snss-10q_20200630.htm

 

 

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 June 30, 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 180,931,000 shares of common stock, $0.0001 par value per share, outstanding as of August 6, 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 June 30, 2020 and December 31, 2019

3

 

  

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2019

4

 

  

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

5

 

  

Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 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

14

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

  

Controls and Procedures

20

 

PART II. OTHER INFORMATION

21

Item 1.

  

Legal Proceedings

21

Item 1A.

  

Risk Factors

21

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

  

Defaults Upon Senior Securities

41

Item 4.

  

Mine Safety Disclosures

41

Item 5.

  

Other Information

41

Item 6.

  

Exhibits

41

 

  

Signatures

43

 

 

 

 


 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

  

SUNESIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

June 30,

2020

 

 

December 31,

2019

 

 

(Unaudited)

 

 

(1)

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

17,653

 

 

$

12,761

 

Restricted cash

 

5,500

 

 

 

5,500

 

Marketable securities

 

 

 

 

16,364

 

Prepaids and other current assets

 

1,712

 

 

 

1,697

 

Total current assets

 

24,865

 

 

 

36,322

 

Property and equipment, net

 

 

 

 

3

 

Operating lease right-of-use asset

 

545

 

 

 

817

 

Other assets

 

96

 

 

 

98

 

Total assets

$

25,506

 

 

$

37,240

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

452

 

 

$

791

 

Accrued clinical expense

 

402

 

 

 

521

 

Accrued compensation

 

692

 

 

 

985

 

Other accrued liabilities

 

1,836

 

 

 

1,109

 

Notes payable

 

5,473

 

 

 

5,465

 

Operating lease liability - current

 

545

 

 

 

545

 

Total current liabilities

 

9,400

 

 

 

9,416

 

Other liabilities

 

 

 

 

9

 

Operating lease liability - long term

 

 

 

 

272

 

Total liabilities

 

9,400

 

 

 

9,697

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Convertible preferred stock

 

11,769

 

 

 

11,769

 

Common stock

 

11

 

 

 

11

 

Additional paid-in capital

 

699,291

 

 

 

698,562

 

Accumulated other comprehensive income

 

 

 

 

1

 

Accumulated deficit

 

(694,965

)

 

 

(682,800

)

Total stockholders’ equity

 

16,106

 

 

 

27,543

 

Total liabilities and stockholders’ equity

$

25,506

 

 

$

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

June 30,

 

 

Six months ended

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(Unaudited)

 

 

(Unaudited)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License and other revenue

$

 

 

$

 

 

$

120

 

 

$

 

Total revenues

 

 

 

 

 

 

 

120

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

4,281

 

 

 

3,683

 

 

 

7,971

 

 

 

6,931

 

General and administrative

 

2,064

 

 

 

2,523

 

 

 

4,292

 

 

 

4,962

 

Total operating expenses

 

6,345

 

 

 

6,206

 

 

 

12,263

 

 

 

11,893

 

Loss from operations

 

(6,345

)

 

 

(6,206

)

 

 

(12,143

)

 

 

(11,893

)

Interest expense

 

(65

)

 

 

(111

)

 

 

(135

)

 

 

(372

)

Other income, net

 

20

 

 

 

76

 

 

 

113

 

 

 

164

 

Net loss

 

(6,390

)

 

 

(6,241

)

 

 

(12,165

)

 

 

(12,101

)

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

(1

)

 

 

 

Comprehensive loss

$

(6,390

)

 

$

(6,241

)

 

$

(12,166

)

 

$

(12,101

)

Basic and diluted loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(6,390

)

 

$

(6,241

)

 

$

(12,165

)

 

$

(12,101

)

Shares used in computing net loss per common share

 

111,416

 

 

 

72,190

 

 

 

111,405

 

 

 

65,702

 

Net loss per common share

$

(0.06

)

 

$

(0.09

)

 

$

(0.11

)

 

$

(0.18

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

4


 

SUNESIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

Six months ended

June 30,

 

 

2020

 

 

2019

 

 

(Unaudited)

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(12,165

)

 

$

(12,101

)

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

 

 

 

 

 

 

 

Stock-based compensation expense

 

706

 

 

 

811

 

Accretion of investment discounts and depreciation

 

(41

)

 

 

4

 

Amortization of debt discount and debt issuance costs

 

8

 

 

 

107

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaids and other assets

 

(13

)

 

 

(647

)

Accounts payable

 

(339

)

 

 

(701

)

Accrued clinical expense

 

(119

)

 

 

25

 

Accrued compensation

 

(293

)

 

 

(74

)

Other accrued liabilities

 

718

 

 

 

(431

)

Net cash used in operating activities

 

(11,538

)

 

 

(13,007

)

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

(747

)

 

 

(2,386

)

Proceeds from maturities of marketable securities

 

17,154

 

 

 

 

Net cash provided by (used in) investing activities

 

16,407

 

 

 

(2,386

)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from notes payable, net of issuance cost

 

 

 

 

5,453

 

Principal payments on notes payable

 

 

 

 

(7,500

)

Proceeds from issuance of convertible preferred stock offering, net

 

 

 

 

7,879

 

Proceeds from issuance of common stock, net

 

 

 

 

10,662

 

Proceeds from issuance of common stock through controlled equity offering facilities, net

 

 

 

 

464

 

Proceeds from exercise of stock options and stock purchase rights

 

23

 

 

 

36

 

Net cash provided by financing activities

 

23

 

 

 

16,994

 

Net increase in cash, cash equivalents and restricted cash

 

4,892

 

 

 

1,601

 

Cash, cash equivalents and restricted cash at beginning of period

 

18,261

 

 

 

13,696

 

Cash, cash equivalents and restricted cash at end of period

$

23,153

 

 

$

15,297

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

Conversion of preferred stock to common stock

$

 

 

$

21,762

 

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

$

 

 

$

1,362

 

Legal expenses accrued as cost of equity financing

$

 

 

$

5

 

 

See accompanying notes to condensed consolidated financial statements.

 


5


 

SUNESIS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

 

Three months ended June 30, 2020

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

holders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of March 31, 2020

 

 

20

 

 

$

11,769

 

 

 

111,393

 

 

$

11

 

 

$

698,881

 

 

$

 

 

$

(688,575

)

 

$

22,086

 

Issuance of common stock under employee stock purchase plans

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Stock-based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

387

 

 

 

 

 

 

 

 

 

387

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,390

)

 

 

(6,390

)

Balance as of June 30, 2020

 

 

20

 

 

$

11,769

 

 

 

111,465

 

 

$

11

 

 

$

699,291

 

 

$

 

 

$

(694,965

)

 

$

16,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2019

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

holders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of March 31, 2019

 

 

28

 

 

$

25,647

 

 

 

67,578

 

 

$

7

 

 

$

656,761

 

 

$

 

 

$

(665,329

)

 

$

17,086

 

Conversion of preferred stock to common stock

 

 

(16

)

 

 

(18,534

)

 

 

4,950

 

 

 

 

 

 

18,534

 

 

 

 

 

 

 

 

 

 

Issuance of common stock through controlled equity offering facilities, net of issuance cost

 

 

 

 

 

 

 

 

398

 

 

 

 

 

 

464

 

 

 

 

 

 

 

 

 

464

 

Issuance of common stock under employee stock purchase plans

 

 

 

 

 

 

 

 

61

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

36

 

Stock-based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

394

 

 

 

 

 

 

 

 

 

394

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,241

)

 

 

(6,241

)

Balance as of June 30, 2019

 

 

12

 

 

$

7,113

 

 

 

72,987

 

 

$

7

 

 

$

676,189

 

 

$

 

 

$

(671,570

)

 

$

11,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2020

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

holders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2019

 

 

20

 

 

$

11,769

 

 

 

111,393

 

 

$

11

 

 

$

698,562

 

 

$

1

 

 

$

(682,800

)

 

$

27,543

 

Issuance of common stock under employee stock purchase plans

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

23

 

 

 

 

 

 

 

 

 

23

 

Stock-based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

706

 

 

 

 

 

 

 

 

 

706

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,165

)

 

 

(12,165

)

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance as of June 30, 2020

 

 

20

 

 

