VIRACTA THERAPEUTICS, INC. The following discussion and analysis of our financial condition as of
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 Sunesis' ability to satisfy the required conditions and otherwise complete its planned merger with Viracta on a timely basis or at all; the expected benefits and potential value created by the Merger for Sunesis' stockholders, including the ownership percentage of its stockholders in the combined organization immediately following the consummation of the Merger; 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; 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 expenses, including those related to the consummation of the Merger, capital requirements and needs for additional financing, and ability to obtain additional financing and to continue as a going concern if the Merger is not completed; 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. Please also see "Special Note Regarding Forward-Looking Statements."
In this report, "Sunesis," the "Company," "we," "us," and "our" refer to
Overview
Sunesis is a biopharmaceutical company focused on the development of novel
targeted inhibitors for the treatment of hematologic and solid cancers. Sunesis
is developing SNS-510, a PDK1 inhibitor licensed from
Sunesis's second 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. In
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found insufficient evidence of activity in BTK-inhibitor resistant disease to move the program into Phase 2. Sunesis has completed the Phase 1b portion of the Phase 1b/2 trial and is evaluating the best path forward for vecabrutinib.
Sunesis also has two partnered programs: DAY101 (formerly TAK-580) and
vosaroxin. Sunesis has a license agreement with DOT Therapeutics-1 ("DOT-1")
where Sunesis is eligible to receive potential pre-commercialization,
event-based milestone payments and royalty payments on future sales of DAY101,
when and if approved and commercialized. On
To conserve its cash resources, Sunesis has substantially reduced its workforce
and has reduced its research and development activities. In
The Sunesis Board commenced a process of evaluating strategic alternatives to
maximize stockholder value. To assist with this process, the Sunesis Board
engaged
Although Sunesis has entered into the Merger Agreement and intends to consummate the Merger, there is no assurance that it will be able to successfully consummate the Merger on a timely basis, or at all. If, for any reason, the proposed Merger is not completed, Sunesis will reconsider its strategic alternatives and could pursue one or more of the following courses of action:
• Pursue potential collaborative, partnering or other strategic arrangements
for Sunesis's assets, including a sale or other divestiture of its assets.
Sunesis may elect to seek potential collaborative, partnering or other
strategic arrangements for its programs, including a sale or other
divestiture of its assets which could allow Sunesis's technology to
continue being developed. Sunesis may be unable to divest its assets in a
timely manner, or at all, and therefore may not receive any return on
Sunesis' investment in its program assets.
• Pursue another strategic transaction like the Merger. The Sunesis Board
may elect to pursue an alternative strategy, one of which may be a
strategic transaction similar to the Merger.
• Dissolve and liquidate Sunesis's assets. If, for any reason, the Merger is
not consummated and Sunesis is unable to identify and complete an
alternative strategic transaction like the Merger or potential
collaborative, partnering or other strategic arrangements for its assets,
or to continue to operate its business due to its inability to raise
additional funding, Sunesis may be required to dissolve and liquidate its
assets. In such case, Sunesis would be required to pay all of its debts
and contractual obligations, and to set aside certain reserves for
potential future claims, and there can be no assurances as to the amount
or timing of available cash left to distribute to Sunesis's stockholders
after paying its debts and other obligations and setting aside funds for
reserves.
On
Impact of Coronavirus ("COVID-19") on Our Operations
In
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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 Annual Report on Form 10-K, management is evaluating all options to conserve cash to complete the Merger, 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
Underwritten Offering
In
SVB Repayment
In
Controlled Equity Offerings
Cantor Controlled Equity Offering
In
Aspire Common Stock Purchase Agreement
In
Capital Requirements
We have incurred significant losses in each year since our inception. As of
We expect our current cash and cash equivalents of
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that we will be successful in completing the Merger or acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us. These conditions raise substantial doubt about our ability to continue as a going concern for a period of one year from the date these financial statements are available to be issued. If we are unsuccessful in our efforts to complete the Merger, seek other strategic alternatives, or raise additional financing in the near term, we will be required to significantly reduce or cease operations. The accompanying financial statements 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 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.
