In a July 8 research note, analyst Robert Burns reported that H.C. Wainwright & Co. had upgraded its rating on Aerpio Pharmaceuticals Inc. (ARPO:NASDAQ) to Buy from Neutral following the announcement of the biopharma's merger with Aadi Bioscience.
The financial institution assigned Aerpio a post-merger $22 per share price target; the stock's current price is about $2.10 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," Burns wrote.
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 a breakthrough therapy and assigned fast track status as a treatment for advanced malignant perivascular epithelioid cell tumors (PEComa). 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 PEComa.
The combined company will continue advancing FYARRO in this indication, a "risk-mitigated proposition" for two primary reasons, Burns wrote.
First, FYARRO uses sirolimus (rapamycin), which hit the market in 1999 and 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 that's in Abraxane (nab-paclitaxel), developed by Abraxis BioScience, 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 $1.25B—set the stage attractively for FYARRO, which we project to generate peak annual sales of over $2B 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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Disclosures from H.C. Wainwright & Co., Aerpio Pharmaceuticals, Inc., Ratings Revision, July 8, 2021
Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of its affiliates or subsidiaries within the past 12 months.
I, Robert Burns, Raghuram Selvaraju, Ph.D. and Yi Chen, Ph.D. CFA, certify that 1) all of the views expressed in this report accurately reflect my personal views about any and all subject securities or issuers discussed; and 2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendation or views expressed in this research report; and 3) neither myself nor any members of my household is an officer, director or advisory board member of these companies.
None of the research analysts or the research analyst's household has a financial interest in the securities of Aerpio Pharmaceuticals, Inc. (including, without limitation, any option, right, warrant, future, long or short position).
As of June 30, 2021 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Aerpio Pharmaceuticals, Inc.
Neither the research analyst nor the Firm knows or has reason to know of any other material conflict of interest at the time of publication of this research report.
The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services.
The Firm or its affiliates did not receive compensation from Aerpio Pharmaceuticals, Inc. for investment banking services within twelve months before, but will seek compensation from the companies mentioned in this report for investment banking services within three months following publication of the research report.
The Firm does not make a market in Aerpio Pharmaceuticals, Inc. as of the date of this research report.
H.C. Wainwright & Co., LLC and its affiliates, officers, directors, and employees, excluding its analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives (including options and warrants) thereof of covered companies referred to in this research report.
