In a July 8 research note, analyst Robert Burns reported that H.C. Wainwright & Co. upgraded its rating on Aerpio Pharmaceuticals Inc. (ARPO:NASDAQ) to Buy from Neutral following announcement of the biopharma's merger with Aadi Bioscience.
The financial institution assigned Aerpio a post-merger $22 per share price target, which implies 12bagger potential as the stock's current price is about $1.71 per share. The merger is expected to close later this quarter.
"This constitutes a transformative development that should put the combined company on a solid path towards becoming a self-sustaining, commercial stage enterprise with a differentiated lead product having applicability across multiple specialty oncology indications," wrote Burns.
That lead product is FYARRO, or sirolimus albumin-bound nanoparticles for injectable suspension, Burns noted, which the U.S. Food and Drug Administration designated as an orphan drug and breakthrough therapy and assigned fast track status as a treatment for advanced malignant perivascular epithelioid cell tumors (PEComas). This type of cancer is an ultrarare sarcoma enriched in TSC1 and TSC2 alterations. Clinical data have shown FYARRO to generate "strong efficacy results" in PEComas.
The combined company will continue advancing FYARRO in this indication, a risk-mitigated proposition" for two primary reasons, Burns wrote.
First, FYARRP uses sirolimus, and sirolimus (rapamycin), which hit the market in 1999, has a long clinical and commercial history as a treatment for kidney transplant rejection and other immunological conditions. Sirolimus also blocks the key mTOR signaling pathway, which is involved in mediating cancer cell division and cancer cells' ability to elude the body's immune system. Thus, the existing safety and efficacy data for sirolimus should benefit FYARRO.
Second, FYARRO uses the same albumin-bound nanoparticle delivery technology inherent in Abraxane (nab-paclitaxel), developed by Abraxis Biosciences, which has been used for treatment of metastatic breast and other cancers. Abraxis also conceived of FYARRO, then designated ABI-009.
"From our perspective, the Abraxis pedigree and proven track record of Abraxane—which eventually became a blockbuster product generating 2020 sales of approximately $1.25 billion —set the stage attractively for FYARRO, which we project to generate peak annual sales of over $2 billion by 2035," wrote Burns.
To generate funds to commercialize FYARRO, likely to occur in 2022, Aerpio is raising $155 million in a private investment in public equity (PIPE) financing round, Burns relayed. The new company will also use the funds to conduct a registrational trial in solid tumors with inactivating alterations in the mTOR pathway genes, TSC1 and TSC2. That study is to start by year-end 2021. Burns noted that the cash from both companies and Aerpio's raise should fund the combined company into 2024.
As for the merger itself, Burns indicated, after it closes, PIPE shareholders will own 55.7% of the combined company. Aadi shareholders will own 29.6% and shareholders of Aerpio, which will change its name to Aadi Bioscience Inc. after the transaction goes through, will own 14.7%.
Finally, Burns noted, the post-merger Aadi plans to carry out a reverse stock split, presumably with the roughly 317 million shares that will be outstanding when the deal closes.
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