UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 000-51531

 

SUNESIS PHARMACEUTICALS INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

94-3295878

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

395 Oyster Point Boulevard, Suite 400

South San Francisco, California 94080

(Address of Principal Executive Offices including Zip Code)

(650) 266-3500

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

SNSS

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes      No  

 

The registrant had approximately 111,393,000 shares of common stock, $0.0001 par value per share, outstanding as of May 4, 2020.

 

 


 

SUNESIS PHARMACEUTICALS, INC.

TABLE OF CONTENTS

 

 

Page

No.

PART I. FINANCIAL INFORMATION

3

Item 1.

  

Financial Statements:

3

 

  

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

3

 

  

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019

4

 

  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

5

 

  

Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2020 and 2019

6

 

  

Notes to Condensed Consolidated Financial Statements

7

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

21

Item 4.

  

Controls and Procedures

21

 

PART II. OTHER INFORMATION

22

Item 1.

  

Legal Proceedings

22

Item 1A.

  

Risk Factors

22

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

43

Item 3.

  

Defaults Upon Senior Securities

43

Item 4.

  

Mine Safety Disclosures

43

Item 5.

  

Other Information

43

Item 6.

  

Exhibits

43

 

  

Signatures

45

 

 

 

 


 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

  

SUNESIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

March 31,

2020

 

 

December 31,

2019

 

 

(Unaudited)

 

 

(1)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

19,974

 

 

$

12,761

 

Restricted cash

 

5,500

 

 

 

5,500

 

Marketable securities

 

3,445

 

 

 

16,364

 

Prepaids and other current assets

 

1,790

 

 

 

1,697

 

Total current assets

 

30,709

 

 

 

36,322

 

Property and equipment, net

 

1

 

 

 

3

 

Operating lease right-of-use asset

 

681

 

 

 

817

 

Other assets

 

96

 

 

 

98

 

Total assets

$

31,487

 

 

$

37,240

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

862

 

 

$

791

 

Accrued clinical expense

 

600

 

 

 

521

 

Accrued compensation

 

746

 

 

 

985

 

Other accrued liabilities

 

1,039

 

 

 

1,109

 

Notes payable

 

5,469

 

 

 

5,465

 

Operating lease liability - current

 

545

 

 

 

545

 

Total current liabilities

 

9,261

 

 

 

9,416

 

Other liabilities

 

4

 

 

 

9

 

Operating lease liability - long term

 

136

 

 

 

272

 

Total liabilities

 

9,401

 

 

 

9,697

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Convertible preferred stock

 

11,769

 

 

 

11,769

 

Common stock

 

11

 

 

 

11

 

Additional paid-in capital

 

698,881

 

 

 

698,562

 

Accumulated other comprehensive income

 

 

 

 

1

 

Accumulated deficit

 

(688,575

)

 

 

(682,800

)

Total stockholders’ equity

 

22,086

 

 

 

27,543

 

Total liabilities and stockholders’ equity

$

31,487

 

 

$

37,240

 

 

(1)

The condensed consolidated balance sheet as of December 31, 2019, has been derived from the audited financial statements as of that date included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

See accompanying notes to condensed consolidated financial statements.

 

 

3


 

SUNESIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

 

 

Three months ended

March 31,

 

 

2020

 

 

2019

 

 

(Unaudited)

 

Revenue:

 

 

 

 

 

 

 

License and other revenue

$

120

 

 

$

 

Total revenues

 

120

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

3,690

 

 

 

3,248

 

General and administrative

 

2,228

 

 

 

2,439

 

Total operating expenses

 

5,918

 

 

 

5,687

 

Loss from operations

 

(5,798

)

 

 

(5,687

)

Interest expense

 

(70

)

 

 

(261

)

Other income, net

 

93

 

 

 

88

 

Net loss

 

(5,775

)

 

 

(5,860

)

Unrealized loss on available-for-sale securities

 

(1

)

 

 

 

Comprehensive loss

$

(5,776

)

 

$

(5,860

)

Basic and diluted loss per common share:

 

 

 

 

 

 

 

Net loss

$

(5,775

)

 

$

(5,860

)

Shares used in computing net loss per common share

 

111,393

 

 

 

59,142

 

Net loss per common share

$

(0.05

)

 

$

(0.10

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


 

SUNESIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

Three months ended

March 31,

 

 

2020

 

 

2019

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(5,775

)

 

$

(5,860

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Stock-based compensation expense

 

319

 

 

 

417

 

Accretion of investment discounts and depreciation

 

(37

)

 

 

2

 

Amortization of debt discount and debt issuance costs

 

4

 

 

 

42

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaids and other assets

 

(91

)

 

 

(91

)

Accounts payable

 

71

 

 

 

(532

)

Accrued clinical expense

 

79

 

 

 

(80

)

Accrued compensation

 

(239

)

 

 

(266

)

Other accrued liabilities

 

(75

)

 

 

255

 

Net cash used in operating activities

 

(5,744

)

 

 

(6,113

)

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

(748

)

 

 

 

Proceeds from maturities of marketable securities

 

13,705

 

 

 

 

Net cash provided by investing activities

 

12,957

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Principal payments on notes payable

 

 

 

 

(1,406

)

Proceeds from issuance of convertible preferred stock offering, net

 

 

 

 

7,944

 

Proceeds from issuance of common stock, net

 

 

 

 

10,690

 

Net cash provided by financing activities

 

 

 

 

17,228

 

Net increase in cash, cash equivalents and restricted cash

 

7,213

 

 

 

11,115

 

Cash, cash equivalents and restricted cash at beginning of period

 

18,261

 

 

 

13,696

 

Cash, cash equivalents and restricted cash at end of period

$

25,474

 

 

$

24,811

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

Conversion of preferred stock to common stock

$

 

 

$

3,228

 

Right-of-use assets obtained in exchange for new operating lease liabilities

$

 

 

$

1,362

 

Legal expenses accrued as cost of equity financing

$

 

 

$

98

 

 

See accompanying notes to condensed consolidated financial statements.

