Aadi Bioscience, Inc. (AADI) Q3 2022 Earnings Call Transcript

Aadi Bioscience, Inc. (NASDAQ:AADI) Q3 2022 Earnings Conference Call November 9, 2022 8:30 AM ET

Company Participants

Marcy Graham - Senior Vice President of Investor Relations & Corporate Communications

Neil Desai - President & Chief Executive Officer

Brendan Delaney - Chief Operating Officer

Loretta Itri - Chief Medical Officer

Scott Giacobello - Chief Financial Officer

Conference Call Participants

Roger Song - Jefferies

Boris Peaker - Cowen

Joseph Catanzaro - Piper Sandler

Operator

Good day and thank you for standing by. Welcome to the Aadi Bioscience, Inc. Third Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would like to hand the conference over to your host today, Marcy Graham, Senior Vice President, Investor Relations and Corporate Communications.

Marcy Graham

Good morning and welcome to the Aadi Bioscience conference call to review results of and provide an update on the third quarter of 2022. Joining me on the call today is our Founder and CEO, Neil Desai, who will provide an overview of activity during the quarter, followed by Brendan Delaney, our Chief Operating Officer, who will give us an update on our early commercial progress. Next will be our Chief Medical Officer, Dr. Loretta Itri, who will give us a brief update on our clinical progress; followed by our CFO, Scott Giacobello, with a review of our financial performance during the period. We will open the line for questions at the end of the call following closing comments.

Before we get started, a quick reminder that statements made on the call today will include forward-looking statements. Actual events or results could differ materially from those expressed or implied by any forward-looking statements as a result of various risks, uncertainties and other factors, including those set forth in the Risk Factors section of our annual and quarterly filings with the Securities and Exchange Commission which can be found at www.sec.gov or on our website at www.aadibio.com. In addition, any forward-looking statements made on this call represent our views only as of today, November 9, 2022 and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update or revise any forward-looking statements.

With that, I will turn the call over to Neil for his opening statements. Neil?

Neil Desai

Thank you, Marcy. Good morning, everyone and thank you for joining us today for the earnings results call for the third quarter of 2022.

2022 has been a transformational time for Aadi. Following FDA approval in late 2021, we successfully launched our first product FYARRO for the treatment of advanced malignant PEComa in early 2022. We drove forward our registration-directed trial PRECISION 1 in solid tumors having TSC1 or TS2 in activating alterations. We completed a pipe financing of $72.5 million that extends our run rate into 2025.

We initiated a collaboration with Mirati Therapeutics for a new combination clinical study in patients with KRAS G12C mutations as part of the strategy to expand indications for FYARRO and we grew the company to over 80 employees with a stellar leadership team now in place. All of this progress positions us extremely well for the next phase of growth and operational excellence as a multistage precision oncology company.

As you may have seen in our announcement out last evening, beginning at the start of the new year, on January 1, 2023, we are planning a management transition and realigning our leadership structure to reflect our recent progress. This will allow me to move into the role of Executive Chairman, while our current COO, Brendan Delaney, will transition to President and CEO.

I have been fortunate to work very closely with Brendan since he joined us as Chief Operating Officer in September 2021. Since that time, his proven track record and committed leadership have been instrumental in building the organization, achieving our milestones and preparing for the growth that lies ahead. We are at the perfect time for this transition and I am pleased to welcome him into his new role.

Going forward from January 1, Brendan will assume leadership of the company as we continue to gain momentum in the commercialization of FYARRO and PECOma, advance our registration-directed PRECISION 1 trial and prepare for the potential commercialization of FYARRO patients with TSC1 and to inactivating alterations which is one of the larger targeted oncology indications.

I will continue to serve on the Board of Directors alongside Brendan, where my focus will turn to the advancement of our scientific initiatives. Congratulations, Brendan. We look forward to your leadership in 2023.

The last several months have been some of the most active and productive for us to date and we have seen impressive execution across the company throughout the third quarter and into the current period. Importantly, our promise as an organization and the value we are working to create is supported by high-quality institutional investors, some of whom recently participated in a $72.5 million pipe financing at the close of the quarter, significantly strengthening our balance sheet. This allows us to further extend our cash into 2025, not only getting us through the continued commercialization of FYARRO and PEComa and the completion of the PRECISION 1 trial but also enabling us to continue to evaluate strategies for broadening FYARRO indications beyond PEComa and TSC1 and 2 in activating alterations.

Our commercial success with FYARRO and PEComa continues with a 24% increase in net product sales over the second quarter. We have seen increasing adoption in the community setting and key uptake in our target regions which are indications of our progress made during the quarter.

On our tumor-agnostic Precision 1 study, we saw continued advancement during the quarter in patient enrollment and site initiation with numerous clinical centers and just-in-time sites now open. As a reminder, this is a prospectively designed registration-directed trial. We are encouraged by our progress and are on track to provide preliminary data on a meaningful number of patients in the first half of 2023. Loretta will join us shortly with commentary on our progress on the clinical front in the third quarter and our progress to date.

Lastly, at our core, Aadi was built around the central idea that a best-in-class mTOR inhibitor could unlock the broad promise of the mTOR pathway itself, both as a potent single agent in indications like PEComa and TSC1 and 2 inactivating alterations but also in combination with other agents.

A few weeks ago, we announced a clinical collaboration with Mirati, a leader in KRAS inhibition to evaluate the combination of Adagrasib and nab-Sirolimus in KRAS G12C mutant non-small cell lung cancer and other tumors. The mTOR pathway is often activated in patients with the KRAS mutation and may contribute to adaptive resistance to KRAS inhibitors. So this combination strategy is expected to improve outcomes for these patients.

We continue to evaluate expansion opportunities for our pipeline with the goal of becoming a leading precision oncology company in the future. With that, it is my pleasure to turn the call over to Brendan Delaney, who will become our new President and Chief Executive Officer starting January 1. Brendan?

Brendan Delaney

Thanks, Neil and good morning, everyone. I'm honored to have been selected to lead this organization. I'm excited about the opportunity to continue working with Neil and the entire team here in the CEO role and I look forward to what we can accomplish together as we prepare for launching in TSC 1,2 inactivating mutations, a sizable tumor-agnostic oncology indication.

Our team is functioning at a very high level right now and our future is bright. I feel very optimistic about our trajectory and our continued execution as we advance our PRECISION 1 trial and further expand the clinical opportunities with FYARRO. I couldn't be more pleased with the performance our team has demonstrated and it's energizing to consider the potential achievements that lie ahead. Our commercial oncology franchise is growing and I believe we are well positioned to achieve our goal of expanding FYARRO indications and continue to provide therapeutic benefit to patients in need.

Let me turn now to our oncology franchise. In the third quarter of 2022, our second full quarter of sales of FYARRO and PEComa, we were happy to see steady growth in demand despite the unpredictability of sales in the summer months. We achieved U.S. net product sales of $4.2 million during the period, representing 24% growth over the second quarter and bringing total U.S. net product sales for the first 7.5 months of launch to $10 million.

Insights from our recent launch tracking surveys show very strong brand awareness, message recall, product perceptions and intent to prescribe among physicians who treat PEComa patients. We are building momentum across our major sales regions with sustained growth in the overall number of accounts and excellent reorder rates within major cancer centers, indicating that some patients are experiencing continued benefit from use of FYARRO.

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.

Our market access team continued to deliver broad patient access to FYARRO in the third quarter. We are closely monitoring payer metrics and I'm happy to report that as of September 30, payers covering approximately 85% of commercial lives in the U.S. market have reviewed and adopted a formal FYARRO policy. This rapid payer progress, combined with a strong suite of patient support resources available through our Aadi Assist program has continued to provide strong patient access to FYARRO since FDA approval.

Our team is excited about what is to come as we head into 2023 and I personally could not be more enthusiastic about my expanded role in helping to lead this team to future success. Thank you.

I will now turn the call over to Loretta to discuss the progress of our clinical programs. Loretta?

Loretta Itri

Thank you, Brendan. In the third quarter, we've continued to see good progress in our ongoing PRECISION 1 to our agnostic trial as the number of open sites increased along with access to patients, both in cancer centers of excellence as well as in the community setting. We have achieved our goal for the year of opening a trial in at least 20 major cancer centers and upward of 120 treatment sites in the United States. Staffing shortages due to COVID continued to impact most centers causing widespread start-up delays. Despite this, patient accrual remains on track as projected, reflecting the hard work of our dedicated team.

Our partnerships with 3 of the leading next-generation sequencing companies have been successful in affording access to patients in community-based practices. Using these enables us to routinely identify patients with TSC1 or TSC2, in activating alterations who are eligible for the PRECISION 1 trial. We have broad geographic coverage in the United States and continue to leverage the NGS providers internal physician networks to locate and identify new potential patients on an ongoing basis.

Importantly, we have finalized our partnership with U.S. Oncology and have begun to identify patients from their broad community base. Using U.S. Oncology's STAR program, we can rapidly activate individual sites once a patient is identified who qualifies for the trial. We are still relatively early in the process but our multifaceted approach to rapidly identifying the appropriate patients with TSC1 or TSC2-an-activating alterations who may benefit from trial participation appears to be working. We continue to believe that full patient enrollment into the study will be completed within 24 months from first patient treated.

The reception from the oncology physician community continues to be encouraging. And in the last quarter, we have held advisory boards across several important subspecialty oncology groups which have provided an opportunity for education and meaningful feedback. As a cross-functional team, we have begun conducting widespread print and electronic awareness campaigns for the PRECISION 1 study in order to increase visibility to the entire oncology community. Additionally, we are now working with Mirati to initiate an open-label Phase I/II trial to determine the optimal and recommended Phase II dose for the combination of Adagrasib and nab-Sirolimus in patients with KRAS G12C mutant non-small cell lung cancer and other solid tumors.

We recently presented preclinical data on the combination of KRAS inhibitors in nab-Sirolimus at the AACR-NCI-EORTC Molecular Targets meeting in October which laid the foundation for our partnership on combination strategies to treat non-small cell lung cancer and other solid tumors. The preclinical results presented demonstrate that nab-Sirolimus has the potential to significantly improve the antitumor activity of KRAS inhibitors, encouraging the further exploration of the potential for these combination treatment options.

We are continuing to evaluate additional indications for nab-Sirolimus, either a single agent or in combination and have been gratified by the level of interest in our conversations with the oncology community.

I will now turn it over to Scott for a financial update. Scott?

Scott Giacobello

Thanks, Loretta and good morning, everyone. We had another strong quarter as we head toward the end of 2022. As Neil mentioned in his opening remarks, we completed a $72.5 million pipe financing in September and remain well capitalized, ending the third quarter with cash, cash equivalents and short-term investments of $183 million which we expect to fund operations into 2025.

FYARRO net product sales amounted to $4.2 million for the quarter, representing a 24% increase over Q2. Research and development expenses for the quarter increased to $8.8 million as compared to $5.8 million in the prior year quarter and $7.7 million in the second quarter. This increase was primarily related to the continued progress of the ongoing PRECISION 1 trial and the build-out of the R&D organization.

Selling, general and administrative expenses for the third quarter were in line with the second quarter at $9.9 million compared to $7.4 million in the same period in 2021. This increase is primarily due to the build-out of our commercial operations and infrastructure and increased marketing expenses related to the commercial launch of FYARRO.

Net loss for the third quarter was $14.5 million compared to $87.1 million in the third quarter of 2021. The prior year quarter included the noncash impairment charge of $74.2 million related to the acquired contract intangible assets incurred in conjunction with the RPO merger. For more information, a detailed discussion of the results reported on this call will be provided in our 10-Q to be filed later today.

I'll now hand the call back to Neil for his closing comments. Neil?

Neil Desai

Thanks, Scott. As you've heard today, our efforts in 2022 have led us to continued advancements throughout the organization. While we've achieved many corporate milestones, our focus continues to remain on the patients we serve and we're encouraged by the impact FYARRO is having on people's lives and look forward to furthering its potential benefit to patients in need.

With that, we can open the line for questions. Operator?

Question-and-Answer Session

Operator

Our first question comes from the line of Roger Song with Jefferies.

Roger Song

Great. Congrats for the great color. A couple from us. The first one is, so you start -- you launched the trial FYARRO [ph] and we see the steady growth. So just curious, how do you see the trend for the growth and when you will start to get -- we can see some kind of steady state for the growth, particularly after the pent up demand in the beginning?

Neil Desai

This is Neil Desai. Brendan, would you like to take that question, please?

Brendan Delaney

Yes, sure. Roger, it's a little too early, as we've said, I'd like to get at least a year or so under our belt before we start predicting steady state. As you recognize, the growth continues and I think a lot of the trends -- the breadth of adoption is particularly impressive to me, as is the adoption in the community setting. As you've noticed from the first partial quarter in Q1 to Q2 now to Q3, approaching 60% of the ordering accounts in the community setting is far well and above what I expected. So all of the trends, new accounts over 90 as we stated and if you track that from early on, continuing just to show good growth. I don't expect that to stop anytime soon. So I'm not going to give a prediction on when it goes to the steady state.

A couple of things I will say about the launch evolution and your -- the bolus. We're starting to recognize that, again, it's early and we're not going to give a number because of the kind of rough data that we work with. I would say the duration of therapy starts to look like it's trending in the right direction, as you would expect, right? If you have a bolus of patients and early patients coming on, as we said, you have to meet those patients where they are in their treatment path, right? And sometimes that means they're heavily pretreated, where you might expect a shorter duration. We're starting to see the turnover of that group into more frontline penetration, so newly diagnosed PEComa patients. And as that starts to turn over, we expect to see longer duration. Again, it's early but you're starting to see that expected transition and positive trends in duration. I hope that helps.

Roger Song

Yes, that's excellent. Great to hear for the trend. Maybe just another question for the PRECISION study, TSC1 and 2. Just curious, I know you have been opening a lot of new sites. Just curious the enrollment, how does that align with the epidemiology because -- so you did a pretty decent job for characterized the epidemiology 10 plus, maybe 12,000 plus for TSC1 and 2. How do you see that in the real world? That's my first part of the question.

The other one is you're reporting the initial data first half next year. So how should the investor interpret that data? And do you have any internal bot to hit in order to make go or no go decision from there?

Neil Desai

This is Neil. I can take a little bit of that question and then pass it on to Loretta. So the first part of your question was around epidemiology and enrollment. And we are seeing that indeed, there is a good number of TSC1 and TSC2 patients that are out there. And we know this through our relationships with the NGS providers and we can follow all of those patients and then eventually when they're ready, we can track them and put them on the trial. And so there's definitely -- it sort of lives up to its expectations in terms of the number of patients and epidemiology. So that's the first part of your question. In terms of the data set, we are still on track to release data in the first half. So nothing has changed there. What we're waiting for is maybe some additional enrollment and we'll see how that goes for the next few months. And after that, we'll be able to provide some more color on timing. Loretta, would you like to add anything more to that, please?

Loretta Itri

No. I think in general, we're in a very tight alignment on our take for this, Neil. I think that what we've seen early on is that the accrual is very closely following the epidemiology that we had before we started the study. So there have been no surprises to date.

Roger Song

Yes, that's it from us. Congrats, again.

Operator

Our next question comes from the line of Boris Peaker with Cowen.

Boris Peaker

Congratulations on excess progress. I have 2 questions on my end. First, do you have data to show what line of therapy FYARRO is being used? And second, are you doing work on PEComa epidemiology in general? And if so, can we get a better understanding of how many patients they really are out there.

Neil Desai

Yes. Brendan, would you like to take those 2 questions?

Brendan Delaney

Yes. Yes, sure. As far as data, as I've said before, Boris, the data is pretty scattered here because of the lack of epi data but also the claims data is very unclear. What I will say is we do tracking studies, right? And we track a random sample of the oncology community in the U.S. and see what their intent to prescribe is, so that way it kind of follows what you would expect from an early launch, right? We're responsive from physicians who use the drug say that they've used it in the late line later line settings early on but that's starting to shift very quickly to the front line, right?

So I think, again, early on, you would expect a lot in the second, third line setting, although we don't have a specific number. But based on the market research, it looks like you're north of starting to get to 50% to 60% or so of the frontline penetration. Again, that's just based on market research. That's not based on claims data. Hopefully, we have better claims data as we go forward. But because of the lack of codes for PEComa, that also becomes pretty difficult. But I think I would just say it's trending in the right direction as far as evolution from later lines to the frontline setting.

I wouldn't expect too many newly diagnosed PEComa patients going forward not to see FYARRO in the frontline setting. It just takes time and hopefully, that helps.

Boris Peaker

And then just on the PEComa epidemiology, in general, to get a sense of how many patients that are out there?

Brendan Delaney

Again, I think it's a little too early for that, Boris, for the same reasons I described. I think the best which we try to provide color on is we're north of 90 accounts as of the end of Q3. And I think sometimes that's not a perfect indicator of the number of patients because some patients do get a diagnosis somewhere and go elsewhere for their treatment, right? But it gives you -- I think the number of accounts gives you a rough idea of individual accounts, somewhat can be associated with an individual patient and it's the best indicator we have. Still early, though, Boris. I'd like to get at least 12 months under our belt of launch to really start saying where we sit within that range that we provided of 100 to 300 patients. I think it would be inappropriate for me now to kind of comment on a specific number. But hopefully, that helps.

Operator

Our next question comes from the line of Joseph Catanzaro with Piper Sandler.

Joseph Catanzaro

Maybe one quick one for me on the Adagrasib combo. I guess when we think about the lung cancer and colorectal cancer, is there any reason to think why one tumor might be more amenable to this combination strategy? And I guess along those lines, whether there are co-alterations with G12C that make the most sense. And I guess I ask that as I look at some of the preclinical data you've presented and the tumor types with co-alteration in PTEN loss looking to generate some pretty robust synergy, whether -- and that being a common alteration in colorectal cancer to keep in mind. So any thoughts there would be super helpful.

Neil Desai

Yes, this is Neil Desai. So good question on that. I can tell you at the outside, we don't have all the answers because we have to look at a broad series of different types of cell lines and tumors to figure that out and that type of work is still pending. There is -- I mean, as we've seen from the KRAS data itself, not necessarily the combinations, depending on whether it's lung or colorectal or some other tumor, the response can be different. So I would say that, that possibility would also extend when you're doing the combination. But obviously, things like PTEN loss and other mutations that could be more related to the mTOR pathway have the potential to respond better to the combination just because you're suppressing into.

So I think without enough information, I think that's the best we can say at this point but we will continue to look at the different spectrum of mutation profiles and see what ultimately works the best.

Joseph Catanzaro

Okay. Great. And then maybe just a quick follow-up, I guess. Is the plan to enroll patients who are naive to G12C inhibitors or those patients with prior exposure and then try to resensitize them with the combination?

Neil Desai

Actually, the plan is for both. So there will be 2 -- once we've completed the Phase I dose-finding study, then there will be 2 separate arms, one for naive and 1 for exposed. So we will get an idea very clearly of how the combination helps particularly in the previous resistant or exposed patients.

Operator

And our next question comes from the line of Damir [ph] with Ladenburg.

Unidentified Analyst

Congrats on the progress. My first question will be on the FYARRO. I was curious what is the feedback you get from physicians and patients? And when we might see the duration of response data that you commented [indiscernible].

Brendan Delaney

I'm sorry, Ahu, the first part broke up a little bit. You are you saying what have we heard from patients and physicians? Or I'm sorry, can you clarify?

Unidentified Analyst

Yes. I was curious about the real world patients feedback who are using...

Brendan Delaney

Yes. No, listen, I think we've had a lot more physician feedback than patient feedback. But certainly, I think it's positive on both fronts. Now unfortunately, not -- depending on where a patient is, not every patient gets the -- or the maximal benefit depending on if it's second line, third line as we discussed them. Certainly, I think we can see that and hear that a number of patients are doing quite well.

From the physician side, as we've said in the past, I think the feedback has been overwhelmingly positive. Obviously, these physicians who treat PEComa patients are extremely excited to have an approved therapy, especially one that's recommended by the NCCN guidelines. But certainly, from the data, as I've said before, they're impressed. I mean, they see this as a very differentiated drug along all aspects. So impressed by the 40% response rate, also the disease control rate of over 70%. But most differentiating, as we've mentioned before, is the duration of response and the duration continues to be the most differentiating aspect here. And I think we're starting with the evolution from the launch of the bolus to now penetration in frontline. I think we're starting to see that in the numbers again or what we can extrapolate as far as duration of therapy. So I couldn't be more happy with the acceptance of the clinical profile of the drug. Also, from a safety perspective, right?

As we said before, physicians are quite familiar with managing mTOR inhibitors and they see the profile as predictable and manageable, right? And I think that's incredibly important. The last thing is, it was in the prepared remarks, market access continues to be very positive, north of 85% in -- for covered lives. And I think that has continued to grow since early on and continues to be impressive. So I hope that helps.

Unidentified Analyst

Definitely helpful, Brendan. So I would also like to ask about the ex U.S. commercial efforts. Is there any update on the EMA side? Or are we going to see any partnerships ex U.S.?

Neil Desai

Yes. Hi, Ahu, this is Neil. I can take that question. On the EMA front, I think we had mentioned earlier on or earlier in the year that we were looking for scientific advice and we're waiting to complete that procedure. So we have, in fact, completed that. And there's no restrictions that we're seeing in that advice. And that if we did want to do so, we could file an MAA with the current trial as we have it with our registration trial in the U.S. So that's behind us now. I think where we sit at this point is to evaluate sort of the full scope of what it takes to launch a drug in Europe. And we're evaluating the business case of that as we speak. So I think at some time in the future, we would have some more color on that.

Operator

And I'm showing no further questions at this time. And I'd like to hand the conference back over to Neil Desai for any further remarks.

Neil Desai

Hello all and thank you for joining us on today's call. We really appreciate your time and look forward to the opportunities in the future to provide additional updates on our progress. Have a great day. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.