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As filed with the Securities and Exchange Commission on January 13, 2021

Registration No. 333-251567

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

Sunesis Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   2834   94-3295878

(State or Other Jurisdiction of

Incorporation or Organization)

  (Primary Standard Industrial
Classification Code Number)
 

(I.R.S. Employer

Identification Number)

395 Oyster Point Boulevard, Suite 400

South San Francisco, CA 94080

(650) 266-3500

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Tina Gullotta

Vice President Finance

Sunesis Pharmaceuticals, Inc.

395 Oyster Point Boulevard, Suite 400

South San Francisco, CA 94080

(650) 266-3500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Please send copies of all communications to:

 

John T. McKenna

Rama Padmanabhan
Cooley LLP
3175 Hanover Street

Palo Alto, CA 94304

(650) 843-5000

 

Ivor Royston, M.D.

Chief Executive Officer

Viracta Therapeutics, Inc.

2533 S Coast Hwy 101, Suite 210

Cardiff, CA 92007

(858) 400-8470

 

Martin J. Waters

Kathy H. Ku
Wilson Sonsini Goodrich & Rosati, P.C.
12235 El Camino Real

San Diego, CA 92130

(858) 350-2300

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13(e)-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Security Being Registered

 

Amount

to be

Registered(1)

 

Proposed

Maximum
Offering Price
Per Share

 

Proposed

Maximum

Aggregate

Offering Price

 

Amount of

Registration Fee(3)

Common stock, $0.0001 par value per share

 

113,924,602

  N/A   $9,454(2)  

$2

Common stock issuable upon exercise of warrants

 

776,739

  N/A   $142,272  

$16

TOTAL

 

114,701,341

  N/A   $151,726  

$18(4)

 

 

(1)

Relates to common stock, $0.0001 par value per share, of Sunesis Pharmaceuticals, Inc., a Delaware corporation (“Sunesis”), issuable to holders of common stock (including the shares of common stock issuable upon conversion of all shares of preferred stock prior to the merger described herein) $0.0001 par value per share of Viracta Therapeutics, Inc., a Delaware corporation (“Viracta”), and upon exercise of warrants to purchase common stock of Viracta, in the proposed merger of Sol Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Sunesis, with and into Viracta (the “Merger”). The amount of Sunesis common stock to be registered is based on the estimated number of shares of Sunesis common stock that are expected to be issued pursuant to the Merger, assuming an exchange ratio of 0.4017 shares of Sunesis common stock for each outstanding share of Viracta common stock and 0.4017 shares of common stock issuable upon exercise of each warrant to purchase one share of Viracta common stock. Holders of Viracta capital stock are expected to hold approximately 86% of the combined company.

(2)

Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f)(2) of the Securities Act of 1933, as amended. Viracta is a private company, no market exists for its securities, and Viracta has an accumulated capital deficit. Therefore, the proposed maximum aggregate offering price is 1/3 of the aggregate par value of the Viracta securities expected to be exchanged in the proposed merger.

(3)

This fee has been calculated pursuant to Section 6(b) of the Securities Act of 1933, as amended.

(4)

Paid in connection with the initial filing of this registration statement.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 


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The information in this proxy statement/prospectus/information statement is not complete and may be changed. Sunesis may not sell its securities pursuant to the proposed transactions until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED JANUARY 13, 2021

 

LOGO   

LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Sunesis Pharmaceuticals, Inc. and Viracta Therapeutics, Inc.:

Sunesis Pharmaceuticals, Inc. (“Sunesis”) and Viracta Therapeutics, Inc. (“Viracta”) have entered into an Agreement and Plan of Merger and Reorganization, dated November 29, 2020, as may be amended from time to time (the “Merger Agreement”), pursuant to which a wholly owned subsidiary of Sunesis will merge with and into Viracta, with Viracta surviving as a wholly owned subsidiary of Sunesis (the “Merger”). The Merger will result in a clinical-stage biopharmaceutical company focused on the advancement and expansion of Viracta’s precision oncology pipeline targeting virus-associated malignancies, including Viracta’s lead program for the treatment of Epstein-Barr virus (“EBV”)-positive relapsed/refractory lymphomas.

At the effective time of the Merger (the “Effective Time”), each outstanding share of common stock of Viracta (including the shares of common stock issuable upon conversion of all shares of preferred stock prior to the Merger), $0.0001 par value per share (“Viracta Common Stock”), will be converted into the right to receive approximately 113,924,602 shares of common stock of Sunesis, $0.0001 par value per share (“Sunesis Common Stock”) based on an assumed exchange ratio of 0.4017, subject to adjustment for a reverse stock split of Sunesis Common Stock to be implemented prior to the consummation of the Merger as discussed in this proxy statement/prospectus/information statement, and further adjusted based on Sunesis’s net cash in connection with the closing of the Merger (which net cash has been assumed to be $14.0 million for the purposes of this calculation). Sunesis will assume outstanding and unexercised options to purchase shares of Viracta capital stock, and in connection with the Merger they will be converted into options to purchase shares of Sunesis Common Stock based on the agreed upon exchange ratio. At the Effective Time, Sunesis’s stockholders will continue to own and hold their then existing shares of Sunesis capital stock (including Sunesis Common Stock and Sunesis preferred stock), subject to adjustment for the reverse stock split. Each warrant to purchase Viracta Common Stock outstanding and unexercised immediately prior to the Effective Time of the Merger will be assumed by Sunesis and will become a warrant to purchase shares of Sunesis Common Stock, with the number of shares and exercise price being adjusted by the same exchange ratio. All outstanding and unexercised options to purchase shares of Sunesis Common Stock will remain effective and outstanding.

In connection with execution of the Merger Agreement on November 29, 2020, Viracta entered into a Common Stock Purchase Agreement (the “CSPA”) with certain investors pursuant to which, among other things, Viracta agreed to issue to the investors an aggregate of 107,349,288 shares of Viracta Common Stock at a purchase price of $0.6055 per share, for gross proceeds of approximately $65.0 million (the “Pre-Closing Financing”). Immediately after the Merger, after giving effect to the Pre-Closing Financing and assuming Sunesis holds $14.0 million of net cash at the closing of the Merger, the former equity holders of Viracta are expected to hold approximately 86% of the Sunesis capital stock on a fully diluted treasury stock method basis and the equity holders of Sunesis (pre-Merger) are expected to hold approximately 14% of the Sunesis capital stock on a fully diluted treasury stock method basis. If Sunesis holds less than $13.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold less than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis and if Sunesis holds more than $14.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold more than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis.

Shares of Sunesis Common Stock are currently listed on The Nasdaq Capital Market under the symbol “SNSS” although Sunesis plans to transfer its listing to The Nasdaq Global Market prior to completion of the Merger and file an initial listing application with The Nasdaq Stock Market LLC (“Nasdaq”) pursuant to Nasdaq’s “reverse merger” rules. Substantially concurrent with the completion of the Merger, Sunesis will be renamed “Viracta Therapeutics, Inc.” and expects to trade on The Nasdaq Global Market under the symbol “VIRX”. On January 11, 2021, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Sunesis Common Stock was $2.38 per share.

Sunesis is holding a virtual special meeting of its stockholders (the “Sunesis virtual special meeting”) in order to obtain the stockholder approvals necessary to complete the Merger and related matters. In light of the


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ongoing COVID-19 pandemic, Sunesis has chosen to hold an exclusively virtual special meeting rather than an in-person meeting to minimize the health and safety risks of holding an in-person meeting and to allow for greater access to those who may want to attend. Any stockholder entitled to attend and vote at the virtual special meeting is entitled to appoint a proxy to attend and vote on such stockholder’s behalf. Such proxy need not be a holder of Sunesis Common Stock. At the Sunesis virtual special meeting, unless postponed or adjourned to a later date, Sunesis will ask its common stockholders to, among other things:

 

  1.

approve an amendment to the amended and restated certificate of incorporation of Sunesis to effect a reverse stock split of Sunesis Common Stock at a ratio within the range between 3-for-1 and 6-for-1 (with such ratio to be mutually agreed upon by Sunesis and Viracta prior to the effectiveness of the Merger);

 

  2.

approve (i) the issuance of shares of Sunesis capital stock pursuant to the Merger, which will represent more than 20% of the shares of Sunesis Common Stock outstanding immediately prior to the Merger, and (ii) the change of control resulting from the Merger, pursuant to Nasdaq Listing Rules 5635(a) and 5635(b), respectively;

 

  3.

approve the Sunesis 2021 Equity Incentive Plan, a form of which is attached as Annex E to this proxy statement/prospectus/information statement;

 

  4.

approve, on non-binding advisory basis, the compensation that will or may become payable by Sunesis to its named executive officers in connection with the merger (the “Executive Merger Compensation Proposal”); and

 

  5.

approve a postponement or adjournment of the Sunesis virtual special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

Please refer to the attached proxy statement/prospectus/information statement for further information with respect to the business to be transacted at the Sunesis virtual special meeting. As described in the accompanying proxy statement/prospectus/information statement, certain of Viracta’s stockholders who in the aggregate own approximately 87% of the shares of Viracta capital stock, and certain of Sunesis’s stockholders who in the aggregate own approximately 0.9% of the shares of Sunesis Common Stock, in each case, outstanding as of the date of the Merger Agreement, are parties to support agreements with Sunesis and Viracta, whereby such stockholders have agreed to vote their shares in favor of the adoption or approval, among other things, of the Merger Agreement and the approval of the transactions contemplated therein, including the Merger, the issuance of shares of Sunesis Common Stock to Viracta’s stockholders, and the change of control resulting from the Merger, subject to the terms of the support agreements.

In addition, following the effectiveness of the registration statement on Form S-4 (the “Registration Statement”), of which this proxy statement/prospectus/information statement is a part, and pursuant to the conditions of the Merger Agreement and the support agreements, Viracta’s stockholders who are party to the support agreements will each execute an action by written consent of Viracta’s stockholders, referred to as the written consent, adopting and approving the Merger Agreement, thereby approving the transactions contemplated therein, including the Merger. No meeting of Viracta’s stockholders will be held; all of Viracta’s stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the Merger and related transactions, by signing and returning to Viracta a written consent once this Registration Statement is declared effective by the Securities and Exchange Commission.

After careful consideration, Sunesis’s board of directors has unanimously (i) determined that the Merger and the transactions and actions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Sunesis and its stockholders; (ii) authorized, approved and declared advisable the Merger Agreement and the transactions contemplated therein, including the Merger, the issuance of shares of Viracta capital stock to the stockholders of Sunesis pursuant to the terms of Merger Agreement and the treatment of the options and warrants to purchase Viracta capital stock pursuant to the Merger Agreement; and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that the stockholders of Sunesis vote “FOR” Proposal Nos. 1, 2, 3, 4 and 5.


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After careful consideration, Viracta’s board of directors has unanimously (i) determined that the Merger and the transactions and actions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Viracta and its stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated therein, including the Merger and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that each Viracta stockholder sign and return the written consent, indicating its (a) adoption of the Merger Agreement and approval of the transactions contemplated therein, including the Merger, (b) acknowledgement that the approval given is irrevocable and that such stockholder is aware of its rights to demand appraisal for its shares pursuant to Section 262 of the General Corporation Law of the State of Delaware (“DGCL”), and that such stockholder has received and read a copy of Section 262 of the DGCL, (c) consent to conversion of Viracta’s preferred stock to Viracta Common Stock immediately prior to the closing of the Merger, for Viracta’s preferred stockholders, and that such stockholder has received and read a copy of Section 262 of the DGCL, and (d) acknowledgement that by its approval of the Merger it is not entitled to appraisal rights or dissenters’ rights with respect to its shares in connection with the Merger and thereby waives any rights to receive payment of the fair value of its capital stock under the DGCL.

More information about Sunesis, Viracta and the proposed transaction is contained in this proxy statement/prospectus/information statement. Sunesis and Viracta urge you to read the accompanying proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 30.

Sunesis and Viracta are excited about the opportunities the Merger brings to Sunesis’s and Viracta’s stockholders, and thank you for your consideration and continued support.

 

Parvinder Hyare

Interim Chief Executive Officer

Sunesis Pharmaceuticals, Inc.

  

Ivor Royston, M.D.

President & Chief Executive Officer

Viracta Therapeutics, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus/information statement is dated January     , 2021, and is first being mailed to Sunesis’s and Viracta’s stockholders on or about January     , 2021.

 


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LOGO

395 Oyster Point Boulevard, Suite 400

South San Francisco, California 94080

NOTICE OF VIRTUAL SPECIAL MEETING OF STOCKHOLDERS

To Be Held On February 22, 2021

Dear Stockholder of Sunesis:

On behalf of the board of directors of Sunesis Pharmaceuticals, Inc., a Delaware corporation (“Sunesis”), we are pleased to deliver this proxy statement/prospectus/information statement for a virtual special meeting of stockholders of Sunesis (the “Sunesis virtual special meeting”), (i) for the proposed merger between Sunesis and Viracta Therapeutics, Inc., a Delaware corporation (“Viracta”), pursuant to which Sol Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Sunesis, will merge with and into Viracta, with Viracta surviving as a wholly owned subsidiary of Sunesis (the “Merger”).

Notice is hereby given that the Sunesis virtual special meeting will be held exclusively online via live audio-only webcast on February 22, 2021, at 9:00 a.m. Pacific time.

There will not be a physical meeting location. The Sunesis virtual special meeting can be accessed by visiting http://www.virtualshareholdermeeting.com/SNSS2021SM, where you will be able to attend the Sunesis virtual special meeting via live audio-only webcast. You will be able to vote your shares and submit questions during the Sunesis virtual special meeting webcast by logging in to the website listed above using the 16-digit control number included in your proxy card. Online check-in will begin at 8:45 a.m. Pacific time, and we encourage you to allow ample time for the online check-in procedures. Please note that you will not be able to attend the Sunesis virtual special meeting in person. Sunesis is holding the Sunesis virtual special meeting to consider the following proposals:

 

  1.

Approve an amendment to the amended and restated certificate of incorporation of Sunesis to effect a reverse stock split of Sunesis Common Stock at a ratio within the range between 3-for-1 and 6-for-1 (with such ratio to be mutually agreed upon by Sunesis and Viracta prior to the effectiveness of the Merger);

 

  2.

Approve (i) the issuance of shares of Sunesis capital stock pursuant to the Merger, which will represent more than 20% of the shares of Sunesis Common Stock outstanding immediately prior to the Merger, and (ii) the change of control resulting from the Merger, pursuant to Nasdaq Listing Rules 5635(a) and 5635(b), respectively;

 

  3.

Approve the Sunesis 2021 Equity Incentive Plan, a form of which is attached as Annex E to this proxy statement/prospectus/information statement;

 

  4.

Approve, on non-binding advisory basis, the compensation that will or may become payable by Sunesis to its named executive officers in connection with the merger (the “Executive Merger Compensation Proposal”); and

 

  5.

Approve a postponement or adjournment of the Sunesis virtual special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

Please refer to the attached proxy statement/prospectus/information statement for further information with respect to the business to be transacted at the Sunesis virtual special meeting. The board of directors of Sunesis (the “Sunesis Board”) has fixed January 5, 2021, as the record date for the determination of stockholders entitled to notice of, and to vote at, the Sunesis virtual special meeting and any adjournment or postponement thereof. Only holders of record of shares of Sunesis Common Stock at the close of business on the record date are entitled to notice of, and to vote at, the Sunesis virtual special meeting. At the close of business on the record date,


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Sunesis had 18,108,307 shares of common stock outstanding and entitled to vote. A complete list of such stockholders entitled to vote at the Sunesis virtual special meeting will be available for examination at the Sunesis offices in its South San Francisco, California during normal business hours for a period of ten days prior to the Sunesis virtual special meeting.

Your vote is important. Approval of Proposal No. 1 requires the affirmative vote of holders of a majority of Sunesis Common Stock outstanding as of the record date for the Sunesis virtual special meeting. Approval of Proposal Nos. 2, 3, 4 and 5 requires the affirmative vote of a majority of the votes cast virtually or by proxy at the virtual special meeting. Each of Proposal Nos. 1 and 2 is a condition to the consummation of the Merger. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1 and 2.

You are cordially invited to attend the Sunesis virtual special meeting. The Sunesis virtual special meeting can be accessed by visiting http://www.virtualshareholdermeeting.com/SNSS2021SM, where you will be able to attend the Sunesis virtual special meeting via live audio-only webcast. You will be able to vote your shares and submit questions during the Sunesis virtual special meeting webcast by logging in to the website listed above using the 16-digit control number included in your proxy card. Whether or not you expect to attend the Sunesis virtual special meeting, to ensure your representation at the Sunesis virtual special meeting, we urge you to submit a proxy to vote your shares as promptly as possible by (1) visiting the Internet site listed on the enclosed Sunesis proxy card, (2) calling the toll-free number listed on the enclosed Sunesis proxy card or (3) submitting your enclosed Sunesis proxy card by mail by using the provided self-addressed, stamped envelope. Submitting a proxy will not prevent you from attending by means of remote communication the Sunesis virtual special meeting and voting at the Sunesis virtual special meeting, but it will help to ensure that a quorum is present and avoid added solicitation costs. Any holder of record of Sunesis Common Stock as of the Sunesis record date who attends the Sunesis virtual special meeting may vote at the Sunesis virtual special meeting, thereby revoking any previous proxy. In addition, a proxy may also be revoked in writing before the Sunesis virtual special meeting in the manner described in the accompanying proxy statement/prospectus/information statement. If your shares are held in the name of a bank, broker or other nominee, please follow the instructions on the voting instruction form furnished by your bank, broker or other nominee.

If you own shares in street name through an account with a bank, broker or other nominee and you decide to attend the Sunesis virtual special meeting, you cannot vote at the Sunesis virtual special meeting unless you present a “legal proxy”, issued in your name from your bank, broker or other nominee.

THE SUNESIS BOARD HAS UNANIMOUSLY DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, SUNESIS AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED EACH SUCH PROPOSAL. THE SUNESIS BOARD UNANIMOUSLY RECOMMENDS THAT SUNESIS’S COMMON STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

By Order of the Sunesis Board of Directors,

Parvinder Hyare

Interim Chief Executive Officer

South San Francisco, California

January     , 2021

 


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement is a part of the Registration Statement and constitutes a prospectus of Sunesis, as well as a proxy statement of Sunesis for its special meeting and an information statement for the purpose of Viracta for its written consent. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting Sunesis Pharmaceuticals, Inc., Attention: Corporate Secretary, 395 Oyster Point Boulevard, Suite 400, South San Francisco, California 94080, or by email at info@sunesis.com or by calling (650) 266-3500.

You may also request additional copies from Sunesis’s proxy solicitor using the following contact information:

D.F. King & Co., Inc.

48 Wall Street – 22nd Floor

New York, New York 10005

Stockholders call toll-free: (866) 796-3441

Banks and brokers call: (212) 269-5550

Email: sunesis@dfking.com

To ensure timely delivery of these documents, any request should be made no later than February 15, 2021 to receive them before the Sunesis virtual special meeting.

For additional details about where you can find information about Sunesis, please see the section titled “Where You Can Find More Information” beginning on page 331 of this proxy statement/prospectus/information statement.


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     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     11  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     25  

MARKET PRICE AND DIVIDEND INFORMATION

     29  

RISK FACTORS

     30  

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

     120  

THE VIRTUAL SPECIAL MEETING OF SUNESIS’S STOCKHOLDERS

     122  

THE MERGER

     128  

THE MERGER AGREEMENT

     166  

AGREEMENTS RELATED TO THE MERGER

     188  

MATTERS BEING SUBMITTED TO A VOTE OF SUNESIS’S STOCKHOLDERS

     189  

PROPOSAL NO. 1: APPROVAL OF AN AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SUNESIS EFFECTING THE REVERSE SPLIT

     189  

PROPOSAL NO. 2: APPROVAL OF (I)  THE ISSUANCE OF SHARES OF SUNESIS COMMON STOCK PURSUANT TO THE MERGER, AND (II) THE CHANGE OF CONTROL RESULTING FROM THE MERGER

     196  

PROPOSAL NO. 3: APPROVAL OF THE SUNESIS PHARMACEUTICALS, INC. 2021 EQUITY INCENTIVE PLAN

     197  

PROPOSAL NO. 4: ADVISORY, NON-BINDING VOTE ON MERGER-RELATED EXECUTIVE COMPENSATION ARRANGEMENTS

     205  

PROPOSAL NO. 5: APPROVAL OF POSSIBLE ADJOURNMENT OF THE SUNESIS VIRTUAL SPECIAL MEETING

     207  

DESCRIPTION OF SUNESIS’S BUSINESS

     208  

DESCRIPTION OF VIRACTA’S BUSINESS

     224  

SUNESIS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     254  

VIRACTA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     262  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     270  

MANAGEMENT FOLLOWING THE MERGER

     271  

EXECUTIVE COMPENSATION OF SUNESIS

     278  

EXECUTIVE COMPENSATION OF VIRACTA

     291  

RELATED PARTY TRANSACTIONS OF THE COMBINED COMPANY

     302  

DESCRIPTION OF SUNESIS CAPITAL STOCK

     306  

COMPARISON OF RIGHTS OF HOLDERS OF VIRACTA STOCK AND SUNESIS STOCK

     310  

PRINCIPAL STOCKHOLDERS OF SUNESIS

     319  

PRINCIPAL STOCKHOLDERS OF VIRACTA

     322  

PRINCIPAL STOCKHOLDERS OF THE COMBINED COMPANY

     327  

LEGAL MATTERS

     330  

EXPERTS

     330  

WHERE YOU CAN FIND MORE INFORMATION

     331  

PRO FORMA COMBINED FINANCIAL STATEMENTS

     PF-1  

SUNESIS PHARMACEUTICALS, INC. INDEX TO FINANCIAL STATEMENTS

     F-A-1  

VIRACTA THERAPEUTICS, INC. INDEX TO FINANCIAL STATEMENTS

     F-B-1  

ANNEX A—AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

     A-1  

ANNEX B—OPINION OF MTS SECURITIES, LLC, DATED NOVEMBER 29, 2020

     B-1  

ANNEX C—APPRAISAL RIGHTS (SECTION  262 OF THE DELAWARE GENERAL CORPORATION LAW)

     C-1  

ANNEX D—AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

     D-1  

ANNEX E—SUNESIS 2021 EQUITY INCENTIVE PLAN

     E-1  


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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split (the “Reverse Split”) of common stock of Sunesis Pharmaceuticals, Inc. (“Sunesis”), as described in Proposal No. 1 beginning on page 189 of this proxy statement/prospectus/information statement.

The following section provides answers to frequently asked questions about the proposed merger transaction and the Sunesis virtual special meeting. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q:

What is the Merger?

 

A:

Sunesis, Sol Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Sunesis (“Merger Sub”), and Viracta Therapeutics, Inc. (“Viracta”) entered into the Agreement and Plan of Merger and Reorganization on November 29, 2020 (the “Merger Agreement”). The Merger Agreement, as it may be further amended from time to time, contains the terms and conditions of the proposed merger transaction among Sunesis, Merger Sub and Viracta. Under the Merger Agreement, Merger Sub will merge with and into Viracta, with Viracta surviving as a wholly owned subsidiary of Sunesis. This transaction is referred to as the “Merger.”

At the effective time of the Merger (the “Effective Time”): (a) each share of Viracta’s common stock (the “Viracta Common Stock”) and each share of Viracta’s preferred stock (the “Viracta Preferred Stock” and, together with the Viracta Common Stock, the “Viracta Capital Stock”) outstanding immediately prior to the Effective Time (excluding certain shares to be canceled pursuant to the Merger Agreement and shares held by stockholders who have exercised and perfected appraisal rights as more fully described in the section titled “The Merger—Viracta Dissenters’ Rights” beginning on page 180 of this proxy statement/prospectus/information statement but including any shares of Viracta Capital Stock issued pursuant to the Pre-Closing Financing (as defined below)) will automatically be converted into the right to receive a number of shares of Sunesis’s common stock (“Sunesis Common Stock”) calculated using an exchange ratio formula described in the Merger Agreement (the “Exchange Ratio”).

In connection with the Merger, Viracta entered into a Common Stock Purchase Agreement (the “CSPA”) with certain investors pursuant to which, among other things, Viracta agreed to issue to the investors an aggregate of 107,349,288 shares of Viracta Common Stock at a purchase price of $0.6055 per share, for gross proceeds of approximately $65.0 million (the “Pre-Closing Financing”).

Under the Exchange Ratio formula described in the Merger Agreement and assuming Sunesis holds $14.0 million of net cash at the closing of the Merger, the former Viracta equity holders immediately before the Merger are expected to hold approximately 86% of the capital stock of Sunesis outstanding immediately following the Merger on a fully diluted treasury stock method basis and the equity holders of Sunesis immediately before the Merger are expected to hold approximately 14% of the Sunesis capital stock outstanding immediately following the Merger on a fully diluted treasury stock method basis. The Exchange Ratio formula is based upon a Viracta fixed valuation of $185.0 million (assuming a Pre-Closing Financing of $65.0 million) and a Sunesis base valuation of $30.0 million, which is subject to adjustment based upon the Sunesis Net Cash, as more fully described in the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 166 of this proxy statement/prospectus/information statement. A $7.5 million Sunesis Net Cash threshold is a condition to the completion of the Merger (the “Net Cash Condition”).

Assuming a $65.0 million investment in the Pre-Closing Financing and $14.0 million in Sunesis Net Cash at the closing of the Merger, prior to the consummation of the Merger, the outstanding equity of Sunesis on a fully diluted treasury stock method basis is expected to be held as follows: equity holders of former Viracta Capital Stock (prior to the Pre-Closing Financing) will hold approximately 54%, the investors in the

 

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Pre-Closing Financing will hold approximately 32% and pre-Merger, and Sunesis equity holders will hold approximately 14%. If Sunesis holds less than $13.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold less than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis and if Sunesis holds more than $14.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold more than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis.

At the Effective Time, Sunesis’s stockholders will continue to own and hold their existing shares of Sunesis Common Stock, subject to adjustment in connection with the Reverse Split. All outstanding and unexercised options to purchase shares of Sunesis Common Stock will remain effective and outstanding. Each option to purchase shares of Viracta Common Stock that is outstanding and unexercised immediately prior to the Effective Time, whether or not vested, will be converted into an option to purchase shares of Sunesis Common Stock, with the number of Sunesis shares subject to such option, and the exercise price, being appropriately adjusted to reflect the Exchange Ratio. Each warrant to purchase Viracta Common Stock outstanding immediately prior to the Effective Time will be treated in accordance with the terms thereof. Substantially concurrent with the completion of the Merger, Sunesis will change its corporate name to “Viracta Therapeutics, Inc.” as required by the Merger Agreement.

 

Q:

When will the Exchange Ratio be final?

 

A:

Sunesis and Viracta will agree to an “Anticipated Closing Date” at least ten calendar days prior to the Sunesis virtual special meeting. At least five calendar days prior to the Anticipated Closing Date, Sunesis shall deliver to Viracta a schedule setting forth the estimated calculation of Sunesis Net Cash as of the Anticipated Closing Date. Following the final determination of the Sunesis Net Cash as of the Anticipated Closing Date, Sunesis and Viracta will issue a press release setting forth the anticipated Exchange Ratio, which the parties have agreed to publicly disclose as early as practicable prior to the Sunesis virtual special meeting (and in no event shall the press release delay, or cause the postponement of, the Sunesis virtual special meeting).

 

Q:

What will happen to Sunesis if, for any reason, the Merger does not close?

 

A:

If, for any reason, the Merger does not close, the board of directors of Sunesis (the “Sunesis Board”) may elect to, among other things, attempt to continue to sell or otherwise dispose of the various assets of Sunesis, dissolve and liquidate its assets or commence bankruptcy proceedings. Under certain circumstances, Sunesis may be obligated to pay Viracta a termination fee of $1.5 million and reimburse certain expenses of Viracta up to $250,000, as more fully described in the section titled “The Merger Agreement—Termination and Termination Fees” beginning on page 183 of this proxy statement/prospectus/information statement. If Sunesis decides to dissolve and liquidate its assets, Sunesis would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. There can be no assurances as to the amount or timing of available cash left to distribute to stockholders after paying the debts and other obligations of Sunesis and setting aside funds for reserves.

 

Q:

Why are the two companies proposing to merge?

 

A:

The Merger will result in a clinical-stage biopharmaceutical company focused on advancing Viracta’s clinical programs and developing new therapies to address a range of virus-associated cancers. For a discussion of Sunesis’s and Viracta’s reasons for the Merger, please see the section titled “The Merger—Sunesis Reasons for the Merger” beginning on page 134 of this proxy statement/prospectus/information statement and “The Merger—Viracta Reasons for the Merger” beginning on page 137 of this proxy statement/prospectus/information statement.

 

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Q:

Why am I receiving this proxy statement/prospectus/information statement?

 

A:

You are receiving this proxy statement/prospectus/information statement because you have been identified as a common stockholder of Sunesis as of the record date, or a stockholder of Viracta eligible to execute the Viracta written consent. If you are a common stockholder of Sunesis, you are entitled to vote at the virtual special meeting of stockholders of Sunesis (the “Sunesis virtual special meeting”), which has been called for the purpose of approving the following proposals:

 

  1.

the amendment to the amended and restated certificate of incorporation of Sunesis to effect a reverse stock split of Sunesis Common Stock at a ratio within the range between 3-for-1 and 6-for-1 (with such ratio to be mutually agreed upon by Sunesis and Viracta prior to the effectiveness of the Merger);

 

  2.

the issuance of shares of Sunesis capital stock pursuant to the Merger, which will represent more than 20% of the shares of Sunesis Common Stock outstanding immediately prior to the Merger, and the change of control resulting from the Merger, pursuant to Nasdaq Listing Rules 5635(a) and 5635(b), respectively;

 

  3.

approve the Sunesis 2021 Equity Incentive Plan, a form of which is attached as Annex E to this proxy statement/prospectus/information statement;

 

  4.

approve, on non-binding advisory basis, the Executive Merger Compensation Proposal; and

 

  5.

the postponement or adjournment of the Sunesis virtual special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

Proposal Nos. 1 through 5 described above are collectively the “Sunesis Stockholder Matters,” and Proposal Nos. 1 and 2 above are collectively the “Sunesis Closing Stockholder Matters.” We do not expect that any matter other than Proposal Nos. 1 through 5 will be brought before the Sunesis virtual special meeting.

If you are a stockholder of Viracta, you are requested to sign and return the Viracta written consent to (i) adopt the Merger Agreement and approve the transactions and actions contemplated by the Merger Agreement, including the conversion of the preferred stock to common stock immediately prior to the closing of the Merger you hold shares of Viracta’s preferred stock, (ii) acknowledge that your approval is irrevocable and that you are aware of your rights to demand appraisal for your shares pursuant to Section 262 of the General Corporation Law of the State of Delaware (“DGCL”), and that you have received and read a copy of Section 262 of the DGCL, and (iii) acknowledge that by your approval of the Merger you are not entitled to appraisal rights or dissenters’ rights with respect to your shares in connection with the Merger and thereby waive any rights to receive payment of the fair value of your capital stock under the DGCL (items (i) through (iii), collectively, the “Viracta Stockholder Matters”).

This document serves as: (x) a proxy statement of Sunesis used to solicit proxies for the Sunesis virtual special meeting, (y) a prospectus of Sunesis used to offer shares of Sunesis Common Stock (i) in exchange for shares of Viracta Capital Stock in the Merger and (ii) upon exercise of the warrants to purchase shares of Viracta common stock assumed in the Merger in exchange for the warrants to purchase shares of Sunesis Common Stock and (z) an information statement of Viracta used to solicit the written consent of its stockholders for the adoption of the Merger Agreement and the approval of the Merger and related transactions after the declaration of the effectiveness of the registration statement on Form S-4 (the “Registration Statement”), of which this proxy statement/prospectus/information statement is a part. Information about the Sunesis virtual special meeting, the Merger, the Merger Agreement and the other business to be considered by Sunesis stockholders at the Sunesis virtual special meeting is contained in this proxy statement/prospectus/information statement. Sunesis stockholders should read this information carefully and in its entirety. The enclosed voting materials allow Sunesis stockholders to vote their shares by proxy without attending the Sunesis virtual special meeting.

 

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Q:

What is required to consummate the Merger?

 

A:

To consummate the Merger, Sunesis’s common stockholders must approve the Sunesis Closing Stockholder Matters (Proposal Nos. 1 and 2 above) and Viracta’s common stockholders must approve the Viracta Stockholder Matters (items (i), (ii), and (iii) above).

Certain of Viracta’s stockholders who in the aggregate own approximately 87% of the shares of Viracta capital stock, and certain of Sunesis’s stockholders who in the aggregate own approximately 0.9% of the shares of Sunesis Common Stock, in each case, outstanding as of the date of the Merger Agreement, are parties to support agreements with Sunesis and Viracta, whereby such stockholders have agreed, subject to the terms of the support agreements, to vote their shares (or execute a written consent) in favor of the Sunesis Stockholder Matters or the Viracta Stockholder Matters, as applicable.

In addition to the requirement of obtaining stockholder approval of the Sunesis Closing Stockholder Matters and Viracta Stockholder Matters, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a complete description of the closing conditions under the Merger Agreement, we urge you to read the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 170 of this proxy statement/prospectus/information statement.

 

Q:

What proposals will be voted on at the Sunesis virtual special meeting, other than the Sunesis Closing Stockholder Matters?

 

A:

At the Sunesis virtual special meeting, the holders of Sunesis Common Stock will also be asked to consider the following proposals, along with any other business that may properly come before the Sunesis virtual special meeting or any adjournment or postponement thereof.

 

   

Proposal No. 3 to approve the Sunesis 2021 Equity Incentive Plan, a form of which is attached as Annex E to this proxy statement/prospectus/information statement;

 

   

Proposal No. 4 to approve, on non-binding advisory basis, the compensation that will or may become payable by Sunesis to its named executive officers in connection with the merger, or the Executive Merger Compensation Proposal; and

 

   

Proposal No. 5 to approve a postponement or adjournment of the Sunesis virtual special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

Proposal Nos. 1, 2, 3 and 4 are not conditioned upon Proposal No. 5 being approved. Proposal Nos. 1 through 5 are referred to collectively in this proxy statement/prospectus/information statement as “the proposals.”

 

Q:

What will Viracta’s stockholders, option holders and warrant holders receive in the Merger?

 

A:

Each share of Viracta Capital Stock outstanding will be converted into the right to receive a number of shares of Sunesis Common Stock calculated using the Exchange Ratio. Sunesis will assume outstanding and unexercised options to purchase shares of Viracta Capital Stock, and in connection with the Merger such options will be converted into options to purchase shares of Sunesis Common Stock, with the number of Sunesis shares subject to such option, and the exercise price, being appropriately adjusted to reflect the Exchange Ratio. Each warrant to purchase Viracta Common Stock outstanding immediately prior to the Effective Time will be treated in accordance with the terms thereof. For a more complete description of what Viracta’s stockholders and option holders will receive in the Merger, please see the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 166 of this proxy statement/prospectus/information statement.

 

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Q:

What will Sunesis’s stockholders and option holders receive in the Merger?

 

A:

At the Effective Time, Sunesis’s stockholders will continue to own and hold their existing shares or options to purchase shares of Sunesis Common Stock.

 

Q:

Who will be the directors of Sunesis following the Merger?

 

A:

At the Effective Time, the combined company is expected to initially have seven-member board of directors, comprised of (a) Ivor Royston, M.D., Michael Huang, M.S., M.B.A., Sam Murphy, Ph.D., Roger J. Pomerantz, M.D., Gur Roshwalb, M.D., and Thomas Darcy, each as a Viracta designee and (b) Nicole Onetto, M.D., as a Sunesis designee, until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal. The aforementioned board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee, in accordance with the rules of The Nasdaq Stock Market LLC (“Nasdaq”). All of Sunesis’s current directors other than Dr. Onetto are expected to resign from their positions as directors of Sunesis, effective upon the Effective Time.

 

Q:

Who will be the executive officers of Sunesis following the Merger?

 

A:

Immediately following the Merger, the executive management team of the combined company is expected to be comprised of the following individuals with such additional officers as may be added by Viracta or the combined company:

 

Name

  

Position with the Combined Company

  

Current Position

Ivor Royston, M.D.

   Chief Executive Officer    Chief Executive Officer of Viracta

Daniel Chevallard

   Chief Financial Officer    Chief Financial Officer of Viracta

Lisa Rojkjaer, M.D.

   Chief Medical Officer    Chief Medical Officer of Viracta

 

Q:

As a stockholder of Sunesis, how does the Sunesis Board recommend that I vote?

 

A:

After careful consideration, the Sunesis Board unanimously recommends that the Sunesis Common Stockholders vote:

 

   

FOR” Proposal No. 1 to approve an amendment to the amended and restated certificate of incorporation of Sunesis to effect the Reverse Split;

 

   

FOR” Proposal No. 2 to approve (i) the issuance of shares of Sunesis capital stock pursuant to the Merger, which will represent more than 20% of the shares of Sunesis Common Stock outstanding immediately prior to the Merger, and (ii) the change of control resulting from the Merger, pursuant to Nasdaq Listing Rules 5635(a) and 5635(b), respectively;

 

   

FOR” Proposal No. 3 to approve the Sunesis 2021 Equity Incentive Plan, a form of which is attached as Annex E to this proxy statement/prospectus/information statements;

 

   

FOR” Proposal No. 4 to approve, on non-binding advisory basis, the Executive Merger Compensation Proposal; and

 

   

FOR” Proposal No. 5 to adjourn the Sunesis virtual special meeting, if necessary to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 or 4.

For more information on each proposal and the Sunesis Board’s recommendations, please see the section entitled “Matters Being Submitted to a Vote of Sunesis’s Stockholders” beginning on page 189 of this proxy statement/prospectus/information statement.

 

Q:

How many votes are needed to approve each proposal?

 

A:

Approval of Proposal No. 1 requires the affirmative vote of holders of a majority of Sunesis Common Stock outstanding as of the record date for the Sunesis virtual special meeting. Approval of Proposal Nos. 2, 3, 4

 

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  and 5 requires the affirmative vote of a majority of the votes cast virtually or by proxy at the Sunesis virtual special meeting.

 

Q:

As a stockholder of Viracta, how does the Viracta Board recommend that I vote?

 

A:

After careful consideration, the board of directors of Viracta (the “Viracta Board”) unanimously recommends that the Viracta stockholders execute the written consent indicating their vote in favor of the Viracta Stockholder Matters.

 

Q:

What risks should I consider in deciding whether to vote in favor of the Sunesis Stockholder Matters or to execute and return the written consent, as applicable?

 

A:

You should carefully review the section of the proxy statement/prospectus/information statement titled “Risk Factors,” which sets forth certain risks and uncertainties related to the Merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Sunesis and Viracta, as an independent company, is subject.

 

Q:

When do you expect the Merger to be consummated?

 

A:

We anticipate that the Merger will be consummated during the first quarter of 2021, soon after the Sunesis virtual special meeting to be held on February 22, 2021 but we cannot predict the exact timing. For more information, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 170 of this proxy statement/prospectus/information statement.

 

Q:

What are the material U.S. federal income tax consequences of the Merger to U.S. Holders of Viracta shares?

