10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q 1 d51517d10q.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

Commission File Number 000-51531

VIRACTA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)


Delaware		94-3295878
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

2533 S. Coast Hwy. 101, Suite 210 Cardiff, California		92007
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (858) 400-8470

Title of each class

Trading

symbol

Name of each exchange

on which registered

Common Stock,

par value $0.0001 per share

VIRX

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer, ” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 7, 2021, the registrant had 37,043,151 shares of common stock outstanding.

VIRACTA THERAPEUTICS, INC.

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION			1
	Item 1.	Financial Statements	1
		Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020	1
		Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 (Unaudited)	2
		Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 (Unaudited)	3
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 (Unaudited)	5
		Notes to Condensed Consolidated Financial Statements (Unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
	Item 4.	Controls and Procedures	23
PART II. OTHER INFORMATION			24
	Item 1.	Legal Proceedings	24
	Item 1A.	Risk Factors	24
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
	Item 3.	Defaults Upon Senior Securities	77
	Item 4.	Mine Safety Disclosure	77
	Item 5.	Other Information	77
	Item 6.	Exhibits	78
SIGNATURES			80

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Viracta Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value and share data)


	March 31, 2021			December 31, 2020
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	129,181		$	47,089
Prepaid expenses		3,123			110

Total current assets		132,304			47,199
Property and equipment, net		40			44
Operating lease right-of-use asset		1,038			986
Other assets		2,827			76

Total assets	$	136,209		$	48,305

Liabilities and stockholders’ equity
Current Liabilities:
Accounts payable	$	1,571		$	1,557
Accrued expenses		3,638			3,362
Operating lease liabilities		483			334
Current portion of long-term debt		573			1,031

Total current liabilities		6,265			6,284
Long-term debt, net		4,633			4,155
Operating lease liabilities, less current portion		567			658
Preferred stock warrant liability		—			106

Commitments and contingencies

Series A-1 Convertible Preferred Stock, $0.0001 par value; 4,819,012 shares authorized, 4,819,012 shares issued and outstanding as of December 31, 2020; liquidation preference of $13,720,612 at December 31, 2020		—			2,968
Series B Convertible Preferred Stock, $0.0001 par value; 2,788,249 shares authorized, 2,788,249 shares issued and outstanding as of December 31, 2020; liquidation preference of $16,811,782 at December 31, 2020		—			15,484
Series C Convertible Preferred Stock, $0.0001 par value; 1,587,722 shares authorized, 1,587,722 shares issued and outstanding as of December 31, 2020; liquidation preference of $10,695,494 at December 31, 2020		—			9,392
Series D Convertible Preferred Stock, $0.0001 par value; 2,240,916 shares authorized, 2,224,329 shares issued and outstanding as of December 31, 2020; liquidation preference of $16,774,988 at December 31, 2020					16,589
Series E Convertible Preferred Stock, $0.0001 par value; 7,472,730 shares authorized, 7,392,240 shares issued and outstanding as of December 31, 2020; liquidation preference of $39,999,997 at December 31, 2020		—			38,869

Stockholders’ equity (deficit):
Convertible preferred stock, $0.0001 par value; 10,000,000 shares authorized as of March 31, 2021; 10,248 shares issued and outstanding as of March 31, 2021		5,452			—
Common stock, $0.0001 par value; 400,000,000 shares authorized; 37,036,294 and 905,987 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		4			1
Additional paid-in capital		249,434			4,714
Accumulated deficit		(130,146	)		(50,915	)

Total stockholders’ equity (deficit)		124,744			(46,200	)

Total liabilities and stockholders’ equity (deficit)	$	136,209		$	48,305

See accompanying notes to these unaudited condensed consolidated financial statements.

Viracta Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
Operating expenses:
Research and development	$	4,024		$	3,446
Acquired in-process research and development		84,478			—
General and administrative		3,840			1,011

Total operating expenses		92,342			4,457
Gain on Royalty Purchase Agreement		13,500			—

Loss from operations		(78,842	)		(4,457	)
Other income (expense):
Interest income		6			40
Interest expense		(105	)		—
Other expense		(290	)		—

Total other income (expense)		(389	)		40

Net loss and comprehensive loss	$	(79,231	)	$	(4,417	)

Net loss per share of common stock, basic and diluted	$	(5.22	)	$	(1.86	)

Weighted-average shares used to compute basic and diluted net loss per share		15,166,737			2,373,560

See accompanying notes to these unaudited condensed consolidated financial statements.

Viracta Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands)

(Unaudited)


	Series A-1 Convertible Preferred Stock				Series B Convertible Preferred Stock				Series C Convertible Preferred Stock				Series D Convertible Preferred Stock				Series E Convertible Preferred Stock				Convertible Preferred Stock				Common Stock				Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount
Balance December 31, 2019		4,819	$	2,968		2,788	$	15,484		1,588	$	9,392		2,224	$	16,589		—	$	—		—	$	—		72	$	—	$	3,515	$	(31,898	)	$	(28,383	)
Vesting of early exercise of employee stock options		—		—		—		—		—		—		—		—		—		—		—		—		1		—		1		—			1
Share-based compensation		—		—		—		—		—		—		—		—		—		—		—		—		—		—		86		—			86
Net loss		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		(4,417	)		(4,417	)

Balance March 31, 2020		4,819	$	2,968		2,788	$	15,484		1,588	$	9,392		2,224	$	16,589		—	$	—		—	$	—		73	$	—	$	3,602	$	(36,315	)	$	(32,713	)


	Series A-1 Convertible Preferred Stock						Series B Convertible Preferred Stock						Series C Convertible Preferred Stock						Series D Convertible Preferred Stock						Series E Convertible Preferred Stock						Convertible Preferred Stock				Common Stock				Additional Paid-in Capital		Accumulated Deficit			Total Stockholders’ Equity (Deficit)
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares		Amount		Shares		Amount
Balance December 31, 2020		4,819		$	2,968			2,788		$	15,484			1,588		$	9,392			2,224		$	16,589			7,392		$	38,869			—	$	—		906	$	1	$	4,714	$	(50,915	)	$	(46,200	)
Exercise of warrants and stock options to purchase common stock		—			—			—			—			—			—			—			—			—			—			—		—		132		—		81		—			81
Vesting of early exercise of employee stock options		—			—			—			—			—			—			—			—			—			—			—		—		1		—		1		—			1
Issuance of common stock net of issuance costs		—			—			—			—			—			—			—			—			—			—			—		—		12,012		1		62,316		—			62,317
Issuance of common stock to former stockholders of Sunesis upon Merger		—			—			—			—			—			—			—			—			—			—			—		—		5,173		—		97,982		—			97,982
Conversion of convertible preferred stock into common stock upon Merger		(4,819	)		(2,968	)		(2,788	)		(15,484	)		(1,588	)		(9,392	)		(2,224	)		(16,589	)		(7,392	)		(38,869	)		—		—		18,812		2		83,300		—			83,302
Reclassification of preferred stock warrant liability to equity		—			—			—			—			—			—			—			—			—			—			—		—		—		—		396		—			396
Issuance of convertible preferred stock to former stockholders of Sunesis upon Merger		—			—			—			—			—			—			—			—			—			—			10		5,452		—		—		—		—			5,452
Share-based compensation		—			—			—			—			—			—			—			—			—			—			—		—		—		—		644		—			644
Net loss		—			—			—			—			—			—			—			—			—			—			—		—		—		—		—		(79,231	)		(79,231	)

Balance March 31, 2021		—		$	—			—		$	—			—		$	—			—		$	—			—		$	—			10	$	5,452		37,036	$	4	$	249,434	$	(130,146	)	$	124,744

See accompanying notes to these unaudited condensed consolidated financial statements.

Viracta Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
	2021			2020
Operating activities
Net loss	$	(79,231	)	$	(4,417	)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquired in-process research and development		84,478			—
Share-based compensation expense		644			86
Depreciation and amortization		16			2
Change in fair value of preferred stock warrant liability		290			—
Change in operating assets and liabilities:
Prepaid expenses and other assets		(2,447	)		(265	)
Other assets		455			(4	)
Accounts payable		(409	)		359
Accrued liabilities		(1,250	)		581
Lease liabilities, net		5			—

Net cash provided by (used in) operating activities		2,551			(3,658	)

Investing activities
Cash acquired in connection with the Merger		17,143			—

Net cash provided by investing activities		17,143			—

Financing activities
Issuance of common stock, net of issuance costs		62,317			—
Exercise of warrants and stock options to purchase common stock		81			—

Net cash provided by financing activities		62,398			—

Net increase (decrease) in cash and cash equivalents		82,092			(3,658	)
Cash and cash equivalents at beginning of period		47,089			18,218

Cash and cash equivalents at end of period	$	129,181		$	14,560

Supplemental disclosure of cash flow information
Interest paid	$	84		$	—

Noncash financing activities
Warrant liability reclassification to equity	$	396			—
Issuance of convertible preferred stock upon Merger	$	5,452			—
Conversion of convertible preferred stock into common stock upon Merger	$	83,302			—
Issuance of common stock upon Merger	$	97,982			—

See accompanying notes to these unaudited condensed consolidated financial statements.

Viracta Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Basis of Presentation

Viracta Therapeutics, Inc. (“Viracta,” the “Company,” or the “combined company”), formerly known as Sunesis Pharmaceuticals, Inc., was incorporated in the state of Delaware in February 1998. The Company is a clinical-stage biopharmaceutical company based in San Diego, California. Viracta is a precision oncology company, focused on the development of new medicines targeting virus-associated malignancies. The Company is currently in the Phase 2 portion of a Phase 1b/2a clinical trial, testing Viracta’s product candidate as a potential therapy for the treatment of relapsed/refractory Epstein-Barr virus-positive (“EBV⁺”) lymphoma.

Merger Transaction between Private Viracta Therapeutics, Inc. and Sunesis Pharmaceuticals, Inc. and Name Change

On November 29, 2020, the Company, then operating as Sunesis Pharmaceuticals, Inc., entered into an agreement and plan of merger and reorganization (the “Merger Agreement”) with privately-held Viracta Therapeutics, Inc. (“Private Viracta”) and Sol Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”). On February 24, 2021, the Merger was completed. Merger Sub merged into Private Viracta, with Private Viracta as surviving the merger as a wholly owned subsidiary of the Company. Sunesis changed its name to Viracta Therapeutics, Inc. On February 25, 2021, the combined company’s common stock began trading on The Nasdaq Global Select Market under the ticker symbol “VIRX”.

Except as otherwise indicated, references herein to “Viracta,” the “Company,” or the “combined company”, refer to Viracta Therapeutics, Inc. on a post-Merger basis, and the term “Private Viracta” refers to the business of privately-held Viracta Therapeutics, Inc., prior to the completion of the Merger. References to “Sunesis” refer to Sunesis Pharmaceuticals, Inc. prior to completion of the Merger.

