stock options and warrants and (d) issuable upon
conversion of the outstanding non-voting Series E and Series F Convertible
Preferred Stock. All share and per-share data in our consolidated financial
statements and notes thereto give retroactive effect to the Reverse Split for
all periods presented.
Underwritten Offering
In July 2020, we completed an underwritten public offering of 5,999,999 shares
of our common stock, including the full exercise of the underwriter' option to
purchase 782,608 shares of common stock to cover over-allotments, at a price to
the public of $2.30 for each share of common stock. Gross proceeds from the sale
were approximately $13.8 million, and net proceeds were approximately $12.6
million.
SVB Repayment
In July 2020, we repaid in full all outstanding indebtedness and terminated all
commitments and obligations under the existing term loan agreement (the "SVB
Loan Agreement"). The repayment to Silicon Valley Bank ("SVB") was approximately
$5.7 million, which satisfied all of our debt obligations, including a final
interest payment equal to 4% of the original principal amount of the borrowing.
Controlled Equity Offerings
Cantor Controlled Equity Offering
During the three and nine months ended September 30, 2020, no shares of common
stock, respectively, were sold under the Controlled Equity OfferingSM sales
agreement, as amended (the "Sales Agreement"), with Cantor Fitzgerald & Co.
("Cantor"), as agent and/or principal. As of September 30, 2020, $43.1 million
of common stock remained available to be sold under this facility, subject to
certain conditions as specified in the Sales Agreement.
Aspire Common Stock Purchase Agreement
The Common Stock Purchase Agreement (the "CSPA") with Aspire Capital Fund, LLC
("Aspire") expired on June 25, 2020 and no shares were issued under the CSPA in
2020 prior to its expiration.
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Capital Requirements
We have incurred significant losses in each year since our inception. As of
September 30, 2020, we had cash and cash equivalents of $26.0 million and an
accumulated deficit of $699.6 million. We expect to continue to incur
significant losses for the foreseeable future as we continue the development of
our kinase inhibitor pipeline, including our PDK1 inhibitor, SNS-510. We have
product candidates that are still in the early stages of development and will
require significant additional investment.
We had cash and cash equivalents of $26.0 million as of September 30, 2020. We
expect our current cash and cash equivalents will not be sufficient to support
our operations for a period of twelve months from the date the condensed
consolidated financial statements for the quarter ended September 30, 2020 are
available to be issued. We will require additional financing to fund working
capital and pay our obligations as they come due. Additional financing might
include one or more offerings and one or more of a combination of equity
securities, debt arrangements or partnership or licensing collaborations.
However, there can be no assurance that we will be successful in acquiring
additional funding at levels sufficient to fund our operations or on terms
favorable to us. Additionally, the continued spread of COVID-19 and uncertain
market conditions may limit our ability to access capital. These conditions
raise substantial doubt about our ability to continue as a going concern for a
period of one year from the date our condensed consolidated financial statements
for the quarter ended September 30, 2020, are available to be issued. If we are
unsuccessful in our efforts to seek strategic alternatives or raise additional
financing in the near term, we will be required to significantly reduce or cease
operations. Our accompanying condensed consolidated financial statements for the
quarter ended September 30, 2020, have been prepared assuming we will continue
to operate as a going concern, which contemplates the realization of assets and
the settlement of liabilities in the normal course of business. The condensed
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts of liabilities that may result from uncertainty related to our
ability to continue as a going concern.
In addition, the COVID-19 pandemic may negatively impact our workforce and our
research and development activities. While this will reduce travel and other
costs in the near term, this may ultimately have a material adverse effect on
our liquidity, although we are unable to make any prediction with certainty
given the rapidly changing nature of the pandemic and governmental and other
responses to it.
We are taking steps to manage our resources by reducing and/or deferring capital
expenditures, and operating expenses to mitigate the adverse impact of the
pandemic. Future impacts of COVID-19 may require further actions by us to
improve its cash position, including but not limited to, implementing employee
furloughs and foregoing capital expenditures and other discretionary expenses.
Our liquidity may be negatively impacted if normal business operations are not
resumed in the near-term. Further, the extent to which the COVID-19 pandemic and
our precautionary measures in response thereto impact our business and liquidity
will depend on future developments, which are highly uncertain and cannot be
precisely predicted at this time. In July 2020, we announced a reduction in
workforce of approximately 30% of our head count to focus on development of our
first-in-class PDK1 inhibitor SNS-510.
Critical Accounting Policies and Significant Judgments and Estimates
There have been no significant changes during the three and nine months ended
September 30, 2020 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, 2019.
Revenues
We have not generated any revenue from the sale of commercial products. Our
current and past revenue have been generated through license and collaboration
agreements. We cannot predict if our licensees will continue development or
whether we will receive any additional event-based payments or royalties from
these agreements in the foreseeable future, or at all.