 

A:

Sunesis and Viracta intend the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), as described in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 159 of this proxy statement/prospectus/information statement. Subject to the limitations and qualifications described in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 159 of this proxy statement/prospectus/information statement, in the opinion of Cooley LLP (“Cooley”) and Wilson Sonsini Goodrich & Rosati, P.C. (“WSGR”), the Merger will qualify as a reorganization with the meaning of Section 368(a) of the Code. Accordingly, Viracta stockholders generally will not recognize gain or loss for U.S. federal income tax purposes on the receipt of shares of Sunesis Common Stock issued in connection with the Merger (other than in respect of cash received in lieu of fractional shares). Each Viracta stockholder who receives cash in lieu of a fractional share of Sunesis Common Stock generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash received in lieu of such fractional share and the stockholder’s tax basis allocable to such fractional share.

The tax consequences to each Viracta stockholder will depend on that stockholder’s particular circumstances. Each Viracta stockholder should consult with his, her or its tax advisor for a full understanding of the tax consequences of the Merger to that stockholder.

 

Q:

What are the material U.S. federal income tax consequences of the Reverse Split to U.S. Holders of Sunesis shares?

 

A:

The Reverse Split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a Sunesis stockholder who is a U.S. holder (as defined in the section titled “Matters Being Submitted to a Vote of Sunesis’s Stockholders—Proposal No. 1: Approval of an Amendment to the Amended and Restated

 

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  Certificate of Incorporation of Sunesis Effecting the Reverse Split—Material U.S. Federal Income Tax Consequences of the Reverse Split” beginning on page 192 of this proxy statement/prospectus/information statement) should not recognize gain or loss upon the Reverse Split (other than in respect of cash received in lieu of fractional shares). A U.S. holder’s aggregate tax basis in the shares of Sunesis Common Stock received pursuant to the Reverse Split should equal the aggregate tax basis of the shares of Sunesis Common Stock surrendered (excluding any portion of such basis that is allocated to any fractional share of Sunesis Common Stock), and such U.S. holder’s holding period in the shares of Sunesis Common Stock received should include the holding period in the shares of Sunesis Common Stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of Sunesis Common Stock surrendered to the shares of Sunesis Common Stock received in a “recapitalization”. U.S. holders of shares of Sunesis Common Stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

Please review the information in the section titled “Matters Being Submitted to a Vote of Sunesis’s Stockholders—Proposal No. 1: Approval of an Amendment to the Amended and Restated Certificate of Incorporation of Sunesis Effecting the Reverse Split—Material U.S. Federal Income Tax Consequences of the Reverse Split” beginning on page 192 of this proxy statement/prospectus/information statement for a more complete description of the material U.S. federal income tax consequences of the Reverse Split to Sunesis U.S. holders.

 

Q:

What do I need to do now?

 

A:

Sunesis and Viracta urge you to read this proxy statement/prospectus/information statement carefully, including its annexes and information incorporated herein, and to consider how the Merger affects you.

If you are a common stockholder of Sunesis, please vote your shares as soon as possible so that your shares will be represented at the Sunesis virtual special meeting. Please follow the instructions set forth on the enclosed Sunesis proxy card or on the voting instruction form provided by the record holder of your shares if your shares are held in the name of your bank, broker or other nominee.

If you are a stockholder of Viracta, you may execute and return your written consent to Viracta in accordance with the instructions provided by Viracta once this Registration Statement is declared effective by the U.S. Securities and Exchange Commission (“SEC”).

 

Q:

When and where is the Sunesis virtual special meeting? What must I do to attend the Sunesis virtual special meeting?

 

A:

The Sunesis virtual special meeting will be held exclusively online via live audio-only webcast on February 22, 2021 at 9:00 a.m. Pacific time. Online check-in will begin at 8:45 a.m. Pacific time, and Sunesis encourages you to allow ample time for the online check-in procedures. Please note that you will not be able to attend the Sunesis virtual special meeting in person.

You or your authorized proxy may attend the Sunesis virtual special meeting if you were a registered or beneficial stockholder of Sunesis Common Stock as of the Sunesis record date.

You will be able to vote your shares and submit questions during the Sunesis virtual special meeting webcast by logging in to the website listed above using the 16-digit control number included in your proxy card. If you wish to submit a question during the Sunesis virtual special meeting, log into the Sunesis virtual special meeting platform at http://www.virtualshareholdermeeting.com/SNSS2021SM, type your question into the “Ask a Question” field, and click “Submit.” Sunesis will respond to as many properly submitted questions during the relevant portion of the Sunesis virtual special meeting agenda as time allows.

If Sunesis experiences technical difficulties during the Sunesis virtual special meeting (e.g., a temporary or prolonged power outage), Sunesis will determine whether the Sunesis virtual special meeting can be promptly reconvened (if the technical difficulty is temporary) or whether the Sunesis virtual special meeting

 

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will need to be reconvened on a later day (if the technical difficulty is more prolonged). In any situation, Sunesis will promptly notify stockholders of the decision via http://www.virtualshareholdermeeting.com/SNSS2021SM. Sunesis will have technicians ready to assist you with any technical difficulties you may have accessing the Sunesis virtual special meeting website. If you encounter any difficulties accessing the Sunesis virtual special meeting website during the check-in or meeting time, please call the technical support number that will be posted on the Sunesis virtual special meeting website log-in page at http://www.virtualshareholdermeeting.com/SNSS2021SM.

If you own shares in street name through an account with a bank, broker or other nominee, please send proof of your Sunesis share ownership as of the Sunesis record date (for example, a brokerage firm account statement or a “legal proxy” from your intermediary) along with your registration request. If you are not sure what proof to send, check with your intermediary.

If your shares are registered in your name with Sunesis’s stock registrar and transfer agent, American Stock Transfer & Trust Company, LLC, no proof of ownership is necessary because Sunesis can verify your ownership.

 

Q:

How are votes counted?

 

A:

Votes will be counted by the inspector of elections appointed for the meeting, who will separately count votes “FOR” and “AGAINST,” abstentions and, if applicable, broker non-votes.

We do not expect that any matter other than Proposal Nos. 1 through 5 will be brought before the Sunesis virtual special meeting.

 

Q:

What are “broker non-votes”?

 

A:

Brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are precluded from exercising their voting discretion with respect to approval of non-routine matters, such as Proposals Nos. 2, 3 and 4, and, as a result, absent specific instructions from the beneficial owner of such shares, brokers are not empowered to vote those shares, referred to generally as “broker non-votes.” Broker non-votes, if any, will be treated as shares that are present at the virtual special meeting for purposes of determining whether a quorum exists but will not be counted or deemed present virtually or by proxy for the purpose of voting on Proposals Nos. 2, 3 and 4. Broker non-votes will have the same effect as “AGAINST” votes for Proposal No. 1.

 

Q:

What will happen if I return my proxy or voting instruction form without indicating how to vote?

 

A:

If you submit your proxy or voting instruction form without indicating how to vote your shares on any particular proposal, the common stock represented by your proxy will be voted as recommended by the Sunesis Board with respect to that proposal.

 

Q:

May I change my vote after I have submitted a proxy or voting instruction form?

 

A:

Sunesis’s common stockholders of record, other than those Sunesis stockholders who are parties to voting agreements, may change their vote at any time before their proxy is voted at the Sunesis virtual special meeting in one of following ways:

 

   

By sending a written notice to the Secretary of Sunesis stating that it would like to revoke its proxy.

 

   

By duly executing a subsequently dated proxy relating to the same shares of common stock and return it in the postage-paid envelope provided, which subsequent proxy is received before the prior proxy is exercised at the Sunesis virtual special meeting;

 

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Duly submitting a subsequently dated proxy relating to the same shares of common stock by telephone or via the Internet (i.e., your most recent duly submitted voting instructions will be followed) before 11:59 p.m. Eastern time on February 21, 2021; and

 

   

By attending the Sunesis virtual special meeting and voting such shares during the Sunesis virtual special meeting.

If a stockholder who owns Sunesis shares in “street name” has instructed a broker to vote its shares of Sunesis Common Stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:

Who is paying for this proxy solicitation?

 

A:

Sunesis and Viracta will equally share the cost of printing and filing of this proxy statement/prospectus/information statement and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Sunesis Common Stock for the forwarding of solicitation materials to the beneficial owners of Sunesis Common Stock. In addition, Sunesis has engaged DF King & Co., Inc., a proxy solicitation firm, to solicit proxies from Sunesis’s stockholders for a fee of up to $15,000 plus certain additional costs associated with solicitation campaigns. Sunesis will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Fees paid to the SEC in connection with filing the statement/prospectus/information statement, and any amendments and supplements thereto, with the SEC will be paid by Viracta.

 

Q:

What is the quorum requirement?

 

A:

A quorum of stockholders is necessary to hold a valid meeting. The presence at the Sunesis virtual special meeting, virtually or represented by proxy, of the holders of a majority of the voting power of the stock issued, outstanding and entitled to vote thereat, as of the Sunesis record date, will constitute a quorum for the transaction of business at the Sunesis virtual special meeting.

Your shares will be counted towards the quorum if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you attend the Sunesis virtual special meeting and vote your shares during the Sunesis virtual special meeting. Abstentions and broker non-votes, if applicable, will also be counted towards the quorum requirement. If there is no quorum, the holders of a majority of shares present at the virtual special meeting or represented by proxy may postpone or adjourn the meeting to another date.

 

Q:

Should Sunesis’s and Viracta’s stockholders send in their stock certificates now?

 

A:

No. After the Merger is consummated, Viracta’s stockholders will receive written instructions from the exchange agent for exchanging their certificates representing shares of Viracta Capital Stock for certificates representing shares of Sunesis’s Common Stock. Each Viracta stockholder who otherwise would be entitled to receive a fractional share of Sunesis Common Stock will be entitled to receive an amount in cash, without interest, determined by multiplying such fraction by the volume-weighted average closing trading price of a share of Sunesis Common Stock on Nasdaq for the five consecutive trading days ending five trading days immediately prior to the date upon which the Merger becomes effective.

In addition, Sunesis’s stockholders will receive written instructions, as applicable, from Sunesis’s transfer agent, American Stock Transfer & Trust Company, LLC, for exchanging their certificates representing shares Sunesis Common Stock for new certificates giving effect to the Reverse Split, if effected. Sunesis’s stockholders will also receive a cash payment in lieu of any fractional shares, determined by multiplying such fraction by the fair market value per share of Sunesis Common Stock immediately prior to the effective time of the Reverse Split as determined by the Sunesis Board.

 

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Q:

Who can help answer my questions?

 

A:

If you are a stockholder of Sunesis and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the Merger, including the procedures for voting your shares, you should contact DF King & Co., Inc., Sunesis’s proxy solicitor, by telephone, toll-free, at (866) 796-3441.

If you are a stockholder of Viracta, and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the Merger, including the procedures for voting your shares, you should contact:

Viracta Therapeutics, Inc.

2533 S Coast Hwy 101, Suite 210

Cardiff, CA 92007

Attn: Secretary

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the Merger, the proposals being considered at the Sunesis virtual special meeting and Viracta’s stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement attached as Annex A, the fairness opinion of MTS Securities, LLC (“MTS”) attached as Annex B and the other annexes to which you are referred herein. For more information, please see the section titled “Where You Can Find More Information” beginning on page 331 of this proxy statement/prospectus/information statement.

The Companies

Sunesis Pharmaceuticals, Inc.

395 Oyster Point Boulevard, Suite 400

South San Francisco, California 94080

(650) 266-3500

Sunesis is a biopharmaceutical company focused on the development of novel targeted inhibitors for the treatment of hematologic and solid cancers. Sunesis’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, and by raising capital. Sunesis 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-dependent and independent signaling pathways integral to many malignancies. PDK1 can be overexpressed in breast, lung, prostate, hematologic and other cancers. Sunesis is conducting Investigational New Drug-enabling studies for SNS-510 and is addressing expected toxicities associated with PI3K inhibitors through dose regimen optimization and strategies that mitigate glucose dysregulation.

Our second program is vecabrutinib, a selective non-covalent inhibitor of Bruton’s Tyrosine Kinase, or 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, Sunesis announced that it will not advance Sunesis’s 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 Sunesis found insufficient evidence of activity in the BTK inhibitor-resistant population to move the program into Phase 2.

Sunesis also has two partnered programs: DAY101 (formerly TAK-580) and vosaroxin. Sunesis has a license agreement with DOT Therapeutics-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. In addition, Sunesis has a license agreement with Denovo Biopharma (“Denovo”) where Sunesis is eligible to receive potential regulatory and commercial milestones, and royalties on future sales of vosaroxin, when and if approved and commercialized.

In July 2020, Sunesis took steps to conserve cash resources and cut operating expenses, reducing its workforce by 30% to focus on its PDK1 inhibitor SNS-510 program while evaluating strategic alternatives. Strategic alternatives were evaluated with a goal to enhance stockholder value, including the possibility of a merger or sale of Sunesis. On November 29, 2020, due to the entry into the Merger Agreement, Sunesis committed to reducing its workforce by an additional 40% to preserve cash resources while completing the proposed Merger.



 

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Viracta Therapeutics, Inc.

2533 S Coast Hwy 101, Suite 210

Cardiff, CA 92007

(858) 400-8470

Viracta Therapeutics, Inc. (“Viracta”) is a clinical-stage, biomarker-directed precision oncology company focused on advancing new medicines for the treatment of virus-associated malignancies. The association of viruses and cancer has been well characterized, and Viracta’s lead program is focused on cancers associated with the Epstein-Barr virus (“EBV”). EBV has been recognized as a Group 1 human carcinogen by the World Health Organization. Despite the association of EBV with cancer, attempts to develop vaccines have not proven successful. EBV enters periods of latency during which most viral genes are epigenetically suppressed, which allows an infected cell to not be killed by the virus should it enter a lytic replication cycle. Likewise, the latently infected cell can evade the body’s immune surveillance mechanisms. In some stages of latency, no viral proteins are expressed on the cell surface, making it difficult to develop broadly effective immunotherapies. There are over 250,000 new cases of EBV-associated cancers each year with regard to lymphoma, nasopharyngeal carcinoma (“NPC”) and gastric carcinoma (“GC”), and there are currently no approved therapies for these cancers, which are responsible for over 140,000 deaths each year. Viracta’s novel synthetic lethality approach targets the EBV genome to enable the killing of the tumor cells by inducing the expression of certain viral kinase genes which in-turn activate an antiviral drug. The activated antiviral drug disrupts the DNA replication cycle of the target cells resulting in chain termination and killing of the tumor cells by inducing apoptosis, also known as programmed cell death. This synthetic lethality approach may also be applicable to other cancers associated with the herpes family of viruses, to which EBV belongs, such as glioblastoma associated with cytomegalovirus, Kaposi’s sarcoma with Kapois’s sarcoma virus, and gastrointestinal carcinomas with Human Herpesvirus 6.

Viracta’s lead product candidate, VRX-101 is an all-oral combination of nanatinostat, Viracta’s proprietary investigational drug, and valganciclovir, and is currently being evaluated in a Phase 1b/2 clinical trial for the treatment of relapsed/refractory EBV+ lymphomas, independent of histological subtype or cell lineage. In December 2020, at the 62nd American Society of Hematology (“ASH”) Annual Meeting, initial Phase 2 data from this trial was presented, which demonstrated encouraging efficacy signals in multiple subtypes of pre-treated, highly-refractory EBV+ lymphoma patients, and a generally well-tolerated safety profile. Complete responses were observed in diffuse large B-cell lymphoma, T/NK-cell lymphoma, and immunodeficiency-associated lymphoproliferative disorders. The median duration of response across all subtypes was 10.4 months.

Viracta has received Fast Track Designation by the U.S. Food and Drug Admistration for the treatment of relapsed or refractory EBV+ lymphoid malignancies, in addition to orphan drug designations for the treatment of post-transplant lymphoproliferative disorders, plasmablastic lymphoma, and T-cell lymphoma. Viracta plans to initiate a registration trial for the treatment of EBV+ lymphoma in the first half of 2021, and also plans to initiate a Phase 1b/2 trial in EBV+ solid tumors, including NPC and GC, in 2021.

The Merger (see page 128)

On November 29, 2020, Sunesis, Merger Sub, and Viracta entered into the Merger Agreement, pursuant to which Merger Sub will merge with and into Viracta, with Viracta surviving as a wholly owned subsidiary of Sunesis. Sunesis Common Stock will be issued to the former Viracta stockholders at the Effective Time. In connection with the closing of the Merger, Sunesis will change its name to “Viracta Therapeutics, Inc.,” and Viracta is expected to change its name to “Viracta Subsidiary, Inc.” References to the combined company in this proxy statement/prospectus/information statement are references to Sunesis following the Merger.

Concurrently with the execution of the Merger Agreement, Viracta entered into the CSPA with certain investors pursuant to which, among other things, Viracta agreed to issue to the investors an aggregate of



 

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107,349,288 shares of Viracta Common Stock at a purchase price of $0.6055 per share, for gross proceeds of approximately $65.0 million. The securities to be issued in the Pre-Closing Financing will be issued pursuant to an exemption from securities laws. The Sunesis Common Stock issuable upon exchange of the shares of Viracta Common Stock pursuant to the Merger will be registered on this Registration Statement filed and declared effective by the SEC. The warrants to purchase Sunesis Common Stock issuable upon exchange of the warrants to purchase shares of Viracta Common Stock will be issued pursuant to an exemption from securities laws. The Registration Statement will also register the issuance of the Sunesis Common Stock issuable upon exercise of the warrants, following Sunesis’s assumption of the warrants in the Merger.

Sunesis and Viracta expect the Merger to be consummated during the first quarter of 2021, subject to satisfaction or waiver of certain conditions, including, among other things, receipt of the requisite approval of Sunesis’s and Viracta’s stockholders, including approval by the Sunesis Common Stockholders of (a)(i) the issuance of shares of Sunesis capital stock pursuant to the Merger, which will represent more than 20% of the shares of Sunesis Common Stock outstanding immediately prior to the Merger, and (ii) the change of control resulting from the Merger, pursuant to Nasdaq Listing Rules 5635(a) and 5635(b), respectively, and (b) an amendment to Sunesis’s amended and restated certificate of incorporation to effect immediately prior to the closing of the Merger the Reverse Split at a ratio anywhere in the range between 3-for-1 and 6-for-1 (with the actual reverse stock split ratio to be mutually agreed upon by Sunesis and Viracta prior to the effectiveness of the Merger).

Immediately following the consummation of the Merger, the equity holders of Viracta (including the holders of any outstanding and unexercised options to purchase Viracta Capital Stock) immediately prior to the Merger are expected to hold approximately 86% of the shares of Sunesis capital stock outstanding immediately following the Merger on a fully diluted treasury stock method basis, and the equity holders of Sunesis immediately prior to the Merger are expected to hold approximately 14% of the Sunesis capital stock outstanding immediately following the Merger on a fully diluted treasury stock basis, in each case, after giving effect to the Pre-Closing Financing and assuming Sunesis Net Cash of $14.0 million at the closing of the Merger and using the treasury stock method. As currently anticipated and assuming a $65.0 million investment in the Pre-Closing Financing, after the closing of the Pre-Closing Financing and consummation of the Merger, and assuming Sunesis holds $14.0 million of net cash at the closing of the Merger, the outstanding equity of Sunesis on a fully diluted treasury stock method basis will be held as follows: equity holders of former Viracta Capital Stock (prior to the Pre-Closing Financing) are expected to hold approximately 54%; the investors in the Pre-Closing Financing are expected to hold approximately 32%; and pre-Merger Sunesis equity holders are expected to hold approximately 14%. If Sunesis holds less than $13.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold less than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis and if Sunesis holds more than $14.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold more than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis. A $7.5 million Sunesis Net Cash threshold is a condition to the completion of the Merger (the “Net Cash Condition”). For a more complete description of the Merger and the potential adjustments in the Exchange Ratio, please see the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 166 of this proxy statement/prospectus/information statement.

Reasons for the Merger (see page 134)

The Sunesis Board considered various reasons to reach its determination:

 

   

that the Merger, the Reverse Split and the other transactions and actions contemplated by the Merger Agreement (the “Contemplated Transactions”) are advisable and fair to, and in the best interests, of Sunesis and its stockholders;



 

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to approve and declare advisable the Merger Agreement and the Contemplated Transactions, including the authorization and issuance of shares of Sunesis Common Stock to the stockholders of Viracta pursuant to the terms of the Merger Agreement; and

 

   

to recommend that, upon the terms and subject to the conditions set forth in the Merger Agreement, that the stockholders of Sunesis vote to approve the Sunesis Closing Stockholder Matters.

The Viracta Board also considered various reasons to reach its determination:

 

   

that the Merger is advisable and fair to, and in the best interests of, Viracta and its stockholders;

 

   

to approve the Merger Agreement, the Merger and the Contemplated Transactions and deem the Merger Agreement advisable; and

 

   

to recommend that its stockholders vote to approve the Viracta Stockholder Matters.

Following the Merger, the combined company will be a clinical-stage biopharmaceutical company focused on advancing Viracta’s precision oncology pipeline targeting virus-associated malignancies, including Viracta’s lead program for the treatment of EBV+ relapsed/refractory lymphomas. Among other reasons, Sunesis and Viracta believe that the combined organization will have the following potential advantages:

 

   

Product Pipeline. The combined company is expected to build upon and implement Viracta’s current plans for developing its precision oncology pipeline targeting virus-associated malignancies, including Viracta’s lead program for the treatment of EBV+ relapsed/refractory lymphomas.

 

   

Management Team. It is expected that the combined organization will be led by the experienced senior management team from Viracta and a board of directors of seven members with representation from each of Sunesis and Viracta.

 

   

Cash Resources. The combined company is expected to have the cash that Viracta is expected to have in connection with the consummation of the Merger, which includes the cash that Viracta currently holds, plus the gross proceeds from the Pre-Closing Financing of at least $65.0 million, in addition to the cash that Sunesis is expected to have in connection with the consummation of the Merger, which Sunesis and Viracta believe is sufficient to enable Viracta to pursue its near term clinical trials and business plans.

The Sunesis Board considered other reasons for the Merger, including:

 

   

the Sunesis Board, with the assistance of its advisors, undertook a comprehensive and thorough process of reviewing and analyzing potential strategic transactions, including strategic mergers and acquisitions, asset acquisitions and reverse mergers, to identify the opportunity that would, in the Sunesis Board’s opinion, create the most value for Sunesis’s stockholders;

 

   

the Sunesis Board believes that, as a result of arm’s length negotiations with Viracta, Sunesis and its representatives negotiated the most favorable exchange ratio that Viracta was willing to agree to, and that the terms of the Merger Agreement include the most favorable terms to Sunesis in the aggregate to which Viracta was willing to agree;

 

   

the Sunesis Board believes, after a thorough review of strategic alternatives and Sunesis’s discussions with its financial advisors and legal counsel, as well as Sunesis management’s discussions with Viracta’s senior management, that, compared to the Merger, no alternatives or other strategic options that may have been available to Sunesis, including remaining a standalone public company, were reasonably likely to create greater value for Sunesis’s stockholders;

 

   

the risks associated with SNS-510 and vecabrutinib becoming commercially viable programs due to preclinical and clinical data produced to date, the competitive landscape among BTK inhibitors and the inherent technical risks of early stage programs;



 

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the consequences of Sunesis’s decision not to advance vecabrutinib, a selective non-covalent inhibitor of Bruton’s Tyrosine Kinase, or BTK, in the planned Phase 2 portion of the Phase 1b/2 trial due to insufficient activity in BTK inhibitor-resistant patients, and the likelihood that Sunesis’s prospects as a stand-alone company were unlikely to change for the benefit of Sunesis’s stockholders in the foreseeable future;

 

   

the risks associated with the need to obtain substantial amounts of financing to continue its operations and to continue the development of its SNS-510 PDK1 inhibitor program if Sunesis were to remain an independent company;

 

   

the risk of not achieving milestones and royalties from Sunesis’s partnered programs;

 

   

the risks and delays associated with, and uncertain value and costs to Sunesis’s stockholders of, liquidating Sunesis, including, without limitation, the uncertainties of continuing cash burn while contingent liabilities are resolved and uncertainty of timing of release of cash until contingent liabilities are resolved;

 

   

the strength of the balance sheet of the combined company, which includes the cash that Viracta currently holds, plus the gross proceeds from the Pre-Closing Financing of at least $65.0 million, in addition to the cash that Sunesis is expected to have in connection with the consummation of the Merger;

 

   

the combined company will be led by an experienced industry chief executive and a board of directors with representation from the current boards of directors of Sunesis and Viracta; and

 

   

Viracta’s product pipeline and the potential market opportunity for Viracta’s products, that Viracta’s product candidates represent a sizeable potential market opportunity and may thereby create value for the stockholders of the combined organization and an opportunity for Sunesis’s stockholders to participate in the potential growth of the combined organization.

In addition, the Viracta Board approved the Merger based on a number of reasons, including the following:

 

   

the potential to provide the current Viracta stockholders with greater liquidity by owning stock in a public company;

 

   

Viracta’s need for capital to support the clinical development of its product candidates and the potential to access public market capital, including sources of capital from a broader range of investors than it could otherwise obtain if it continued to operate as a privately-held company;

 

   

the expectation that the Merger would be a more time- and cost-effective means to access capital than other options considered; and

 

   

the expectation that the Merger will qualify as a transaction described under Section 368(a) of the Code for U.S. federal income tax purposes, with the result that Viracta’s stockholders will generally not recognize taxable gain or loss for U.S. federal income tax purposes.

Opinion of Sunesis’s Financial Advisor (see page 139)

Sunesis retained MTS Health Partners, L.P. as its financial advisor in connection with the Merger. On November 29, 2020, MTS Securities, LLC, an affiliate of MTS Health Partners, L.P., rendered its oral opinion to the Sunesis Board (which was subsequently confirmed in writing as of November 29, 2020), that, as of that date and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth in such written opinion and described below, the Exchange Ratio was fair, from a financial point of view, to Sunesis.



 

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The full text of the opinion of MTS Securities, LLC (which is referred to herein as the “MTS Opinion”) sets forth the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by MTS Securities, LLC in connection with its opinion. As described therein, MTS Securities, LLC assumed, among others, for purposes of the MTS Opinion that the only material assets of Sunesis were Sunesis Net Cash, any proceeds of monetization of Sunesis’s agreement with Day One Biopharmaceuticals, Inc., dated as of December 16, 2019 (the “Day One Agreement” and referred to in the MTS Opinion as the TAK-580 licensing agreement), and Sunesis’s Equity Stake (as defined in “The Merger—Certain Unaudited Financial Projections”), that no other assets of Sunesis would have any material value and that Sunesis would not engage in any activity that could result in the generation of any revenue other than the receipt of royalties and/or proceeds from the Day One Agreement. As a result, based on the direction of and with the consent of Sunesis management and with the consent of the Sunesis Board, MTS Securities, LLC analyzed the relevant intrinsic valuation of Sunesis solely using a liquidation analysis. MTS Securities, LLC further assumed, based on the direction of and with the consent of Sunesis management and with the consent of the Sunesis Board, and based on the commitments obtained by Viracta, that the amount of gross proceeds from the Pre-Closing Financing will be $65.0 million. The MTS Opinion is attached as Annex B to the accompanying proxy statement/prospectus/information statement and is incorporated herein by reference. The summary of the MTS Opinion set forth in this proxy statement/prospectus/information statement is qualified in its entirety by reference to the full text of the MTS Opinion. We urge you to read carefully the MTS Opinion, together with the summary thereof in this proxy statement/prospectus/information statement, in its entirety.

MTS Securities, LLC provided its opinion for the information and assistance of the Sunesis Board in connection with its consideration of the Merger. The MTS Opinion addressed solely the fairness, from a financial point of view, of the Exchange Ratio to Sunesis and does not address any other aspect or implication of the Merger. The MTS Opinion was not a recommendation to the Sunesis Board or any stockholder of Sunesis as to how to vote or to take any other action in connection with the Merger.

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

Merger Consideration and Exchange Ratio (see page 166)

Pursuant to the Merger Agreement, at the Effective Time, each share of Viracta Capital Stock outstanding immediately prior to the Effective Time (excluding shares to be canceled pursuant to the Merger Agreement and excluding dissenting shares but including any shares of Viracta Capital Stock issued pursuant to the Pre-Closing Financing as per the Merger Agreement) will be automatically converted solely into the right to receive a number of shares of Sunesis Common Stock equal to the Exchange Ratio.

No fractional shares of Sunesis Common Stock will be issued in connection with the Merger, and no certificates or scrip for any such fractional shares shall be issued. Any holder of Viracta Capital Stock who would otherwise be entitled to receive a fraction of a share of Sunesis Common Stock (after aggregating all fractional shares of Sunesis Common Stock issuable to such holder) will, in lieu of such fraction of a share and upon surrender by such holder of a letter of transmittal in accordance with the Merger Agreement and any accompanying documents as required therein, be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the Sunesis’s volume weighted average closing trading price of a share of Sunesis Common Stock on Nasdaq for the five consecutive trading days ending five trading days immediately prior to the Effective Time. For a more complete description of the Exchange Ratio, please see the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 166 of this proxy statement/prospectus/information statement.



 

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The Exchange Ratio formula is derived based upon a Viracta Equity Value (as defined below) of $185.0 million and a Sunesis Equity Value (as defined below) of $30.0 million and is subject to adjustment based upon (a) the proceeds from the Pre-Closing Financing of $65.0 million and (b) Sunesis Net Cash at the closing of the Merger being greater or less than $14.0 million. Based upon the current size of the Pre-Closing Financing, the Viracta Equity Value is $185.0 million. Sunesis has agreed to certain restrictions on the operation of its business under the Merger Agreement, including restrictions regarding the disposition of its assets, which could result in Sunesis being unable to dispose of its assets to satisfy the closing condition regarding the Sunesis Net Cash not being less than $7.5 million, which is a condition to the completion of the Merger (the “Net Cash Condition”). For a more complete description of the Merger and the potential adjustments in the Exchange Ratio, please see the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 166 of this proxy statement/prospectus/information statement.

As currently anticipated and assuming an investment of approximately $65.0 million in the Pre-Closing Financing and assuming Sunesis holds $14.0 million of net cash at the closing of the Merger, the equity holders of Viracta immediately before the Merger (inclusive of investors in the Pre-Closing Financing) are expected to own approximately 86% of the aggregate number of outstanding shares of Sunesis capital stock immediately after the closing of the Merger, and the equity holders of Sunesis immediately before the Merger are expected to own approximately 14% of the aggregate number of outstanding shares of Sunesis capital stock immediately after the closing of the Merger, in each case, on a fully-diluted treasury stock method basis, subject to the adjustments described above. If Sunesis holds less than $13.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold less than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis and if Sunesis holds more than $14.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold more than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis. For a more complete description of the Merger and the potential adjustments in the Exchange Ratio, please see the section titled “The Merger Agreement —Merger Consideration and Exchange Ratio” beginning on page 166 of this proxy statement/prospectus/information statement.

Treatment of Sunesis Stock Options

As of December 31, 2020, Sunesis’s named executive officers and directors collectively owned unvested stock options to purchase 126,002 shares of Sunesis Common Stock and vested stock options to purchase 331,580 shares of Sunesis Common Stock, for a total of options to purchase 457,582 shares of Sunesis Common Stock.

Treatment of Viracta Stock Options

Under the terms of the Merger Agreement, each option to purchase shares of Viracta Common Stock that is outstanding and unexercised immediately prior to the Effective Time, whether or not vested, will be converted into an option to purchase shares of Sunesis Common Stock. Sunesis will assume Viracta’s 2016 Equity Incentive Plan, and all rights with respect to each outstanding option to purchase Viracta Common Stock in accordance with its terms and the terms of the stock option agreement by which such option is evidenced.

Accordingly, from and after the Effective Time: (i) each outstanding Viracta stock option assumed by Sunesis may be exercised solely for shares of Sunesis Common Stock; (ii) the number of shares of Sunesis Common Stock subject to each outstanding option assumed by Sunesis will be determined by multiplying (A) the number of shares of Viracta Common Stock that were subject to such Viracta stock option, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio and the Reverse Split, and rounding the resulting number down to the nearest whole number of shares of Sunesis Common Stock; (iii) the per share exercise price for the Sunesis Common Stock issuable upon exercise of each Viracta stock option assumed by



 

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Sunesis shall be determined by dividing (A) the per share exercise price of Viracta Common Stock subject to such Viracta stock option, as in effect immediately prior to the Effective Time, by (B) the Exchange Ratio and the Reverse Split and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on the exercise of any Viracta stock option assumed by Sunesis shall continue in full force and effect and the term, exercisability, vesting schedule, accelerated vesting provisions, and any other provisions of such Viracta stock option shall otherwise remain unchanged; provided, however, that the Sunesis Board or a committee thereof will succeed to the authority and responsibility of the Viracta Board or any committee thereof with respect to each Viracta stock option assumed by Sunesis. The number of shares of Sunesis Common Stock that is expected to be issued upon exercise of the Viracta stock options, and the exercise price of such options, will also be adjusted for the Reverse Split.

Treatment of Viracta Warrants

Upon consummation of the Merger, each warrant to purchase Viracta Common Stock outstanding immediately prior to the Effective Time will be treated in accordance with the terms thereof.

Conditions to the Completion of the Merger (see page 170)

The obligations to consummate the Merger and otherwise consummate the Contemplated Transactions shall be subject to receipt of the Required Viracta Stockholder Vote (as defined below), the required vote from Sunesis stockholders on the Sunesis Closing Stockholder Matters, and the satisfaction or waiver, on or prior to the Effective Time, of the other conditions set forth in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 170 of this proxy statement/prospectus/information statement.

Non-Solicitation (see page 176)

Both Sunesis and Viracta are prohibited by the terms of the Merger Agreement from, directly or indirectly:

 

   

soliciting, initiating or knowingly encouraging, inducing or facilitating the communication, making, submission or announcement of any Acquisition Proposal (as defined below) or Acquisition Inquiry (as defined below) or taking any action that could reasonably be expected to lead to an Acquisition Proposal or Acquisition Inquiry;

 

   

furnishing any non-public information to any person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry;

 

   

engaging in discussions or negotiations with any person with respect to any Acquisition Proposal or Acquisition Inquiry;

 

   

approving, endorsing or recommending any Acquisition Proposal;

 

   

executing or entering into any letter of intent or any contract contemplating or otherwise relating to any Acquisition Transaction (as defined below) (other than a permitted confidentiality agreement); or

 

   

publicly proposing to do any of the foregoing.

Either of Sunesis or Viracta, as applicable, may furnish non-public information to and enter into discussions or negotiations with, any person in response to a bona fide written Acquisition Proposal, which its board of directors determines in good faith, after consultation with its outside financial advisors and outside legal counsel, constitutes, or could be reasonably likely to result in, a Superior Offer (as defined below) (and is not withdrawn) if:

 

   

neither it nor any of its representatives will have breached the non-solicitation restrictions in the Merger Agreement in any material respect;



 

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its board of directors concludes in good faith based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of its board of directors under applicable law;

 

   

it receives from such person an executed confidentiality agreement containing provisions, in the aggregate, at least as favorable to it as those contained in the non-disclosure and confidentiality agreement, dated as of October 1, 2020 between Viracta and Sunesis; and

 

   

substantially contemporaneously with furnishing any such nonpublic information to such person, it furnishes such nonpublic information to the other party (to the extent such information has not been previously furnished to the other party).

If Sunesis or Viracta, or any of their respective representatives, receives an Acquisition Proposal or Acquisition Inquiry prior to Closing, then such party will promptly (and in no event later than one business day after it becomes aware of such Acquisition Proposal or Acquisition Inquiry) advise the other party orally and in writing of such Acquisition Proposal or Acquisition Inquiry (including the identity of the person making or submitting such Acquisition Proposal or Acquisition Inquiry and the material terms of the Acquisition Proposal or Acquisition Inquiry) and provide a copy of all material written materials relating to such Acquisition Proposal or Acquisition Inquiry. Each party will keep the other party informed on a current basis with respect to the status and material terms of any such Acquisition Proposal or Acquisition Inquiry and any material modification thereto.

Termination and Termination Fees (see page 183)

Upon termination of the Merger Agreement by Sunesis or Viracta in certain circumstances a termination fee of $1.5 million may be payable by Sunesis to Viracta, or $1.5 million may be payable by Viracta to Sunesis. Additionally, in the event of a termination in connection with a Viracta Triggering Event (as defined on page 184 of this proxy statement/prospectus/information statement), then a termination fee of $3.0 million may be payable by Viracta to Sunesis. For a more complete description of the termination provisions, please see the section titled “The Merger Agreement—Termination and Termination Fees” beginning on page 183 of this proxy statement/prospectus/information statement.

Support Agreements (see page 188)

Concurrently with the execution of the Merger Agreement, (a) officers, directors and certain stockholders of Viracta (solely in their respective capacities as Viracta stockholders) who collectively beneficially owned or controlled approximately 87% of the voting power of Viracta’s outstanding capital stock as of November 29, 2020, entered into support agreements under which such stockholders agreed to, among other things, vote in favor of the adoption of the Merger Agreement and the approval of the Merger, the Viracta Stockholder Matters and the other transactions contemplated by the Merger Agreement; provided that in the event of a Viracta Board Adverse Recommendation Change, the obligation of such Viracta stockholders to vote their shares of Viracta Capital Stock will be modified and such stockholders will only be required to collectively vote an aggregate number of shares of Viracta Capital Stock equal to 35% of the total voting power of the outstanding Viracta Capital Stock, and (b) officers and directors of Sunesis (solely in their respective capacities as Sunesis stockholders), who collectively beneficially owned or controlled approximately 0.9% of the voting power of Sunesis’s outstanding capital stock as of November 29, 2020, entered into support agreements under which such stockholders agreed to, among other things, vote in favor of the adoption of the Merger Agreement and the approval of the Merger and the other transactions contemplated by the Merger Agreement.

The support agreements will terminate at the earlier of the Effective Time or the termination of the Merger Agreement in accordance with its terms.



 

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Lock-Up Agreements (see page 188)

Concurrently with the execution of the Merger Agreement, directors, officers and certain stockholders of Viracta, entered into lock-up agreements, pursuant to which such individuals and entities have agreed not to, except in limited circumstances, transfer or dispose of, any shares of Sunesis Common Stock or any securities convertible into, or exercisable or exchangeable for, shares of Sunesis Common Stock, including, as applicable, shares received in the Merger and issuable upon exercise of warrants and stock options, for a period of 180 days after the closing date of the Merger. Dr. Onetto, the designee of Sunesis to the board of directors of the combined company has also entered into a similar lock-up agreement.

Pre-Closing Financing; CSPA (see page 188)

Concurrent with the execution of the Merger Agreement, Viracta entered into the CSPA with certain investors pursuant to which, among other things, Viracta agreed to issue to the investors an aggregate of 107,349,288 of shares of Viracta Common Stock at a purchase price of $0.6055 per share, for gross proceeds of approximately $65.0 million immediately prior to the closing of the Merger.

Appraisal Rights (see page 163)

Sunesis stockholders are not entitled to appraisal rights in connection with the Merger. Holders of Viracta Common Stock are entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL. For more information about such rights, please see the provisions of Section 262 of the DGCL attached as Annex C and the section titled “The Merger—Appraisal Rights and Dissenters’ Rights” beginning on page 163 of this proxy statement/prospectus/information statement.

Management Following the Merger (see page 271)

Immediately following the Merger, the executive management team of the combined company is expected to be comprised of the following individuals with such additional officers as may be added by Viracta or the combined company:

 

Name

  

Position with the Combined Company

  

Current Position

Ivor Royston, M.D.