Pursuant to the terms of the Merger Agreement, each outstanding share of Private Viracta common stock outstanding immediately prior to the closing of the Merger was converted into approximately 0.1119 shares of Company common stock (the “Exchange Ratio”), after taking into account the Reverse Stock Split, as defined below. Immediately prior to the closing of the Merger, all shares of Private Viracta preferred stock then outstanding were exchanged into shares of common stock of Private Viracta. In addition, all outstanding options exercisable for common stock of Private Viracta and warrants exercisable for capital stock of Private Viracta became options and warrants exercisable for the same number of shares of common stock of the Company multiplied by the Exchange Ratio at an exercise price equal to the pre-Merger price divided by the Exchange Ratio. Immediately following the Merger, stockholders of Private Viracta owned approximately 86% of the outstanding common stock of the combined company.

This transaction was accounted for as a reverse asset acquisition in accordance with generally accepted accounting principles in the United States of America (“GAAP”). For accounting purposes, Viracta was considered to be acquiring Sunesis and the Merger was accounted for as an asset acquisition, even though Sunesis was the legal acquirer and the issuer of the common stock in the Merger. This determination was primarily based on the facts that, immediately following the Merger: (i) Private Viracta’s stockholders owned a substantial majority of the voting rights in the combined company, (ii) Private Viracta designated a majority of the members of the initial board of directors of the combined company, and (iii) Private Viracta’s senior management holds all key positions in the senior management of the combined company. As a result, as of the closing date of the Merger, the net assets of the Sunesis were recorded at their acquisition-date relative fair values in the accompanying condensed consolidated financial statements of the Company and the reported operating results prior to the Merger are those of Private Viracta.

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 required an initial screen test to determine if substantially all of the fair value of the gross assets acquired was concentrated in a single asset or group of similar assets. The initial screen test was not met as there was no single asset or group of similar assets for Sunesis that represented a significant majority in this acquisition. However, at the time of the closing of the Merger, Sunesis did not have processes or an organized workforce that significantly contributed to its ability to create outputs, and substantially all of its fair value was concentrated in cash, working capital, and in-process research and development (“IPR&D”). As such, the acquisition was treated as an asset acquisition.

Concurrent with the execution of the Merger Agreement, Private Viracta entered into an agreement for the sale of common stock in a private placement, which was completed immediately prior to the close of the Merger and resulted in gross proceeds of approximately $65.0 million. In connection with the closing of the Merger and the concurrent private placement of common stock, the holders of the Company’s preferred stock waived their right to exchange their shares into any class of the Company’s stock other than common stock.

On February 24, 2021, in connection with, and prior to the completion of, the Merger, the Company effected a 3.5-for-one reverse stock split of its then outstanding common stock (the “Reverse Stock Split”). The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split. Unless otherwise noted herein, references to share and per-share amounts give retroactive effect to the Reverse Stock Split and the Exchange Ratio which was effected upon the Merger.

Liquidity and Risks

As of March 31, 2021, the Company has devoted substantially all of its efforts to product development and has not realized product sales revenues from its planned principal operations. The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven. The Company has experienced net losses since its inception and, as of March 31, 2021, had an accumulated deficit of $130.1 million. The Company expects to continue to incur net losses for at least the next several years. A successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. If the Company is unable to generate revenues adequate to support its cost structure, the Company will need to raise additional equity through the issuance of its common stock, through other equity or debt financings or through collaborations or partnerships with other companies. As of March 31, 2021, the Company had cash and cash equivalents of $129.2 million and working capital of $126 million. In February 2021, as disclosed above, Private Viracta completed the sale of common stock in a private placement resulting in gross proceeds of approximately $65.0 million. Additionally, the Company received approximately $17.1 million in cash and cash equivalents in the Merger previously discussed. Finally, in March 2021, the Company received $13.5 million in upfront proceeds related to the Royalty Purchase Agreement with XOMA (US) LLC (see Note 4). Based on the Company’s current financial position and business plan, management believes that its existing cash and cash equivalents will be sufficient to fund the Company’s planned operations for at least twelve months from the issuance date of these financial statements.

The COVID-19 pandemic has caused significant business disruption around the globe. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the pandemic and the impact on the Company’s clinical trial, employees, and vendors. At this point, the degree to which COVID-19 may impact the Company’s financial condition or results of operations is uncertain. A prolonged pandemic could have a material and adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to complete certain clinical trials and other efforts required to advance the development of its product candidates and raise additional capital. While the Company has not been required to pause enrollment in its current study, delays could still occur and also affect the commencement and operation of future trials.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and have been prepared in accordance with GAAP and follow the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position and its results of operations and its cash flows for the periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the year ended December 31, 2020, which are contained in the Company’s Current Report on Form 8-K/A filed with the SEC on March 23, 2021. The results for interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ materially from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash and cash equivalents.

Significant Accounting Policies

On January 1, 2018, the Company adopted the provisions of ASC 610-20, Gain or Loss From Derecognition of Non-financial Assets (“ASC 610-20”). In accordance with ASC 610-20, the Company recognizes any gains when the Company transfers control of a property and when it is probable that the Company will collect substantially all of the related consideration. The Company had no transactions since the adoption except for on March 22, 2021, the Company entered into a Royalty Purchase Agreement with XOMA (US) LLC (“XOMA”), in which XOMA purchased the potential future milestones and royalties associated with existing licenses relating to two clinical-stage product candidates, DAY101 and vosaroxin, which were obtained in the Merger. The Company received an upfront payment of $13.5 million and may receive up to $20 million in a pre-commercialization, event-based milestone.

There have been no other material changes in the Company’s accounting policies from those disclosed in the audited financial statements and related notes thereto as of and for the year ended December 31, 2020, which are contained in the Company’s Current Report on Form 8-K/A filed with the SEC on March 23, 2021.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include cash in readily available check and money market accounts.

Clinical Trial and Contracts Accruals

Clinical trial costs include payments to sites participating in clinical trials and to outside contract research organizations that assist in developing, monitoring and administering the clinical trials. Measurement of clinical trial expenses and the related accrual recorded in any given period requires judgment as invoices or other notification of actual costs may not exist as of the date of the financial statements, making it necessary to estimate the efforts completed to date and the related expense. The period over which services are performed, the level of services performed as of a given date, and the cost of such services are often subjective determinations. The Company’s principal vendors operate within terms of contracts which establish program costs and estimated timelines. The status of the Company’s programs is assessed in relation to the scope of work outlined in the contracts, and the related amount of expense is recognized accordingly. Estimates are adjusted to actual costs as they become known and subsequent changes to estimates have not historically resulted in a material change to the accruals.

Research and Development Expenses

Research and development costs are expensed as incurred. These costs consist primarily of salaries and other personnel-related expenses, including share-based compensation; facility-related expenses; and services performed by clinical research organizations, research institutions, and other outside service providers.

The Company recorded the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued expenses in the balance sheet and within research and development expense in the statement of operations and comprehensive loss. As actual costs become known, the Company will adjust its accrued expenses and related research and development expenses.

Share-Based Compensation

Share-based compensation expense for stock option grants and restricted stock units (“RSUs”) under the Company’s equity plans is recorded at the estimated fair value of the award as of the grant date and is recognized as expense on a straight-line basis over the requisite service period of the stock-based award, and forfeitures are recognized as they occur. The estimate of fair value for share-based compensation for stock options requires management to make estimates and judgments about, among other things, employee exercise behavior and volatility of the Company’s common stock. The judgments directly affect the amount of compensation expense that will be recognized.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is used in making decisions regarding resource allocation and assessing performance. To date, the Company has viewed its operations and managed its business as one segment operating in the United States. All long-lived assets were located in the United States at March 31, 2021.

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market- based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of the Company’s cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities approximate fair values for these financial instruments due to their short maturities.

The Company’s liabilities measured at fair value on a recurring basis carried on the balance sheet. The preferred stock warrant liability, a level 3 fair value measurement, was $0 as of March 31, 2021, due to the reclassification to equity, and $106,000 as of December 31, 2020. The Company had no assets measured at fair value on a recurring basis as of March 31, 2021. The Company had no assets or liabilities measured at fair value on a recurring basis as of December 31, 2020, other than the preferred stock warrant liability.

Preferred stock warrant liability

The assumptions used in the Black-Scholes option pricing model to determine the fair value of the preferred stock warrant liability were as follows:


	February 24, 2021 (date of Merger close)
Expected volatility		90.2	%
Risk-free interest rate		1.38	%
Expected dividend yield		0	%
Expected term		9.3 years
Fair value per share of preferred stock	$	17.15

The following table provides a reconciliation of the preferred stock warrant liability measured at fair value using Level 3 significant unobservable inputs (in thousands):


	Preferred Stock Warrant Liability
Balance at December 31, 2020	$	106
Change in fair value of preferred stock warrant liability		290
Reclassification to equity		(396	)

Balance at March 31, 2021	$	—

Net Loss Per Share

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares and warrants to purchase common stock outstanding during the period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding, plus the impact of common shares, if dilutive, resulting from the exercise of outstanding common stock equivalents.

The following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would have been anti-dilutive:


	Three Months Ended March 31,
	2021		2020
Shares issuable upon conversion of preferred stock		292,799		11,419,312
Common stock options and RSUs outstanding		4,266,928		1,579,041
Warrants to purchase common stock		23,100		—

Total excluded securities		4,582,827		12,998,353

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which will require a reporting entity to use a new forward-looking impairment model for most financial assets that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, credit losses will be recognized as allowances rather than as reductions in amortized cost. Entities will apply the guidance as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, to increase stakeholders’ awareness of the amendments and to expedite improvements to the Codification. In May 2019, the FASB issued ASU 2019-05, Financial Instruments—Credit Losses, Topic 326, providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. These ASUs do not change the core principle of the guidance in ASU 2016-13. Instead these amendments are intended to clarify and improve operability of certain topics. In November 2019, FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which defers the effective dates of the new credit losses standard for all entities except SEC filers that are not smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The standard and other related subsequently issued ASUs will be effective for the Company for annual periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact that the adoption of the standard and other related subsequently issued ASUs will have on its financial statements and accompanying footnotes.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The amendments in this ASU reduce the number of accounting models for convertible debt instruments and convertible preferred stock, as well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusion. In addition, this ASU improves and amends the related earnings per share guidance. The amendments in this ASU are effective for the Company on January 1, 2024, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition. The Company early adopted ASU 2020-06 on January 1, 2021, electing the modified retrospective transition method that allows for a cumulative-effect adjustment in the period of adoption. The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statements.

