Good day, and thank you for standing by. Welcome to the Aadi Bioscience, Inc second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Marcy Graham, Senior Vice President of Investor Relations and Corporate Communications at Aadi Bioscience. Ms. Graham, please go ahead.
Thank you. Good morning, and welcome to the Aadi Bioscience conference call to review results and provide an update on the second quarter of 2022. Joining me on the call today is our President and CEO, Neil Desai, who will provide an overview of the quarter, followed by our Chief Operating Officer, Brendan Delaney, who will give us an update on our early commercial progress. Next will be our Chief Medical Officer, Dr. Loretta Itri, who will give us a brief update on our clinical progress, followed by our CFO, Scott Giacobello, with review of our financial performance during the period. We will close with some final thoughts from Neil and then open the line for questions. Before we get started, a quick reminder that statements made on the call today will include forward-looking statements.
Actual events or results could differ materially from those expressed or implied by any forward-looking statements as a result of various risks, uncertainties, or other factors, including those set forth in the Risk Factors section of our annual and quarterly filings with the Securities and Exchange Commission, which can be found at www.sec.gov or on our website at www.aadibio.com. In addition, any forward-looking statements made on this call represent our views only as of today, August 10th, 2022 , and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update or revise any forward-looking statements. With that, I will turn the call over to Neil for his opening statements. Neil?
Thank you, Marcy. Good morning, everyone, and thank you for joining us today. In the second quarter, we continued to build on the momentum from the first quarter of the year, where we transitioned to a commercial stage company with the successful U.S. commercial launch of FYARRO, our albumin-bound mTOR inhibitor for advanced malignant PEComa. Overall, I'm very pleased with the execution of our commercial team during the quarter. We saw strong net product sales of FYARRO of $3.4 million in our first full quarter post-launch, and we are excited to see FYARRO reaching more patients through not only the academic centers, but also through continued adoption in the community setting. Brendan will give us some more color on this in a few minutes.
In terms of our overall pipeline progression, we are also very encouraged by the advances in our ongoing PRECISION1 trial, o ur registration-directed tumor-agnostic study for nab-sirolimus in TSC1 or TSC2 alterations in solid tumors. This trial has the potential to significantly broaden the future application of nab-sirolimus across many different tumor types, including about 12,000 new advanced cancer patients on an annual basis in the U.S. alone. Loretta and our clinical team have been executing diligently on getting the PRECISION1 trial up to speed as rapidly as possible. While we are still very early in the enrollment of the PRECISION1 trial, and we continue to activate new clinical sites on a regular basis, we anticipate providing preliminary data on a meaningful number of patients in the first half of 2023. Loretta will shed some more light on the conduct of the PRECISION1 trial in a few minutes.
Additionally, we continue to evaluate the potential use of nab-sirolimus in a number of new clinical indications, either as a single agent or in combination with other targeted therapies with the potential for new clinical programs as early as 2023. During the remainder of 2022, we are focused on maximizing the clinical and commercial potential of FYARRO to further strengthen our ability to deliver therapeutic benefits to patients and create long-term value for stakeholders. We aim to establish Aadi as a leading precision oncology company, initially focused on the development of drugs that effectively target the mTOR pathway. With that, I'll turn the call over to Brendan to provide further details on our commercial performance during the quarter. Brendan?
Thank you, Neil, and good morning, everyone. As you heard from Neil, Aadi had a great first full quarter of FYARRO sales. In the second quarter, we reached $3.4 million in U.S. net product sales, bringing the total for the first four and a half months since launch to $5.7 million. While it is important to remember that we are still very early in the launch process, our commercial team is executing well in the market, and we are encouraged with the uptake of FYARRO across treatment settings. As mentioned on our first quarter earnings call, we did see a significant bolus of patients in the first weeks after product availability, some of which carried over into the second quarter as many patients successfully continued on FYARRO therapy.
In addition to that carryover, we were pleased to see steady product demand growth and new patient starts continuing throughout the second quarter. Insights from our recent launch tracking surveys show very strong brand awareness, message recall, product perceptions, and intent to prescribe among those physicians who treat PEComa patients. We are encouraged by the increase in uptake and continued growth in adoption, and as of June 30th, 2022, more than 60 accounts had ordered FYARRO with a reorder rate exceeding 80% across all ordering accounts. Adoption in the academic treatment centers continued to be strong, and we are also very encouraged to see that 40% of ordering accounts since launch now represent those in the community treatment setting. Our market access team delivered broad patient access to FYARRO, and in the second quarter, we continued to closely monitor payer metrics.