   Chief Executive Officer    Chief Executive Officer of Viracta

Daniel Chevallard

   Chief Financial Officer    Chief Financial Officer of Viracta

Lisa Rojkjaer, M.D.

   Chief Medical Officer    Chief Medical Officer of Viracta

Directors of the Combined Company Following the Merger

At the Effective Time, the combined company is expected to initially have a seven-member board of directors, comprised of (a) Ivor Royston, M.D., Michael Huang, M.S., M.B.A., Sam Murphy, Ph.D., Roger J. Pomerantz, M.D., Gur Roshwalb, M.D., and Thomas Darcy, each as a Viracta designee, and (b) Nicole Onetto, M.D., as a Sunesis designee, until their respective successors are duly elected or appointed and qualified or their earlier death, resignation or removal.

The aforementioned board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee, in accordance with the Nasdaq rules. All of Sunesis’s current directors, other than Dr. Onetto, are expected to resign from their positions as directors of Sunesis, effective as of the Effective Time.



 

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Interests of Certain Directors, Officers and Affiliates of Sunesis and Viracta (see pages 151 and 156)

In considering the recommendation of the Sunesis Board with respect to the issuance of Sunesis Common Stock pursuant to the Merger Agreement and the other matters to be acted upon by Sunesis’s stockholders at the Sunesis virtual special meeting, Sunesis’s stockholders should be aware that certain members of the Sunesis Board and current and former executive officers of Sunesis have interests in the Merger that may be different from, or in addition to, interests they have as Sunesis’s stockholders.

On November 29, 2020, in connection with the Merger Agreement, the Sunesis Board upon recommendation of the compensation committee adopted a retention program for certain of its executive officers, or the Retention Program. Under the Retention Program: (i) Dr. Fox and Mr. Hyare will be eligible to receive a guaranteed cash bonus equal to the executive’s current target annual bonus for 2020 (regardless of actual performance), which amounts to $159,120 for Dr. Fox and $116,668 for Mr. Hyare, subject to the executive’s continued employment through the closing of the Merger or involuntary termination (other than for cause as defined in the executive’s severance benefits agreement) on or before the closing of the Merger; and (ii) extension of the post-termination exercise period for all options held by the executive with an exercise price below $10.00 per share until the earlier of the original expiration date of such option or twelve months following the date on which the executive’s employment with Sunesis terminates. Such retention benefits are in addition to the severance benefits available to Dr. Fox and Mr. Hyare under the Executive Severance Agreements. The Retention Program also provides Dr. Fox and Mr. Hyare outplacement services for six months.

Under the Retention Program, subject to his continued service through the closing of the Merger, Mr. Misfeldt will be eligible for an extension of the post-termination exercise period for all options held by him with an exercise price below $10.00 per share until the earlier of the original expiration date of such option or 24 months following the closing of the Merger.

As of December 31, 2020, Sunesis’s directors and executive officers (including affiliates) beneficially owned, in the aggregate approximately 2.9% of the outstanding shares of Sunesis Common Stock.

The compensation arrangements with Sunesis’s officers and directors are discussed in greater detail in the section titled “The Merger—Interests of the Sunesis Directors and Executive Officers in the Merger” beginning on page 151 of this proxy statement/prospectus/information statement. Additionally, as described elsewhere in this proxy statement/prospectus/information statement, including in the section captioned “Management Following the Merger” beginning on page 271 of this proxy statement/prospectus/information statement, Dr. Onetto is expected to remain a director of the combined company upon the closing of the Merger.

In considering the recommendation of the Viracta Board with respect to adopting the Merger Agreement, Viracta’s stockholders should be aware that members of the Viracta Board and the executive officers of Viracta may have interests in the Merger that may be different from, or in addition to, the interests of Viracta’s stockholders. The Viracta Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Merger Agreement, the Merger, and the Contemplated Transactions.

As of January 5, 2021, Viracta’s directors and named executive officers (including affiliates) beneficially owned, in the aggregate approximately 39.7% of the outstanding shares of Viracta capital stock.

As described elsewhere in this proxy statement/prospectus/information statement, including in the section titled “Management Following the Merger,” certain of Viracta’s directors and executive officers are expected to become the directors and executive officers of the combined company upon the closing of the Merger.

Sunesis’s executive officers and directors, and Viracta’s executive officers, directors and certain affiliated stockholders have entered into support agreements, pursuant to which such directors, officers and certain



 

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stockholders, respectively, have agreed, solely in their capacity as stockholders of Sunesis and Viracta, respectively, to vote all of their shares of Sunesis Common Stock or Viracta Capital Stock in favor of, among other things, the adoption or approval, respectively, of the Merger Agreement and the transactions contemplated therein in connection with the Merger. The support agreements are discussed in greater detail in the section titled “Agreements Related to the Merger” beginning on page 188 of this proxy statement/prospectus/information statement.

Material U.S. Federal Income Tax Consequences of the Merger (see page 159)

Sunesis and Viracta intend the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, as described in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 159 of this proxy statement/prospectus/information statement. Subject to the limitations and qualifications described in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 159 of this proxy statement/prospectus/information statement, in the opinion of Cooley and WSGR, the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. Accordingly, Viracta stockholders generally will not recognize gain or loss for U.S. federal income tax purposes on the receipt of shares of Sunesis Common Stock issued in connection with the Merger (other than in respect of cash received in lieu of fractional shares). Each Viracta stockholder who receives cash in lieu of a fractional share of Sunesis Common Stock generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash received in lieu of such fractional share and the stockholder’s tax basis allocable to such fractional share.

Risk Factors (see page 30)

Both Sunesis and Viracta are subject to various risks associated with their businesses and their industries. In addition, the Merger, including the possibility that the Merger may not be completed, poses a number of risks to each company and its respective stockholders, including the following risks:

 

   

The Exchange Ratio is not adjustable based on the market price of Sunesis Common Stock so the consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed;

 

   

Failure to complete the Merger may result in Sunesis or Viracta paying a termination fee to the other party and could harm the common stock price of Sunesis and future business and operations of each company;

 

   

If the conditions to the closing of the Merger are not met, the Merger may not occur;

 

   

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and/or other causes;

 

   

Some executive officers and directors of Sunesis and Viracta have interests in the Merger that are different from the respective stockholders of Sunesis and Viracta and that may influence them to support or approve the Merger without regard to the interests of the respective stockholders of Sunesis and Viracta;

 

   

The market price of Sunesis Common Stock following the Merger may decline as a result of the Merger;

 

   

Viracta and Sunesis securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the closing of the Merger as compared to their current ownership and voting interest in the respective companies;



 

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During the pendency of the Merger, Sunesis and Viracta may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses;

 

   

Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement;

 

   

Because the lack of a public market for Viracta Capital Stock makes it difficult to evaluate the fairness of the Merger, the shareholders of Viracta may receive consideration in the Merger that is less than the fair market value of Viracta Capital Stock and/or Sunesis may pay more than the fair market value of Viracta’s Capital Stock; and

 

   

If any of the events described in under the sections titled “Risk Factors—Risks Related to the Merger” occur, those events could cause the potential benefits of the Merger not to be realized.

These risks and other risks are discussed in greater detail under the section titled “Risk Factors” beginning on page 30 of this proxy statement/prospectus/information statement. Sunesis and Viracta encourage you to read and consider all of these risks carefully.

Regulatory Approvals (see page 158)

In the United States, Sunesis must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Sunesis Common Stock to Viracta’s stockholders in connection with the Contemplated Transactions by the Merger Agreement and the filing of this proxy statement/prospectus/information statement with the SEC. Sunesis does not intend to seek any regulatory approval from antitrust authorities to consummate the Contemplated Transactions.

Litigation Relating to the Merger (see page 158)

On January 8, 2021, a lawsuit was filed by a purported stockholder of Sunesis in connection with the proposed merger between Sunesis and Viracta. The lawsuit was brought as a putative class action and captioned James Mooney v. Sunesis Pharmaceuticals, Inc., et al., No. 3:21-cv-00182 (N.D. Ca.) (the “Complaint”). The Complaint names as defendants Sunesis, Merger Sub, Viracta and the members of the Sunesis board. The Complaint alleges claims for breaches of fiduciary duty against the members of the Sunesis board, aiding and abetting breaches of fiduciary duty against Sunesis, Viracta and Merger Sub, violations of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder against all defendants, and violations of Section 20(a) of the Exchange Act against the members of the Sunesis board. The plaintiff contends that the proposed merger between Sunesis and Viracta is unfair and undervalues Sunesis, and that the registration statement on Form S-4 filed on December 22, 2020 omitted or misrepresented material information regarding the proposed merger between Sunesis and Viracta, rendering the registration statement false and misleading. The Complaint seeks injunctive relief, declaratory relief, rescission or rescissory damages, and an award of plaintiffs’ costs, including attorneys’ fees and expenses.

The defendants believe the Complaint is without merit and intend to vigorously defend against it. Additional lawsuits may be filed against Sunesis, Merger Sub, Viracta, and/or the Sunesis directors in connection with the merger and the S-4.

Nasdaq Market Listing (see page 162)

Shares of Sunesis Common Stock are currently listed on The Nasdaq Capital Market under the symbol “SNSS” and will file an initial listing application with Nasdaq pursuant to Nasdaq’s “reverse merger” rules. After



 

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completion of the Merger, Sunesis will be renamed Viracta Therapeutics, Inc. and expects to trade on The Nasdaq Global Market under the symbol “VIRX.”

Anticipated Accounting Treatment (see page 162)

The Merger will be treated by Sunesis as a reverse merger asset acquisition under the cost accumulation and allocation model of accounting in accordance with U.S. generally accepted accounting principles (“GAAP”). For accounting purposes, Viracta is considered to be acquiring Sunesis in this transaction. The Merger will be accounted for under the cost accumulation and allocation model of accounting under existing GAAP, which are subject to change and interpretation. Under the cost accumulation and allocation model of accounting, management of Sunesis and Viracta have made a preliminary estimated purchase price calculated as described in Note 3 to the Notes to the Unaudited Pro Forma Condensed Combined Financial Information. The net tangible and intangible assets acquired and liabilities assumed in connection with the Merger are at their estimated acquisition date relative fair values. The cost accumulation and allocation model of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated relative fair values, which cannot be made prior to the completion of the Merger, will be based on the actual net tangible and intangible assets of Sunesis that exist as of the date of completion of the Merger.

Description of Sunesis and Viracta Capital Stock (see page 306)

Both Sunesis and Viracta are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the Merger is completed, Viracta stockholders will become Sunesis stockholders, and their rights will be governed by the DGCL, the amended and restated bylaws of Sunesis and the amended and restated certificate of incorporation of Sunesis, as may be amended by Proposal No. 1 if approved by the Sunesis stockholders at the Sunesis virtual special meeting. The rights of Sunesis stockholders contained in Sunesis’s amended and restated certificate of incorporation, and amended and restated bylaws differ from the rights of Viracta stockholders under Viracta’s current amended and restated certificate of incorporation and amended and restated bylaws, as more fully described under the section titled “Comparison of Rights of Holders of Viracta Stock and Sunesis Stock” beginning on page 310 of this proxy statement/prospectus/information statement.

Sunesis Stockholder Meeting (see page 122)

The Sunesis virtual special meeting will be held exclusively online via audio-only webcast on February 22, 2021 at 9:00 a.m. Pacific time, unless postponed or adjourned to a later date. The Sunesis virtual special meeting can be accessed by visiting http://www.virtualshareholdermeeting.com/SNSS2021SM, where you will be able to vote your shares and submit questions during the Sunesis virtual special meeting webcast by logging in to the website listed above using the 16-digit control number included in your proxy card. Online check-in will begin at 8:45 a.m. Pacific time, and we encourage you to allow ample time for the online check-in procedures. Please note that you will not be able to attend the Sunesis virtual special meeting in person. For more information on the Sunesis virtual special meeting, see the section titled “The Virtual Special Meeting of Sunesis’s Stockholders” beginning on page 122 of this proxy statement/prospectus/information statement.



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following tables present summary historical financial data for Sunesis and Viracta, summary unaudited pro forma condensed financial data for Sunesis and Viracta, and comparative historical and unaudited pro forma per share data for Sunesis and Viracta.

Selected Historical Financial Data of Sunesis

The selected financial data as of December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018 are derived from the Sunesis audited financial statements prepared using “GAAP”, which are included in this proxy statement/prospectus/information statement. The selected financial data as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019 are derived from the Sunesis unaudited condensed consolidated financial statements contained in Sunesis Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, which are included in this proxy statement/prospectus/information statement. The financial data should be read in conjunction with “Sunesis Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Sunesis’s financial statements and related notes appearing elsewhere in this proxy statement/prospectus/information statement. These historical results are not necessarily indicative of results to be expected in any future period.

 

     Year Ended
December 31,
    Nine Months Ended
September 30,
 
     2019     2018     2020     2019  
           (unaudited)  

Selected Consolidated Statements of Operations Data (in thousands, except per share amounts):

        

License and other revenue

   $ 2,073     $ 237     $ 120     $ —    

Total operating expenses

     25,361       25,947       16,735       17,934  

Net loss

     (23,330     (26,615     (16,803     (18,043

Net loss per common share

   $ (2.68   $ (7.48   $ (1.32   $ (2.28

Shares used in computing net basic and diluted loss per common share:

     8,712       3,558       12,748       7,897  

 

     As of    

As of

September 30,

 
     December 31,  
     2019     2018     2020  
                 (unaudited)  

Consolidated Balance Sheet Data (in thousands):

      

Cash, cash equivalents and restricted cash

   $ 18,261     $ 13,696     $ 26,048  

Working capital(1)

     26,906       3,877       24,057  

Total assets

     37,240       15,324       28,033  

Long-term liabilities

     281       8       —    

Accumulated deficit

     (682,800     (659,469     (699,603

Total stockholders’ equity

     27,543       3,993       24,466  

 

(1)

Working capital is defined as current assets less current liabilities.

 

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Selected Historical Financial Data of Viracta

The selected financial data as of December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018 are derived from Viracta’s audited financial statements prepared using GAAP, which are included in this proxy statement/prospectus/information statement. The statements of operations data for the nine months ended September 30, 2020 and 2019, as well as the balance sheet data as of September 30, 2020, are derived from Viracta’s unaudited condensed financial statements included elsewhere in this proxy statement/prospectus/information statement. These historical results are not necessarily indicative of results to be expected in any future period. The selected financial data should be read in conjunction with Viracta’s financial statements and the related notes to those statements included in this proxy statement/prospectus/information statement and “Viracta Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

     Year Ended
December 31,
    Nine Months Ended
September 30,
 
     2019     2018     2020     2019  
                

(unaudited)

 

Selected Statements of Operations Data (in thousands, except per share amounts):

        

License and other revenue

   $ —       $ 1,140     $ —       $ —    

Total operating expenses

     12,058       8,587       12,689       7,778  

Net loss

     (13,559     (8,545     (12,733     (9,314

Net loss per common share

   $ (5.75   $ (9.94   $ (5.18   $ (3.96

Shares used in computing net basic and diluted loss per common share:

     2,356       959       2,459       2,352  

 

    

As of

December 31,

    As of
September 30,
 
     2019     2018     2020  
                 (unaudited)  

Balance Sheet Data (in thousands):

      

Cash and cash equivalents

   $ 18,218     $ 4,013     $ 11,906  

Working capital(1)

     15,905       (2,027     7,904  

Total assets

     18,444       5,135       13,183  

Long-term liabilities

     —         403       5,447  

Convertible Preferred Stock classified outside of stockholders’ deficit

     44,432       14,383       44,432  

Accumulated deficit

     (31,898     (18,339     (44,630

Total stockholders’ deficit

     (28,383     (15,860     (40,815

 

(1)

Working capital is defined as current assets less current liabilities.

Selected Unaudited Pro Forma Condensed Combined Financial Data of Sunesis and Viracta

The following information does not give effect to the proposed Sunesis Reverse Stock Split described in Sunesis’s Proposal No. 1.

The following selected unaudited pro forma condensed combined financial data was prepared using a cost accumulation and allocation model of accounting under GAAP. For accounting purposes, Viracta is considered to be acquiring Sunesis in the merger. To determine the accounting for this transaction under GAAP, a company must assess whether an integrated set of assets and activities should be accounted for as an acquisition of a business or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If that screen is met, the set is not a business. The initial screen test is not met as there is no single asset or group of similar assets for Sunesis that will represent a significant majority in this acquisition. However, at the time of closing of the acquisition, Sunesis is not anticipated to have processes or an organized workforce that significantly contributes

 

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to its ability to create outputs, and substantially all of its fair value is concentrated in cash, working capital, and in process research and development (“IPR&D”). As such, the acquisition is expected to be treated as an asset acquisition.

The Sunesis and Viracta unaudited pro forma condensed combined balance sheet data assume that the Pro Forma Events took place on September 30, 2020, and combines the Sunesis and Viracta historical balance sheet at September 30, 2020. The Sunesis and Viracta unaudited pro forma condensed combined statements of operations data assume that the Pro Forma Events took place as of January 1, 2019, and combines the historical results of Sunesis and Viracta for the year ended December 31, 2019 and of Sunesis and Viracta for the nine months ended September 30, 2020. The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The selected unaudited pro forma condensed combined financial data as of and for the nine months ended September 30, 2020 and for the year ended December 31, 2019 are derived from the unaudited pro forma condensed combined financial information and should be read in conjunction with that information. For more information, please see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” in this proxy statement/prospectus/information statement.

 

     Year Ended
December 31, 2019
    Nine Months
Ended
September 30, 2020
 
           (unaudited)  

Unaudited Pro Forma Condensed Combined Statements of Operations (in thousands, except per share amounts):

    

License and other revenue

   $ 2,073     $ 120  

Total operating expenses

     68,418       29,424  

Net loss

     (67,888     (29,535

Net loss per common share

     (0.56     (0.23

 

     As of
September 30,
 
     2020  
     (unaudited)  

Selected Unaudited Pro Forma Condensed Combined Balance Sheet Data (in thousands)

  

Cash and cash equivalents

   $ 140,274  

Total assets

     143,536  

Total liabilities

     23,714  

Total stockholders’ equity

     119,822  

 

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Comparative Historical and Unaudited Pro Forma Per Share Data

The information below reflects the historical net loss and book value per share of Sunesis Common Stock and the historical net loss and book value per share of Viracta Common Stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed merger of Sunesis with Viracta on a pro forma basis. The unaudited pro forma net loss and book value per share does not give effect to the Sunesis Reverse Stock Split.

You should read the tables below in conjunction with the audited financial statements of Sunesis included in this proxy statement/prospectus/information statement and the audited financial statements of Viracta included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.

 

     Year Ended
December 31,
2019
     Nine Months
Ended
September 30,
2020
 
            (unaudited)  

Sunesis Historical Per Share Data:

     

Net loss per share, basic and diluted

   $ (2.68    $ (1.32

Book value per share

   $ 2.47      $ 1.35  

Viracta Historical Per Share Data:

     

Net loss per share, basic and diluted

   $ (5.75    $ (5.18

Book value per share

   $ (44.14    $ (39.59

Combined Organization Per Share Data:

     

Net loss per share, basic and diluted

   $ (0.56    $ (0.23

Book value per share

     N/A      $ 1.08  

 

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MARKET PRICE AND DIVIDEND INFORMATION

Sunesis Common Stock is currently listed on The Nasdaq Capital Market under the symbol “SNSS.” Viracta is a private company and its common stock and preferred stock are not publicly traded.

Sunesis Common Stock

The closing price of Sunesis Common Stock on November 27, 2020, the trading day immediately prior to the public announcement of the Merger on November 30, 2020, as reported on The Nasdaq Capital Market, was $1.50 per share. The closing price of Sunesis Common Stock on January 11, 2021, as reported on The Nasdaq Capital Market, was $2.38 per share.

Because the market price of Sunesis Common Stock is subject to fluctuation, the market value of the shares of Sunesis Common Stock that Viracta stockholders will be entitled to receive in the Merger may increase or decrease.

Assuming successful application for initial listing with Nasdaq, following the consummation of the Merger, Sunesis anticipates that the Sunesis Common Stock will trade under Sunesis’s new name “Viracta Therapeutics, Inc.” and the new trading symbol “VIRX” on The Nasdaq Global Market.

As of January 5, 2021, the record date for the Sunesis virtual special meeting, there were approximately 30 holders of record of the Sunesis Common Stock.

Dividends

Sunesis has never declared or paid any cash dividends on the Sunesis Common Stock and does not anticipate paying cash dividends on the Sunesis Common Stock for the foreseeable future. Notwithstanding the foregoing, any determination to pay cash dividends subsequent to the Merger will be at the discretion of the combined organization’s then-current board of directors and will depend upon a number of factors, including the combined organization’s results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the then-current board of directors deems relevant.

Viracta has never declared or paid any cash dividends on shares of the Viracta Capital Stock. Viracta anticipates that the combined company will retain all of its future earnings to advance the clinical trials for its product candidates, and does not anticipate paying any cash dividends on shares of its common stock in the foreseeable future. Any future determination to declare cash dividends on shares of the combined company’s common stock will be made at the discretion of its board of directors, subject to applicable law and contractual restrictions and will depend on its financial condition, results of operations, capital requirements, general business conditions and other factors that its board of directors may deem relevant.

 

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RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/ information statement, you should carefully consider the material risks described below before deciding how to vote your shares of Sunesis Common Stock. You should also read and consider the other information in this proxy statement/prospectus/information statement. Please see the section titled “Where You Can Find More Information” beginning on page 331 of this proxy statement/prospectus/information statement.

Risks Related to the Merger

The Exchange Ratio is not adjustable based on the market price of Sunesis Common Stock so the consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.

The relative proportion of the combined company that the Sunesis stockholders will own when the Merger closes will be based on the relative valuations of Sunesis and Viracta as negotiated by the parties and as specified in the Merger Agreement. Following the completion of the Merger, (a) Sunesis equity holders immediately prior to the Merger are expected to own approximately 14% of the common stock of the combined company and (b) Viracta equity holders (including shares issued in Viracta’s Pre-Closing Financing) are expected to own approximately 86% of the capital stock of the combined company, on a fully-diluted treasury stock method basis, assuming that Viracta closes its Pre-Closing Financing immediately prior to the effective time of the Merger and assuming $14.0 million in Sunesis Net Cash at the closing of the Merger. These estimates are based on the anticipated Exchange Ratio and are subject to adjustment as provided in the Merger Agreement. If Sunesis holds less than $13.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold less than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis and if Sunesis holds more than $14.5 million of net cash at the closing of the Merger, the equity holders of Sunesis (pre-Merger) are expected to hold more than 14% of the Sunesis capital stock on a fully diluted treasury stock method basis. For a more complete description of the Merger and the potential adjustments in the Exchange Ratio, please see the section titled “The Merger Agreement —Merger Consideration and Exchange Ratio” beginning on page 166 of this proxy statement/prospectus/information statement. In addition, if Sunesis Net Cash at the Effective Time is less than $7.5 million, Viracta has the right to terminate the Merger Agreement.

Failure to complete the Merger may result in Sunesis or Viracta paying a termination fee to the other party and could harm the common stock price of Sunesis and future business and operations of each company.

If the Merger is not completed, each of Sunesis and Viracta is subject to the following risks:

 

   

upon termination of the Merger Agreement, Viracta may be required to pay Sunesis a termination fee of $1.5 million or $3.0 million, under certain circumstances, or Sunesis may be required to pay Viracta a termination fee of $1.5 million, under certain circumstances, and/or up to $250,000 in expense reimbursements;

 

   

the parties will have incurred significant expenses related to the Merger, such as legal and accounting fees, which must be paid even if the Merger is not completed; and

 

   

Sunesis may be forced to cease its operations, dissolve and liquidate its assets.

In addition, if the Merger Agreement is terminated and the board of directors of Sunesis or Viracta determines to seek another business combination, there can be no assurance that either Sunesis or Viracta will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger or any partner at all.

 

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If the conditions to the closing of the Merger are not met, the Merger may not occur.

Even if the change of control and related share issuance are approved by the stockholders of Sunesis, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 170 of this proxy statement/prospectus/information statement, such as Viracta’s Pre-Closing Financing. Sunesis and Viracta cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or will be delayed, and Sunesis and Viracta each may lose some or all the intended benefits of the Merger.

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and/or other causes.

In general, either Sunesis or Viracta can refuse to complete the Merger if there is a material adverse change affecting the other party between November 29, 2020, the date of the Merger Agreement, and the closing of the Merger. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse effect on Sunesis or Viracta, including:

 

   

general business or economic conditions generally affecting the industry in which Viracta or Sunesis operate;

 

   

natural disasters or epidemics, pandemics (including the COVID-19 pandemic, and any evolutions or mutations thereof or related or associated epidemics, pandemics or disease outbreaks or other outbreaks of diseases or quarantine restrictions), acts of war, armed hostilities or terrorism;

 

   

changes in financial, banking or securities markets;

 

   

any change in the stock price or trading volume of Sunesis Common Stock;

 

   

any failure by Viracta to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of the Merger Agreement;

 

   

the failure of Sunesis to meet internal or analysts’ expectations or projections or the results of operations of Sunesis;

 

   

any change in, or any compliance with or action taken for the purpose of complying with, any law or GAAP (or interpretations of any law or GAAP); or

 

   

any change resulting from the announcement of the Merger Agreement or the pendency of the Contemplated Transactions.

If adverse changes occur and Sunesis and Viracta still complete the Merger, the stock price of the combined company following the closing of the Merger may suffer. This in turn may reduce the value of the Merger to the stockholders of Sunesis, Viracta or both.

Some executive officers and directors of Sunesis and Viracta have interests in the Merger that are different from the respective stockholders of Sunesis and Viracta and that may influence them to support or approve the Merger without regard to the interests of the respective stockholders of Sunesis and Viracta.

Some officers and directors of Sunesis and Viracta are parties to arrangements that provide them with interests in the Merger that are different from the respective stockholders of Sunesis and Viracta, including, among others, service as an officer or director of the combined company following the closing of the Merger, severance and retention benefits, the acceleration of equity award vesting, and continued indemnification. For more information regarding the interests of the Sunesis and Viracta executive officers and directors in the Merger, see the sections titled “The Merger—Interests of the Sunesis Directors and Executive Officers in the Merger” and “The Merger—Interests of the Viracta Directors and Executive Officers in the Merger” of this proxy statement/prospectus/information statement.

 

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The market price of Sunesis Common Stock following the Merger may decline as a result of the Merger.

The market price of Sunesis Common Stock may decline as a result of the Merger for a number of reasons, including if:

 

   

investors react negatively to the prospects of the combined company’s business and prospects following the closing of the Merger;

 

   

the effect of the Merger on the combined company’s business and prospects following the closing of the Merger is not consistent with the expectations of financial or industry analysts; or

 

   

the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by stockholders or financial or industry analysts.

Viracta and Sunesis securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the closing of the Merger as compared to their current ownership and voting interest in the respective companies.

After the completion of the Merger, the current securityholders of Viracta and Sunesis will own a smaller percentage of the combined company than their ownership in their respective companies prior to the Merger. Immediately after the Merger, it is currently estimated that Viracta equity holders as of immediately prior to the Merger (including shares issued in Viracta’s Pre-Closing Financing) will own approximately 86% of the capital stock of the combined company, with Sunesis equity holders as of immediately prior to the Merger, whose shares of Sunesis Common Stock will remain outstanding after the Merger, will own approximately 14% of the common stock of the combined company on a fully-diluted treasury stock method basis, calculated on a pro forma basis including after giving effect to (i) the Pre-Closing Financing by Viracta immediately prior to the effective time of the Merger, and (ii) the Merger assuming Sunesis holds $14.0 million of net cash at the closing of the Merger. These estimates are based on the anticipated Exchange Ratio and are subject to adjustment as provided in the Merger Agreement. A $7.5 million Sunesis Net Cash threshold is a condition to the completion of the Merger. For a more complete description of the Merger and the potential adjustments in the Exchange Ratio, please see the section titled “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 166 of this proxy statement/prospectus/information statement.

In addition, the seven member board of directors of the combined company will initially consist of six individuals with prior affiliations with Viracta and one individual with prior affiliation with Sunesis. Consequently, securityholders of Viracta and Sunesis will be able to exercise less influence over the management and policies of the combined company following the closing of the Merger than they currently exercise over the management and policies of their respective companies.

During the pendency of the Merger Agreement, Sunesis and Viracta may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of Sunesis and Viracta to make acquisitions, subject to specified exceptions relating to fiduciary duties, or complete other mergers, sales of assets or other business combinations that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into specified extraordinary transactions, such as a merger, sale of assets or other business combination, with any third party, subject to specified exceptions, even if any such transaction could be favorable to such party’s stockholders.

 

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Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Sunesis and Viracta from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith, after consultation with its independent financial advisor, if any, and outside counsel, that an unsolicited competing proposal constitutes, or would reasonably be expected to result in, a superior competing proposal and that failure to take such action would result in a breach of the fiduciary duties of the board of directors. In addition, if Sunesis or Viracta terminate the Merger Agreement under specified circumstances, including terminating because of a decision of a board of directors to recommend a superior competing proposal, Viracta may be required to pay Sunesis a termination fee of $1.5 million or $3.0 million or up to $250,000 in expense reimbursements or Sunesis may be required to pay Viracta a termination fee of $1.5 million, or up to $250,000 in expense reimbursements, as defined and described under “The Merger Agreement—Termination of the Merger Agreement and Termination Fee.” This termination fee may discourage third parties from submitting competing proposals to Sunesis or Viracta or their stockholders and may cause the respective boards of directors to be less inclined to recommend a competing proposal.

Because the lack of a public market for Viracta’s capital stock makes it difficult to evaluate the fairness of the Merger, the shareholders of Viracta may receive consideration in the Merger that is less than the fair market value of Viracta’s capital stock and/or Sunesis may pay more than the fair market value of Viracta’s capital stock.

The outstanding capital stock of Viracta is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Viracta’s capital stock. Because the percentage of Sunesis equity to be issued to Viracta shareholders was determined based on negotiations between the parties, it is possible that the value of the Sunesis Common Stock to be received by Viracta shareholders will be less than the fair market value of Viracta’s capital stock, or Sunesis may pay more than the aggregate fair market value for Viracta’s capital stock.

The fairness opinion delivered by MTS Securities, LLC to the Sunesis Board prior to the entry into the Merger Agreement does not reflect changes in circumstances that may have occurred since the date of the opinion.

The Sunesis Board has not obtained an updated fairness opinion either as of the date of this proxy statement/prospectus or as of any other date subsequent to the date of the opinion from MTS Securities, LLC, an affiliate of MTS Health Partners, L.P., Sunesis’s financial advisor. Changes in circumstances, including in the operations and prospects of Sunesis or Viracta, stock prices, general market and economic conditions and other factors, some or all of which may be beyond the control of Sunesis and Viracta, including the recent coronavirus pandemic (COVID-19) that has caused higher than normal volatility in the financial markets generally, are not reflected in such opinion. The opinion does not speak as of any date other than the date of the opinion.

Because the Merger will result in an ownership change under Section 382 of the Code for Sunesis, Sunesis’s pre-Merger net operating loss (“NOL”) carryforwards and certain other tax attributes will be subject to limitations. The NOL carryforwards and other tax attributes of Viracta and of the combined organization may also be subject to limitations as a result of ownership changes.

As of December 31, 2019, Sunesis had U.S. federal NOL carryforwards and state NOL carryforwards of $463.4 million and $310.7 million, respectively, and Viracta had U.S. federal NOL carryforwards and state NOL carryforwards of approximately $60.0 million and $38.9 million, respectively. If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code (“Section 382”), the corporation’s NOL carryforwards and certain other tax attributes arising before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the

 

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corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will result in an ownership change for Sunesis and, accordingly, Sunesis’s NOL carryforwards and certain other tax attributes will be subject to limitations (or disallowance) on their use after the Merger. Viracta’s NOL carryforwards may also be subject to limitation as a result of prior shifts in equity ownership and/or the Merger. Additional ownership changes in the future could result in additional limitations on Sunesis’s, Viracta’s and the combined organization’s NOL carryforwards. Consequently, even if the combined organization achieves profitability, it may not be able to utilize a material portion of Sunesis’s, Viracta’s or the combined organization’s NOL carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations. For more information on limitations on NOL carryforwards and certain other tax attributes, see “Risk Factors—Risks related to Sunesis—General Risk Factors—Sunesis’s ability to use NOL carryforwards to offset future taxable income, and its ability to use tax credit carryforwards, may be subject to certain limitations,” and “Risk Factors—Risks Related to Viracta—Risks Related to Employee Matters, Managing Viracta’s Growth and Other Risks Related to its Business—Viracta’s ability to utilize its NOL carryforwards and certain other tax attributes to offset future taxable income may be limited,” below.

A purported class action lawsuit has been filed, and additional lawsuits may be filed, relating to the Merger. An adverse ruling in any such lawsuit may prevent the Merger from being consummated.

On January 8, 2021, a lawsuit was filed by a purported stockholder of Sunesis in connection with the proposed Merger between Sunesis and Viracta. The lawsuit was brought as a putative class action and captioned James Mooney v. Sunesis Pharmaceuticals, Inc., et al., No. 3:21-cv-00182 (N.D. Ca.) (the “Complaint”). The Complaint names as defendants Sunesis, Merger Sub, Viracta and the members of the Sunesis board.

The Complaint seeks injunctive relief, declaratory relief, rescission or rescissory damages, and an award of plaintiffs’ costs, including attorneys’ fees and expenses. Sunesis and Viracta believe that the Complaint is without merit and intend to vigorously defend it and any similar lawsuits that may be filed. Sunesis and Viracta cannot predict the outcome of or estimate the possible loss or range of loss from these matters. It is possible that additional, similar lawsuits may be filed, or the Complaint described above will be amended. If this occurs, Sunesis does not intend to announce the filing of each additional similar complaint unless it contains allegations that are substantially distinct from those described above.

One of the conditions to completion of the Merger is the absence of any order being in effect that prohibits the consummation of the Merger. Accordingly, if any plaintiff is successful in obtaining an order enjoining consummation of the Merger, then such order may prevent the Merger from being completed, or from being completed within the expected time frame. See “The Merger—Litigation Related to the Merger” for more information about the lawsuit related to the Merger that has been filed.

Risks Related to Sunesis

Risks Related to Sunesis’s Business

Sunesis needs to raise substantial additional funding to continue the development of SNS-510 and any other future programs.

Sunesis will need to raise substantial additional capital to:

 

   

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

 

   

expand its development activities;

 

   

implement additional internal systems and infrastructure; and

 

   

build or access commercialization and additional manufacturing capabilities and supplies.

 

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

 

   

rate of progress and cost of its clinical trials;

 

   

need for additional or expanded clinical trials;

 

   

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

 

   

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

 

   

extent of its other development activities, including its 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; and

 

   

costs of supporting any potential future licensees or partners.

Until Sunesis can generate a sufficient amount of licensing, collaboration or product revenue to finance its cash requirements, which it may never do, Sunesis expects 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 SNS-510, vecabrutinib, or its 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 Sunesis’s common stock. If Sunesis issues additional common or preferred stock or securities convertible into common or preferred stock, Sunesis’s stockholders will experience additional dilution, which may be significant. Further, Sunesis does 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 Sunesis to seek out additional funding. Though Sunesis raised additional funds in its July 2020 offering, Sunesis will require additional financing to fund working capital and continue clinical development of SNS 510. Further decline in the market price of Sunesis Common Stock could make it more difficult for Sunesis to sell equity or equity-related securities in the future at a time and price that Sunesis deems appropriate.

If Sunesis fails to raise sufficient additional financing, on terms and dates acceptable to Sunesis, Sunesis may not be able to continue its operations and the development of its product candidates, and Sunesis may be required to reduce staff, reduce or eliminate research and development, slow the development of its product candidates, outsource or eliminate several business functions or shut down operations.

Sunesis has incurred losses since inception and anticipates that it will continue to incur losses for the foreseeable future. Sunesis may not ever achieve or sustain profitability.

Sunesis is not profitable and has incurred losses in each year since its inception in 1998. Sunesis’s net losses for the nine months ended September 30, 2020 and years ended December 31, 2019 and 2018 were $16.8 million, $23.3 million and $26.6 million, respectively. As of September 30, 2020, Sunesis had an accumulated deficit of $699.6 million. Sunesis does not currently have any products that have been approved for marketing, and expects to incur significant losses for the foreseeable future as Sunesis continues to incur substantial development and

 

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general and administrative expenses related to its operations. Sunesis has prioritized development funding on a preclinical asset SNS-510, a PDK1 inhibitor. Sunesis has a limited number of products that are still in the early stages of development and will require significant additional investment. Sunesis’s losses, among other things, have caused and will continue to cause its stockholders’ equity and working capital to decrease.

To date, Sunesis has derived substantially all of its revenue from license and collaboration agreements. Sunesis currently has two agreements, the DOT-1 License Agreement and the Denovo Agreement, which include certain milestone and royalty payments. Sunesis cannot predict if its collaborators will continue development or whether Sunesis will receive any such payments under these agreements in the foreseeable future, or at all.

Sunesis is unable to predict when it 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 Sunesis on acceptable terms, or at all, the development of SNS-510 or future product candidates may be reduced in scope, delayed or terminated. If Sunesis’s product candidates or those of its collaborators fail in clinical trials or do not gain regulatory approval, or if Sunesis’s future products do not achieve market acceptance, Sunesis may never become profitable. Even if Sunesis achieves profitability in the future, Sunesis may not be able to sustain profitability in subsequent periods.

There is substantial doubt about Sunesis’s ability to continue as a going concern.

Sunesis has incurred significant losses and negative cash flows from operations since its inception, and as of September 30, 2020, had cash and cash equivalents totaling $26.0 million and an accumulated deficit of $699.6 million. Sunesis had cash and cash equivalents of $26.0 million as of September 30, 2020. Sunesis expects its current cash and cash equivalents will not be sufficient to support its operations for a period of twelve months from the date its condensed financial statements contained in this Registration Statement on Form S-4 are available to be issued. Sunesis 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 Sunesis will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms favorable to Sunesis. These conditions raise substantial doubt about Sunesis’s ability to continue as a going concern for a period of one year from the date its financial statements contained in this Registration Statement on Form S-4 are available to be issued. If Sunesis is unsuccessful in its efforts to raise additional financing in the near term, Sunesis will be required to significantly reduce or cease operations. The accompanying financial statements have been prepared assuming Sunesis 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 Sunesis’s ability to continue as a going concern.

Sunesis will continue to attempt to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet Sunesis’s need. If cash resources are insufficient to satisfy its on-going cash requirements, Sunesis will be required to scale back or discontinue its product development programs, or obtain funds if available (although there can be no certainties) through strategic alliances or alternatives that may require Sunesis to relinquish rights to its technology, substantially reduce or discontinue its operations entirely. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to Sunesis, or any strategic alliances or alternatives would produce the desired results. Even if Sunesis is able to obtain additional financing, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stockholders, in the case of equity financing. Sunesis notes that there is significant uncertainty from the effect that the novel coronavirus may have on the availability, cost and type of financing.

 

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The development of SNS-510, vecabrutinib, or other product candidates could be halted or significantly delayed for various reasons; Sunesis’s clinical trials for SNS-510, vecabrutinib, or other product candidates may not lead to regulatory approval.

Sunesis’s product candidates are vulnerable to the risks of failure inherent in the drug development process. Failure can occur at any stage of the development process, and successful preclinical studies and early clinical trials do not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials.