 


5


 

SUNESIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

 

 

Three months ended March 31, 2020

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Comprehensive

 

 

 

 

 

 

Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Income

 

 

Accumulated

 

 

holders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2019

 

 

20

 

 

$

11,769

 

 

 

111,393

 

 

$

11

 

 

$

698,562

 

 

$

1

 

 

$

(682,800

)

 

$

27,543

 

Stock-based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

319

 

 

 

 

 

 

 

 

 

319

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,775

)

 

 

(5,775

)

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance as of March 31, 2020

 

 

20

 

 

$

11,769

 

 

 

111,393

 

 

$

11

 

 

$

698,881

 

 

$

 

 

$

(688,575

)

 

$

22,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2019

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Comprehensive

 

 

 

 

 

 

Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Income

 

 

Accumulated

 

 

holders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Comprehensive

 

 

 

 

 

 

Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Income

 

 

Accumulated

 

 

holders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2018

 

 

18

 

 

$

20,998

 

 

 

37,474

 

 

$

4

 

 

$

642,460

 

 

$

 

 

$

(659,469

)

 

$

3,993

 

Issuance of common and preferred stock in underwritten offering, net of issuance costs

 

 

17

 

 

 

7,877

 

 

 

23,000

 

 

 

2

 

 

 

10,657

 

 

 

 

 

 

 

 

 

18,536

 

Conversion of preferred stock to common stock

 

 

(7

)

 

 

(3,228

)

 

 

7,000

 

 

 

1

 

 

 

3,227

 

 

 

 

 

 

 

 

 

 

Issuance of common stock from vesting of restricted stock awards

 

 

 

 

 

 

 

 

104

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

54

 

Stock-based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

363

 

 

 

 

 

 

 

 

 

363

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,860

)

 

 

(5,860

)

Balance as of March 31, 2019

 

 

28

 

 

$

25,647

 

 

 

67,578

 

 

$

7

 

 

$

656,761

 

 

$

 

 

$

(665,329

)

 

$

17,086

 

 

See accompanying notes to condensed consolidated financial statements.

6


 

SUNESIS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

 

1. Company Overview

Description of Business

Sunesis Pharmaceuticals, Inc. (“Sunesis” or the “Company”) is a biopharmaceutical company focused on the development of novel targeted inhibitors for the treatment of hematologic and solid cancers. The Company’s primary activities since incorporation have been conducting research and development internally and through corporate collaborators, in-licensing and out-licensing pharmaceutical compounds and technology, conducting clinical trials, and raising capital.

The Company’s lead program is vecabrutinib, a selective non-covalent inhibitor of Bruton’s Tyrosine Kinase (“BTK”) with activity against both wild-type and C481S-mutated BTK, the most common mutation associated with resistance to covalent BTK inhibitors. Ibrutinib was the first BTK inhibitor approved for the treatment of chronic lymphocytic leukemia (“CLL”), mantle cell lymphoma (“MCL”), and other B-cell malignancies. The C481 mutation has been seen in patients who developed resistance to ibrutinib and to acalabrutinib, another covalent BTK inhibitor recently approved for treatment of CLL and MCL.

Vecabrutinib is being studied in a Phase 1b/2 clinical trial to assess safety and activity in patients with CLL and other advanced B-cell malignancies after two or more prior therapies, including ibrutinib or another covalent BTK inhibitor where approved for the disease. The Company has completed the safety evaluation period for the 400 mg cohort, and the seventh cohort, testing 500 mg twice daily, is now in process.

The Company is developing SNS-510, a PDK1 inhibitor that it in-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.

In December 2019, the Company consented to Takeda Oncology’s assignment of TAK-580 to DOT Therapeutics-1, Inc. (“DOT-1”), and the Company entered into a license agreement with DOT-1 to grant DOT-1 a worldwide, exclusive license of TAK-580. Pursuant to this agreement, the Company received a $2.0 million upfront payment from DOT-1 and is eligible to receive up to $57.0 million in pre-commercialization, event-based milestone payments and royalty payments on future sales of TAK-580.

In December 2019, Sumitomo Dainippon Pharma Co., Ltd. (“Sumitomo”) assigned to Sunesis worldwide rights to vosaroxin. The Company entered into an agreement (the “Denovo License Agreement”) to license vosaroxin to Denovo Biopharma, LLC (“Denovo”), pursuant to which Sunesis received a $200,000 upfront payment and is eligible to receive up to $57.0 million in regulatory and commercial milestones, and double-digit royalties on future sales of vosaroxin.

Liquidity and Going Concern

The Company has incurred significant losses and negative cash flows from operations since its inception, and as of March 31, 2020, the Company had cash and cash equivalents, restricted cash, and marketable securities totaling $28.9 million and an accumulated deficit of $688.6 million.

The Company expects to continue to incur significant losses for the foreseeable future as it continues development of its kinase inhibitor pipeline, including its BTK inhibitor, vecabrutinib. The Company has product candidates that are still in the early stages of development and will require significant additional investment.

