ADAP - Adaptimmune: Spinning Sarcoma Into Gold

2023-09-12 08:48:00 ET

Summary

• Adaptimmune Therapeutics is a biotechnology company focused on developing cell therapies for solid tumors.
• Their afami-cel therapy has demonstrated signs of activity in patients with heavily pretreated sarcoma, with a 2-year rate of overall survival of 70%.
• The company also has other promising therapies in development, including ADP-A2MCD8 and Lete-cel, targeting different types of cancers.

Topline Summary

Adaptimmune Therapeutics (ADAP) is a biotechnology focused on the development of cell therapies for solid tumors, a large growing area of interest in light of likely upcoming adoption of adoptive T cell transfer for diseases like melanoma. While they have some outstanding questions relating to their clinical efficacy, as well as cash position, ADAP is a contender. And it's beaten down in valuation. This could very well be a strong volatility play and mid-term investment, but you need to watch carefully.

Pipeline Overview

Afami-cel

One of the higher-priority projects for ADAP is afami-cel, which takes a patient's T cells and engineers them to target MAGE-A4, a cell surface antigen expressed in the testes as well as on various solid tumors.

The first disease of interest for afami-cel is sarcoma, specifically of the subgroups synovial sarcoma and myxoid/round cell liposarcoma (MRCLS). Their SPEARHEAD-1 trial is currently assessing afami-cel in this patient population, and a preliminary report out of ASCO 2021 demonstrated signs of activity in patients with heavily pretreated disease, with almost half of the enrolled patients achieving an objective response to therapy.

In a poster presentation at ASCO 2023, overall survival was encouraging in patients who achieved a response, with a 2-year rate of overall survival of 70% compared with 0% in patients who did not achieve a response. It's worth noting that these were small patient populations, but they are encouraging data nonetheless. As of point of reference (although we should be cautious in making DIRECT comparisons), agents like trabectedin and gemcitabine plus docetaxel yield median OS in the range of 8 to 14 months. So if these findings are confirmed, they could mean a pretty big shift forward for the field.

Based on these findings, ADAP has moved forward with an application for approval of afami-cel for treatment of synovial sarcoma (where they saw the most promising duration of response). The company has moved the goalposts a bit on when they'll complete this submission, but in their latest quarterly filing they are guiding Q4 2023.

Synovial sarcoma is a rare tumor, impacting around 580 new patients in the US every year, but it's critical to get a foot in the door somewhere, and these findings are quite promising so far.

ADP-A2MCD8

ADP-A2MCD8 is similar to afami-cel in that it targets MAGE4, but with the addition of a co-receptor to help boost activation against the antigen. Their current targeted indications with this project are head and neck, urothelial (i.e., bladder), and ovarian cancers, for which they observed an overall response rate of 52% in a phase 1 clinical trial.

That's small numbers, but it's an encouraging early efficacy signal. The company has since initiated a phase 2 trial of ADP-A2MCD8 in patients with platinum-resistant ovarian cancer, and they also have RMAT designation that would potentially allow them to initiate a rolling BLA for this technique, as well.

Lete-cel

Lete-cel is an NY-ESO-targeted T cell program, with an ongoing phase 2 study in sarcoma being transitioned back to the company after a developmental deal with GlaxoSmithKline was ended . As part of this deal, GSK paid ADAP a 30 million GBP fee to defray costs associated with transferring the clinical trials it was previously collaborating on.

Data readouts for the IGNYTE study are anticipated by the company toward the end of the year or in the first half of 2024.

Other early-stage programs

I do not want to belabor on earlier developments from the company, since these have less near-term impact for them. However, it is worth mentioning that ADAP has a suite of TCR-engineered cell therapies in development, particularly with relation to mesothelin, a target deemed important in pancreatic cancer, mesothelioma, and other solid tumors.

To date, no therapy has successfully exploited mesothelin for therapeutic benefit, but we may get a sense in the coming years whether engineered T cells can make a difference.

Financial Overview

At the end of Q2 2023, ADAP held $77.0 million in cash and equivalents, with another $127.7 million in marketable securities. Total current assets were $261.8 million.

Meanwhile, total operating expenses remained steady year over year, reaching $50.0 million, with a net operating loss of $44.9 million. The net loss recognized was much lower due to some accounting for acquisition of TCR2 assets, so I would continue to consider their "true" net loss more in the $44.9 million realm. Most of this went to R&D expenses, which reached almost $30 million. This is sensible given the relatively advanced stage of the pipeline that ADAP is sitting at.

With this amount of cash and liquid investments, ADAP has roughly 4 to 5 quarters left before they'd run out of runway, taking them to mid- or late-2024 with their current burn rate. This is in disagreement with company guidance, which states that they have funds into early 2026.

Strengths and Risks

As far as treatment options for very rare cancers go, we unfortunately do not often end up getting robust evidence of efficacy (i.e., a randomized, controlled trial clearly establishing a survival benefit). This is unfortunate for healthcare, as it has led to some challenging setbacks. Most notoriously in the sarcoma space was olaratumab, which was approved in 2016 for soft tissue sarcomas, which showed an apparently outstanding survival benefit when added to chemotherapy. Then it was revoked almost 4 years later after a randomized, properly powered trial showed no difference at all with adding olaratumab to doxorubicin .

Them's the breaks with accelerated approvals. And the FDA has been pushed to become more cautious and stringent about promising, highly expensive new therapies. So take ADAP's positive results with a big grain of salt. They still have to find a way to meet standards of evidence that will convince physicians to prescribe their drug.

Couple that with a financial picture that seems a little less rosy to me than the company paints. By my calculations, their cash position will need to be shored up in 2024, whereas the company has guided that they have what they need all the way until 2026. And this makes a big difference, because raising dilutive funds in 2024 before a potential accelerated approval would look a lot different for shareholders than it would raising funds with a scientific and commercial position of strength.

Another near-term risk for ADAP is the notice of non-compliance with NASDAQ listing requirements, which was reported on August 31. In my opinion, this is a fairly small piece of news, since there are vehicles that the company can use to maintain arbitrary listing requirements.

Bottom-Line Summary

Despite my reservations about data, which look promising but not unimpeachable, ADAP today trades at a market cap almost half of the amount of current assets they have on hand. Couple that with the company moving right into the end stages of their first drug approval, and it paints a clear picture of a risky, but potentially undervalued company.

Granted, being valued below asset value doesn't mean there are any guarantees, but ADAP at this time represents a tentative buy to me. They have good-looking data in an area with almost no met needs, which gives them a strong shot to move through the FDA. They need to continue to execute, and I worry that their cash won't carry them through to approval, but this risk/reward calculation looks promising to me.

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