Sunesis’s product candidates may experience toxicities that in preclinical studies or in clinical trials may preclude further development, or in clinical trials may lead to a maximum tolerated dose that is not effective, or they may fail to demonstrate efficacy at the doses tested. If this were the case for SNS-510, for example, such a result would delay or prevent further development, which would severely and adversely affect Sunesis’s financial results, business and business prospects.

In the case of vecabrutinib, Sunesis decided not to move the program into Phase 2 after assessing the totality of the data including the 500 mg cohort, the highest dose studied in the trial, as Sunesis found insufficient evidence of activity in BTK inhibitor resistant-disease.

Sunesis does not know whether its current or any future clinical trials with SNS-510, vecabrutinib, or any of its product candidates will be completed on schedule, or at all, or whether its ongoing or planned clinical trials will begin or progress on the time schedule Sunesis anticipates. The commencement and completion of future clinical trials could be substantially delayed or prevented by several factors, including:

 

   

delays or failures to raise additional funding;

 

   

delays or failures in obtaining regulatory approval to commence a clinical trial;

 

   

delays or failures in obtaining approval from independent IRBs or ECs to conduct a clinical trial at prospective sites;

 

   

delays or failures in reaching acceptable clinical trial agreement terms or clinical trial protocols with prospective sites;

 

   

delays or failures in obtaining sufficient clinical materials, including any of Sunesis’s product and any drugs to be tested in combination with Sunesis’s products;

 

   

failure of third parties such as Contract Research Organizations and medical institutions to perform their contractual duties and obligations;

 

   

slower than expected rates of patient recruitment and enrollment;

 

   

failure of patients to complete the clinical trial;

 

   

delays or failures in reaching the number of events pre-specified in the trial design;

 

   

the need to expand the clinical trial;

 

   

unforeseen safety issues;

 

   

lack of efficacy during clinical trials;

 

   

inability or unwillingness of patients or clinical investigators to follow Sunesis’s clinical trial protocols; and

 

   

inability to monitor patients adequately during or after treatment.

Additionally, Sunesis’s clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities, or Sunesis itself for reasons such as change in protocol. Any failure to complete or significant delay in completing clinical trials for Sunesis’s product candidates could harm its financial results and the commercial prospects for its product candidates.

 

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Sunesis’s business, operations, financial results and clinical development plans and timelines could be adversely impacted by the effects of health epidemics, including the recent COVID-19 pandemic, on the manufacturing, clinical trial and other business activities performed by Sunesis or by third parties with whom it conducts business, including its Contract Manufacturing Organizations (“CMOs”) Contract Research Organizations (“CROs”) and others.

Health epidemics could cause significant disruption in the operations of third-party CMOs, CROs and other third parties upon whom Sunesis relies. For example, in December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. On March 11, 2020, the WHO declared COVID-19, the disease caused by the novel coronavirus, a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. COVID-19 has led to government-imposed quarantines, travel restrictions and other public health safety measures. As the COVID-19 pandemic continues to spread around the globe, Sunesis may experience disruptions that could severely impact its business and potential clinical trials, including:

 

   

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as its clinical trial sites and hospital staff supporting the conduct of clinical trials;

 

   

interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;

 

   

limitations in resources that would otherwise be focused on the conduct of its business or its clinical trials, including because of sickness or the desire to avoid contact with large groups of people or as a result of government-imposed “shelter in place” or similar working restrictions;

 

   

delays in clinical sites receiving the supplies and materials needed to conduct its clinical trials;

 

   

interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in its clinical trials;

 

   

changes in regulations as part of a response to the COVID-19 pandemic which may require Sunesis to change the ways in which its clinical trials are conducted, or to discontinue the clinical trials altogether, or which may result in unexpected costs;

 

   

necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government or contractor personnel; and

 

   

refusal of the FDA to accept data from clinical trials in affected geographies outside the United States.

Sunesis is still assessing the impact that COVID-19 may have on its ability to effectively conduct its business operations as planned and there can be no assurance that Sunesis will be able to avoid a material impact on its business from the spread of COVID-19 or its consequences, including disruption to its business and downturns in business sentiment generally or in its industry. For example, on March 16, 2020, San Mateo County issued a “shelter-in-place” order, effective March 17, 2020, and on March 19, 2020, the Executive Department of the State of California issued Executive Order N-33-20, ordering all individuals in the State of California to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors. Sunesis’s primary operations are located in South San Francisco, which is in San Mateo County. As a result of such county and California State orders, the majority of Sunesis’s employees have been telecommuting and continue to work from home, which may impact certain of its operations over the near term and long term.

Additionally, certain third parties with whom Sunesis engages, including its collaborators, contract organizations, third-party manufacturers, suppliers, clinical trial sites, regulators and other third parties with whom Sunesis conducts business are similarly adjusting their operations and assessing their capacity in light of the COVID-19 pandemic. If these third parties experience shutdowns or continued business disruptions, Sunesis’s ability to conduct its business in the manner and on the timelines presently planned could be materially and negatively impacted. For example, certain IND-enabling preclinical studies are conducted by CROs, which

 

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could be discontinued or delayed as a result of the pandemic. Sunesis and its CROs have also made certain adjustments to the operation of clinical trials in an effort to ensure the monitoring and safety of patients and minimize risks to trial integrity during the pandemic in accordance with the guidance issued by the FDA and generally, and may need to make further adjustments in the future. Many of these adjustments are new and untested, may not be effective, and may have unforeseen effects on the enrollment, progress and completion of these trials and the findings from these trials. While the current SNS-510 preclinical development is continuing, future clinical trials may be delayed. Sunesis may not be successful in opening trial sites, may experience delays in patient enrollment or in the progress of its clinical trials, may need to suspend its clinical trials, and may encounter other negative impacts to its trials, due to the effects of the COVID-19 pandemic.

The global outbreak of COVID-19 continues to rapidly evolve. While the extent of the impact of the current COVID-19 pandemic on Sunesis’s business and financial results is uncertain, a continued and prolonged public health crisis such as the COVID-19 pandemic could have a material negative impact on its business, financial condition and operating results. The extent to which the COVID-19 pandemic may impact Sunesis’s business and prospects and the overall economies of the U.S. and other countries will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

The COVID-19 pandemic could adversely impact Sunesis’s licensees, which could cause delays in its receipts of potential milestones and royalties under Sunesis’s licensing or royalty and milestone acquisition arrangements.

As the COVID-19 pandemic continues to rapidly evolve, the companies which are working to develop and commercialize Sunesis’s licensed product candidates, such as vosaroxin and DAY101 (formerly TAK-580), could be materially and adversely affected by the risks, or the public perception of the risks, related to this pandemic, which could cause delays, suspensions or cancellations of their drug development efforts including, without limitation, their clinic trials which would correspondingly delay, suspend or negate the timing of Sunesis’s potential receipts of milestones and royalties under Sunesis’s out-licensing or royalty acquisition agreements. The disruptions to Sunesis’s licensees could include, without limitation:

 

   

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as their clinical trial sites and hospital staff supporting the conduct of their clinical trials;

 

   

interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;

 

   

limitations in employee resources that would otherwise be focused on the conduct of their clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

 

   

interruption in global shipping that may affect the transport of clinical trial supplies and materials, such as the investigational drug product used in their clinical trials;

 

   

changes in FDA, state and local regulation (and those of their foreign counterparts if applicable) as part of a response to the COVID-19 outbreak which may change the ways in which clinical trials are conducted or discontinue clinical trials altogether;

 

   

delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

 

   

delay in the timing of other interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19; and

 

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refusal of the FDA to accept data from clinical trials in affected geographies outside the United States or of foreign regulatory authorities to accept data from clinical trials in affected areas outside their applicable countries.

The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact Sunesis’s business and prospects and the overall economies of the U.S. and other countries will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

Sunesis relies on a limited number of third parties to supply it with its API and FDP. If Sunesis fails to obtain sufficient quantities of these materials, the development and potential commercialization of SNS-510, vecabrutinib and future products, if any, could be halted or significantly delayed.

Sunesis currently relies on contract manufacturing organizations (“CMOs”) for all API and FDP. Additional third-party CMOs are relied on to manufacture key starting materials and intermediates required in the manufacture of API. Sunesis has limited manufacturing experience, and Sunesis has not yet scaled-up to commercial scale. The cost to manufacture at commercial scale may materially exceed the cost of clinical-stage manufacturing.

If Sunesis’s third-party API or FDP manufacturers are unable or unwilling to produce the API or FDP it requires, Sunesis would need to establish arrangements with one or more alternative suppliers. Sunesis’s API or FDP manufacturers may encounter difficulties in achieving volume production, quality control, and quality assurance and also may experience shortages in qualified personnel and obtaining active ingredients for Sunesis’s product candidates, including delays or shortages due to limited supply or capacity of production facilities as a result of the recent COVID-19 pandemic. However, establishing a relationship with an alternative supplier would likely delay Sunesis’s ability to produce API or FDP in a timely manner. Sunesis’s ability to replace an existing manufacturer would also be challenging and time consuming because the number of potential manufacturers is limited and the FDA, EMA or other corresponding state agencies must approve any replacement manufacturer before it can be approved as a commercial supplier. Such approval would require new testing, stability programs and compliance inspections. It may be difficult or impossible for Sunesis to identify and engage a reliable replacement manufacturer on acceptable terms in a timely manner, or at all. Sunesis expects to continue to depend on third-party CMOs for all its API and FDP needs for the foreseeable future.

Sunesis’s products require precise and high-quality manufacturing processes. In addition to process impurities, the failure of Sunesis’s CMOs to achieve and maintain high manufacturing standards in compliance with cGMP regulations could result in other manufacturing errors leading to patient injury or death, product recalls or withdrawals, delays or interruptions of production or failures in product testing or delivery. Although CMOs are subject to ongoing periodic unannounced inspection by the FDA, EMA or other corresponding state agencies to ensure strict compliance with cGMP and other applicable government regulations and corresponding foreign standards, any such performance failures on the part of a contract manufacturer could result in the delay or prevention of filing or approval of marketing applications for Sunesis’s products, cost overruns or other problems that could seriously harm Sunesis’s business. This would deprive Sunesis of potential product revenue and result in additional losses.

The stability of API and FDP is also a key risk, as Sunesis must demonstrate that products continue to meet product specifications over time. There can be no assurances that future lots will meet stability requirements and if they do not, development and commercialization of Sunesis’s products may be delayed.

 

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The results of preclinical studies and clinical trials may not satisfy the requirements of the FDA, EMA or other regulatory agencies.

Prior to receiving approval to commercialize SNS-510, vecabrutinib, or future product candidates in Europe, the United States or in other territories, Sunesis must demonstrate with substantial evidence from well-controlled clinical trials, to the satisfaction of the FDA, EMA and other regulatory authorities, that such product candidates are safe and effective for their intended uses. The results from preclinical studies and clinical trials can be interpreted in different ways. Even if Sunesis believes preclinical or clinical data from preclinical studies and clinical trials are promising, such data may not be sufficient to support approval by the FDA, EMA and other regulatory authorities. Results in preclinical studies may not be predictive of results in human clinical trials and early stage human clinical trials may not be predictive of results in later, larger trials.

Sunesis’s product candidates, the methods used to deliver them or their dosage levels may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any regulatory approval.

Undesirable side effects caused by Sunesis’s product candidates, their delivery methods or dosage levels could cause Sunesis or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authority. As a result of safety or toxicity issues that Sunesis may experience in its clinical trials, Sunesis may not receive approval to market any product candidates, which could prevent Sunesis from ever generating revenues or achieving profitability. Results of Sunesis’s trials could reveal an unacceptably high severity and incidence of side effects, or side effects outweighing the benefits of its product candidates. In such an event, Sunesis’s trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order Sunesis to cease further development of or deny approval of its product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims.

Additionally, if any of Sunesis’s product candidates receives regulatory approval, and Sunesis or others later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including that:

 

   

Sunesis may be forced to suspend marketing of that product;

 

   

regulatory authorities may withdraw or change their approvals of that product;

 

   

regulatory authorities may require additional warnings on the label or limit access of that product to selective specialized centers with additional safety reporting and with requirements that patients be geographically close to these centers for all or part of their treatment;

 

   

Sunesis may be required to conduct post-marketing studies;

 

   

Sunesis may be required to change the way the product is administered;

 

   

Sunesis could be sued and held liable for harm caused to subjects or patients; and

 

   

Sunesis’s reputation may suffer.

Any of these events could diminish the usage or otherwise limit the commercial success of Sunesis’s product candidates and prevent Sunesis from achieving or maintaining market acceptance of the affected product candidate, if approved by applicable regulatory authorities.

Sunesis relies on third parties to conduct its clinical trials. If these third parties do not successfully carry out their contractual duties or fail to meet expected deadlines, Sunesis may be unable to obtain regulatory approval for, or commercialize, its product candidates.

Sunesis relies on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct its planned and existing clinical trials for its product

 

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candidates. If the third parties conducting Sunesis’s clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to Sunesis’s clinical trial protocols or for any other reason, Sunesis may need to enter into new arrangements with alternative third parties and its clinical trials may be extended, delayed or terminated or may need to be repeated, and Sunesis may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.

Sunesis may expand its development capabilities in the future, and any difficulties hiring or retaining key personnel or managing this growth could disrupt its operations.

Sunesis is highly dependent on the principal members of its development staff. Sunesis may expand its research and development capabilities in the future by increasing expenditures in these areas, hiring additional employees and potentially expanding the scope of its current operations. Future growth will require Sunesis to continue to implement and improve Sunesis’s managerial, operational and financial systems and continue to retain, recruit and train additional qualified personnel, which may impose a strain on Sunesis’s administrative and operational infrastructure. The competition for qualified personnel in the biopharmaceutical field is intense. Sunesis is highly dependent on its continued ability to retain, attract and motivate highly qualified management and specialized personnel required for clinical development. Due to its limited resources, Sunesis may not be able to effectively manage any expansion of its operations or recruit and train additional qualified personnel. If Sunesis is unable to retain key personnel or manage its growth effectively, Sunesis may not be able to implement its business plan.

If Sunesis is sued for infringing intellectual property rights of third parties, litigation will be costly and time consuming and could prevent Sunesis from developing or commercializing SNS-510, vecabrutinib, or other product candidates.

Sunesis’s commercial success depends on not infringing the patents and other proprietary rights of third parties and not breaching any collaboration or other agreements Sunesis has entered into with regard to its technologies and product candidates. If a third party asserts that Sunesis, Sunesis’s licensors, collaboration partners, or any employees thereof have misappropriated their intellectual property, or otherwise claim that Sunesis, Sunesis’s licensors, or collaboration partners are using technology claimed in issued and unexpired patents, or other proprietary rights, owned or controlled by the third party, even if the technology is regarded as Sunesis’s own intellectual property, Sunesis may need to obtain a license, enter into litigation to challenge the validity or enforceability of the patents or other rights or incur the risk of litigation in the event that a third party asserts that Sunesis infringes its patents or have misappropriated other rights.

If a third party asserts that Sunesis infringes its patents or other proprietary rights, Sunesis could face a number of challenges that could seriously harm its competitive position, including:

 

   

infringement and other intellectual property claims, which would be costly and time consuming to litigate, whether or not the claims have merit, and which could delay the regulatory approval process and divert management’s attention from Sunesis’s business;

 

   

substantial damages for past infringement, which Sunesis may have to pay if a court determines that SNS-510, vecabrutinib, or any future product candidates infringe a third party’s patent or other proprietary rights;

 

   

a court order prohibiting Sunesis from selling or licensing SNS-510, vecabrutinib, or any future product candidates unless a third-party licenses relevant patent or other proprietary rights to Sunesis, which it is not required to do; and

 

   

if a license is available from a third-party, Sunesis may have to pay substantial royalties or grant cross-licenses to its patents or other proprietary rights.

 

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If Sunesis’s competitors develop and market products that are more effective, safer or more popular than SNS-510, vecabrutinib, or other product candidates, or obtain marketing approval sooner than Sunesis’s, Sunesis’s commercial opportunities will be negatively impacted.

The life sciences industry is highly competitive, and Sunesis faces significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching, developing and marketing products designed to address the treatment of cancer. Many of Sunesis’s competitors have significantly greater financial, manufacturing, marketing and drug development resources than Sunesis does. Large pharmaceutical companies in particular have extensive experience in the clinical testing of, obtaining regulatory approvals for, and marketing drugs.

Sunesis expects competition during the development and commercialization of all of its products in all of their potential future indications. Competition is likely to increase as additional products are developed and approved in various patient populations. If Sunesis’s competitors market products that are more effective, safer, and/or less expensive than Sunesis’s future products, if any, or that reach the market sooner Sunesis may not achieve commercial success or substantial market penetration. In addition, the biopharmaceutical industry is characterized by rapid change. Products developed by Sunesis’s competitors may render any of Sunesis’s future product candidates obsolete.

Sunesis’s proprietary rights may not adequately protect SNS-510, vecabrutinib, or future product candidates, if any.

Sunesis uses patents, trade secrets, trademarks, service marks, and marketing exclusivity administered by regulatory authorities to protect Sunesis’s products from generic copies of its products. Sunesis’s ability to build and maintain its proprietary position for any future drug candidates will depend on its success in obtaining effective patent claims and enforcing granted claims. The patent positions of biopharmaceutical companies like Sunesis’s are generally uncertain and involve complex legal and factual questions for which some important legal principles remain unresolved. No consistent policy regarding the breadth of patent claims has emerged to date in the United States. The patent situation outside the United States is even more uncertain. Sunesis does not know whether any of its patent applications or those patent applications that Sunesis licenses will result in the issuance of any patents. Even if patents are issued, they may not be sufficient to protect SNS-510, vecabrutinib, or other product candidates. The patents Sunesis owns or licenses and those that may be issued in the future may be opposed, challenged, invalidated or circumvented, and the rights granted under any issued patents may not provide Sunesis with proprietary protection or competitive advantages. Sunesis applies for patents covering both its technologies and product candidates, as it deems appropriate. However, Sunesis may fail to apply for patents on important technologies or product candidates in a timely fashion, throughout the world, or at all. Sunesis’s existing patents and any future patents Sunesis obtains may not be sufficiently broad, valid, enforceable, or extend globally in order to prevent others from practicing Sunesis’s technologies or from developing competing products and technologies. Further, obtaining and maintaining patent protection relies on compliance with various procedural requirements imposed by governmental patent agencies, including, for example, mandatory document submissions and fee payments. Failure to comply with these requirements may reduce or eliminate opportunities for, or rights to, patent protection. In addition, Sunesis generally does not exclusively control the patent prosecution of subject matter that Sunesis licenses to or from others. Accordingly, in such cases Sunesis is unable to exercise the same degree of control over this intellectual property as Sunesis would over its own. Similarly, Sunesis does not always exclusively control patent prosecution due to contractual and other legal obligations to its licensors and collaborations partners. Moreover, the patent positions of biopharmaceutical companies are highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. As a result, the scope, validity and enforceability of patents in addition to the related cost, can vary from country to country, and can change depending on changes in national and international law, and as such, cannot be predicted with certainty. In addition, Sunesis does not know whether:

 

   

Sunesis, Sunesis’s licensors or Sunesis’s collaboration partners were the first to make the inventions covered by each of their issued patents and pending patent applications;

 

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Sunesis, Sunesis’s licensors or Sunesis’s collaboration partners were the first to file patent applications for these inventions;

 

   

others will independently develop similar or alternative technologies or duplicate any of their technologies;

 

   

any of Sunesis’s, Sunesis’s licensors’ or Sunesis’s collaboration partners’ pending patent applications will result in issued patents;

 

   

any of Sunesis’s, Sunesis’s licensors’ or Sunesis’s collaboration partners’ patents will be valid or enforceable;

 

   

because of differences in patent laws of countries, any patent granted in one country or region will be granted in another, or, if so, have the same or a different scope;

 

   

any patents issued to Sunesis, Sunesis’s licensors or Sunesis’s collaboration partners will provide them with any competitive advantages, or will be challenged by third parties;

 

   

Sunesis will develop additional proprietary technologies that are patentable;

 

   

Sunesis, Sunesis’s licensors or Sunesis’s collaboration partners will be subject to claims challenging the inventorship, ownership, or rights to claim priority with regard to their patents and other intellectual property; or

 

   

any patents or other proprietary rights of third parties will have an adverse effect on Sunesis’s business.

Sunesis may need to commence or defend administrative proceedings or litigation to enforce or to determine the scope and validity of any patents issued to Sunesis or to determine the scope and validity of third-party proprietary rights. Litigation would result in substantial costs, even if the eventual outcome is favorable to Sunesis. An adverse outcome in a proceeding or litigation affecting proprietary rights Sunesis owns or has licensed could present significant risk of competition for drug candidates that Sunesis markets or seeks to develop. Any adverse outcome in a proceeding or litigation affecting third party proprietary rights could subject Sunesis to significant liabilities to third parties and could require Sunesis to seek licenses of the disputed rights from third parties or to cease using the technology if such licenses are unavailable.

There can be no assurance that the trademarks or service marks Sunesis uses or registers will protect its company name or any products or technologies that Sunesis develops and commercializes, that its trademarks, service marks, or trademark registrations will be enforceable against third parties, or that its trademarks and service marks will not interfere with or infringe trademark rights of third parties. Sunesis may need to commence litigation to enforce its trademarks and service marks or to determine the scope and validity of its or a third party’s trademark rights. Litigation would result in substantial costs, even if the eventual outcome is favorable to Sunesis. An adverse outcome in litigation could subject Sunesis to significant liabilities to third parties and require Sunesis to seek licenses of the disputed rights from third parties or to cease using the trademarks or service marks if such licenses are unavailable.

Sunesis also relies on trade secrets to protect some of its technology, especially where Sunesis does not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to maintain and enforce. While Sunesis uses reasonable efforts to protect its trade secrets, Sunesis’s or Sunesis’s collaboration partners’ employees, consultants, contractors or scientific and other advisors, or those of Sunesis’s licensors or collaborators, may unintentionally or willfully disclose Sunesis’s proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than U.S. courts to protect trade secrets. If Sunesis’s competitors independently develop equivalent knowledge, methods and know-how, Sunesis would not be able to assert its trade secret protection against them and Sunesis’s business could be harmed.

There can be no assurance that the confidentiality and other agreements Sunesis puts in place with employees, consultants, and partners will provide meaningful protection, that these agreements will not be

 

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breached, that Sunesis will have an adequate remedy for any such breach, or that Sunesis’s trade secrets will not otherwise become known or independently developed by a third party.

Sunesis does not know whether the patent term for any drug candidate or product will offer protection for an adequate or profitable amount of time. Sunesis does not know whether patent term extensions and data exclusivity periods will be available in the future for any or all of the patent rights Sunesis owns or has licensed. While it is possible that patent term restoration and/or supplemental patent certificates would be available for some of the patents Sunesis owns or controls through licenses, Sunesis cannot guarantee that such additional protection will be obtained, and the expiration dates described here do not include such term restoration. However, patent expiration dates described here for U.S. patents may reflect patent term adjustments by the United States Patent and Trademark Office or terminal disclaimers over related patents or patent applications. Sunesis’s obligation to pay royalties to licensors may extend beyond the patent expiration, which would further erode the profitability of Sunesis’s products.

Intellectual property rights may not address all potential threats to Sunesis’s competitive position for at least the reasons described above and below.

Sunesis may not realize the potential benefits of its licensing arrangements for products such as vosaroxin and DAY101 (formerly TAK-580) and may not receive any future milestones or royalty payments.

There can be no assurance that products Sunesis out-licenses, such as vosaroxin to Denovo and DAY101 (formerly TAK-580) to DOT-1, will be successfully developed and commercialized. The product(s) may fail in development, or Sunesis’s partner(s) may elect to discontinue development and/or terminate their agreement(s) with Sunesis. In this case, Sunesis may also incur some costs to wind down Sunesis’s activities related to the product in question. Completing development of the product could require significant resources. If Sunesis cannot find another partner and do not undertake development on its own, there will be no possibility of any future upside from the product.

Sunesis may fail to make timely milestone or royalty payments under its agreements, triggering remedies that would be adverse to Sunesis.

Under Sunesis’s license agreements Sunesis has certain milestone obligations, such as the remaining development milestones payable to Takeda Oncology for Sunesis’s development of PDK1, and royalty obligations, such as the royalty payable to Biogen for vecabrutinib. As another example, Sunesis is required to pay RPI Finance Trust (“RPI”), an entity related to Royalty Pharma, a specified percentage of any consideration Sunesis receives for vosaroxin. If Sunesis does not make timely payments, its partners may seek remedies.

Any future workforce and expense reductions may have an adverse impact on Sunesis’s internal programs, its ability to hire and retain key personnel and may be distracting to management.

In July 2020, Sunesis announced a reduction in workforce of approximately 30% of its head count to focus on development of Sunesis’s first-in-class PDK1 inhibitor SNS-510. On November 29, 2020, due to the entry into the Merger Agreement, Sunesis committed to reducing its workforce by approximately 40% to preserve cash resources while completing the proposed Merger. Depending on Sunesis’s need for additional funding and expense control, Sunesis may be required to implement further workforce and expense reductions in the future. Further workforce and expense reductions may not result in efficiencies and anticipated savings and could result in reduced progress on Sunesis’s internal programs. In addition, employees, whether or not directly affected by a reduction, may seek future employment with Sunesis’s business partners or competitors. Although Sunesis’s employees are required to sign a confidentiality agreement at the time of hire, the confidentiality of certain proprietary information and knowledge may not be maintained in the course of any such future employment. Further, Sunesis believes that its future success will depend in large part upon its ability to attract and retain highly skilled personnel. Sunesis may have difficulty retaining and attracting such personnel as a result of a

 

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perceived risk of future workforce and expense reductions. In addition, the implementation of expense reduction programs may result in the diversion of efforts of Sunesis’s executive management team and other key employees, which could adversely affect its business.

Sunesis depends on various consultants and advisors for the success and continuation of its development efforts.

Sunesis works extensively with various consultants and advisors, who provide advice and/or services in various business and development functions, including clinical development, operations and strategy, clinical and nonclinical pharmacology, regulatory matters, biostatistics, legal and finance. The potential success of Sunesis’s drug development programs depends, in part, on continued collaborations with certain of these consultants and advisors. Sunesis’s consultants and advisors are not its employees and may have commitments and obligations to other entities that may limit their availability to Sunesis. Sunesis does not know if it will be able to maintain such relationships or that such consultants and advisors will not enter into other arrangements with competitors, any of which could have a detrimental impact on Sunesis’s development objectives and Sunesis’s business.

If conflicts of interest, or a failure or dispute of reporting or diligence efforts arise between Sunesis’s current or future licensees or collaboration partners, if any, and Sunesis, any of them may act in their self-interest, which may be adverse to Sunesis’s interests.

If a conflict of interest arises between Sunesis and one or more of its current or potential future licensees or collaboration partners, if any, they may act in their own self-interest or otherwise in a way that is not in the interest of Sunesis or its stockholders. Biogen, Takeda Oncology, Denovo, DOT-1, or potential future licensees or collaboration partners, if any, are conducting or may conduct product development efforts within the disease area that is the subject of a license or collaboration with Sunesis. In current or potential future licenses or collaborations, if any, Sunesis has agreed or may agree not to conduct, independently or with any third party, any research that is competitive with the research conducted under Sunesis’s licenses or collaborations. Sunesis’s licensees or collaboration partners, however, may develop, either alone or with others, products in related fields that are competitive with the product candidates that are the subject of these licenses or collaborations. Competing products, either developed by Sunesis’s licensees or collaboration partners or to which Sunesis’s licensees or collaboration partners have rights, may result in their withdrawal of support for a product candidate covered by the license or collaboration agreement.

If one or more of Sunesis’s current or potential future licensees or collaboration partners, if any, were to breach or terminate their license or collaboration agreements with Sunesis or otherwise fail to perform their obligations thereunder in a timely manner, the preclinical or clinical development or commercialization of the affected product candidates could be delayed or terminated. Sunesis does not know whether Sunesis’s licensees or collaboration partners will pursue alternative technologies or develop alternative product candidates, either on their own or in collaboration with others, including Sunesis’s competitors, as a means for developing treatments for the diseases targeted by licenses or collaboration agreements with Sunesis.

Sunesis and its current collaboration partners have certain reporting and diligence obligations to each other, and failure to report, or disagreement over the impact of information reported, or a lack of diligent efforts, or dispute of the impact of the efforts, may be adverse to Sunesis’s interests, the development of the product candidates and could lead to an ultimate withdrawal or dispute of the rights to a product candidate covered by the license or collaboration agreement.

Risks Related to Sunesis’s Industry

The regulatory approval process is expensive, time consuming and uncertain and may prevent Sunesis from obtaining approval for the commercialization of its product candidates.

The research, testing, manufacturing, selling and marketing of product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and regulations

 

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differ from country to country. Neither Sunesis nor its present or potential future collaboration or licensing partners, if any, are permitted to market Sunesis’s product candidates in the United States or Europe until Sunesis receives approval of a marketing authorization application (“MAA”) or New Drug Application (“NDA”) for these respective territories, or in any other country without the equivalent marketing approval from such country. In addition, failure to comply with FDA, EMA, and other applicable U.S. and foreign regulatory requirements may subject Sunesis to administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, injunctions, product seizure or detention, product recalls, total or partial suspension of production, and refusal to approve pending MAAs, NDAs, supplements to approved MAAs, NDAs or their equivalents in other territories.

Regulatory approval of an MAA or NDA or their equivalent in other territories is not guaranteed, and the approval process is expensive, uncertain and may take several years. Furthermore, the development process for oncology products may take longer than in other therapeutic areas. Regulatory authorities have substantial discretion in the drug approval process. Despite the time and expense exerted, failure can occur at any stage, and Sunesis could encounter problems that cause Sunesis to abandon clinical trials or to repeat or perform additional preclinical studies and clinical trials. The number of preclinical studies and clinical trials that will be required for marketing approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate.

The FDA, EMA or other foreign regulatory authority can delay, limit or deny approval of a drug candidate for many reasons, including:

 

   

the drug candidate may not be deemed safe or effective;

 

   

regulatory officials may not find the data from preclinical studies and clinical trials sufficient;

 

   

the FDA, EMA or other foreign regulatory authority might not approve Sunesis’s or Sunesis’s third-party manufacturers’ processes or facilities; or

 

   

the FDA, EMA or other foreign regulatory authority may change its approval policies or adopt new regulations.

Sunesis may be subject to costly claims related to its clinical trials and may not be able to obtain adequate insurance.

Because Sunesis conducts the vecabrutinib clinical trials in humans, Sunesis faces the risk that the use of vecabrutinib will result in adverse side effects. Sunesis cannot predict the possible harms or side effects that may result from its clinical trials. Although Sunesis has clinical trial liability insurance, Sunesis’s insurance may be insufficient to cover any such events. Sunesis does not know whether it will be able to continue to obtain clinical trial coverage on acceptable terms, or at all. Sunesis may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limit of, Sunesis’s insurance coverage. There is also a risk that third parties that Sunesis has agreed to indemnify could incur liability. Any litigation arising from Sunesis’s clinical trials, even if Sunesis was ultimately successful, would consume substantial amounts of Sunesis’s financial and managerial resources and may create adverse publicity.

Even if Sunesis receives regulatory approval to sell SNS-510 or other product candidates, the market may not be receptive.

Even if one of Sunesis’s product candidates obtains regulatory approval, it may not gain market acceptance among physicians, patients, healthcare payors and/or the medical community. Sunesis believes that the degree of market acceptance will depend on a number of factors, including:

 

   

the timing of market introduction of competitive products;

 

   

the efficacy of Sunesis’s product;

 

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the prevalence and severity of any side effects;

 

   

the potential advantages or disadvantages over alternative treatments;

 

   

the strength of marketing and distribution support;

 

   

the price of the product, both in absolute terms and relative to alternative treatments; and

 

   

the availability of reimbursement from health maintenance organizations and other third-party payors.

If SNS-510 or other product candidates fail to achieve market acceptance, due to unacceptable side effects or any other reasons, Sunesis may not be able to generate significant revenue or to achieve or sustain profitability.

Even if Sunesis receives regulatory approval for SNS-510 or any other future product candidate, Sunesis will be subject to ongoing FDA, EMA and other regulatory obligations and continued regulatory review, which may result in significant additional expense and limit its ability to commercialize SNS-510 or any other future product candidate.

Any regulatory approvals that Sunesis or its potential future collaboration partners receive for SNS-510 or its future product candidates, if any, may also be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing trials. In addition, even if approved, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for any product will be subject to extensive and ongoing regulatory requirements. The subsequent discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, and could include withdrawal of the product from the market.

The FDA and other agencies, including the Department of Justice (“DOJ”), closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and DOJ impose stringent restrictions on manufacturers’ communications regarding off-label use and if Sunesis does not market its products for their approved indications, Sunesis may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act and other statutes, including the False Claims Act (the “FCA”), relating to the promotion and advertising of prescription drugs may lead to investigations and enforcement actions alleging violations of federal and state health care fraud and abuse laws and state consumer protection laws.

Regulatory policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of Sunesis’s product candidates. Sunesis cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States, Europe or other territories. If Sunesis is not able to maintain regulatory compliance, Sunesis might not be permitted to market its future products and Sunesis may not achieve or sustain profitability. Other penalties for failing to comply with regulatory requirements include restrictions on such products, manufacturers or manufacturing processes; restrictions on the labeling or marketing of a product; restrictions on distribution or use of a product; requirements to conduct post-marketing studies or clinical trials; warning letters or untitled letters; withdrawal of the products from the market; refusal to approve pending applications or supplements to approved applications that Sunesis submits; recall of products; damage to relationships with any potential collaborators; unfavorable press coverage and damage to Sunesis’s reputation; fines, restitution or disgorgement of profits or revenues; suspension or withdrawal of marketing approvals; refusal to permit the import or export of Sunesis’s products; product seizure; injunctions or the imposition of civil or criminal penalties; and litigation involving patients using Sunesis’s products. Additionally, failure to comply with the European Union’s requirements regarding the protection of personal information also can lead to significant penalties and sanctions.

 

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The coverage and reimbursement status of newly approved drugs is uncertain and may be impacted by current and future legislation, and failure to obtain adequate coverage and reimbursement could limit Sunesis’s ability to market its product candidates and decrease its ability to generate revenue.

There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs both nationally and internationally. The commercial success of Sunesis’s future products, if any, in both domestic and international markets depends on whether third-party coverage and reimbursement is available for the ordering of Sunesis’s future products by the medical profession for use by their patients. Medicare, Medicaid, health maintenance organizations and other third-party payors are increasingly attempting to manage healthcare costs by limiting both coverage and the level of reimbursement of new drugs and, as a result, they may not cover or provide adequate payment for Sunesis’s future products. These payors may not view Sunesis’s future products as cost-effective, and reimbursement may not be available to consumers or may not be sufficient to allow Sunesis’s future products to be marketed on a competitive basis.

Likewise, in the United States and some foreign jurisdictions, there have been a number of legislative or regulatory efforts to control or reduce healthcare costs or reform government healthcare programs that could result in lower prices or rejection of Sunesis’s future products. Such efforts have resulted in several recent United States congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products.

For example, in response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act is aimed at providing emergency assistance and health care for individuals, families and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. Generally, there has been increasing legislative and enforcement interest in the U.S. with respect to drug pricing, including specialty drug pricing practices, in light of the rising cost of prescription drugs and biologics. Specifically, there have been U.S. Congressional inquiries and federal and state legislative activity designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the price of drugs under Medicare, and reform government program reimbursement methodologies for drugs and biologics. While a number of reform measures may require additional authorization to become effective, Congress and the Trump Administration have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. Sunesis expects that additional state and federal healthcare reform measures may be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services. The evolving effects of the COVID-19 pandemic may introduce temporary or permanent healthcare reform measures, which could have negative financial implications on Sunesis’s business. Changes in coverage and reimbursement policies or healthcare cost containment initiatives that may limit or restrict reimbursement for Sunesis’s future products may reduce any future product revenue.

Additionally, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), was enacted, which made a number of substantial changes in the way healthcare is financed by both governmental and private insurers. In the years since its enactment, there have been, and continue to be, significant developments in, and continued legislative activity around, attempts to repeal or repeal and replace the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA such as removing penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance and delaying the implementation of certain ACA-mandated fees. In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the TCJA. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether

 

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the remaining provisions of the ACA are invalid as well. The Supreme Court of the United States granted certiorari on March 2, 2020, and heard oral arguments on the case on November 10, 2020, and the case is expected to be decided sometime in 2021. It is unclear how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and Sunesis’s business and operations.

The implementation of cost containment measures or other healthcare reforms may prevent Sunesis from being able to generate revenue, attain profitability, or commercialize its products.

Sunesis’s relationships with healthcare providers, clinical investigators, and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which, in the event of a violation, could expose Sunesis to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, clinical investigators, and third-party payors will play a primary role in the recommendation and prescription of any drug candidates for which Sunesis obtains marketing approval. Sunesis’s current and future arrangements with healthcare providers, clinical investigators and third-party payors may expose Sunesis to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Sunesis markets, sells and distributes any products for which Sunesis obtains marketing approval. Restrictions under applicable state, federal and foreign healthcare laws and regulations include the following:

 

   

The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for either the referral of an individual, or the purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item, good, facility or service reimbursable under Medicare, Medicaid or other federal healthcare programs;

 

   

Federal false claims laws, including the civil FCA, and civil monetary penalties laws, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid;

 

   

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) prohibits, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and its implementing regulations, among other things, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. HITECH, among other things, makes HIPAA’s security standards directly applicable to business associates, independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity; created four new tiers of civil monetary penalties; amended HIPAA to make civil and criminal penalties directly applicable to business associates; and gave state attorneys general new authority to file civil actions to enforce the federal HIPAA laws;

 

   

the Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to annually report to CMS information related to certain payments or other transfers of value provided to physicians, as defined by such law, and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and

 

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teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members; and

 

   

analogous local, state and foreign laws and regulations, such as state anti-kickback and false claims laws, transparency statutes, and privacy and security laws. Such laws may be broader than the federal law, including that they may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by third party payors, including private insurers. There also are an increasing number of state laws that require manufacturers to file reports with states regarding drug pricing and marketing information, tracking and reporting of gifts, compensation, other remuneration and items of value provided to health care professionals and health care entities, or marketing expenditures; require pharmaceutical companies to, among other things, establish and implement commercial compliance programs or codes of conducts; and/or require a pharmaceutical company’s sales representatives to be registered or licensed by the state or local governmental entity. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that Sunesis’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that Sunesis’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Sunesis’s operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to Sunesis, Sunesis may be subject to a wide range of sanctions and penalties, including potentially significant criminal, and civil and/or administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, integrity obligations, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of Sunesis’s operations, any of which could adversely affect Sunesis’s ability to operate its business and its results of operations. Sunesis is unable to predict whether Sunesis would be subject to actions under these laws or the impact of such actions. However, the cost of defending any such claims, as well as any sanctions imposed, could adversely affect Sunesis’s financial performance and disrupt Sunesis’s business operations.

Sunesis may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose Sunesis to significant liabilities.

Sunesis, through third-party contractors, use hazardous chemicals and radioactive and biological materials in its business and are subject to a variety of federal, state, regional and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials. Although Sunesis believes its safety procedures for handling and disposing of these materials and waste products comply with these laws and regulations, Sunesis cannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of contamination or injury, Sunesis could be held liable for any resulting damages, and any liability could significantly exceed Sunesis’s insurance coverage, which is limited for pollution cleanup and contamination.