Critical Accounting Policies and the Use of Estimates
The accompanying discussion and analysis of our financial condition and results
of operations are based on our consolidated financial statements and the related
disclosures, which have been prepared in accordance with
Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this report. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Revenue Recognition
We account for our contract revenues under Topic 606, Revenue from Contracts with Customers ("Topic 606"). Our contract revenues consist of license revenue primarily generated through agreements with strategic partners for the development and commercialization of our product candidates. The terms of the agreement typically include non-refundable upfront fees, payments based upon achievement of milestones and royalties on net product sales. We have both fixed and variable consideration. Non-refundable upfront fees are considered fixed, while milestone payments are identified as variable consideration.
In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under these agreements, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) we satisfy each performance obligation.
Licenses of intellectual property: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer, and the customer can use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
Milestone payments: At the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments that are not within our control are not included in the transaction price until they become probable of being achieved.
Royalties: For arrangements that include sales-based royalties and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). We are applying the practical exemption allowed under ASC 606 and does not disclose the value of variable consideration that is a sale-based royalty promised in exchange for
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a license of intellectual property. To date, we have not recognized any royalty revenue resulting from any of our licensing arrangements.
Clinical Trial Accounting
We record accruals for estimated clinical trial costs, which include payments for work performed by contract research organizations ("CROs"), and participating clinical trial sites. These costs are generally a significant component of research and development expense. Costs incurred for setting up clinical trial sites for participation in trials are generally non-refundable, and are expensed as incurred, with any refundable advances related to enrollment of the first patient recorded as prepayments and assessed for recoverability on a quarterly basis. Costs related to patient enrollment are accrued as patients progress through the clinical trial, including amortization of any first-patient prepayments. This amortization generally matches when the related services are rendered, however, these cost estimates may or may not match the actual costs incurred by the CROs or clinical trial sites, and if we have incomplete or inaccurate information, our clinical trial accruals may not be accurate. The difference between accrued expenses based on our estimates and actual expenses has not been significant to date.
Leases
We determine if an arrangement is or contains a lease at inception. In determining whether an arrangement is a lease, we consider whether (1) explicitly or implicitly identified assets have been deployed in the arrangement and (2) we obtain substantially all of the economic benefits from the use of that underlying asset and direct how and for what purpose the asset is used during the term of the contract.
Right-of-Use ("ROU"), assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term. When an implicit rate is not readily determinable, we use our incremental borrowing rate based on the information available at commencement date for new leases or effective date for existing leases, in determining the present value of lease payments.
Leases may contain initial periods of free rent and/or periodic escalations. When such items are included in a lease agreement, we record rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment and the straight-line rent expense is recorded as a deferred rent liability. We expense any additional payments under its operating leases for taxes, insurance, or other operating expenses as incurred.
Overview of 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.
Overview of 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.
The table below sets forth our research and development expense by program for
each period presented:
Year ended December 31,
2020 2019
Vecabrutinib $ 7,857 $ 14,014
SNS-510 4,402 908
Vosaroxin - 490
Total $ 12,259 $ 15,412
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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.
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
Years Ended
Revenue. Total revenue was
Research and development expense. Research and development expense was
General and administrative expense. General and administrative expense was
Interest expense. Interest expense was
Other income, net. Net other income was
Liquidity and Capital Resources
Sources of Liquidity
We have incurred significant losses in each year since our inception. As of
We expect our current cash and cash equivalents of
In
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During the year ended
Our cash and cash equivalents was
In
If we are unable to complete the Merger and 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
Operating activities
Net cash used in operating activities was
Investing activities
Net cash provided by investing activities was
Financing activities
Net cash provided by financing activities was
Operating Cash Requirements
We have incurred significant operating losses and negative cash flows from
operations since our inception. As of
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, 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.
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Our future funding requirements will depend on many factors, including but not limited to:
• our ability to complete the Merger;
• 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, vecabrutinib and other development
programs, potentially including any additional clinical trials or subsequent
regulatory filings in
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
Income Taxes
Deferred tax assets or liabilities may arise from differences between the tax basis of assets or liabilities and their basis for financial reporting. Deferred tax assets or liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Our policy is to recognize interest charges and penalties in other income (expense), net in the statements of operations and comprehensive loss.
Since inception, we have incurred operating losses and, accordingly, have not
recorded a provision for income taxes for any of the periods presented. As of
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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