3. Financial Statement Details

Accrued expenses consist of the following (in thousands):


	March 31, 2021		December 31, 2020
Accrued payroll and benefits	$	776	$	1,501
Accrued clinical trial and contract expenses		1,773		1,095
Accrued professional services and expenses		321		716
Other accrued expenses		768		50

Total accrued expenses	$	3,638	$	3,362

4. XOMA Transaction

On March 22, 2021, the Company entered into a Royalty Purchase Agreement with XOMA (US) LLC (“XOMA”), in which XOMA purchased the potential future milestones and royalties associated with existing licenses relating to two clinical-stage product candidates, DAY101 and vosaroxin, which were obtained in the Merger (the “XOMA Transaction”). The Company received an upfront payment of $13.5 million and may receive up to $20 million in a pre-commercialization, event-based milestone. The upfront payment is nonrefundable, there are no clawback provisions, and the Company has no significant involvement or obligations going forward related to potential future milestones and royalties. The Company has recognized no income from the milestone to date.

In December 2019, Sunesis entered into a license agreement with DOT Therapeutics-1, LLC (“DOT-1”) to grant DOT-1 a worldwide, exclusive license of DAY101. The DOT-1 license agreement includes up to $57.0 million in potential pre-commercialization, event-based milestone payments and royalty payments on future sales of DAY101, when and if approved and commercialized, $3.0 million of which was received by Sunesis prior to the XOMA Transaction. Also in December 2019, Sunesis entered into an agreement to license vosaroxin to Denovo Biopharma LLC, which includes up to $57.0 million in potential regulatory and commercial milestones, and double-digit royalties on future sales of vosaroxin, when and if approved and commercialized. The potential milestone and royalty payments related to DAY101 and vosaroxin were sold in the XOMA Transaction.

5. Debt

SVB Loan Agreement

On July 30, 2020, Private Viracta and Silicon Valley Bank (the “Lender”) entered into a loan and security agreement ( the “SVB Loan Agreement”), providing for up to $15.0 million in four tranches. Upon entering into the SVB Loan Agreement, Private Viracta borrowed $5.0 million. Under the terms of the SVB Loan Agreement, the Company may, subject to the achievement of certain milestones, borrow from the Lender up to an additional $10.0 million until January 31, 2022.

The loan will be due on the scheduled maturity date of July 1, 2024 (the “Maturity Date”). In accordance with the original terms of the SVB Loan Agreement, repayment of the loan was interest only through July 31, 2021, and in February 2021, upon completion of the private placement of common stock, the interest only period was extended through January 31, 2022. This period of interest only will be followed by 30 equal monthly payments of principal plus accrued interest commencing on February 1, 2022. The per annum interest rate for any outstanding loan is the lesser of (i) 10%, or (ii) the greater of (A) 3.5% above the prime rate or (B) 6.75%. The interest rate as of March 31, 2021 was 6.75% per annum. In addition, a final payment of 7.0% of the amount of the loan drawn will be due on the earlier of the Maturity Date, acceleration of the loan, or prepayment of the loan. The final payment is being accrued through interest expense using the effective interest method. If the Company elects to prepay the loan, a prepayment fee equal to 1% or 2% of the then outstanding principal balance will also be due, depending upon when the prepayment occurs.

The Company is subject to customary affirmative and restrictive covenants under the SVB Loan Agreement. The Company’s obligations under the SVB Loan Agreement are secured by a first priority security interest in substantially all of its current and future assets, other than our intellectual property. The Company has also agreed not to encumber its intellectual property assets, except as permitted by the SVB Loan Agreement.

The SVB Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, the Company’s failure to fulfill certain obligations under the SVB Loan Agreement and the occurrence of a material adverse change in the Company’s business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of Lender’s lien in the collateral or in the value of such collateral. In the event of default by the Company under the SVB Loan Agreement, the Lender would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which the Company may be required to repay all amounts then outstanding under the SVB Loan Agreement. As of March 31, 2021, the Company was in compliance with all financial covenants under the SVB Loan Agreement and there had been no material adverse change.

The following table summarizes future minimum payments under the term loan facility as of March 31, 2021 (in thousands):


Year Ending December 31,
2021	$	258
2022		2,123
2023		2,154
2024		1,543

Total future minimum payments		6,078
Less: interest payments		(1,126	)

Principal amount of long-term debt		4,952
Current portion of long-term debt		(333	)

Long-term debt, net	$	4,619

The debt issuance cost and common stock warrants issued are being accounted for as a debt discount. The debt discount is being amortized as interest expense over the term of the loan using the effective interest method. The carrying value of the debt approximates the fair value (Level 2) as of March 31, 2021.

Paycheck Protection Program Loan

On April 24, 2020, Viracta received loan proceeds of $253,700 from First Republic Bank, as lender, pursuant to the Payment Protection Program (“PPP”) of the CARES Act (the “PPP Loan”). The PPP Loan matures on April 23, 2022 and bears interest at a rate of 1.0% per annum. The PPP Loan is evidenced by a promissory note dated April 23, 2020, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The short term and long-term portions of the PPP Loan are approximately $239,600 and $14,100 respectively, at March 31, 2021.

All or a portion of the PPP Loan may be forgiven by the SBA upon the Company’s application and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act and PPP Flexibility Act, loan forgiveness is available for the sum of documented payroll costs, covered mortgage interest, covered rent payments and covered utilities during the 24-week period beginning on the date of loan disbursement. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal and includes accrued interest.

The Company has used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments, and is seeking forgiveness in accordance with the program.

6. Merger

The Merger, which closed on February 24, 2021, was accounted for as a reverse asset acquisition pursuant to Topic 805, Business Combinations, as substantially all of its fair value was concentrated in cash, working capital, and IPR&D. As the IPR&D assets had no alternative future use, the fair value attributable to these assets was recorded as acquired IPR&D in the Company’s condensed consolidated statements of operations for the three months ended March 31, 2021.

The estimated fair value of total consideration given was $103.4 million based on 5,173,772 shares of Sunesis common stock and 10,248 shares of Sunesis convertible preferred stock (or 292,799 Sunesis common shares on an as-converted basis) outstanding immediately prior to the merger date. The number of outstanding common stock and preferred stock on an as-converted basis was multiplied by the Sunesis closing common stock price of $18.62 on the date of the merger, plus transaction costs of approximately $1.6 million, to determine the estimated fair value of total consideration.

The allocation of the purchase price is as follows (in thousands):


Net assets acquired (1)	$	18,956
Acquired IPR&D (2)		84,478

Purchase price	$	103,434

(1)	Net assets acquired (in thousands):


Cash and cash equivalents	$	17,143
Prepaid expenses and other assets		3,768
Accounts payable and accrued liabilities		(1,955	)

Net assets acquired	$	18,956

(2)

Represents the research and development projects of Sunesis which were in-process, but not yet completed. Current accounting standards require that the fair value of IPR&D projects acquired in an asset acquisition with no alternative future use be allocated a portion of the consideration transferred and charged to expense on the acquisition date. The acquired IPR&D assets did not have outputs or employees.

7. Stockholders’ Equity

Common Stock

The total number of shares of common stock of Viracta outstanding as of March 31, 2021 and December 31, 2020 was 37,036,294 and 905,987, respectively.

Concurrent Financing

On February 24 2021, immediately prior to the closing of the Merger, the Company completed the February 2021 private placement offering of an aggregate of 12,012,369 shares of common stock for gross proceeds of $65 million and incurred fees and other offering costs of approximately $2.7 million.

Convertible Preferred Stock

In connection with the Merger, all of the outstanding shares of Private Viracta’s convertible preferred stock were converted into 18,811,552 shares of the Company’s common stock. As of December 31, 2020, Private Viracta’s convertible preferred stock is classified as temporary equity on the accompanying condensed consolidated balance sheets in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of Private Viracta’s control, including liquidations, sale or transfer of control of Private Viracta. Private Viracta did not adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because the occurrence of any such change of control event was not deemed probable.

With the Merger, the Company obtained 10,000,000 shares of authorized preferred stock available for issuance in one or more series. Upon issuance, the Company can determine the rights, preferences, privileges and restrictions thereof. These rights, preference and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. There were 10,248 shares of this preferred stock outstanding as of March 31, 2021, of which 1,915 shares were Series E Stock and 8,333 shares were Series F Stock.

The Series E Stock and Series F Stock are non-voting Series E and Series F Convertible Preferred Stock at a stated price of $500 and $600 per share, respectively. Each share of non-voting Series E Stock and Series F Stock is convertible at a conversion ratio equal to the stated price divided by the conversion price, which is $17.50 per share and $21.00 per share, respectively, provided that conversion will be prohibited if, as a result, the holder and its affiliates would own more than 9.98% of the total number of shares of common stock then outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series E and Series F Stock will receive a payment equal to $0.0001 per share of Series E and Series F Stock before any proceeds are distributed to the holders of Common Stock. Shares of Series E and Series F Stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of this outstanding Series E Stock will be required to amend the terms of the Series E and Series F Stock. Shares of the Series E and Series F Stock will not be entitled to receive any dividends, unless and until specifically declared by the Company’s board of directors, and will rank:

•

senior to all of the Company’s Common Stock;

•

senior to any class or series of the Company’s capital stock hereafter created specifically ranking by its terms junior to the Series E and Series F Stock;

•

on parity with any class or series of the Company’s capital stock hereafter created specifically ranking by its terms on parity with the Series E and Series F Stock; and

•

junior to any class or series of the Company’s capital stock hereafter created specifically ranking by its terms senior to the Series E and Series F Stock; in each case, as to distributions of assets upon the Company’s liquidation, dissolution or winding up whether voluntarily or involuntarily.

Warrants

Concurrent with the issuance of convertible promissory notes in 2018, the Company issued to the note investors warrants to purchase 250,323 shares of Viracta Common Stock (the “Common Warrants”). The Common Warrants’ exercise price is $0.09 per share. Unless previously exercised, the Common Warrants will expire on the seven-year anniversary of the date of issuance. As of March 31, 2021, 103,114 shares of Viracta Common Stock had been issued upon the exercise of Common Warrants (including net exercises) and Common Warrants to purchase 146,691 shares of Viracta Common Stock remain unexercised. These shares have been included in the weighted average shares outstanding for both basic and diluted earnings per share for the three months ended March 31, 2021 and December 31, 2020 as their exercise price is for nominal consideration.

In July 2020, the Company issued warrants exercisable for 206,440 shares of Series E preferred stock, at an exercise price of $0.6055 per share, to Silicon Valley Bank in conjunction with the Company’s entry into the SVB Loan Agreement (the “Lender Warrants”). Upon completion of the Merger, the Lender Warrants became exercisable for 23,100 shares of common stock at an exercise price of $5.42 per share. The Lender Warrants will expire on July 30, 2030.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance are as follows in common equivalent shares:


	March 31, 2021		December 31, 2020
Conversion of preferred stock		292,799		18,811,552
Common stock warrants		169,791		193,266
Preferred stock warrants		—		23,100
Stock options issued and outstanding for all plans		3,414,742		1,127,840
RSUs outstanding		852,186		—
Authorized for future option grants		1,026,176		1,108,809
Common stock authorized for the ESPP		60,948		—

Total		5,816,642		21,264,567

Equity Incentive Plans

In 2016, the Company adopted the Viracta Therapeutics, Inc. 2016 Equity Incentive Plan (the “2016 Plan”), which permits stock option and restricted stock unit grants to employees, members of the board of directors, and outside consultants. The Plan allows for grants of incentive stock options with exercise prices of at least 100% of the fair market value of Viracta’s common stock, nonqualified options with exercise prices of at least 85% of the fair market value of the Company’s common stock, restricted stock, and restricted stock units. All stock options granted to date have a ten-year life and generally vest over zero to four years. In connection with the closing of the Merger, no further awards will be made under the 2016 Plan but the 2016 Plan will continue to govern the terms and conditions of the outstanding awards previously granted under the 2016 Plan.

At the time of the close of the Merger, the Company adopted the Viracta Therapeutics, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), which also permits stock options and restricted stock unit grants to employees, members of the board of directors, and outside

consultants. The maximum number of shares of the Company’s common stock available for issuance under the 2021 Plan equals the sum of (a) 2,628,571 shares; (b) any shares of common stock of the Company which are subject to awards under the Sunesis 2011 Equity Incentive Plan (the “Sunesis 2011 Plan”) or the 2016 Plan as of the effective date of the 2021 Plan which become available for issuance under the 2021 Plan after such date in accordance with its terms; and (c) an annual increase on the first day of each calendar year beginning with January 1 of the calendar year following the effectiveness of the 2021 Plan and ending with the last January 1 during the initial ten year term of the 2021 Plan. This annual increase would be equal to the lesser of (i) 3,771,428 shares, (ii) five percent of the number of shares of the Company’s common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year, and (iii) such number of shares of the Company’s common stock as determined by the Company’s board of directors. The 2021 Plan allows for grants of incentive stock options with exercise prices of at least 100% of the fair market value of Viracta’s common stock, nonqualified options with exercise prices of at least 100% of the fair market value of the Company’s common stock, restricted stock, and restricted stock units. All stock options granted to date have a ten-year life and generally vest over zero to four years.

Additionally, in connection with the closing of the Merger, no further awards will be made under the Sunesis 2011 Plan. As of March 31, 2021, 165,943 fully vested options remain outstanding under the Sunesis 2011 Plan with a weighted average exercise price of $73.76 per share.

The compensation cost that has been included in the accompanying condensed consolidated statements of operations for all share-based compensation arrangements is detailed as follows (in thousands):


	Three Months Ended March 31,
	2021		2020
Research and development	$	337	$	58
General and administrative		307		28

Total	$	644	$	86

Stock Options

The Company recorded share-based compensation of $569,000 and $86,000 for the three months ended March 31, 2021 and 2020, respectively. Fair value is determined on the date of grant for options. Compensation expense is recognized over the vesting period based on the fair value of the options.

The fair value of stock options is estimated using the Black-Scholes model with the assumptions disclosed in the following table (no grants were made during the three months ended March 31, 2020):


		Three Months Ended March 31,
		2021
Risk free interest rate		0.66% - 1.09%
Expected option term		5.8 – 6.3 years
Expected volatility of common stock		90.2%
Expected dividend yield		0.0%

The expected term of stock options is based on the simplified method, which is an average of the contractual term of the option and its vesting period. The expected volatility of stock options is based upon the historical volatility of a number of publicly traded companies in similar stages of clinical development. The risk-free interest rate is based on the average yield of U.S. Treasury Bills appropriate for the expected term of the stock option grants. The Company has not historically paid cash dividends and does not anticipate declaring dividends in the future. As of March 31, 2021, unrecognized compensation expense related to unvested options granted totaled $14.9 million. The expense is expected to be recognized over a weighted-average period of 3.4 years.

A summary of the stock option activity under the 2016 Plan and the 2021 Plan during the period ended March 31, 2021 is presented below (in thousands except for per share and weighted average term):


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2020		1,128		$	1.08		8.5
Granted		2,231		$	8.30
Exercised		(85	)	$	0.90
Cancelled		(25	)	$	1.26

Outstanding at March 31, 2021		3,249		$	5.66		9.4

Outstanding at March 31, 2021 (Sunesis 2011 Plan)		166		$	73.76		3.5

Restricted Stock Units

The Company recorded share-based compensation of $75,000 and $0 for the three months ended March 31, 2021 and 2020, respectively. For RSU equity awards, grant date fair value is estimated using the closing stock price on the date of grant. Compensation expense is recognized over the vesting period based on the fair value of the RSUs.

A summary of the restricted stock unit activity under the plans during the period ended March 31, 2021 is presented below (in thousands except for per share and weighted average term):


	RSUs		Weighted Average Grant Date Fair Value per Share		Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2020		—	$	—		—
Granted		852		4.22
Vested		—		—
Cancelled		—		—

Outstanding at March 31, 2021		852	$	4.22		3.9

As of March 31, 2021, unrecognized compensation expense related to unvested RSUs totaled $3.5 million. The expense is expected to be recognized over a weighted-average period of 3.9 years.

Employee Stock Purchase Plan

The Company adopted the 2011 Employee Stock Purchase Plan (the “2011 ESPP”) as part of the Merger. The 2011 ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Eligible employees can purchase shares of the Company’s common stock at 85% of the lower of the fair market value of the common stock at (i) the beginning of a 12-month offering period, or (ii) at the end of one of the two related 6-month purchase periods. No participant in the 2011 ESPP may be issued or transferred shares of common stock value at more than $25,000 per calendar year.

As of March 31, 2021, there were 60,948 shares available for future issuance under the ESPP.

8. Commitments and Contingencies

Leases

In 2018, the Company negotiated a one-year lease for its office (“Lease”). The effective date of the Lease was September 1, 2018. Under the terms of the Lease the rental rate was $14,132 per month. In June 2019, the Company amended the term of the Lease to extend the termination date to August 31, 2020. Under the terms of the Lease amendment, the rental rate was $14,980 per month. Upon the Lease amendment, the Company no longer met the short-term lease exemption and recorded an operating lease right-of-use (“ROU”) asset and corresponding lease liability for $225,000.

In June 2020, the Company amended the Lease and another existing office lease to enter into a noncancelable operating lease to extend the lease term through August 2023 with a renewal option for an additional year (“Amended Lease”). The Amended Lease monthly base rent will increase approximately 4% annually from $20,019 to $21,444 over the life of the lease, including utilities and other operating costs. Upon the execution of the Amended Lease, the Company recorded an operating lease ROU asset and corresponding lease liability for $667,000.

In August 2020, the Company entered into an additional noncancelable operating lease agreement for certain office space with a lease term from August 2020 through August 2023 with a renewal option for an additional year (“New Lease”). The New Lease also includes a buyout option to terminate the lease prior to its expiration with at least one month’s prior written notice and a one-time payment equal to four months’ rent. The New Lease monthly base rent will increase approximately 4% to 9% from $12,462 to $14,033 over the life of the lease, including utilities and other operating costs. In connection with the execution of the New Lease, the Company recorded an operating lease ROU asset and corresponding lease liability for $439,000.

Total lease expense for the three months ended March 31, 2021 and 2020 was $71,354 and $47,170, respectively. At March 31, 2021, the Company had remaining lease liabilities of approximately $1,049,981 of which $567,128 was recorded as noncurrent lease liability as of March 31, 2021, and operating lease ROU assets of $1,038,103. Total cash paid for amounts included in the measurement of operating lease liabilities was $99,116 and $55,680 for the three months ended March 31, 2021 and 2020, respectively. The weighted average discount rate for the operating leases recorded during the twelve months ended December 31, 2020 was 8.0% and the weighted average remaining lease term was 2 years as of March 31, 2021.

Indemnifications

As permitted under Delaware law, the Company indemnifies its officers, directors, and employees for certain events and occurrences while the officer, or director is, or was, serving at the Company’s request in such capacity.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the consolidated financial statements and accompanying notes thereto for the fiscal year ended December 31, 2020 contained in our Form 8-K/A filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2021. Past operating results are not necessarily indicative of results that may occur in future periods.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange” Act). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, prospective product candidates, product approvals, future regulatory developments, research and development costs, the timing and likelihood of success, plans and objectives of management for future operations, future results of current and anticipated products and the expected impact of the novel coronavirus (“COVID-19”) on us, U.S. Food and Drug Administration (the “FDA”), or on third parties on whom we rely, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statement. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely. As a result of many factors, including without limitation those set forth under “Risk Factors” under Item 1A of Part II below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. Except as required by applicable law, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Viracta,” “we,” “us” and “our” refer to Viracta Therapeutics, Inc.

Overview

Viracta is a clinical-stage, 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”). Viracta’s lead product candidate is an all-oral combination of nanatinostat, Viracta’s proprietary investigational drug, and valganciclovir. Viracta has recently completed enrollment in the Phase 2 portion of its ongoing Phase 1b/2 clinical trial for the treatment of EBV-positive lymphoma and expects updated data from this trial in the second half of 2021. Viracta also plans to initiate its global pivotal trial in the second quarter of 2021. In addition, Viracta expects the clearance of a U.S. Investigational New Drug application for the treatment of EBV-associated solid tumors in mid-2021 and expects to initiate a global Phase 1b/2 clinical trial the second half of 2021.

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 300,000 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 180,000 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 Kaposi’s sarcoma virus, and gastrointestinal carcinomas with Human Herpesvirus 6.

Development Plans

Viracta plans to initiate NAVAL-1 (Nanatinostat in Combination with Valganciclovir), a multinational, multicenter, open-label Phase 2 basket design trial. The trial will include multiple subtype-specific cohorts of relapsed/refractory (“R/R”) EBV-positive lymphoma

patients designed to evaluate the anti-tumor activity of the combination treatment of nanatinostat with valganciclovir and is anticipated to enroll up to 140 patients. The primary endpoint of the trial is objective tumor response rate as assessed by an independent review committee, while secondary endpoints include duration of response, survival outcomes, and the safety profile of the combined treatment. If successful, Viracta believes this trial could support multiple U.S. New Drug Application filings across various EBV-positive lymphoma subtypes. Viracta also plans to initiate a Phase 1b/2 trial in EBV⁺ solid tumors, including NPC and GC, in the second half of 2021.

Viracta has received Fast Track Designation by the U.S. Food and Drug Administration 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.