The Company’s cash and cash equivalents, restricted cash, and marketable securities are not sufficient to support its operations for a period of twelve months from the date these condensed consolidated financial statements are available to be issued. These factors raise substantial doubt about its ability to continue as a going concern. The Company will require additional financing to fund working capital, repay debt and pay its 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 the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms favorable to the Company. If the Company is unsuccessful in its efforts to raise additional financing in the near term, the Company will be required to significantly reduce or cease operations. The principal payments due under the SVB Loan Agreement (as defined in Note 6) have been classified as a current liability as of March 31, 2020 due to the considerations discussed above and the assessment that the material adverse change clause under the SVB Loan Agreement is not within the Company's control. The SVB Loan Agreement also contains customary events of default, including among other things, the Company’s failure to make principal or interest payments when due, the occurrence of certain bankruptcy or insolvency events or its breach of the covenants under the SVB Loan Agreement. Upon the occurrence of an event of default (as defined in Note 6), SVB may, among other things, accelerate the Company’s obligations under the SVB Loan Agreement. The Company has not been notified of an event of default by SVB as of the date of the filing of this Form 10-Q. The accompanying condensed consolidated financial statements have been prepared assuming the Company 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

7


 

future effects on the recoverability and classification of assets or the amounts of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk generally consist of cash and cash equivalents, restricted cash and marketable securities. The Company is exposed to credit risk in the event of default by the institutions holding its cash, cash equivalents, restricted cash and any marketable securities to the extent of the amounts recorded in the condensed consolidated balance sheets.

 

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that management believes are necessary for a fair presentation of the periods presented. The balance sheet as of December 31, 2019 was derived from the audited consolidated financial statements as of that date. These interim financial results are not necessarily indicative of results to be expected for the full year or any other period. These unaudited condensed consolidated financial statements and the notes accompanying them should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Various disclosure requirements have been removed, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, the valuation processes for Level 3 fair value measurements held at the end of the reporting period. The ASU also modified various disclosure requirements and added some disclosure requirements for Level 3 fair value measurements. The additional disclosures on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company adopted this ASU during the quarter ended March 31, 2020. The adoption of this ASU did not have a significant impact on its condensed financial statements and related disclosures.

8


 

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which will require a reporting entity to use a new forward-looking impairment model for most financial assets that generally will result in the earlier recognition of allowances for losses.  For available-for-sale debt securities with unrealized losses, credit losses will be recognized as allowances rather than as reductions in amortized cost. Entities will apply the guidance as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to increase stakeholders’ awareness of the amendments and to expedite improvements to the Codification. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses, Topic 326, providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. These ASUs do not change the core principle of the guidance in ASU 2016-13. Instead these amendments are intended to clarify and improve operability of certain topics. In November 2019, FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which defers the effective dates of the new credit losses standard for all entities except SEC filers that are not smaller reporting companies to fiscal years beginning after 15 December 2022, including interim periods within those fiscal years. The standard and other related subsequently issued ASUs will be effective for the Company for annual periods beginning after December 15, 2022, with early adoption permitted beginning in 2019. The Company is currently evaluating the impact that the adoption of the standard and other related subsequently issued ASUs will have on its condensed financial statements and accompanying footnotes.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for the Company on January 1, 2021. The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its condensed financial statements and accompanying footnotes.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Sunesis Europe Limited, a United Kingdom corporation, and Sunesis Pharmaceuticals (Malta) Ltd., a Malta corporation. All intercompany balances and transactions have been eliminated in consolidation.

Significant Estimates and Judgments

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes thereto. Actual results could differ materially from these estimates. Estimates, assumptions and judgments made by management include those related to valuation of marketable securities, equity and related instruments, revenue recognition, stock-based compensation and clinical trial accounting.

Cash Equivalents, Restricted Cash, and Marketable Securities

The Company considers all highly liquid securities with original maturities of three months or less from the date of purchase to be cash equivalents, which generally consist of money market funds, repurchase agreements, and corporate debt securities. Restricted cash consists of amounts pledged as collateral for term loan agreement as contractually required by the lender. Marketable securities consist of securities with original maturities of greater than three months, which may include U.S. and European government obligations and corporate debt securities.

Fair Value Measurements

The Company measures cash equivalents at fair value on a recurring basis using the following hierarchy to prioritize valuation inputs, in accordance with applicable GAAP:

 

Level 1 -

Observable input such as quoted prices (unadjusted) in active markets for identical assets and liabilities that can be accessed at the measurement date;

 

Level 2 -

inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly for the asset or liability. These include quoted prices for similar assets or liabilities in active markets; and

 

Level 3 -

unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

9


 

The Company’s Level 2 valuations of marketable securities are generally derived from independent pricing services based upon quoted prices in active markets for similar securities, with prices adjusted for yield and number of days to maturity, or based on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3, if any. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts of the Company’s financial instruments, including cash, prepayments, accounts payable, accrued liabilities, and notes payable approximated their fair value as of March 31, 2020 and December 31, 2019.

 

 

3. Loss per Common Share

Basic loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted loss per common share is computed by dividing (a) net loss, by (b) the weighted-average number of common shares outstanding for the period plus dilutive potential common shares as determined using the treasury stock method for options and warrants to purchase common stock.

The following table represents the potential common shares issuable pursuant to outstanding securities as of the related period end dates that were excluded from the computation of diluted loss per common share because their inclusion would have had an anti-dilutive effect (in thousands):

 

 

Three months ended

March 31,

 

 

2020

 

 

2019

 

Warrants to purchase shares of common stock

 

208

 

 

 

218

 

Convertible preferred stock

 

19,714

 

 

 

16,331

 

Options to purchase shares of common stock

 

7,960

 

 

 

4,005

 

Outstanding securities not included in

   calculations

 

27,882

 

 

 

20,554

 

 

 

4. Financial Instruments

Financial Assets

The following tables summarize the estimated fair value of the Company’s financial assets measured on a recurring basis as of the dates indicated, which are comprised solely of available-for-sale marketable securities with remaining contractual maturities of one year or less (in thousands):

 

March 31, 2020

 

Input Level

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated Fair

Value

 

Money market funds

 

Level 1

 

$

19,050

 

 

$

 

 

$

 

 

$

19,050

 

U.S. commercial paper

 

Level 2

 

 

3,445

 

 

 

 

 

 

 

 

 

3,445

 

Total available-for-sale securities

 

 

 

 

22,495

 

 

 

 

 

 

 

 

 

22,495

 

Less amounts classified as cash equivalents

 

 

 

 

(19,050

)

 

 

 

 

 

 

 

 

(19,050

)

Amounts classified as marketable securities

 

 

 

$

3,445

 

 

$

 

 

$

 

 

$

3,445

 

 

December 31, 2019

 

Input Level

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated Fair

Value

 

Money market funds

 

Level 1

 

$

3,495

 

 

$

 

 

$

 

 

$

3,495

 

U.S. Treasury securities

 

Level 1

 

$

1,594

 

 

$

1

 

 

$

 

 

$

1,595

 

Repurchase agreements

 

Level 2

 

$

5,000

 

 

$

 

 

$

 

 

$

5,000

 

U.S. corporate debt obligations

 

Level 2

 

$

5,155

 

 

$

 

 

$

 

 

$

5,155

 

U.S. commercial paper

 

Level 2

 

$

11,412

 

 

$

 

 

$

 

 

$

11,412

 

Total available-for-sale securities

 

 

 

 

26,656

 

 

 

1

 

 

 

 

 

 

26,657

 

Less amounts classified as cash equivalents

 

 

 

 

(10,293

)

 

 

 

 

 

 

 

 

(10,293

)

Amounts classified as marketable securities

 

 

 

$

16,363

 

 

$

1

 

 

$

 

 

$

16,364

 

10


 

 

There were no available-for-sale securities in an unrealized loss position as of March 31, 2020 and December 31, 2019. No significant facts or circumstances have arisen to indicate that there has been any deterioration in the creditworthiness of the issuers of these securities. As of March 31, 2020, we did not hold any investments with a maturity exceeding 12 months or that have been in a continuous loss position for 12 months or more. There were no realized gains or losses on the available-for-sale debt securities during the three months ended March 31, 2020 and 2019.    

 

5. License Agreements

Biogen Idec

The first amended and restated collaboration agreement with Biogen Idec MA, Inc. (the “Biogen 1st ARCA”) amended and restated the collaboration agreement with Biogen (the “Biogen OCA”), to provide for the discovery, development and commercialization of small molecule BTK inhibitors. Under this agreement, the Company no longer has research obligations, but licenses granted to Biogen with respect to the research collaboration under the Biogen OCA (other than the licenses transferred to Takeda Oncology under the Takeda Agreement) remain in effect. In December 2018, the Company entered into a settlement agreement with Biogen whereas Biogen will no longer be obligated to pay future event-based payments or royalty payments to the Company.

In December 2013, the Company entered into a second amended and restated collaboration agreement with Biogen, to provide the Company with an exclusive worldwide license to develop, manufacture and commercialize vecabrutinib, a BTK inhibitor synthesized under the Biogen 1st ARCA, solely for oncology indications. During the third quarter of 2017, the Company made a milestone payment of $2.5 million to Biogen upon the dosing of the first patient in a Phase 1b/2 study to assess the safety and activity of vecabrutinib in patients with advanced B-cell malignancies after two or more prior therapies, including ibrutinib or other covalent BTK inhibitor for those patients with malignancies for which a BTK inhibitor is approved, and including patients with BTK C481 mutations. The payment was recorded in the research and development expenses line item in the consolidated statement of operations. The Company may also be required to make tiered royalty payments based on percentages of net sales of vecabrutinib, if any, in the mid-single-digits.

11


 

Takeda Oncology

In March 2011, Takeda Oncology purchased and exclusively licensed Biogen’s rights to a PDK1 inhibitor program and a pan-Raf inhibitor program which were both originally developed through a collaboration agreement between Sunesis and Biogen. In January 2014, the Company entered into an amended and restated license agreement with Takeda Oncology (the “Amended Takeda Agreement”), to provide the Company with an exclusive worldwide license to develop and commercialize preclinical inhibitors of PDK1. In December 2019, the Company partitioned the Amended Takeda Agreement into two separate agreements: (i) an amended and restated license agreement for PDK (the “PDK Agreement”), and (ii) an amended and restated license agreement for RAF (the “Millennium RAF Agreement”). Pursuant to the PDK Agreement, the Company may in the future be required to make up to $9.1 million in pre-commercialization milestone payments depending on its development of PDK1 inhibitors and tiered royalty payments depending on related product sales, if any, in the mid-single digits.

DOT-1

In December 2019, Takeda Oncology assigned the Millennium RAF Agreement to DOT-1, a venture capital-funded biopharmaceutical company. The Company entered into a concurrent license agreement with DOT-1. Pursuant to this agreement, the Company received a $2.0 million upfront payment from DOT-1 to grant DOT-1 a worldwide, exclusive license of TAK-580. The agreement also includes up to $57.0 million in pre-commercialization, event-based milestone payments and royalty payments on future sales of TAK-580. The Company recognized the $2.0 million upfront payment as revenue in 2019 upon execution of the contract. All future event-based milestone and royalty payments are considered fully constrained and therefore, no revenue has been recognized during the three-months ended March 31, 2020.

