UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported):
March 31, 2009
SUNESIS
PHARMACEUTICALS, INC.
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(Exact
name of registrant as specified in its charter)
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(State
or other jurisdiction
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(Commission
File Number)
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(IRS
Employer Identification No.)
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of
incorporation)
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395 Oyster Point Boulevard, Suite 400
South
San Francisco, California
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(650)
266-3500
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(Former
name or former address, if changed since last
report.)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
1.01. Entry into Material Definitive Agreement.
Securities Purchase
Agreement
On March
31, 2009, the Company entered into a securities purchase agreement with
accredited investors, including certain members of management, providing for a
private placement of Company securities of up to $43.5 million (the “Private
Placement”). The
Private Placement
contemplates the sale of up to $15.0 million of units consisting of Series A
Preferred Stock and warrants to purchase common stock in two
closings. $10.0 million of units would be sold in the initial
closing, which is expected to occur in the near term, subject to the
satisfaction of customary closing conditions. Subject to the approval
of the Company’s stockholders, an additional $5.0 million of units may be sold
in the second closing, which closing may occur at the Company’s election or at
the election of the investors in the Private Placement. The Company
may elect to hold the second closing if the
achievement of a specified milestone
with respect
to voreloxin
has occurred and
the Company’s
common stock is trading above a specified floor price. If the Company has not
delivered notice to the investors in the Private Placement of the Company’s
election to complete the second closing, or if the conditions for the second
closing have not been met, the investors may elect to purchase the units in the
second closing by delivering a notice to the Company of their election to
purchase the units. Notice of an election to complete the second
closing, either by the Company or the investors in the Private Placement, must
be delivered on or before the earliest to occur of December 31, 2009, the common
equity closing described below or the occurrence of a qualifying alternative
common stock financing. If the second closing occurs, it will
be
subject to the
satisfaction of customary closing conditions. Subject to the approval
of the Company’s stockholders, the remaining tranche of $28.5 million of common
stock may be sold in the common equity closing. The common equity
closing may be completed at the Company’s election prior to the earlier of
December 31, 2010 and a qualifying alternative common stock financing, or upon
the election of the holders of a majority of the
Series A Preferred Stock
issued in the Private Placement prior to a date
determined with reference to the Company’s cash balance dropping below $4.0
million at certain future dates. If the Company elects to hold the
common equity closing, it will be subject to the approval of the purchasers
holding a majority of the Series A Preferred Stock issued in the Private
Placement and subject to a condition that the Company sell at least $28.5
million of common stock in the common equity closing.
In the
initial closing for $10.0 million of units, the Company would issue
approximately 2.9 million shares of Series A Preferred Stock, which would
initially be convertible into approximately 29.0 million shares of common stock,
and warrants to purchase approximately 29.0 million shares of common
stock. In the second closing for an additional $5.0 million of units,
if completed, the Company would issue approximately 14.5 million shares of
Series A Preferred Stock, which would initially be convertible into
approximately 14.5 million shares of common stock, and warrants to purchase
approximately 14.5 million shares of common stock. The per unit
purchase price for a share of Series A Preferred Stock and a warrant to purchase
10 shares of common stock would be $3.45 for both the first and second
closings. The warrants issuable at the first and second closings
would have an exercise price of $0.22 per share and a term of seven years from
issuance. In the common equity closing, if completed, the Company
would issue approximately 103.6 million shares of common stock at a purchase
price of $0.275 per share.
The
Company anticipates raising gross proceeds of approximately $10.0 million in
connection with the initial closing of the Private Placement. The net
proceeds, after deducting placement agent fees and other estimated offering
expenses payable by the Company, are expected to be approximately
$8.8 million. The Company anticipates that the gross proceeds of
the second closing and the common equity closing, if they are completed, would
equal approximately $5.0 million and $28.5 million, respectively, before placement
agent fees and offering expenses for such closings. The Company expects any and
all net proceeds received from the Private Placement to be used for working
capital and other general corporate purposes.
The
securities purchase agreement contains customary representations, warranties,
covenants and closing conditions by, among and for the benefit of the parties.
