10-Q Summary: Aadi Bioscience, Inc.
Filing-period note: The request identifies Whitehawk Therapeutics, Inc., but the supplied filing is for Aadi Bioscience, Inc. (Nasdaq: AADI), for the quarter ended March 31, 2023. The summary below reflects the supplied filing.
Business Context and Reporting Period
Aadi is a commercial-stage biopharmaceutical company developing precision therapies for genetically defined cancers involving the mTOR pathway. Its lead product, FYARRO, was FDA-approved in November 2021 for advanced malignant PEComa and launched in the United States on February 22, 2022. Aadi is also developing FYARRO in the registration-directed PRECISION 1 Phase 2 study for tumors with TSC1 and TSC2 alterations.
The unaudited Form 10-Q covers the three months ended March 31, 2023, with comparison to the three months ended March 31, 2022.
Financial Highlights
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net product sales | $5.9 million | $2.3 million | +$3.6 million, approximately 154% |
| Cost of goods sold | $0.5 million | $0.2 million | +$0.4 million |
| Gross profit | $5.3 million | $2.1 million | Approximately 91% gross margin in both periods |
| SG&A expense | $11.2 million | $9.1 million | +$2.1 million |
| R&D expense | $11.0 million | $6.8 million | +$4.2 million |
| Loss from operations | $(16.8) million | $(13.8) million | Operating margin approximately (287)% |
| Net loss | $(15.2) million | $(13.9) million | Loss increased $1.4 million |
| Basic and diluted loss per share | $(0.57) | $(0.66) | Improved primarily because of higher weighted-average shares |
| Cash used in operations | $(21.3) million | $(19.4) million | Use increased $1.9 million |
Net loss represented approximately 259% of revenue in Q1 2023. Interest income increased to $1.7 million from $15,000, largely offsetting the operating-loss increase. No income tax expense was recorded; the company maintains a full valuation allowance.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $34.0 million at March 31, 2023, down from $39.0 million at December 31, 2022.
- Short-term investments were $117.1 million, resulting in cash, cash equivalents and short-term investments of approximately $151.2 million.
- Total assets were $170.7 million and stockholders’ equity was $146.0 million.
- Total liabilities were $24.7 million. The principal non-trade obligation was $5.8 million due to BMS, payable August 26, 2024 plus accrued interest at 4% per annum.
- Operating lease liabilities totaled $1.6 million, including $0.4 million current.
- Management stated that existing cash, cash equivalents and short-term investments are expected to fund planned operations into 2025, while also acknowledging that additional financing will ultimately be required if profitability is not achieved.
Material Changes Versus the Prior Comparable Period
- FYARRO sales increased substantially as the product moved beyond its initial 2022 launch period.
- SG&A increased due primarily to higher headcount, incentive compensation, share-based compensation, legal, marketing and related expenses.
- R&D increased by $4.2 million, driven by personnel and consultant costs, PRECISION 1 clinical development, and clinical drug-product manufacturing.
- Interest income rose materially because of higher interest rates and the company’s short-term investment balances.
- Inventory increased to $3.8 million from $1.9 million, and accounts receivable increased to $5.6 million from $1.9 million, consistent with expanding commercial activity.
- Share-based compensation increased to $2.7 million from $1.8 million.
- Net cash decline was limited to $5.0 million because maturities of short-term investments more than offset purchases of investments and property and equipment.
Guidance, Outlook, Risks and Unusual Items
- No specific revenue or earnings guidance was provided. Management expects operating losses and significant expenses to continue, with R&D and commercialization costs expected to increase.
- A pre-planned interim analysis of 40 appropriately followed patients in PRECISION 1 was expected by the end of 2023.
- Aadi entered into a collaboration with Mirati to study FYARRO with adagrasib in KRAS G12C-mutant solid tumors; Aadi incurred $0.4 million of related expense during the quarter.
- The EOC license agreement for FYARRO in China, Hong Kong, Macau and Taiwan was terminated in June 2022. EOC is pursuing arbitration alleging contractual breaches and seeking monetary damages. Aadi disputes the allegations, and no loss accrual was recorded because the potential loss could not be estimated.
- Aadi had approximately $1.5 million of non-cancellable FYARRO inventory purchase commitments payable in 2023 under its Fresenius Kabi arrangement. Fresenius Kabi remains the single-source supplier for FYARRO.
- Two customers represented 51% and 48% of Q1 2023 revenue, respectively; two customers represented 62% and 37% of net accounts receivable, creating significant concentration risk.
- The company disclosed exposure to banking-system, inflation, interest-rate, geopolitical, supply-chain, regulatory, reimbursement, clinical-development and cybersecurity risks. It held only a minimal amount of cash directly at Silicon Valley Bank and stated that its deposits were protected following the bank’s resolution.
- Leadership changed materially: Brendan Delaney resigned as CEO effective March 14, 2023, and CFO Scott Giacobello became Interim CEO and President while the board searches for a permanent successor.
Most Important Facts for Investors to Verify
- Confirm that the intended issuer is Aadi Bioscience rather than Whitehawk Therapeutics.
- Track FYARRO demand, net pricing, reimbursement, customer concentration and quarterly revenue growth.
- Assess whether the approximately $151.2 million liquidity position remains consistent with the stated runway into 2025 after ongoing cash use of approximately $21.3 million in Q1.
- Monitor PRECISION 1 enrollment, interim-analysis results, regulatory interactions and the potential for additional indications.
- Review the EOC arbitration for potential damages, legal costs and effects on international commercialization rights.
- Evaluate single-source manufacturing dependence on Fresenius Kabi, minimum purchase commitments and supply continuity.
- Track the permanent CEO search and any resulting changes in strategy, spending or financing plans.
- Consider future dilution risk from the $75 million at-the-market program, equity financings, stock options and outstanding pre-funded warrants.