Denovo

In December 2019, the Company entered into the Denovo License Agreement, pursuant to which Sunesis licensed vosaroxin intellectual property to Denovo, received an upfront payment of $0.2 million, and is eligible to receive up to $57.0 million in regulatory and commercial milestones payments and double-digit royalty payments on future sales of vosaroxin. The Company recognized as revenue the $0.1 million of the upfront payment in 2019 and the remaining $0.1 million during the three months ended March 31, 2020 when the identified performance obligation was satisfied. All future event-based milestone and royalty payments are considered fully constrained and therefore, no revenue has been recognized on these fully constrained variable consideration during the three-months ended March 31, 2020.

 

 

6. Notes Payable

In April 2019, the Company entered into a term loan agreement with Silicon Valley Bank (“SVB Loan Agreement”), pursuant to which the Company borrowed $5.5 million. In April 2020, the Company entered into a deferral agreement with Silicon Valley Bank (the “SVB Deferral Agreement”), which extended the interest-only payment period through June 30, 2021 and deferred the maturity date of the borrowings to June 1, 2023. Under the terms of the SVB Loan Agreement and SVB Deferral Agreement, the Company is required to make interest-only payments through June 30, 2021 on the borrowings at a floating rate equal to the greater of the Prime Rate as defined in the SVB Loan Agreement minus 2.25%, or 3.25%, followed by an amortization period of 24 months of equal monthly payments of principal plus interest amounts until paid in full. In addition to and not in substitution for the regular monthly payments of principal plus accrued interest, the Company is required to make a final payment equal to 4% of the original principal amount of the borrowings (“Final Payment Fee”).  Additionally, the Company may prepay all, but not less than all, of the borrowings at any time upon 30 days’ prior notice to Silicon Valley Bank (“SVB”).  Any such prepayment would require, in addition to payment of principal and accrued interest as well as the Final Payment Fee, a prepayment fee, in the amount of (a) $110,000 if the prepayment occurs on or after the 1st anniversary of April 26, 2019 (the “Effective Date”), but prior to the 2nd anniversary of the Effective Date; or (b) $55,000 if the prepayment occurs on or after the 2nd anniversary of the Effective Date.

The Company’s obligations under the SVB Loan Agreement are secured by a first priority security interest in cash held at an account with SVB (the “Collateral Account”). The Company is obligated to maintain sufficient cash in the Collateral Account at all times in an amount equal to or greater than the outstanding balance of the borrowings. The Company has classified the Collateral Account as restricted cash on its condensed consolidated balance sheets as of March 31, 2020.

The SVB Loan Agreement contains customary affirmative and negative covenants which, among other things, limit the Company’s ability to (i) incur additional indebtedness, (ii) pay dividends or make certain distributions, (iii) dispose of its assets, grant liens or encumber its assets or (iv) fundamentally alter the nature of its business. These covenants are subject to a number of exceptions and qualifications. The SVB Loan Agreement also contains customary events of default, including among other things, the Company’s failure to make any principal or interest payments when due, the occurrence of certain bankruptcy or insolvency events or its breach of the covenants under the SVB Loan Agreement. Upon the occurrence of an event of default, SVB may, among other

12


 

things, accelerate the Company’s obligations under the SVB Loan Agreement. The Company was in compliance with all applicable covenants set forth in the SVB Loan Agreement as of March 31, 2020. The principal payments due under the SVB Loan Agreement have been classified as a current liability at March 31, 2020 due to the considerations discussed in Note 1 and the assessment that the material adverse change clause under the SVB Loan Agreement is not within the Company's control. The Company has not been notified of an event of default by the Lenders as of the date of the filing of this Form 10-Q.

Aggregate future minimum payments due under the SVB Loan Agreement as of March 31, 2020 with terms of the SVB Deferral Agreement reflected, were as follows (in thousands):

 

Through December 31,

 

Total

 

2020

 

$

135

 

2021

 

 

1,544

 

2022

 

 

2,843

 

2023

 

 

1,608

 

Total minimum payments

 

 

6,130

 

Less amount representing interest

 

 

(630

)

Total notes payable as of March 31, 2020

 

 

5,500

 

Less unamortized debt discount and issuance costs

 

 

(31

)

Less carrying amount of notes payable

 

 

(5,469

)

Non-current portion of notes payable

 

$

 

 

7. Stockholders’ Equity

Controlled Equity Offerings

Cantor Controlled Equity Offering

During the three months ended March 31, 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 March 31, 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

 

During the three months ended March 31, 2020, no shares were issued under the Common Stock Purchase Agreement (the “CSPA”) with Aspire Capital Fund, LLC (“Aspire”). Aspire’s remaining purchase commitment was $10.9 million as of March 31, 2020 and Aspire’s obligation under the CSPA will automatically terminate on June 25, 2020.  

 

8. Stock-Based Compensation

Employee and non-employee stock-based compensation expense is calculated based on the grant-date fair value of awards ultimately expected to vest, and recognized under the straight-line attribution method, assuming that all stock-based awards will vest. Forfeitures are recognized as they occur.

