AADI - Aadi Bioscience: High Risk/High Reward

2023-06-29 18:10:40 ET

Summary

• Today, we take our first look at a small cap oncology name called Aadi Bioscience, Inc.
• The firm's main asset is a product called FYARRO which is approved for one rare indication and is being evaluated for additional tumor types.
• An investment analysis follows in the paragraphs below.

You cannot swim for new horizons until you have courage to lose sight of the shore ."? William Faulkner

Today, we put Aadi Bioscience, Inc. ( AADI ) in the spotlight for the first time. As you can see below, the stock of this small developmental firm is deep in ' Busted IPO ' territory. However, the shares are trading far, far below analyst firm price targets. We examine the company's pipeline and prospects via the analysis below.

Company Overview

Aadi Biosciences, Inc. is a clinical-stage biotech concern based just outside of Los Angeles, CA. The company is focused on developing and commercializing precision therapies for genetically defined cancers with alterations in mTOR pathway genes. The stock currently trades just above seven bucks a share and sports an approximate $175 million market capitalization.

The company has one approved product on the market known by the brand name FYARRO (nab-sirolimus). This product consists of sirolimus protein-bound particles for injectable suspension (albumin-bound).

It was approved for adults with locally advanced unresectable or metastatic malignant perivascular epithelioid cell tumor (PEComa), late in 2021. It began commercialization in February 2022. This is an extremely rare indication that affects only a couple of hundred new patients a year.

The compound is licensed from Celgene and consists of rapamycin which is then coated with albumin. This method gets the tumor cells to absorb the tumor-killing agent. FYARRO works very similarly to paclitaxel in this regard. FYARRO is priced at nearly half a million dollars and has rapidly taken market share as it has become the standard of care for this rare affliction, in which patients live only on average past a year. FYARRO did $21 million of sales during its first 13 months on the market. This includes $5.9 million in the first quarter of this year, a 12% sequential improvement from 4Q2022.

Aadi Biosciences is also pursuing evaluating FYARRO in other cancers with known mTOR pathway activation. These include tumor-agnostic indications targeting specific genomic alterations that activate the mTOR pathway.

Currently, the company is conducting a trial called PRECISION 1. This is a registration-directed Phase 2 study of FYARRO in patients with solid tumors with pathogenic inactivating alterations in TSC1 or TSC2 genes. TSC1 and TSC2 form a tumor suppressor complex that down-regulates mTOR activity. PRECISION 1 is a tumor-agnostic study consisting of more than a dozen tumor types including bladder cancer and kidney cancer.

Of note, is that no current therapies are approved for TSC1 and TSC2 alterations even as some case reports have shown durable responses. PRECISION 1 should have 40 patients enrolled and have some additional interim results out by year-end. The ultimate goal is to have approximately 120 patients enrolled in this trial which the company hopes to complete enrollment before the end of the first quarter of 2024. The first person in this study was dosed in the first quarter of 2022. A topline readout from PRECISION 1 should be out sometime in 2024.

Analyst Commentary & Balance Sheet

So far in 2023, five analyst firms including Piper Sandler and Jefferies have reissued Buy/Outperform ratings on the stock. Price targets proffered range from $30 to $45 per share.

Approximately seven percent of the outstanding float in the shares are currently held short. The Executive Chairman of the company has sold just over $900,000 worth of shares so far in the second quarter of this year. That has been the only insider activity in the stock so far in 2023.

After posting a net loss of $15.2 million in the first quarter, the company had just over $150 million of cash and marketable securities on its balance sheet. Aadi burned up some $21.4 million worth of cash to support all operations in the first quarter and management has stated that funding in place will get the company into 2025 with the current schedule of planned activities.

Verdict

The three analyst firms that have earnings/sales projections on the company see a medium loss of $2.51 in FY2023 as revenues rise some 65% to just over $25 million. Similar losses are projected for FY2024 as revenues rise to just over $30 million.

Obviously, Aadi is not going to profitability for its current approved indication for FYARRO. PRECISION 1 is targeting a much bigger potential market (10,000 to 15,000 individuals in the U.S.). The final results from that trial will be key to whether AADI is worthy of current analyst price targets. Given that sort of asymmetrical risk/reward profile, the stock is only appropriate for aggressive investors and within a well-diversified biotech portfolio.

Never was anything great achieved without danger. "? Niccolo Machiavelli

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