• 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 (NASDAQ: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.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Aadi Bioscience: New Data Drives A Beaten Company Down, Not Really Justified appeared first on Up2info.com.

• 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. (NASDAQ: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

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in AADI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Author’s note: I present and update my best small-cap Busted IPO stock ideas only to subscribers of my exclusive marketplace, The Busted IPO Forum. Try a free 2-week trial today by clicking on our logo below!

The post Aadi Bioscience: High Risk/High Reward appeared first on Up2info.com.

• AADI is a commercial stage company with a potential label expansion ahead.
• It is adequately funded, run by expert management, and has a major catalyst next year.
• All told, AADI looks good.

Aadi Bioscience (NASDAQ:AADI) is a commercial stage oncology drug developer working with the mTOR pathway. Lead asset FYARRO (nab-sirolimus) is an albumin-bound sirolimus approved for advanced malignant PEComa (perivascular epithelioid cell tumors), a type of rare cancer occurring in the soft tissues of internal organs. The company’s exclusive focus is on cancers that are highly mTOR dependent, and it uses a nanoparticle albumin-based (nab) platform validated by paclitaxel. Fyarro is licensed from Celgene, and in the initial years, Celgene also funded the company. The company was founded and is led by Neil Desai, PhD, a co-creator of abraxane, along with Patrick Soon-Shiong, at Abraxis.

According to Endpts, the mechanism of action here is:

Abraxane was a decades-old chemotherapy, encased in an albumin coat that tricks tumor cells into absorbing the tumor-killing agent…With Fyarro, Desai took a decades-old immune-modulating drug, rapamycin, and coated it in a similar albumin coat. Once taken up by the tumor, it knocks down mTOR, a protein that has long been linked to tumor proliferation, among other things.

Fyarro is approved for an ultra-rare sarcoma with no more than 100-300 new cases in the US every year. The disease has a high mortality rate, and estimated survival is only 12-16 months. Everolimas and sirolimas are the two approved mTOR drugs, with some of their variations also being approved. No drugs are approved for advanced malignant PEComa besides Fyarro. The company makes the following differentiation between Fyarro and other mTOR drugs:

• High drug levels in tumor result in more complete mTOR target inhibition and greater tumor suppression not achieved with other mTORi’s

• Improved PK, half-life and exposure without compromising safety – wide therapeutic index

• Flexibility in combination strategies

• Overcomes limitations of other mTORi’s such as highly variable oral absorption, poor PK, narrow therapeutic index

• Unlocks full potential of mTOR inhibition

The following efficacy data was seen in the trial that enabled approval:

• Overall Response Rate (95% CI) 39% (22%, 58%)
• Complete Response 7% (2/31)
• Partial Response 32% (10/31)
• Stable Disease 52%
• Progressive Disease 10%
• Disease Control Rate‡ 71%
• Median Duration of Response 39.7 months
• Median Progression Free Survival 10.6 months (5.5-NR)
• Median Overall Survival 53.1 months

The OS data is especially impressive considering that historical survival is merely 12-16 months after chemo.

Fyarro was launched in February 2022 and by December the molecule had made $10mn in sales, which is good considering the small patient population. However, the drug is priced at nearly $500,000, which the company says is proper given the high unmet disease burden and the small patient population. About update, the company stated in the November conference call:

In the community setting, the uptick continues to increase, now accounting for about 60% of sales overall. Further, we are promoting our science at key medical meetings like ENA and CTOS which we believe further expands both our brand and company awareness.

As of September 30, there were more than 90 unique accounts ordering FYARRO, up approximately 50% from last quarter, with a reorder rate still exceeding 80% across all ordering accounts. Adoption in the academic treatment centers remain strong and we continue to be impressed by the fact that almost half of ordering accounts since launch are now represented by those in the community treatment setting.

The company’s pipeline now looks like this:

Thus, this is a one-molecule company and the way for it to expand is through label expansions right now. The Precision 1 trial, now ongoing, is testing the molecule in tumor-agnostic TSC1/TSC2 inactivating alterations. This is a pivotal (registrational) study. TSC1 and TSC2 are upstream regulators of mTOR activity within the PI3K/Akt/mTOR pathway. A simple genetic sequencing captures patients with TSC1/TSC2 mutation, which occurs in 1-2% patients per cancer type. The total patient population is large:

The AMPECT trial for PEComa saw indications validating the TSC1/TSC2 pathway. In a number of metrics, patients with TSC1/TSC2 genes had much higher response than those without; for example complete or partial responses were 9/14 (64%) for the former group and only 1/11 (9%) for the latter. However, on stable disease and progressive disease metrics, the latter group did better.

Financials

AADI has a market cap of $266mn and a cash balance of $183mn as of November. Total revenue for the quarter ended September 30, 2022 was $4.2 million resulting from sales of FYARRO. Research and development expenses for the quarter were $8.8 million while selling, general and administrative expenses were $9.9 million. At that rate, the company has a cash runway through 2025.

In September, despite the approval, the company was forced to raise $72mn to keep itself going. These funds were raised through a PIPE financing from new and existing investors, through an equity sale at fair market price, as well as pre-funded warrants. The funds are to be used to progress the Precision 1 trial, whose preliminary data is expected in the first half of 2024.

Valuation and risks

FYARRO resulted in $10mn in sales in the launch quarter. The approved indication is a very small market with no other approved drugs. Thus, we should expect between $40mn and $50mn in sales in the very first year, which, given the low valuation of the company, makes it very attractive. More than the current indication, the specific way the molecule is produced – using the same technology used by nab-paclitaxel, but only replacing paclitaxel with rapamycin, provides scope for a much larger market with label expansions. The company also has a very strong cash balance. Given all of that, I would say, qualitatively, that the company is undervalued.

As to risks, apart from the usual ones, I wonder about the use of generic rapamycin and the consequences thereof. I looked at their patent estate – which is vast – but these things will need time to get more clarity.

Bottomline

AADI is a commercial stage co led by a very impressive management. The mechanism of action and especially the technology behind Fyarro sounds very logical given how the same technology worked for abraxane. The company has backing from investors, as seen by the late stage PIPE. The approved drug is selling okay in a small indication, but the pipeline potential is really large. They are well-financed, and there’s a major catalyst next year. I think those are some of the reasons that will interest investors.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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The post Aadi Bioscience: Commercial Stage With Large Market In Label Expansion appeared first on Up2info.com.

• Shares have lost half their value since reverse merger with Aerpio Pharmaceuticals.
• Aadi aims to deliver on the broad potential of mTOR inhibition via nab technology to achieve wide therapeutic index and greater target suppression.
• Registrational data for Fyarro in PEComa showed impressive durability which is now translating into encouraging launch metrics out of the gate.
• Institutional clustering and extent of leadership’s relevant prior experience both stick out as green flags to my eyes.
• AADI is a Buy in my view, with key catalyst being initial readout of PRECISION1 trial in 2023. Risks include dilution in the near to medium term, disappointing data and delays in timelines.

Shares of precision oncology upstart Aadi Bioscience (NASDAQ:AADI) have lost half of their value since reverse merger with Aerpio Pharmaceuticals was closed in August of 2021. Year to date return is slightly less negative at -45%.

I’ve been following this small biotech company since it arrived on the public market given the outsized opportunity for Fyarro (nab-sirolimus) in cancer patients with TSC1 and TSC2 inactivating alterations (10k+ patients in the US alone). However, I waited for additional derisking via Fyarro approval in the ultra-rare indication of PEComa as well as for further progress in PRECISION-1 tumor-agnostic registrational study before allowing myself to revisit.

Now that preliminary data is just a few quarters away and Q2 conference call revealed encouraging launch metrics out of the gate, I look forward to digging deeper and determining whether there’s sufficient rationale for us to initiate a position in the near term.

Chart

Figure 1: AADI weekly chart

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels and get a feel for what’s going on. In the weekly chart above, we can see share price steadily decline to current lows at the $12 level. To my eyes it would seem that a bottom established as this level has held since May, but it’s always possible the decline continues. My initial take, being more familiar with this story from prior due diligence, is that investors (and catalyst traders for that matter) would do well to attain desired exposure at current levels ahead of the major data catalyst coming up in 2023.

Overview

Founded in 2007 with headquarters in Los Angeles (39 employees), Aadi Bioscience currently sports enterprise value of ~$150M and Q2 cash position of $118M providing them operational runway for ~5 quarters (will likely raise access more funding by the end of the year).

While I’m quite familiar with the story from previous due diligence, Morgan Stanley Healthcare conference webcast was helpful in bringing me up to speed on the present snapshot.