The following table summarizes stock-based compensation expense related to the Company’s stock-based awards for the periods indicated (in thousands):

 

 

Three months ended

March 31,

 

 

2020

 

 

2019

 

Research and development

$

112

 

 

$

156

 

General and administrative

 

193

 

 

 

216

 

Employee stock-based compensation expense

 

305

 

 

 

372

 

Non-employee stock-based compensation expense

 

14

 

 

 

45

 

Total stock-based compensation expense

$

319

 

 

$

417

 

 

 

9. Leases

13


 

The Company’s operating lease obligations as of March 31, 2020 relate solely to the leasing of office space in a building at 395 Oyster Point Boulevard in South San Francisco, California, which is currently the Company’s headquarters. The lease was entered into in January 2014 and was amended several times since 2014. The lease was last amended in December 2017 to extend the expiration date to June 30, 2021, with an option to extend the lease for two additional years. The Company did not assume the option to extend the lease term for two additional years in its determination of the lease term as the exercise of the option was not reasonably certain when the lease was last amended in December 2017. The remaining lease term as of March 31, 2020 was 1.25 years.

The cash paid for operating lease liability was $0.2 million for the three months ended March 31, 2020.

Maturity of lease liability is as follows (in thousands):   

 

Through December 31,

 

 

 

 

2020

 

$

436

 

2021

 

 

294

 

Total rental payments

 

 

730

 

Less imputed interest

 

 

(49

)

Present value of lease liability

 

$

681

 

 

The Company recognizes rent expense on a straight-line basis. The Company recorded rent expense of $0.1 million for each of the three months ended March 31, 2020 and 2019.

 

 

14


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition as of March 31, 2020 and results of operations for the three months ended March 31, 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 our expectations for gaining marketing approval in the United States, including the continued development and commercialization of vecabrutinib (formerly SNS-062), SNS-510, and other product candidates, the timing of our Phase 1b/2 trial of vecabrutinib, presenting clinical data and initiating clinical trials, our ability to maintain and operate our business, including our clinical supply chain and ability to initiate and complete preclinical studies and clinical trials, in light of the recent COVID-19 pandemic, our future research and development activities, including clinical testing and the costs and timing thereof, the potential of our existing product candidates to lead to the development of commercial products, our 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, sufficiency of our cash resources, our ability to raise additional funding when needed, any statements concerning anticipated regulatory activities or licensing or collaborative arrangements; the geographic, social and economic impact of COVID-19, 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. Our primary activities since incorporation have been conducting research and development internally and through corporate collaborators, in-licensing and out-licensing pharmaceutical compounds and technology, conducting clinical trials, and raising capital.

Our lead program is vecabrutinib, a selective non-covalent inhibitor of Bruton’s Tyrosine Kinase (“BTK”) with activity against both wild-type and C481S-mutated BTK, the most common mutation associated with resistance to covalent BTK inhibitors. Ibrutinib was the first BTK inhibitor approved for the treatment of chronic lymphocytic leukemia (“CLL”), mantle cell lymphoma (“MCL”), and other B-cell malignancies. Ibrutinib is the market leader in CLL, marketed by Johnson & Johnson and AbbVie Inc. (“AbbVie”), with approximately $7 billion in net revenues in 2019. The C481 mutation has been seen in patients who developed resistance to ibrutinib, acalabrutinib and zanubrutinib, other covalent BTK inhibitors that are approved for treatment of MCL; acalabrutinib is also approved for CLL.

Vecabrutinib is being studied in a Phase 1b/2 clinical trial to assess safety and activity in patients with CLL and other advanced B-cell malignancies after two or more prior therapies, including ibrutinib or another covalent BTK inhibitor where approved for the disease. We completed the safety evaluation period for the 400 mg cohort and thus far vecabrutinib has a favorable safety profile. The seventh cohort, testing 500 mg twice daily, is in process. Vecabrutinib was developed as a result of a collaboration agreement with Biogen MA Inc. (“Biogen”), and we must pay a royalty on sales of vecabrutinib when and if approved and commercialized.

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. In in vivo studies, SNS-510 demonstrated potent, pathway-mediated antitumor activity in

15


 

FLT3-mutated and wild-type AML xenograft mouse models. We are conducting an Investigational New Drug (“IND”)-enabling program for SNS-510 and plan to file an IND by the end of 2020.

In December 2019, we consented to Takeda Oncology’s assignment of TAK-580 to DOT Therapeutics-1, Inc. (“DOT-1”), and we entered into a license agreement with DOT-1 (the “DOT-1 License Agreement) to grant DOT-1 a worldwide, exclusive license of TAK-580. Pursuant to this agreement, we received a $2.0 million upfront payment from DOT-1. The agreement also includes up to $57.0 million in potential pre-commercialization, event-based milestone payments and royalty payments on future sales of TAK-580, when and if approved and commercialized.

In December 2019, we entered into an agreement to license vosaroxin to Denovo Biopharma, LLC (“Denovo”), pursuant to which Sunesis received a $200,000 upfront payment and is eligible to receive up to $57.0 million in potential regulatory and commercial milestones, and double-digit royalties on future sales of vosaroxin, when and if approved and commercialized (the “Denovo License Agreement”).

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. COVID-19 has since spread to over 100 countries, including every state in the United States. 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.

COVID-19 has impacted the conduct of vecabrutinib’s Phase 1b/2 trial to accommodate patient safety and study conduct in accordance with guidance from U.S. Food and Drug Administration (the “FDA”). There have been some delays in gathering clinical data, but we continue to expect results from the 500 mg cohort and on patients from lower dose cohorts who remain on treatment in the second quarter of 2020. We expect potential delays in vecabrutinib development due to impact on sites, patient enrollment, treatment visits and data collection. We will assess how best to pursue vecabrutinib development as the COVID-19 situation evolves and data from the trial emerge. Manufacturing of vecabrutinib and SNS-510 has experienced some delays but is not currently expected to have a material adverse impact on our clinical programs.

