Even if you haven't heard of Adaptimmune Therapeutics (ADAP 3.93%) before, there's a good chance the name popped up on your newsfeed over the past couple of weeks. This clinical-stage biotech stock more than doubled in late-May after the company announced positive phase 1 trial results for one of its cancer drug candidates.
Following this jump, that puts Adaptimmune's market valuation near $1.7 billion, a pretty high figure considering that the company reported only $761,000 in quarterly revenue last quarter. However, the company has quite a few trials ongoing and the moment, all of which could be further catalysts for the stock.
Should investors jump on this opportunity to buy into Adaptimmune while they can, or should they take a 'wait and see' approach instead?
Image source: Getty Images.
What happened?
Adaptimmune presented new data last month regarding its flagship T-cell therapy, ADP-A2M4, at an annual meeting of the American Society for Clinical Oncology (ASCO). The phase 1 study in question tested ADP-A2M4's efficacy as a treatment for synovial sarcoma, a rare type of cancer that affects the soft tissues and joints of the body, with the knees being a common area for patients.
In general, sarcoma's tend to be difficult for doctors to treat. It also doesn't help that there are fewer patients available for clinical testing to develop new treatment options. In the case of synovial sarcoma, there are as few as 800 new cases in the U.S. each year, affecting less than 3 people per 100,000.
Among other things, the study showed a 50% response rate for patients diagnosed with synovial sarcoma. Even more interesting is the fact that patients with other cancer types, including patients with lung cancer as well as head & neck cancer, showed positive responses as well. As for any adverse events, they were in line with side effects typically witnessed by cancer patients undergoing chemotherapy (such as nausea and fatigue).
What the heck is a CAR-T therapy?
Adaptimmune has three separate drug candidates in development, all of which target different types of cancers via T-cell therapy. Also known as chimeric antigen receptor T cell (or just CAR-T cell, for short), these types of experimental treatments are among the most promising types of new cancer treatments being developed.
In short, scientists extract the T cells from a patient's immune system, retrain them to better target and kill cancer cells, and then reintroduce them into the patient's body. While there are many studies out there that suggest this methodology is quite effective, the one downside is that its quite expensive. In many cases, certain CAR-T therapies cost almost half-a-million dollars per patient.
For biotech companies developing CAR-T treatments; however, this presents a pretty significant opportunity. With some research suggesting that the CAR-T therapy market could hit $13.6 billion by 2026 (with an annual growth rate of around 56%), that's a tremendous growth opportunity for companies like Adaptimmune.
Of course, considering how lucrative this market could be, there are a number of CAR-T drugs currently in development. Two such drugs having already been approved by the Food and Drug Administration (FDA), that being Gilead's Yescarta and Novartis' Kymriah.
What else does Adaptimmune have on the table?
ADP-A2M4 is primarily being developed as a synovial sarcoma treatment but has two other trials testing its effectiveness in treating multiple solid tumors. The most notable of which is a phase 1 trial that was scheduled to finish enrollment in the seccond quarter. Other cancer indications besides synovial sarcoma that ADP-A2M4 will be tested for include ovarian, gastric, urothelial, and non-small cell lung cancer tumors, among others.
However, Adaptimmune doesn't much much else going for it at the moment besides its flagship drug candidate. The company has a few other candidates currently in preclinical testing, like ADP-A2AFP and ADP-A2M10, but little else.
Looking at the financials
As mentioned before, Adaptimmune Therapeutics carries a remarkably high valuation – a market cap of $1.7 billion – with just $761,000 in revenue for its first fiscal quarter. In comparison, net losses came in at $28.2 million for the quarter.
While that might seem pretty bad, that's pretty much on par for the course when it comes to early-stage biotech stocks. Since most of Adaptimmune's drug candidates are still in preclinical or early clinical testing, it's still going to take years before they can apply for FDA approval, let alone hit the market.
As such, the real question financially is whether Adaptimmune has enough cash to last for the next few years. Looking at its balance sheet, the company has $86.4 million in cash and another $110 million in marketable securities. At its current rate of cash burn, that wouldn't be enough to last a couple of years at most.
However, Adaptimmune just recently finished a public stock offering, raising $242.8 million in the process. With this extra cash on hand, investors shouldn't worry too much about Adaptimmune possibly running out of money.
What's the verdict?
Shares of Adaptimmune more than doubled in late May when the company announced its early clinical trial results, and it wouldn't be surprising if the same happens in the future. However, investors shouldn't forget that nothing's certain in the world of early-stage biotech stocks. Plenty of highly promising candidates have flopped in later trials, and the same could happen with Adaptimmune's ADP-A2M4.
To put that into perspective, a 2018 study from the Massachusetts Institute of Technology (MIT) found that only 14% of all drugs that start clinical trials end up winning FDA approval. Those odds are far from appealing.
There's a fine line between investing in a promising pipeline versus speculating on a drug's possible success rate. Considering how early in the development process Adaptimmune's candidates are right now, there's way too much uncertainty to say for sure how things will work out for the company. Instead, keep this stock on your radar for the next year or two and see how its clinical trials are doing then.
