AADI - Aadi Bioscience: New Data Drives A Beaten Company Down Not Really Justified

2023-12-17 02:43:24 ET

Summary

• Aadi Bioscience is a biotech company focused on a nanoliposomal encapsulation of the mTOR inhibitor sirolimus.
• Their drug, nab-sirolimus, has been approved for the treatment of PEComa, a rare soft tissue sarcoma.
• New findings from their tissue-agnostic trial have been underwhelming, leading to a massive drop in valuation.
• This drop is not quite fully justified, but AADI remains a risky equity with an unproven pipeline in TSC1/2-altered cancers.

Topline Summary

Aadi Bioscience ( AADI ) is a microcap developmental biotech placing its bets on a single agent, a nanoliposomal encapsulation of the mTOR inhibitor sirolimus. They have one approved indication, with several others being explored in clinical trials. Their tissue-agnostic trial could end up being a massive win for the company, but in the past week we have seen a key data update that has not been received well by the market . However, I'm going to lay out why it's going to take until early 2025 to know with more clarity. I think this is a company with promise, despite what the market is saying, but I still also believe it's a bit soon to buy in. This is a hold for me, at least for now. Let's have a look at their results.

Pipeline Overview

Nanoliposomal (nab) sirolimus

AADI's one and only drug to date is a nanoliposomal encapsulation of sirolimus, an inhibitor of the mammalian target of rapamycin (mTOR; it is, in fact, rapamycin itself) whose unencapsulated form is used in the transplant setting to prevent rejection of organ transplants. Similarly, it is sometimes used off label in patients who develop graft-versus-host disease after a bone marrow transplant.

A cousin of sirolimus, everolimus, is currently a treatment option for a few solid tumors like breast cancer, kidney cancer, and neuroendocrine tumors. However, its use is often limited by toxicity, which is a major reason why these agents have not gained a stronger foothold in cancer therapy.

Nab-sirolimus was approved in 2021 for adult patients with PEComa, a rare soft tissue sarcoma, and sales were launched in February 2022. The trial leading to approval, AMPECT, demonstrated a 39% response rate in patients with advanced, malignant PEComa. Nab-sirolimus was the first drug approved for this indication.

Of course, a major goal for AADI is expanding the label. PEComa is a very rare tumor, affecting only around 0.3 people out of 1,000,000 . This creates challenges for a market that will only tolerate so much in terms of pricing, so finding other diseases where sirolimus could benefit patients is crucial for the future growth of the company.

AADI is conducting the PRECISION1 study to evaluate nab-sirolimus in any tumors harboring alterations in TSC1 or TSC2 . These genes are tumor suppressors that naturally limit the activation of mTOR in the cell, and mTOR signaling is increased when they become inactivated. It is thought that inhibiting mTOR in this setting could be of therapeutic benefit.

The most recent news about PRECISION1 is that this study has now enrolled 80 patients , with full enrollment expected by Spring 2024. Findings from the first 40 patients were shared; in the 19 evaluable patients with TSC1 alterations, 26% achieved a partial response, all of which were ongoing at the time of the data cutoff. Of the 18 evaluable patients with TSC2 alterations, 11% achieved a partial response, and another 12 patients had stable disease. These data have been received with substantial disappointment by the market, although there is a sign of efficacy here. It's not exactly the slam dunk we've come to expect from the likes of larotrectinib and entrectinib, with their response rates exceeding 50% at least in the appropriate patients. But it is an early sign in what is still a rather small study.

AADI guided in this update that they anticipate a full analysis of the PRECISION1 study in early 2025.

The company is also anticipating initiating two phase 2 trials of nab-sirolimus, one where it is combined with letrozole in patients with advanced or recurrent endometrial cancer, and another where it is used as a single agent to treat neuroendocrine tumors.

Financial Overview

Per their Q3 2023 filing , AADI held $132 million in total current, assets, including $68.8 million in cash and equivalents and another $50.5 million in short-term investments. They had product revenues of $5.96 million for the quarter, and $23.8 million in operating expenses.

After interest, the net loss for the quarter was $16.3 million. At this burn rate, AADI has between 7 and 8 quarters of funding on hand to keep the lights on as they expand the nab-sirolimus market presence.

Strengths and Risks

Having an approved drug is definitely a strength, although the market potential of PEComa is clearly a challenge for AADI, as revenues have climbed only around $2 million per quarter year over year since the initial launch. This speaks to the rarity of PEComa.

And what to make of PRECISION1 so far? Tolerability looked reasonable. The efficacy findings were expectedly modest, considering this was a wide range of tumors that were rather heavily pretreated. That doesn't tend to lend itself to high response rates. Unfortunately, if 11% to 26% response rates are what we can expect as more patients are included, I'm not sure that will be enough to justify a tissue-agnostic approval. More likely they would need to identify the cancers that seemed to have the most sensitivity in the context of these TSC1/2 aberrations and run separate trials for them.

For reference other small-molecule inhibitors with tissue-agnostic approvals like larotrectinib had multiple studies, with response rates more in the 75% range and quite a few complete responders. Nab-sirolimus is not quite showing that it has that level of activity at this time, and it will be a decent wait before we learn more.

Thankfully, they have the cash to get to a more robust data readout, with a runway that could last through 2025 at this rate, to say nothing about them continuing to build on their revenues.

Bottom-Line Summary

I originally wrote this article in the hours preceding the data release, and it is unusual timing that I've caught their latest release and the nigh-total destruction of the company's valuation in its wake. Originally, I felt AADI was a fairly solid "sell," since it would still take a long time to get a clearer picture of results. However, now that the stock has cratered by around 50%, it brings it much closer to a point that makes sense in terms of valuation. We're right around the corner from a data update that could provide a more robust positive signal.

Thinking of this in terms of a valuation "anchor point" is difficult, since AADI has an approved drug and revenues. So they're a commercial-stage company with a phase 2 developmental pipeline, but they were trading like they have no drug on the market.

Now they're being traded like a phase 1 or 2 company with no drugs, when they're fairly deep in phase 2 and have their own revenue stream. For me, this meant that a $200+ million market cap was in the realm of "arguably oversold" already, but I had nevertheless had a "sell" rating. Now that they're trading closer to $100 million, they're dipping into oversold, in my opinion. These data do not say to me that they should have dropped 50%, and I think that a recovery to a 150-200 market cap would be unsurprising.

I don't know that AADI will ever get the tissue-agnostic approval it is seeking, but I do have an idea of when the market is overreacting. This overreaction doesn't quite tempt me into a "buy" recommendation, but this has definitely become a "beaten down" equity with a serious chance to rebound in the coming months. And it might even be worth banking on a positive surprise coming up in the next 6 months, which would likely return AADI to the valuation it has lost. That, however, would be an idea reserved for the most risk tolerant among you. For me, there's too much chaos to jump in just yet, so it's a "hold" in my book.

For further details see: