Description

Aduro Biotech, Inc.

Aduro is a once high flying immuno-oncology biotech currently valued at nearly 50% of the cash on its balance sheet, creating a material negative enterprise value.  Initially promising oncology platforms and trials have produced failures; however the company still has three big pharma licensing partnerships and three internal shots on goal to which the market ascribes negative value.  Early readouts of internal programs are coming this year and any positive data could create meaningful upside. Aduro is running a trial with its APRIL platform (a Proliferation Inducing Ligand) candidate BION-1301 in IgA nephropathy.  Additionally, Aduro is running two trials with its STING (Stimulator of Interferon Genes) therapy ADU-S100: one in head and neck cancer and an upcoming bladder cancer trial. The out-licensed partnerships include an Anti-CD27 agonist with Merck, cGAS-STING inhibitor with Eli Lilly, and STING with Novartis. The combined potential milestones are over $1.5B and royalties range from single digit to low teens. 

Brief history

Aduro went public in April, 2015 at $17 per share, raising approximately $120M.  Aduro’s two immuno-oncology platforms at the time included LADD (Live, attenuated, double-deleted listeria monocytogenes) and STING (Stimulator of Interferon Genes).  Big pharma was enthralled with these new I/O technologies and by January 2017, Aduro had inked a $1.2B collaboration with Janssen (JNJ) for LADD, a $750M collaboration with Novartis for STING, and a $447M collaboration with Merck for its anti-CD27 antibody. Aduro’s IPO proceeds and upfront licensing payments put over $350M into its R&D coffers supplemented by a few $100M secondary offerings since going public. Total spending since the IPO has is over $400M.  Fast forwarding to present day, LADD and its follow-on platform pLADD are dead. B-select (APRIL) is dead in oncology after failing to show any response in multiple myeloma. While STING has shown some signal in the clinic, it has been shelved for the time being by Novartis whom had shelled out $200M upfront in its initial licensing deal around the time of its IPO.  

The current state of Aduro’s programs

First and foremost, Aduro has a cash balance of $235M ($2.93/share) versus a $121M market value ($1.50/share) and no debt as of September 30, 2019.     

Licensed deals:

• Licensed deal with Merck for MK-5890, an Anti-CD27 agonist. Merck had been silent on the program since licensing it in 2015 until November 2019 when it presented data from its Phase 1 combo pembrolizumab trial in advanced solid tumors at a late-breaking oral presentation at SITC.  Merck is moving into expansion cohorts. Additional details can be found here: ADRO PR and ClinTrial.  Aduro bears no cost of development and is entitled to earn up to $307M of development milestone payments, up to $135M in sales milestones and royalties ranging from the mid-single digits to the low teens.  Timing and breakdown of milestones are undisclosed though the recent progress is encouraging. Precise patent life is unclear but it appears to run out between 2030 and 2040. 

• Licensed deal with Eli Lilly for a c-GAS-STING targeting autoimmune disease. Lilly singed a deal with ADRO to develop a therapy Lilly/ADRO PR in December, 2018.  In a meeting with management at the JPM healthcare conference last week, they said lead candidate selection was nearing completion.  Aduro bears no cost of development and is entitled to earn up to $620M per therapeutic product and royalties ranging from single digit to low double digit. IP runs through at least 2034

• Licensed deal with Novartis for STING targeting oncology.  Novartis was a private investor in Aduro and signed a licensing deal immediately prior to its IPO that included $200M of cash upfront (almost 2x its IPO proceeds).  As of today, $465M of potential milestones remain and a 50% of profits on successfully launched therapies under the collaboration. As part of the agreement, Novartis would fund 62% of STING development costs.  In December 2019, Novartis opted out of funding the current trials (more on this below). However, “…if Novartis opts out of funding an early stage clinical trial and the product progresses into a pivotal clinical trial, then both Aduro and Novartis would be required to fund and participate in the pivotal clinical trial, and Novartis may have certain reimbursement obligations for prior development expenses for the early stage clinical trial.  The collaboration and license agreement between Novartis and Aduro otherwise remains in effect, and both parties continue to jointly pursue STING pathway activation through systemic delivery as a therapeutic strategy.” 8-K 12-17-19

Internal programs:

