Penny Stock Aerpio Pharmaceuticals’ Merger With Aadi Makes It A Buy, Says Analyst

Aerpio Pharmaceuticals (ARPO) is a biopharmaceutical company focused on developing compounds that activate Tie2. Tie2 is considered a key regulator of vascular stability, and ARPO “believes that activation of Tie2 may have therapeutic potential” for different indications.

In Q1, ARPO did not earn any revenues, but net loss widened to $4.4 million from $3.9 million in the same quarter a year ago. Aerpio’s operating expenses increased 36.7% year-over-year to $5.6 million in Q1. The company had cash and cash equivalents of $39 million as of March 31.

Merger with Aadi Bioscience

In May, Aerpio announced the merger with Aadi Bioscience. The merger is expected to close in the second half of this year. The completion of the merger will result in ARPO becoming a wholly-owned subsidiary of Aadi.

Aadi Bioscience is a privately-held biopharmaceutical company focusing on precision therapies for genetically defined cancers with alterations in mTOR pathway genes.

Following the merger, Aerpio will change its name to “Aadi Bioscience Inc.” and the combined company will focus on Aadi’s lead product, FYARRO (sirolimus albumin-bound nanoparticles for injectable suspension; nab-sirolimus; ABI-009). (See Aerpio stock chart on TipRanks)

Yesterday, H.C. Wainwright analyst Robert Burns upgraded the stock to a Buy from a Hold and set a post-merger price target of $22. Following the upgrade, ARPO stock soared 63.2% to close at $2.79.

In relation to the merger, ARPO has entered subscription agreements for Private Investment in Public Equity (PIPE) financing to raise around $155 million.

The closing of the PIPE financing will result in Aadi shareholders owning 29.6% of Aerpio’s shares. Aerpio shareholders are expected to own around 14.7% of ARPO’s outstanding common shares, while PIPE investors are projected to own 55.7% of ARPO’s fully diluted outstanding common stock.

Analyst Burns noted that the company plans to effect a reverse stock split of around 317.2 million outstanding shares (by his estimate) after completion of the merger. The analyst added, “While the nature of the reverse split has not been disclosed, for the purposes of forecasting we have assumed a 7:1 ratio, which implies a post-reverse split/post-merger closing share count of approximately 45M.”

Aadi’s Key Product – FYARRO

Aadi’s key product FYARRO is an “mTOR inhibitor bound to human albumin [a kind of protein] that has demonstrated significantly higher tumor accumulation, mTOR target suppression, and superior efficacy over other mTOR inhibitors in preclinical models.”

FYARRO has already received Breakthrough Therapy, Fast-Track, and Orphan Designations from the U.S. Food and Drug Administration (FDA). Aadi submitted a rolling New Drug Application (NDA) in May to the FDA.

According to Aadi, FYARRO has demonstrated “meaningful clinical efficacy” in a type of cancer called PEComa (perivascular epithelioid cell tumor). This cancer has the highest alteration rate in TSC1 or TSC2 genes.

The company plans to submit an Investigational New Drug application (IND) to the U.S. FDA for a tumor-agnostic registrational trial in mTOR inhibitor-naïve solid tumors harboring TSC1 or TSC2 inactivating alterations and start a study by the end of this year.

Analyst Burns is of the view that “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.”

Analyst Burns is Optimistic about FYARRO

The analyst lists two reasons for being optimistic about FYARRO. First, the drug uses sirolimus “as an active moiety.” According to the analyst, Sirolimus has “documented anti-proliferative properties and blocks the key mTOR signaling pathway, which is known to have crucial functions in mediating cancer cell division as well as the ability of cancer cells to evade the immune system,” that could benefit FYARRO.

Second, Burns noted that FYARRO uses “the same albuminbound nanoparticle delivery technology inherent in Abraxane (nab-paclitaxel), which was originally approved in 2005 by the FDA for treatment of metastatic breast cancer (mBC) and subsequently received U.S. regulatory approval in treatment of a range of other cancers, notably non-small cell lung cancer (NSCLC) and pancreatic cancer.”

The analyst noted that considering the success of Abraxane, which generated sales of $1.25 billion in FY20, he expects FYARRO to generate sales exceeding $2 billion by 2035.

Burns is the only analyst to have provided a rating on the stock in the last three months. His price target of $22 implies approximately 688.5% upside potential to current levels over the next 12 months.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.