Recent Developments

Merger and Reverse Stock Split

On February 24, 2021, Sunesis Pharmaceuticals, Inc. (“Sunesis”) completed the business combination with Viracta Therapeutics, Inc. (“Private Viracta”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated November 29, 2020, by and among the Company, Sol Merger Sub, Inc. (“Merger Sub”) and Private Viracta (the “Merger Agreement”), pursuant to which Merger Sub merged with and into Private Viracta, with Private Viracta surviving as a wholly owned subsidiary of Sunesis (the “Merger”).

Also, on February 24, 2021, in connection with and immediately prior to the effective time of the Merger (the “Effective Time”), we effected a reverse stock split of our common stock, par value $0.0001 per share (“Common Stock”), at a ratio of 3.5:1 (the “Reverse Stock Split”), and we changed our name from “Sunesis Pharmaceuticals, Inc.” to “Viracta Therapeutics, Inc.” (the “Name Change”). Following the completion of the Merger, the business conducted by the combined company became primarily the business conducted by Viracta, a clinical-stage, precision oncology company focused on advancing new medicines for the treatment of virus-associated malignancies.

Under the terms of the Merger Agreement, we issued shares of the Company’s Common Stock to Private Viracta’s stockholders, at an exchange ratio of 0.1119 shares of Common Stock (taking into account the Reverse Stock Split), in exchange for each share of Private Viracta’s common stock outstanding as of the Effective Time (including the shares of common stock issuable upon conversion of all shares of Private Viracta preferred stock prior to the Effective Time). The combined company also assumed all of the stock options issued and outstanding under the Viracta 2016 Equity Incentive Plan, as amended, (the “2016 Viracta Plan”) and issued and outstanding warrants of Private Viracta, with such stock options and warrants henceforth representing the right to purchase a number of shares of Common Stock equal to 0.1119 multiplied by the number of shares of Private Viracta’s common stock previously represented by such stock options and warrants, as applicable.

Immediately following the Effective Time, there were approximately 37.0 million shares of Common Stock outstanding (post Reverse Stock Split). Immediately following the Effective Time, the Private Viracta stockholders owned approximately 86% of the outstanding shares of Common Stock, and Sunesis stockholders immediately prior to the Merger, whose shares of Common Stock remain outstanding after the Merger, owned approximately 14% of the outstanding shares of Common Stock.

The Common Stock, which was previously listed on The Nasdaq Stock Market LLC (“Nasdaq”) and traded through the close of business on February 24, 2021, under the ticker symbol “SNSS,” commenced trading on Nasdaq under the ticker symbol “VIRX” on February 25, 2021. The shares previously traded on The Nasdaq Capital Market and began trading on The Nasdaq Global Select Market as of February 25, 2021.

Impact of COVID-19

In December 2019, a novel strain of coronavirus, otherwise known as COVID-19, was reported in Wuhan, China. On March 11, 2020, the World Health Organization (the “WHO”) declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to the coronavirus outbreak. This outbreak has severely impacted global economic activity, and many countries and many states in the United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. To date, our programs have not experienced significant COVID-19 related delays. The continued COVID-19 pandemic may negatively impact our workforce and our research and development activities. See Item 1A - “Risk Factors” for additional information regarding the potential impact of the COVID-19 pandemic on our business, results of operations and financial condition.

Financial Operations Overview

Research and Development Expenses

We expense all research and development expenses as they are incurred. Research and development expenses primarily include:

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clinical and regulatory-related costs;

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expenses incurred under agreements with contract research organizations (“CROs”);

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manufacturing and stability testing costs and related supplies and materials; and

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employee-related expenses, including salaries, benefits, travel and share-based compensation expense.

All of our research and development expenses to date have been incurred in connection with the development of nanatinostat in combination with valganciclovir. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development and commercialization of nanatinostat in combination with valganciclovir is still highly uncertain. We are unable to estimate with any certainty the costs we will incur in the continued development and regulatory review of nanatinostat in combination with valganciclovir, though such costs may be significant. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We may never succeed in achieving marketing approval for our product candidate.

The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:

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per patient trial costs;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible subjects;

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the number of subjects that participate in the trials;

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the number of doses that subjects receive;

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the cost of comparative agents used in trials;

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the drop-out or discontinuation rates of subjects;

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potential additional safety monitoring or other studies requested by regulatory agencies;

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the duration of patient follow-up; and

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the efficacy and safety profile of the product candidate.

We do not yet know when nanatinostat in combination with valganciclovir may be commercially available, if at all.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, including share-based compensation. Other general and administrative expenses include professional fees for accounting, tax, patent costs, legal services, insurance, facility costs and costs associated with being a publicly-traded company, including fees associated with investor relations and directors and officers liability insurance premiums. We expect that general and administrative expenses will increase in the future as we expand our operating activities, prepare for the growth needs associated with potential commercialization of nanatinostat in combination with valganciclovir and continue to incur additional costs associated with being a publicly-traded company and maintaining compliance with exchange listing and SEC requirements. These increases will likely include higher consulting costs, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and fees associated with investor relations.

Other income (expense)

Other income (expense) consists of interest income and expense as well as various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts and money market accounts for cash and cash equivalents. Interest expense is primarily attributable to interest charges associated with borrowings under the loan and security agreement with Silicon Valley Bank.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.

The critical accounting policies and estimates underlying the accompanying unaudited financial statements are those set forth in our financial statements and accompanying notes for the year ended December 31, 2020, which are contained in our Current Report on Form 8-K/A filed with the SEC on March 23, 2021.

Other Information

None.

Results of Operations

Comparison of Three Months Ended March 31, 2021 and 2020

The following table summarizes the results of our operations for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
	2021		2020		Change
Research and development expenses	$	4,024	$	3,446	$	578
General and administrative expenses		3,840		1,011		2,829
Acquired in-process research and development		84,478		—		84,478
Gain on Royalty Purchase Agreement		13,500		—		13,500
Other expense		290		—		290

Research and Development Expenses. Research and development expenses for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 increased by approximately $578,000. The increase in research and development expenses for the three months ended March 31, 2021 was primarily due to increases in costs incurred to support the initiation of the NAVAL-1 trial as well as an increase in headcount and non-cash share-based compensation.

General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 increased by approximately $2.8 million. The increase is largely due to expenses associated with the merger and functioning as a public company and non-cash share-based compensation. The increase includes legal fees, audit fees, consulting expenses, filing fees and increase directors and officer’s insurance costs.

Acquired in-process research and development. The expense is the estimated fair value of the in-process research and development projects acquired in the asset acquisition with no alternative future use which was charged to expense on the Merger date.

Gain on Royalty Purchase Agreement. The gain was associated with upfront proceeds of $13.5 million recorded in connection with the multi-license milestone and royalty monetization transaction with XOMA (US) LLC.

Other expense. Other expense was the fair market value adjustment to the preferred stock warrant liability.

Liquidity and Capital Resources

As of March 31, 2021, we have devoted substantially all of our efforts to product development and have not realized product sales revenues from our planned principal operations. We have a limited operating history, and the sales and income potential of our business and market are unproven. We have experienced net losses since our inception and, as of March 31, 2021, had an accumulated deficit of $130.1 million. We expect to continue to incur net losses for at least the next several years. A successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure. If we are unable to generate revenues adequate to support our cost structure, we will need to raise additional equity through the issuance of our common stock, through other equity or debt financings or through collaborations or partnerships with other companies. As of March 31, 2021, we had cash and cash equivalents of $129.2 million and working capital of $126 million. In February 2021, as noted below, we completed the sale of common stock in a private placement resulting in gross proceeds of approximately $65.0 million. Additionally, we received approximately $17.1 million in cash and cash equivalents in the Merger previously discussed. Finally, we received $13.5 million in upfront proceeds related to the Royalty Purchase Agreement with XOMA (US) LLC, as discussed in the financial statement footnotes. Based on our current financial position and business plan, management believes that our existing cash and cash equivalents will be sufficient to fund our planned operations for at least twelve months from the issuance date of these financial statements.

We expect to continue to incur expenses and increase operating losses for at least the next several years. In the near-term, we anticipate incurring costs as we:

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conduct ongoing and planned development activities;

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initiate pre-approval and pre-commercialization activities for our lead product candidate;

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continue the preparation of the commercial manufacturing process;

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maintain, expand and protect our intellectual property portfolio; and

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continue to fund the additional accounting, legal, insurance and other costs associated with being a public company.

The following table summarizes our cash flows for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
	2021		2020
Net cash provided by (used in) operating activities	$	2,551	$	(3,658	)
Net cash provided by investing activities		17,143		—
Net cash provided by financing activities		62,398		—

Net increase (decrease) in cash and cash equivalents	$	82,092	$	(3,658	)

Operating Activities. Cash provided by operating activities was $2.6 million for the three months ended March 31, 2021, as compared to cash used by operating activities of $3.7 million for the three months ended March 31, 2020. This change is primarily due to the $13.5 million in received from the Royalty Purchase Agreement with XOMA (US) LLC, and recorded into income in the period, offset by the effect of the reverse merger accounting and operating results.

Investing Activities. Net cash provided by financing activities was $17.1 million for the three months ended March 31, 2021 compared to zero for the three months ended March 31, 2021. This change is a result of the cash and cash equivalents acquired in the Merger.

Financing Activities. Net cash provided by financing activities was $62.4 million for the three months ended March 31, 2021 compared to zero for the three months ended March 31, 2021. This change is a result of the financing proceeds from sale of common stock concurrent with the reverse merger, net of issuance costs.

The amount and timing of our future funding requirements will depend on many factors, including but not limited to:

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we may not have sufficient financial and other resources to complete clinical development and commercialization for nanatinostat in combination with valganciclovir;

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we may not be able to provide acceptable evidence of safety and efficacy for nanatinostat in combination with valganciclovir;

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we may be required to undertake additional clinical trials and other studies of nanatinostat in combination with valganciclovir;

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FDA may disagree with the design of our future clinical trials, if any are necessary;

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variability in subjects, adjustments to clinical trial procedures and inclusion of additional clinical trial sites;

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FDA may not agree with the analysis of our clinical trial results;

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the results of our clinical trials may not meet the level of statistical or clinical significance or other bioequivalence parameters required by FDA for marketing approval;

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subjects in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to our products;

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contract manufacturers, suppliers, and/or consultants may not meet appropriate timelines;

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we may not be able to obtain, maintain and enforce our patents and other intellectual property rights;

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we may not be able to establish commercial-scale manufacturing capabilities; and

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we may not be able to establish commercialization capabilities.

If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing may impose upon us covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any equity or debt financing may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to other parties rights to develop or commercialize our drug candidates that we would prefer to retain.

Off-Balance Sheet Arrangements

Through March 31, 2021, we have not entered into and did not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose.