• (APRIL) BION-1301. Aduro is currently running a Phase 1 healthy volunteer portion of its anti-APRIL antibody, BION-1301 in IgA nephropathy.  BION-1301 is a monoclonal antibody that blocks APRIL binding to both BCMA and TACI (transmembrane activator and CAML interactor).  The therapy failed to show any response rate in multiple myeloma. While their scientific team articulates reasons why there is not read through to the IgAN trial, the proof will be in the data.  IgAN patients have high levels of APRIL, which correlate to poor prognosis. BION-1301 blocks APRIL by binding to both BCMA and TACI receptors. Preclinical support from both mouse and NHP data shows serum reduction in IgA.  Prevalence of IgA nephropathy in the US is estimated at 130K-150K patients, though it may be underestimated as diagnosis requires a biopsy confirmation. Over a third of patients progress to end stage renal disease within 20 years and there are currently no approved treatments.  The Phase 1 in healthy volunteer study has completed its single ascending dose cohort and has moved into a multi ascending dose phase. We should get PK/PD safety data in the first half of this year. Initial open label patient data should be a catalyst by year end. Safety has already had validation in its prior MM trials:, ASCO 2019 2.  IP life runs to at least the 2030 timeframe.

• ADU-S100 in SCCHN. In December, Novartis terminated enrollment in a handful of ADU-S100 + PD-L1 checkpoint combo trials.  Aduro simultaneously announced it is moving forward in one ongoing trial and starting one additional trial.  The Phase 2 combo trial of ADU-S100 + pembrolizumab in first line SCCHN (Squamous Cell Carcinoma of Head and Neck) continues to enroll, targeting an N of 34 patients by year end.  We should get interim results this year based on approximately half of patients. Management is looking for an ORR of around 40%, which is a doubling of stand-alone ORR in pembro per KEYNOTE-048. STING IP runs to at least 2034.  To date, ADU-S100 has already read out a monotherapy trial (N=41) and a combination trial with Novartis’s investigational checkpoint spartalizumab that resulted in a handful or PRs and a CR (in TNBC). 

• ADU-S100 in BCG refractory NMIBC (non-muscle invasive bladder cancer). Aduro will also enroll a 50 person trial in a Phase 1b dose escalation trial with data expected by year end. Management believes STING has scientific and clinical rationale in an indication with a high unmet need.  The market wants the ability to dose intravesically (locally to the bladder) versus systemically (PD-L1 checkpoints) and that BCG refractory patients could still show response to ADU-S100 due to their individual MOAs.

• Summary of the pipeline:

• Summary of Catalysts

Management

CEO Stephen Isaacs has been with Aduro since 2008, 7 years prior to the IPO. The rest of the team has turned over at least once.  STING became a hot area of development and Novartis struck its deal with the company in conjunction with their IPO and Aduro was on the forefront of STING fever:  STING fever. Since then, development in the space has been slow, data has been mediocre, and a multitude of bright shiny new technologies have emerged (KRAS, LAG3, TIM3, CAR-T, bispecific antibodies, etc). Coupled with the failure of its other platform, LADD, it’s hard to give management high marks to date.  Perhaps, their saving grace has been their ability to execute large big pharma partnerships for their technology and therapeutics. There has been scientific validation at all points in the company’s history from Janssen in 2014, Merck in 2015, Novartis in 2015, and Eli Lilly in 2018. Adding fresh blood in 2019, the company brought in Dimitry Nuyten as CMO who had lead Pfizer’s I/O unit getting Bavencio approved. 

Restructuring/Cash runway

Just prior to yearend, Novartis informed the company they were terminating enrollment in ADU-S100/checkpoint combo trials and effectively handed back ADU-S100.  The Novartis agreement still remains in place along with $465M in associated milestones, though they will not fund their 62% of trails going forward. It’s unclear why exactly NVS deprioritized it, but STING was initially expected to function best in combination with a PD-L1 checkpoint inhibitor and Novartis doesn’t have an approved checkpoint. Their spartaluzimab is in Phase 3 and early combo trials had been with ADU-S100 and Sparta, but NVS expanded the STING trials to pembro (Merck)+ADU-S100 and yervoy (BMY)+ ADU-S100, which always struck me as odd.  It is possible Novartis was looking for a better way into PD-L1 without being the 6th or 7th also ran. With Novarits out, management announced a restructuring in January 2020, cutting its staff 59% from 86 to 35 and shuttering its European headquarters. While an updated cash runway projection is forthcoming, the restructuring is expected to reduce the operating expenses significantly vs. the $25M per quarter prior burn.   Even at the prior quarterly burn rate, Aduro would still be trading near cash at year end 2020.

Summary

For the bargain price of 50% of cash, orphaned Aduro has over $1B of potential milestones, potential royalties on 3 out licensed programs with big pharma, and data coming from each of its 3 internal programs by year end.   

Catalyst

• Data from BION-1301 in IgA Nephropathy
• Data from ADU-S100 in SCCHN
• Data from ADU-S100 in BCG refractory NMIBC
• Potential data from licensed partner programs