Zacks Small Cap Research – Fireside Chat with Adrian Rawcliffe, Chief Executive Officer of Adaptimmune – Technologist

NASDAQ:ADAP

Michael Kim: Hello everyone. Thank you for joining us today. My name is Michael Kim and I’m a Senior Analyst here at Zacks Small Cap Research, and welcome to the next episode of our CEO Fireside Chats. Today I’m happy to have with us Adrian Rawcliffe, Chief Executive Officer of Adaptimmune, a company we recently initiated coverage on with a $3 price target. Adaptimmune is a biopharmaceutical company focused on designing, developing, manufacturing, and delivering innovative cell therapies to treat cancers across multiple solid tumor types. The stock trades on the NASDAQ under the ticker ADAP. So with that, Ad, great to see you. Really appreciate your time today.

Adrian Rawcliffe: Thanks for having me.

MK: So I think this is a great time to sit down and chat with you for a number of reasons, but probably most importantly, Adaptimmune is seemingly on the cusp of transitioning to a commercial-stage cell therapy company, which I’m sure you’ll dive into. We have a few topics that I think are top of mind with investors. To start, it’d be helpful if you could provide a brief introduction to the company, your mission and how Adaptimmune is maybe different from other biotech companies, specifically as it relates to your in-house manufacturing capabilities and the infrastructure that has been built up really from the start of the company.

AR: Thanks Michael. Happy to. So Adaptimmune is an engineered T cell therapy company focused on engineered T cells for solid tumors. That’s been our focus really since we founded the company, which was about 16 years ago. At my investor day that we had a couple of months ago, I said that it probably isn’t a coincidence that Adaptimmune is the company that is going to put probably the first, probably the second, maybe the first three engineered T cells for solid tumors on the market because that’s been our mission since we started the company.

AR: We’ve been diligently focused on that through thick and thin. Our objective and mission is to redefine how cancer is treated using engineered T-cell therapies. Our platform is uniquely designed to do just that in the solid tumor space with engineered TCRs. And we’ve had the opportunity to build Adaptimmune from the ground up specifically as a cell therapy company. That’s very different from if you were designing a monoclonal antibody company or a small molecule company. You also referred to the manufacturing capabilities, which we’ve been investing in for most of the last decade in-house, and the Afami-cel product will be launched out of the facility where we manufactured for the entire pivotal trial, where we did all of the pre-clinical and BLA enabling work.

AR: And as such, that’s a real strength for us, but it’s just one of the capabilities that defines a cell therapy company. Because we’ve only been focused on cell therapies, we have designed all the capabilities necessary to design, develop, and deliver those, including now our commercial organization, which is on the precipice of launching a Afami-cel when it is approved by the FDA, hopefully on the PDUFA date in August.

MK: That’s great. Appreciate the color there. I don’t want to get too deep into the weeds, but I do think it would be helpful if you could walk through some of the data that has come out from your clinical trials and why those results are so encouraging as it relates to the opportunity for your cell therapies across a number of different indications.

AR: I think it’s really important that when you’re thinking of a new modality of therapy, like cell therapy, it must do something fundamentally different than what other therapies can deliver. We’ve focused on areas where we’ve seen clear signs of significant and obvious patient benefit early because those are the areas where we can demonstrate the unique value of cell therapy. For Afami-cel, our first product, the pivotal trial was SPEARHEAD-1. SPEARHEAD-1 was a single-arm study in advanced synovial sarcoma, a rare soft tissue sarcoma. This trial targeted patients who had already received chemotherapy, making it a second-line or later treatment option.

AR: The current treatments for these patients are quite poor with relatively low response rates to second-line plus treatments. The response rates are in the single-digit percentages, or maybe into the teens. Those responses tend to be short-lived and these patients have very poor survival outlooks, usually measured in months, or less than a year for a second-plus line setting. Against that, SPEARHEAD-1 cohort one, which is the pivotal cohort, delivered an almost 39% response rate. Those are deep and durable responses. The median duration of response was 12 months. As that data matures, we can see that patients who respond gain real benefit from this therapy.

AR: For example, 70% of them are still alive at two years, which is quite remarkable given the prognosis that these patients would have had without Afami-cel. They have a long treatment-free interval period of almost 17 months. Again, hugely beneficial to these late stage patients. This is a one-off therapy. After being infused with these engineered cells, derived from the patient’s own T cells, patients have the potential to go for long periods without needing chemotherapy. All of the data were published in The Lancet earlier this year. In the realm of soft tissue sarcoma, cell therapy, specifically engineered T-cell therapy, has proven to be quite effective. This was further supported by data from our second product, Lete-cel. Although Lete-cel is different from Afami-cel, it also targets soft tissue sarcoma. In its pivotal trial, Lete-cel demonstrated a 40% response rate and approximately 11 months of response duration according to interim data.

AR: The full data set for that will be later this year. Beyond that, Uza-cel, a next-generation version of a Afami-cel, targets MAGE-A4 which we assessed in a basket trial across 11 different solid tumors that express MAGE-A4. Our overall response rate there was 35% across all of the tumors. And in things like ovarian cancer, it was more like 40%. In bladder cancer, we’re looking at a response rate looking more like 50%. So, significant efficacy signals in those earlier stage trials. I think demonstrating that engineered TCR T-cell therapy can deliver robust responses across a broad range of solid tumors is crucial, especially for these very late-stage patients. This has been evidenced by the clinical data from Adaptimmune over the past few years. We’ve been leveraging these findings to identify indications, such as sarcomas and ovarian cancer, where we can advance towards creating registrable products based on these promising signals.

MK: That’s great, super helpful. As I alluded to earlier, I think one of the great parts of the story is the almost real-time transition to a commercial stage cell therapy company. I think it’d be great if you could talk a bit about that process and the commercialization plan as it relates to Afami-cel.

AR: Sure. Happy to. This is a key focus for us at the moment as we move towards our PDUFA in August. We feel that we are the best owners of Afami-cel and Lete-cel. They’re in the sarcoma space. We’ve been developing products in the space for the last decade. And so we understand the patients and we understand the centers. This is a very concentrated patient group. These are rare indications. We estimate about a thousand patients per year between Afami-cel and Lete-cel will have the right biomarkers to be eligible.

AR: Those patients are treated at sarcoma centers of excellence, and within those, they are concentrated in the top centers. These are the places where we conducted our clinical trials. Our commercial team, which is relatively small with about 30 people, is fully onboard and working diligently to be ready to commercialize Afami-cel by August. This team already has established relationships with the top 30 sarcoma centers of excellence where our clinical trials were performed.

AR: We’re targeting to start launch in between six and ten of those centers, build it up to 30 over the first two years, by which point we’ll be launching Lete-cel as well. Lete-cel will then go into the infrastructure that we have built for Afami-cel. There’s almost a 100% commercial synergies there because it’s exactly the same channels. So a concentrated provider group and a concentrated patient group that we understand well. We have a team that’s perfectly formed and specifically designed to commercialize a rare oncology cell therapy. That’s been the focus of us for the last couple of years is building that capability. It’s great to be able to see it finally move into action.

MK: Yeah, for sure. I you could, talk a bit about sort of the financial opportunity in terms of potential sales and margins over the next three to five years as you increasingly commercialize Afami-cel and then launch Lete-cel.

AR: Yeah, I think the patient group we’ve now narrowed down for Afami-cel and Lete-cel consists of about a thousand patients. Of these, essentially 400 are eligible for Afami-cel, while the remaining 600 are for Lete-cel. The launches for these products are staggered by two years, with Afami-cel expected in 2024 and Lete-cel in 2026. Currently, these patients have very few other treatment options. It’s important to understand that this isn’t a highly competitive space. Unfortunately, the patients have limited alternatives. This is more like a rare disease commercialization opportunity more than a typical competitive oncology market. For patients with metastatic synovial sarcoma who have failed first-line anthracycline-based chemotherapy and are HLA and MAGE-A4 positive, the choice isn’t between Afami-cel and another treatment; there really isn’t another something else.