Contractual Obligations and Commitments

On March 22, 2021, we entered into the Royalty Purchase Agreement with XOMA (US) LLC, pursuant to which, XOMA (US) LLC paid us an upfront payment of $13.5 million for the right to receive future milestones and royalties that we are entitled to receive under the terms of a license agreement with DOT Therapeutics-1, Inc. dated December 16, 2019 and a license agreement with Denovo Biopharma LLC dated December 5, 2019, net of certain obligations we have to a third party. Pursuant to the Royalty Purchase Agreement, we (directly or through a wholly-owned subsidiary) are also eligible to receive an up to $20 million pre-commercialization, event based milestone.

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

As of March 31, 2021, there have been no material changes in our market risk from that described in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 24, 2021.

Item 4.

Controls and Procedures

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by SEC Rule 13a-15(b), as of March 31, 2021 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.

Changes in Internal Control Over Financial Reporting

On February 24, 2021, we completed the Merger as described above. Otherwise, there were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended March 31, 2021 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

We are currently not a party to any material legal proceedings.

Item 1A.

Risk Factors

We operate in a rapidly changing environment that involves numerous uncertainties and risks. In addition to the other information included in this Quarterly Report on Form 10-Q, the following risks and uncertainties may have a material and adverse effect on our business, financial condition, results of operations, or stock price. You should consider these risks and uncertainties carefully, together with all of the other information included or incorporated by reference in this Quarterly Report on Form 10-Q. The risks and uncertainties described below may not be the only ones we face. If any of the risks or uncertainties we face were to occur, the trading price of our securities could decline, and you may lose all or part of your investment. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report.

Risk factors include, but are not limited to, statements concerning the following:

Risks related to our financial position:

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our limited operating history and no products approved for commercial sale;

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we have incurred net losses in every year since our inception and anticipates that we will continue to incur net losses in the future;

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our ability to generate revenue and achieve profitability; and

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we will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete the development and commercialization of our product candidates;

Risks related to the discovery, development and commercialization of our product candidates:

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our future success is highly dependent on future revenues from our lead product candidate, nanatinostat in combination with valganciclovir, and we may be unable to complete development of, obtain approval for and commercialize nanatinostat in combination with valganciclovir;

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there may be delays in completing the pivotal clinical trial for nanatinostat in combination with valganciclovir in EBV⁺ lymphomas, which may lead to a delay in commercializing nanatinostat in combination with valganciclovir and our development costs increasing;

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clinical development is a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidate;

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our product candidates may not demonstrate safety and efficacy to the satisfaction of the U.S. Food and Drug Administration (the “FDA”), European Medicines Agency (the “EMA”) or other comparable foreign regulatory authorities or otherwise produce positive results;

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our future clinical trials may reveal significant adverse events not seen in its preclinical studies or other clinical trials and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of its product candidate;

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any positive results from early preclinical studies and clinical trials are not necessarily predictive of the results of any future clinical trials;

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interim top-line and preliminary data from our clinical trials that we announce or publish 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;

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if we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected;

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risks associated with public health threats and epidemics, including the COVID-19 pandemic and related public health emergency;

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we are developing nanatinostat in combination with valganciclovir, which is a combination containing a product developed and commercialized by parties other than us and approved outside of oncology, which exposes us to additional risks;

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we may develop nanatinostat in combination with valganciclovir or other product candidates in combination with other therapies, which exposes us to additional risks;

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if we are required by the FDA to obtain approval of a companion diagnostic test in connection with approval of nanatinostat in combination with valganciclovir or any of our other product candidates, and we do not obtain or face delays in obtaining FDA approval of a diagnostic device, we will not be able to commercialize such product candidate and our ability to generate revenue will be materially impaired;

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we have limited resources and are currently focusing our efforts on developing nanatinostat in combination with valganciclovir for particular indications and advancing our preclinical programs which may cause us to fail to capitalize on other product candidates that may be more profitable;

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our competitors could develop and market technologies or products more rapidly than we do or that are more effective, safer or less expensive than the products we develop, our commercial opportunities will be negatively impacted;

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changes in methods of product candidate manufacturing or formulation may result in additional costs or delay;

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

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the market opportunities for our products;

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our ability to grow our product pipeline; and

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our business entails a significant risk of product liability and if we are unable to obtain sufficient insurance coverage such inability could have an adverse effect on our business and financial condition.

Risks related to the regulatory environment:

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extensive federal and state regulation related to our business by numerous government agencies, including the FDA;

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we may not be able to obtain or maintain orphan drug designation or obtain or maintain orphan drug exclusivity for our product candidates and, even if we do, that exclusivity may not prevent the FDA, EMA or other comparable foreign regulatory authorities, from approving competing products;

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the potential difficulties from changes to current regulations and future legislation;

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the potential need to seek additional clearances or approvals for our products; and

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potential FDA or state regulatory enforcement action.

Risks related to employee matters, managing our growth, and other risks related to our business:

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our success is highly dependent on our ability to attract and retain highly skilled executive officers and employees;

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the possibility that we are unable to establish sales or marketing capabilities or enter into agreements with third parties to sell or market our product candidates;

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the potential difficulties growing the size of our organization; and

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federal income tax reform could materially adversely affect our financial condition.

Risks related to our intellectual property:

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our ability to secure and maintain patent or other intellectual property protection for the intellectual property used in our proprietary technologies;

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the possibility that any of our patents may be challenged, invalidated, circumvented or rendered unenforceable; and

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patent and other intellectual property litigation if our products infringe or appear to infringe the intellectual property rights of others.

Risks related to our common stock:

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the volatility of the trading price of our common stock;

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the publication of research reports by securities or industry analysts;

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potential sales of a large number of shares of our common stock;

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anti-takeover provisions in our charter documents and under Delaware law; and

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our intention not to pay dividends for the foreseeable future.

Risks Related to our Financial Position and Need for Additional Capital

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

We are a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. We have no products approved for commercial sale and have not generated any revenue. Drug development is a highly uncertain undertaking and involves a substantial degree of risk. We are currently conducting a Phase 1b/2 clinical trial of our lead product candidate, nanatinostat in combination with valganciclovir, in Epstein-Barr virus-positive (“EBV⁺”) lymphomas and plan to initiate a registrational trial of nanatinostat in combination with valganciclovir in EBV⁺ lymphomas in the first half of 2021 and a Phase 1b/2 clinical trial of nanatinostat in combination with valganciclovir in EBV⁺ solid tumors in the second half of 2021. To date, we have devoted substantially all of our resources to research and development activities, business

planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital and providing general and administrative support for these operations.

We have not yet demonstrated our 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 our 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 our likelihood of success and viability than it could be if we had a longer operating history.

In addition, we 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. We may also need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We have not yet demonstrated an ability to successfully overcome such risks and difficulties, or to make such a transition. If we do not adequately address these risks and difficulties or successfully make such a transition, our business will suffer.

We have incurred significant net losses since our inception, and we expect to continue to incur significant net losses for the foreseeable future.

We have incurred significant net losses since our inception, have not generated any revenue from product sales to date and have financed our operations principally through private placements of our convertible preferred and common stock. Our net loss was $79.2 million for the quarter ended March 31, 2021. As of March 31, 2021, we have an accumulated deficit of $130.1 million. Our lead product candidate, nanatinostat in combination with valganciclovir, is in a Phase 1b/2 clinical trial, and we plan to initiate a registrational trial in lymphomas in the first half of 2021 and a Phase 1b/2 trial in solid tumor cancers in the second half of 2021. Our other programs are in preclinical discovery and research stages. As a result, we expect that it will be several years, if ever, before we have a commercialized product and generate revenue from product sales. Even if we succeed in receiving marketing approval for and commercializing one or more of our product candidates, we expect that we will continue to incur substantial research and development and other expenses in order to discover, develop and market additional potential products.

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

Our ability to generate revenue and achieve profitability depends significantly on our ability to achieve several objectives relating to the discovery, development and commercialization of our product candidates.

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

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successful and timely completion of preclinical and clinical development of our lead product candidate, nanatinostat in combination with valganciclovir, and our other future product candidates;

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establishing and maintaining relationships with contract research organizations (“CROs”) and clinical sites for the clinical development of nanatinostat in combination with valganciclovir and our other future product candidates;

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

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

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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 our product candidates, if approved;

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

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

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

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keeping abreast of changes to applicable regulatory requirements and maintaining compliance with such requirements;

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

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identifying, assessing and developing new product candidates;

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

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protecting our rights in our intellectual property portfolio;

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

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

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

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addressing any competing therapies and technological and market developments; and

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attracting, hiring and retaining qualified personnel.

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

We will require substantial additional capital to finance our operations. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce and/or eliminate one or more of our 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. Our operations have consumed substantial amounts of cash since inception, and we expect our expenses to increase in connection with our ongoing activities, particularly as we conduct clinical trials of, and seek marketing approval for, nanatinostat in combination with valganciclovir. Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with sales, marketing, manufacturing and distribution activities. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or other regulatory agencies to perform clinical trials or preclinical studies in addition to those that we currently anticipate. Other unanticipated costs may also arise. In addition, if we obtain marketing approval for any of our product candidates, including nanatinostat in combination with valganciclovir, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. Because the design and outcome of our planned and anticipated clinical trials are highly uncertain, we 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 we develop. We are not permitted to market or promote nanatinostat in combination with valganciclovir, or any other product candidate, in the U.S. before it receives marketing approval from the FDA. Accordingly, we will need to obtain substantial additional funding in order to continue our operations.

As of March 31, 2021, we had $129.2 million in cash and cash equivalents. Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our planned operating expenses and capital expenditures into 2024. Our estimate as to how long we expect our existing cash and cash equivalents to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.

We plan to use the existing cash and cash equivalents to fund our ongoing and planned clinical trials of nanatinostat in combination with valganciclovir and to fund our other research and development activities, as well as for working capital and other general corporate purposes. Advancing the development of nanatinostat in combination with valganciclovir and any other product candidate, will require a significant amount of capital. The existing cash and cash equivalents will not be sufficient to fund all of the activities that are necessary to complete the development of nanatinostat in combination with valganciclovir.

We 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 our stockholders or restrict our operating activities. Pursuant to the terms of the Loan and Security Agreement between us and Silicon Valley Bank (“SVB”), dated July 30, 2020, as amended (the “SVB Loan Facility”), we have 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 our future operations. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that we raise 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 our business. Under our license agreements with Shenzhen Salubris Pharmaceutical Co. Ltd. and ImmunityBio, Inc., we may be entitled to receive future milestone and royalty payments. If we raise additional funds through up-front payments or milestone payments pursuant to strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates or grant licenses on terms that are not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

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

Risks Related to the Discovery, Development and Commercialization of our Product Candidates

We are substantially dependent on the success of our lead product candidate, nanatinostat in combination with valganciclovir, which is planned to begin registrational trial in the second quarter of 2021. If we are unable to complete development of, obtain approval for and commercialize nanatinostat in combination with valganciclovir for one or more indications in a timely manner, our business will be harmed.