General Risk Factors

The price of Sunesis Common Stock may continue to be volatile, and the value of an investment in its common stock may decline.

In the nine months ended September 30, 2020, Sunesis Common Stock traded as low as $1.17 and as high as $11.30, after giving retroactive effect to the one-for-ten reverse split of shares of Sunesis’s capital stock, effected on September 2, 2020. Factors that could cause continued volatility in the market price of Sunesis Common Stock include, but are not limited to:

 

   

all the other risks mentioned herein, including but not limited to Sunesis’s ability to raise additional capital to fund its operations and complete its clinical development plans, compliance with government

 

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regulations, the safety and efficacy of its products, and Sunesis’s ability to protect its intellectual property;

 

   

announcements relating to restructuring and other operational changes;

 

   

market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors;

 

   

changes in the structure of healthcare payment systems;

 

   

issuance of new or changed securities analysts’ reports or recommendations;

 

   

announcements relating to Sunesis’s arrangements with Biogen, Takeda Oncology, Denovo, DOT-1, or RPI;

 

   

actual and anticipated fluctuations in Sunesis’s quarterly operating results;

 

   

deviations in Sunesis’s operating results from the estimates of analysts;

 

   

litigation or public concern about the safety of future products, if any;

 

   

failure to develop or sustain an active and liquid trading market for Sunesis’s common stock;

 

   

short-selling or manipulation of Sunesis Common Stock by investors;

 

   

sales of Sunesis Common Stock by Sunesis’s officers, directors or significant stockholders; and

 

   

additions or departures of key personnel.

Moreover, on March 12, 2020, the WHO declared COVID-19 to be a pandemic, and the COVID-19 pandemic has resulted in significant financial market volatility and uncertainty in recent months. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on Sunesis’s ability to access capital, on Sunesis’s business, results of operations and financial condition, and on the market price of Sunesis’s common stock.

Sunesis’s failure to meet the continued listing requirements of The Nasdaq Stock Market LLC could result in a delisting of its common stock.

Sunesis Common Stock is listed on The Nasdaq Stock Market LLC, which imposes, among other requirements a minimum bid requirement. Sunesis Common Stock traded for less than $1.00 for 30 consecutive trading days, and Sunesis received notice of this from the Listing Qualifications Staff of The Nasdaq Stock Market LLC on July 9, 2019. After effecting the Reverse Stock Split on September 2, 2020, Sunesis received a letter from the Nasdaq Listing Qualifications Department notifying Sunesis that it had regained compliance with the Nasdaq minimum bid price requirement and the matter is now closed. However, if the closing bid price of Sunesis Common Stock was to fall below $1.00 per share for 30 consecutive trading days again in the future, or Sunesis does not meet other listing requirements, Sunesis would fail to be in compliance with Nasdaq’s listing standards. There can be no assurance that Sunesis will continue to meet the minimum bid price requirement, or any other requirement in the future. If Sunesis fails to meet the minimum bid price requirement, or other applicable Nasdaq listing requirements, including maintaining minimum levels of stockholders’ equity or market values of Sunesis’s common stock, its common stock could be delisted. If Sunesis Common Stock were to be delisted, the liquidity of its common stock would be adversely affected, and the market price of its common stock could decrease.

Sunesis’s facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster, or interruption by man-made problems such as network security breaches, viruses or terrorism, could cause damage to Sunesis’s facilities and equipment, which could require Sunesis to cease or curtail operations.

Sunesis’s facilities are located in the San Francisco Bay Area near known earthquake fault zones and are vulnerable to significant damage from earthquakes. Sunesis is also vulnerable to damage from other types of

 

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disasters, including fires, floods, power loss, communications failures and other catastrophic events, such as the ongoing Coronavirus epidemic. Despite the implementation of network security measures, Sunesis’s networks also may be vulnerable to computer viruses, break-ins and similar disruptions. Sunesis relies on information technology systems to operate its business and to communicate among its workforce and with third parties. If any disruption were to occur, whether caused by a natural disaster or by manmade problems, Sunesis’s ability to operate its business at its facilities may be seriously or completely impaired and Sunesis’s data could be lost or destroyed.

Sunesis’s systems are potentially vulnerable to data security breaches, whether by employees or others, that may expose sensitive data to unauthorized persons. If Sunesis is unable to prevent such data security breaches or implement satisfactory remedial measures, Sunesis’s operations could be disrupted, and Sunesis may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. U.S. and international authorities have been warning businesses of increased cybersecurity threats from actors seeking to exploit the COVID-19 pandemic. If Sunesis is unable to prevent potential data security breaches or privacy violations, Sunesis’s operations could be disrupted, and Sunesis may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive patient data.

Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While Sunesis has implemented security measures to protect its data security and information technology systems, such measures may not prevent such events. Such disruptions and breaches of security could have a material adverse effect on Sunesis’s business, financial condition and results of operations.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.

Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters. New or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time. Sunesis is committed to maintaining high standards of corporate governance and public disclosure. Complying with evolving interpretations of new or changed legal requirements may cause Sunesis to incur higher costs as Sunesis revises current practices, policies and procedures, and may divert management time and attention from potential revenue-generating activities to compliance matters. If Sunesis’s efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, Sunesis’s reputation may also be harmed. Further, Sunesis’s board members and executive officers could face an increased risk of personal liability in connection with the performance of their duties. As a result, Sunesis may have difficulty attracting and retaining qualified board members and executive officers, which could harm its business. Sunesis’s Directors and Officers insurance provides certain coverage to its board members and executive officers, but the cost of coverage may be prohibitively expensive or not provide enough coverage.

Sunesis’s ability to use NOL carryforwards to offset future taxable income, and its ability to use tax credit carryforwards, may be subject to certain limitations.

Sunesis’s ability to use its federal and state NOL carryforwards to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon its generation of future taxable income, and Sunesis cannot predict with certainty when, or whether, Sunesis will generate sufficient taxable income to use all of its NOL carryforwards.

As of December 31, 2019, Sunesis reported U.S. federal and state NOL carryforwards of approximately $463.4 million and $310.7 million, respectively. Sunesis’s federal NOL carryforwards generated prior to 2018

 

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will continue to be governed by the NOL tax rules as they existed prior to the adoption of the U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), which means that generally they will expire 20 years after they were generated if not used prior thereto. $423.1 million of Sunesis’s $463.4 million federal NOL carryforwards are subject to the 20 years expirations and a portion will continue to expire each year until 2037. Many states have similar laws, and Sunesis’s state NOL carryforwards will begin to expire in 2028. Accordingly, these federal and state NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Act as modified by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, federal NOLs incurred in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal NOL carryforwards in tax years beginning after December 31, 2020 is limited to 80% of current year taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act.

In addition, under Section 382 of the Code, Sunesis’s ability to utilize these NOL carryforwards and other tax attributes, such as federal tax credits, in any taxable year may be limited if Sunesis has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a three-year testing period. Similar rules may apply under state tax laws. Any such material limitation or expiration of Sunesis’s NOL carryforwards may harm Sunesis’s future operating results by effectively increasing its future tax obligations.

Provisions of Sunesis’s charter documents or Delaware law could delay or prevent an acquisition of Sunesis, even if the acquisition would be beneficial to Sunesis’s stockholders, and could make it more difficult to change management.

Provisions of Sunesis’s amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders might otherwise consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by Sunesis’s stockholders to replace or remove its current management by making it more difficult to replace or remove its board of directors. These provisions include:

 

   

a classified board of directors so that not all directors are elected at one time;

 

   

a prohibition on stockholder action through written consent;

 

   

limitations on Sunesis’s stockholders’ ability to call special meetings of stockholders;

 

   

an advance notice requirement for stockholder proposals and nominations; and

 

   

the authority of Sunesis’s board of directors to issue preferred stock with such terms as Sunesis’s board of directors may determine.

In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who, together with its affiliates, owns or within the last three years has owned 15% of Sunesis’s voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of Sunesis.

Provisions in Sunesis’s charter documents and provisions of Delaware law could limit the price that investors are willing to pay in the future for shares of Sunesis’s common stock.

 

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Sunesis has never paid dividends on its capital stock and Sunesis does not anticipate paying any cash dividends in the foreseeable future.

Sunesis has never declared or paid cash dividends on its capital stock. Sunesis does not anticipate paying any cash dividends on its capital stock in the foreseeable future. Sunesis currently intends to retain all available funds and any future earnings to fund the development and growth of its business. As a result, capital appreciation, if any, of Sunesis Common Stock will be Sunesis’s stockholders’ sole source of gain for the foreseeable future.

Sunesis is at risk of securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for Sunesis because biotechnology companies have experienced greater than average stock price volatility in recent years. These broad market fluctuations may adversely affect the trading price or liquidity of Sunesis’s common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of Sunesis’s stockholders were to bring such a lawsuit against Sunesis, Sunesis could incur substantial costs defending the lawsuit and the attention of Sunesis’s management would be diverted from the operation of Sunesis’s business.

Future sales and issuances of Sunesis Common Stock or rights to purchase common stock, including pursuant to Sunesis’s equity incentive plans, could result in additional dilution of the percentage ownership of Sunesis’s stockholders and could cause its stock price to fall.

Sunesis expects that significant additional capital will be needed in the future to continue its planned operations. To raise capital, Sunesis may sell substantial amounts of common stock or securities convertible into or exchangeable for common stock in one or more transactions at prices and in a manner Sunesis determines from time to time, including pursuant to its Controlled Equity OfferingSM sales agreement, with Cantor Fitzgerald & Co. or any similar arrangements into which Sunesis may enter. These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions or in-licenses, if any, may result in material dilution to Sunesis’s investors. Such sales may also result in material dilution to Sunesis’s existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of Sunesis’s common stock.

Pursuant to Sunesis’s equity incentive plans, Sunesis’s compensation committee is authorized to grant equity-based incentive awards to its employees, non-employee directors and consultants. Future grants of RSUs, options and other equity awards and issuances of common stock under Sunesis’s equity incentive plans will result in dilution and may have an adverse effect on the market price of Sunesis’s common stock.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about Sunesis’s business, Sunesis’s stock price and trading volume could decline.

The trading market for Sunesis Common Stock will depend in part on the research and reports that securities or industry analysts publish about Sunesis and its business. In the event securities or industry analysts who cover Sunesis downgrade its stock or publish unfavorable research about Sunesis or its business, Sunesis’s stock price would likely decline. If one or more of these analysts cease coverage of Sunesis or fail to publish reports on Sunesis regularly, demand for Sunesis’s stock could decrease, which might cause Sunesis’s stock price and trading volume to decline.

 

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Sunesis’s Amended and Restated Bylaws provide that the Court of Chancery in the State of Delaware is the sole and exclusive forum for substantially all disputes between Sunesis and its stockholders, which could limit the stockholders’ ability to obtain a favorable judicial forum for disputes with Sunesis or its directors, officers or employees.

Sunesis’s Amended and Restated Bylaws, or the Bylaws, provide that, unless the Sunesis Board of Directors consents to an alternative forum, the Court of Chancery in the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on Sunesis’s behalf; (ii) any action asserting a breach of fiduciary duty; (iii) any action asserting a claim against Sunesis arising under the DGCL; (iv) any action regarding the Bylaws; (v) any action as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; or (vi) any action asserting a claim against Sunesis that is governed by the internal affairs doctrine. The provisions do not apply to suits brought to enforce a duty or liability created by the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended. Sunesis believes this provision benefits Sunesis by providing increased consistency in the application of Delaware law by chancellors particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. However, the provision may have the effect of discouraging lawsuits against Sunesis’s directors and officers.

Risks Related to Viracta

Risks Related to Viracta’s Financial Position and Need for Additional Capital

Viracta has a limited operating history, has not initiated or completed any large-scale or pivotal clinical trials, and has no products approved for commercial sale, which may make it difficult for you to evaluate its current business and likelihood of success and viability.

Viracta is a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate its business and prospects. Viracta has no products approved for commercial sale and has not generated any revenue. Drug development is a highly uncertain undertaking and involves a substantial degree of risk. Viracta is currently conducting a Phase 1b/2 clinical trial of its lead product candidate, nanatinostat in combination with valganciclovir (“VRX-101”) in Epstein-Barr virus-positive (“EBV+) lymphomas and plans to initiate a registrational trial of VRX-101 in EBV+ lymphomas in the first half of 2021 and a Phase 1b/2 clinical trial of VRX-101 in EBV+ solid tumors in 2021. To date, Viracta has devoted substantially all of its resources to research and development activities, business planning, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital and providing general and administrative support for these operations.

Viracta has not yet demonstrated its ability to successfully initiate and complete any large-scale or pivotal clinical trials, obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on its behalf, or conduct sales and marketing activities necessary for successful product commercialization. As a result, it may be more difficult for you to accurately predict Viracta’s likelihood of success and viability than it could be if it had a longer operating history.

In addition, Viracta may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors and risks frequently experienced by clinical-stage biopharmaceutical companies in rapidly evolving fields. Viracta may also need to transition from a company with a research and development focus to a company capable of supporting commercial activities. Viracta has not yet demonstrated an ability to successfully overcome such risks and difficulties, or to make such a transition. If Viracta does not adequately address these risks and difficulties or successfully make such a transition, its business will suffer.

Viracta has incurred significant net losses since its inception, and it expects to continue to incur significant net losses for the foreseeable future.

Viracta has incurred significant net losses since its inception, has not generated any revenue from product sales to date and has financed its operations principally through private placements of its convertible preferred

 

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stock. Viracta’s net loss was $13.6 million for the year ended December 31, 2019. As of December 31, 2019, Viracta had an accumulated deficit of $31.9 million. Viracta’s lead product candidate, VRX-101, is in a Phase 1b/2 clinical trial, and Viracta plans to initiate a registrational trial in lymphomas in the first half of 2021 and a Phase 1b/2 trial in solid tumor cancers in 2021. Its other programs are in preclinical discovery and research stages. As a result, Viracta expects that it will be several years, if ever, before Viracta has a commercialized product and generate revenue from product sales. Even if Viracta succeeds in receiving marketing approval for and commercializing one or more of its product candidates, it expects that it will continue to incur substantial research and development and other expenses in order to discover, develop and market additional potential products.

Viracta expects to continue to incur significant expenses and increasing operating losses for the foreseeable future. The net losses Viracta incurs may fluctuate significantly from quarter to quarter such that a period-to-period comparison of its results of operations may not be a good indication of its future performance. The size of its future net losses will depend, in part, on the rate of future growth of its expenses and its ability to generate revenue. Viracta’s prior losses and expected future losses have had and will continue to have an adverse effect on its working capital, its ability to fund the development of its product candidates, its ability to achieve and maintain profitability and the performance of its stock.

Viracta’s ability to generate revenue and achieve profitability depends significantly on its ability to achieve several objectives relating to the discovery, development and commercialization of its product candidates.

Viracta’s business depends entirely on the successful discovery, development and commercialization of product candidates. Viracta has no products approved for commercial sale and does not anticipate generating any revenue from product sales for the next several years, if ever. Its ability to generate revenue and achieve profitability depends significantly on its ability, or any current or future collaborator’s ability, to achieve several objectives, including:

 

   

successful and timely completion of preclinical and clinical development of its lead product candidate, VRX-101, and its other future product candidates;

 

   

establishing and maintaining relationships with contract research organizations (“CROs”) and clinical sites for the clinical development of VRX-101 and its other future product candidates;

 

   

timely receipt of marketing approvals from applicable regulatory authorities for any product candidates for which it successfully completes clinical development;

 

   

developing an efficient and scalable manufacturing process for its product candidates, including obtaining finished products that are appropriately packaged for sale;

 

   

establishing and maintaining commercially viable supply and manufacturing relationships with third parties that can provide adequate, in both amount and quality, products and services to support clinical development and meet the market demand for its product candidates, if approved;

 

   

successful commercial launch following any marketing approval, including the development of a commercial infrastructure, whether in-house or with one or more collaborators;

 

   

a continued acceptable safety profile following any marketing approval of its product candidates;

 

   

commercial acceptance of its product candidates by patients, the medical community and third-party payors;

 

   

satisfying any required post-marketing approval commitments to applicable regulatory authorities;

 

   

identifying, assessing and developing new product candidates;

 

   

obtaining, maintaining and expanding patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally;

 

   

protecting its rights in its intellectual property portfolio;

 

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defending against third-party interference or infringement claims, if any;

 

   

entering into and maintaining, on favorable terms, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize its product candidates;

 

   

obtaining coverage and adequate reimbursement by third-party payors for its product candidates;

 

   

addressing any competing therapies and technological and market developments; and

 

   

attracting, hiring and retaining qualified personnel.

Viracta may never be successful in achieving its objectives and, even if it does, may never generate revenue that is significant or large enough to achieve profitability. If Viracta does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. Viracta’s failure to become and remain profitable would decrease the value of its company and could impair its ability to maintain or further its research and development efforts, raise additional necessary capital, grow its business and continue its operations.

Even following the Pre-Closing Financing, Viracta will require additional capital to finance its operations. If it is unable to raise such capital when needed, or on acceptable terms, it may be forced to delay, reduce and/or eliminate one or more of its research and drug development programs or future commercialization efforts.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and uncertain process that takes years to complete. Viracta’s operations have consumed substantial amounts of cash since inception, and Viracta expects its expenses to increase in connection with its ongoing and planned activities, particularly as it conduct clinical trials of, and seek marketing approval for, VRX-101. Even if one or more of the product candidates that Viracta develops is approved for commercial sale, Viracta anticipates incurring significant costs associated with sales, marketing, manufacturing and distribution activities. Viracta’s expenses could increase beyond expectations if it is required by the FDA, the European Medicines Agency (EMA) or other regulatory agencies to perform clinical trials or preclinical studies in addition to those that it currently anticipates. Other unanticipated costs may also arise. In addition, if Viracta obtains marketing approval for any of its product candidates, including VRX-101, Viracta expects to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. Because the design and outcome of Viracta’s planned and anticipated clinical trials are highly uncertain, it cannot reasonably estimate the actual amount of resources and funding that will be necessary to successfully complete the development and commercialization of any product candidate it develops. Viracta is not permitted to market or promote VRX-101, or any other product candidate, in the U.S. before it receive marketing approval from the FDA. Accordingly, Viracta will need to obtain substantial additional funding in order to continue its operations.

As of September 30, 2020, Viracta had $11.9 million in cash and cash equivalents. Based on Viracta’s current operating plan, it believes that the cash and cash equivalents of the combined company following the close of the Merger, including the proceeds from Viracta’s Series E financing in November 2020 and the Pre-Closing Financing, will enable it to fund its planned operating expenses and capital expenditures into 2024. Viracta’s estimate as to how long it expects the cash and cash equivalents of the combined company to be able to continue to fund its operations is based on assumptions that may prove to be wrong, and it could exhaust its available capital resources sooner than it currently expects. Changing circumstances, some of which may be beyond its control, could cause Viracta to consume capital significantly faster than it currently anticipates, and it may need to seek additional funds sooner than planned.

Viracta plans to use the cash and cash equivalents of the combined company to fund its ongoing and planned clinical trials of VRX-101 and to fund its other research and development activities, as well as for working capital and other general corporate purposes. Advancing the development of VRX-101 and any other product candidate, will require a significant amount of capital. The existing cash and cash equivalents of the combined company will not be sufficient to fund all of the activities that are necessary to complete the development of VRX-101.

 

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Viracta will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources, which may dilute its stockholders or restrict its operating activities. Pursuant to the terms of the Loan and Security Agreement between Viracta and Silicon Valley Bank (“SVB”), dated July 30, 2020 (the “SVB Loan Facility”), Viracta has borrowed $5 million and may be eligible to borrow up to an additional $10 million. The additional financing available under the SVB Loan Facility is not expected to be sufficient to fund Viracta’s future operations. Adequate additional financing may not be available to Viracta on acceptable terms, or at all. To the extent that Viracta raises additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing may result in imposition of debt covenants, increased fixed payment obligations or other restrictions that may affect Viracta’s business. Under Viracta’s license agreements with Shenzhen Salubris Pharmaceutical Co. Ltd. and NantKwest, Inc., Viracta may be entitled to receive future milestone and royalty payments. If Viracta raises additional funds through up-front payments or milestone payments pursuant to strategic collaborations with third parties, it may have to relinquish valuable rights to its product candidates, or grant licenses on terms that are not favorable to it. In addition, Viracta may seek additional capital due to favorable market conditions or strategic considerations even if it believes it has sufficient funds for its current or future operating plans.

Viracta’s failure to raise capital as and when needed or on acceptable terms would have a negative impact on its financial condition and its ability to pursue its business strategy, and Viracta may have to delay, reduce the scope of, suspend or eliminate one or more of its clinical trials or future commercialization efforts.

Risks Related to the Discovery, Development and Commercialization of Viracta’s Product Candidates

Viracta is substantially dependent on the success of its lead product candidate, VRX-101, which is planned to begin a Phase 1b/2 trial in 2021. If Viracta is unable to complete development of, obtain approval for and commercialize VRX-101 for one or more indications in a timely manner, its business will be harmed.

Viracta’s future success is dependent on its ability to timely and successfully complete clinical trials, obtain marketing approval for and successfully commercialize VRX-101, its lead product candidate. Viracta is investing the majority of its efforts and financial resources in the research and development of VRX-101 for multiple indications. VRX-101 is a combination product candidate consisting of nanatinostat, a potent and selective small molecule inhibitor of class I histone deacetylases (“HDAC”), and valganciclovir, an FDA-approved anti-viral drug used to treat and prevent disease caused by a virus called cytomegalovirus (“CMV”) in people who have received organ transplants. In 2018, Viracta initiated a Phase 1b/2 clinical trial evaluating VRX-101 in patients with relapsed/refractory EBV+ lymphomas. Prior to these clinical trials, nanatinostat has been studied in one previous clinical trial. VRX-101 will require additional clinical development, expansion of manufacturing capabilities, marketing approval from government regulators, substantial investment and significant marketing efforts before Viracta can generate any revenues from product sales. Viracta is not permitted to market or promote VRX-101, or any other product candidate, before it receives marketing approval from the FDA and comparable foreign regulatory authorities, and Viracta may never receive such marketing approvals.

The success of VRX-101 will depend on several factors, including the following:

 

   

the successful and timely completion of Viracta’s ongoing and planned clinical trials of VRX-101;

 

   

the initiation and successful patient enrollment and completion of additional clinical trials of VRX-101 on a timely basis, including the planned registrational trial of VRX-101 in patients with relapsed/refractory EBV+ lymphomas;

 

   

maintaining and establishing relationships with CROs and clinical sites for the clinical development of VRX-101 both in the United States and internationally;

 

   

the type, frequency and severity of adverse events in clinical trials;

 

   

demonstrating efficacy, safety and tolerability profiles that are satisfactory to the FDA, EMA or any comparable foreign regulatory authority for marketing approval;

 

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the timely receipt of marketing approvals for VRX-101 from applicable regulatory authorities;

 

   

the timely identification, development and approval of companion diagnostic tests, if required;

 

   

the extent of any required post-marketing approval commitments to applicable regulatory authorities;

 

   

the maintenance of existing or the establishment of new supply arrangements with third-party drug product suppliers and manufacturers for clinical development and, if approved, commercialization of VRX-101;

 

   

obtaining and maintaining patent protection, trade secret protection and regulatory exclusivity, both in the United States and internationally;

 

   

the protection of Viracta’s rights in its intellectual property portfolio;

 

   

the successful launch of commercial sales following any marketing approval;

 

   

a continued acceptable safety profile following any marketing approval;

 

   

commercial acceptance by patients, the medical community and third-party payors; and

 

   

Viracta’s ability to compete with other therapies.

Viracta does not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to its intellectual property rights and the manufacturing, marketing, distribution and sales efforts of its current or any future collaborators. If Viracta is not successful with respect to one or more of these factors in a timely manner or at all, it could experience significant delays or an inability to successfully commercialize VRX-101, which would materially harm its business. If Viracta does not receive marketing approvals for VRX-101,Viracta may not be able to continue its operations.

If there are delays in completing the registrational clinical trial for VRX-101 in EBV+ lymphomas, Viracta will be delayed in commercializing VRX-101, its development costs may increase and its business may be harmed.

The registrational clinical trial of VRX-101 in relapsed/refractory EBV+ lymphomas is expected to be initiated in the first half of 2021. Viracta’s product development costs could increase if it experiences delays. Significant trial delays also could shorten any periods during which Viracta may have the exclusive right to commercialize VRX-101 or allow Viracta’s competitors to bring products to market before Viracta does, which would impair Viracta’s ability to successfully capitalize on VRX-101 and may harm its business, results of operations and prospects. Events that may result in a delay or unsuccessful completion of clinical development of VRX-101 include, among other things:

 

   

unexpectedly high rate of patients withdrawing consent or being lost to follow-up;

 

   

feedback from the FDA and foreign regulatory authorities, institutional review boards, or IRBs, or the data safety monitoring board, or results from clinical trials that might require modification to a clinical trial protocol;

 

   

imposition of a clinical hold by the FDA or other regulatory authorities, a decision by the FDA, other regulatory authorities, Institutional Review Boards, or IRBs, or Viracta, or a recommendation by a data safety monitoring board to suspend or terminate trials at any time for safety issues or for any other reason;

 

   

deviations from the trial protocol by clinical trial sites and investigators or failure to conduct the trial in accordance with regulatory requirements;

 

   

failure of third parties, such as CROs, to satisfy their contractual duties or meet expected deadlines;

 

   

delays in the testing, validation, manufacturing and delivery of VRX-101 to the clinical trial sites;

 

   

delays caused by patients dropping out of a trial due to side effects or disease progression;

 

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unacceptable risk-benefit profile or unforeseen safety issues or adverse drug reactions;

 

   

failure to demonstrate the efficacy of VRX-101 in this clinical trial;

 

   

changes in government regulations or administrative actions or lack of adequate funding to continue the trials; or

 

   

business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters and public health epidemics, such as the COVID outbreak.

An inability by Viracta to timely complete clinical development could result in additional costs to Viracta or impair its ability to generate product revenues or development, regulatory, commercialization and sales milestone payments and royalties on product sales.

In addition to VRX-101, Viracta’s prospects depend in part upon discovering, developing and commercializing additional product candidates, which may fail in development or suffer delays that adversely affect their commercial viability.

Viracta’s future operating results are dependent on its ability to successfully discover, develop, obtain regulatory approval for and commercialize product candidates other than VRX-101. All of Viracta’s current programs other than VRX-101 are in research or preclinical development. A product candidate can unexpectedly fail at any stage of preclinical and clinical development. The historical failure rate for product candidates is high due to risks relating to safety, efficacy, clinical execution, changing standards of medical care and other unpredictable variables. The results from preclinical testing or early clinical trials of a product candidate may not be predictive of the results that will be obtained in later stage clinical trials of the product candidate.

The success of other product candidates Viracta may develop will depend on many factors, including the following:

 

   

generating sufficient data to support the initiation or continuation of clinical trials;

 

   

obtaining regulatory permission to initiate clinical trials;

 

   

contracting with the necessary parties to conduct clinical trials;

 

   

successful enrollment of patients in, and the completion of, clinical trials on a timely basis;

 

   

the timely manufacture of sufficient quantities of a product candidate for use in clinical trials; and

 

   

adverse events in clinical trials.

Even if Viracta successfully advances any other product candidates into clinical development, their success will be subject to all of the clinical, regulatory and commercial risks described elsewhere in this “Risk factors” section. Accordingly, Viracta cannot assure you that it will ever be able to discover, develop, obtain regulatory approval of, commercialize or generate significant revenue from any product candidates.

The regulatory approval processes of the FDA, EMA and other comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If Viracta is ultimately unable to obtain regulatory approval its product candidates, it will be unable to generate product revenue and its business will be substantially harmed.

Obtaining approval by the FDA, EMA and other comparable foreign regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the type, complexity and novelty of the product candidates involved. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Regulatory authorities have substantial discretion in the

 

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approval process and may refuse to accept any application or may decide that Viracta’s data are insufficient for approval and require additional preclinical, clinical or other data. Even if Viracta eventually completes clinical testing and receive approval for its product candidates, the FDA, EMA and other comparable foreign regulatory authorities may approve its product candidates for a more limited indication or a narrower patient population than it originally requested or may impose other prescribing limitations or warnings that limit the product’s commercial potential. Viracta has not submitted for, or obtained, regulatory approval for any product candidate, and it is possible that none of its product candidates will ever obtain regulatory approval. Further, development of its product candidates and/or regulatory approval may be delayed for reasons beyond its control.

Further, development of Viracta’s product candidates and/or regulatory approval may be delayed for reasons beyond Viracta’s control. For example, a U.S. federal government shutdown or budget sequestration, such as ones that occurred during 2013, 2018 and 2019, or diversion of resources to currently handle the COVID-19 public health emergency and pandemic may result in significant reductions to the FDA’s budget, employees and operations, which may lead to slower response times and longer review periods, potentially affecting Viracta’s ability to progress development of its product candidates or obtain regulatory approval for its product candidates. In addition, the impact of COVID-19 may cause the FDA to allocate additional resources to product candidates focused on treating related illnesses, which could lead to longer approval processes for Viracta’s product candidates. Finally, Viracta’s competitors may file citizens’ petitions with the FDA in an attempt to persuade the FDA that Viracta’s product candidates, or the clinical trials that support their approval, contain deficiencies. Such actions by Viracta’s competitors could delay or even prevent the FDA from approving any of Viracta’s NDAs.

Applications for Viracta’s product candidates could fail to receive regulatory approval for many reasons, including the following:

 

   

the FDA, EMA or other comparable foreign regulatory authorities may disagree with the design, implementation or results of Viracta’s clinical trials;

 

   

the FDA, EMA or other comparable foreign regulatory authorities may determine that Viracta’s product candidates are not safe and effective, are only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that preclude Viracta obtaining marketing approval or prevent or limit commercial use;

 

   

the population studied in the clinical trial may not be sufficiently broad or representative to assure efficacy and safety in the full population for which Viracta seeks approval;

 

   

the FDA, EMA or other comparable foreign regulatory authorities may disagree with Viracta’s interpretation of data from preclinical studies or clinical trials;

 

   

Viracta may be unable to demonstrate to the FDA, EMA or other comparable foreign regulatory authorities that its product candidate’s risk-benefit ratio for its proposed indication is acceptable;

 

   

the FDA, EMA or other comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications or facilities of third-party manufacturers with which Viracta contracts for clinical and commercial supplies;

 

   

the FDA, EMA or other comparable regulatory authorities may fail to approve companion diagnostic tests required for Viracta’s product candidates; and

 

   

the approval policies or regulations of the FDA, EMA or other comparable foreign regulatory authorities may significantly change in a manner rendering Viracta’s clinical data insufficient for approval.

This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in Viracta failing to obtain regulatory approval to market any of its product candidates, which would significantly harm its business, results of operations and prospects.

 

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The clinical trials of Viracta’s product candidates may not demonstrate safety and efficacy to the satisfaction of the FDA, EMA or other comparable foreign regulatory authorities or otherwise produce positive results.

Before obtaining marketing approval from the FDA, EMA or other comparable foreign regulatory authorities for the sale of its product candidates, Viracta must complete preclinical development and extensive clinical trials to demonstrate with substantial evidence the safety and efficacy of such product candidates. Clinical testing is expensive, difficult to design and implement, can take many years to complete and its ultimate outcome is uncertain. A failure of one or more clinical trials can occur at any stage of the process. The outcome of preclinical studies and early-stage clinical trials may not be predictive of the success of later clinical trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their drugs.

Viracta may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent its ability to receive marketing approval or its ability to commercialize its product candidates, including:

 

   

receipt of feedback from regulatory authorities that require it to modify the design of its clinical trials;

 

   

negative or inconclusive clinical trial results that may require it to conduct additional clinical trials or abandon certain drug development programs;

 

   

the number of patients required for clinical trials being larger than anticipated, enrollment in these clinical trials being slower than anticipated or participants dropping out of these clinical trials at a higher rate than anticipated;

 

   

third-party contractors failing to comply with regulatory requirements or meet their contractual obligations to it in a timely manner, or at all;

 

   

the suspension or termination of its clinical trials for various reasons, including non-compliance with regulatory requirements or a finding that its product candidates have undesirable side effects or other unexpected characteristics or risks;

 

   

the cost of clinical trials of Viracta’s product candidates being greater than anticipated;

 

   

the supply or quality of its product candidates or other materials necessary to conduct clinical trials of Viracta’s product candidates being insufficient or inadequate;

 

   

Viracta may experience delays due to the recent COVID-19 pandemic, including with respect to submission of NDAs, filing of investigational new drug (IND) applications and starting any clinical trials for other indications or programs; and

 

   

regulators revising the requirements for approving its product candidates.

If Viracta is required to conduct additional clinical trials or other testing of its product candidates beyond those that it currently contemplates, if it is unable to successfully complete clinical trials of its product candidates or other testing in a timely manner, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, it may incur unplanned costs, be delayed in seeking and obtaining marketing approval, if it receive such approval at all, receive more limited or restrictive marketing approval, be subject to additional post-marketing testing requirements or have the drug removed from the market after obtaining marketing approval.

Viracta’s product candidates may cause significant adverse events, toxicities or other undesirable side effects when used alone or in combination with other approved products or investigational new drugs that may result in a safety profile that could prevent regulatory approval, prevent market acceptance, limit their commercial potential or result in significant negative consequences.

If Viracta’s product candidates are associated with undesirable side effects or have unexpected characteristics in preclinical studies or clinical trials when used alone or in combination with other approved

 

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products or investigational new drugs, it may need to conduct additional studies to further evaluate the product candidates’ safety, interrupt, delay or abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may prevent Viracta from achieving or maintaining market acceptance of the affected product candidate and may harm its business, financial condition and prospects significantly. For example, in Viracta’s ongoing Phase 1b/2 of VRX-101, while most treatment-related adverse events were mild or moderate, most commonly thrombocytopenia, nausea, neutropenia and fatigue, there were instances of Grade 3/4 treatment related adverse events: neutropenia, anemia, and nausea.

Patients in Viracta’s ongoing and planned clinical trials may in the future suffer other significant adverse events or other side effects not observed in its preclinical studies or previous clinical trials. VRX-101 or other product candidates may be used in populations for which safety concerns may be particularly scrutinized by regulatory agencies. In addition, VRX-101 is being studied in combination with other therapies, which may exacerbate adverse events associated with the therapy. Patients treated with VRX-101 or Viracta’s other product candidates may also be undergoing surgical, radiation and chemotherapy treatments, which can cause side effects or adverse events that are unrelated to Viracta’s product candidate but may still impact the success of its clinical trials. The inclusion of critically ill patients in Viracta’s clinical trials may result in deaths or other adverse medical events due to other therapies or medications that such patients may be using or due to the gravity of such patients’ illnesses. For example, it is expected that some of the patients enrolled in its VRX-101 clinical trials will die or experience major clinical events either during the course of Viracta’s clinical trials or after such trials, which has occurred in the past.

If further significant adverse events or other side effects are observed in any of Viracta’s current or future clinical trials, Viracta may have difficulty recruiting patients to the clinical trials, patients may drop out of its trials, or it may be required to abandon the trials or its development efforts of that product candidate altogether. Viracta, the FDA, EMA, other comparable regulatory authorities or an institutional review board may suspend or terminate clinical research at any time for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the product candidate from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance due to its tolerability versus other therapies. Any of these developments could materially harm Viracta’s business, financial condition and prospects. Further, if any of Viracta’s product candidates obtains marketing approval, toxicities associated with such product candidates and not seen during clinical testing may also develop after such approval and lead to a requirement to conduct additional clinical safety trials, additional contraindications, warnings and precautions being added to the drug label, significant restrictions on the use of the product or the withdrawal of the product from the market. Viracta cannot predict whether its product candidates will cause toxicities in humans that would preclude or lead to the revocation of regulatory approval based on preclinical studies or early stage clinical trials.

The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and the results of Viracta’s clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities.

Viracta will be required to demonstrate with substantial evidence through well-controlled clinical trials that its product candidates are safe and effective for use in a diverse population before it can seek marketing approvals for their commercial sale. Success in preclinical studies and early-stage clinical trials does not mean that future clinical trials will be successful. For instance, Viracta does not know whether VRX-101 will perform in current or future clinical trials as it has performed in preclinical studies or prior clinical trials. Product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of

 

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the FDA, EMA and other comparable foreign regulatory authorities despite having progressed through preclinical studies and early-stage clinical trials. Additionally, while Viracta is aware of several other approved and clinical-stage HDAC inhibitors being developed by multiple other companies, to Viracta’s knowledge, there are no HDAC inhibitors approved specifically for the treatment of EBV+ cancer. As such, the development of VRX-101 and Viracta’s stock price may be impacted by inferences, whether correct or not, that are drawn between the success of its product candidate and those of other companies’ HDAC inhibitors. Regulatory authorities may also limit the scope of later-stage trials until Viracta has demonstrated satisfactory safety, which could delay regulatory approval, limit the size of the patient population to which it may market its product candidates, or prevent regulatory approval.

In some instances, there can be significant variability in safety and efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, differences in and adherence to the dose and dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. Patients treated with Viracta’s product candidates may also be undergoing surgical, radiation and chemotherapy treatments and may be using other approved products or investigational new drugs, which can cause side effects or adverse events that are unrelated to its product candidates. As a result, assessments of efficacy can vary widely for a particular patient, and from patient to patient and site to site within a clinical trial. This subjectivity can increase the uncertainty of, and adversely impact, Viracta’s clinical trial outcomes.

Viracta does not know whether any clinical trials it may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain approval to market any of its product candidates.

Interim, topline and preliminary data from Viracta’s clinical trials that it announces or publishes from time to time may change as more patient data become available, and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, Viracta may publicly disclose preliminary, interim or topline data from its clinical trials, such as the interim data from its ongoing Phase 1b/2 clinical trial of VRX-101 in patients with EBV+ lymphomas. These interim updates are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. For example, Viracta may report tumor responses in certain patients that are unconfirmed at the time and which do not ultimately result in confirmed responses to treatment after follow-up evaluations. Viracta also make assumptions, estimations, calculations and conclusions as part of its analyses of data, and it may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that Viracta reports may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data Viracta previously published. As a result, topline data should be viewed with caution until the final data are available. In addition, Viracta may report interim analyses of only certain endpoints rather than all endpoints. Interim data from clinical trials that Viracta may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse changes between interim data and final data could significantly harm Viracta’s business and prospects. Further, additional disclosure of interim data by Viracta or by its competitors in the future could result in volatility in the price of its common stock.

In addition, the information Viracta chooses to publicly disclose regarding a particular study or clinical trial is typically selected from a more extensive amount of available information. You or others may not agree with what Viracta determines is the material or otherwise appropriate information to include in its disclosure, and any information it determines not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or its business. If the preliminary or topline data that Viracta reports differ from late, final or actual results, or if others, including

 

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regulatory authorities, disagree with the conclusions reached, Viracta’s ability to obtain approval for, and commercialize, VRX-101 or any other product candidates may be harmed, which could harm its business, financial condition, results of operations and prospects.

If Viracta experiences delays or difficulties in the enrollment and/or maintenance of patients in clinical trials, its regulatory submissions or receipt of necessary marketing approvals could be delayed or prevented.