Toxicology and other nonclinical studies for the SNS-510 program have not experienced significant delays at this time and remain on schedule for submission of an IND by the end of the year. 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

SVB Deferral Agreement

In April 2020, we entered into a deferral agreement with Silicon Valley Bank (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 existing term loan agreement (the “SVB Loan Agreement”) to June 1, 2023.

Controlled Equity Offerings

Cantor Controlled Equity Offering

During the three months ended March 31, 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 March 31, 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

 

During the three months ended March 31, 2020, no shares were issued under the Common Stock Purchase Agreement (the “CSPA”), with Aspire Capital Fund, LLC (“Aspire”). Aspire’s remaining purchase commitment under the CSPA was $10.9 million as of March 31, 2020 and Aspire’s obligation under the CSPA will automatically terminate on June 25, 2020.   

Capital Requirements

We have incurred significant losses in each year since our inception. As of March 31, 2020, we had cash and cash equivalents, restricted cash, and marketable securities of $28.9 million and an accumulated deficit of $688.6 million. We expect to continue to

16


 

incur significant losses for the foreseeable future as we continue the development of our kinase inhibitor pipeline, including our BTK inhibitor, vecabrutinib. We have product candidates that are still in the early stages of development and will require significant additional investment.

We expect our cash and cash equivalents and marketable securities of $23.4 million, which excludes restricted cash of $5.5 million, as of March 31, 2020 are not sufficient to support our operations for a period of twelve months from the date the condensed consolidated financial statements for the quarter ended March 31, 2020, are available to be issued. We will require additional financing to fund working capital, repay debt 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 March 31, 2020, are available to be issued. If we are unsuccessful in our efforts to 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 March 31, 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 its 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 the Company 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.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes during the three months ended March 31, 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.

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 vecabrutinib for the treatment of B-cell malignancies and our other product candidate, SNS-510, 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

17


 

development plans and capital requirements. We anticipate expenditure associated with vosaroxin to diminish as result of out-licensing of vosaroxin to Denovo, and continuing expenditures associated with advancing the vecabrutinib and SNS-510 programs 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 $0.1 million and nil for the three months ended March 31, 2020 and 2019, respectively. The increase in revenue 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 $3.7 million and $3.2 million for the three months ended March 31, 2020 and 2019, respectively. The increase of $0.5 million between the comparable three months periods was primarily due to a $0.5 million increase in professional services and $0.2 million increase in clinical expense related to the preparation for the Phase 2 portion of our ongoing clinical trial for vecabrutinib. The increase is partially offset by a $0.3 million decrease in salary and personnel expenses due to lower headcount.  

General and Administrative Expense

General and administrative expense was $2.2 million and $2.4 million for the three months ended March 31, 2020 and 2019, respectively. The decrease of $0.2 million between the comparable three months periods was primarily due to a decrease in professional services expenses due to lower patent expenses.

Interest Expense

Interest expense was $0.1 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively. The decrease in interest expenses resulted from 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.

Other Income, Net

Other income, net, was $0.1 million for each of the three months ended March 31, 2020 and 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 March 31, 2020, we had cash and cash equivalents, restricted cash, and marketable securities of $28.9 million and an accumulated deficit of $688.6 million, compared to cash and cash equivalents 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 expect our cash and cash equivalents and marketable securities of $23.4 million, which excludes restricted cash of $5.5 million, as of March 31, 2020 are not sufficient to support our operations for a period of twelve months beyond the date the condensed consolidated financial statements for the quarter ended March 31, 2020, are available to be issued. We will require additional financing to fund working capital, repay debt 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.

During the three months ended March 31, 2020, no shares of common stock were sold under the Sales Agreement with Cantor. As of March 31, 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. As of March 31, 2020, the remaining purchase commitment for Aspire under the CSPA was $10.9 million and Aspire’s obligation under the CSPA will automatically terminate on June 25, 2020.

18


 

Our cash and cash equivalents, restricted cash, and marketable securities totaled $28.9 million as of March 31, 2020, as compared to $34.6 million as of December 31, 2019. The decrease of $5.7 million was due to cash used in operating activities, mainly resulting from our net loss of $5.8 million for the three months ended March 31, 2020.

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.

Under the terms of the SVB Loan Agreement and SVB Deferral Agreement, we are required to make interest-only payments through June 30, 2021 on the borrowings at a floating rate equal to the greater of the Prime Rate as defined in the SVB Loan Agreement minus 2.25%, or 3.25%, followed by an amortization period of 24 months of equal monthly payments of principal plus interest amounts until paid in full. In addition to and not in substitution for the regular monthly payments of principal plus accrued interest, we are required to make a final payment equal to 4% of the original principal amount of the borrowings (the “Final Payment Fee”). Additionally, we may prepay all, but not less than all of the borrowings at any time upon 30 days’ prior notice to Silicon Valley Bank (“SVB”). Any such prepayment would require, in addition to payment of principal and accrued interest as well as the Final Payment Fee, a prepayment fee, in the amount of (a) $110,000 if the prepayment occurs on or after the 1st anniversary of April 26, 2019 (the “Effective Date”), but prior to the 2nd anniversary of the Effective Date; or (b) $55,000 if the prepayment occurs on or after the 2nd anniversary of the Effective Date.