Our future success is dependent on our ability to timely and successfully complete clinical trials, obtain marketing approval for and successfully commercialize nanatinostat in combination with valganciclovir, our lead product candidate. We are investing the majority of our efforts and financial resources in the research and development of nanatinostat in combination with valganciclovir for multiple indications. Our lead product candidate 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, we initiated a Phase 1b/2 clinical trial evaluating nanatinostat in combination with valganciclovir in patients with relapsed/refractory EBV⁺ lymphomas. Prior to these clinical trials, nanatinostat has been studied in one previous clinical trial. Nanatinostat in combination with valganciclovir will require additional clinical development, expansion of manufacturing capabilities, marketing approval from government regulators, substantial investment and significant marketing efforts before we can generate any revenues from product sales. We are not permitted to market or promote nanatinostat in combination with valganciclovir, or any other product candidate, before it receives marketing approval from the FDA and comparable foreign regulatory authorities, and we may never receive such marketing approvals.

The success of the nanatinostat in combination with valganciclovir product candidate will depend on several factors, including the following:

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the successful and timely completion of our ongoing and planned clinical trials of nanatinostat in combination with valganciclovir;

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addressing any delays in our clinical trials and additional costs incurred as a result of the coronavirus-19 (“COVID-19”) pandemic, including those resulting from preclinical study delays and adjustment to our clinical trials;

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

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maintaining and establishing relationships with CROs and clinical sites for the clinical development of nanatinostat in combination with valganciclovir both in the United States and internationally;

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

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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 nanatinostat in combination with valganciclovir from applicable regulatory authorities;

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

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maintaining compliance with applicable regulatory and quality requirements;

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

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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 nanatinostat in combination with valganciclovir;

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

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the protection of our rights in our intellectual property portfolio;

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the successful launch of commercial sales following any marketing approval;

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a continued acceptable safety profile following any marketing approval;

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

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our ability to compete with other therapies.

We do not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to our intellectual property rights and the manufacturing, marketing, distribution and sales efforts of our current or any future collaborator. If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize nanatinostat in combination with valganciclovir, which would materially harm our business. If we do not receive marketing approvals for nanatinostat in combination with valganciclovir, we may not be able to continue our operations.

If there are delays in completing the registrational clinical trial for nanatinostat in combination with valganciclovir in EBV⁺ lymphomas, we will be delayed in commercializing nanatinostat in combination with valganciclovir, our development costs may increase, and our business may be harmed.

The registrational clinical trial of nanatinostat in combination with valganciclovir in relapsed/refractory EBV⁺ lymphomas is expected to be initiated in the first half of 2021. Our product development costs could increase if we experience delays. Significant trial delays also could shorten any periods during which we may have the exclusive right to commercialize nanatinostat in combination with valganciclovir or allow our competitors to bring products to market before we do, which would impair our ability to successfully capitalize on nanatinostat in combination with valganciclovir and may harm our business, results of operations and prospects. Events that may result in a delay or unsuccessful completion of clinical development of nanatinostat in combination with valganciclovir include, among other things:

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

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

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imposition of a clinical hold by the FDA or other regulatory authorities, a decision by the FDA, other regulatory authorities, 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;

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

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

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delays in the testing, validation, manufacturing and delivery of nanatinostat and valganciclovir to the clinical trial sites;

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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;

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failure to demonstrate the efficacy of nanatinostat in combination with valganciclovir in this clinical trial;

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

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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 us to timely complete clinical development could result in additional costs to us or impair our ability to generate product revenues or development, regulatory, commercialization and sales milestone payments and royalties on product sales.

In addition to nanatinostat in combination with valganciclovir, our 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.

Our future operating results are dependent on our ability to successfully discover, develop, obtain regulatory approval for and commercialize product candidates other than nanatinostat in combination with valganciclovir. As a result of the Merger, our product candidate pipeline also includes vecabrutinib, a clinical-stage product candidate, and SNS-510, a preclinical product candidate. A product candidate can unexpectedly fail at any stage of preclinical and/or clinical development. For example, 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. 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 we may develop will depend on many factors, including the following:

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

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Addressing any delays in our research programs resulting from factors related to the COVID-19 pandemic;

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obtaining regulatory and ethical committee permission to initiate clinical trials;

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contracting with the necessary parties to conduct clinical trials;

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

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

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adverse events in clinical trials.

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

Further, development of our product candidates and/or regulatory approval may be delayed for reasons beyond our 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 our ability to progress development of our product candidates or obtain regulatory approval for our 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 our product candidates. Finally, our competitors may file citizens’ petitions with the FDA in an attempt to persuade the FDA that our product candidates, or the clinical trials that support their approval, contain deficiencies. Such actions by our competitors could delay or even prevent the FDA from approving any of our NDAs.

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

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

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

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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 we seek approval;

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

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

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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 we contract for clinical and commercial supplies;

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the FDA, EMA or other comparable regulatory authorities may fail to approve companion diagnostic tests that are required for our product candidates; and

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

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

The clinical trials of our 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 our product candidates, we 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.

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

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receipt of feedback from regulatory authorities that requires us to modify the design of our clinical trials;

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

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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;

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

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

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the cost of clinical trials of our product candidates being greater than anticipated;

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the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates being insufficient or inadequate;

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we 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

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regulators revising the requirements for approving our product candidates.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our 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, we may incur unplanned

costs, be delayed in seeking and obtaining marketing approval, if we 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.

Our 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 our 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 products or investigational new drugs, we 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 us from obtaining regulatory approval, achieving or maintaining market acceptance of the affected product candidate and may harm our business, financial condition and prospects significantly. For example, in our ongoing Phase 1b/2 of nanatinostat in combination with valganciclovir, 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 our ongoing and planned clinical trials may in the future suffer other significant adverse events or other side effects not observed in our preclinical studies or previous clinical trials. Nanatinostat in combination with valganciclovir or other product candidates may be used in populations for which safety concerns may be particularly scrutinized by regulatory agencies. In addition, nanatinostat in combination with valganciclovir is being studied in combination with other therapies, which may exacerbate adverse events associated with the therapy. Patients treated with nanatinostat in combination with valganciclovir or our other product candidates may also be undergoing surgical, radiation and chemotherapy treatments, which can cause side effects or adverse events that are unrelated to our product candidate but may still impact the success of our clinical trials. The inclusion of critically ill patients in our 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 our nanatinostat in combination with valganciclovir clinical trials will die or experience major clinical events either during the course of our clinical trials or after participating in such trials, which has occurred in the past.

If further significant adverse events or other side effects are observed in any of our current or future clinical trials, we may have difficulty recruiting patients to the clinical trials, patients may drop out of our trials, or we may be required to abandon the trials or our development efforts of that product candidate altogether. We, the FDA, EMA, other comparable regulatory authorities or an IRB may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials 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 our business, financial condition and prospects. Further, if any of our product candidates obtains marketing approval, toxicities associated with such product candidates previously 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. We cannot predict whether our 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 our clinical trials may not satisfy the requirements of the FDA, EMA or other comparable foreign regulatory authorities.

We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we 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, we do not know whether nanatinostat in combination with valganciclovir 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 the FDA, EMA and other comparable foreign regulatory authorities despite having progressed through preclinical studies and early-stage clinical trials. Additionally, while we are aware of several other approved and clinical-stage HDAC inhibitors being developed by multiple other companies, to our knowledge, there are no HDAC inhibitors approved specifically for the treatment of EBV⁺ cancer. As such, the development of nanatinostat in combination with valganciclovir and our stock price may be

impacted by inferences, whether correct or not, that are drawn between the success of our product candidate and those of other companies’ HDAC inhibitors. Regulatory authorities may also limit the scope of later-stage trials until we have demonstrated satisfactory safety, which could delay regulatory approval, limit the size of the patient population to which it may market our 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 our 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 our 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, our clinical trial outcomes.

We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain approval to market any of our product candidates.

Interim, topline and preliminary data from our clinical trials that we announce or publish 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, we may publicly disclose preliminary, interim or topline data from our clinical trials, such as the interim data from our ongoing Phase 1b/2 clinical trial of nanatinostat in combination with valganciclovir 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, we 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. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report 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 we previously published. As a result, topline data should be viewed with caution until the final data are available. In addition, we may report interim analyses of only certain endpoints rather than all endpoints. Interim data from clinical trials that we 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 our business and prospects. Further, additional disclosure of interim data by us or by our competitors in the future could result in volatility in the price of our common stock.

In addition, the information we choose 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 we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. If the preliminary or topline data that we report differ from late, final or actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, nanatinostat in combination with valganciclovir or any other product candidates may be harmed, which could harm our business, financial condition, results of operations and prospects.

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

We may not be able to initiate or continue clinical trials for our product candidates if we are 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. Our ability to enroll eligible patients may be limited or may result in slower enrollment than we anticipate. For instance, patients for our 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 our clinical trials. If our strategies for patient identification prove unsuccessful, it may have difficulty enrolling or maintaining patients appropriate for nanatinostat in combination with valganciclovir.

Enrollment of patients in our clinical trials and maintaining patients in our ongoing clinical trials may be delayed or limited as our clinical trial sites limit their onsite staff or temporarily close as a result of the COVID-19 pandemic. For instance, we are aware of

certain nanatinostat in combination with valganciclovir clinical trial sites that had temporarily stopped or delayed enrolling new patients in response to the COVID-19 pandemic. In addition, patients may not be able to visit clinical trial sites for dosing or data collection purposes due to limitations on travel and physical distancing imposed or recommended by federal or state governments or patients’ reluctance to visit the clinical trial sites during the pandemic. These factors resulting from the COVID-19 pandemic could delay the anticipated readouts from our nanatinostat in combination with valganciclovir clinical trials and our regulatory submissions.

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

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size and nature of the patient population;

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severity of the disease under investigation;

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

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

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perceived risks and benefits of the product candidate under study;

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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 we are investigating;

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

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patient referral practices of physicians;

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the ability to monitor patients adequately during and after treatment;

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

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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.

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

Our operations and financial results could be adversely impacted by the COVID-19 pandemic in the United States and the rest of the world.

In December 2019, COVID-19 was reported to have surfaced in Wuhan, China, resulting in significant disruptions to Chinese manufacturing and travel. COVID-19 has now spread to numerous other countries, including extensively within the United States, resulting in the World Health Organization characterizing COVID-19 as a pandemic. As a result of measures imposed by the governments in affected regions, many commercial activities, businesses and schools have been suspended as part of quarantines and other measures intended to contain this pandemic. As the COVID-19 pandemic continues to spread around the globe, we may experience disruptions that could severely impact our business and clinical trials, including:

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interruption of key research and discovery or other activities related to any impact of COVID-19 contraction by or transmission among our employees, including those that are essential workers and work within our laboratory;

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delays or difficulties in enrolling patients in our clinical trials, or those conducted by third parties, and further incurrence of additional costs as a result of preclinical study and clinical trial delays and adjustments;

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challenges related to ongoing and increased operational expenses related to the COVID-19 pandemic;

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delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

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

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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;

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limitations in resources that would otherwise be focused on the conduct of our business or our 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;

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delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

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

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

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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 or contractor personnel.

