Aadi Bioscience, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022. The supplied filing identifies the registrant as Aadi Bioscience, Inc., not Whitehawk Therapeutics, Inc. The company is an emerging growth company and smaller reporting company focused on developing and commercializing precision cancer therapies targeting mTOR-pathway alterations.
Business Context and Reporting Period
- FDA approved FYARRO in November 2021 for adults with locally advanced unresectable or metastatic malignant PEComa.
- U.S. commercial launch began February 22, 2022. FYARRO was the company’s only approved commercial product during the period.
- PRECISION 1, a registration-directed Phase 2 study in tumors with TSC1 or TSC2 alterations, opened for enrollment in the first quarter of 2022; the first patient was dosed in March 2022.
- The company operated as a single U.S. reportable segment and had 67 full-time employees as of June 30, 2022, including 39 in research and development.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Net product sales | $3.4 million in 2022; none in 2021 | $5.7 million in 2022; none in 2021 |
| Total revenue | $3.4 million in 2022; none in 2021 | $5.7 million in 2022; $0.1 million in 2021 |
| Gross product-sales deductions | $0.6 million | $1.0 million |
| Selling, general and administrative expense | $10.0 million vs. $0.8 million | $19.2 million vs. $1.4 million |
| Research and development expense | $7.7 million vs. $3.0 million | $14.5 million vs. $6.7 million |
| Cost of goods sold | $0.3 million | $0.5 million |
| Contract-intangible impairment | $3.7 million | $3.7 million |
| Net loss | $18.3 million vs. $1.5 million | $32.1 million vs. $7.0 million |
| Net loss per share | $0.87 vs. $0.60 | $1.53 vs. $2.76 |
- Loss from operations was $18.4 million for the quarter and $32.2 million for the six-month period.
- Product gross margin was approximately 90% for both the quarter and six months, based on reported net product sales less cost of goods sold; this excludes broader operating expenses and Celgene royalties are included primarily in cost of goods sold.
- Cash used in operating activities was $30.1 million for the six months ended June 30, 2022, compared with cash provided of $7.4 million in the prior-year period.
- Net cash, cash equivalents and restricted cash declined by $30.2 million to $118.8 million from $149.0 million at December 31, 2021. Cash and cash equivalents alone were $118.7 million.
- Total assets were $128.6 million and total liabilities were $19.9 million at June 30, 2022. Stockholders’ equity was $108.7 million.
- The company had $5.8 million due to the FYARRO licensor, payable August 26, 2024, plus accrued interest at 4% per year. No convertible notes were outstanding after conversion in connection with the 2021 merger.
Material Changes Versus the Prior Comparable Period
- FYARRO generated the company’s first material product revenue, while prior-year revenue consisted only of $0.1 million of grant revenue for the six-month period.
- Operating expenses increased substantially as the company built commercial infrastructure, expanded personnel, incurred public-company costs and advanced PRECISION 1.
- Six-month SG&A increased by $17.8 million, primarily from personnel, commercial and marketing, consulting, legal, insurance and other costs. Six-month R&D increased by $7.8 million, primarily from personnel, consulting and other expenses.
- The company recorded a $3.7 million non-cash impairment of the Gossamer license intangible asset after Gossamer terminated the related license agreement following unfavorable clinical results for GB004.
- Working capital absorbed cash because of the commercial launch, including $2.1 million of accounts receivable and $0.7 million of inventory at June 30, 2022, compared with none at December 31, 2021.
- Share-based compensation increased to $4.0 million for the six months from $0.1 million in the prior-year period.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing cash and cash equivalents were expected to fund planned operations into 2024, although the filing also notes that additional capital will ultimately be required to support continued development and commercialization.
- An at-the-market facility permits sales of up to $75.0 million of common stock; no shares had been sold under the facility as of June 30, 2022.
- On June 27, 2022, EOC terminated the license agreement covering FYARRO in China, Hong Kong, Macau and Taiwan, alleging material breaches. Aadi disputes the allegations and characterizes the termination as a termination for convenience. EOC filed an International Chamber of Commerce arbitration seeking monetary damages. The company could not estimate a loss range and accrued no amount.
- The EOC termination eliminates potential future territory-related milestone and royalty revenue and may require Aadi to fund development in the territory or locate another partner.
- The Gossamer license terminated effective July 24, 2022. Related contingent value rights were automatically cancelled and forfeited without payment.
- Aadi relies on Fresenius Kabi as a single-source manufacturer for FYARRO and has minimum purchase obligations under the supply arrangement. Supply interruption, quality issues or failure to meet minimum purchases could affect sales and clinical development.
- The company expects continuing operating losses due to commercialization, clinical development, regulatory activities and expansion of its pipeline. It does not anticipate product sales sufficient to achieve profitability in the foreseeable future.
- Key risks include limited commercial history, dependence on FYARRO, uncertain reimbursement and market acceptance, regulatory and clinical-trial risks, patient-enrollment delays, single-source manufacturing, intellectual-property risks, COVID-19-related disruptions, healthcare-pricing reform and the need for additional financing.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no reported material changes in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Confirm the company identity: the provided filing is for Aadi Bioscience, Inc., ticker AADI, rather than Whitehawk Therapeutics, Inc.
- Assess FYARRO launch traction, including net sales growth, channel inventory, payer coverage, reimbursement, returns, rebates and chargebacks.
- Monitor cash burn relative to the $118.7 million cash balance and management’s “into 2024” liquidity estimate, including the timing and terms of any future financing.
- Track PRECISION 1 enrollment, clinical results, regulatory interactions and the prospects for approval in additional indications.
- Follow the EOC arbitration, potential damages and the strategic consequences of losing the Asia-Pacific license.
- Evaluate manufacturing concentration and minimum-purchase obligations with Fresenius Kabi, along with the status of any backup supply arrangements.
- Review the $5.8 million licensor payment due in August 2024 and accrued interest obligations.
- Verify the effect of product-sales allowances and royalties on sustainable product gross margin and future cash generation.