The securities purchase agreement also provides for indemnification of the
investors in the event that any investor incurs losses, liabilities, costs and
expenses related to a breach of the representations and warranties by the
Company under the securities purchase agreement or the other transaction
documents or any action instituted against an investor or its affiliates due to
the transactions contemplated by the securities purchase agreement or other
transaction documents, subject to certain limitations.
The
securities purchase agreement provides that, in connection with the initial
closing of the Private Placement, the Company would adopt a retention plan
pursuant to which 10.5-12.0% of the proceeds of a change of control transaction
of the Company would be allocated to employees. Further,
with respect to the Company’s executives, the Company’s existing executive
severance benefits agreements would be modified to provide that the executive
will receive the greater of the amount currently provided for a covered
termination not in connection with a change of control under his or her existing
executive severance benefits agreement and the proceeds due each individual
executive based on overall net transaction value and individual allocation
percentage pursuant to the retention plan.
Investor Rights
Agreement
It is a
condition to the initial closing of the Private Placement that the Company enter
into an investor rights agreement with the investors, pursuant to which the
Company would grant to the investors certain registration rights with respect to
the securities issued and sold pursuant to the securities purchase agreement.
The Company would grant to the investors certain rights of first refusal with
respect to certain future issuances of the Company’s securities, including as
part of a future equity financing, subject to customary exclusions.
The
investor rights agreement also includes an agreement between the parties with
respect to the size and composition of the Company’s board of directors.
Specifically, upon the initial closing, the size of the Company’s board of
directors would be set at eight members, and the holders of a majority of the
Series A Preferred Stock would be entitled to designate, and the Company would
be required to nominate, three members to the Company’s board of
directors. Alta BioPharma Partners III, L.P. (“Alta”), Bay City
Capital L.P. (“Bay City Capital”) and New Enterprise Associates (“NEA”),
together with their respective affiliates, would each have the right to
designate one such investor designee. Following the earlier to occur of (a) the
second closing, (b) the common equity closing or (c) the closing of a qualifying
alternative common stock financing, provided the investors exercise their
preemptive rights and beneficially own greater than a majority of the Company’s
voting stock as of such applicable closing, the size of the Company’s board of
directors would be increased to nine members, and the holders of a majority of
the Series A Preferred Stock would be entitled to designate, and the Company
would be required to nominate, five members to the Company’s board of
directors. Alta, Bay City Capital and NEA, together with their
respective affiliates, would each have the right to designate one such investor
designee.
Terms of the Series A
Preferred Stock
Immediately prior to the initial
closing of the Private Placement, the Company intends to file a certificate of
designation for the Series A Preferred Stock (the “Certificate”) with the
Secretary of State of the State of Delaware. The Certificate contains the
following terms and conditions with respect to the Series A Preferred
Stock:
Dividends
. The
holders of Series A Preferred Stock are entitled to participate on an
as-converted to common stock basis with respect to any dividends payable to the
holders of common stock.
Voting
. The holders
of Series A Preferred Stock are entitled to the number of votes equal to the
whole number of shares of common stock into which such shares of Series A
Preferred Stock would be convertible on the record date fixed for a meeting of
the Company’s stockholders or the effective date of a written consent by
stockholders, and would, except as otherwise required by law or the Certificate,
vote together with the shares of common stock on all matters and not as a
separate class, at any annual or special meeting of stockholders of the Company,
and may act by written consent in the same manner as the common
stock.
Liquidation
Preference
. Upon any liquidation, dissolution or winding up of the
Company (including certain “change of control” events constituting a
consolidation or merger of the Company or sale, exclusive license or exclusive
partnering of a majority or more of the Company’s assets), the holders of Series
A Preferred Stock are entitled to a liquidation preference, prior to any
distribution of the Company’s assets to the holders of common stock, in an
amount equal to $10.35 per share, plus all accrued but unpaid dividends thereon,
as of the record date for distribution.
Convertibility
. Each
share of Series A Preferred Stock is initially convertible into 10 shares of
common stock, subject to adjustment for any stock dividends, combinations, stock
splits, recapitalizations and the like. All outstanding shares of Series A
Preferred Stock would be automatically converted into shares of common stock at
the then-current conversion rate upon the earlier to occur of:
(i) the
affirmative election of the holders of at least a majority of the outstanding
shares of the Series A Preferred Stock,
(ii)
following the closing of a qualifying alternative common stock financing, on
which the closing bid price has been equal to or at least $0.66 per share for a
period of thirty trading days with an average trading volume during such period
of at least 200,000 shares, or
(iii) the
common equity closing.