I'm happy to report that as of June 30th, 2022, payers covering approximately 80% of commercial lives in the U.S. market have reviewed and adopted a formal policy providing coverage for FYARRO, which continues to surpass our initial expectations. We were also pleased to report that as of July 1st, 2022, the Centers for Medicare & Medicaid Services, or CMS, has assigned a permanent J-code for FYARRO, which further helps to streamline the product reimbursement process in all outpatient treatment settings. This rapid payer progress, combined with a robust suite of patient support resources available through our AadiAssist program, has continued to provide strong patient access to FYARRO since receiving FDA approval last November. We are looking forward to what will come in the second half of the year as we gain additional experience engaging with new clinicians and patients.
I will now turn the call over to Loretta to discuss the progress of our clinical programs. Loretta?
Thank you, Brendan. In the second quarter, we've continued to see good progress in our ongoing PRECISION1 tumor-agnostic trial as the number of open sites increases along with access to patients both in cancer centers of excellence as well as in the community setting. We have continued to strengthen our R&D group with all functions now nearly completely staffed. This has enabled us to set up new trial sites more rapidly and facilitate efficient patient recruitment while providing appropriate trial oversight. We continue to make significant progress towards our goal of opening the trial in at least 20 major cancer centers and upward of 120 treatment sites in the United States by the end of this year.
More than 15 individual major cancer centers have already been initiated, including most recently Memorial Sloan Kettering Cancer Center, City of Hope, the Barbara Ann Karmanos Cancer Institute, Roswell Park Comprehensive Cancer Center, and UCLA. Additionally, our partnerships with three of the leading next-generation sequencing companies are already providing access to patients in community-based practices. Using the NGS platforms, we are now routinely able to identify patients with TSC1 or TSC2 inactivating alterations who are eligible for the PRECISION1 trial. We have broad geographic coverage in the United States and are leveraging the NGS providers' internal physician networks to locate and identify new potential patients on an ongoing basis. When a patient is identified who is out of network, we have developed systems for referral to a locally participating center and are also employing white glove services to simplify patient access to treatment whenever needed.
Importantly, we expect to finalize our partnership with US Oncology shortly, and this will further enhance our ability to identify patients for our trial. Using US Oncology's STAR program, we can rapidly activate individual sites once a patient is identified who qualifies for the trial. We are relatively early in the process, but our multifaceted approach to rapidly identifying the appropriate patients with TSC1 or TSC2 inactivating alterations who may benefit from trial participation is showing promise. We continue to believe that these efforts will drive full patient enrollment into the study within 24 months. The reception from the oncology physician community is encouraging, and we are increasing our outreach to several specialty areas, including gynecologic and genitourinary oncology, in order to enhance enrollment of these patient populations into the PRECISION1 study.
Additionally, we are continuing to carefully evaluate other potential opportunities for either single agent or combination therapies with nab-sirolimus to expand use in other patient populations. I will now turn it over to Scott for a financial update. Scott?
Thanks, Loretta, and good morning. We had a solid financial quarter as we closed out the first half of 2022. We remain well capitalized, ending the second quarter with cash and cash equivalents of $118.7 million. Based on our current plans, and as we said at the close of the prior quarter, we expect cash and cash equivalents to fund operations into 2024. Total revenue for the quarter, which represented the first full quarter of FYARRO net product sales, was $3.4 million. Cost of product sales amounted to $0.3 million for the quarter, consisting primarily of royalties on FYARRO sales.
Cost of sales continues to be favorably impacted by FYARRO inventory costs incurred prior to FDA approval, which were expensed as research and development in the period incurred. Research and development expenses for the quarter were $7.7 million compared to $3 million in the prior year quarter. This increase is primarily related to the ongoing PRECISION1 trial and the build-out for the R&D organization. Selling, general, and administrative expenses increased to $10 million in the second quarter from $0.6 million in the same period in 2021. This notable change is primarily due to the build-out of our commercial operations and infrastructure and increased marketing expenses related to the commercial launch of FYARRO.