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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, including
non-cash stock-based compensation; 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 SNS-510, a PDK1 inhibitor, for
the treatment of solid tumor and hematologic malignancies. Research and
development costs typically increase as product development candidates move from
early stage to later stage, larger clinical trials. As a result, our research
and development costs may increase in the future. Due to the above uncertainties
and other risks inherent in the development process, we are unable to estimate
the costs we will incur in the development of our product candidates in the
future.
If we engage a development or commercialization partner for our development
programs, 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. We anticipate expenditures associated with
vosaroxin and vecabrutinib to diminish as result of out-licensing of vosaroxin
to Denovo and the completion of the Phase 1b portion of the Phase 1b/2 trial for
vecabrutinib, and continuing expenditures associated with advancing the SNS-510
program in 2020 and beyond.
General and Administrative expense. General and administrative expense consists
primarily of personnel costs for the related employees, including non-cash
stock-based compensation; outside service costs, including fees paid to external
legal advisors, marketing consultants and our independent registered public
accounting firm; facilities expenses; and other administrative costs.
Results of Operations
Revenue
Total revenue was nil and $0.1 million for the three and nine months ended
September 30, 2020, respectively, and nil for the comparable periods in 2019.
The revenue during the nine months ended September 30, 2020 was primarily due to
revenue recognized from the upfront payment received under the license agreement
with Denovo.
Research and Development Expense
Research and development expense was $2.2 million and $10.1 million for the
three and nine months ended September 30, 2020, respectively, compared to $3.5
million and $10.5 million for the same periods in 2019. The decrease of $1.3
million between the comparable three months periods was primarily due to a $0.7
million decrease in clinical expenses and a $0.4 million decrease in
professional service expenses due to the decision not to advance our clinical
trial for vecabrutinib into Phase 2. The decrease is further due to a $0.2
million decrease in salary and personnel expenses due to lower headcount. The
$0.4 million decrease in the comparable nine months period was primarily due to
a $0.9 million decrease in salary and personnel expenses due to lower headcount
and a $0.6 million decrease in clinical research organization ("CRO") related
expenses, partially offset by a $1.3 million increase in professional services
mainly due to progress in the SNS-510 studies.
General and Administrative Expense
General and administrative expense was $2.3 million and $6.6 million for the
three and nine months ended September 30, 2020, respectively, compared to $2.5
million and $7.5 million for the same periods in 2019. The decrease of $0.2
million between the comparable three months periods was primarily due to a $0.4
million decrease in salary and personnel expenses due to lower headcount and
less business-related travel, offset by a $0.1 million increase in professional
service expenses and a $0.1 million increase in Delaware franchise tax due to
Reverse Split. The $0.9 million decrease in the comparable nine months periods
was primarily due to a $0.6 million decrease in salary and personnel expenses
due to lower headcount and less business-related travels and a $0.3 million
decrease in professional service expenses due to lower patent expenses.
Interest Expense
Interest expense was $0.2 million and $0.3 million for the three and nine months
ended September 30, 2020, compared to $0.1 million and $0.4 million for the same
periods in 2019, respectively. The increase in the interest expenses in the
comparable three months periods was mainly due to the final interest payment
related to the repayment of the SVB Loan Agreement in July 2020. The decrease in
the comparable nine months periods was mainly due to lower interest paid due to
the lower interest rate on the lower principal amount under the SVB Loan
Agreement as compared to our prior loan agreement with Western Alliance Bank and
Solar Capital Ltd. in 2019.
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Other Income, Net
Other income, net, was less than $0.1 million and $0.1 million for the three and
nine months ended September 30, 2020, respectively, compared to $0.2 million and
$0.3 million for same periods in 2019. The other income, net, was primarily
comprised of interest income from our money market funds.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred significant losses in each year since our inception. As of
September 30, 2020, we had cash and cash equivalents of $26.0 million and an
accumulated deficit of $699.6 million, compared to cash, cash equivalents and
restricted cash of $34.6 million and an accumulated deficit of $682.8 million as
of December 31, 2019. We expect to continue to incur significant losses for the
foreseeable future. Our products are still in the early stages of development
and will require significant additional investment.
We had cash and cash equivalents of $26.0 million as of September 30, 2020. We
expect our current cash and cash equivalents will not be sufficient to support
our operations for a period of twelve months from the date the condensed
consolidated financial statements for the quarter ended September 30, 2020 are
available to be issued. We will require additional financing to fund working
capital and pay our obligations as they come due, so substantial doubt exists
about our ability to continue as a going concern. Additional financing might
include one or more of a combination of offerings of equity securities or debt
arrangements or partnerships or licensing collaborations. However, there can be
no assurance that we will be successful in acquiring additional funding at
levels sufficient to fund our operations or on terms favorable to us.
In July 2020, we completed an underwritten public offering of 5,999,999 shares
of our common stock, including the full exercise of the underwriter' option to
purchase 782,608 shares of common stock to cover over-allotments, at a price to
the public of $2.30 for each share of common stock. Gross proceeds from the sale
were approximately $13.8 million, and net proceeds were approximately $12.6
million.