Each
holder of Series A Preferred Stock would also have the right to convert its
Series A Preferred Stock into common stock at the then-current conversion ratio
at any time after the earlier of (i) the closing of a qualifying alternative
common stock financing or (ii) January 24, 2011.
In the
event an investor fails to purchase its pro rata portion in the common equity
closing, a pro rata portion (based on the extent of such investor’s failure to
participate) of the shares of Series A Preferred Stock then held by such
investor (or all shares of Series A Preferred Stock then held by the investor if
the investor fails to participate at all) would automatically convert into
common stock at a 1-to-1 conversion rate.
Other Restrictions
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So long as at least 250,000 shares of Series A Preferred Stock remain
outstanding, the Company may not, without the approval of the holders of a
majority of the shares of Series A Preferred Stock outstanding, take any action
that alters or changes the rights, preferences or privileges of the Company’s
preferred stock and certain other actions specified in the Certificate,
including, among other things, (i) any sale, merger or reorganization of Sunesis
or a sale, exclusive license or exclusive partnering (in either case, on a
worldwide or regional basis) of a majority or more of the assets of the Company,
(ii) any issuance of debt or preferred stock and, except if certain conditions
are met, any issuance of common stock, other than pursuant to the Private
Placement, and (iii) any amendment of the Company’s certificate of incorporation
or bylaws.
Risks Related to the Private
Placement
If
the Company is unable to raise additional capital in the near term, the Company
may not be able to continue to operate as a going concern.
The
Company will need to raise substantial additional capital to continue its
development and commercialization of voreloxin. The Company will need to raise
substantial additional capital in the near term to:
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fund
clinical trials and seek regulatory
approvals;
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continue
and expand its development
activities;
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hire
additional development personnel;
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maintain,
defend and expand the scope of its intellectual property
portfolio;
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implement
additional internal systems and infrastructure;
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build
or access manufacturing and commercialization
capabilities.
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The
Company’s future funding requirements will depend on many factors, including but
not limited to:
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the
rate of progress and cost of its clinical trials and other development
activities;
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the
economic and other terms and timing of any licensing or other partnering
arrangement into which the Company may
enter;
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the
costs associated with building or accessing manufacturing and
commercialization capabilities;
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the
costs of acquiring or investing in businesses, product candidates and
technologies, if any;
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the
costs of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property
rights;
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the
costs and timing of seeking and obtaining FDA and other regulatory
approvals; and
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the
effect of competing technological and market
developments.
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While the Company expects to complete the initial
closing of the Private Placement in the near term, it is possible that the
conditions to the initial closing will not be met, in which event the Company
will not receive the $10.0 million of gross proceeds that the Company expects to
receive at that closing. The conditions to the second closing for
$5.0 million of units are more substantial, including conditions related to
approval by the Company’s stockholders, the development of voreloxin and the
Company’s stock price, and it is possible that the conditions to this second
closing will not be met, in which event the Company would not receive the $5.0
million of gross proceeds that are contemplated for that closing. The $28.5
million common equity closing is entirely in the discretion of the investors in
the Private Placement, and it is possible that they will elect not to complete
that closing for reasons related to the Company’s business or other
factors.
Assuming
the initial closing for gross proceeds of $
10.0
million
described above, the Company anticipates that the net proceeds of
the initial closing, together with the Company’s cash, cash equivalents and
marketable securities, will be sufficient to enable the Company to fund its
operations at least through the end of 2009.
In the event the initial closing in the Private
Placement for $10.0 million of units does not occur, the Company’s current cash,
cash equivalents and marketable securities are sufficient to fund its operations
only through April 2009.
Until
the Company can generate a sufficient amount of product revenue to finance its
cash requirements, which the Company may never do, the Company expects to
finance future cash needs primarily through equity issuances (including the
possible closings of the sale of units and common stock
in the Private Placement
described above and
subject to the satisfaction of the conditions described above), debt
arrangements and a possible partnership or license of development and/or
commercialization rights to voreloxin. The Company does not know whether
additional funding will be available on acceptable terms, or at
all.
