Sunesis Pharma: Promising Leukemia Drug With Potential

As I've referred to in previous articles, this time of the year the spotlight turns to the June ASCO meetings in Chicago, IL. ASCO stands for the American Society of Clinical Oncology and is the premier event for oncology professionals including researchers, physicians, and pharmaceutical companies. The message from ASCO is, "Collaborating to Conquer Cancer."
 
The following company presenting this year (June 4th) sparks my interest as an investor/trader who would like to see progress for this horrible disease:
 
Sunesis Pharma (SNSS). 5/7/12 pps: $2.58, Market cap: $120.80M
 
To combine with the possible catalyst trade opportunity of presenting at ASCO, Sunesis just announced on May 3rd that the European Commission has granted orphan drug designation to Vosaroxin, the Company's lead development candidate; for the treatment of Acute Myeloid Leukemia (AML).
 
The designation provides for 10 years of marketing exclusivity in all EU member countries following product approval. Vosaroxin has previously received orphan drug and fast track designations from the U.S. Food and Drug Administration (FDA).
 
With the orphan drug designations for Vosaroxin in both the EU and USA, I feel there are a lot of exciting things happening for Sunesis. One thing that increases my interest when looking at pharmaceutical companies is when I hear they are working on an indication that has seen next to zero progress recently. Science Translational Medicine today.
 
Another reason I feel Sunesis is poised for big things is the stability of their cash position and other portions of their financial statements. They ended 2011 with about $44 million dollars in cash and short term investments. Of this, close to $35 million is in the investment variety which gives me further confidence that they will not burn significant amounts of cash right away. They have a solid representation of insiders who own 37.2% of the shares outstanding. Institutional ownership is also good at 22.3%. This combined with 9.8% short interest could produce a nice pop if further good news is released since these shorts would most likely cover their position.
 
One thing I found very interesting from their SEC reports is how they have structured several milestone payments. In collaboration with Millennium: The Takeda Oncology Company, Sunesis is eligible to receive up to $60 million dollars in pre-commercialization milestone payments to develop its pan-Raf kinase inhibitor. In this phase one trial, Millennium will pay Sunesis $4 million upfront and take care of the trial costs. I think it is a big benefit to Sunesis that they can collect up to $60 million dollars before this drug would even hit the market and also have the opportunity to collect royalty payments once approved. Many times, I see companies not receiving payments of this size until FDA approval, if ever.

Market Cap: Roughly $120M. Sunesis is grossly under spec valued when considering the positive data seen in prior clinical trials of Vosaroxin.

The above 2 firms have recently begun coverage on Sunesis, both recommending Sunesis as a buy. I agree with them obviously.

The stock price lately has been making higher lows and slightly higher highs in a wedge pattern. This is another case where some less experienced chart readers might see a head and shoulders pattern. The price would have to break below $2.40 a share for that bearish pattern to confirm. I see accumulation occurring here right before a break-out on heavy volume occurs in my opinion; a move over 3 seems likely to me.
 
To summarize, this company will have a big chance to be seen while presenting its phase 3 data on Vosaroxin at the ASCO meetings. I also strongly feel traders will have a nice shot at a strong short term catalyst trade for the same reason.
 
When I consider these factors with the orphan drug designations in both the EU and the U.S.A., I like the track Sunesis is currently on and in my opinion, I expect a short term stock price leading up to the June 4th presentation to hit around $3.10 a share, maybe a tad higher.
 
Price target opinions:
 
Short term pps: $3.10
 
1 Year pps target: $14.50, which is dependent on Vosaroxin getting the green light from the FDA.
 
Chart data sourced from Yahoo Finance.
 
Disclosure: I am long SNSS.
 
Disclaimer: This article is intended for informational and entertainment use only and should not be construed as professional investment advice, but rather my opinions as a writer only. Always do you own complete due diligence before buying and selling any stock.

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Written By: Scott Matusow