During the three and nine months ended September 30, 2020, no shares of common
stock were sold under the Sales Agreement with Cantor. As of September 30, 2020,
$43.1 million of common stock remains available to be sold under the Sales
Agreement with Cantor, subject to certain conditions as specified in the Sales
Agreement. Aspire's obligation under the CSPA expired on June 25, 2020.
Our cash and cash equivalents totaled $26.0 million as of September 30, 2020, as
compared to cash, cash equivalents and restricted cash totaling $34.6 million as
of December 31, 2019. The decrease of $8.6 million was due to cash used in
operating activities, mainly resulting from our net loss of $16.8 million for
the nine months ended September 30, 2020, the $5.5 million principal payment on
the SVB Loan Agreement, offset by the $12.6 million net proceeds from issuance
of common stock and adjustments for non-cash items of $1.1 million.
In April 2019, we entered into the SVB Loan Agreement, pursuant to which we
borrowed $5.5 million. In April 2020, we entered into the SVB Deferral
Agreement, which extended the interest-only payment period through June 30, 2021
and deferred the maturity date of the borrowing under the SVB Loan Agreement to
June 1, 2023. In July 2020, we repaid in full all outstanding indebtedness and
terminated all commitments and obligations under the SVB Loan Agreement. The
repayment to Silicon Valley Bank ("SVB") was approximately $5.7 million, which
satisfied all of our debt obligations, including a final interest payment equal
to 4% of the original principal amount of the borrowing.
If we become unable to continue as a going concern, we may have to liquidate our
assets, and might realize significantly less than the values at which they are
carried on our consolidated financial statements, and stockholders may lose all
or part of their investment in our common stock. Other than raising additional
funds from investors or business partners, management cannot identify conditions
or events to mitigate the substantial doubt that exists about our ability to
continue as a going concern.
Cash Flows
Net cash used in operating activities was $15.8 million for the nine months
ended September 30, 2020, as compared to $18.4 million for the same period in
2019. Net cash used in the nine months ended September 30, 2020, resulted
primarily from the net loss of $16.8 million, partially offset by adjustments
for non-cash items of $1.1 million. Net cash used in the nine months ended
September 30, 2019, resulted primarily from the net loss of $18.0 million and
changes in operating assets and liabilities of $1.8 million, offset by
adjustments for non-cash items of $1.4 million.
Net cash provided by investing activities was $16.4 million for the nine months
ended September 30, 2020, as compared to $13.1 million net cash used by
investing activities for the same period in 2019. Net cash provided by investing
activities in 2020 consists primarily of maturities of marketable securities and
net cash used in investing activities in 2019 consists of purchase of marketable
securities.
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Net cash provided by financing activities was $7.2 million for the nine months
ended September 30, 2020, as compared to $43.1 million for the same period in
2019. Net cash provided by financing activities in 2020 resulted primarily from
$12.6 million net proceeds from issuance of common stock, offset by $5.5 million
principal payment on the SVB Loan Agreement. Net cash provided in 2019 resulted
primarily from $45.1 million net proceeds from issuance of common and preferred
stock, and $5.5 million proceeds from the SVB Loan Agreement, offset by $7.5
million principal payment on the prior loan agreement with Western Alliance Bank
and Solar Capital Ltd. in 2019.
Operating Capital Requirements
We have incurred significant operating losses and negative cash flows from
operations since our inception. As of September 30, 2020, we had cash and cash
equivalents of $26.0 million and cash used in operating activities of $15.8
million for the nine months ended September 30, 2020.
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, European Medicines Agency (the "EMA"), or similar regulatory
agencies in other countries, and has been successfully commercialized, if ever.
We will need to raise substantial additional funding to complete the development
and potential commercialization of any of our development programs.
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;
• 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, EMA, or other
regulatory approvals;
• 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 of supporting our arrangements with Takeda.
Our failure to raise significant additional capital in the future would force us
to delay or reduce the scope of our SNS-510 program, potentially including any
additional clinical trials or subsequent regulatory filings in the United States
or Europe, 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.
In addition, the recent COVID-19 pandemic has significantly disrupted world
financial markets and negatively impacted US market conditions. This may reduce
opportunities for us to find additional funding from partnering or selling
equity. Though we raised additional funds in our July 2020 offering, we will
require additional financing to fund working capital and continue clinical
development of SNS 510. Further decline in the market price of our common stock
could make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate. If we fail to raise
sufficient additional financing, on terms and dates acceptable to us, we may not
be able to continue our operations and the development of our product
candidates, and we may be required to reduce staff, reduce or eliminate research
and development, slow the development of our product candidates, outsource or
eliminate several business functions or shut down operations.
Off-Balance Sheet Arrangements
Since our inception, we have not had any off-balance sheet arrangements or
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or variable interest entities,
which are typically established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes.
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