Viracta may not be able to initiate or continue clinical trials for its product candidates if it is unable to locate and enroll a sufficient number of eligible patients to participate in these trials to such trial’s conclusion as required by the FDA, EMA or other comparable foreign regulatory authorities. Patient enrollment is a significant factor in the timing of clinical trials. Viracta’s ability to enroll eligible patients may be limited or may result in slower enrollment than it anticipates. For instance, patients for Viracta’s trials are screened using EBV-positivity, which can be determined by the presence of EBV-encoded RNA (“EBER”), as detected by in situ hybridization, and utilizing such biomarker-driven identification and/or certain highly specific criteria related to the cancer sub-types may limit patient populations eligible for Viracta’s clinical trials. If Viracta’s strategies for patient identification prove unsuccessful, it may have difficulty enrolling or maintaining patients appropriate for VRX-101.

Patient enrollment may be affected if Viracta’s competitors have ongoing clinical trials for programs that are under development for the same indications as Viracta’s product candidates, and patients who would otherwise be eligible for Viracta’s clinical trials instead enroll in clinical trials of Viracta’s competitors’ programs. Patient enrollment for Viracta’s current or any future clinical trials may be affected by other factors, including:

 

   

size and nature of the patient population;

 

   

severity of the disease under investigation;

 

   

availability and efficacy of approved drugs for the disease under investigation;

 

   

patient eligibility criteria for the trial in question as defined in the protocol;

 

   

perceived risks and benefits of the product candidate under study;

 

   

clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved or other product candidates being investigated for the indications Viracta is investigating;

 

   

clinicians’ willingness to screen their patients for biomarkers to indicate which patients may be eligible for enrollment in Viracta’s clinical trials;

 

   

patient referral practices of physicians;

 

   

the ability to monitor patients adequately during and after treatment;

 

   

proximity and availability of clinical trial sites for prospective patients; and

 

   

the risk that patients enrolled in clinical trials will drop out of the trials before completion or, because they may be late-stage cancer patients, will not survive the full terms of the clinical trials.

Viracta’s inability to enroll a sufficient number of patients for its clinical trials would result in significant delays or may require it to abandon one or more clinical trials altogether. Enrollment delays in Viracta’s clinical trials may result in increased development costs for its product candidates and jeopardize its ability to obtain marketing approval for the sale of its product candidates. Furthermore, even if Viracta is able to enroll a sufficient number of patients for its clinical trials, it may have difficulty maintaining participation in its clinical trials through the treatment and any follow-up periods.

 

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Viracta is developing VRX-101, which is a combination containing a product developed and commercialized by parties other than Viracta and approved outside of oncology, which exposes Viracta to additional risks.

Viracta is developing VRX-101, which is a combination product candidate containing valganciclovir. Valganciclovir is an anti-viral that is approved by the FDA for the treatment and prevention of CMV retinitis in the setting of, acquired immunodeficiency syndrome (“AIDS”) and post-solid organ transplantation, but valganciclovir is currently not approved for the treatment of cancers. The first generic version of valganciclovir was first approved in 2014. In 2018, Viracta initiated a Phase 1b/2 trial to define the recommended Phase 2 dose of nanatinostat and valganciclovir and to evaluate the efficacy of this combination in patients with relapsed/refractory EBV+ lymphomas. Patients may not be able to tolerate nanatinostat or valganciclovir in combination with each other or may have unexpected consequences. Even if the VRX-101 combination were to receive marketing approval or be commercialized for the treatment of cancers, Viracta would continue to be subject to the risks that the FDA, EMA or other comparable foreign regulatory authorities could revoke approval of valganciclovir, or safety, efficacy, manufacturing or supply issues could arise with valganciclovir. This could result in the need to identify other antiviral drug candidates or VRX-101 being removed from the market or being less successful commercially. If the FDA, EMA or other comparable foreign regulatory authorities do not revoke their approval of valganciclovir, or if safety, efficacy, commercial adoption, manufacturing or supply issues arise with valganciclovir, Viracta may be unable to obtain approval of or successfully market VRX-101.

Additionally, if the third-party providers of valganciclovir are unable to produce sufficient quantities for clinical trials or for commercialization of VRX-101, or if the cost become prohibitive, Viracta’s development and commercialization efforts would be impaired, which would have an adverse effect on its business, financial condition, results of operations and growth prospects. For example, for Viracta’s Phase 1b/2 trial of VRX-101, Viracta entered into a supply agreement with a third party manufacturer who currently markets a generic version of valganciclovir. If this agreement terminates and Viracta is unable to obtain valganciclovir on the current terms, the cost to Viracta to conduct this trial may significantly increase.

Viracta may develop VRX-101 or other product candidates in combination with other therapies, which exposes Viracta to additional risks.

Viracta may develop VRX-101 or other product candidates, in combination with one or more currently approved cancer therapies or therapies in development. Patients may not be able to tolerate VRX-101 or any of Viracta’s other product candidates in combination with other therapies or dosing of VRX-101 in combination with other therapies may have unexpected consequences. Even if any of Viracta’s product candidates were to receive marketing approval or be commercialized for use in combination with other existing therapies, Viracta would continue to be subject to the risks that the FDA, EMA or other comparable foreign regulatory authorities could revoke approval of the therapy used in combination with any of Viracta’s product candidates, or safety, efficacy, manufacturing or supply issues could arise with these existing therapies. In addition, it is possible that existing therapies with which Viracta’s product candidates are approved for use could themselves fall out of favor or be relegated to later lines of treatment. This could result in the need to identify other combination therapies for Viracta’s product candidates or Viracta’s own products being removed from the market or being less successful commercially.

Viracta may also evaluate its product candidates in combination with one or more other cancer therapies that have not yet been approved for marketing by the FDA, EMA or comparable foreign regulatory authorities. Viracta will not be able to market and sell any product candidate in combination with any such unapproved cancer therapies that do not ultimately obtain marketing approval.

If the FDA, EMA or other comparable foreign regulatory authorities do not approve or revoke their approval of these other therapies, or if safety, efficacy, commercial adoption, manufacturing or supply issues arise with the therapies Viracta chooses to evaluate in combination with VRX-101 or any other product candidate, Viracta may be unable to obtain approval of or successfully market any one or all of the product candidates it develops.

 

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Additionally, if the third-party providers of therapies or therapies in development used in combination with Viracta’s product candidates are unable to produce sufficient quantities for clinical trials or for commercialization of Viracta’s product candidates, or if the cost of combination therapies are prohibitive, Viracta’s development and commercialization efforts would be impaired, which would have an adverse effect on Viracta’s business, financial condition, results of operations and growth prospects.

If Viracta is required by the FDA to obtain approval of a companion diagnostic test in connection with approval of VRX-101 or any of its other product candidates, and Viracta does not obtain or faces delays in obtaining FDA approval of a diagnostic device, Viracta will not be able to commercialize such product candidate and its ability to generate revenue will be materially impaired.

According to FDA guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic is not also approved or cleared for that indication.

One common method used by investigators in Viracta’s Phase 1b/2 clinical trial to determine EBV positivity of lymphomas is EBV in situ hybridization for EBV encoded RNA (“EBER-ISH”). This method, among others, will be used by investigators to identify patients for the planned registrational trial in EBV+ lymphomas. If the FDA requires a companion diagnostic for the approval of VRX-101 and a satisfactory companion diagnostic is not approved and commercially available, Viracta may be required to create or obtain one that would be subject to regulatory approval requirements. The process of obtaining or creating such diagnostic is time consuming and costly.

Companion diagnostics are developed in conjunction with clinical programs for the associated therapeutic product candidate and are subject to regulation as medical devices by the FDA and comparable regulatory authorities, and, to date, the FDA has required premarket approval of all companion diagnostics for cancer therapies. The approval of a companion diagnostic as part of the therapeutic product’s labeling limits the use of the therapeutic product to only those patients who express the specific genetic alteration that the companion diagnostic was developed to detect.

If the FDA or a comparable foreign regulatory authority requires approval of a companion diagnostic for any of Viracta’s product candidates, whether before or after it obtains marketing approval, Viracta, and/or future collaborators, may encounter difficulties in developing and obtaining approval for such product candidate. Any delay or failure by Viracta or third-party collaborators to develop or obtain regulatory approval of a companion diagnostic could delay or prevent approval or continued marketing of such product candidate.

Viracta may also experience delays in developing a sustainable, reproducible and scalable manufacturing process for the companion diagnostic or in transferring that process to commercial partners or negotiating insurance reimbursement plans, all of which may prevent Viracta from completing its clinical trials or commercializing its product candidate, if approved, on a timely or profitable basis, if at all.

Viracta has limited resources and is currently focusing its efforts on developing VRX-101 for particular indications and advancing its preclinical programs. As a result, Viracta may fail to capitalize on other indications or product candidates that may ultimately have proven to be more profitable.

Viracta is currently focusing its resources and efforts on developing VRX-101 for particular indications and advancing its preclinical programs. As a result, because Viracta has limited resources, it may forgo or delay pursuit of opportunities for other indications or with other product candidates that may have greater commercial potential. Viracta’s resource allocation decisions may cause it to fail to capitalize on viable commercial drugs or profitable market opportunities. Viracta’s spending on current and future research and development activities for VRX-101 and other preclinical programs may not yield any commercially viable drugs. If Viracta does not

 

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accurately evaluate the commercial potential or target markets for VRX-101 or any of its other programs, it may relinquish valuable rights to that product candidate or program through collaboration, licensing or other strategic arrangements in cases in which it would have been more advantageous for it to retain sole development and commercialization rights to such product candidate or program.

Viracta faces significant competition, and if its competitors develop and market technologies or products more rapidly than it does or that are more effective, safer or less expensive than the products it develops, Viracta’s commercial opportunities will be negatively impacted.

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary and novel products and product candidates. Viracta’s competitors have developed, are developing or may develop products, product candidates and processes competitive with Viracta’s product candidates. Any product candidates that Viracta successfully develops and commercializes will compete with existing therapies and new therapies that may become available in the future. Viracta believes that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which Viracta may attempt to develop product candidates. In addition, Viracta’s products may need to compete with drugs that physicians currently use to treat the indications for which Viracta seeks approval. This may make it difficult for Viracta to replace existing therapies with its products.

In particular, there is intense competition in the field of oncology. Viracta has competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, emerging and start-up companies, universities and other research institutions. Viracta also competes with these organizations to recruit management, scientists and clinical development personnel, which could negatively affect its level of expertise and its ability to execute its business plan. Viracta will also face competition in establishing clinical trial sites, enrolling subjects for clinical trials and in identifying and in-licensing new product candidates.

Viracta is not aware of any FDA- or EMA-approved products for the treatment of EBV+ lymphomas. Patients with EBV+ lymphomas receive standard of care therapies for their particular lymphoma subtype. Several HDAC inhibitors have demonstrated clinical antitumor activity, with four currently approved by the FDA for oncology indications. These are vorinostat for the treatment of cutaneous T cell lymphoma, romidepsin for the treatment of cutaneous T-cell lymphoma, belinostat for the treatment of peripheral T-cell lymphoma, and panobinostat for the treatment of multiple myeloma. In addition, a number of companies and academic institutions are developing drug or therapy candidates for EBV-associated post-transplant lymphoproliferative disease (“PTLD”) and other EBV-associated diseases including: Atara Biotherapeutics, which is conducting a Phase 3 clinical trial for tabelecleucel for virus-associated PTLD as well as in earlier stage development for other EBV-associated diseases, AlloVir , which is conducting clinical trials for Viralym-M (“ALVR105”), its allogeneic, multi-virus T-cell product that targets six viruses including EBV, is planning to initiate several Phase 2 and Phase 3 trials for the treatment of various viruses, including EBV, next year, Tessa Therapeutics, which has an allogeneic CD30-Chimeric Antigen Receptor (“CAR”) EBV-specific T cells (“EBVSTs”) for CD30 positive lymphomas in Phase 1, and multiple companies are investigating the use of anti-PD1/PD-L1 antibodies for the treatment of EBV-associated malignancies. Many of these current and potential competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources, and commercial expertise than Viracta. Large pharmaceutical and biotechnology companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing biotechnology products. These companies also have significantly greater research and marketing capabilities than Viracta does and may also have products that have been approved or are in late stages of development, and collaborative arrangements in Viracta’s target markets with leading companies and research institutions. Established pharmaceutical and biotechnology companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that Viracta develops obsolete. Smaller or early-stage companies may also prove to be significant competitors,

 

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particularly through collaborative arrangements with large and established companies, as well as in acquiring technologies complementary to, or necessary for, Viracta’s programs. As a result of all of these factors, Viracta’s competitors may succeed in obtaining approval from the FDA, EMA or other comparable foreign regulatory authorities or in discovering, developing and commercializing products in the field before Viracta.

Viracta’s commercial opportunity could be reduced or eliminated if its competitors develop and commercialize products that are safer, more effective, have fewer side effects, are more convenient, have a broader label, are marketed more effectively, are more widely reimbursed or are less expensive than any products that Viracta may develop. Viracta’s competitors also may obtain marketing approval from the FDA, EMA or other comparable foreign regulatory authorities for their products more rapidly than Viracta may obtain approval for its products, which could result in its competitors establishing a strong market position before it are able to enter the market. Even if the product candidates Viracta develops achieve marketing approval, they may be priced at a significant premium over competitive products if any have been approved by then, resulting in reduced competitiveness. Technological advances or products developed by Viracta’s competitors may render its technologies or product candidates obsolete, less competitive or not economical. If Viracta is unable to compete effectively, its opportunity to generate revenue from the sale of its products it may develop, if approved, could be adversely affected.

The manufacture of drugs is complex, and Viracta’s third-party manufacturers may encounter difficulties in production. If any of Viracta’s third-party manufacturers encounter such difficulties, Viracta’s ability to provide adequate supply of its product candidates for clinical trials or its products for patients, if approved, could be delayed or prevented.

Manufacturing drugs, especially in large quantities, is complex and may require the use of innovative technologies. Each lot of an approved drug product must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing drugs requires facilities specifically designed for and validated for this purpose, as well as sophisticated quality assurance and quality control procedures. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, Viracta may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes. If microbial, viral or other contaminations are discovered at the facilities of Viracta’s manufacturer, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm Viracta’s business. The use of biologically derived ingredients can also lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination. If Viracta’s third-party manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization as a result of these challenges, or otherwise, Viracta’s development and commercialization efforts would be impaired, which would have an adverse effect on its business, financial condition, results of operations and growth prospects.

Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates progress through preclinical and clinical trials to marketing approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize yield and manufacturing batch size, minimize costs and achieve consistent quality and results. For example, Viracta may introduce alternative formulations of VRX-101 into the registrational trial. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause Viracta’s product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of Viracta’s product candidates and jeopardize Viracta’s ability to commercialize its product candidates, if approved, and generate revenue.

 

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Viracta’s product candidates may not achieve adequate market acceptance among physicians, patients, healthcare payors and others in the medical community necessary for commercial success.

Even if Viracta’s product candidates receive regulatory approval, the approved product candidates may not gain adequate market acceptance among physicians, patients, third-party payors and others in the medical community. The degree of market acceptance of any of Viracta’s approved product candidates will depend on a number of factors, including:

 

   

the efficacy and safety profile as demonstrated in clinical trials compared to alternative treatments;

 

   

the timing of market introduction of the product candidate as well as competitive products;

 

   

the clinical indications for which a product candidate is approved;

 

   

restrictions on the use of product candidates in the labeling approved by regulatory authorities, such as boxed warnings or contraindications in labeling, or a risk evaluation and mitigation strategy, if any, which may not be required of alternative treatments and competitor products;

 

   

the potential and perceived advantages of Viracta’s product candidates over alternative treatments;

 

   

the cost of treatment in relation to alternative treatments;

 

   

the availability of coverage and adequate reimbursement by third-party payors, including government authorities;

 

   

the availability of an approved product candidate for use as a combination therapy;

 

   

relative convenience and ease of administration;

 

   

the willingness of the target patient population to try new therapies and undergo required diagnostic screening to determine treatment eligibility and of physicians to prescribe these therapies and diagnostic tests;

 

   

the effectiveness of sales and marketing efforts;

 

   

unfavorable publicity relating to Viracta’s product candidates; and

 

   

the approval of other new therapies for the same indications.

If any of Viracta’s product candidates is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors and patients, Viracta may not generate or derive sufficient revenue from that product candidate and its financial results could be negatively impacted.

The market opportunities for VRX-101 and other product candidates Viracta develops, if approved, may be limited to certain smaller patient subsets.

Cancer therapies are sometimes characterized as first-line, second-line or third-line, and the FDA often approves new therapies initially only for a particular line of use. When cancer is detected early enough, first-line therapy, such as chemotherapy, hormone therapy, surgery, radiation therapy or a combination of these, is sometimes adequate to cure the cancer or prolong life without a cure. Second- and third-line therapies are administered to patients when prior therapy is not effective. Viracta’s ongoing and planned clinical trials for VRX-101 are with patients who have received one or more prior treatments. There is no guarantee that product candidates that Viracta develops, even if approved, would be approved for first-line or second-line therapy, and, prior to any such approvals, Viracta may have to conduct additional clinical trials that may be costly, time-consuming and subject to risk.

The number of patients who have the cancers Viracta is targeting may turn out to be lower than expected. Additionally, the potentially addressable patient population for VRX-101 and other product candidates may be limited or may not be amenable to treatment with Viracta’s product candidates. Regulatory approval may limit the market of a product candidate to target patient populations when such biomarker-driven identification and/or highly specific criteria related to the stage of disease progression are utilized.

 

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Even if Viracta obtains significant market share for any approved product, if the potential target populations are small, Viracta may never achieve profitability without obtaining marketing approval for additional indications.

Viracta may not be successful in growing its product pipeline through acquisitions and in-licenses.

Viracta believes that accessing external innovation and expertise is important to its success; and while Viracta plans to leverage its leadership team’s prior business development experience as it evaluates potential in-licensing and acquisition opportunities to further expand its portfolio, it may not be able to identify suitable licensing or acquisition opportunities, and even if it does, it may not be able to successfully secure such licensing and acquisition opportunities. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that Viracta may consider attractive or necessary. These companies may have a competitive advantage over Viracta due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive Viracta to be a competitor may be unwilling to assign or license rights to Viracta. Viracta may also be unable to license or acquire third-party intellectual property rights on terms that would allow it to make an appropriate return on its investment, or at all. If Viracta is unable to successfully license or acquire additional product candidates to expand its portfolio, pipeline, competitive position, business, financial condition, results of operations, and prospects may be materially harmed.

Any product candidates Viracta develops may become subject to unfavorable third-party coverage and reimbursement practices, as well as pricing regulations.

The availability and extent of coverage and adequate reimbursement by third-party payors, including government health administration authorities, private health coverage insurers, managed care organizations and other third-party payors is essential for most patients to be able to afford expensive treatments. Sales of any of Viracta’s product candidates that receive marketing approval will depend substantially, both in the United States and internationally, on the extent to which the costs of such product candidates will be covered and reimbursed by third-party payors. If reimbursement is not available, or is available only to limited levels, Viracta may not be able to successfully commercialize its product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow Viracta to establish or maintain pricing sufficient to realize an adequate return on its investment. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which Viracta obtains marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, Viracta may not successfully commercialize any product candidate for which it obtains marketing approval.

There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, for example, principal decisions about reimbursement for new products are typically made by the Centers for Medicare & Medicaid Services (“CMS”), an agency within the U.S. Department of Health and Human Services (“HHS”). CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare, and private third-party payors often follow CMS’s decisions regarding coverage and reimbursement to a substantial degree. However, one third-party payor’s determination to provide coverage for a product candidate does not assure that other payors will also provide coverage for the product candidate. As a result, the coverage determination process is often time-consuming and costly. This process will require Viracta to provide scientific and clinical support for the use of its products to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

In addition, companion diagnostic tests require coverage and reimbursement separate and apart from the coverage and reimbursement for their companion pharmaceutical or biological products. Similar challenges to obtaining coverage and reimbursement, applicable to pharmaceutical or biological products, will apply to

 

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companion diagnostics. Additionally, if any companion diagnostic provider is unable to obtain reimbursement or is inadequately reimbursed, that may limit the availability of such companion diagnostic, which would negatively impact prescriptions for Viracta’s product candidates, if approved.

Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Further, such payors are increasingly challenging the price, examining the medical necessity and reviewing the cost effectiveness of medical product candidates. There may be especially significant delays in obtaining coverage and reimbursement for newly approved drugs. Third-party payors may limit coverage to specific product candidates on an approved list, known as a formulary, which might not include all FDA-approved drugs for a particular indication. Viracta may need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost effectiveness of its products. Nonetheless, Viracta’s product candidates may not be considered medically necessary or cost effective. Viracta cannot be sure that coverage and reimbursement will be available for any product that it commercializes and, if reimbursement is available, what the level of reimbursement will be.

Outside the United States, the commercialization of therapeutics is generally subject to extensive governmental price controls and other market regulations, and Viracta believes the increasing emphasis on cost containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of therapeutics such as Viracta’s product candidates. In many countries, particularly the countries of the European Union, medical product prices are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time after a product receives marketing approval. To obtain reimbursement or pricing approval in some countries, Viracta may be required to conduct a clinical trial that compares the cost-effectiveness of its product candidate to other available therapies. In general, product prices under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that Viracta is able to charge for its product candidates. Accordingly, in markets outside the United States, the reimbursement for its products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

If Viracta is unable to establish or sustain coverage and adequate reimbursement for any product candidates from third-party payors, the adoption of those products and sales revenue will be adversely affected, which, in turn, could adversely affect the ability to market or sell those product candidates, if approved. Coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which Viracta receives regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Viracta’s business entails a significant risk of product liability and if it is unable to obtain sufficient insurance coverage such inability could have an adverse effect on its business and financial condition.

Viracta’s business exposes it to significant product liability risks inherent in the development, testing, manufacturing and marketing of therapeutic treatments. Product liability claims could delay or prevent completion of Viracta’s development programs. If Viracta succeeds in marketing products, such claims could result in an FDA, EMA or other regulatory authority investigation of the safety and effectiveness of its products, its manufacturing processes and facilities or its marketing programs. FDA, EMA or other regulatory authority investigations could potentially lead to a recall of Viracta’s products or more serious enforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for Viracta’s products, injury to its reputation, costs to defend the related litigation, a diversion of management’s time and its resources and substantial monetary awards to trial participants or patients. Viracta currently has product liability insurance that it believes is appropriate for its stage of development and may need to obtain higher levels prior to marketing any of its product candidates, if approved. Any insurance Viracta has or may obtain may not provide

 

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sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, Viracta may be unable to obtain sufficient insurance at a reasonable cost to protect it against losses caused by product liability claims that could have an adverse effect on its business and financial condition.

Risks Related to Regulatory Approval and Other Legal Compliance Matters

Viracta may be unable to obtain U.S. or foreign regulatory approval and, as a result, may be unable to commercialize its product candidates.

Viracta’s product candidates are and will continue to be subject to extensive governmental regulations relating to, among other things, research, testing, development, manufacturing, safety, efficacy, approval, recordkeeping, reporting, labeling, storage, packaging, advertising and promotion, pricing, marketing and distribution of drugs. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process must be successfully completed in the United States and in many foreign jurisdictions before a new drug can be approved for marketing. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. Viracta cannot provide any assurance that any product candidate it may develop will progress through required clinical testing and obtain the regulatory approvals necessary for it to begin selling them.

Viracta has not conducted, managed or completed large-scale or pivotal clinical trials nor managed the regulatory approval process with the FDA or any other regulatory authority. The time required to obtain approvals from the FDA and other regulatory authorities is unpredictable and requires successful completion of extensive clinical trials which typically takes many years, depending upon the type, complexity and novelty of the product candidate. The standards that the FDA and its foreign counterparts use when evaluating clinical trial data can, and often does, change during drug development, which makes it difficult to predict with any certainty how they will be applied. Viracta may also encounter unexpected delays or increased costs due to new government regulations, including future legislation or administrative action, or changes in FDA policy during the period of drug development, clinical trials and FDA regulatory review.

Any delay or failure in seeking or obtaining required approvals would have a material and adverse effect on Viracta’s ability to generate revenue from any particular product candidates it is developing and for which it is seeking approval. Furthermore, any regulatory approval to market a drug may be subject to significant limitations on the approved uses or indications for which Viracta may market, promote and advertise the drug or the labeling or other restrictions. In addition, the FDA has the authority to require a Risk Evaluation and Mitigation Strategy (REMS) plan as part of approving an NDA, or after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug. These requirements or restrictions might include limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. These limitations and restrictions may significantly limit the size of the market for the drug and affect reimbursement by third-party payors.

Viracta is also subject to numerous foreign regulatory requirements governing, among other things, the conduct of clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement. The foreign regulatory approval process varies among countries, and generally includes all of the risks associated with FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval.

The FDA, EMA and other comparable foreign regulatory authorities may not accept data from trials conducted in locations outside of their jurisdiction.

Viracta’s ongoing clinical trial is being undertaken in the United States and Brazil. Viracta may choose to conduct additional clinical trials internationally as well. For example, Viracta plans to conduct its registrational

 

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trial of VRX-101 in the United States, Europe and other countries. The acceptance of study data by the FDA, EMA or other comparable foreign regulatory authority from clinical trials conducted outside of their respective jurisdictions may be subject to certain conditions. In cases where data from United States clinical trials are intended to serve as the basis for marketing approval in the foreign countries outside the United States, the standards for clinical trials and approval may be different. There can be no assurance that any United States or foreign regulatory authority would accept data from trials conducted outside of its applicable jurisdiction. If the FDA, EMA or any applicable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of Viracta’s business plan, and which may result in its product candidates not receiving approval or clearance for commercialization in the applicable jurisdiction.

Obtaining and maintaining regulatory approval of Viracta’s product candidates in one jurisdiction does not mean that Viracta will be successful in obtaining regulatory approval of its product candidates in other jurisdictions.

Obtaining and maintaining regulatory approval of Viracta’s product candidates in one jurisdiction does not guarantee that Viracta will be able to obtain or maintain regulatory approval in any other jurisdiction. For example, even if the FDA or EMA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion and reimbursement of the product candidate in those countries. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that Viracta intends to charge for its products is also subject to approval.

Obtaining foreign regulatory approvals and establishing and maintaining compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for Viracta and could delay or prevent the introduction of its products in certain countries. If Viracta or any future collaborator fail to comply with the regulatory requirements in international markets or fail to receive applicable marketing approvals, Viracta’s target market will be reduced and its ability to realize the full market potential of its potential product candidates will be harmed.

Following the United Kingdom’s departure from the EU on January 31, 2020, commonly referred to as “Brexit”, there is a “transition period” ending December 31, 2020 during which the United Kingdom will essentially be treated as a Member State of the EU and the regulatory regime will remain the same across the United Kingdom and the EU. The Withdrawal Agreement allows for this “transition period” to be extended by one or two years, but the U.K. government is currently legislating to require the transition period to end on December 31, 2020 without the possibility to extend further. In that scenario, the trading relationship between the United Kingdom and the EU will be governed by whatever agreement the two parties can reach in the course of 2020. On that short timetable the United Kingdom and EU are likely to focus on ensuring tariff-free trade but it is unclear whether there would be any formal regulatory alignment between United Kingdom and EU rules after January 1, 2021. In the unlikely event that the United Kingdom leaves the EU without an agreement, so called “hard Brexit,” the United Kingdom will be completely separated from a regulatory perspective from the EU immediately upon the exit date.

Since the regulatory framework for pharmaceutical products in the United Kingdom relating to quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from EU directives and regulations, Brexit will materially impact the future regulatory regime which applies to products and the approval of product candidates in the

 

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United Kingdom. In the first instance, a separate United Kingdom authorization from any centralized authorization for the EU would need to be applied for in advance of a hard Brexit or before the end of any agreed transition period. In the immediately foreseeable future, the process is likely to remain very similar to that applicable in the EU, albeit that the processes for applications will be separate. Longer term, the United Kingdom is likely to develop its own legislation that diverges from that in the EU.

Even if Viracta’s product candidates receive regulatory approval, they will be subject to significant post-marketing regulatory requirements and oversight.

Any regulatory approvals that Viracta may receive for its product candidates will require the submission of reports to regulatory authorities and on-going surveillance to monitor the safety and efficacy of the product candidate, may contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, and may include burdensome post-approval study or risk management requirements and regulatory inspection. For example, the FDA may require a REMS in order to approve Viracta’s product candidates, which could entail requirements for a medication guide, physician training and communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or foreign regulatory authorities approve Viracta’s product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for its product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as on-going compliance with current good manufacturing practices (“cGMPs”) and good clinical practices (“GCPs”) for any clinical trials that Viracta conducts post-approval. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with cGMP regulations and standards. If Viracta or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facilities where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or Viracta, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. In addition, failure to comply with FDA, EMA and other comparable foreign regulatory requirements may subject Viracta to administrative or judicially imposed sanctions, including:

 

   

delays in or the rejection of product approvals;

 

   

restrictions on Viracta’s ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials;

 

   

restrictions on the products, manufacturers or manufacturing process;

 

   

warning letters or untitled letters;

 

   

civil and criminal penalties;

 

   

injunctions;

 

   

suspension or withdrawal of regulatory approvals;

 

   

product seizures, detentions or import bans;

 

   

voluntary or mandatory product recalls and publicity requirements;

 

   

total or partial suspension of production; and

 

   

imposition of restrictions on operations, including costly new manufacturing requirements.

Moreover, the FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal and administrative penalties.

 

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The occurrence of any event or penalty described above may inhibit Viracta’s ability to commercialize its product candidates, if approved, and generate revenue.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

If any of Viracta’s product candidates are approved and Viracta is found to have improperly promoted off-label uses of those products, it may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as Viracta’s product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. For example, if Viracta receives marketing approval for VRX-101 as a treatment for EBV+ lymphomas, physicians may nevertheless use its product for their patients in a manner that is inconsistent with the approved label. If Viracta is found to have promoted such off-label uses, it may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If Viracta cannot successfully manage the promotion of its product candidates, if approved, Viracta could become subject to significant liability, which would materially adversely affect its business and financial condition.

A Fast Track or Breakthrough Therapy designation for VRX-101 may not lead to a faster development or review process, or Viracta may be unable to maintain or effectively utilize such a designation. Viracta may also seek additional Fast Track designations from the FDA for nanatinostat any of its other product candidates. Even if one or more of Viracta’s product candidates receive Fast Track designation, Viracta may be unable to obtain or maintain the benefits associated with the Fast Track designation.

In November 2019, Viracta announced that the FDA granted Fast Track designation for VRX-101 for the treatment of relapsed/refractory EBV+ lymphoid malignancies. This Fast Track designation does not guarantee that Viracta will qualify for or be able to take advantage of the expedited review procedures or that it will ultimately obtain regulatory approval of VRX-101. Even though Viracta received this Fast Track designation, it may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw the Fast Track designation if it believes that the Fast Track designation is no longer supported by data from Viracta’s clinical development program. Viracta may also seek Fast Track designation for additional cancer indications, and it may not be successful in securing such additional designation or in expediting development if such designations were received.

Fast Track designation is designed to facilitate the development and expedite the review of therapies for serious conditions and fill an unmet medical need. Programs with Fast Track designation may benefit from early and frequent communications with the FDA, potential priority review and the ability to submit a rolling application for regulatory review. Fast Track designation applies to both the product candidate and the specific indication for which it is being studied. If any of Viracta’s product candidates receive Fast Track designation but do not continue to meet the criteria for Fast Track designation, or if Viracta’s clinical trials are delayed, suspended or terminated, or put on clinical hold due to unexpected adverse events or issues with clinical supply, Viracta will not receive the benefits associated with the Fast Track program. Furthermore, Fast Track designation does not change the standards for approval. Fast Track designation alone does not guarantee qualification for the FDA’s priority review procedures.

Viracta may also seek a Breakthrough Therapy designation for VRX-101 for various cancer indications. The Breakthrough Therapy designation is for a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant

 

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endpoints, such as substantial treatment effects observed early in clinical development. The sponsor of a Breakthrough Therapy may request the FDA to designate the drug as a Breakthrough Therapy at the time of, or any time after, the submission of an IND for the drug. If the FDA designates a drug as a Breakthrough Therapy, it must take actions appropriate to expedite the development and review of the application, which may include holding meetings with the sponsor and the review team throughout the development of the drug; providing timely advice to, and interactive communication with, the sponsor regarding the development of the drug to ensure that the development program to gather the nonclinical and clinical data necessary for approval is as efficient as practicable; involving senior managers and experienced review staff, as appropriate, in a collaborative, cross-disciplinary review; assigning a cross-disciplinary project lead for the FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor; and taking steps to ensure that the design of the clinical trials is as efficient as practicable, when scientifically appropriate, such as by minimizing the number of patients exposed to a potentially less efficacious treatment.

The FDA has broad discretion is determining whether to grant a Fast Track or Breakthrough Therapy designation for a drug. Obtaining a Fast Track or Breakthrough Therapy designation does not change the standards for product approval, but may expedite the development or approval process. There is no assurance that the FDA will grant either such designation. Even if the FDA does grant either such designation for VRX-101, it may not actually result in faster clinical development or regulatory review or approval. Furthermore, such a designation does not increase the likelihood that VRX-101 will receive marketing approval in the United States.

Viracta may not be able to obtain or maintain orphan drug designation or obtain or maintain orphan drug exclusivity for its product candidates and, even if it does, that exclusivity may not prevent the FDA, EMA or other comparable foreign regulatory authorities, from approving competing products.

Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. Viracta’s target indications may include diseases with large patient populations or may include orphan indications. However, there can be no assurances that Viracta will be able to obtain orphan designations for its product candidates.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity. Orphan drug exclusivity in the United States provides that the FDA may not approve any other applications, including a full NDA, to market the same drug for the same indication for seven years, except in limited circumstances. The applicable exclusivity period is ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.

Even if Viracta obtains orphan drug designation for a product candidate, Viracta may not be able to obtain or maintain orphan drug exclusivity for that product candidate. Viracta may not be the first to obtain marketing approval of any product candidate for which it has obtained orphan drug designation for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if Viracta seeks approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if Viracta is unable to ensure that it will be able to manufacture sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if Viracta obtains orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because

 

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different drugs with different active moieties may be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care or the manufacturer of the product with orphan exclusivity is unable to maintain sufficient product quantity. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the product candidate any advantage in the regulatory review or approval process or entitles the product candidate to priority review.

Viracta received orphan drug designation from the FDA for VRX-101 for the treatment of post-transplant lymphoproliferative disorder, plasmablastic lymphoma, and T-cell lymphomas. Viracta may be unable to obtain regulatory approval for VRX-101 for these orphan populations or any other orphan population, or Viracta may be unable to successfully commercialize VRX-101 for such orphan populations due to risks that include:

 

   

the orphan patient populations may change in size;

 

   

there may be changes in the treatment options for patients that may provide alternative treatments to VRX-101;

 

   

the development costs may be greater than projected revenue of drug sales for the orphan indications;

 

   

the regulatory agencies may disagree with the design or implementation of Viracta’s clinical trials;

 

   

there may be difficulties in enrolling patients for clinical trials;

 

   

VRX-101 may not prove to be efficacious in the respective orphan patient populations;

 

   

clinical trial results may not meet the level of statistical significance required by the regulatory agencies; and

 

   

VRX-101 may not have a favorable risk/benefit assessment in the respective orphan indication.

If Viracta is unable to obtain regulatory approval for VRX-101 for any orphan population or are unable to successfully commercialize VRX-101for such orphan population, it could harm Viracta’s business prospects, financial condition and results of operations.

Where appropriate, Viracta plans to secure approval from the FDA or comparable foreign regulatory authorities through the use of accelerated registration pathways. If Viracta is unable to obtain such approval, it may be required to conduct additional preclinical studies or clinical trials beyond those that it contemplates, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals. Even if Viracta receives accelerated approval from the FDA, if its confirmatory trials do not verify clinical benefit, or if it does not comply with rigorous post-marketing requirements, the FDA may seek to withdraw accelerated approval.

Where possible, Viracta plans to pursue accelerated development strategies in areas of high unmet need. Viracta may seek an accelerated approval pathway for its one or more of its product candidates. Under the accelerated approval provisions in the Federal Food, Drug, and Cosmetic Act, and the FDA’s implementing regulations, the FDA may grant accelerated approval to a product candidate designed to treat a serious or life-threatening condition that provides meaningful therapeutic benefit over available therapies upon a determination that the product candidate has an effect on a surrogate endpoint or intermediate clinical endpoint that is reasonably likely to predict clinical benefit. The FDA considers a clinical benefit to be a positive therapeutic effect that is clinically meaningful in the context of a given disease, such as irreversible morbidity or mortality. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. An intermediate clinical endpoint is a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. The accelerated approval pathway may be used in cases in which

 

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the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. If such post-approval studies fail to confirm the drug’s clinical benefit, the FDA may withdraw its approval of the drug.

Prior to seeking such accelerated approval, Viracta will seek feedback from the FDA and will otherwise evaluate its ability to seek and receive such accelerated approval. There can be no assurance that after Viracta’s evaluation of the feedback and other factors Viracta will decide to pursue or submit an NDA for accelerated approval or any other form of expedited development, review or approval. Similarly, there can be no assurance that after subsequent FDA feedback Viracta will continue to pursue or apply for accelerated approval or any other form of expedited development, review or approval, even if Viracta initially decide to do so. Furthermore, if Viracta decides to submit an application for accelerated approval or under another expedited regulatory designation (e.g., breakthrough therapy designation), there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. The FDA or other comparable foreign regulatory authorities could also require Viracta to conduct further studies prior to considering its application or granting approval of any type. A failure to obtain accelerated approval or any other form of expedited development, review or approval for Viracta’s product candidate would result in a longer time period to commercialization of such product candidate, could increase the cost of development of such product candidate and could harm Viracta’s competitive position in the marketplace.

Viracta may face difficulties from changes to current regulations and future legislation.

Existing regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of Viracta’s product candidates. Viracta cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If Viracta is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if it is not able to maintain regulatory compliance, it may lose any marketing approval that it may have obtained, and it may not achieve or sustain profitability.

For example, in March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA), was passed, which substantially changes the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. It is unclear how judicial decisions, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and Viracta’s business.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through 2029 unless additional congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for Viracta’s product candidates, if approved, and accordingly, Viracta’s financial operations.

Moreover, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to

 

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product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, at the federal level, the Trump administration’s budget proposals for fiscal years 2019 and 2020 contain further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. In addition, on September 13, 2020, President Trump issued an executive order directing the Secretary of Health and Human Services to pursue implementation of two new payment models under which Medicare would test whether paying no more than the “most-favored-nation” price for certain included drugs and biological products covered under Part B and Part D, respectively, would mitigate poor clinical outcomes and increased Medicare expenditures associated with high drug costs. If implemented, the “most-favored-nation” price would generally reflect the lowest price, after certain adjustments, for a pharmaceutical product sold in an economically-comparable member country of the Organization for Economic Co-operation and Development. Congress has also continued to conduct inquiries into the prescription drug industry’s pricing practices. While several proposed reform measures will require Congress to pass legislation to become effective, Congress and the Trump Administration have each indicated that it will continue to seek new legislative and/or regulatory measures to address prescription drug costs. At the state level, legislatures are increasingly passing legislation and states are implementing regulations designed to control spending on, and patient out-of-pocket costs for, drug products. Implementation of cost containment measures or other healthcare reforms that affect the pricing and/or availability of drug products may impact Viracta’s ability to generate revenue, attain or maintain profitability, or commercialize products for which it may receive regulatory approval in the future. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Further, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 (Right to Try Act), was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new product candidates that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer to make its products available to eligible patients as a result of the Right to Try Act.