The
Company is currently continuing to conduct its ongoing clinical trials of
voreloxin in acute myeloid leukemia and ovarian cancer. If the Company is not
able to secure additional funding when needed, the Company may have to delay,
reduce the scope of or eliminate one or more of its clinical trials or scale
back its development program or conduct additional workforce or other expense
reductions. In addition, the Company may have to partner voreloxin at
an earlier stage of development than the Company might otherwise choose to do,
which would lower the economic value of that program to the
Company.
The
Company’s failure to raise capital when needed and on acceptable terms would
require the Company to reduce the Company’s operating expenses, delay or reduce
the scope of the Company’s voreloxin development program and limit the Company’s
ability to continue its operations. Any one of the foregoing would have a
material adverse effect on its business, financial condition and results of
operations.
The closing of the Private Placement will result in
substantial dilution to the Company
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s stockholders.
If the Company sells shares of its common stock in future financings or
other arrangements, stockholders may experience
additional
dilution.
The cl
osing of the
Private Placement will result in substantial dilution to the Company
’
s
stockholders. Following the initial closing, the holders of the
Company
’
s common stock prior thereto will hold approximately
54.3% of the Company
’
s outstanding common sto
c
k (assuming
conversion of the Series A Preferred Stock at the current conversion price), and
will hold approximately 37.2% if the warrants issued at the initial closing are
exercised in full. Following the second closing for $5.0 million of
units, if com
p
leted, the holders of the Company
’
s common stock
prior to the Private Placement will hold approximately 44.2% of the
Company
’
s outstanding common stock (assuming conversion of the
Series A Preferred Stock at the current conversion price), and will hold
ap
p
roximately 28.3% if the warrants issued at the initial
and second closings are exercised in full. Following the common
equity closing, if completed, the holders of the Company
’
s common stock
prior to the Private Placement would hold approximately 19% of
t
he
Company
’
s outstanding common stock (assuming conversion of the
Series A Preferred Stock at the current conversion price), and would hold
approximately 15% if the warrants issued at the initial and second closings are
exercised in full.
The
Company needs to raise substantial additional funds
, through the Private Placement and otherwise,
to
continue its operations, fund additional clinical trials of voreloxin and
potentially commercialize voreloxin. The Company’s plan is to continue to
finance its operations with a combination of
equity issuances (including the possible closings of the
sale of units and common stock in the Private Placement and subject to the
satisfaction of the conditions described above), debt arrangements, and a
possible partnership or license of development and/or commercialization rights
to voreloxin
. Any issuance of convertible debt securities, preferred
stock or common stock may be at a discount from the
then
current trading price of the Company’s
common stock. If the Company issues additional common or preferred stock or
securities convertible into common stock, the Company’s stockholders will
experience
additional
dilution, which may
be significant.
The Company may not have the sufficient funding to
distribute capital to its common
stockholders or continue its business upon a change of
control event.
If a change of control (as that term is defined in the
Certificate related to the Series A Preferred Stock to be issued in the Private
Placement), which includes a sale or merger of the Compan
y or a significant partnering transaction, occurs, the
holders of the Series A Preferred Stock would be entitled to receive, before any
proceeds are distributed to common stockholders, three times the amount that the
investors in the Private Placement paid for the
units ($10.0
million at the initial closing and, if consummated, an additional $5.0 million
at the second closing), which could equal up to a total of $45.0
million. The Company would not have any capital to distribute to its
common stockholders if the c
o
nsideration received in a transaction that triggers a
change of control event under the certificate of designation is less than this
liquidation preference amount. Further, if the investors elect to
treat a partnering transaction as a change of control,
e
ntitling the
holders of the Series A Preferred Stock to the liquidation preference described
above, the holders of the Series A Preferred Stock would be entitled to the full
amount of any payments made by a corporate partner by surrendering the Series A
Preferred Stock, up to the l
i
quidation preference amount, which may leave the Company
with insufficient resources to continue its business. This right of
the holders of the Series A Preferred Stock may also impair its ability to enter
into a significant partnering transaction since a partner
would be
willing to enter into a partnering agreement with the Company only if the
Company has or had access to sufficient capital to satisfy its obligations under
the partnering agreement. Whether or not the Company would have
sufficient resources would
depend on the
terms of the partnering agreement and other cash resources available to the
Company at that time.