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 $5.7 million for the three months ended March 31, 2020, as compared to $6.1 million for the same period in 2019. Net cash used in the three months ended March 31, 2020, resulted primarily from the net loss of $5.8 million and changes in operating assets and liabilities of $0.3 million, offset by adjustments for non-cash items of $0.3 million. Net cash used in the three months ended March 31, 2019, resulted primarily from the net loss of $5.9 million, partially offset by adjustments for non-cash items of $0.5 million and changes in operating assets and liabilities of $0.7 million.

Net cash provided by investing activities was $13.0 million for the three months ended March 31, 2020, as compared to nil for the same period in 2019. Net cash provided by investing activities in 2020 consists primarily of maturities of marketable securities.

Net cash provided by financing activities was nil for the three months ended March 31, 2020, as compared to $17.2 million for the same period in 2019. Net cash provided in 2019 resulted primarily from $18.6 million net proceeds from issuance common and preferred stock offset by $1.4 million principal payment on our prior loan agreement with Western Alliance Bank and Solar Capital Ltd.

Operating Capital Requirements

We have incurred significant operating losses and negative cash flows from operations since our inception. As of March 31, 2020, we had cash and cash equivalents, restricted cash, and marketable securities of $28.9 million and cash used in operating activities of $5.7 million for the three months ended March 31, 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;

19


 

 

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 vecabrutinib and other development programs, 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. In particular, a 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.

 

 

20


 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e) and 15d-15(e), that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our interim Chief Executive Officer and Principal Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Exchange Act Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our interim Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our interim Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended, that occurred during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

21


 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business. The ultimate outcome of any litigation is uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. Regardless of outcome, litigation can have an adverse impact on us because of the defense costs, diversion of management resources and other factors.

We believe there is no litigation pending that could, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition.

Item 1A.

Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all information contained in this Quarterly Report on Form 10-Q, as each of these risks could adversely affect our business, operating results and financial conditions. If any of the possible adverse events described below actually occurs, we may be unable to conduct our business as currently planned and our financial condition and operating results could be adversely affected. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment.

Please see the language regarding forward-looking statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We have marked with an asterisk (*) those risks described below that reflect material changes from, or additions to, the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2019 that was filed with the SEC on March 10, 2020.

Risks Related to Our Business

We need to raise substantial additional funding to continue the development of vecabrutinib, SNS-510, and any other future programs.*

We will need to raise substantial additional capital to:

 

fund additional nonclinical and clinical trials of vecabrutinib prior to any regulatory filing for approval;

 

fund preclinical and clinical development of SNS-510, including any potential milestone payments to Takeda Oncology;

 

expand our development activities;

 

implement additional internal systems and infrastructure; and

 

build or access commercialization and additional manufacturing capabilities and supplies.

Our future funding requirements and sources will depend on many factors, including but not limited to the:

 

rate of progress and cost of our clinical trials;

 

need for additional or expanded clinical trials;

 

timing, economic and other terms of any licensing, collaboration or other similar arrangement into which we may enter;

 

costs and timing of seeking and obtaining EMA, FDA or other regulatory approvals;

 

extent of our other development activities, including our other clinical programs and in-license agreements;

 

costs associated with building or accessing commercialization and additional manufacturing capabilities and supplies;

 

costs of acquiring or investing in businesses, product candidates and technologies, if any;

 

costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

effect of competing technological and market developments;

 

costs of supporting any potential future licensees or partners.

22


 

Until we can generate a sufficient amount of licensing, collaboration or product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through equity issuances, debt arrangements, one or more possible licenses, collaborations or other similar arrangements with respect to development and/or commercialization rights to vecabrutinib, SNS-510, or our other development programs, or a combination of the above. Any issuance of convertible debt securities, preferred stock or common stock may be at a discount from the then-current trading price of our common stock. If we issue additional common or preferred stock or securities convertible into common or preferred stock, our stockholders will experience additional dilution, which may be significant. Further, we do not know whether additional funding will be available on acceptable terms, or at all.

In addition, the recent outbreak of the novel coronavirus known as COVID-19 has significantly disrupted global financial markets, negatively impacted U.S. market conditions and may reduce opportunities for us to seek out additional funding. In particular, a 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.

We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We may not ever achieve or sustain profitability.

We are not profitable and have incurred losses in each year since our inception in 1998. Our net losses for the three months ended March 31, 2020 and years ended December 31, 2019 and 2018 were $5.8 million, $23.3 million and $26.6 million, respectively. As of March 31, 2020, we had an accumulated deficit of $688.6 million. We do not currently have any products that have been approved for marketing, and we expect to incur significant losses for the foreseeable future as we continue to incur substantial development and general and administrative expenses related to our operations. We have prioritized development funding on kinase inhibitors with a focus on vecabrutinib. We have a limited number of products that are still in the early stages of development and will require significant additional investment. Our losses, among other things, have caused and will continue to cause our stockholders’ equity and working capital to decrease.

To date, we have derived substantially all of our revenue from license and collaboration agreements. We currently have two agreements, the DOT-1 License Agreement and the Denovo Agreement, both of which include certain pre-commercialization event-based payments and royalty payments. We cannot predict if our collaborators will continue development or whether we will receive any such payments under these agreements in the foreseeable future, or at all.

We are unable to predict when we will generate revenue from the sale of products, if at all. In the absence of additional sources of capital or partnering opportunity, which may not be available to us on acceptable terms, or at all, the development of vecabrutinib or future product candidates may be reduced in scope, delayed or terminated. If our product candidates or those of our collaborators fail in clinical trials or do not gain regulatory approval, or if our future products do not achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to susta