CEO Neil Desai reminds us that the story began in the Abraxis Bioscience days where the albumin technology platform was developed and Abraxane approval served as proof that you can get high tumor drug levels due to the mechanisms that albumin brings. I remind readers that Abraxis was bought out by Celgene in 2010 for $2.9 billion.

After this initial success, Desai and team worked on other molecules with the same technology and sirolimus (aka rapamycin) is the mTOR inhibitor they are working on now. They took sirolimus into this platform and developed it first for PEComa due to high prevalence of mTOR pathway mutations (worked quite well). Albumin technology carries a lot of drug into tumor and overcomes limitations of other mTOR inhibitors which can’t effectively suppress the mTOR target. Second and more importantly, they are developing the drug candidate in a tumor agnostic setting for TSC1 and TSC2 alterations.

Figure 2: Pipeline

mTOR has long been known as an important target in cancer and drugs approved from this class include sirolimus, everolimus, etc. However, these drugs did not become as widely accepted as initially hoped for and limitations were driven primarily by poor PK (how the drug acts in the body), poor absorption (highly variable), narrow therapeutic index (can’t up the dose to get optimal amount of drug into tumor) and poor target suppression. Thus, with nab-sirolimus (Fyarro) management hopes to finally deliver on the broad potential of mTOR inhibition by overcoming all of these limitations (can get very high drug levels into the tumor and have a very wide therapeutic index and therefore greater target suppression and ultimately better efficacy).

Figure 3: Higher intratumoral concentrations drive increased target suppression and tumor growth inhibition in bladder cancer xenograft

Versus other mTOR inhibitors, nab-sirolimus has a very long half-life and order of magnitude higher tumor penetration. At target level, they have almost complete suppression which is not possible to achieve with other mTOR inhibitors.

Figure 4: Nab-sirolimus achieves higher AUC, Cmax and longer half-life than other mTOR inhibitors

Moving on to the initial approved indication of locally advanced unresectable or metastatic malignant perivascular epithelioid cell tumor (PEComa), this is a very rare form of sarcoma and incidence numbers (new patients in US alone each year) are in 100 to 300 range with similar numbers elsewhere. PEComas occur near blood vessels and can occur at almost any location in the body. Highest prevalence is in the uterus, abdominal cavity in general but can also be in brain, colon, etc. There are no prior approvals for PEComa but some case reports for mTOR inhibitors showed activity which sparked their interest in pursuing this indication for initial approval.

30 patient pivotal trial was pre-negotiated with the FDA (sufficient for such a rare disease) and study was designed to have 30% response rate as hurdle for approval (ended up with 39% response rate). A striking result other than ORR was duration of response (in excess of 36 months, median not reached with median PFS 10.6 months and survival of 41 months).

Figure 5: AMPECT PEComa registrational study met endpoints with manageable safety profile

Since then, drug is on the market as of February this year and launch is off to a strong start. Acceptance of clinical profile has been strong across the oncology community in the US (most differentiating feature is the durability of responses, which is not seen with first generation mTOR inhibitors). Safety profile is predictable and manageable (oncology community has substantial experience with mTOR inhibitors). They’ve had a nice tailwind via early NCCN recommendation as only preferred treatment option for PEComa which helped with adoption and reimbursement. In Q2 they saw north of 60 accounts ordering the drug (proxy for number of patients put on therapy) and reorder rate for those accounts is above 80%. Adoption in community setting is also encouraging (over 40% of prescribing accounts) and stronger than management would have predicted.

Moving on to targeting TSC1 and TSC2 mutations, this evolved from their PEComa experience (over 50 % of these patients sport such mutations). The mutation exists across all tumor types and averages out to just under 2% of all tumor types (fairly large population on annual basis, around 12,000 patients with advanced cancers in the US alone). In the PEComa study, the subset of patients with TSC1 and TSC2 mutations had much higher response rate than the overall population. Overall data from a few other types of tumors was presented at ASCO with encouraging response rate. Additionally, they reproduced this with PEComa patients who were previously treated with Gen 1 mTOR inhibitors and failed (had good response on Fyarro).

These pieces of the puzzle when put together formed the rationale for going after this larger population and so they initiated the PRECISION-1 tumor agnostic trial. As opposed to thinking about specific tumor types, the trial is all-comers all tumor types and all indications are being pursued broadly within the study as has been the case with other tumor agnostic therapies. As for different subpopulations, bladder cancer has relatively high expression as do some types of lung cancer and hepatobiliary cancers (endometrial as well). Patients should have been exposed to prior standard or approved therapy, so most of these patients come in 2nd line, 3rd or 4th depending on tumor type.

ASCO data last year in 7 or 8 patients included those with extensive prior therapy (ovarian, endometrial, sarcoma subtypes, etc). Common thread was they had to have TSC1 or TSC2 mutation (5 of those 8 patients had very good responses, a good indication that the drug can work outside of mutation in the right mutation).

Figure 6: Early clinical experience in other tumor types

Within PEComa itself, they had 14 patients with TSC1 or 2 mutations with response rate of 64% (formed basis of push into tumor agnostic indication).

mTOR inhibitors are already known and approved for certain indications such as kidney and breast cancer. So, data is important for where they see responses after another mTOR inhibitor has failed to really show differentiation (drug inhibits target at much greater level than predecessors). This helps them to think about other indications where mTORs have been used (looking at these for expansion potential in the future).

Registrational study was initiated in Q1 2022, so the plan is in 1H 23 release some preliminary data (however many patients enrolled by that point, sounds like it could be low). They will discuss response rate, safety information and whatever durability initially observed. Final data will be in 2024 after they complete enrollment of 120 patients (60 patients for TSC1 and 60 for TSC2). As for pivotal results, they hope to exceed the bar they’ve set with the FDA but few details are given. From what I recall with fellow precision oncology peer Merus (MRUS) and Zeno results in NRG1+ tumors, the bar for response rate was set around the 30% level. The current focus is getting a bunch of centers active and enrolling, but they are still in early phase (anticipate good enrollment rate as they also engaged NGS providers who do TSC1 and TSC2 testing, can do just in time enrollment through their networks). If they find a patient with TSC1 and TSC2, they can active center for that patient quickly. In addition, they are partnering with US Oncology (largest community network in the country). Data could be presented at scientific conference or via company event.

As of Q2, they had $119M in cash with runway into 2024 (still think they will access more funding in the next couple quarters). 2023 to 2024 is all about expansion of indications for Fyarro beyond TSC1 and TSC2 mutations (go after combinations with targeted therapies such as RAS, RAF or MEK). mTOR signaling becomes a resistance pathway for those drugs, so this would be a rational combination and perhaps by next year they kick off some new combo trials. They will complete evaluation by the end of the year and then announce which trials make the most sense to pursue (some company-sponsored, some investigator-initiated).

Other Information

For the second quarter of 2022, the company reported cash and equivalents of $118.7M, and a net loss of $18.3M. Management reiterates that they have runway into 2024, but I continue to believe we will see a financing in the next couple of quarters. Total revenue for Fyarro sales was an encouraging $3.4M out of the gate.

As for the conference call, management notes for launch that as of July 1st the Centers for Medicare and Medicaid Services (CMS) has assigned a permanent J-code for Fyarro. Regarding enrollment of the PRECISION-1 study (most material to our thesis here), the stated goal is to open the trial in at least 20 major cancer centers and 120+ treatment sites in the US by the end of the year (already underway in Memorial Sloan-Kettering Cancer Center City of Hope, The Barbara Ann Karmanos Cancer Center, Roswell Park Cancer Center and UCLA). As noted prior, NGS platforms allow them to routinely identify patients with TSC1 or TSC2 inactivating alterations who are eligible for treatment. This is a pretty nifty process, as patients out of network can be identified and referred to a locally participating center in a rather streamlined process. Management believes this multifaceted approach to patient finding will allow them to achieve full enrollment within 24 months (still quite a long time to wait). Also of interest to me is progress for nab-sirolimus in other opportunities via monotherapy or more likely combo trials. Both the problem and opportunity for a small company of this size is that there is a “broad swath of indications” to choose from where mTOR signaling is a prevailing driver or even resistance mechanism and they should not tackle too much all at once (carefully evaluate indications for best rationale and optimal chances of success).

Looking over my prior notes to determine if there’s anything else I missed, it’s worth noting that the board of directors is quite stacked (representatives from Avoro Capital and former Chairman of Immunomedics, bought out by Gilead for $21 billion, as well as heads of KVP Capital and Acuta Capital as well). I view this clustering as a green flag.

As for which indications in the basket study could prove most interesting, from TCGA information, PEComa is the most highly mutated with 50% of patients sporting TSC1 or TSC2 mutations. Other indications express in lower amounts but are still significant (lung cancer half to 1%, gynecological cancers 2.5% to 3%, breast cancer 2.5% to 3%, liver cancer 5% to 7%, bladder as high as 9% for TSC1, etc.