Viracta expects that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that it receives for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent Viracta from being able to generate revenue, attain profitability or commercialize Viracta’s product candidates.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for biotechnology products. Viracta cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of its product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing

 

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approval, as well as subject Viracta to more stringent product labeling and post-marketing testing and other requirements.

Additionally, the collection and use of health data in the European Union is governed by the General Data Protection Regulation (GDPR), which extends the geographical scope of European Union data protection law to non-European Union entities under certain conditions and imposes substantial obligations upon companies and new rights for individuals. Failure to comply with the GDPR and the applicable national data protection laws of the EU Member States may result in fines up to €20.0 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. The GDPR may increase Viracta’s responsibility and liability in relation to personal data that Viracta’s may process, and Viracta may be required to put in place additional mechanisms in an effort to comply with the GDPR. This may be onerous and if Viracta’s efforts to comply with GDPR or other applicable European Union laws and regulations are not successful, it could adversely affect Viracta’s business in the European Union.

Finally, state and foreign laws may apply generally to the privacy and security of information Viracta maintains, and may differ from each other in significant ways, thus complicating compliance efforts. For example, the California Consumer Privacy Act of 2018 (CCPA), which took effect on January 1, 2020, gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. In addition, the CCPA (a) allows enforcement by the California Attorney General, with fines set at $2,500 per violation (i.e., per person) or $7,500 per intentional violation and (b) authorizes private lawsuits to recover statutory damages for certain data breaches. While it exempts some data regulated by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and certain clinical trials data, the CCPA, to the extent applicable to Viracta’s business and operations, may increase Viracta’s compliance costs and potential liability with respect to other personal information Viracta collects about California residents. Some observers note that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase Viracta’s potential liability and adversely affect Viracta’s business.

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of Viracta’s business may rely, which could negatively impact Viracta’s business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the Securities and Exchange Commission (SEC) and other government agencies on which Viracta’s operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect Viracta’s business. For example, in recent years, including in 2018 and 2019, the U.S. government shut down several times and certain regulatory agencies, such as the FDA and the SEC, had to furlough critical employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process Viracta’s regulatory submissions, which could have a material adverse effect on Viracta’s business. Further, in Viracta’s operations as a public company, future government shutdowns could impact its ability to access the public markets and obtain necessary capital in order to properly capitalize and continue its operations.

 

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Viracta’s relationships with healthcare professionals, clinical investigators, CROs and third party payors in connection with its current and future business activities may be subject to federal and state healthcare fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws, which could expose Viracta to significant losses, including, among other things, criminal sanctions, civil penalties, contractual damages, exclusion from governmental healthcare programs, reputational harm, administrative burdens and diminished profits and future earnings.

Healthcare providers and third-party payors play a primary role in the recommendation and prescription of any product candidates for which Viracta obtain’s marketing approval. Viracta’s current and future arrangements with healthcare professionals, clinical investigators, CROs, third-party payors and customers may expose it to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Viracta markets, sells and distributes its products for which it obtains marketing approval. Restrictions under applicable federal and state healthcare laws and regulations may include the following:

 

   

the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;

 

   

the federal false claims laws, including the civil False Claims Act, which can be enforced by private citizens through civil whistleblower or qui tam actions, and civil monetary penalties laws, prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

   

the federal HIPAA, prohibits, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH) and their implementing regulations, also imposes obligations, including mandatory contractual terms, on covered entities, which are health plans, healthcare clearinghouses, and health care providers, as those terms are defined by HIPAA, and their respective business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

   

the federal Physician Payments Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to annually report to CMS information regarding payments and other transfers of value to physicians and teaching hospitals as well as information regarding ownership and investment interests held by physicians and their immediate family members. The information reported is publicly available on a searchable website, with disclosure required annually; and

 

   

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

Efforts to ensure that Viracta’s current and future business arrangements with third parties will comply with applicable healthcare and data privacy laws and regulations will involve on-going substantial costs. It is possible that governmental authorities will conclude that Viracta’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Viracta’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in

 

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government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of Viracta’s operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if Viracta is successful in defending against any such actions that may be brought against it, its business may be impaired. Further, if any of the physicians or other healthcare providers or entities with whom Viracta expects to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Viracta’s employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs, suppliers and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

Viracta is exposed to the risk that its employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs, suppliers and vendors may engage in misconduct or other improper activities. Misconduct by these parties could include failures to comply with FDA regulations, provide accurate information to the FDA, comply with federal and state health care fraud and abuse laws and regulations, accurately report financial information or data or disclose unauthorized activities to Viracta. In particular, research, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Viracta’s reputation. Sunesis has adopted a code of conduct, which will continue to apply to the combined company as of the closing of the merger, but it is not always possible to identify and deter misconduct by these parties, and the precautions it takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against Viracta, and Viracta is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business, including the imposition of significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of Viracta’s operations.

If Viracta fails to comply with other U.S. healthcare laws and compliance requirements, Viracta could become subject to fines or penalties or incur costs that could have a material adverse effect on its business.

In the United States, Viracta’s current and future activities with investigators, healthcare professionals, consultants, third-party payors, patient organizations and customers are subject to regulation by various federal, state and local authorities in addition to the FDA, which may include but are not limited to, CMS, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice (DOJ) and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, Viracta’s business practices, including its clinical research, sales, marketing and scientific/educational grant programs may be required to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the patient data privacy and security provisions of HIPAA transparency requirements, and similar state laws, each as amended, as applicable.

The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any good, item, facility or service reimbursable, in whole or part, under Medicare, Medicaid or other

 

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federal healthcare programs. The term “remuneration” has been interpreted broadly to include anything of value. The federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Viracta’s practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.

Additionally, the intent standard under the federal Anti-Kickback Statute was amended by the ACA, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. Rather, if “one purpose” of the remuneration is to induce referrals, the federal Anti-Kickback Statute is implicated. In addition, the ACA codified case law that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act (discussed below).

The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for a medical or other item or service that was not provided as claimed or is false or fraudulent.

The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Several pharmaceutical and other healthcare companies are being investigated or, in the past, have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thus non-reimbursable, uses.

HIPAA imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the ACA amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Analogous U.S. state laws and regulations, including state anti-kickback and false claims laws, may apply to claims involving healthcare items or services reimbursed by any third-party payor, including private insurers Viracta’ business practices.

HIPAA, as amended by HITECH, and their implementing regulations, imposes requirements on certain types of individuals and entities relating to the privacy, security and transmission of individually identifiable

 

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health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates that are independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.

Additionally, the federal Physician Payments Sunshine Act within the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals, and to report annually certain ownership and investment interests held by physicians and their immediate family members.

In order to distribute products commercially, Viracta must comply with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain.

State and local laws also require pharmaceutical and biotechnology companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, establish marketing compliance programs, restrict payments that may be made to healthcare providers professionals and entities and other potential referral sources, file periodic reports with the state relating to pricing and marketing, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register field representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of Viracta’s activities are potentially subject to federal and state consumer protection and unfair competition laws. Ensuring that Viracta’s internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that governmental authorities will conclude that Viracta’s business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Viracta’s operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that apply to it, it may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, exclusion, debarment or refusal to allow Viracta to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting requirements and/or oversight if Viracta become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of Viracta’s operations, any of which could adversely affect Viracta’s ability to operate its business and its results of operations.

 

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If Viracta fails to comply with environmental, health and safety laws and regulations, it could become subject to fines or penalties or incur costs that could have a material adverse effect on its business.

Viracta is subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Viracta’s operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Viracta’s operations also produce hazardous waste products. Viracta generally contract with third parties for the disposal of these materials and wastes. Viracta cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from Viracta’s use of hazardous materials, it could be held liable for any resulting damages, and any liability could exceed its resources. Viracta also could incur significant costs associated with civil or criminal fines and penalties.

Although Viracta maintain workers’ compensation insurance to cover it for costs and expenses, it may incur due to injuries to its employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. Viracta does not maintain insurance for environmental liability or toxic tort claims that may be asserted against it in connection with its storage or disposal of hazardous and flammable materials, including chemicals and biological materials.

In addition, Viracta may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair its research, development or commercialization efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Viracta’s business activities may be subject to the U.S. Foreign Corrupt Practices Act (FCPA) and similar anti-bribery and anti-corruption laws of other countries in which Viracta operates, as well as U.S. and certain foreign export controls, trade sanctions, and import laws and regulations. Compliance with these legal requirements could limit Viracta’s ability to compete in foreign markets and subject Viracta to liability if Viracta violates them.

Viracta’s business activities may be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which it operates. The FCPA generally prohibits companies and their employees and third-party intermediaries from offering, promising, giving or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Viracta’s business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, hospitals are owned and operated by the government, and doctors and other hospital employees would be considered foreign officials under the FCPA. Recently, the SEC and DOJ have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of Viracta’s employees, agents or contractors, or those of its affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against Viracta, its officers or its employees, disgorgement, and other sanctions and remedial measures, and prohibitions on the conduct of its business. Any such violations could include prohibitions on Viracta’s ability to offer its products in one or more countries and could materially damage its reputation, its brand, its international activities, its ability to attract and retain employees and its business, prospects, operating results and financial condition.

In addition, Viracta’s products may be subject to U.S. and foreign export controls, trade sanctions and import laws and regulations. Governmental regulation of the import or export of Viracta’s products, or Viracta’s failure to obtain any required import or export authorization for its products, when applicable, could harm its international sales and adversely affect its revenue. Compliance with applicable regulatory requirements regarding the export of Viracta’s products may create delays in the introduction of Viracta’s products in

 

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international markets or, in some cases, prevent the export of its products to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. If Viracta fails to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons, or products targeted by such regulations, could result in decreased use of Viracta’s products by, or in Viracta’s decreased ability to export its products to, existing or potential customers with international operations. Any decreased use of Viracta’s products or limitation on its ability to export or sell its products would likely adversely affect its business.

Risks Related to Employee Matters, Managing Viracta’s Growth and Other Risks Related to its Business

Viracta’s success is highly dependent on its ability to attract and retain highly skilled executive officers and employees.

To succeed, Viracta must recruit, retain, manage and motivate qualified clinical, scientific, technical and management personnel, and Viracta faces significant competition for experienced personnel. Viracta is highly dependent on the principal members of its management and scientific and medical staff. If Viracta does not succeed in attracting and retaining qualified personnel, particularly at the management level, it could adversely affect Viracta’s ability to execute its business plan and harm its operating results. In particular, the loss of one or more of Viracta’s executive officers could be detrimental to it if it cannot recruit suitable replacements in a timely manner. Viracta could in the future have difficulty attracting and retaining experienced personnel and may be required to expend significant financial resources in its employee recruitment and retention efforts.

Many of the other biotechnology companies that Viracta competes against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than Viracta. They also may provide higher compensation, more diverse opportunities and better prospects for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what Viracta has to offer. If Viracta is unable to continue to attract and retain high-quality personnel, the rate and success at which it can discover, develop and commercialize its product candidates will be limited and the potential for successfully growing its business will be harmed.

Additionally, Viracta relies on its scientific and clinical advisors and consultants to assist it in formulating its research, development and clinical strategies. These advisors and consultants are not employees of Viracta and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to Viracta. In addition, these advisors and consultants typically will not enter into non-compete agreements with Viracta. If a conflict of interest arises between their work for Viracta and their work for another entity, Viracta may lose their services. Furthermore, Viracta’s advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with Viracta’s. In particular, if Viracta is unable to maintain consulting relationships with these advisors or they provide services to Viracta’s competitors, Viracta’s development and commercialization efforts will be impaired and its business will be significantly harmed.

If Viracta is unable to establish sales or marketing capabilities or enter into agreements with third parties to sell or market its product candidates, Viracta may not be able to successfully sell or market its product candidates that obtain regulatory approval.

Viracta currently does not have and has never had a marketing or sales team. In order to commercialize any product candidates, if approved, Viracta must build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services for each of the territories in which Viracta may have approval to sell or market its product candidates. Viracta may not be successful in accomplishing these required tasks.

 

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Establishing an internal sales or marketing team with technical expertise and supporting distribution capabilities to commercialize Viracta’s product candidates will be expensive and time-consuming, and will require significant attention of Viracta’s executive officers to manage. Any failure or delay in the development of Viracta’s internal sales, marketing and distribution capabilities could adversely impact the commercialization of any of its product candidates that Viracta obtains approval to market, if it does not have arrangements in place with third parties to provide such services on its behalf. Alternatively, if Viracta chooses to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment Viracta’s own sales force and distribution systems or in lieu of Viracta’s own sales force and distribution systems, Viracta will be required to negotiate and enter into arrangements with such third parties relating to the proposed collaboration and such arrangements may prove to be less profitable than commercializing the product on its own. If Viracta is unable to enter into such arrangements when needed, on acceptable terms, or at all, Viracta may not be able to successfully commercialize any of its product candidates that receive regulatory approval, or any such commercialization may experience delays or limitations. If Viracta is unable to successfully commercialize its approved product candidates, either on its own or through collaborations with one or more third parties, Viracta’s future product revenue will suffer, and it may incur significant additional losses.

In order to successfully implement Viracta’s plans and strategies, Viracta will need to grow the size of its organization, and it may experience difficulties in managing this growth.

As of December 22, 2020, Viracta had 12 full-time employees, including 7 employees engaged in research and development. In order to successfully implement Viracta’s development and commercialization plans and strategies, and as it transitions into operating as a public company, Viracta expects to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

 

   

identifying, recruiting, integrating, maintaining and motivating additional employees;

 

   

managing Viracta’s internal development efforts effectively, including the clinical, FDA, EMA and other comparable foreign regulatory agencies’ review process for nanatinostat and any other product candidates, while complying with any contractual obligations to contractors and other third parties Viracta may have; and

 

   

improving Viracta’s operational, financial and management controls, reporting systems and procedures.

Viracta’s future financial performance and its ability to successfully develop and, if approved, commercialize VRX-101 and other product candidates will depend, in part, on its ability to effectively manage any future growth, and Viracta’s management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

Viracta currently relies, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including key aspects of clinical development and manufacturing. Viracta cannot assure you that the services of independent organizations, advisors and consultants will continue to be available to Viracta on a timely basis when needed, or that Viracta can find qualified replacements. In addition, if Viracta is unable to effectively manage its outsourced activities or if the quality or accuracy of the services provided by third party service providers is compromised for any reason, Viracta’s clinical trials may be extended, delayed or terminated, and Viracta may not be able to obtain marketing approval of VRX-101 and any other product candidates or otherwise advance its business. Viracta cannot assure you that it will be able to manage its existing third-party service providers or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If Viracta is not able to effectively expand its organization by hiring new employees and/or engaging additional third-party service providers, it may not be able to successfully implement the tasks necessary to

 

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further develop and commercialize VRX-101 and other product candidates and, accordingly, may not achieve its research, development and commercialization goals.

Viracta’s internal computer systems, or those of any of its CROs, manufacturers, other contractors or consultants or potential future collaborators, may fail or suffer security or data privacy breaches or other unauthorized or improper access to, use of, or destruction of Viracta’s proprietary or confidential data, employee data, or personal data, which could result in additional costs, loss of revenue, significant liabilities, harm to Viracta’s brand and material disruption of Viracta’s operations.

Despite the implementation of security measures in an effort to protect systems that store Viracta’s information, given their size and complexity and the increasing amounts of information maintained on Viracta’s internal information technology systems, and those of its third-party CROs, other contractors (including sites performing its clinical trials) and consultants, these systems are potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by Viracta’s employees, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information), which may compromise Viracta’s system infrastructure or lead to the loss, destruction, alteration or dissemination of, or damage to, Viracta’s data. To the extent that any disruption or security breach were to result in a loss, destruction, unavailability, alteration or dissemination of, or damage to, Viracta’s data or applications, or for it to be believed or reported that any of these occurred, Viracta could incur liability and reputational damage and the development and commercialization of its product candidates could be delayed. Viracta cannot assure you that its data protection efforts and its investment in information technology, or the efforts or investments of CROs, consultants or other third parties, will prevent significant breakdowns or breaches in systems or other cyber incidents that cause loss, destruction, unavailability, alteration or dissemination of, or damage to, Viracta’s data that could have a material adverse effect upon its reputation, business, operations or financial condition. For example, if such an event were to occur and cause interruptions in Viracta’s operations, it could result in a material disruption of Viracta’s programs and the development of its product candidates could be delayed. In addition, the loss of clinical trial data for Viracta’s product candidates could result in delays in its marketing approval efforts and significantly increase Viracta’s costs to recover or reproduce the data. Furthermore, significant disruptions of Viracta’s internal information technology systems or security breaches could result in the loss, misappropriation, and/or unauthorized access, use, or disclosure of, or the prevention of access to, data (including trade secrets or other confidential information, intellectual property, proprietary business information, and personal information), which could result in financial, legal, business, and reputational harm to Viracta. For example, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding Viracta’s clinical trial subjects or employees, could harm Viracta’s reputation directly, compel Viracta to comply with federal and/or state breach notification laws and foreign law equivalents, subject Viracta to mandatory corrective action, and otherwise subject Viracta to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on Viracta’s business.

Notifications and follow-up actions related to a security incident could impact Viracta’s reputation and cause it to incur significant costs, including legal expenses and remediation costs. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in Viracta’s regulatory approval efforts and significantly increase Viracta’s costs to recover or reproduce the lost data. Viracta expects to incur significant costs in an effort to detect and prevent security incidents, and it may face increased costs and requirements to expend substantial resources in the event of an actual or perceived security breach. Viracta also relies on third parties to manufacture its product candidates, and similar events relating to their computer systems could also have a material adverse effect on Viracta’s business. To the extent that any disruption or security incident were to result in a loss, destruction or alteration of, or damage to, Viracta’s data, or inappropriate

 

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disclosure of confidential or proprietary information, Viracta could be exposed to litigation and governmental investigations, the further development and commercialization of Viracta’s product candidates could be delayed, and Viracta could be subject to significant fines or penalties for any noncompliance with certain state, federal and/or international privacy and security laws.

Viracta’s insurance policies may not be adequate to compensate it for the potential losses arising from any such disruption in or, failure or security breach of its systems or third-party systems where information important to its business operations or commercial development is stored. In addition, such insurance may not be available to Viracta in the future on economically reasonable terms, or at all. Further, Viracta’s insurance may not cover all claims made against it and could have high deductibles in any event, and defending a suit, regardless of its merit, could be costly and divert management attention.

Viracta’s current operations are located in California, and Viracta or the third parties upon whom Viracta depends, may be adversely affected by natural disasters or the COVID-19 outbreak, and its business continuity and disaster recovery plans may not adequately protect Viracta from a serious disaster.

Viracta’s current operations are located in California. Any unplanned event, such as flood, fire, explosion, earthquake, extreme weather condition, medical epidemics, such as the COVID-19 outbreak, power shortage, telecommunication failure or other natural or manmade accidents or incidents that result in it being unable to fully utilize its facilities, or the manufacturing facilities of its third-party CMOs, may have a material and adverse effect on its ability to operate its business, particularly on a daily basis, and have significant negative consequences on its financial and operating conditions. Loss of access to these facilities may result in increased costs, delays in the development of its product candidate or interruption of its business operations. Earthquakes or other natural disasters could further disrupt its operations and have a material and adverse effect on its business, financial condition, results of operations and prospects. If a natural disaster, power outage or other event occurred that prevented it from using all or a significant portion of its headquarters, that damaged critical infrastructure, such as its research facilities or the manufacturing facilities of its third-party CMOs, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for Viracta to continue its business for a substantial period of time. The disaster recovery and business continuity plans Viracta has in place may prove inadequate in the event of a serious disaster or similar event. Viracta may incur substantial expenses as a result of the limited nature of its disaster recovery and business continuity plans, which, could have a material adverse effect on its business. As part of its risk management policy, Viracta maintains insurance coverage at levels that Viracta believes are appropriate for its business. However, in the event of an accident or incident at these facilities, Viracta cannot assure you that the amounts of insurance will be sufficient to satisfy any damages and losses. If its facilities, or the manufacturing facilities of its third-party CMOs, are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of its research and development programs may be harmed. Any business interruption may have a material and adverse effect on its business, financial condition, results of operations and prospects.

Viracta’s ability to utilize its NOL carryforwards and certain other tax attributes to offset future taxable income may be limited.

Viracta’s NOL carryforwards may be unavailable to offset future taxable income because of restrictions under U.S. tax law. Viracta’s NOLs generated in tax years beginning before January 1, 2018 are only permitted to be carried forward for 20 taxable years under applicable U.S. federal tax law, and therefore could expire unused. Under the Tax Act, as modified by the CARES Act, Viracta’s federal NOLs generated in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of federal NOLs in tax years beginning after December 31, 2020 is limited to 80% of Viracta’s current year taxable income. Additionally, California recently enacted legislation limiting Viracta’s ability to use its state NOLs for taxable years 2020, 2021, and 2022. It is uncertain if and to what extent various states will conform to the Tax Act. As of December 31, 2019, Viracta had federal NOL carryforwards of approximately $40.3 million, which will begin to expire in 2027. In addition, Viracta generated in 2018 and 2019 federal NOL carryforwards of $19.7 million

 

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which do not expire. Viracta also has available California NOL carryforwards of approximately $38.9 million as of December 31, 2019, which begin to expire in 2030.

In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (“Code”), if a corporation undergoes an “ownership change” (generally defined as a cumulative change in the corporation’s ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period), the corporation’s ability to use its pre-change NOLs and certain other pre-change tax attributes to offset its post-change taxable income may be limited. Similar rules may apply under state tax laws. Viracta may have experienced such ownership changes in the past, and it may experience ownership changes in the future as a result of the Merger or subsequent shifts in its stock ownership, some of which are outside its control. Viracta has not conducted any studies to determine annual limitations, if any, that could result from such changes in the ownership. Viracta’s ability to utilize its NOLs and certain other tax attributes could be limited by an “ownership change” as described above and consequently, Viracta may not be able to utilize a material portion of its NOLs and certain other tax attributes, which could have a material adverse effect on its cash flows and results of operations.

U.S. federal income tax reform could materially adversely affect Viracta’s financial condition.

On December 22, 2017, President Trump signed into law the Tax Act, which significantly revises the Code. The Tax Act, as modified by the CARES Act, among other things, generally reduces the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, repeals the alternative minimum tax for corporations, limits the tax deduction for interest expense to 30% of adjusted taxable income (except for certain small businesses), limits the deduction for NOLs carried forward from taxable years beginning after December 31, 2020, eliminates net operating loss carrybacks (other than for NOLs generated in a taxable year beginning after December 31, 2017 and before January 1, 2021), and modifies or repeals many business deductions and credits. Viracta’s financial statements included elsewhere in this Registration Statement on Form S-4 of which this proxy statement/prospectus/information statement forms a part reflect the effects of the Tax Act based on current guidance. However, there remain uncertainties and ambiguities in the application of certain provisions of the Tax Act and, as a result, Viracta made certain judgments and assumptions in the interpretation thereof. The U.S. Treasury Department and the Internal Revenue Service (the “IRS”), may issue further guidance on how the provisions of the Tax Act will be applied or otherwise administered that differs from Viracta’s current interpretation. In addition, the Tax Act could be subject to potential amendments and technical corrections, any of which could materially lessen or increase certain adverse impacts of the legislation on Viracta.

A variety of risks associated with marketing Viracta product candidates internationally could materially adversely affect its business.

Viracta may seek regulatory approval of its product candidates outside of the United States and, accordingly, Viracta expect that it will be subject to additional risks related to operating in foreign countries if it obtains the necessary approvals, including:

 

   

differing regulatory requirements and reimbursement regimes in foreign countries;

 

   

unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign taxes, including withholding of payroll taxes;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

 

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difficulties staffing and managing foreign operations;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

potential liability under the FCPA or comparable foreign regulations;

 

   

challenges enforcing Viracta’s contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geo-political actions, including war and terrorism.

These and other risks associated with Viracta’s international operations may materially adversely affect its ability to attain or maintain profitable operations.

Risks Related to Viracta’s Intellectual Property

Viracta’s success depends on its ability to protect its intellectual property and its proprietary technologies.

Viracta’s commercial success depends in part on its ability to obtain and maintain patent protection and trade secret protection for its product candidates, proprietary technologies and their uses as well as Viracta’s ability to operate without infringing upon the proprietary rights of others. Viracta generally seeks to protect its proprietary position by filing patent applications in the United States and abroad related to its product candidates, proprietary technologies and their uses that are important to its business. Viracta also seeks to protect its proprietary position by acquiring or in-licensing relevant issued patents or pending applications from third parties.

Pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents issue from such applications, and then only to the extent the issued claims cover the technology. There can be no assurance that Viracta’s patent applications or the patent applications of its licensors will result in additional patents being issued or that issued patents will afford sufficient protection against competitors with similar technology, nor can there be any assurance that the patents issued will not be infringed, designed around or invalidated by third parties.

Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for Viracta and its licensors’ proprietary rights is uncertain. Only limited protection may be available and may not adequately protect Viracta’s rights or permit Viracta to gain or keep any competitive advantage. These uncertainties and/or limitations in Viracta’s ability to properly protect the intellectual property rights relating to its product candidates could have a material adverse effect on its financial condition and results of operations.

Although Viracta owns or licenses three issued patents in the United States, Viracta cannot be certain that the claims in its other U.S. pending patent applications, corresponding international patent applications and patent applications in certain foreign territories, or those of its licensors, will be considered patentable by the United States Patent and Trademark Office (USPTO), courts in the United States or by the patent offices and courts in foreign countries, nor can Viracta be certain that the claims in its issued patent will not be found invalid or unenforceable if challenged.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that Viracta or any of its current or potential future collaborators will be successful in protecting Viracta’s product candidates by obtaining and defending patents. These risks and uncertainties include the following:

 

   

the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the

 

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noncompliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;

 

   

patent applications may not result in any patents being issued;

 

   

if clinical trials encounter delays, the period of time during which Viracta could market its current or future product candidates under patent protection would be reduced;

 

   

patents may be challenged, invalidated, modified, narrowed, revoked, circumvented, found to be unenforceable, found to be not infringed or otherwise may not provide any competitive advantage;

 

   

Viracta competitors, many of whom have substantially greater resources than Viracta does and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate Viracta’s ability to make, use and sell its potential product candidates or design around any Viracta owned, co-owned, or licensed patents;

 

   

since patent applications in the United States and most other countries are confidential for a period of time after filing, Viracta cannot be certain that it was the first to either (i) file any patent application related to its product; or (ii) invent any of the inventions claimed in its patents or patent applications;

 

   

even when laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of Viracta’s proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions Viracta may bring to enforce its intellectual property against its competitors could provoke them to bring counterclaims against Viracta, and some of Viracta’s competitors have substantially greater intellectual property portfolios than Viracta;

 

   

there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and

 

   

countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates.

The patent prosecution process is also expensive and time-consuming, and Viracta and its licensors may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that Viracta and its licensors will fail to identify patentable aspects of Viracta’s research and development output before it is too late to obtain patent protection.

In addition, although Viracta enters into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of Viracta’s research and development output, such as Viracta’s employees, outside scientific collaborators, CROs, third-party manufacturers, consultants, advisors and other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing Viracta’s ability to seek patent protection.

Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, Viracta’s intellectual property may not provide it with sufficient rights to exclude others from commercializing products similar or identical to Viracta’s products.

If the scope of any patent protection Viracta obtains is not sufficiently broad, or if Viracta loses any of its patent protection, Viracta’s ability to prevent its competitors from commercializing similar or identical product candidates would be adversely affected.

The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope,

 

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validity, enforceability and commercial value of Viracta’s patent rights are highly uncertain. Viracta’s pending and future patent applications and those of its licensors may not result in patents being issued that protect its product candidates or effectively prevent others from commercializing competitive product candidates.

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications Viracta owns or in-licenses currently or in the future issue as patents, they may not issue in a form that will provide Viracta with any meaningful protection, prevent competitors or other third parties from competing with Viracta, or otherwise provide Viracta with any competitive advantage. Any patents that Viracta owns or in-licenses may be challenged or circumvented by third parties or may be narrowed or invalidated as a result of challenges by third parties. Consequently, Viracta does not know whether its product candidates will be protectable or remain protected by valid and enforceable patents. Viracta’s competitors or other third parties may be able to circumvent Viracta’s patents or the patents of its licensors by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect Viracta’s business, financial condition, results of operations and prospects.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and Viracta’s patents or the patents of its licensors may be challenged in the courts or patent offices in the United States and abroad. Viracta may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant review (PGR) and inter partes review (IPR), or other similar proceedings challenging Viracta’s owned patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, Viracta’s patent rights, allow third parties to commercialize Viracta’s product candidates and compete directly with Viracta, without payment to Viracta, or result in Viracta’s inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, Viracta’s patents or the patents of its licensors may become subject to post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge Viracta’s priority of invention or other features of patentability with respect to Viracta’s patents and patent applications and those of Viracta’s licensors. Such challenges may result in loss of patent rights, loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit Viracta’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of Viracta’s product candidates. Such proceedings also may result in substantial cost and require significant time from Viracta’s scientists and management, even if the eventual outcome is favorable to Viracta. In addition, if the breadth or strength of protection provided by Viracta’s patents and patent applications or the patents and patent applications of Viracta’s licensors is threatened, regardless of the outcome, it could dissuade companies from collaborating with Viracta to license, develop or commercialize current or future product candidates.

Intellectual property rights do not necessarily address all potential threats to Viracta’s competitive advantage.

The degree of future protection afforded by Viracta’s intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect Viracta’s business or permit Viracta to maintain its competitive advantage. For example:

 

   

others may be able to develop products that are similar to Viracta’s product candidates but that are not covered by the claims of the patents that Viracta owns or licenses;

 

   

Viracta or its licensors or collaborators might not have been the first to make the inventions covered by the issued patents or patent application that it owns or licenses;

 

   

Viracta or its licensors or collaborators might not have been the first to file patent applications covering certain of its inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of Viracta’s technologies without infringing its intellectual property rights;

 

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it is possible that the pending patent applications Viracta owns or licenses will not lead to issued patents;

 

   

issued patents that Viracta owns or licenses may be held invalid or unenforceable, as a result of legal challenges by Viracta’s competitors;

 

   

Viracta’s competitors might conduct research and development activities in countries where Viracta does not have patent rights and then use the information learned from such activities to develop competitive products for sale in Viracta’s major commercial markets;

 

   

Viracta may not develop additional proprietary technologies that are patentable;

 

   

the patents of others may have an adverse effect on Viracta’s business; and

 

   

Viracta may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, it could significantly harm Viracta’s business, results of operations and prospects.

Viracta’s commercial success depends significantly on its ability to operate without infringing the patents and other proprietary rights of third parties. Claims by third parties that Viracta infringes their proprietary rights may result in liability for damages or prevent or delay Viracta’s developmental and commercialization efforts.

Viracta’s commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. However, Viracta’s research, development and commercialization activities may be subject to claims that Viracta infringes or otherwise violates patents or other intellectual property rights owned or controlled by third parties. Other entities may have or obtain patents or proprietary rights that could limit Viracta’s ability to make, use, sell, offer for sale or import Viracta’s product candidates and products that may be approved in the future, or impair Viracta’s competitive position. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biopharmaceutical industry, including patent infringement lawsuits, oppositions, reexaminations, IPR proceedings and PGR proceedings before the USPTO and/or corresponding foreign patent offices. Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which Viracta is developing product candidates. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of Viracta’s product candidates.

As the biopharmaceutical industry expands and more patents are issued, the risk increases that Viracta’s product candidates may be subject to claims of infringement of the patent rights of third parties. Because patent applications are maintained as confidential for a certain period of time, until the relevant application is published, Viracta may be unaware of third-party patents that may be infringed by commercialization of any of Viracta’s product candidates, and Viracta cannot be certain that it was the first to file a patent application related to a product candidate or technology. Moreover, because patent applications can take many years to issue, there may be currently-pending patent applications that may later result in issued patents that Viracta’s product candidates may infringe. In addition, identification of third-party patent rights that may be relevant to Viracta’s technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. There is also no assurance that there is not prior art of which Viracta is aware, but which Viracta does not believe is relevant to its business, which may, nonetheless, ultimately be found to limit its ability to make, use, sell, offer for sale or import its products that may be approved in the future, or impair its competitive position. In addition, third parties may obtain patents in the future and claim that use of Viracta’s technologies infringes upon these patents. Any claims of patent infringement asserted by third parties would be time consuming and could:

 

   

result in costly litigation that may cause negative publicity;

 

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divert the time and attention of Viracta’s technical personnel and management;

 

   

cause development delays;

 

   

prevent Viracta from commercializing any of its product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law;

 

   

require Viracta to develop non-infringing technology, which may not be possible on a cost-effective basis;

 

   

subject Viracta to significant liability to third parties; or

 

   

require Viracta to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all, or which might be non-exclusive, which could result in Viracta’s competitors gaining access to the same technology.

Although no third party has asserted a claim of patent infringement against Viracta as of the date of this Registration Statement on Form S-4 of which this proxy statement/prospectus/information statement forms a part, others may hold proprietary rights that could prevent Viracta’s product candidates from being marketed. For example, various patent offices periodically grant mode of action patents and a third party may have or obtain a patent with claims covering modes of action relevant to Viracta’s product candidates. While these mode of action patents may be difficult to enforce, the third party may assert a claim of patent infringement directed at one of Viracta’s product candidates. Any patent-related legal action against Viracta claiming damages and seeking to enjoin commercial activities relating to Viracta’s products or processes could subject Viracta to significant liability for damages, including treble damages if it was determined that Viracta willfully infringed, and require Viracta to obtain a license to manufacture or market Viracta’s product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from Viracta’s business. Viracta cannot predict whether it would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. Moreover, even if Viracta or its current or future strategic partners were able to obtain a license, the rights may be nonexclusive, which could result in Viracta’s competitors gaining access to the same intellectual property. In addition, Viracta cannot be certain that it could redesign its product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent Viracta from developing and commercializing its product candidates, which could harm its business, financial condition and operating results. In addition, intellectual property litigation, regardless of its outcome, may cause negative publicity and could prohibit Viracta from marketing or otherwise commercializing its product candidates and technology.

Parties making claims against Viracta may be able to sustain the costs of complex patent litigation more effectively than Viracta can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of Viracta’s confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on Viracta’s ability to raise additional funds or otherwise have a material adverse effect on Viracta’s business, results of operations, financial condition and prospects.

Viracta may not be successful in obtaining or maintaining necessary rights to its product candidates through acquisitions and in-licenses.

Because Viracta’s development programs may in the future require the use of proprietary rights held by third parties, the growth of Viracta’s business may depend in part on Viracta’s ability to acquire, in-license, or use these third-party proprietary rights. Viracta may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that Viracta identifies as necessary for its product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies may pursue strategies to license or acquire

 

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third-party intellectual property rights that Viracta may consider attractive or necessary. These established companies may have a competitive advantage over Viracta due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive Viracta to be a competitor may be unwilling to assign or license rights to Viracta. Viracta may also be unable to license or acquire third-party intellectual property rights on terms that would allow Viracta to make an appropriate return on its investment or at all. If Viracta is unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights Viracta has, it may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on its business, financial condition, results of operations, and prospects.

Viracta may be involved in lawsuits to protect or enforce its patents or its licensors’ patents, which could be expensive, time consuming and unsuccessful. Further, Viracta’s issued patents or its licensors’ patents could be found invalid or unenforceable if challenged in court.

Competitors may infringe Viracta’s intellectual property rights. To prevent infringement or unauthorized use, Viracta may be required to file infringement claims, which can be expensive and time-consuming. In addition, in a patent infringement proceeding, a court may decide that a patent Viracta owns or in-licenses is not valid, is unenforceable and/or is not infringed. If Viracta or any of its potential future collaborators were to initiate legal proceedings against a third party to enforce a patent directed at one of Viracta’s product candidates, the defendant could counterclaim that Viracta’s patent or the patent of its licensors is invalid and/or unenforceable in whole or in part. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description, non-enablement, or obviousness-type double patenting. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution.

Third parties may also raise similar invalidity claims before the USPTO or patent offices abroad, even outside the context of litigation. Such mechanisms include re-examination, PGR, IPR, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of or amendment to Viracta’s patents or its licensors’ patents in such a way that such patents no longer cover Viracta’s technology or platform, or any product candidates that Viracta may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, Viracta cannot be certain that there is no invalidating prior art, of which Viracta and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity or unenforceability, Viracta would lose at least part, and perhaps all, of the patent protection on its technology or platform, or any product candidates that Viracta may develop. Such a loss of patent protection would have a material adverse impact on Viracta’s business, financial condition, results of operations and prospects.

The outcome following legal assertions of invalidity and/or unenforceability is unpredictable, and prior art could render Viracta’s patents or its licensors’ patents invalid. There is no assurance that all potentially relevant prior art relating to Viracta’s patents and patent applications or the patents and patent applications of its licensors has been found. There is also no assurance that there is not prior art of which Viracta is aware, but which Viracta does not believe affects the validity or enforceability of a claim in its patents and patent applications or the patents and patent applications of its licensors, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim.

If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, Viracta may lose at least part, and perhaps all, of the patent protection on such product candidate. In addition, if the breadth or strength of protection provided by Viracta patents and patent applications or the patents and patent applications of its licensors is threatened, it could dissuade companies from collaborating with Viracta to license, develop or

 

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commercialize current or future product candidates. Such a loss of patent protection would have a material adverse impact on Viracta’s business.

Even if resolved in Viracta’s favor, litigation or other legal proceedings relating to Viracta’s intellectual property rights may cause Viracta to incur significant expenses, and could distract Viracta’s technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Viracta’s common stock. Such litigation or proceedings could substantially increase Viracta’s operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Viracta may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of Viracta’s competitors may be able to sustain the costs of such litigation or proceedings more effectively than Viracta can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise Viracta’s ability to compete in the marketplace.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other legal proceedings relating to Viracta’s intellectual property rights, there is a risk that some of Viracta’s confidential information could be compromised by disclosure during this type of litigation or other proceedings. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of Viracta’s common stock.

In addition, the issuance of a patent does not give Viracta the right to practice the patented invention. Third parties may have blocking patents that could prevent Viracta from marketing Viracta’s own patented product and practicing Viracta’s own patented technology.

Intellectual property litigation may lead to unfavorable publicity that harms Viracta’s reputation and causes the market price of Viracta’s common shares to decline.

During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of Viracta’s product candidates, programs or intellectual property could be diminished. Accordingly, the market price of shares of Viracta’s Common Stock may decline. Such announcements could also harm Viracta’s reputation or the market for Viracta’s future products, which could have a material adverse effect on Viracta’s business.

Derivation proceedings may be necessary to determine priority of inventions, and an unfavorable outcome may require Viracta to cease using the related technology or to attempt to license rights from the prevailing party.

Derivation proceedings provoked by third parties or brought by Viracta or declared by the USPTO may be necessary to determine the priority of inventions with respect to Viracta’s patents or patent applications or those of Viracta’s licensors. An unfavorable outcome could require Viracta to cease using the related technology or to attempt to license rights to it from the prevailing party. Viracta’s business could be harmed if the prevailing party does not offer Viracta a license on commercially reasonable terms. Viracta’s defense of derivation proceedings may fail and, even if successful, may result in substantial costs and distract Viracta’s management and other employees. In addition, the uncertainties associated with such proceedings could have a material adverse effect on Viracta’s ability to raise the funds necessary to continue its clinical trials, continue its research programs, license necessary technology from third parties or enter into development or manufacturing partnerships that would help Viracta bring its product candidates to market.