$

11,769

 

 

 

111,465

 

 

$

11

 

 

$

699,291

 

 

$

 

 

$

(694,965

)

 

$

16,106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

holders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (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

 

 

(23

)

 

 

(21,762

)

 

 

11,950

 

 

 

1

 

 

 

21,761

 

 

 

 

 

 

 

 

 

 

Issuance of common stock from vesting of restricted stock awards

 

 

 

 

 

 

 

 

104

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

54

 

Issuance of common stock through controlled equity offering facilities, net of issuance cost

 

 

 

 

 

 

 

 

398

 

 

 

 

 

 

464

 

 

 

 

 

 

 

 

 

464

 

Issuance of common stock under employee stock purchase plans

 

 

 

 

 

 

 

 

61

 

 

 

 

 

 

36

 

 

 

 

 

 

 

 

 

36

 

Stock-based compensation expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

757

 

 

 

 

 

 

 

 

 

757

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,101

)

 

 

(12,101

)

Balance as of June 30, 2019

 

 

12

 

 

$

7,113

 

 

 

72,987

 

 

$

7

 

 

$

676,189

 

 

$

 

 

$

(671,570

)

 

$

11,739

 

See accompanying notes to condensed consolidated financial statements.

6


 

SUNESIS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 is 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. The Company is conducting an Investigational New Drug-enabling program for SNS-510, and is addressing expected PI3Ki toxicities through dose regimen optimization and strategies that mitigate glucose dysregulation.

The Company’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 June 2020, the Company announced that it will not advance its non-covalent BTK inhibitor vecabrutinib in the planned Phase 2 portion of the Phase 1b/2 trial for adults with relapsed or refractory chronic lymphocytic leukemia (“CLL”) and other B-cell malignancies. The decision was made after assessing the totality of the data including the 500 mg cohort, the highest dose studied in the trial, as the Company found insufficient evidence of activity in the BTK-inhibitor resistant disease population to move the program into Phase 2.

In July 2020, the Company announced a reduction in workforce of approximately 30% of its headcount to focus on development of its PDK1 inhibitor SNS-510. The Company incurred approximately $0.2 million in severance costs related to the reduction in workforce.

Liquidity and Going Concern

The Company has incurred significant losses and negative cash flows from operations since its inception, and as of June 30, 2020, the Company had cash and cash equivalents and restricted cash totaling $23.2 million and an accumulated deficit of $695.0 million. In July 2020, the Company completed an underwritten public offering of 59,999,999 shares of common stock for net proceeds of approximately $12.6 million, which included the exercise in full of the underwriter’s option to purchase 7,826,086 shares of common stock.

The Company expects to continue to incur significant losses for the foreseeable future as it continues development of its kinase inhibitor pipeline, including its PDK1 inhibitor, SNS-510.

The Company’s cash and cash equivalents and restricted cash 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. Though the Company raised additional funds in its July 2020 offering, the Company will require additional financing to fund working capital 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. Additionally, the continued spread of COVID-19 and uncertain market conditions may limit the Company’s ability to access capital. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date its condensed consolidated financial statements for the quarter ended June 30, 2020, are available to be issued. If the Company is unsuccessful in its efforts to raise additional financing, the Company might be required to further reduce its operations. The principal payments due under the SVB Loan Agreement (as defined in Note 6) have been classified as a current liability as of June 30, 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 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 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.

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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, and 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.

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

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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.

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.

 

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 June 30, 2020 and December 31, 2019.

 

 

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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 and six months ended

June 30,

 

 

2020

 

 

2019

 

Warrants to purchase shares of common stock

 

208

 

 

 

218

 

Convertible preferred stock

 

19,714

 

 

 

11,381

 

Options to purchase shares of common stock

 

7,906

 

 

 

4,952

 

Outstanding securities not included in

   calculations

 

27,828

 

 

 

16,551

 

 

 

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 (in thousands):

 

June 30, 2020

 

Input Level

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated Fair

Value

 

Money market funds – classified as cash equivalents

 

Level 1

 

$

16,503

 

 

$

 

 

$

 

 

$

16,503

 

 

December 31, 2019

 

Input Level

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses