By Michael Kim

NASDAQ:ADAP

READ THE FULL ADAP RESEARCH REPORT

Pre-market open on 8/12/24, Adaptimmune (NASDAQ:ADAP) reported 2Q24 earnings results. ADAP reported net profit of $69.5 million for 2Q24, or $0.04 per diluted ordinary share compared to a net loss of $21.4 million, or ($0.02) per ordinary share for 2Q23. Relative to our model, the EPS beat was largely a function of more favorable revenue (mostly driven by a catch-up adjustment related to the termination of a collaboration agreement), partially offset by modestly higher operating expenses and shares outstanding.

After updating our model for 2Q24 actuals, we are raising our 2024 and 2025 adjusted EPS estimates from ($0.09) and ($0.12) to ($0.04) and ($0.10), respectively. Our revisions primarily reflect: 1) the 2Q24 EPS beat; 2) a flatter expense trajectory in light of management guidance on the call; and 3) higher shares, as management remains active on tapping the company’s ATM facility.

We are raising our price target by $0.50 to $3.50 reflecting what we believe to be a lower risk profile for Adaptimmune. More specifically, FDA approval of Tecelra translates into a real-time step up in sales/economics, and paves the way for further commercialization opportunities down the road, thereby meaningfully enhancing ADAP’s long-term earnings profile, we believe.

We highlight the following key takeaways:

1. FDA approval of Tecelra represents a key catalyst: As disclosed on August 1, 2024, Adaptimmune received FDA accelerated approval of Tecelra (afami-cel). The approval triggers the immediate onboarding of the first tranche of six to 10 Authorized Treatment Centers (ATCs), with plans to stand up 30 locations across the U.S. over the next couple of years. In fact, five ATCs are already up and running, with diagnostic testing well underway. In light of ongoing ATC engagement and the relatively straightforward/short ramp-up timeline, management expects related sales revenue to start in 4Q24 and accelerate in 2025 and beyond.

Looking ahead, management plans to provide near-term updates on the number of ATCs opened and patients apheresed, with disclosures on patients treated and related sales over time. Importantly, we anticipate limited incremental expenses as sales build, with the company’s 30-person commercial/medical affairs teams already in place, and given Tecelra’s relatively narrow target population. Looking ahead, the team plans to submit confirmatory evidence from ongoing studies through mid-2025, with traditional FDA approval thereafter. While the near-term focus remains increasingly penetrating the U.S. market, management remains committed to launching Tecelra in Europe, as well as expanding treatments to other HLA types/sarcomas.

2. Robust product pipeline: Adaptimmune maintains a diversified pipeline of late-stage programs beyond Tecelra, as well as a deep preclinical pipeline across multiple autologous and allogeneic cell therapies. From an R&D perspective, Adaptimmune maintains alliances with several cancer centers of excellence focused on a number of clinical and preclinical studies for the development of T-cell therapies for multiple types of cancers including bladder, lung, ovarian, head and neck, melanoma, esophageal, and gastric indications.

Lete-cel

The second product of Adaptimmune’s sarcoma franchise is lete-cel. Lete-cel is a TCR T-cell therapy targeting the NY-ESO cancer biomarker for treatment of synovial sarcoma, as well as myxoid/round cell liposarcoma (MRCLS). The product is currently in pivotal trial, with the full data set anticipated for late 2024. Importantly, the trial’s interim analysis showed responses in 18/45 of patients (overall response rate of 40%), thereby meeting the primary endpoint for efficacy (16/60 patients).

The plan is to initiate a rolling BLA submission for lete-cel in 2025. Lete-cel expands Adaptimmune’s sarcoma franchise, with the addressable population rising to 1,000+ patients when combined with Tecelra, and translating into peak sales of up to $400 million per year in the U.S. Importantly, the commercial rollout of lete-cel will leverage the same distribution approach and commercial footprint as Tecelra, thereby driving quicker uptake and adoption, as well as material operating synergies, in our view. More specifically, with synovial sarcoma and MRCLS treated in similar centers of excellence, Adaptimmune can tap into overlapping account footprints. From a marketing perspective, lete-cel’s commercial strategy likely capitalizes on previously established infrastructure, promotional efforts, and referral and advocacy networks. Notably, management plans to leverage GSK’s platform for manufacturing lete-cel.

Uza-cel

Uza-cel is Adaptimmune’s next generation T-cell therapy targeting the MAGE-A4 cancer biomarker expressed in a number of solid tumor types. Adaptimmune is conducting ongoing clinical trials focused on ovarian cancer. To date, data from the SURPASS family trials has been encouraging, with a 35% overall response rate in 46 patients across a broad range of solid tumors, a 50% response rate in 26 patients with focus indications of ovarian, bladder, and head and neck cancers, and a 75% response rate in 12 patients with three or fewer prior lines of therapy in focus areas.

Focusing on Platinum-Resistant Ovarian Cancer (PROC), Adaptimmune’s SURPASS-3 Phase 2 clinical trial is currently enrolling patients, with full recruitment expected by early 2025. Depending on trial data (expected in 2026), management anticipates launching a BLA at the end of 2027 or early 2028. With ~18,000 patients per year in the U.S., PROC represents a meaningfully larger commercial opportunity for Adaptimmune.

Separately, Adaptimmune and Galapagos NV (NASDAQ:GLPG) recently entered into an agreement to collaborate on clinical trials for uza-cel in treating head & neck cancer, with an exclusive licensing option leveraging GLPG’s decentralized manufacturing platform. As a result, ADAP will wind down the SURPASS trial for head and neck and bladder cancers, and commence a proof-of-concept trial in cooperation with Galapagos. GLPG’s decentralized manufacturing platform leverages proprietary quality control practices and operational efficiencies to deliver quicker turnaround times, with the potential for lower dosages, greater access, and reduced costs. Data from the proof-of-concept trial is expected to be available in 2027.

PRAME, CD70, Allogeneic Therapies

Looking further out, IND-enabling studies are underway for two very large preclinical opportunities. First, PRAME is expressed in multiple tumors including synovial sarcoma, breast, lung, gastroesophageal, melanoma, endometrial, ovarian, and head and neck cancers. Though likely a longer-term opportunity, PRAME represents a next-generation T-cell therapy leveraging Adaptimmune’s integrated manufacturing capabilities, while targeting a meaningfully larger addressable population.

Second, the ADP-520 program targets the CD70 antigen, which is expressed across hematological malignancies (acute myeloid leukemia and lymphoma), as well as solid tumors (renal cell carcinoma). In aggregate, PRAME and CD70 therapies have the potential to address 100,000+ patients per year.

Looking beyond Adaptimmune’s autologous products, management remains focused on developing allogeneic “off-the-shelf” cell therapies that use stem cells to produce T-cells engineered to kill tumor cells in vitro at the company’s allogeneic manufacturing facility in Milton Park, UK.

3. Capital reload: As expected, management started transitioning away from providing quarterly guidance on the company’s cash runway given upcoming revenue from the launch of Tecelra. That said, current liquidity (as of June 30, 2024, cash and cash equivalents totaled $211.8 million, with total liquidity including available-for-sale marketable securities of $214.8 million, up from $143.7 million as of March 31, 2024) and funds related to recent loan and collaboration agreements are likely sufficient to fund operations through Tecelra ramp up and the launch of lete-cel, we believe. Additionally, senior officials can opt to tap the company’s $200 million at-the-market (ATM) facility ($156 million available as of 6/30/24), as needed.

Stepping back, management has secured $250+ million of capital since the beginning of the year (~$45 million from the ATM, $100 million of initial payments as part of the clinical collaboration agreement with Galapagos NV, and a $125 million term loan facility). The five-year term loan facility with Hercules Capital, a publicly-traded Business Development Company (BDC), provides for up to $125 million of debt financing. The first $25 million tranche became available upon closing of the facility, with management in the process of requesting the next $25 million tranche that became available upon Tecelra approval. The remaining $75 million is spread across Tranche 3 ($5 million), Tranche 4 ($30 million), and Tranche 5 ($40 million) based on performance conditions related to Tecelra and lete-cel.

Separately, ADAP received an upfront payment of $70 million and $15 million of initial R&D funding in June 2024 related to the closing of the recently announced collaboration agreement with Galapagos NV, with a further $15 million of R&D funding due at the start of the proof-of-concept trial. Looking ahead, ADAP can earn up to $100 million (depending on the number of indications) assuming Galapagos agrees to license uza-cel, as well as up to $465 million of additional payments based on development/sales milestones plus tiered royalties on net sales.

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