 

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Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of Viracta’s patent applications or those of its licensors and the enforcement or defense of Viracta’s issued patents or those of its licensors.

On September 16, 2011, the Leahy-Smith America Invents Act (the Leahy-Smith Act), was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first inventor to file” system in which, assuming that other requirements of patentability are met, the first inventor to file a patent application will be entitled to the patent regardless of whether a third party was first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013 but before Viracta could therefore be awarded a patent covering an invention of Viracta even if Viracta had made the invention before it was made by such third party. This will require Viracta to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, Viracta’s ability to obtain and maintain valid and enforceable patents depends on whether the differences between Viracta’s technology and the prior art allow Viracta’s technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, Viracta may not be certain that it or its licensors are the first to either (1) file any patent application related to Viracta’s product candidates or (2) invent any of the inventions claimed in the patents or patent applications.

The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including PGR, IPR, and derivation proceedings. An adverse determination in any such submission or proceeding could reduce the scope or enforceability of, or invalidate, Viracta’s patent rights, which could adversely affect Viracta’s competitive position.

Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate Viracta’s patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Thus, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Viracta’s patent applications or those of Viracta’s licensors and the enforcement or defense of Viracta’s issued patents or those of Viracta’s licensors, all of which could have a material adverse effect on Viracta’s business, financial condition, results of operations and prospects.

Changes in U.S. patent law, or laws in other countries, could diminish the value of patents in general, thereby impairing Viracta’s ability to protect its product candidates.

As is the case with other pharmaceutical companies, Viracta’s success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve a high degree of technological and legal complexity. Therefore, obtaining and enforcing pharmaceutical patents is costly, time consuming and inherently uncertain. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of Viracta’s intellectual property and may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Viracta cannot predict the breadth of claims that may be allowed or enforced in its patents or in third-party patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to Viracta.

For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain

 

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situations. In addition to increasing uncertainty with regard to Viracta’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken Viracta’s ability to obtain new patents or to enforce Viracta’s existing patent and the patents Viracta might obtain or license in the future.

Viracta may be subject to claims challenging the inventorship or ownership of its patents and other intellectual property.

Viracta may also be subject to claims that former employees or other third parties have an ownership interest in Viracta’s patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If Viracta fails in defending any such claims, in addition to paying monetary damages, Viracta may lose valuable intellectual property rights. Such an outcome could have a material adverse effect on Viracta’s business. Even if Viracta is successful in defending against such claims, litigation could result in substantial costs and distraction to management and other employees.

Patent terms may be inadequate to protect Viracta’s competitive position on its product candidates for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering Viracta’s product candidates are obtained, once the patent life has expired, Viracta may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, Viracta’s patent portfolio may not provide Viracta with sufficient rights to exclude others from commercializing products similar or identical to Viracta.

If Viracta does not obtain patent term extension for its product candidates, its business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of Viracta’s product candidates, one or more of Viracta’s U.S. patents or those of Viracta’s licensors may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Amendments). The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. A maximum of one patent may be extended per FDA approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. Patent term extension may also be available in certain foreign countries upon regulatory approval of Viracta’s product candidates. However, Viracta may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than Viracta requests. If Viracta is unable to obtain patent term extension or restoration or the term of any such extension is less than Viracta requests, its competitors may obtain approval of competing products following Viracta’s patent expiration, and Viracta revenue could be reduced, possibly materially. Further, if this occurs, Viracta’s competitors may take advantage of Viracta’s investment in development and trials by referencing Viracta’s clinical and preclinical data and launch their product earlier than might otherwise be the case.

 

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Viracta may not be able to protect its intellectual property rights throughout the world.

Although Viracta owns, co-owns, or has licensed at least three issued patents in the United States and pending patent applications in the United States and other countries, filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive, and Viracta’s intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, Viracta may not be able to prevent third parties from practicing Viracta’s inventions in all countries outside the United States or from selling or importing products made using Viracta’s inventions in and into the United States or other jurisdictions. Competitors may use Viracta’s technologies in jurisdictions where Viracta has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where Viracta has patent protection, but enforcement is not as strong as that in the United States. These products may compete with Viracta’s product candidates, and Viracta’s patents, the patents of Viracta’s licensors, or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of many foreign countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for Viracta to stop the infringement of Viracta’s patents or its licensors’ patents or marketing of competing products in violation of Viracta’s proprietary rights. Proceedings to enforce Viracta’s patent rights in foreign jurisdictions could result in substantial costs and divert Viracta’s efforts and attention from other aspects of Viracta’s business, could put Viracta’s patents or the patents of Viracta’s licensors at risk of being invalidated or interpreted narrowly and Viracta’s patent applications or the patent applications of Viracta’s licensors at risk of not issuing and could provoke third parties to assert claims against Viracta. Viracta may not prevail in any lawsuits that it initiates, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Viracta’s efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Viracta develops or licenses.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If Viracta is forced to grant a license to third parties with respect to any patents relevant to Viracta’s business, Viracta’s competitive position may be impaired, and Viracta’s business, financial condition, results of operations and prospects may be adversely affected.

Obtaining and maintaining Viracta’s patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by regulations and governmental patent agencies, and Viracta’s patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of Viracta’s patents and/or applications and those of Viracta’s licensors. Viracta has systems in place to remind it to pay these fees, and Viracta relies on its outside patent annuity service to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Viracta employs reputable law firms and other professionals to help it comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on Viracta’s business.

 

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If Viracta’s trademarks and trade names are not adequately protected, then Viracta may not be able to build name recognition in its markets of interest and its business may be adversely affected.

Viracta intends to use registered or unregistered trademarks or trade names to brand and market itself and its products. Viracta’s trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. Viracta may not be able to protect its rights to these trademarks and trade names, which Viracta needs to build name recognition among potential partners or customers in Viracta’s markets of interest. At times, competitors may adopt trade names or trademarks similar to Viracta’s, thereby impeding Viracta’s ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of Viracta’s registered or unregistered trademarks or trade names. Over the long term, if Viracta is unable to establish name recognition based on its trademarks and trade names, then Viracta may not be able to compete effectively, and its business may be adversely affected. Viracta’s efforts to enforce or protect its proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect Viracta’s financial condition or results of operations.

If Viracta is unable to protect the confidentiality of its trade secrets, its business and competitive position would be harmed.

In addition, Viracta relies on the protection of its trade secrets, including unpatented know-how, technology and other proprietary information to maintain its competitive position. Although Viracta has taken steps to protect its trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, Viracta cannot provide any assurances that all such agreements have been duly executed, and any of these parties may breach the agreements and disclose Viracta’s proprietary information, including its trade secrets, and Viracta may not be able to obtain adequate remedies for such breaches. In addition, these agreements typically restrict the ability of Viracta’s collaborators, advisors, employees and consultants to publish data potentially relating to Viracta’s trade secrets. Viracta’s academic collaborators typically have rights to publish data, provided that Viracta is notified in advance and may delay publication for a specified time in order to secure Viracta’s intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by Viracta, although in some cases Viracta may share these rights with other parties. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.

Moreover, third parties may still obtain this information or may come upon this or similar information independently, and Viracta would have no right to prevent them from using that technology or information to compete with Viracta. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. If any of these events occurs or if Viracta otherwise loses protection for its trade secrets, the value of this information may be greatly reduced, and Viracta’s competitive position would be harmed. If Viracta does not apply for patent protection prior to such publication or if it cannot otherwise maintain the confidentiality of its proprietary technology and other confidential information, then Viracta’s ability to obtain patent protection or to protect its trade secret information may be jeopardized.

Viracta may be subject to claims that it or its employees have wrongfully used or disclosed alleged confidential information or trade secrets.

Viracta has entered into and may enter in the future into non-disclosure and confidentiality agreements to protect the proprietary positions of third parties, such as outside scientific collaborators, CROs, third-party manufacturers, consultants, advisors, potential partners, and other third parties. Viracta may become subject to

 

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litigation where a third party asserts that it or its employees inadvertently or otherwise breached the agreements and used or disclosed trade secrets or other information proprietary to the third parties. Defense of such matters, regardless of their merit, could involve substantial litigation expense and be a substantial diversion of employee resources from Viracta’s business. Viracta cannot predict whether it would prevail in any such actions. Moreover, intellectual property litigation, regardless of its outcome, may cause negative publicity and could prohibit Viracta from marketing or otherwise commercializing its product candidates and technology. Failure to defend against any such claim could subject Viracta to significant liability for monetary damages or prevent or delay Viracta’s developmental and commercialization efforts, which could adversely affect its business. Even if Viracta is successful in defending against these claims, litigation could result in substantial costs and be a distraction to Viracta’s management team and other employees.

Parties making claims against Viracta may be able to sustain the costs of complex intellectual property litigation more effectively than Viracta can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Viracta’s confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on Viracta’s ability to raise additional funds or otherwise have a material adverse effect on Viracta’s business, operating results, financial condition and prospects.

Viracta may be subject to claims that it has wrongfully hired an employee from a competitor or that Viracta or its employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.

As is common in the pharmaceutical industry, in addition to Viracta’s employees, Viracta engages the services of consultants to assist Viracta in the development of its product candidates. Many of these consultants, and many of Viracta’s employees, were previously employed at, or may have previously provided or may be currently providing consulting services to, other pharmaceutical companies including competitors or potential competitors of Viracta. Viracta may become subject to claims that it, its employees or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. If Viracta fails in defending any such claims, in addition to paying monetary damages, Viracta may lose valuable intellectual property rights or personnel, which could adversely affect Viracta’s business. Even if Viracta is successful in defending against these claims, litigation could result in substantial costs and be a distraction to Viracta’s management team and other employees.

Viracta’s rights to develop and commercialize its technology and product candidates may be subject, in part, to the terms and conditions of licenses granted to Viracta by others.

Viracta has entered into license agreements with third parties and Viracta may enter into additional license agreements in the future with others to advance Viracta’s research or allow commercialization of product candidates. These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which Viracta may wish to develop or commercialize its technology and products in the future.

In addition, subject to the terms of any such license agreements, Viracta may not have the right to control the preparation, filing, prosecution, maintenance, enforcement, and defense of patents and patent applications covering the technology that Viracta licenses from third parties. In such an event, Viracta cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, maintained, enforced, and defended in a manner consistent with the best interests of its business. If Viracta’s licensors fail to prosecute, maintain, enforce, and defend such patents, or lose rights to those patents or patent applications, the rights Viracta has licensed may be reduced or eliminated, and Viracta’s rights to develop and commercialize any of its products that are subject of such licensed rights could be adversely affected.

 

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Viracta’s licensors may have relied on third party consultants or collaborators or on funds from third parties such that Viracta’s licensors are not the sole and exclusive owners of the patents Viracta in-licensed. If other third parties have ownership rights to Viracta’s in-licensed patents, they may be able to license such patents to Viracta’s competitors, and Viracta’s competitors could market competing products and technology. This could have a material adverse effect on Viracta’s competitive position, business, financial conditions, results of operations, and prospects.

It is possible that Viracta may be unable to obtain additional licenses at a reasonable cost or on reasonable terms, if at all. Even if Viracta is able to obtain a license, it may be non-exclusive, thereby giving Viracta’s competitors access to the same technologies licensed to Viracta. In that event, Viracta may be required to expend significant time and resources to redesign its technology, product candidates, or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If Viracta is unable to do so, it may be unable to develop or commercialize the affected product candidates, which could harm its business, financial condition, results of operations, and prospects significantly. Viracta cannot provide any assurances that third party patents do not exist which might be enforced against Viracta’s current technology, manufacturing methods, product candidates, or future methods or products resulting in either an injunction prohibiting Viracta’s manufacture or future sales, or, with respect to Viracta’s future sales, an obligation on Viracta’s part to pay royalties and/or other forms of compensation to third parties, which could be significant.

If Viracta fails to comply with its obligations in the agreements under which Viracta licenses intellectual property rights from third parties or otherwise experience disruptions to Viracta’s business relationships with its licensors, Viracta could lose license rights that are important to its business.

Disputes may arise between Viracta and its licensors regarding intellectual property subject to a license agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

whether and the extent to which Viracta technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

Viracta’s right to sublicense patents and other rights to third parties;

 

   

Viracta’s diligence obligations under the license agreement and what activities satisfy those diligence obligations;

 

   

Viracta’s right to transfer or assign the license;

 

   

the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by Viracta and Viracta’s licensors and partners; and

 

   

the priority of invention of patented technology.

In addition, the agreements under which Viracta licenses intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what Viracta believes to be the scope of its rights to the relevant intellectual property or technology, or increase what Viracta believes to be its financial or other obligations under the relevant agreement, either of which could have a material adverse effect on Viracta’s business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that Viracta has licensed prevent or impair its ability to maintain its current licensing arrangements on commercially acceptable terms, Viracta may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on Viracta’s business, financial conditions, results of operations, and prospects.

In spite of Viracta’s best efforts, Viracta’s licensors might conclude that Viracta has materially breached its license agreements and might therefore terminate the license agreements, thereby removing Viracta ability to

 

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develop and commercialize products and technology covered by these license agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, products identical to Viracta’s. This could have a material adverse effect on Viracta’s competitive position, business, financial conditions, results of operations, and prospects.

The patent protection and patent prosecution for some of Viracta’s product candidates may be dependent on third parties.

While Viracta normally seeks to obtain the right to control prosecution, maintenance and enforcement of the patents relating to Viracta’s product candidates, there may be times when the filing and prosecution activities for patents relating to Viracta’s product candidates are controlled by Viracta’s licensors or collaboration partners. If any of Viracta’s licensors or collaboration partners fail to prosecute, maintain and enforce such patents and patent applications in a manner consistent with the best interests of Viracta’s business, including by payment of all applicable fees for patents covering Viracta’s product candidates, Viracta could lose its rights to the intellectual property or its exclusivity with respect to those rights, Viracta’s ability to develop and commercialize those product candidates may be adversely affected and Viracta may not be able to prevent competitors from making, using and selling competing products. Viracta collaborates with other companies and institutions with respect to research and development matters. Also, Viracta relies on numerous third parties to provide it with materials that it uses to develop its technology. If Viracta cannot successfully negotiate sufficient ownership, licensing, and/or commercial rights to any invention that result from its use of any third-party collaborator’s materials, or if disputes arise with respect to the intellectual property developed with the use of a collaborator’s materials, or data developed in a collaborator’s study, Viracta’s ability to capitalize on the market potential of these inventions or developments may be limited or precluded altogether. In addition, even where Viracta has the right to control patent prosecution of patents and patent applications Viracta has licensed to and from third parties, Viracta may still be adversely affected or prejudiced by actions or inactions of its licensees, its licensors and their counsel that took place prior to the date upon which Viracta assumed control over patent prosecution.

Intellectual property discovered through government funded programs may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit Viracta’s exclusive rights and limit Viracta’s ability to contract with non-U.S. manufacturers.

Viracta’s licensed patent applications may have been or may be in the future supported through the use of U.S. government funding awarded by the National Institute of Health and the Army Medical Research and Materiel Command. Although Viracta does not currently own issued patents or pending patent applications that have been generated through the use of U.S. government funding, Viracta may acquire or license in the future intellectual property rights that have been generated through the use of U.S. government funding or grant. Pursuant to the Bayh-Dole Act of 1980, the U.S. government has certain rights in inventions developed with government funding. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require Viracta to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (1) adequate steps have not been taken to commercialize the invention; (2) government action is necessary to meet public health or safety needs; or (3) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require Viracta to expend substantial resources. In addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the United States. This preference for U.S. industry may be waived by the federal agency that provided the funding if the

 

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owner or assignee of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. industry may limit Viracta’s ability to contract with non-U.S. product manufacturers for products covered by such intellectual property.

Risks Related to Viracta’s Reliance on Third Parties

Viracta relies on third parties to conduct its clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research and studies.

Viracta does not have the ability to independently conduct its clinical trials. Viracta currently relies on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct Viracta’s current and planned clinical trials of VRX-101, and Viracta expects to continue to rely upon third parties to conduct additional clinical trials of VRX-101 and other product candidates. Third parties have a significant role in the conduct of Viracta’s clinical trials and the subsequent collection and analysis of data. These third parties are not Viracta employees, and except for remedies available to Viracta under its agreements with such third parties, Viracta has limited ability to control the amount or timing of resources that any such third party will devote to Viracta’s clinical trials. The third parties Viracta relies on for these services may also have relationships with other entities, some of which may be Viracta’s competitors. Some of these third parties may terminate their engagements with Viracta at any time. If Viracta needs to enter into alternative arrangements with a third party, it would delay Viracta’s drug development activities.

Viracta’s reliance on these third parties for such drug development activities will reduce its control over these activities but will not relieve Viracta of its regulatory responsibilities. For example, Viracta will remain responsible for ensuring that each of its clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires Viracta to comply with GCP standards, regulations for conducting, recording and reporting the results of clinical trials to assure that data and reported results are reliable and accurate and that the rights, integrity and confidentiality of trial participants are protected. The EMA also requires Viracta to comply with similar standards. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If Viracta or any of its CROs fail to comply with applicable GCP requirements, the clinical data generated in Viracta’s clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require Viracta to perform additional clinical trials before approving Viracta’s marketing applications. Viracta cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of Viracta’s clinical trials substantially comply with GCP regulations. In addition, Viracta’s clinical trials must be conducted with product produced under current cGMP regulations. Viracta’s failure to comply with these regulations may require Viracta to repeat clinical trials, which would delay the marketing approval process. Viracta is also required to register certain ongoing clinical trials and post the results of certain completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct Viracta’s clinical trials in accordance with regulatory requirements or Viracta’s stated protocols, Viracta will not be able to obtain, or may be delayed in obtaining, marketing approvals for Viracta’s product candidates and will not be able to, or may be delayed in Viracta’s efforts to, successfully commercialize its product candidates.

 

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Viracta contracts with third parties for the production of Viracta’s product candidates for preclinical studies and clinical trials, and expects to continue to do so for additional clinical trials and ultimately for commercialization. This reliance on third parties increases the risk that Viracta will not have sufficient quality and quantities of its product candidates or such quantities at an acceptable cost, which could delay, prevent or impair Viracta’s development or commercialization efforts.

Viracta does not currently have the infrastructure or internal capability to manufacture supplies of its product candidates for use in development and commercialization. Viracta relies, and expects to continue to rely, on third-party manufacturers for the production of Viracta’s product candidates for preclinical studies and clinical trials under the guidance of members of Viracta’s organization. In the case of nanatinostat, Viracta relies on a single third-party manufacturer and currently has no alternative manufacturer in place. Viracta does not have long-term supply agreements, and Viracta purchases its required drug product on a purchase order basis, which means that aside from any binding purchase orders Viracta has from time to time, Viracta’s supplier could cease supplying to Viracta or change the terms on which it is willing to continue supplying to Viracta at any time. If Viracta were to experience an unexpected loss of supply of nanatinostat or any other product candidates for any reason, whether as a result of manufacturing, supply or storage issues or otherwise, Viracta could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any pending or ongoing clinical trials.

Viracta expects to continue to rely on third-party manufacturers for the commercial supply of any of Viracta’s product candidates for which Viracta obtains marketing approval. Viracta may be unable to maintain or establish required agreements with third-party manufacturers or to do so on acceptable terms. Even if Viracta is able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

   

the failure of the third party to manufacture Viracta’s product candidates according to Viracta’s schedule and specifications, or at all, including if Viracta’s third-party contractors give greater priority to the supply of other products over Viracta’s product candidates, are constrained by the recent COVID-19 pandemic or otherwise do not satisfactorily perform according to the terms of the agreements between Viracta and them;

 

   

the termination or nonrenewal of arrangements or agreements by Viracta’s third-party contractors at a time that is costly or inconvenient for Viracta;

 

   

the breach by the third-party contractors of Viracta’s agreements with them;

 

   

the failure of third-party contractors to comply with applicable regulatory requirements, including manufacturing drug supply pursuant to strictly-enforced cGMPs;

 

   

the failure of the third party to manufacture Viracta’s product candidates according to Viracta’s specifications;

 

   

the mislabeling of clinical supplies, potentially resulting in the wrong dose amounts being supplied or active drug or placebo not being properly identified;

 

   

clinical supplies not being delivered to clinical sites on time, leading to clinical trial interruptions, or of drug supplies not being distributed to commercial vendors in a timely manner, resulting in lost sales; and

 

   

the misappropriation of Viracta’s proprietary information, including Viracta’s trade secrets and know-how.

Viracta does not have complete control over all aspects of the manufacturing process of Viracta’s contract manufacturing partners and are dependent on these contract manufacturing partners for compliance with cGMP regulations for manufacturing both active pharmaceutical ingredients (API) and finished drug products. To date, Viracta has obtained API and drug product for nanatinostat from single-source third party CMOs. Viracta is in the process of developing its supply chain for nanatinostat and valganciclovir and intends to put in place framework agreements under which third-party CMOs will generally provide Viracta with necessary quantities of

 

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API and drug product on a project-by-project basis based on Viracta’s development needs. As Viracta advances its product candidates through development, it will consider redundant supply for the API and drug product for each of its product candidates to protect against any potential supply disruptions. However, Viracta may be unsuccessful in putting in place such framework agreements or protecting against potential supply disruptions.

Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the United States. If Viracta’s CMOs cannot successfully manufacture material that conforms to Viracta’s specifications and the strict regulatory requirements of the FDA, EMA or others, they will not be able to secure and/or maintain marketing approval for their manufacturing facilities. In addition, Viracta does not have control over the ability of its CMOs to maintain adequate quality control, quality assurance and qualified personnel. If the FDA, EMA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of Viracta’s product candidates or if it withdraws any such approval in the future, Viracta will need to find alternative manufacturing facilities, and those new facilities would need to be inspected and approved by FDA, EMA or comparable regulatory authority prior to commencing manufacturing, which would significantly impact Viracta’s ability to develop, obtain marketing approval for or market Viracta’s product candidates, if approved. Viracta’s failure, or the failure of its third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on the parties, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of Viracta’s product candidates or drugs and harm Viracta’s business and results of operations.

Viracta’s current and anticipated future dependence upon others for the manufacture of Viracta’s product candidates may adversely affect Viracta’s future profit margins and Viracta’s ability to commercialize any product candidates that receive marketing approval on a timely and competitive basis.

Viracta entered into collaboration agreements with Salubris and NantKwest, and Viracta may form or seek additional strategic alliances or collaborations in the future. Such alliances and collaborations may inhibit future opportunities, or Viracta may not realize the benefits of such collaborations or alliances.

Viracta has entered into license agreements with Shenzhen Salubris Pharmaceutical Co. Ltd. (“Salubris”) and NantKwest, Inc. (“NantKwest”) for the development and commercialization of nanatinostat and VRX-101, respectively, and Viracta may form or seek strategic alliances, joint ventures or collaborations or enter into licensing arrangements with other third parties that Viracta believes will complement or augment its development and commercialization efforts with respect to future product candidates that Viracta may develop.

In May 2017, Viracta entered into a license agreement with NantKwest, which was amended by the parties in November 2018 (as amended, the “NK License Agreement”). Pursuant to the NK License Agreement, Viracta granted an exclusive worldwide license to NantKwest and its affiliates to develop and commercialize nanatinostat for use in combination with natural killer cell immunotherapies (“NK Covered Products”). Under the NK License Agreement, Viracta is eligible to receive up to a total of $100.0 million in regulatory and commercial milestone payments upon the occurrence of certain milestone events. Viracta is also eligible to earn tiered royalties as a percentage of net sales of licensed NK Covered Products, ranging from the low to mid-single digits. NantKwest is responsible for conducting all necessary studies, including safety studies and clinical trials necessary in connection with seeking regulatory approvals to market NK Covered Products under the NK License Agreement in any territory.

In November 2018, Viracta entered into a collaboration and license agreement (the Salubris License Agreement) with Salubris, pursuant to which Viracta granted Salubris an exclusive license, with the right to grant sublicenses, to Viracta’s patent and know-how rights to develop and commercialize nanatinostat in combination with an antiviral drug, such as valganciclovir, for treatment, prevention, or diagnosis of virus-associated malignancies in humans and non-humans (the “Salubris Covered Products”) in the Republic of China, excluding

 

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Hong Kong, Macau, and Taiwan (the “Salubris Territory”). Furthermore, the license includes the right to develop and commercialize nanatinostat and an antiviral drug with one or more additional therapeutic drugs but expressly excludes rights to nanatinostat and an antiviral with certain NK cell therapies.

As partial consideration for the Salubris License Agreement, Salubris entered into a stock purchase agreement with Viracta, pursuant to which Salubris purchased a total of $10.0 million of Viracta’s Series C Preferred Stock in two closings in November 2018 and January 2019. Under the Salubris License Agreement, Viracta is also eligible to receive up to a total of $103.0 million in development, regulatory and commercial milestone payments, contingent on the occurrence of certain events. Viracta is also eligible to receive tiered royalties as a percentage of net sales of licensed products by Salubris, its affiliates or sublicensees, ranging from mid-teens to high single digits, which royalties are potentially subject to various reductions and offsets. Salubris is responsible for all regulatory filings and regulatory approvals and has the sole right to manufacture and commercialize Salubris Covered Products in the Salubris Territory. Viracta and Salubris will each perform development and commercialization activities within their respective territory independent of one another and any development work completed by Viracta that benefits Salubris’ development efforts within the Salubris Territory will be reimbursed to Viracta by Salubris.

Future efforts for additional alliances or collaborations may also require Viracta to incur non-recurring and other charges, increase its near- and long-term expenditures, issue securities that dilute its existing stockholders or disrupt its management and business. In addition, Viracta faces significant competition in seeking appropriate strategic partners, and the negotiation process is time-consuming and complex. Furthermore, Viracta may not be able to realize the benefit of such transactions if Viracta is unable to successfully integrate them with its existing operations and company culture. Viracta cannot be certain that, following a strategic transaction or license, it will achieve the revenues or specific net income that justifies such transaction.

Viracta depends on Salubris and NantKwest to develop and commercialize product candidate within their respective licensed fields and territories, and Viracta has limited control over how Salubris and NantKwest will conduct development and commercialization activities for such product candidates.

Under the existing license agreements with Salubris and NantKwest, Viracta relies on Salubris and NantKwest for a substantial portion of the financial resources and for the development, regulatory, and commercialization activities for the NK Covered Products and the Salubris Covered Products (collectively, the “Licensed Products”), and Viracta has limited control over the amount and timing of resources that Salubris or NantKwest devote to the Licensed Products. In addition, payments associated with development, regulatory and commercial milestones that Viracta may be eligible to receive, as well as royalties, will be dependent upon further advancement of the Licensed Products by NantKwest and Salurbis. If these milestones are not met and if the Licensed Products are not commercialized, Viracta will not receive future revenues from the collaborations. Either Salubris or NantKwest may fail to develop or effectively commercialize the Licensed Products for a variety of reasons, including because: Salubris or NantKwest does not have sufficient resources or decide not to devote the necessary resources due to internal constraints such as limited cash or human resources or a change in strategic focus; Salubris or NantKwest decides to pursue a competitive product developed outside of the Viracta collaboration; or Salubris or NantKwest cannot obtain the necessary regulatory approvals.

The collaboration agreements with Salubris and NantKwest subject Viracta to a number of risks, including:

 

   

Salubris or NantKwest may not commit sufficient resources to the development, regulatory approval, marketing or distribution of the Licensed Products;

 

   

Salubris or NantKwest may be unable to successfully complete the clinical development of the Licensed Products or obtain all necessary approvals from the FDA and similar foreign regulatory agencies required to market the Licensed Products;

 

   

Salubris or NantKwest may fail to manufacture the Licensed Products in compliance with requirements of the FDA and similar foreign regulatory agencies and in commercial quantities sufficient to meet market demand;

 

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there may be disputes between Viracta and either Salubris or NantKwest, including disagreements regarding their respective license agreement with Viracta, that may result in (1) the delay of (or prevent entirely) the achievement of development, regulatory and commercial objectives that would result in milestone payments, (2) the delay or termination of the development or commercialization of the Licensed Products, (3) costly litigation or arbitration that diverts Viracta’s management’s attention and resources; and/or (4) termination of the underlying license agreement.

 

   

Salubris or NantKwest may not comply with applicable regulatory guidelines with respect to developing or commercializing the Licensed Products, which could adversely impact the development of or sales of the Licensed Products and could result in administrative or judicially imposed sanctions, including warning letters, civil and criminal penalties, injunctions, product seizures or detention, product recalls, total or partial suspension of production and refusal to approve any new drug applications;

 

   

Salubris or NantKwest may experience financial difficulties;

 

   

business combinations or significant changes in either the business strategy of Salubris or NantKwest may also adversely affect such partners ability to perform its obligations under their license agreement with Viracta;

 

   

Salubris or NantKwest may not properly maintain Viracta’s intellectual property rights or may use Viracta’s proprietary information in such a way as to invite litigation that could jeopardize or invalidate Viracta’s proprietary information or expose Viracta to potential litigation;

 

   

Salubris or NantKwest may develop or commercialize VRX-101 or nanatinostat in a manner that may adversely impact Viracta’s development or commercialization of VRX-101, nanatinostat and/or future product candidates outside of such collaborations; and

 

   

Salubris or NantKwest could independently move forward with a competing product candidate developed either independently or in collaboration with others, including Viracta’s competitors.

If Salubris or NantKwest does not perform in the manner Viracta expects or fulfill its responsibilities in a timely manner, or at all, the development, regulatory approval, and commercialization efforts related to the Licensed Products could be delayed. It may be necessary for Viracta to assume the responsibility at its own expense for the development of the Licensed Products. In that event, Viracta would likely need to seek additional funding and its potential to generate future revenues from the Licensed Products could be significantly reduced and Viracta’s business could be materially and adversely harmed.

Viracta has entered into collaborations with third parties in connection with the development of nanatinostat and VRX-101. Even if Viracta believes that the development of such product candidates is promising, Viracta’s partners may choose not to proceed with such development.

Viracta’s existing agreements with its collaboration partners, Salubris and NantKwest, and any future collaboration agreements Viracta may enter into, are generally subject to termination by the counterparty on short notice upon the occurrence of certain circumstances. Accordingly, even if Viracta believes that the development of product candidates is worth pursuing, Viracta’s partners may choose not to continue with such development. If any of its collaborations are terminated, Viracta may be required to devote additional resources to the development of its product candidates or seek a new collaboration partner on short notice, and the terms of any additional collaboration or other arrangements that Viracta establishes may not be favorable to Viracta.

Viracta is also at risk that its current and any potential collaborations or other arrangements may not be successful. Factors that may affect the success of its collaborations include the following:

 

   

Viracta’s collaboration partners may incur financial and cash flow difficulties that force them to limit or reduce their efforts under their collaboration agreement with Viracta;

 

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Viracta’s collaboration partners may be pursuing alternative technologies or developing alternative products that are competitive to Viracta’s technology and products, either on their own or in partnership with others;

 

   

Viracta’s collaboration partners may terminate their collaboration with Viracta, which could make it difficult for Viracta to attract new partners or adversely affect perception of Viracta in the business and financial communities; and

 

   

Viracta’s collaboration partners may pursue higher priority programs or change the focus of their development programs, which could affect their commitment to Viracta.

If Viracta cannot maintain successful collaborations, Viracta’s business, financial condition and operating results may be adversely affected.

If Salubris or NantKwest terminates its respective collaboration with Viracta, Viracta may not receive additional payments under such collaboration agreement, and Viracta may not be able to enter into a similar agreement on favorable terms, or at all.

Pursuant to the collaboration agreements, Salubris and NantKwest each have certain termination rights in the circumstances of an uncured material breach or insolvency by Viracta and each has the right to terminate its respective agreement with Viracta without cause upon 90 days prior written notice to Viracta. If either Salubris or NantKwest terminates their collaboration with Viracta, Viracta will not receive additional milestones or royalties under the applicable collaboration agreement, and Viracta may be unable to enter into a collaboration agreement with another pharmaceutical company with equivalent or comparable terms, or at all. Further, any delays in entering into new strategic partnership agreements related to VRX-101 could delay the development and commercialization of VRX-101, which would harm Viracta’s business, prospects, financial condition and results of operations.

If Viracta engages in future acquisitions or strategic partnerships, this may increase Viracta’s capital requirements, dilute Viracta’s stockholders, cause Viracta to incur debt or assume contingent liabilities, and subject Viracta to other risks.

From time to time, Viracta evaluates various acquisition opportunities and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

 

   

increased operating expenses and cash requirements;

 

   

the assumption of additional indebtedness or contingent liabilities;

 

   

the issuance of Viracta’s equity securities;

 

   

assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;

 

   

the diversion of Viracta’s management’s attention from its existing programs and initiatives in pursuing such a strategic merger or acquisition;

 

   

retention of key employees, the loss of key personnel and uncertainties in Viracta’s ability to maintain key business relationships;

 

   

risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates and marketing approvals; and

 

   

Viracta’s inability to generate revenue from acquired technology and/or products sufficient to meet Viracta’s objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

 

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In addition, if Viracta undertakes acquisitions or pursue partnerships in the future, it may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense.

If Viracta decides to establish additional collaborations, but is not able to establish those collaborations on commercially reasonable terms, Viracta may have to alter its development and commercialization plans.

Viracta’s drug development programs and the potential commercialization of Viracta’s product candidates will require substantial additional cash to fund expenses. Viracta may seek to selectively form collaborations to expand its capabilities, potentially accelerate research and development activities and provide for commercialization activities by third parties. Any of these relationships may require Viracta to incur non-recurring and other charges, increase Viracta’s near- and long-term expenditures, issue securities that dilute Viracta’s existing stockholders, or disrupt Viracta’s management and business.

Viracta would face significant competition in seeking appropriate collaborators and the negotiation process is time-consuming and complex. Whether Viracta reaches a definitive agreement for a collaboration will depend, among other things, upon Viracta’s assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, EMA or comparable foreign regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to Viracta’s ownership of intellectual property and industry and market conditions generally. The potential collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with Viracta for its product candidate. Further, Viracta may not be successful in its efforts to establish a collaboration or other alternative arrangements for product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view them as having the requisite potential to demonstrate safety and efficacy.

In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. Even if Viracta is successful in entering into a collaboration, the terms and conditions of that collaboration may restrict Viracta from entering into future agreements on certain terms with potential collaborators.

If and when Viracta seeks to enter into collaborations, Viracta may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If Viracta is unable to do so, it may have to curtail the development of a product candidate, reduce or delay its development program or one or more of its other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase its expenditures and undertake development or commercialization activities at its own expense. If Viracta elects to increase its expenditures to fund development or commercialization activities on its own, it may need to obtain additional capital, which may not be available to it on acceptable terms or at all. If Viracta does not have sufficient funds, it may not be able to further develop its product candidates or bring them to market and generate product revenue.

Viracta may enter into collaborations with third parties for the development and commercialization of product candidates. If those collaborations are not successful, Viracta may not be able to capitalize on the market potential of these product candidates.

If Viracta enters into any collaboration arrangements with any third parties, Viracta will likely have limited control over the amount and timing of resources that its collaborators dedicate to the development or commercialization of Viracta’s product candidates. Viracta’s ability to generate revenues from these arrangements will depend on Viracta’s collaborators’ abilities and efforts to successfully perform the functions

 

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assigned to them in these arrangements. Collaborations involving Viracta’s product candidates would pose numerous risks to Viracta, including the following:

 

   

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations and may not perform their obligations as expected;

 

   

collaborators may deemphasize or not pursue development and commercialization of Viracta’s product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus, including as a result of a business combination or sale or disposition of a business unit or development function, or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

 

   

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

   

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with Viracta’s product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than Viracta’s;

 

   

a collaborator with marketing and distribution rights to multiple products may not commit sufficient resources to the marketing and distribution of Viracta’s product, if approved, relative to other products;

 

   

Viracta may grant exclusive rights to its collaborators that would prevent Viracta from collaborating with others;

 

   

collaborators may not properly obtain, maintain, defend or enforce Viracta’s intellectual property rights or may use Viracta’s proprietary information and intellectual property in such a way as to invite litigation or other intellectual property related proceedings that could jeopardize or invalidate Viracta’s proprietary information and intellectual property or expose Viracta to potential litigation or other intellectual property related proceedings;

 

   

disputes may arise between the collaborators and Viracta that result in the delay or termination of the research, development or commercialization of Viracta’s product candidates or that result in costly litigation or arbitration that diverts management attention and resources;

 

   

collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates;

 

   

collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all;

 

   

collaborators may not provide Viracta with timely and accurate information regarding development progress and activities under the collaboration or may limit Viracta’s ability to share such information, which could adversely impact Viracta’s ability to report progress to its investors and otherwise plan Viracta’s own development of its product candidates;

 

   

collaborators may own or co-own intellectual property covering Viracta’s products that results from Viracta’s collaborating with them, and in such cases, Viracta would not have the exclusive right to develop or commercialize such intellectual property; and

 

   

a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws, resulting in civil or criminal proceedings.

Risks Related to Combined Company

In determining whether you should vote approve the proposals contained in this proxy statement/prospectus/information statement, you should carefully read the following risk factors in addition to the risks described above.

 

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The combined company will need to raise additional financing in the future to fund its operations, which may not be available to it on favorable terms or at all.

The combined company will require substantial additional funds to conduct the costly and time-consuming clinical efficacy trials necessary to pursue regulatory approval of each potential product candidate and to continue the development of VRX-101 and future product candidates. The combined company’s future capital requirements will depend upon a number of factors, including: the number and timing of future product candidates in the pipeline; progress with and results from preclinical testing and clinical trials; the ability to manufacture sufficient drug supplies to complete preclinical and clinical trials; the costs involved in preparing, filing, acquiring, prosecuting, maintaining and enforcing patent and other intellectual property claims; and the time and costs involved in obtaining regulatory approvals and favorable reimbursement or formulary acceptance. Raising additional capital may be costly or difficult to obtain and could significantly dilute stockholders’ ownership interests or inhibit the combined company’s ability to achieve its business objectives. If the combined company raises additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely the rights of its common stockholders. Further, to the extent that the combined company raises additional capital through the sale of common stock or securities convertible or exchangeable into common stock, its stockholder’s ownership interest in the combined company will be diluted. In addition, any debt financing may subject the combined company to fixed payment obligations and covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the combined company raises additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, the combined company may have to relinquish certain valuable intellectual property or other rights to its product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to it. Even if the combined company were to obtain sufficient funding, there can be no assurance that it will be available on terms acceptable to the combined company or its stockholders.

The market price of the combined company’s common stock is expected to be volatile, and the market price of the common stock may drop following the Merger.

The market price of the combined company’s common stock following the Merger could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate include:

 

   

the ability of the combined company to obtain regulatory approvals for its product candidates, and delays or failures to obtain such approvals;

 

   

failure of any of the combined company’s product candidates, if approved, to achieve commercial success;

 

   

failure by the combined company to maintain its existing third-party license and supply agreements;

 

   

failure by the combined company or its licensors to prosecute, maintain, or enforce its intellectual property rights;

 

   

changes in laws or regulations applicable to the combined company’s product candidates;

 

   

any inability to obtain adequate supply of the combined company’s product candidates or the inability to do so at acceptable prices;