As previously disclosed, during the quarter, we recorded a non-cash $3.7 million impairment charge to write off the value of our intangible asset related to the Gossamer license agreement with our predecessor, Aerpio. Net loss for the second quarter was $18.3 million compared to $1.5 million in the second quarter of 2021. Excluding the $3.7 million impairment charge, net loss for the quarter was $14.6 million. For more information, a detailed discussion of the results reported on this call will be provided in our 10-Q to be filed later today. I'll now hand the call back to Neil for his closing comments. Neil?
Thank you, Scott. As we have shared today, the second quarter was one of continued progress in both our commercial growth and further advancement of the PRECISION1 trial. We are very encouraged by the early acceptance of FYARRO from treating physicians at the major sarcoma centers, and commercial uptake in the community setting is encouraging as well. Our commercial team continues to build awareness and educate physicians on this first and only treatment for malignant sarcoma and on making FYARRO available as the first-line treatment option for this rare disease. We remain intently focused on enrollment for our PRECISION1 trial in TSC1 and TSC2 altered solid tumors, and we look forward to sharing preliminary data with the community in the first half of 2023.
Looking ahead, I'm confident that we are well positioned to continue to execute successfully, and we look forward to creating value for our stakeholders, from patients and clinicians to employees and shareholders. We will be participating in conferences and meetings throughout the fall with the goal of further building awareness around our story. With that, we can open the line for questions. Operator?
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Boris Peaker of Cowen. Please go ahead.
Good morning and congratulations on excellent commercial progress. Can you guys hear me?
Yeah.
Yeah, we can hear you, Boris.
I can hear you.
Great. I mean, my first question is, can you comment on what is the typical process for a sarcoma patient being diagnosed, and where can we find potentially patients that have been misdiagnosed?
Okay, this is Neil. I'll start with that. The sarcoma patients, if they're diagnosed correctly to begin with, will end up, in general, at one of the sort of large academic sarcoma centers that's common. The diagnosis itself is a pathological diagnosis, so with immunohistochemistry and general pathology, there's usually no NGS or molecular testing involved. That's how the sarcoma patient is typically diagnosed. Now, they would obviously be treated first as sarcomas, or the pathologist would identify sarcoma. Sometimes that ends up being misdiagnosed, as is common in sarcomas, by the way, up to maybe 20%-30% of patients within general sarcomas are also misdiagnosed as to the subtype.
There's an education process there that we have initiated some time back on the sarcoma opportunity for the pathologist to correctly diagnose the patient and you know put forth the diagnosis for so that these patients can get FYARRO. If there's misdiagnosis, then the patient might go through some standard treatment that is for sarcoma not necessarily mTOR inhibitors, but eventually they will land and get referred to one of the larger sarcoma centers and get correctly diagnosed. This is part of the education piece as well that our team is working on. Eventually they should be triaged onto FYARRO.
Got it. In the context of that, are you guys doing any additional epidemiology work just on FYARRO itself, just to understand what the new incidence is and where the prevalence is? If so, when may you be able to share some of that with investors?
Yeah. I'll pass that over to Brendan. Obviously, with commercial experience, we gain more information, but it's still early. Brendan, would you like to comment on that?
Yeah. Yeah, Boris, I think, as Neil said, I think the commercial experience, you know, we need to sit through that initial bolus and then really start to track the underlying patient demand, and I think we'll get better at that just, you know, as time passes. I think we'll also start to see, and we've already started to see a small sample of claims data, although that's, you know, representative of about 30% of the, you know, catchment landscape. I think it's still helpful in determining, you know, kind of looking at that and triangulating with our data and trying to make a better assessment. I don't think we're there yet. It's still early, and we're kind of sticking with the original estimate. I think using new data sources post-launch will help us kinda narrow in on that over time, if that helps.
Great. Thanks for taking my question.
Thank you. One moment for our next question. As a reminder, to avoid any background noise, please mute your lines while getting the answer. One moment. Our next question comes from Joe Catanzaro with Piper Sandler. Please proceed.
Hi, this is Sam on for Joe. Thanks for taking our question. First, could you just provide a little more detail on maybe what the extent of first-line usage you're seeing? And then also, how many new patient starts you observed in this quarter?
I'm gonna pass that question on to Brendan. Brendan, please go ahead.
Yeah. It's really hard to tell right now exactly, you know, what the line of therapy is. We expect, and that's just, you know, kind of from intelligence in the field, that a lot of these initial patients are, you know, heavily pre-treated with a second line. Obviously, some of the EAP and AMPECT patients who, you know, rolled over, they're heavily pre-treated. At the end of the day, it's hard to tell. However, it's encouraging. We have, you know, do tracking studies with the universe, and the intent to prescribe in the front line is well north of 75%, right? I think it's just only a matter of time, and execution and, you know, kind of patient flow that we get to a, you know, a pretty dominant market share in the front- line setting.
It's just hard to tell today. You know, as far as new patients, very difficult. I would say, you know, if you start to look at the account number that we provided as 60 ordering accounts, I think that's the closest you can get to estimating, although it's not a perfect number because there could be multiple patients within each account, right? It gets a little more blurry the further you go, but I think it's the best we can do given the lack of data we have with an IV therapy.
Perfect. Thanks. I guess, do you have any comments on, like, early duration of treatment and what you're, I guess, seeing there in terms of time on treatment?
No. Again, the duration of treatment will evolve over time. As you can imagine, if you're getting later line patients, you expect a little bit of a shorter duration up front. To your question, if you can fully penetrate the front line setting, I think that's where we'll start to see, you know, a much longer duration. That will evolve over time. However, you know, we did provide, again, with limited data, the reorder rate that I provided in my prepared remarks, north of 80% is encouraging. Again, not a perfect measure of it, but if you assume an account orders and puts a patient on therapy, the fact that they continue to reorder, you know, in vial amounts that would kind of mimic the dosing and schedule of a patient, that's at least encouraging.
Not a perfect metric, but it looks good. The fact that, you know, more than 80% reorder rate is, I think pretty encouraging. The other thing I would say on that is, you know, the feedback from clinicians has been very positive, right? They're able to start patients, but in that way, you know, hearing from our representatives that those patients are continuing on therapy and continuing very well is very encouraging, right? I think many physicians see this as a very differentiated drug and one where you see response pretty early, right? The clinical experience that builds leads me to believe that, you know, we'll over time start to, you know, kinda maximize the duration of therapy, especially as we penetrate the front line setting.
Perfect. Thanks so much. For our last question. In terms of your future monotherapy plans, do you expect this will be associated with specific biomarkers beyond TSC1 and TSC2 or maybe specific tumor types?
Yeah, thanks for the question. This is Neil. Obviously, we're doing a pretty wide evaluation and comprehensive evaluation of the full potential of FYARRO use across different tumor types. As you know, you know the prior mTORs, while everybody's excited about the mTOR target or was excited, the prior approved therapies haven't quite delivered the punch that should have been expected with such a central target. With FYARRO, we wanna fully maximize that potential and therefore we're going after essentially a very broad swath of indications where mTOR signaling is key. That's sort of the first thing to look at. You know, in which indications does mTOR signaling prevail as a driver or even become a resistance mechanism.
That allows us to narrow in on whether we go for monotherapy or even as a combination with other targeted therapies where, you know, resistance mechanisms related to mTOR pathway may evolve. This is an ongoing process and, you know, we'll continue to do that evaluation for the rest of the year with the intent to probably open new studies as early as next year.
Thanks so much.
Thank you. One moment for our next question.
Our next question comes from the line of Roger Song with Jefferies. Please go ahead.
Great. Thank you and congrats for all the progress and the first full quarter for the FYARRO sales. A couple questions related to the sales. First, among these $3.4 million sales in second quarter, how much of them are inventory build versus the product sales? I think in the first quarter, you comment most of them are from the EAP and the pent-up demand, but you did see some inventory build. Just curious, in the second quarter, how much is for the inventory? Thank you.
Yeah. Hi, this is Neil. Brendan, would you like to take that one?
Yeah. Yeah, sure. Hey, Roger, thanks for the question. You know, the inventory has initially, Roger, was high, and that's why I think as distributors were trying to get a feel for, you know, the initial bolus and, you know, kind of what they needed to carry. I think since that time, it's come down to what I would say normal levels in the two to three weeks. The inventory has returned to normal levels. I would say, though, that the carryover, which I mentioned in my prepared remarks, is still pretty significant, right? I mean, those, there's a fair number of patients who were put on early from this bolus, whether through, you know, just EAP carryover or pent-up demand that continue on therapy from what we can see.
