Is Sunesis Pharmaceuticals Poised for a Breakout?

So far this year, we've seen a handful of developmental-stage oncology companies report positive late-stage data for their therapeutic candidates, resulting in major rallies in their respective share prices. For example, Endocyte, InterMune, and most recently, Merrimack Pharmaceuticals all shot northwards after reporting strong clinical results this year. Sunesis Pharmaceuticals  (NASDAQ: SNSS  ) is hoping to keep this trend alive with its experimental drug for relapsed and refractory acute myeloid leukemia, or AML, known as vosaroxin (trademark Qinprezo). Per the company's first-quarter earnings release, we should now expect a top-line data readout sometime in either the third or fourth quarter of this year. 

What's interesting is that Sunesis' management sounded particularly confident in its first-quarter call that the late-stage trial dubbed "VALOR" would yield a result worthy of a regulatory filing with both the Food and Drug Administration, as well as its European counterpart. Yet, the company's share price has moved steadily south in recent weeks and failed to react to the sunny outlook promulgated on the conference call. 

SNSS Chart

SNSS data. Source: YCharts.

Signs of confidence within Sunesis
Earlier this year, Sunesis created the new position of chief commercial officer and hired Joseph I. DePinto to fill this role. According to his statements in the latest earnings calls, he will specifically help coordinate a U.S. launch of vosaroxin following the forthcoming data readout. So, the company is already investing resources in the drug's commercial launch, which is definitely noteworthy. Secondly, Sunesis recently secured a trademark for vosaroxin in both the U.S. and the EU, namely Qinprezo. Perhaps these actions are equivalent to putting the proverbial cart before the horse since we haven't even seen the unblinded data yet, but management's tone about Qinprezo is certainly upbeat. 

How is the VALOR trial progressing?
Turning to the actual trial, we learned in the recent call that more than 95% of events, a.k.a. deaths, in the VALOR trial have now occurred. Even so, Sunesis's management wasn't able to give a clear timeline for a data readout because of a marked slowing in mortality as the trial progresses. And while that may seem like a signal that the drug is working, you should bear in mind that the sickest patients who were unable to undergo allogeneic stem cell transplant therapy likely passed away first, leaving the comparatively healthier patients to form the so-called "tail" of the study. Indeed, Sunesis Chief Medical Officer Adam Craig noted on the call that the remaining survivors have likely received transplants, increasing their chances of living longer. That said, you need to understand that one of the primary therapeutic goals of this drug is to allow patients to live long enough to receive a transplant in the first place.  

Sunesis is expanding its clinical activities
One of the biggest problems facing small development biotechs is a dearth of additional clinical candidates, making their long-term success wholly dependent on a single experimental therapy. In January, Sunesis sought to deal with this problem by signing licensing agreements with both Biogen (NASDAQ: BIIB  )  and Takeda Pharmaceutical (NASDAQOTH: TKPYY  ) in order to expand their footprint in the oncology space. Although these agreements are for early-stage candidates, it's important to note that management is actively seeking to create deep value for shareholders. Moreover, Sunesis gained access to one of the most closely watched types of new oncology therapies with these agreements, namely kinase inhibitors. So, you should keep a close watch on this aspect of this tiny biotech moving forward.

Foolish wrap-up
Despite these positive statements and actions by management this year, the market is clearly unimpressed. Sunesis shares are now down over 12% in the past year and have fallen over 20% in the past month alone.

So why is the market dismissing Sunesis' chances for clinical and regulatory success with Qinprezo? At the end of the day, the truth is that relapsed or refractory AML is notoriously difficult to treat, with no standard of care existing within the U.S.. My view is that the market firmly believes Qinprezo will ultimately fail in clinical trials due to the difficulty of treating this indication. That said, the utter lack of treatments for relapsed AML may play into Qinprezo's favor. Simply put, we may not need a stunning result to convince regulators that Qinprezo should be approved, i.e., even a marginal clinical benefit could be viewed as a basis for a regulatory approval. And that's why I think Sunesis' management is gaining confidence heading into this top-line data readout, making this biotech one to get on your watchlist.  

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