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Aduro Biotech - Introduction to the Story

Aduro is an immuno-oncology focused biopharmaceutical company with three distinct and proprietary technology platforms, a Live Attenuated Double-Deleted Listeria (LADD) platform, a STING Pathway Activator platform, and a B-select Monoclonal Antibody platform. Within each platform, the company has a deep and impressive portfolio of clinical and preclinical stage product candidates. In an effort to keep this introduction concise, I will briefly touch on the three platforms and note some of the leading candidates under development. Most of the product candidates are still very early-stage, so at this point I'm just going to focus on proof-of-concept and timelines. The company also has impressive collaborations with some of the world's leading pharmaceutical companies, including J&J, Novartis, and Merck.

LADD Platform

Aduro's LADD platform uses a attenuated (weakened) strain of Listeria monocytogenes that is engineered to express a specific tumor antigen to induce specific and targeted immune responses. Essentially, the engineered Listeria is designed to activate the patient’s antigen presenting cells (APCs), including dendritic cells, the primary initiators of both the innate and adaptive immune responses. The innate response refers to the broad release of cytokines, chemokines, regulatory (γδ) T cells and NK cells. The adaptive response refers to CD4+ (helper) and CD8+ (cytotoxic) T cells. The "Double-Deleted" refers to the deletion of two virulence genes within the bacterial vector that control the infection of hepatocytes and bacterial spread. This enables the safe administration of the Listeria without compromising its therapeutic benefit. The cartoon below is a little hard to follow, but shows the process described above.

Aduro's lead LADD candidate is CRS-207, a monovalent prooduct candidate engineered to express the mesothelin antigen that is over-expressed in certain tumors and cancer types, including mesothelioma and ovarian, gastric, lung, triple negative breast, esophageal, colorectal, and pancreatic cancers. Data at ASCO 2016 from a Phase 1b, single-arm clinical study of CRS-207 plus standard of care chemotherapy (pemetrexed/cisplatin) in 36 evaluable patients with non-resectable, malignant mesothelioma offered very impressive results. One patient (3%) achieved complete response (CR), 20 patients (56%) achieved partial response (PR), 13 patients demonstrated stable disease (SD), and only 2 patients showed progressive disease (PD). The waterfall plot below shows the 94% disease control rate (SD+PR+CR).

Aduro has progressed into a Phase 2 study (NCT03175172) with CRS-207 in combination with the anti-PD1 agent, pembrolizumab (Keytruda®) as a 2nd and 3rd line treatment for subjects with mesothelioma. Merck is listed as a collaborator on the study. The primary outcome measure is objective response rate (ORR) (target of 18 months), with secondary endpoints in disease control rate, progression free survival, and overall. The trial started in June 2017 and the target enrollment is 35 subjects. CRS-207 has U.S. and EU Orphan Drug designation for mesothelioma.

A second, similar Phase 2 study (NCT03122548) in gastric / esophageal cancer also initiated in June 2017. Target enrollment here is 79 subjects. Finally, a Phase 1/2 clinical study (NCT02575807) with CRS-207 plus pembrolizumab and Incyte's epacadostat is also ongoing with a target enrollment of 126 subjects with platinum-resistant ovarian, fallopian tube, or peritoneal cancer.

Also within the LADD platform, Aduro has a collaboration with J&J (Janssen) for two separate assets, ADU-214 and ADU-741. For ADU-214, J&J paid Aduro $30 million upfront, along with the potential for $787 million in milestones plus tiered high single-digit to low teens royalties on net sales. A Phase 1b/2 open-label (NCT02592967) clinical study combination of ADU-214+JNJ-64041757 is ongoing in patients with advanced (stage IIIb) or metastatic (stage IV) non-small cell lung cancer. The Phase 2 portion of the trial will include a combination with nivolumab (Opdivo®). J&J paid Aduro $12 million upfront and has the potential to pay $353 million plus royalties for ADR-741. A Phase 1 open label combination study

(NCT02625857) of ADU-741 plus JNJ-64041809 is ongoing in patients with metastatic castration-resistant prostate cancer.

Finally, within the LADD platform, Aduro is developing a second-generation personalized vector (pLADD) that allows for the engineering of multiple tumor-specific neoantigens isolated from the patient. In September 2017, Aduro initiated a Phase 1 clinical study (NCT03189030) at Stanford University in 10 patients with metastatic colorectal cancer.

STING Platform

STING, or Stimulator of Interferon Genes, is a central mediator of innate and adaptive immunity. When stimulated, STING induces the expression of type I interferon, cytokines and T cell recruitment factors that result in the activation of macrophages and dendritic (such as NK) cells, and priming of tumor-specific cytotoxic T cells. The goal here is to stimulate the immune system to fight cancer and bypass tumor-specific mechanisms that allow cancer to "hide" from the immune system. Aduro is developing small molecule STING activators for direct injection into tumors.

Aduro’s lead molecule, ADU-S100, is the first therapeutic in development specifically targeting STING. Preclinical data suggests that ADU-S100 is superior to TLR ligands under clinical and preclinical development in models of melanoma and lung cancer (see below).

In March 2015, Aduro signed a partnership collaboration with Novartis whereby Aduro received $200 million upfront and has the potential to earn an additional $500 million in milestones. Novartis has also established a $50 million equity stake in Aduro. Aduro will lead commercialization activities and will book sales in the U.S. for any products developed and commercialized pursuant to this collaboration, with Novartis leading commercialization activities in all other regions. The companies will share in profits, if any, in the U.S., Japan and major EU countries. Novartis will pay Aduro a mid-teens royalty for sales in the rest of the world.

In collaboration with Novartis, ADU-S100 is being tested in a Phase 1 clinical trial (NCT02675439) in cutaneously accessible tumors, including breast, head-and-neck, and renal cell cancers as well as melanoma and lymphoma. The trial is evaluating the ability of ADU-S100 to activate the immune system and recruit specialized immune cells to attack the injected tumor, leading to a broad immune response that seeks out and kills non-injected distant metastases. In addition, the companies are evaluating the combination of ADU-S100 with Novartis' anti-PD-1 checkpoint inhibitor for the treatment of advanced/metastatic solid tumors or lymphomas in a global Phase 1b study (NCT03172936). The trial just initiated in September 2017 and the target enrollment is 175 subjects.

B-Select Mab Platform

Aduro’s B-select platform employs a proprietary ultra-selective functional screening process to identify antibodies with unique binding properties against a broad range of targets that can modulate the immune system. The technology is based on in vitro clonal expansion of B cells (antibody-producing cells) that have been specifically selected and immortalized from the spleen or lymph nodes of immunized animals. The platform is designed to create a broad portfolio of therapeutic antibodies against a number of receptors, including OX40, CD137, CD27, CTLA-4, and PD-1.

BION-1301 is Aduro’s proprietary monoclonal antibody targeting A Proliferation-Inducing Ligand (APRIL), which the company intends to evaluate in patients with multiple myeloma. Aduro has established that APRIL plays a crucial part in the protective bone marrow tumor microenvironment. In preclinical studies, APRIL, through the B cell maturation antigen (BCMA), was shown to be critically involved in the survival, proliferation and chemoresistance of multiple myeloma, and upregulates mechanisms of immunoresistance, including PD-L1 upregulation. This overcomes drug resistance to standard-of-care agents such as lenalidomide (Revlimid®) and bortezomib (Velcade®). A Phase 1 clinical trial is planned to initiate in the near future.

Also within the B-select platform, Aduro is collaborating with Merck under a worldwide license agreement for the development and commercialization of CD27 antibody agonists. CD27 is a co-stimulatory receptor expressed on different immune cells, such as T cells and NK cells. It has been recognized as having a critical role in priming, enhancing and sustaining a productive anti-cancer (CD8+ T-cell) adaptive immune response. In pre-clinical studies, anti-CD27 activation in combination with immune checkpoint inhibition has demonstrated enhanced tumor rejection. The anti-CD27 antibody candidate is currently in pre-clinical development, with Merck eyeing the first clinical studies to being later this year. Aduro can earn $312 million in development and $132.5 million in commercial milestones from Merck, along with royalties.

Bio5C Analysis

Aduro scores very well on Charisma - a perfect 5 out of 5. That's mainly because you are getting three I/O platforms in one investment. LADD and STING are hot platforms right now and with Aduro investors have the potential to benefit from upside in both, as well as potential combination therapy with proprietary candidates. The pipeline (seen below) is impressive, albeit earlier stage. Additionally, the fact that Aduro has been able to sign major collaborations with some of the world's leading pharma companies - one deal on each platform - is also impressive and adds to a high Credibility score of 4 out of 5 points. The only reason credibility is not 5 is because no candidate has progressed into late-stage studies. Everything is still mostly "concept" stage.

The Cash position is also solid. Aduro exited June 2017 with $377 million in the bank. The burn rate is around $20 million per quarter ($44 million for the first half of 2017). The company filed a $300 million S/3 that went EFFECT in August 2017; however, I do not see any need for a financing over the near-term. The company has significant potential development milestone potential between Novartis, Merck, and J&J. I rate the Cap. only 3 out of 5 points. Although dilutive instruments are low and both J&J and Novartis have ~5% stakes, I'd like to see better (and higher) institutional ownership.

With such a great pipeline, one would think Catalysts would be better, but Aduro's pipeline is so early-stage that most of the big data read-outs are not likely until the second half of 2018 or even 2019. Nevertheless, because the pipeline is so large and there are so many active programs, Aduro should provide a moderate and consistent level of news flow over the next year.

Final Thoughts

Aduro scores well in the Bio5C model at '19' points. The stock has been under pressure over the past month - like much of the small-cap biopharma universe - but the long-term looks very good. That being said, recall Bio5C's rule about companies with pipelines that are "too large" - there's likely to be both good and bad news over the next 12 months. The market tends to over-react to bad news, and that scares me. The idea of not investing in a biotech company because they have "too many shots on goal" is counter-intuitive, but there are many examples of biotech stocks with large pipelines that tend to be under-valued (IMGN, ATRA, ADXS, AXSM, RDHL).

There's a clear diminishing return for adding new assets into the clinic. The market tends to like pure-plays instead. So while Aduro's strength and charisma is in its diversification, that may be what limits its upside over the near-term. Nevertheless, my back-of-the envelop valuation peg fair-value at $12 per share.

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Update: I drew this silly graph to further explain "Bio5C's Law of Diminishing Pipeline Returns".

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Bio5C has no position in shares of ADRO or any other company mentioned above.

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