AR: Our objective is to get as many of the eligible patients as possible on to have Afami-cel and access to Afami-cel. This is a space where we think this unmet medical need will lead to, over time, deep penetration into those spaces, and really as many of those patients as possible should be on Afami-cel. Then when Lete-cel is approved, the same is true for Lete-cel. Therefore we’re adopting a rare disease approach based on deep penetration and getting the same patients into those centers of excellence. The upshot of this is that, when combined with pricing—although we haven’t been specific about it since we haven’t received approval yet—we believe it should reflect the rarity of the disease and the significant medical benefit provided by Afami-cel and Lete-cel. When you think about that, we estimate a sales forecast of up to $400 million for Afami-cel and Lete-cel. That’s a really nice franchise. While that’s not a blockbuster, it has to be pointed out, that this is in the launch indications and it’s in the US only.

AR: So, there’s plenty of opportunity to build on that geographically with indication expansion into other rare MAGE-A4 expressing tumors. It’s a really good starting point for us and it’s something we can address at a really decent margin for a company like Adaptimmune. Because we have in-house manufacturing and because we are relatively low overhead, because the capacity that we have is sort of appropriate for this type of market, we’re gonna be able to address that we believe at about a 70% gross margin. We estimate cost of goods will be about 30% when we’re up at reasonable sales levels. So, when you think about that, that’s 400 million at the top line. You’re dropping 280 million to the gross margin.

AR: The manufacturing costs, the commercialization costs, of this is relatively modest. We estimate 35 to 50 million. This is cashflow generative for us from quite an early period, and really that’s important because that’s what enables us to invest in the rest of the pipeline that’s coming through and also to end up as a standalone, independent, self-funding, and revenue-generating biotechnology or cell therapy company.

MK: Yeah, that’s great. You sort of alluded to this earlier, but looking beyond Afami-cel, I think it would be helpful if you could talk a bit about the pipeline for where things stand across your various products and indications as well as any color on sort of expected timelines.

AR: Behind the Afami-cel and Lete-cel, which we referred to as our sarcoma franchise, the next product behind that is Uza-cel. Uza-cel is a more potent version of Afami-cel. It was designed specifically using the same T cell receptor as Afami-cel, but with an added element that makes it a significantly more potent product. Because of that, it can produce responses across a broader range of tumors than a Afami-cel can. We saw evidence of efficacy in a broad range of solid tumors in that SURPASS-1 trial with a 35% response rate. That is currently being developed in two different ways. The first way is in a trial called SURPASS-3 in platinum-resistant ovarian cancer. That trial is a phase two trial that has the potential to be registrational and is actively recruiting. We anticipate enrollment in that trial will go through to 2025. At that point, we will be able to talk about interim data analyses we will have conducted.

AR: We don’t want to do that until we’ve fully enrolled the trial, obviously, for not wanting to bias any patient selection through that trial. The trial will formally read out in 2026 after we’ve had the opportunity to treat all of the patients and follow them for a while. That has the opportunity therefore to be a registrable product in platinum-resistant ovarian cancer after that point in time. We haven’t put a timeline on the BLA, other than to say it’s not unreasonable to think about Afami-cel in 2024, Lete-cel in 2026, and maybe Uza-cel in 2028. So it’s a nice progression for us into a broader range of tumor types.

AR: The second way that’s being developed is that we recently just inked a partnership with Galapagos. Galapagos have a really interesting de-centralized manufacturing platform that we’re really excited to put Uza-cel onto, in particular in head and neck cancer. We’ve treated five patients with head and neck cancer with Uza-cel. Every single patient had a profound antitumor effect, and four of the five were resist responses. This is an unheard of response rate in head and neck cancer. But, the challenge is that many patients were not able to benefit from Uza-cel because they were just not well enough coming into this.

AR: Head and neck cancer is one of those indications where patients can go downhill very, very quickly. The opportunity to have this decentralized manufacturing platform with a vein-to-vein time of seven days has the opportunity to really change the availability of products like Uza-cel for patients with these rapidly progressing tumor types. So, that’s really exciting. That will go into a phase one trial on this new manufacturing platform and the potential for a readout in 2026 from that.

MK: Pre-clinically behind Uza-cel, we have a couple of very large programs, one targeting PRAME, probably the most broadly expressed cancer testes antigen class target in the solid tumor space. We’ll be moving into the clinic with first and second-generation approaches targeting PRAME. Then, you might recall that last year we merged with a company called TCR². TCR² had a platform called a TRuC platform, which is effectively a way of getting full TCR signaling but with antibody targeting. That TRuC based platform, there’s a program they’re targeting CD70. CD70 is particularly expressed in some hematological malignancies like AML but also in solid tumors like renal cell carcinoma, so very large indications.

AR: Because that’s not HLA restricted, those are very significant opportunities and that has the opportunity to go into the clinic over the next couple of years. So, I think we have quite a deep pipeline of engineered T cells. I want to emphasize that this pipeline is just a subset of what we’ve been working on for the last decade. We’ve prioritized these particular developments because they represent the best risk-reward opportunities for us. However, there’s a lot more in the pipeline, and our platform has significant potential for future advancements.

MK: Great. That’s helpful. And then maybe just finally, I know you’ve been active on the financing front. I think you’ve raised upwards of 250 million since the beginning of the year. But it would be great if you could speak about how you’re thinking about funding operations longer term, and some of the different sources of capital that you could tap over time.

AR: Going into this year, it was clear that we needed to finance the company to be able to execute on the development and launch of our sarcoma franchise, Afami-cel and Lete-cel. I think given the nature of the company, and the objective of becoming an independent standalone cell therapy company that’s generating its own revenues and is self-sustaining and returning capital over the longterm, I think the reality is that those are almost always financed from a combination of sources. It’s very rare that there’s one particular source that enables the company to execute all of that. We’ve been absolutely clear we will leverage both dilutive and non dilutive sources of capital.

AR: When the equity markets are looking more difficult, then there are non dilutive sources that we can go to. You’ve just seen the evidence of what we’ve done in the last five months or so with a tranche debt facility from Hercules and a significant business development deal with Galapagos, both of which when combined and a small equity use of the ATM gives us that sort of access to $250 million, which I think puts us in a great position in the run-up to the launch. However, we almost certainly will be needing further financing and we will take the same approach that we’ve taken in the past.
AR: We have a significant pipeline of assets. While we have the capability to develop these assets, we cannot fully exploit the entire platform or pipeline on a global basis for all potential indications. Therefore, there is ample opportunity for incrementally valuable business development as the pharmaceutical industry becomes more aware of the emerging commercial solid tumor cell therapy space. This will likely be quite stimulating for the area. However, we do not rule out the possibility of undertaking an equity raise at an appropriate time and valuation. That said, I think we’ve shown that we do not need to rely solely on the capital markets to finance the company’s mission and its evolution into the commercial space.

MK: Excellent. I appreciate the color, Ad. This has been great. I think it’s clear that Adaptimmune has reached an inflection point where you and the team are able to really leverage the years of research and clinical studies, as well as the infrastructure and the capabilities that have been built up over the years to really help transform the lives of patients dealing with cancer. So again, really appreciate your time today. I look forward to continuing to follow the company and your progress and learning more about the great work you guys are doing. If anyone has any follow-up questions, please feel free to reach out to me. You can reach me at mkim@zacks.com. Thanks again, Ad. I appreciate the time.

AR: Thanks, Michael. Take care.

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