Aadi Bioscience, Inc. Form 10-Q Summary
Filing identity: The request identifies Whitehawk Therapeutics, Inc., but the provided filing is for Aadi Bioscience, Inc., formerly Aerpio Pharmaceuticals, Inc. The report covers the quarter ended September 30, 2021 and was filed November 10, 2021.
Business Context and Reporting Period
Aadi is a clinical-stage biopharmaceutical company developing precision medicines for rare, mutation-driven cancers. Its lead candidate is ABI-009, also known as nab-sirolimus or FYARRO, targeting mTOR-pathway alterations. Aadi completed its merger with Private Aadi on August 26, 2021, effected a 1-for-15 reverse stock split, changed its name from Aerpio Pharmaceuticals, and began trading under the Nasdaq symbol AADI.
The FDA accepted Aadi’s rolling NDA for ABI-009 for advanced malignant PEComa in July 2021, granted Priority Review, and set a November 26, 2021 PDUFA target action date. Aadi planned to initiate the PRECISION 1 Phase 2 study in tumor-agnostic TSC1 and TSC2 alterations by year-end 2021 or early 2022.
Key Financial Metrics
| Metric | Three months ended September 30, 2021 | Three months ended September 30, 2020 | Nine months ended September 30, 2021 | Nine months ended September 30, 2020 |
|---|---|---|---|---|
| Total revenue | $0.0 million | $0.2 million | $0.1 million | $0.4 million |
| Research and development expense | $5.8 million | $2.4 million | $12.4 million | $9.7 million |
| General and administrative expense | $7.4 million | $0.5 million | $8.8 million | $1.7 million |
| Intangible-asset impairment | $74.2 million | $0.0 million | $74.2 million | $0.0 million |
| Net loss | $87.1 million | $2.9 million | $94.1 million | $11.5 million |
| Net loss attributable to common stockholders | $87.2 million | $3.1 million | $94.7 million | $12.2 million |
| Loss per share | $9.17 | $1.23 | $19.37 | $4.81 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $10.0 million | $9.4 million |
Margins are not meaningful because revenue was negligible and the company has no product sales. The nine-month operating loss was $95.3 million, including the $74.2 million non-cash impairment charge.
- Cash and cash equivalents were $161.4 million at September 30, 2021, compared with $4.5 million at December 31, 2020. Approximately $152.5 million was held in money market investments.
- Net cash provided by financing activities was $141.7 million, primarily reflecting $155.0 million of gross PIPE proceeds, $9.6 million of issuance costs, $0.7 million from option exercises, and $4.4 million of preferred-stock dividends.
- The PIPE financing generated $145.4 million of net proceeds. PIPE investors purchased 11.9 million shares.
- The company had no convertible promissory notes outstanding at September 30, 2021; the notes converted into common stock in connection with the merger.
- Liabilities totaled $17.8 million, including $5.8 million payable to Celgene. The company also recorded $0.6 million of operating lease liabilities.
- Accumulated deficit was $126.7 million, compared with $32.6 million at December 31, 2020. Stockholders’ equity was $150.9 million versus a deficit of $12.4 million at year-end 2020.
Material Changes Versus Prior Comparable Period
- Revenue declined to zero in the third quarter and fell 72% for the first nine months, reflecting lower grant revenue. The $14.0 million EOC license upfront payment was recognized in December 2020, not in 2021 revenue.
- Research and development expense increased 140% in the third quarter and 28% year to date, primarily due to higher clinical drug-manufacturing costs and personnel and other expenses.
- General and administrative expense increased substantially, driven by merger-related compensation, increased staffing, consulting, commercialization-readiness and marketing costs, legal costs, insurance, and public-company expenses.
- The company recorded a $74.2 million non-cash impairment charge on the Gossamer Bio contract intangible asset acquired in the merger, reducing its carrying value to $3.9 million.
- The merger and PIPE financing materially changed the capital structure. Common shares outstanding increased from 2.5 million at December 31, 2020 to 20.9 million at September 30, 2021, after the reverse split and transaction issuances.
- Preferred stock was converted into common stock, and the company paid $4.4 million of cumulative preferred-stock dividends at the merger closing.
- The company paid Celgene $5.8 million in August 2021, with an additional $5.8 million due on the third anniversary of the merger plus 4% annual interest.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that cash and cash equivalents were sufficient to fund obligations for at least 12 months from the filing date and, based on its current operating plan, expected funding to extend into 2024. These estimates depend on assumptions that may prove incorrect.
- Management expects continuing operating losses and substantially higher expenses as it pursues regulatory approval, commercialization of ABI-009, additional clinical trials, manufacturing activities, and public-company obligations.
- Potential future revenue from EOC includes up to $257.0 million in development, regulatory, and sales milestones plus tiered royalties, but milestone and royalty revenue remains constrained and is not assured.
- The Gossamer Bio license acquired in the merger is subject to contingent value rights. Former Aerpio stockholders are entitled to 90% of qualifying net proceeds, while Aadi retains 10%; no proceeds are assured.
- ABI-009 depends on a single-source drug-product supplier, Fresenius Kabi. The company was negotiating a commercial manufacturing supply agreement and did not have redundant supply arrangements in place.
- COVID-19 could delay clinical-trial enrollment, site activities, regulatory review, manufacturing, and supply chains.
- The company remains dependent on regulatory approval, successful clinical development, patient enrollment, manufacturing capability, reimbursement, intellectual-property protection, and commercialization execution. It has no approved product or product-sale revenue.
- Several merger-related stockholder lawsuits and a books-and-records action were voluntarily dismissed. The filing states that no material legal proceedings were pending as of the report date.
- Internal disclosure controls were assessed as effective at a reasonable-assurance level as of September 30, 2021.
Most Important Facts for Investors to Verify
- Confirm the filing identity: the source document is Aadi Bioscience, Inc., not Whitehawk Therapeutics, Inc.
- Verify the FDA’s action on the ABI-009/FYARRO NDA around the November 26, 2021 PDUFA target date.
- Assess whether the reported $161.4 million cash balance and stated runway into 2024 remain adequate after commercialization and clinical-trial spending.
- Review the assumptions supporting the $74.2 million intangible-asset impairment and the limited expected value of the Gossamer Bio contingent proceeds.
- Track the $5.8 million Celgene balloon payment, accrued interest, royalties, and other license obligations.
- Evaluate the status and terms of commercial manufacturing with Fresenius Kabi and the company’s ability to establish redundant supply.
- Monitor clinical progress, enrollment, safety, and regulatory outcomes for ABI-009 and the planned PRECISION 1 study.
- Consider dilution and resale risks from PIPE shares, merger-issued shares, stock options, warrants, and registration rights.