Now, that's a positive, but it also, you know, kind of can mask a little bit of the you got a new patient flow and underlying demand. The positive is the patients are continuing, but as far as giving us better visibility on the data is what makes it a little difficult, if that helps.
Yeah, that's very helpful. Thank you. In terms of the gross to net, I understand your target is 80%-85%. But just curious, do you have a sense what is the current gross to net and did that change over time since launch, particularly after you activate the J-code in July 1st, 2022? Thank you.
Yeah. Brendan, would you like to take that? Maybe Scott can also comment.
Yeah, no, I think it's still relatively early, Roger, so we don't have enough kind of data. As you know, kind of reporting and things like that sometimes comes on a delay. We're still sticking with that, you know, 15%-20% number, and I think we'll be able to narrow that, you know, towards the end of the year. Scott, I don't know if you have additional comments.
No, I mean, I agree with what you just said, Brendan. I mean, the thing you do know, Roger, is that some of the government pieces can take time, and so we are still fairly early, but our expectations around where we'll end up have not changed.
Excellent. Thank you. Maybe just the last one related to the PRECISION1 trial. Since you have started the first patients since March. Any kind of initial feedback from the sites? Do you see the level of interest increase and the enrollment pace pick up a little bit since you are opening more sites now? Thank you.
Yeah. I'll pass it on to Loretta to comment.
Hi, thank you for that question. We are seeing a high level of investigator interest, and it is clear, something that Neil said earlier, that mTOR is a target that is central, and was associated with a great deal of interest at one point in time. Unfortunately, the earlier drugs were associated with toxicity and really didn't deliver. They're hard drugs to give. They're poorly absorbed. We now have another way of going after mTOR, a way that reduces toxicity and is apparently a great deal more active. The community is really quite excited about this. They know about the target. This is not a rare mutation, certainly not a rare mutation. We think there are approximately 12,000 patients annually in the United States.
We have a drug that is de-risked. It's already approved. Our early report is that we are on track. The trial is clearly on track. Thanks to the hard work of a very dedicated group of folks who work hard on this program. We're confident at this point in time that we're gonna be able to enroll this trial within 24 months. I hope that gives you the color you were looking for.
Yep, that's very helpful. Thank you for taking the question and congrats for all the progress again. Thank you.
One moment for our next question, please. Our next question comes from Robert Burns with H.C. Wainwright. Please proceed.
Hey, guys. Congrats on the quarter. Just one follow-up from me, if I may. So, you know, considering that there was a bolus of patients that started in 1Q , and you said earlier that some of them carried over into the second quarter, which obviously impacted the revenue, I'm sort of curious if you had any insights to what percentage of the patients from the second quarter were actually holdover bolus patients from the first quarter?
Yeah. Thanks, Robert, for the question. Brendan, would you please answer that one?
You know what? I appreciate the question. It's really hard to pinpoint what that number is. A lot of this is, you know, even on the number of patients that transitioned is a little bit of guesswork and kind of on-the-ground intelligence instead of really data-driven. That's the difficulty in providing a number. Again, we're loosely trying to see that, okay, if a patient or an ordering account where we expect that a patient transitioned from the EAP, if they continue to order into Q2, we're trying to say, okay, that there's probably a patient continuing, but it's not a perfect science.
I don't wanna necessarily speculate on the percentage because it's not very clear, and it's a lot of guesswork at this point given the lack of data, so.
Okay. That's completely fair.
Robert, maybe I just clarifying comment there, is I think everybody knows this, but because this is a IV therapy, you know, the tracking is a little different from if it were oral.
Mm-hmm.
So, we lose sight of the sort of individual and patient at the time the drug leaves academic center. I think that's why there's some of these uncertainties.
No, that's completely understandable, Neil. Thank you guys again, and congrats on the quarter.
Thank you. With that, we finish our Q&A session for today. I will turn the call back to Mr. Neil Desai for his final comments.
Yeah. Hi, everyone, and thank you again for joining us today. We appreciate the questions, and we appreciate the interest. We appreciate your time, and we look forward to the opportunities, coming up in the fall to provide additional updates on our progress. Have a good day. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.