ADAP 3Q24 Earnings Review: Streamlining the Platform; Profitability Inflection Point in 2027

By Michael Kim

NASDAQ:ADAP

READ THE FULL ADAP RESEARCH REPORT

Post-market close on 11/13/24, Adaptimmune (NASDAQ:ADAP) reported 3Q24 earnings results. ADAP reported a net loss of $17.6 million for 3Q24, or $(0.01) per diluted ordinary share versus our $(0.03) estimate. Relative to our model, the EPS beat was largely a function of higher revenue (mostly driven by a catch-up adjustment related to the termination of a collaboration agreement), partially offset by less favorable non-operating trends.

After updating our model for 3Q24 actuals, we are refreshing our 2024 and 2025 EPS estimates from $(0.04)/$(0.10) to $(0.03)/$(0.08). Our revisions primarily reflect: 1) the 3Q24 EPS beat; 2) a slightly more muted revenue outlook for 4Q24 and 2025 given a flatter trajectory for Tecelra uptake/sales; and 3) meaningfully lower operating expenses in light of anticipated cost savings. 

We are lowering our price target to $2.25 reflecting management’s decision to suspend clinical trials with uza-cel for the treatment of platinum-resistant ovarian cancer. Stepping back, our price target is based on our DCF model incorporating Tecelra economics in addition to probability-weighted cash flows for lete-cel. Importantly, our valuation work does not incorporate PRAME or CD70 – both targeting much larger indications, but not as far along the development curve. 

We highlight the following key takeaways:

1. Streamlining the business: In conjunction with quarterly earnings results, management announced a new strategic plan/vision for the company centered on streamlining operations to focus on Adaptimmune’s sarcoma franchise. More specifically, senior executives are focusing resources on optimizing commercialization efforts for Tecelra and lete-cel, while narrowing R&D and capital allocations to programs with the highest returns on capital. As part of the restructuring, the decision was made to wind down clinical trials investigating uza-cel for the treatment of platinum-resistant ovarian cancer.

Next, management outlined a plan to realize approximately $300 million in aggregate cost savings starting in 2025 and continuing through 2028. Much of the savings will come from a 33% reduction in headcount in 1Q25, with further contributions from a reduced footprint, as well as lower development and manufacturing costs. As a result of the lower cost structure and accelerating sales, senior executives expect to reach breakeven on a cash flow basis at some point in 2027. 

Finally, anticipated cost savings over the next few years dramatically reduces the need for incremental financing. Current liquidity ($186.1 million as of September 30, 2024 inclusive of cash and cash equivalents in addition to available-for-sale marketable securities) 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. Additionally, senior officials can opt to tap the company’s $200 million at-the-market (ATM) facility ($156 million available as of 9/30/24), as needed

2. Tecelra commercialization gaining momentum: Following the FDA’s approval of Tecelra in early August, management remains focused on onboarding Authorized Treatment Centers (ATCs). As it stands now, nine ATCs are up and running, with signed contracts for an additional four centers, and 15 in active contract negotiations. Furthermore, the company remains on track to activate 30 ATCs by the end of 2025 (six to nine months ahead of schedule), with widespread insurance plan coverage of Tecelra. Separately, management disclosed the first patient has been apheresed, with an additional 15 individuals recently testing double positive for biomarker testing and 25+ patients currently in testing.

Stepping back, early commercialization efforts reinforce the patient population and ADAP’s delivery model, with strong/improving data from lete-cel’s pivotal trial confirming the product’s efficacy profile. As a result, senior management expressed rising confidence in hitting $400 million of peak year sales for Tecelra and lete-cel. 

3. Pipeline progress: Despite the suspension of clinical trials for uza-cel for platinum-resistant ovarian cancer, Adaptimmune still maintains a diversified pipeline of programs beyond Tecelra across multiple autologous and allogeneic cell therapies including:

• 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 company just announcing primary endpoint data that supports the initiation of a rolling BLA submission for lete-cel by the end of 2025. 

• 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. 

• A study is underway for PRAME, expressed in multiple tumors including synovial sarcoma, breast, lung, gastroesophageal, melanoma, endometrial, ovarian, and head and neck cancers, with an IND application likely to be filed next year.

• 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).

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