The Company cannot take fundamental
actions related to Sunesis without the consent of a majority of the holders of
the Series A Preferred Stock to be is
sued in the Private Placement.
For as long as the Series A Preferred Stock is
outstanding, the holders of the Series A Preferred Stock to be issued in the
Private Placement will be have a number of rights, including the right to
approve any sale of the company, any signif
icant partnering transaction, any issuance of debt or
Series A Preferred Stock and, except if certain conditions are met, any issuance
of common stock other than the second closing and the common equity closing
contemplated by the Private Placement. It is possibl
e
that the
interests of the holders of the Series A Preferred Stock and the holders of
common stock may be inconsistent, resulting in the inability to obtain the
consent of the holders of Series A Preferred Stock to matters that may be in the
best interests of the common st
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ckholders
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Forward-Looking
Statements
Statements made in this Current Report
on Form 8-K that are not historical facts are forward-looking statements
including, without limitation, the statements regarding completion of each
closing of the Private Placement described herein and the anticipated gross
proceeds of the Private Placement. These forward-looking statements are subject
to risks and uncertainties that could cause actual events to differ materially
from those stated, including, among others, the risk that the conditions to
closing in the Private Placement may not be satisfied, resulting in the Company
not receiving any of the expected proceeds from the Private Placement; and risks
related to the terms of the Private Placement and securities to be issued.
Certain of the risks related to the Private Placement are identified above and
other risks related to the Company’s business are discussed under "Risk Factors"
detailed in the Company’s filings with the Securities and Exchange Commission,
including those disclosed in its Quarterly Report on Form 10-Q as of and for the
three months ended September 30, 2008. There may be other factors not
mentioned above or included in the Company’s filings with the
Securities and Exchange Commission that may cause actual results to differ
materially from those projected in any forward-looking statement. You should not
place undue reliance on any forward-looking statements. The Company assumes no
obligation to update any forward-looking statements as a result of new
information, future events or developments, except as required by securities
laws.
Item
2.02. Results of Operations and Financial Condition.
On April 1, 2009, the Company issued a
press release announcing its financial results for the three months and year
ended December 31, 2008. A copy of the press release is furnished
herewith as Exhibit 99.1 and is incorporated herein by reference.
The press release is furnished and
shall not be deemed “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or subject to the liabilities of that Section
or Sections 11 and 12(a)(2) of the Securities Act of 1933, as
amended. The information contained herein and in the accompanying
exhibit shall not be incorporated by reference into any filing with the U.S.
Securities and Exchange Commission made by the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such
filing.
Item 8.01.
Other Events.
On April
1, 2009, the Company issued a press release announcing (i) the Private Placement
described in Item 1.01 of this Current Report on Form 8-K and (ii) a
proposed reduction in force and changes to the Company’s management as described
above and therein. A copy of the press release is furnished herewith as Exhibit
99.2 and is incorporated by reference herein.
Item 9.01
Financial Statements and
Exhibits.
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(d) Exhibits
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Exhibit
Number
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Description
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99.1
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Press
release, dated April 1, 2009, entitled “Sunesis Pharmaceuticals Reports
Fourth Quarter and Full-Year 2008 Financial Results.”
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99.2
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Press
release, dated April 1, 2009, entitled “Sunesis Pharmaceuticals Announces
Up To $43.5 Million
Financing.”
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: April
1, 2009
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SUNESIS
PHARMACEUTICALS, INC.
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By:
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/s/ Eric H.
Bjerkholt
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Eric
H. Bjerkholt
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Senior
Vice President, Corporate Development
and Finance, Chief Financial
Officer
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EXHIBIT
INDEX
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Exhibit
Number
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Description
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99.1
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Press
release, dated April 1, 2009, entitled “Sunesis Pharmaceuticals Reports
Fourth Quarter and Full-Year 2008 Financial Results.”
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99.2
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Press
release, dated April 1, 2009, entitled “Sunesis Pharmaceuticals Announces
Up To $43.5 Million
Financing.”
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