Business Context and Reporting Period
The filing is Aadi Bioscience, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. The request metadata identifies Whitehawk Therapeutics, Inc., but the supplied filing identifies the registrant as Aadi Bioscience, Inc. (Nasdaq: AADI).
Aadi is a biopharmaceutical company developing and commercializing precision therapies for genetically defined cancers. Its lead product, FYARRO, was approved by the FDA in November 2021 for advanced malignant PEComa and launched in the United States on February 22, 2022. Aadi was also enrolling patients in the PRECISION 1 Phase 2 study evaluating FYARRO in solid tumors with TSC1 or TSC2 alterations.
Key Financial Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Net product sales | $4.2 million in 2022; none in 2021 | $10.0 million in 2022; none in 2021 |
| Total revenue | $4.2 million in 2022; none in 2021 | $10.0 million in 2022 versus $0.1 million in 2021 |
| Operating expenses | $19.3 million versus $87.3 million | $57.2 million versus $95.4 million |
| Loss from operations | $15.0 million versus $87.3 million | $47.2 million versus $95.3 million |
| Net loss | $14.5 million versus $87.1 million | $46.6 million versus $94.1 million |
| Net loss per share | $0.68 versus $9.17 | $2.21 versus $19.37 |
Gross-to-net deductions from FYARRO product sales were $0.8 million for the third quarter and $1.8 million for the nine-month period. Cost of goods sold was $0.6 million and $1.1 million, respectively, primarily reflecting royalties and manufacturing-related costs. The implied product gross margin was approximately 86% for the quarter and 89% for the nine months, before other operating expenses.
- Cash and liquidity: Cash and cash equivalents were $134.8 million at September 30, 2022. Short-term investments were $48.2 million, resulting in cash, cash equivalents and short-term investments of approximately $183.0 million.
- Cash flow: Net cash used in operating activities was $38.3 million for the first nine months of 2022 versus $10.0 million in 2021. Investing cash outflow was $48.5 million, primarily from purchases of short-term investments. Financing cash inflow was $72.7 million.
- Capital raise: The September 2022 private placement generated $72.2 million of net proceeds from common stock and pre-funded warrants.
- Balance sheet: Total assets were $194.1 million and total liabilities were $25.0 million. Accumulated deficit was $189.3 million.
- Debt and obligations: No convertible promissory notes were outstanding. A $5.8 million obligation to Celgene remains due on August 26, 2024, plus accrued interest at 4% annually. Operating lease liabilities totaled $1.7 million.
Material Changes Versus the Prior Comparable Period
- FYARRO commercial sales began in February 2022, producing $10.0 million of net product sales during the first nine months.
- Selling, general and administrative expense increased to $29.1 million from $8.8 million for the nine-month period, driven by higher personnel, public-company, commercial, marketing, legal, insurance and consulting costs.
- Research and development expense increased to $23.3 million from $12.4 million, primarily due to increased personnel and clinical development costs, including PRECISION 1.
- The prior-year period included a $74.2 million impairment of an acquired contract intangible asset. Aadi recorded an additional $3.7 million impairment in 2022 after termination of the Gossamer License Agreement, reducing the asset to zero.
- EOC terminated the FYARRO license agreement for China, Hong Kong, Macau and Taiwan effective June 27, 2022. Aadi disputes EOC’s alleged material breach and believes the termination was for convenience.
- Aadi issued 3.4 million common shares and pre-funded warrants for 2.4 million additional shares in the September private placement, increasing potential dilution.
- Operating cash use increased materially as the company funded commercialization, clinical development and public-company infrastructure.
Guidance, Outlook, Commentary and Risks
Management stated that existing cash, cash equivalents and short-term investments are expected to fund planned operations into 2025, although the filing also states that additional capital will likely be required to finance operations and development activities. The company expects continued operating losses and significant expenses related to FYARRO commercialization, clinical trials, regulatory activities and potential pipeline expansion.
- Aadi entered into an October 2022 collaboration and supply agreement with Mirati Therapeutics to evaluate FYARRO with adagrasib in KRAS G12C-mutant solid tumors. Mirati is responsible for sponsoring and operating the Phase 1/2 study, while the companies will share study costs and Aadi will supply study drug.
- The company relies on a single-source manufacturer, Fresenius Kabi, for FYARRO and has minimum purchase commitments under its supply arrangement.
- An ongoing International Chamber of Commerce arbitration with EOC seeks monetary damages. Aadi cannot estimate a possible loss or range of loss and has accrued no liability.
- Product revenue depends on market acceptance, reimbursement, pricing, specialty distribution, gross-to-net estimates and the ability to scale commercial operations.
- Key development risks include clinical-trial enrollment, regulatory approval for additional indications or international markets, safety and efficacy outcomes, manufacturing continuity, intellectual-property protection and dependence on third parties.
- COVID-19, geopolitical disruption, inflation, healthcare reform and drug-pricing legislation could affect clinical trials, supply chains, reimbursement and operating costs.
- On November 8, 2022, after the quarter-end, Aadi announced that founder and CEO Neil Desai would become Executive Chairman and COO Brendan Delaney would become President and CEO effective January 1, 2023.
- Management reported that disclosure controls and procedures were effective as of September 30, 2022. A new enterprise resource planning system was implemented during the quarter.
Most Important Facts for Investors to Verify
- Confirm the correct issuer: the supplied filing is for Aadi Bioscience, Inc., not Whitehawk Therapeutics, Inc.
- Track FYARRO prescription demand, net sales growth, channel inventory and the accuracy of rebate, chargeback, co-pay and return estimates.
- Assess whether the stated cash runway into 2025 remains credible given operating cash burn, clinical expansion and commercialization spending.
- Review the EOC arbitration, potential damages and the strategic impact of losing the Greater China license.
- Monitor the PRECISION 1 trial, future regulatory milestones and any additional indications for FYARRO.
- Evaluate single-source manufacturing, minimum purchase commitments and the status of alternative supply arrangements.
- Consider dilution from the pre-funded warrants, outstanding options and any future equity financing.
- Review the $5.8 million Celgene balloon payment due in 2024 and related interest obligations.