Figure 7: TSC1 and TSC2 inactivating alterations across all cancers

As for institutional investors of note, clustering here is a good sign including Avoro Capital with 10.7% stake, Acuta Capital with 7.3% stake and Venrock with 7.3% stake. On the other hand, Orbimed has sold down its stake to a negligible level, RA Capital sold out of its 2.4 million share stake completely and BVF appears to be steadily selling down its stake as well (currently at 4%). As for insiders, it’s nice to see the CEO has significant skin in the game with 1.9 million share ownership.

As for relevant leadership experience, as noted prior Dr. Neil Desai is the company’s CEO and founder (invented nab technology and created value at Abraxis Bioscience when it was acquired by Celgene, also worked at Celgene for 6 years including as VP of Strategic Platforms). COO Brendan Delaney served prior as CCO of Constellation Pharma before it was acquired by MorphoSys for $1.4B and prior to that as CCO at Immunomedics until it was acquired by Gilead. CFO Scott Giacobello served prior as CFO of GW Pharmaceuticals until it was acquired by Jazz Pharmaceuticals for $7.2 billion (and prior to that as CFO of Chase Pharmaceuticals which was sold to Allergan). CMO Loretta Itri served prior as CMO at Immunomedics and prior to that as EVP Regulatory Affairs at The Medicines Company.

Moving on to executive compensation, cash portion of base salary is quite reasonable at sub $500k. On the other hand, option awards for CEO, COO and CFO appear on the high side ranging from $2.5M to ~$5.5M.

Figure 8: Executive compensation table

The important thing is to avoid companies where the management team is self-enriching instead of creating value for shareholders and looking at compensation is one of several indicators in that regard.

Moving onto useful nuggets from members of the ROTY community, MikeCriv provided the following thoughts back when AADI initially made it onto the public market:

Sanofi bought out Ablynx for $4.8B and it had a nab drug as well. Here is a very good article on nab. PEComa is a rare indication but it gets AADI through the front door in order to explore the rest of the mTOR cancers after approval via the sNDA process which is less costly. Peak sales could be in excess of $2B across multiple indications (Abraxane achieved peak sales of $1.25B). Regarding longer half-life, the albumin shell has to catabolized to release the active drug component. The accumulation in the cancer cell with the albumin nanoparticle intact is the key to the bullish thesis!

As for IP, the company exclusively licensed 10 patents from Celgene relating to Fyarro. 4 issued US patents are concerning the composition of matter and method of use claims, with first issued patent expected to expire in 2029 and other three to expire in 2030, 2036 and 2037. The company also licensed 174 pending U.S. applications and related pending applications in Europe, Australia, North America, South America, Africa, and Asia. Lastly, they also licensed two pending PCT patent applications directed to composition of matter and new uses related to this product, which if granted, are expected to expire in 2040.

As for other useful nuggets from the 10-K filing (you should always scan these in your due diligence as many companies like to sweep undesirable elements under the rug), it’s important to note that the company has no internal manufacturing capacity nor plans to do so. They rely on third parties to manufacture Fyarro (potentially entails more risk in the sense of any supply disruptions or simply having less control over the overall process). In fact, they obtain Fyarro directly from Fresenius-Kabi (at least it’s a very well-established company).

Final Thoughts

To conclude, highly experienced management team at this targeted oncology company continue to steadily make progress in the PRECISION TSC1/2 study as well as with initial commercialization of Fyarro in lead indication. Sales out of the gate are encouraging, and peak sales estimates of $1.5B or more in the TSC1 and TSC2 tumor agnostic setting contrasts nicely to current enterprise value of $150M. It’s been said that 40% of all drug development is dose and PK, and so it appears that Aadi might finally be able to deliver on the promise of mTOR inhibition where all predecessors have failed or solely achieved a sliver of what’s truly possible here regarding broad potential (thanks to wide therapeutic index and greater target suppression). My key caveat to readers again is that this is a “single asset” story, so portfolio weighting and exposure should be kept lower than other holdings in companies that have multiple shots on goal in the clinic.

For readers who are interested in the story and have done their due diligence, AADI is a Buy. One potential strategy is to purchase only a small pilot position, from there waiting for a potential secondary offering by year end and then adding more exposure after that overhang is cleared.

From an ROTY perspective (focus on next 12 months), I can see the rationale for accumulating up to a 4% or 5% portfolio weighting at maximum (no more than that considering this is a single drug story). From my end, I wish to wait until data readout (likely mid to late 2023) is closer before considering for the ROTY portfolio. Also, I would like to wait until the necessary financing is out of the way.

Risks include additional dilution in the near to medium term, delays to clinical timelines (data being pushed out to 2024 if recruitment of PRECISION study is not at sufficient pace), smaller market opportunity than originally estimated and disappointing data (unexpected safety signals or efficacy not at the level of prior results).

Author’s Note: I greatly appreciate you taking the time to read my work and hope you found it useful. While I post research on many companies that interest me, in ROTY (clinical stage) and Core Biotech (commercial stage) portfolios I own just 15 or fewer names in order to focus on stories that are highest conviction for me.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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The post Aadi Bioscience: Taking mTOR Inhibition To The Next Level appeared first on Up2info.com.

• Aadi Bioscience receives FDA approval of Fyarro for treatment of patients with PEComa.
• Fyarro (ABI-009) can be expanded upon in two specific gene pathways known as TSC1 and TSC2; this could bring access to thousands of new patients.
• Further expansion of ABI-009 can be achieved with targeting other cancer subpopulations that have the mTOR pathway.
• Aadi Bioscience had $161.4 million in cash and cash equivalents as of September 30, 2021; enough cash to fund operations into 2024.

Aadi Bioscience (NASDAQ:AADI) received FDA approval for its drug Fyarro (ABI-009), which was approved to treat patients with a rare ultra sarcoma known as a PEComa. It is a small population of patients, but Fyarro is the first drug approved for it. However, I believe that this initial approval sets up for greater potential based on a possible expansion of using the mTOR pathway towards other targets. The goal is to file an IND to start two new studies. These two new studies are expected to be tumor-agnostic ones. Meaning, they will use ABI-009 to go after genomic alterations regardless of tumor type. In other words, the main goal is to target TSC1 and TSC2 genomic alterations. This will help Aadi to go after a larger group of patients, not just 300 patients in the United States with PEComa. With proof of concept and FDA approval of Fyarro, there is an opportunity to increase the drug’s reach towards other genomic alteration pathway targets. I believe this could set up the company for increased revenue, should it be able to achieve positive results in these other mTOR gene pathways.

FDA Approval Of Fyarro Finally Brings An Approved Drug For PEComa

The FDA approved the drug Fyarro for the treatment of patients with PEComa, which is an ultra rare sarcoma. These tumors are in soft tissues of several organs in the patient’s body, such as:

• Stomach
• Intestines
• Lungs
• Female Reproductive Organs

They typically occur in children, though, who have a disorder known as tuberous sclerosis, which is also known as perivascular epithelioid cell tumor. This was a great approval for these patients, because, beforehand, there was no FDA approved treatment for this rare type of tumor. The best a patient could hope to achieve is to have a successful surgery to remove as much of the tumor as possible. In addition, chemotherapy might be another option. However, efficacy is not efficient for those that would receive it. Not only that, but the average life expectancy for these patients before Fyarro approval was 12 to 16 months. The main reason for Aadi starting off with this indication is targeting. There was ample evidence that a PEComa used mTOR pathway activation. There are about 100 to 300 patients in the United States each year who gets this ultra rare type of tumor. The FDA approval itself was based on the phase 2 registration trial known as AMPECT, which used Fyarro as a monotherapy to treat patients with advanced malignant PEComa. It was noted that patients who took this drug achieved a 39% confirmed overall response rate (ORR) in this patient population. The drug is expected to be on the market by the 1st half of 2022.

Expansion Opportunity Exists For Tumor-Agnostic Genomic Alterations Of TSC1 & TSC2

It is good that Aadi was able to receive FDA approval of Fyarro for PEComa, but the patient population is small. As I noted above, there are about 100 to 300 patients with PEComa each year in the United States. How will the biotech move forward to enhance shareholder value? This answer lies in still sticking to its use of targeting the mTOR pathway. Specifically, it will go after two pathway genes which are TSC1 and TSC2. Both of these genomic alterations are found in all types of cancers to a varying degree. But I believe that this expansion opportunity is very important to point out. Consider that Aadi could specifically treat patients with many different types of cancers, like lung cancer and others, just by targeting the genomic alteration that is most prevalent in the tumor itself. For instance, one tumor might have a higher genomic alteration of TSC1. In that case, the patient has a higher chance of responding to ABI-009.

The goal is to set up two different single-arm studies, which will use this drug to after each of these genomic alterations. But why expand to these targets? The biggest reason of all is to expand the population of cancer patients that can be treated with ABI-009. In other words, the market opportunity would be much larger. Consider that the group of patients to be targeted by this drug as a 1st-line therapy could increase significantly to possibly 30,000 patients or maybe more. The best explanation to go after these genomic alterations is to expand the patient population. However, there is an even better reason to do so. Aadi has already been able to see an impact that ABI-009 has had on TSC1 or TSC2 genes in the phase 2 registration AMPECT study noted above. This means, it has already established proof of concept of targeting these gene pathways (TSC1/TSC2). It was shown that 5 out of 6 patients who were mTOR inhibitor naive (hadn’t yet received treatment with mTOR inhibitor) achieved a confirmed partial response (PR) when given Fyarro monotherapy. This is a small set of data, but I believe it is worth exploring. That’s because it would be huge news for patients and for Aadi in expanding the use of its drug to additional patients.

As such, an IND filing for ABI-009 going after both genomic alterations of TSC1 and TSC2 is expected soon. Both studies are expected to start before the end of 2021. These are going to be very important studies, because the FDA has already allowed the company to make these single arm phase 2 studies as registration ones. Meaning, if primary endpoint of Best overall response (OR) is met, then it can file accelerated approval of ABI-009 for tumor agnostic patients. This will fulfill the goal of expanding the use of the drug targeting the mTOR pathway. As I described above, the future goal is to use the drug for patients who are likely to respond to Fyarro. This goal will be established with Aadi finding a diagnostic partner that can recruit patients who specifically have TSC1 or TSC2 genomic alterations. This would be really good for the company, because it would be able to treat the cancer patients who are likely to benefit from treatment with ABI-009. With the study starting before the end of 2021, final data won’t be expected for some time. Final results from the phase 2 registrational studies are not expected until the 1st half of 2024. Aadi hopes to expand to other subpopulations in cancer that use the mTOR pathway. This means that there may be a possibility to expand the reach of the drug even further than just those who have TSC1 and TSC2 genomic alterations.

Financials

According to the 10-Q SEC Filing, Aadi Bioscience had $161.4 million in cash and cash equivalents as of September 30, 2021. A big reason for the large influx of cash is because of the merger that occurred. Back on August 26, 2021, Aadi merged with Aerpio Pharmaceuticals, Incorporated. Once the merger was completed, there was a $155 million private investment in public equity (PIPE) financing of its common stock. With the current pipeline and cash on hand, it believes it has enough to fund its operations into 2024.

Risks To Business

The drug Fyarro was just approved, so it remains to be seen how much Aadi will generate in revenue from it. The launch is not expected until the 1st half of 2022, and there is no guarantee that there will be a huge market uptake of the drug. The ability to expand the use of the company’s drug ABI-009 towards the genomic alterations of TSC1 and TSC2 is encouraging. However, the small proof of concept data shown above was only achieved 5 patients. In order to have considerable confirmation of the ability of the drug to target these gene pathways, both single-arm phase 2 registration studies with more patients will be needed. Unfortunately, data from each of these phase 2 registration studies won’t be released until the 1st half of 2024.

Conclusion

Aadi Bioscience has done well to finally get a drug approved for the treatment of patients with PEComa. I believe that the ability to target the mTOR pathway will allow it to expand upon the potential populations that it can go after with Fyarro. This will be proven if it can successfully target the TSC1 and TSC2 gene pathways. As I stated above, it will possibly gain the ability to go after a tumor-agnostic cancer patient population. Meaning, that the drug will be able to target all types of tumors regardless of what they are. The key objective will be to use a diagnostic that will allow clinicians and researchers to know whether or not a patient is likely to respond to Fyarro. In the 2nd half of 2022, the goal is to go after other subpopulations where the mTOR pathway is appropriate. This will further expand the targetable population, even more beyond just those with TSC1 or TSC2 gene pathways. That’s why I believe there is a good opportunity here based on recent FDA approval progress of Fyarro.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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The post Aadi Bioscience: FDA Approval Of Fyarro Only The Beginning appeared first on Up2info.com.

• Aerpio Pharmaceuticals, Inc. is a biopharmaceutical company that is developing compounds that activate Tie2 for various indications but has recently entered into a merger with privately-held Aadi Bioscience.
• Aadi is a private clinical-stage biopharmaceutical company developing precision therapies for genetically defined cancers with alterations in mTOR pathway genes and currently awaiting NDA results.
• Aerpio and Aadi entered into an agreement on May 2021 for a merger where Aerpio stockholders will only own 14.7% of the new entity expected to finalize in 2H 2021.
• Aerpio and Aadi’s consolidated financials outline an expected post-merger cash position of $182.6M (incl. of PIPE) with sales expected to reach $7M in 2023 growing up to $2.5B by 2030.
• In summary, the author projects Aerpio Pharmaceuticals, Inc. as a “hold” until after the Merger.

Graphic Source: Aerpio Pharmaceuticals, Inc.

Introduction: What is Aerpio Pharmaceuticals?

Aerpio Pharmaceuticals, Inc. (NASDAQ: ARPO) is a biopharmaceutical company developing compounds that active Tie2 for various indications including Open Angle Glaucoma, COVID-19, Diabetic Nephropathy, IBD, and more. Aerpio recently announced its reverse-merger agreement with Aadi Bioscience, Inc. which will entail taking the currently private Aadi to the public markets and saving an ailing Aerpio in the process. Aadi is a private clinical-stage biopharmaceutical company developing precision therapies for genetically defined cancers with alterations in mTOR pathway genes. Aadi’s business model aims to exploit problems in effective drug delivery, safety, or effectiveness with their pipeline including their lead mTOR inhibitor drug FYARRO (ABI-009). ABI-009 was accepted by the FDA and has set a priority review PDUFA date of Nov. 26, 2021.

The merger between Aerpio and Aadi has taken precedence over various other factors as it will directly affect investors of ARPO more than the current pipeline as will later be addressed. The major outcomes of the merger include serious dilution, but also access to Aadi’s high likelihood of approval therapeutic. This therapeutic is the core of the merger and share price upside for long-term investors, but it does not compensate for the merger’s dilution after PIPE investors. This dilution makes Aerpio a “hold” until the finalization of the dilution effects. The following report will emphasize this critical merger as well as provide investors a concise overview of the two companies.

Aerpio & Aadi merger

Investors should follow the recent news announced in May 2021 of the merger. Aerpio Pharmaceuticals Inc and Aadi Bioscience agreed to a planned merger to which Aadi will become a wholly-owned subsidiary of Aerpio. Although Aadi will become a subsidiary of Aerpio, investors of the privately held Aadi will receive approximately 4.9152 shares of Aerpio’s stock with valuations tentatively set as $82.5M (Aadi Valuation) and $41M (Aerpio Valuation). The share/ownership arrangement of the merged entity is subject to the reverse stock split of Aerpio before the merge adjusted for Aerpio’s net cash. The new combined entity will change its name to Aadi Bioscience, Inc. effectively clarifying that the larger private Aadi will retain the majority of control over Aerpio with its associated dilution effects on Aerpio shareholders. This will result in Aadi’s stockholders owning approximately 66.8% of the combined company (fully diluted basis) and Aerpio’s stockholders owning 33.2%. This however is still not the full dilution effect as a PIPE financing elaborated below will adjust these ownership levels down.

+PIPE financing

On top of the announced merger agreement, Aerpio Pharmaceuticals Inc entered into “subscription agreements” with various PIPE investors. Aerpio has agreed to sell shares of common stock and pre-funded warrants for aggregate proceeds of tentatively $155M. The execution of this arrangement is expected to occur concurrently with and conditional on, the closing of the merger. This will effectively result in Aadi stockholders owning 29.6% of the newly combined entity and its associated share count. Aerpio stockholders will own on a fully diluted basis 14.7% and PIPE investors retaining the other 55.7%. Further information on the potential adjustments to the exchange ratios and ownership percentages can be found on page 146 titled “The Merger Agreement-Merger Consideration and Exchange Ratio” of the July 2021 SEC-published proxy statement.

Products/Pipeline (Aerpio & Aadi)

To properly analyze both firms in their newly merged form, it becomes necessary to present both their pipelines here. In short, Aerpio Pharmaceuticals’ pipeline is fraught with little potential after the recent discontinuation of its lead program for OAG with razuprotafib; however, privately-held Aadi possesses a very promising therapeutic known as AIB-009 at the NDA stage with a priority review PDUFA date of Nov. 26, 2021. AIB-009 is expected on second/third indications to reach blockbuster status (sales > $1B) by 2028. Per the merger, Aerpio and Aadi have outlined a probability of success for Aadi’s pipeline’s approval which was set as 90% for PE Coma and 63.6% for TSC1 / TSC2. This was estimated by the investment bank hired for the merger.

Aerpio’s Pipeline

Graphic Source: Aerpio Pharmaceuticals Inc. (July 2021)

Aerpio Pharmaceuticals Inc’s pipeline consists of 6 programs (4 clinical-stage) and four unique therapeutics. Most of the pipeline’s promise has largely stemmed from its once-promising razuprotafib (AKB-9778), a small molecule vascular endothelial protein tyrosine phosphatase (VE-PTP) inhibitor. This changed in Dec. 2020 when the company announced its top-line results from razuprotafib’s double-blind placebo-controlled Phase 2 trial in patients with elevated intraocular pressure (“IOP”) associated with open-angle glaucoma or ocular hypertension. Although the results met the trial’s primary efficacy endpoint with twice-daily dosing, it did not show an IOP decrease sufficient to move to Phase 3. Although devastating, it has probed the firm to find new avenues of development which resulted in the new merger being announced.

The other clinical-stage programs run by Aerpio Pharmaceuticals Inc included razuprotafib for treating ARDS, razuprotafib for Diabetic Kidney Disease, and AKB-4924, for inflammatory bowel disease, the latter being licensed to Gossamer. The ARDS program was fraught with complications in both its two Phase 2 trials run during 2020 (mod-severe COVID-19 – RESCUE Trial and critical COVID-19 – I-SPY Trial) and resulted in various study-related complications (e.g. monitoring patients during ICU capacity constraints). Topline data from the RESCUE trial showed a mechanism-based dose-dependent reduction of blood pressure with an apparent dose-dependent decrease in Ang2 consistent with Tie2 activation. Unfortunately, the efficacy couldn’t be fully assessed due to too few patients for comparative purposes and an outcome of an equal number of deaths in each group. Aerpio is still analyzing the full data set. In the diabetic kidney disease segment, two trials were run (TIME-2 and TIME-2b) for subcutaneous razuprotafib which showed a reduction in UACR, but no further notes have been made of its progress. Lastly, Aerpio’s final clinical-stage program is run under the Gossamer license agreement from June 2018. It involved Aerpio’s out-licensed drug, AKB-4924 (now GB004) which acts as a stabilizer of HIF-1 alpha for treating IBD. Thus far, it has completed a Phase 1b trial in UC patients reporting adequate results in 2Q 2020 to move forward into a Phase 2 study for mild-to-moderate UC in 2H 2020. Gossamer has since effectively bought out AKB-4924 for a payment of $15M (May 2020) which reduced future potential milestones and tiered royalties for Aerpio leaving Gossamer responsive for all remaining development and commercial activities.

On the pre-clinical side, Aerpio still has ARP-1536, a humanized monoclonal antibody targeting the same as subcutaneous razuprotafib, and a bi-specific antibody binding VEGF and VE-PTP. Both are still pre-clinical, but the company is evaluating its development opportunities for diabetic vascular complications and AMD/diabetic macular edema, respectively.

Aadi’s Products/Pipeline

Graphic Source: Aadi Bioscience, Inc. (July 2021)

Aadi’s products and pipeline consist of 4-6 programs utilizing primarily ABI-009 across various indications. ABI-009 (FYARROTM, nab-sirolimus) is an mTOR inhibitor bound to human albumin. In May 2021, Aadi announced they completed the filing of the NDA for ABI-009 with the FDA for approval to treat patients with advanced malignant perivascular epithelioid cell tumors (“PEComa”). The FDA has granted ABI-009 Priority Review and set a PDUFA target action date of November 26, 2021. The NDA came after a promising Phase 2 trial (AMPECT) in advanced malignant PEComa, a first of its kind with no approved therapies in the US or a prior prospective trial. In Nov. 2019, Aadi presented great top-line results from AMPECT meeting its primary endpoint of overall response rate determined by a blinded independent central radiologic review (RECIST v1.1. criteria). Aadi has already begun commercial preparations supporting the US launch of ABI-009 if approved. The plans include building a specialist sales force targeting US physicians.

In addition to advanced malignant PEComa, Aadi is expanding ABI-009’s indication list. Aadi is planning a new registration Phase 2 study (Precision 1) for tumor-agnostic Tuberous Sclerosis Complex 1 and 2 (TSC1 & TSC2). Aadi has met with the FDA (Type B meeting) to refine the trial design for the Precision 1 trial which is expected to commence by FYE 2021.

On top of the above priority activities, Aadi has an exclusive license with Abraxis BioScience, now a subsidiary of Bristol Myers Squibb (BMY) to which Aadi gained exclusive rights to develop, manufacture, and commercialize ABI-009.

For more information on updates regarding the science and priorities of the therapeutic line, please see either Aadi’s Website or the most recent merger documentation.

Management | Changes to C-suite execs.

The merger outlines several new management changes to be executed once the merger finalizes. The new CEO of the merged companies will be Aadi’s current President/CEO, Dr. Neil Desai. The new team will also include a CFO, COO, and Chief Medical Officer who are yet to be determined. The board will also include seven members some from Aerpio Pharmaceuticals Inc. and Aadi Bioscience. Caley Castelein, M.D., will serve as the new Chairman. He has served on Aerpio’s board of directors since March 2017.

Dr. Neil Desai, the new CEO/President, is the founder and current CEO/President of Aadi Bioscience. Before Aadi, he was SVP – Global R&D of Abraxis Bioscience, VP of Strategic Platforms of Celgene Corp, and inventor of nanoparticle albumin-bound technology and ABI-009. Dr. Desai has led the Abraxane team through all developmental stages showcasing sufficient clinical experience. He possesses 25+ experience in novel therapeutic delivery systems with 100+ patents and 40+ peer-reviewed publications/book chapters with 200+ presentations at scientific events. He seems like an adequate fit for the newly merged entity.

Financial position

The announcement of the merger came with a proxy statement of consolidated financials of both Aerpio Pharmaceuticals Inc and Aadi Bioscience which will be presented below in their consolidated form. Neither company has commercialized any therapeutic yet, but revenues reached $29.6M in FY 2020 based on grants and milestone payments not expected to continue. 2020’s net losses reached -$82.6M alongside $182.6M (incl. of PIPE) in cash and equivalents forecasted for the merger. In Jan 2021, Aerpio also outlined their “realignment plan” which aimed at reducing costs and prioritizing ongoing business. Aerpio reduced its employee count by 7 people (-58% of the workforce). Total liabilities at March 2021 aren’t worrisome at a manageable $22.6M between the companies with a net positive pro forma book value per share of the combined entity at $0.51/share inclusive of 317.1M in expected shares outstanding noted March 2021. The cash position of $182.6M is inclusive of the potential PIPE financing expected to amount to +$155M sufficient for both pipelines to continue operations for at minimum 2 years. If approved, ABI-009 should strengthen the financial position.

Aerpio’s current therapeutic predicament makes it less likely to produce outstanding therapeutic success in the near term after razuprotafib’s Phase 2 didn’t produce sufficient therapeutic effect to move forward. This halts any potential upside from their current pipeline or sales projections in the near term. Aerpio’s value now comes from acting as a promising vehicle for Aadi’s reverse merger and its associated PIPE financing.

Tentatively, Aadi has presented some rough sales projections that were utilized in creating the valuation for the merger and are presented below. This showcases interesting dynamics. Firstly, ABI-009 for PEComa, currently pending NDA, isn’t expected to produce blockbuster sales and the ramp-up is quite slow starting from $3.8M in 2022 sales growing to $41.9M by 2030. The newly initiated trials using ABI-009 for TSC1/2 showcase a much larger market potential starting with sales with tentative approval by 2023-2024 and commercial launch in 2024. Sales for TSC are expected to grow from $31.8M in 2024 up to ~$1.6B by 2030, thus achieving the blockbuster status. It also showcases that investors will most likely realize much of their upside following 2023’s tentative approval for TSC thereafter appreciating significantly throughout the duration of high growth.

Table Source: DCF Figures of Aadi’s Valuation | Aerpio’s July 2021 Merger Proxy Statement

Risk discussion

Aerpio Pharmaceuticals Inc in its current state pre-merger is a very risky investment with a discontinued lead program and waning financial resources; however, the new merger established highlights a reduction in such risk for the long-term investors. This is due to the provision of financial resources and a significant stake in what may be a multi-billion-dollar drug by 2028. Additionally, the PIPE financing comes through at an opportune time for the firm, but there is no guarantee of its financialization which could reduce Aadi’s ability to commercialize properly and continue its trials for TSC1/2. TSC1/2 are the critical trials long-term investors should follow as they mark the real catalyst for long-term returns. This is due to their indications’ significantly higher expected sales potential. This merger may be likely to succeed, but if it does not, investors will certainly realize dilution and a continued holding in a firm with less than likely prospects of commercialization. Long-term investors should follow the merger closely and be cognizant of any August 17, 2021 disproval from ARPO’s shareholders at the special meeting.

Price target and valuation | ARPO stock price

Aerpio Pharmaceuticals Inc is largely underfollowed by wall-street analysts, which makes the estimations difficult to interpret; however, the adjustment from March to July 2021 of analyst estimates has shown an upward price change from $2/share to $22/share following the announcement of the merger. The outlook by wall-street for ARPO is “bullish” after the merger announcement, but remains at risk of bias with only 1 analyst following. $22 is a high mark as further DCF analysis below will show and is considered quite optimistic. Long-term investors should know that this price target is not valid if the merger fails and if ABI-009 is not approved. Further factors that may affect this price target that should be followed are clinical-trial results from the TSC1/2 trials and the associated PIPE financing which both aren’t concerning as they seem on track.

Graphic Source: Seeking Alpha, Inc: Wall St. Analysts Rating

Can ARPO stock go up? | DCF Valuation

Based on the following valuation analysis, Aerpio Pharmaceuticals Inc is not a riskless stock buy. It is fraught with high-risk and significant dilution for the current or prospective ARPO shareholders. To further shed light on the merger’s potential outcome, the DCF model developed by Aerpio Pharmaceuticals Inc for the Aadi merger has been modified by the author to incorporate ARPO and the PIPE financings. Most of the major considerations remain unchanged from Ladenburg’s model from the proxy statement. The changes made by the author include adjusting revenues back to full-clinical success thus incorporating the upside factor and reducing the risk adjustments made. Additionally, in calculating total EV, ARPO’s fair value of $15M net of cash is incorporated and a range of discount rates was applied. The Total Market Value also incorporated the PIPE financing ($155M) / post-merger expected cash position. Finally, total shares utilized were post-merger ownerships presenting a very conservative 2022-2023 price target of $7.90/share for the new entity (not including reverse stock split considerations yet announced).

For current ARPO investors, a $1.18/share (-41% transaction loss) seems to reflect the most optimistic current value of their ownership post-merger following the massive PIPE+Aadi dilution effects. It’s not a near-term favorable transaction for investors who currently own ARPO, but following the consumption of the merger if the share price remains below $7.90/share (to be adjusted for changing reverse stock splits) then investors may have considerable upside to this figure.

Table Source: Developed by Gunner Hardy | Original Table/Data Source: DCF Valuation by Ladenburg Thalmann

Additionally, the model doesn’t incorporate any upside for ARPO other than the current fair value. If therapeutic success begins across its pipeline, then this figure may be too conservative. The original $2 mark set by wall-street analysts makes sense in light of further analysis. The new target set also makes sense based on the merger with Aadi and its associated $155M PIPE financing but is optimistic.

Conclusion | Is ARPO stock a good buy or sell?

To summarize, Aerpio Pharmaceuticals Inc’s merger with Aadi outlines the only real hope for investors to recoup their losses which will result in a massive dilution, but significant medium-term upside with a higher-than likely approval expected for Aadi’s lead therapeutic. The transaction infuses the company with sufficient financial resources and new management. The earnings potential of Aadi’s lead therapeutic, ABI-009, is sufficient to excite investors, but the dilution that must occur first is certainly going to increase the difficulty. Consumption of the merger would bring strong upside, but any failure to do so could certainly mean significant if not irreversible losses for Aerpio Pharmaceuticals in its current state.

In summary, the author projects Aerpio Pharmaceuticals, Inc. as a “hold” until after the Merger.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The post Aerpio Pharmaceuticals: Is This Stock A Buy Or Sell? Not Until The Merger Is Over appeared first on Up2info.com.

• Recent “failure” of lead compound opens up new windows.
• Let’s talk about the pipeline; new methods of attack, first-in-class.
• Existing partnership could generate 10x current market cap in milestones and royalties, not to mention a portion of sales proceeds.
• Other comforting facts. (A dozen more reasons why I think now is the time to invest).

According to Aerpio Pharmaceuticals (ARPO) website, they are a bio pharmaceutical company focused on advancing first-in-class treatments for ocular diseases.

Personally, I think the description is far too narrow and base my opinion on both the company’s recent strong secondary readouts from a “failed” drug trial and its partnership with Gossamer Bio (GOSS).

While it was the initial one-day 71% haircut on March 18, 2019, that first put this company on my radar (ultimately bottoming out at $.88 on March 29), it was the value proposition the drop created that had me buying in.

Here’s the company’s current pipeline:

Figure 1: Product Pipeline (Source: ARPO website) with annotations by author

Now, let’s talk about above pipeline.

I. Drug: AKB-9778

AKB-9778 is a small molecule inhibitor of VE-PTP, the most critical negative regulator of Tie2 in diseased blood vessels. AKB-9778 binds to and inhibits the intracellular catalytic domain of VE-PTP that inactivates Tie2. Inhibition of VE-PTP has shown the ability to activate the Tie2 receptor irrespective of extracellular levels of its binding ligands, angiopoietin-1 (agonist) or angiopoietin-2 (antagonist), and may represent the most efficient pharmacologic approach to restoring Tie2 activation.

The Tie2 pathway was discovered 20 years ago. Since that time, considerable scientific evidence has established active Tie2 as a key regulator of vascular stability.

Figure 2: Inhibiting VE-PTP with AKB-9778 restores Tie2 activation and endothelial cell stability even in absence of Ang1 (Source: ARPO Corporate Presentation dated April 10, 2019) with annotations by author

When one window closes (“A”), others open (“B” and “C”)

A) AKB-9778 for Non-Proliferative Diabetic Retinopathy (“NPDR”) Status: CANCELLED

On March 18, 2019, the company revealed its TIME-2b trial for the treatment of NPDR had failed to meet its primary endpoint: To improve underlying Diabetic Retinopathy by 2 or more steps on the ETDRS Diabetic Retinopathy Severity Scale (or “DRSS”) in both eyes.

Figure 3: ETDRS Severity Scale (Source: ARPO Form 8-K dated January 8, 2018)

The resulting carnage:

ARPO received its aforementioned 71% haircut. Then, four days later, their Chief Medical Officer Stephen Pakola resigned [having now assumed the same position at REGENXBIO (RGNX)].

Regarding the failed trial, Aerpio would provide additional color on April 10 at the 18th Annual Needham Healthcare Conference (where the company released an updated corporate presentation). Then, even more color was provided on May 2nd at the 2019 Annual Meeting of The Association for Research in Vision and Ophthalmology (ARVO 2019).

Details from the “failure” of the AKB-9778 TIME-2b trial:

• Regarding the primary endpoint, the drug outperformed the placebo by a factor of 2.54 to 1 (9.61% successful 2-step response vs 3.77% placebo). But with a P-value of 0.27, this 167 patient trial did not meet statistical significance at the conclusion of its 48-week trial period.

However, it was not all bad news account…

B) AKB-9778 for Primary Open-Angle Glaucoma (“POAG”) Status: GO

During the TIME-2b trial and the one that preceded it (TIME-2), measurements were also taken of participants Intraocular Pressure (“IOP”). In both cases, IOP was significantly reduced and statically significant:

• TIME-2 AKB-9778 Reduction in IOP: -1.20 mmHG vs -.17 placebo p-value < 0.01, statistically significant
• TIME-2b AKB-9778 Reduction in IOP: -1.10 mmHG vs .15 placebo p-value <.001, statistically significant

Figure 4: IOP Data from Time-2 and Time-2b trials (Source: ARPO Presentation at 2019 Annual Meeting of The Association for Research in Vision and Ophthalmology on May 2, 2019)

• QD = drug administered 1x daily at 15mg (15mg total)
• BID = drug administered 2x daily at 15mg (30mg total)

Additionally, the largest changes in IOP were seen in patients with the higher baseline pressure… which is exactly what you’d want to see since this represents the company’s target market.

Figure 5: Larger IOP Changes in Patients with Higher Baseline Pressure (Source: ARPO Corporate Presentation dated April 10, 2019) with annotations by author

Based on the above accumulated data, Aerpio has now submitted an Investigational New Drug Application with the FDA with hopes of initiating an ocular topical drop formulation of AKB-9778 during 2Q’19 for the treatment of open-angle glaucoma with results anticipated by year-end 2019.

As a reminder (and to reemphasize), the IOP figures seen above resulted from trials (TIME-2 and TIME-2b) which were administered subcutaneously (via injection). Therefore, it would be prudent for a reasonable person to wonder if similar results might not carry over with a change in formulation and administration (via eye drops). Thus far, however, results seem encouraging.

Here’s a company slide showing the effect the drug had on the IOP of rabbits with normal blood pressure:

Figure 6: IOP Decreases after Topical Ocular Administration of AKB-9778 (Source: ARPO Corporate Presentation dated April 10, 2019) with annotations by author

AKB-9778 would also represent a new method of attack against Glaucoma… by activating Tie2 to maintain vascular stability throughout the eyes trabecular meshwork and Schlemm’s canal.

Figure 7: AKB-9778 Presents potentially new Method-Of-Attack that affects the main pathway in IOP reduction (Source: ARPO Corporate Presentation dated April 10, 2019)

Figure 8: Tie-2 is Essential for Vascular Stability (Source: ARPO Corporate Presentation dated April 10, 2019)

If all goes well, here’s an idea of the market size that awaits:

Figure 9: Commercial Opportunity in Glaucoma (Source: ARPO Corporate Presentation dated April 10, 2019)

As can be seen in the above chart, Latanoprost (Xalatan) is currently the most prescribed medication for this condition. It’s manufactured by Pfizer (PFE) and was the 92nd most prescribed medication in the US in 2018, with over 7.5 million prescriptions filled. As recently as 2016, it was the 79th most prescribed drug, with over 9 million prescriptions filled.

And, for an idea of how a successful new drug in this arena can improve the fortunes of a stock, look no further than Aerie Pharmaceuticals (AERI).

Figure 10: AERI stock price (Source: Finviz) with annotations by author

Aerie had its first-ever FDA approved drug Netarsudil (Rhopressa) approved on Dec. 18, 2017. It was approved for the reduction of elevated IOP in patients with open-angle glaucoma or ocular hypertension.

More recently, on March 12, 2019, AERI had a 2nd drug (Rocklatan) approved by the FDA. Rocklatan is simply a combination of Rhopressa + Xalatan. Aerie is glowing about Rocklatan’s prospects (read/listen to earnings transcript), but there is some concern regarding its side effects.

AERI expects 2019 revenue from sales of Rhopressa and Rocklatan to come in between $110 and $120 million. Meanwhile, the company has a current market cap of $2.0 billion!

Interestingly, AKB-9778 could act upstream from the effects of some of the recently approved glaucoma products, including Rhopressa.

Figure 11: AKB-9778 Could act upstream from recently approved glaucoma drugs (Source: ARPO Corporate Presentation dated April 10, 2019)

For more information regarding the categories of eye drops designed to treat glaucoma, click here. Note: This info was published prior to AERI’s formulations, so you will not find a mention of their drugs here.

C) AKB-9778 for Diabetic Nephropathy (“DN”) Status: SEEKING PARTNER

So, was there any other beneficial data gleaned from the Time-2 and “failed” Time-2b trials? You bet there was! There was reproduced evidence of improved kidney function observed in the Urine Albumin-Creatinine Ratio (“UACR”) of patients. In current biology, two key markers used to identify chronic kidney disease are UACR and eGFR.

Additionally…

Figure 12: Progression of Diabetic Eye and Kidney Disease suggest a common pathologic process (Source: ARPO Corporate Presentation dated April 10, 2019)

From TIME-2:

Figure 13: Time-2 trial data: Percent Change in UACR (Source: ARPO Corporate Presentation dated April 10, 2019) with annotations by author

From TIME-2b:

Figure 14: Time-2b trial data: Percent Change in UACR (Source: ARPO Corporate Presentation dated April 10, 2019)

Armed with the above positive data, along with a desire to be prudent with their financial resources, ARPO has elected to seek a pharma partner before proceeding further with subcutaneous AKB-9778 as an indication to slow diabetic nephropathy.

Regardless, here’s an idea as to the potential market size:

Figure 15: Kidney Disease Prevalence in the United States (Source: ARPO Corporate Presentation dated April 10, 2019)

II. Drug: ARP-1536 for Wet Age-Related Macular Degeneration (“wet AMD”) and Diabetic Macular Edema (“DME”)

ARP-1536 is a humanized monoclonal antibody (“Mab”) that targets the extracellular domain of VE-PTP. The drug is currently in the preclinical stage of development. In preclinical models, ARP-1536 activated the Tie2 receptor in a dose-dependent manner with a preclinical efficacy profile similar to AKB-9778.

Aerpio plans on developing ARP-1536 in combination with anti-VEGF therapy for the treatment of Wet Age-Related Macular Degeneration and Diabetic Macular Edema.

Based on the long half-life of monoclonal antibodies, ARP-1536 has the potential to be administered on a monthly to quarterly basis.

Current standard of care:

The current standard of care for wet AMD and DME are frequent, monthly, or every other month, injections of anti-VEGF agents into the eye. Popular drugs currently used to treat these conditions include ranibizumab (Lucentis) and aflibercept (Eylea). While both are effective at reducing retinal thickness, fluid and swelling may recur with discontinued therapy.

2017 Sales Figures: Lucentis: $1.5 billion. Eylea: $5.9 billion.

Additionally, both drugs are now approved for multiple indications, hence the large sales numbers. Lucentis is manufactured by Genentech, a division of Roche (OTCQX:RHHBY) while Eylea is manufactured by Regeneron (REGN).

Remembering that Aerpio has stated ARP-1536 has preclinical efficacy profile similar to AKB-9778… let’s look at a slide in regards to changes in IOP seen with AKB-9778 as it related to Lucentis:

Figure 16: Time-2 trial data: Statistically significant reduction in IOP (Source: ARPO Corporate Presentation dated April 10, 2019)

Also note these particulars from the Mayo Clinic:

• Retrospective analysis of intraocular pressure data from two phase III trials indicates that IOP should be monitored in patients with wet AMD age-related macular degeneration who receive Lucentis.
• Several publications have since reported long-term sustained elevation of IOP in a small subset of patients who received intravitreal injections of anti-VEGF agents for the treatment of neovascular wet AMD.
• This study indicates that for some patients, intravitreal injections may have an effect on IOP, possibly because of the injection volume, the injected drug or both. Sustained elevation can occur after either a single or repeated intravitreal injections, may require IOP-lowering therapy, and may develop in patients with no history of glaucoma.

Naturally then, there’s a chance that Aerpio’s ARB-1536 could address both these issues simultaneously.

Regarding DME specifically, several additional therapies have been used to treat this indication. Namely, corticosteroids (such as triamcinolone, fluocinolone, and dexamethasone), which are all administered via injections into the eye.

More recently, within weeks of one another in September 2014, a couple novel sustained-release corticosteroids were also approved by the FDA for use in treating DME: fluocinolone (Iluvien) and dexamethasone (Ozurdex). While these new drugs have reduced the number of injections required to obtain and maintain clinical responses, they have not overcome the shortcomings of corticosteroids. (FYI: Iluvien last up to 36 months, Ozurdex 6 months)

Iluvien is manufactured by Alimera Sciences (ALIM) which uses a method of administration developed by EyePoint (EYPT). Ozurdex is manufactured by Allergan (AGN). Of the two, Ozurdex has gained the most traction thus far with 4Q’18 net revenues of $29.3 million.

Corticosteroid treatment is associated with a significant increase in cataract formation and a rise in intraocular pressure, eliminating these agents as potential therapies in many patients.

Lastly, the typical response in wet AMD and DME from anti-VEGF therapy is that only 30-40% of patients will improve their visual acuity by 15 letters or more, referring to the number of letters, arranged in lines that the patient can read on the ETDRS eye chart. This leaves a significant portion of the patients with inadequate control of their disease.

III. Drug: AKB-4924, or GB004, for Inflammatory Bowel Disease (“IBD”)

This is where things get even more exciting.

AKB-4924 is a prolyl-hydroxylase (“PHP”) inhibitor. Inhibition of PHP enzymes stabilizes hypoxia inducible factor (“HIF”) transcription, which is crucial for regulating a variety of cellular activities in response to oxygen stress.

Here are the types of HIFs:

Figure 17: Members of the Human HIF Family (Source: Wikipedia) with annotations by author

Unlike other HIF stabilizers in clinical development (which stabilize HIF-2 and stimulate erythropoiesis), AKB-4924 selectively stabilizes HIF-1a, which plays a key role in the intestinal wall.

In preclinic models, AKB-4924 demonstrated both profound anti-inflammatory and mucosal wound healing effects. The drug promoted both resolution of intestinal inflammation and restoration of intestinal epithelial barrier function.

As of today, there are no FDA-approved therapies targeting the intestinal epithelial barrier function. AKB-4924 would be first-in-class.

AKB-4924 is being developed as a once-daily, oral treatment for Inflammatory Bowel Disease. IBD is a group of inflammatory conditions of the gastrointestinal tract. Namely, ulcerative colitis (“UC”) and Crohn’s Disease.

Now, some slides:

Figure 18: AKB-4924 in Inflammatory Bowel Disease (Source: ARPO Corporate Presentation dated April 10, 2019)

Figure 19: AKB-4924 Prevention of TNBS Colitis (Source: ARPO Corporate Presentation dated April 10, 2019)

Armed with these early results, it didn’t take long for Aerpio to find a suitable and willing partner.

On June 24, 2018, Gossamer Bio and Aerpio joined forces with the announcement of a $420 million exclusive licensing agreement with “GB004, Inc”, a wholly owned subsidiary of GOSS.

The deal included an upfront $20 million payment to Aerpio along with regulatory and sales milestones of up to $400 million. Additionally, ARPO is entitled to royalties based on worldwide net sales, ranging from the high single digit to mid-teen percentage. To boot, Gossamer will be responsible for all remaining development, regulatory, and commercialization expenses for GB004 (formerly known as AKB-4924). See Aerpio’s Form 8-K dated June 25, 2018, for additional information.

So, what did Gossamer have to say about the partnership with Aerpio? (Italics added by author for emphasis):

We are pleased to have found GB004 after thoroughly assessing a substantial number of opportunities. This program represents an important addition to the Gossamer portfolio of drug candidates aiming to address unmet medical needs.

… Faheem Hasnain, Gossamer Bio’s Executive Chairman

and

The HIF-1 alpha stabilization mechanisms represent truly novel biology with multiple putative benefits and a potential paradigm-changing approach to treating IBD patients.

… Sheila Gujrathi, MD, Gossamer Bio’s CEO

And, here’s even more recent quotes from GOSS CEO Sheila Gujrathi, these taken from GOSS’s May 14, 2019, conference call:

The clinicians we spoken to are designing our clinical program have been very excited by GB004 oral valid administration and the novel differentiated mechanism of healthcare we are pursuing.

and

While we have also change some potentially important immunomodulatory effects of GB004 in preclinical model. GB004 is not a mechanism of action it is unique and that enhances epithelial barrier function and repair rather than active purely immunosuppressive mechanism.

For a little back story on GOSS’s Executive Chairman and CEO… previously, they were teamed up and working together at Receptos (RCPT) in the roles of CEO and CMO when the company was acquired for $7.2 billion by Celgene (CELG) on July 14, 2015.

Interestingly, the prize most cherished by Celgene was the Receptos drug RPC1063 (Ozanimod), a ph.III oral treatment for… you guessed it, a form of IBD, ulcerative colitis! CELG also hopes the drug will be able to treat multiple sclerosis. Nearly four years later, however, CELG is still working to get the drug approved.

Going back to the Aerpio and GOSS partnership, and in case you were wondering, the “GB004, Inc” structure was simply a business preference or strategy preferred by GOSS. Each of their indications are set up this way in order to give GOSS the flexibility to sell off their drug assets piecemeal if another suitor where to come along. The company wanted the ability to say “yes” to an offer without necessarily losing the entire company in the process… as they’d just gone through with RCPT. Of course, if GB004 or “GB004, Inc” is sold, Aerpio will have the option to participate in the sale too.

Meanwhile, here’s an idea of the market opportunity that awaits in IBD:

Figure 20: Global Inflammatory Bowel Disease Treatment Market Revenue (Source: KOL Opinions, via Titan Chronicle)

Other Comforting Facts. (A dozen more reasons why I think now is the time to invest.)

1. Cash Levels and Burn Rate. At end of Q1, 2019, ARPO had $53.4 million in cash and cash equivalents. The company expects this amount to be enough to fund operations to mid-2021. Helping, was the announcement on April 1, 2019, that they were reducing their workforce by 11 employees… which represented a whopping 41% of their employees. Aerpio also stated this was (only) expected to cost them $900k in related cost and severance. So, as you can see, this company is running very lean. I like that. A lot!

2. Milestone Payments. Above cash runway figure does not take into consideration any future milestone payments… the first of which is scheduled to be paid at the start of the phase II trial for GB004… which should occur 1H’20 based on current GOSS projections.

3. Market Cap. At the current price of $1.01 (as of this writing), the company has a minuscule and underappreciated market cap of only $41 million with 40.6 million shares outstanding. Thus, the company is currently trading under cash.

4. No debt.

5. The company has no manufacturing facilities and relies on 3rd parties to manufacture and supply their drug products. The good: Saves lots of money. Better to be R&D-heavy than facility-heavy, especially at this stage.

6. The company currently has Chief Scientific Officer, Kevin Peters, MD wearing two hats. He has also assumed the role of recently departed Chief Medical Officer, Stephen Pakola. The good: Saves lots of money.

7. Patent-heavy. Company has secured 28 US patents with 21 pending, along with 235 foreign patents with 111 pending. These figures do not count patents that have been licensed to third parties. The patents cover compositions of matter, methods of use, drug formulation, and methods of manufacture. Patents issued and pending are expected to expire on various dates between 2027 and 2039, without taking into consideration possible patent term adjustments or extensions.

8. Insiders with skin in the game. Executive officers, directors, and principle stock holders, along with their respective affiliates, owned 44.7% of the common stock at year end 2018.

9. Not currently involved in any material legal proceedings.

10. Financial house already in order. In Feb. 2018 company secured rights to issue $150 million in common stock, preferred stock, debt securities, warrants, or units via a shelf offering. Under this arrangement, the company has sold 13,388,200 common shares and raised $48.1 million thus far. Subsequently, on Feb. 21, 2108, the company secured rights to an ATM (at-the-money) financing arrangement. Thus far, the company has not tapped into the ATM.

So, why am I listing this under Other Comforting Facts? Because it’s better to already have a flexible plan in place when healthy (that will allow you to sell securities at-the-market) than to be at the mercy of loan sharks later when you’re already in need of funds. That’s when things can get ugly.

The company also has outstanding warrants whereas warrant holders can purchase up to 317,562 shares at $5.00/each. These warrants were issued to the pre-merger note holders of Zeta Acquisition Corp II (a shell company) when Aerpio was in process of merging and up-listing to becoming a public company in 2017. The warrants expire on 03.15.20.

To provide even more history, Aerpio first came into existence when they were spun off by Akebia Therapeutics Inc. (AKBA) in 2012. Subsequently, Akebia would later merge with Keryx Biopharmaceuticals (KERX) in 2018.

Per Aerpio’s certificate of incorporation, the company is authorized to issue up to 300 million shares of common stock and 100k shares of preferred stock. Currently the company has 40.6 million shares of common outstanding and 0 shares of preferred outstanding.

11. Steady flow of (what I expect to be) a positive news flow over the next 18 months (and beyond).

Figure 21: Milestone rich timeline over next 18 months (Source: ARPO Corporate Presentation dated April 10, 2019) with annotations by author (removal of one already-completed event)

12. On-Balance Volume (“OBV”). Though the stock remains down roughly 75% since the brutal sell-off that occurred after the “failure” of AKB-9778 on March 18, it now appears to be under heavy accumulation… an accumulation that started immediately after setting an all-time intraday low of $0.88 on March 29. As can be seen in the chart below, it would seem that roughly six million shares have been bought up over the past seven weeks… roughly half of what was sold off during the meltdown. Additionally, short interest has never risen above 1% throughout the entire fiasco.

Figure 22: (Source: TD Ameritrade) with annotations by author

In Closing…

Hope you enjoyed the article. While I cannot guarantee where the stock heads from here, my best guess is that it lies somewhere between up and (hopefully) considerably up. However, keep in mind that it’s a small-cap bio-tech stock, and these companies are in constant need of cash to fund operations. But the two-year cash runway, trading under cash value, and seemingly robust (albeit young) pipeline have me willing to allocate some funds into this name for the intermediate term, say 12 months, whereas all the points I brought up in this article could then be reassessed.

Personally, I first started buying into the stock after its initial plunge on March 18. At the time, I was thinking, worst case scenario, Aerpio will end up announcing the cancellation of all their Tie2 programs. Even thinking this was a possibility (albeit a minor one), I chose to buy as I felt the company’s GB004 GOSS partnership alone was worth more than the $40 million market cap the company was trading at. I then sat on my hands to wait for more color to be provided by both ARPO and GOSS before deciding if I wanted to add more shares. That color has since been provided by both companies and I have continued to add shares. While I was initially hitting the ask, more recently, I’ve been sitting on the bid at specific price points. I already have all the shares I need, so am now only low-balling with GTC orders. With my cup now full, I felt now was the time to share this wealth with everyone else… let’s just hope it becomes more than just a wealth of information.

May all your trades be profitable. Good day!

Disclosure: I am/we are long ARPO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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