We will continue to assess the impact that COVID-19 may have on our ability to effectively conduct our business operations as planned and there can be no assurance that we will be able to avoid a material impact on our business from the spread of COVID-19 or its consequences, including disruption to our business and downturns in business sentiment generally or in our industry. For example, 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. These orders were in place until August 28, 2020. Should COVID-19 cases in California continue to increase, the country or state may re-institute a “shelter in place” order at any time. On June 19, 2020, the FDA also issued new guidance on good manufacturing practice considerations for responding to COVID-19 infection in employees in biopharmaceutical products manufacturing. Our primary operations are located in San Diego County. As a result of such county and California state orders and FDA guidance, the majority of our employees are currently telecommuting, and due to modified schedules and work protocols to enable adequate physical distancing, which may impact certain of our operations over the near term and long term. Disruptions caused by the COVID-19 pandemic have also resulted in the incurrence of increased operational expenses. Should these developments continue or worsen, our operations and our program timelines may be negatively impacted and could result in the incurrence of additional costs.

Additionally, certain third parties with whom we engage, including our collaborators, contract organizations, third party manufacturers, suppliers, clinical trial sites, regulators and other third parties with whom we conduct 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, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. For example, as a result of the COVID-19 pandemic, there could be delays in the manufacturing supply chain for nanatinostat in combination with valganciclovir, which could delay or otherwise impact our nanatinostat in combination with valganciclovir clinical trials. We and our CROs have also made certain adjustments to the operation of such 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 on March 18, 2020 and generally, and may need to make further adjustments in the future, including adjustments based on recently issued FDA guidance on manufacturing, supply chain, and pharmaceutical product inspections; resuming normal pharmaceutical manufacturing operations; and updates on conducting clinical trials during the COVID-19 public health emergency. 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 we are currently continuing our clinical trials, we may not be successful in adding trial sites, may experience delays in patient enrollment or in the progression of our clinical trials, may need to suspend our clinical trials, and may encounter other negative impacts to our 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 our 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 our business, financial condition and operating results.

To the extent the COVID-19 pandemic adversely affects our business, financial condition and operating results, it may also have the effect of heightening many of the risks described in this “Risk factors” section.

We are developing nanatinostat in combination with valganciclovir, which is a combination containing a product developed and commercialized by parties other than us and approved outside of oncology, which exposes us to additional risks.

We are developing nanatinostat in combination with valganciclovir, 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, we 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 nanatinostat and valganciclovir combination were to receive marketing approval or be commercialized for the treatment of cancers, we 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 nanatinostat in combination with valganciclovir 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, we may be unable to obtain approval of or successfully market nanatinostat in combination with valganciclovir.

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

We may develop nanatinostat in combination with valganciclovir or other product candidates in combination with other therapies, which exposes us to additional risks.

We may develop nanatinostat in combination with valganciclovir 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 nanatinostat in combination with valganciclovir or any of our other product candidates in combination with other therapies or dosing of nanatinostat in combination with valganciclovir in combination with other therapies may have unexpected consequences. Even if any of our product candidates were to receive marketing approval or be commercialized for use in combination with other existing therapies, we 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 our 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 our 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 our product candidates, or our own products being removed from the market or being less successful commercially.

We may also evaluate our 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. We 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 we choose to evaluate in combination with nanatinostat in combination with valganciclovir or any other product candidate, we may be unable to obtain approval of or successfully market any one or all of the product candidates we develop. Additionally, if the third-party providers of therapies or therapies in development used in combination with our product candidates are unable to produce sufficient quantities for clinical trials or for commercialization of our product candidates, or if the cost of combination therapies are prohibitive, our development and commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

If we are required by the FDA to obtain approval of a companion diagnostic test in connection with approval of nanatinostat in combination with valganciclovir or any of our other product candidates, and we do not obtain or face delays in obtaining FDA approval of a diagnostic device, we will not be able to commercialize such product candidate and our 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 our 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 nanatinostat in combination with valganciclovir and a satisfactory companion diagnostic is not approved and commercially available, we 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 or clearance of all companion diagnostics for cancer therapies. The approval or clearance 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 or clearance of a companion diagnostic for any of our product candidates, whether before or after it obtains marketing approval, we, and/or future collaborators, may encounter difficulties in developing and obtaining approval for such product candidate. Any delay or failure by us or third-party collaborators to develop or obtain regulatory approval or clearance of a companion diagnostic could delay or prevent approval or continued marketing of such product candidate.

We 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 us from completing our clinical trials or commercializing our product candidate, if approved, on a timely or profitable basis, if at all.

We have limited resources and are currently focusing our efforts on developing nanatinostat in combination with valganciclovir for particular indications and advancing our preclinical programs. As a result, we may fail to capitalize on other indications or product candidates that may ultimately have proven to be more profitable.

We are currently focusing our resources and efforts on developing nanatinostat in combination with valganciclovir for particular indications and advancing our preclinical programs. As a result, because we have limited resources, we may forgo or delay pursuit of opportunities for other indications or with other product candidates that may have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development activities for nanatinostat in combination with valganciclovir and other preclinical programs may not yield any commercially viable drugs. If we do not accurately evaluate the commercial potential or target markets for nanatinostat in combination with valganciclovir or any of our other programs, we 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 us to retain sole development and commercialization rights to such product candidate or program.

We face significant competition, and if our competitors develop and market technologies or products more rapidly than we do or that are more effective, safer or less expensive than the products we develop, our 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. Our competitors have developed, are developing or may develop products, product candidates and processes competitive with our product candidates. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. We believe 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 we may attempt to develop product candidates. In addition, our products may need to compete with drugs that physicians currently use to treat the indications for which we seek approval. This may make it difficult for us to replace existing therapies with our products.

In particular, there is intense competition in the field of oncology. We have 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. We also compete with these organizations to recruit management, scientists and clinical development personnel, which could negatively affect our level of expertise and our ability to execute our business plan. We will also face competition in establishing clinical trial sites, enrolling subjects for clinical trials and in identifying and in-licensing new product candidates.

We are 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 us. 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 we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our 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 we develop obsolete. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies, as well as in acquiring technologies complementary to, or necessary for, our programs. As a result of all of these factors, our competitors may succeed in obtaining approval from the FDA, EMA or other comparable foreign regulatory authorities or in discovering, developing and commercializing products in our field before we do.

Our commercial opportunity could be reduced or eliminated if our 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 we may develop. Our competitors also may obtain marketing approval from the FDA, EMA or other comparable foreign regulatory authorities for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. Even if the product candidates we develop 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 our competitors may render our technologies or product candidates obsolete, less competitive or not economical. If we are unable to compete effectively, our opportunity to generate revenue from the sale of our products we may develop, if approved, could be adversely affected.

The manufacture of drugs is complex, and our third-party manufacturers may encounter difficulties in production. If any of our third-party manufacturers encounter such difficulties, our ability to provide adequate supply of our product candidates for clinical trials or our 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, we 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 our 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 our 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 our third-party manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization as a result of these challenges, or otherwise, our development and commercialization efforts would be impaired, which would have an adverse effect on our 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, we may introduce alternative formulations of nanatinostat and/or valganciclovir into the registrational trial. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our 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 our product candidates and jeopardize our ability to commercialize our product candidates, if approved, and generate revenue.

Our 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 our 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 our approved product candidates will depend on a number of factors, including:

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

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

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the clinical indications for which a product candidate is approved;

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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;

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the potential and perceived advantages of our product candidates over alternative treatments;

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the cost of treatment in relation to alternative treatments;

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

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

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relative convenience and ease of administration;

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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;

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the effectiveness of sales and marketing efforts;

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unfavorable publicity relating to our product candidates; and

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the approval of other new therapies for the same indications.

If any of our product candidates are approved but do not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors and patients, we may not generate or derive sufficient revenue from that product candidate and our financial results could be negatively impacted.

The market opportunities for nanatinostat in combination with valganciclovir and other product candidates we develop, 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. Our ongoing and planned clinical trials for nanatinostat in combination with valganciclovir are with patients who have received one or more prior treatments. There is no guarantee that product candidates that we develop, even if approved, would be approved for first-line or second-line therapy, and, prior to any such approvals, we 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 we are targeting may turn out to be lower than expected. Additionally, the potentially addressable patient population for nanatinostat in combination with valganciclovir and other product candidates may be limited or may not be amenable to treatment with our 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. Even if we obtain significant market share for any approved product, if the potential target populations are small, we may never achieve profitability without obtaining marketing approval for additional indications.

We may not be successful in growing our product pipeline through acquisitions and in-licenses.

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

Any product candidates we develop 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 our 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, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize an adequate return on our investment. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize any product candidate for which we obtain 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 us to provide scientific and clinical support for the use of our 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 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 our 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 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. We may need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost effectiveness of our products. Nonetheless, our product candidates may not be considered medically necessary or cost effective. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize 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 we believe 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 our 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, we may be required to conduct a clinical trial that compares the cost-effectiveness of our 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 we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

If we are 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 we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Our business entails a significant risk of product liability and if we are unable to obtain sufficient insurance coverage such inability could have an adverse effect on our business and financial condition.

Our business exposes us 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 our development programs. If we succeed in marketing products, such claims could result in an FDA, EMA or other regulatory authority investigation of the safety and effectiveness of our products, our manufacturing processes and facilities or our marketing programs. FDA, EMA or other regulatory authority investigations could potentially lead to a recall of our 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 our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s time and our resources and substantial monetary awards to trial participants or patients. We currently have product liability insurance that we believe is appropriate for our stage of development and may need to obtain higher levels prior to marketing any of our product candidates, if approved. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have an adverse effect on our business and financial condition.

Risks Related to Regulatory Approval and Other Legal Compliance Matters

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

Our 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. We cannot provide any assurance that any product candidate we may develop will progress through required clinical testing and obtain the regulatory approvals necessary for us to begin selling them.

We have 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. We 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 our ability to generate revenue from any particular product candidates we are developing and for which we are seeking approval. Furthermore, any regulatory approval to market a drug may be subject to significant limitations on the approved uses or indications for which we 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.

We are 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.

Our ongoing clinical trial is being undertaken in the United States and Brazil. We may choose to conduct additional clinical trials internationally as well. For example, we plan to conduct our registrational trial of nanatinostat in combination with valganciclovir in the United States, Europe and oth

SEC Form 10-Q filed by Viracta Therapeutics Inc.