ADAP: Initiating Coverage of Adaptimmune, a Leading T-Cell Therapy Company

By Michael Kim

READ THE FULL ADAP RESEARCH REPORT

We are initiating coverage of Adaptimmune Therapeutics plc ADAP with a 12-month price target of $3.00, translating into sizeable upside from the stock's current price. Adaptimmune designs, develops, manufactures, and delivers innovative cell therapies via the company's unique T-cell receptor (TCR) platform to treat cancers across multiple solid tumor types.

Our investment thesis revolves around:

1. Unique T-cell therapy: Adaptimmune's mission is to transform cancer treatment by engineering naturally-occurring TCRs to better recognize and bind to specific cancer biomarkers and activate the immune system to target and eradicate cancer cells. Over the last 15+ years, the company has developed a proprietary technology platform that identifies cancer targets and genetically engineers a patient's TCRs to enhance efficacy, while avoiding healthy cells. Adaptimmune's cell therapies can be engineered from a patient's own T-cells (autologous) or manufactured from stem cells (allogeneic).

Adaptimmune's engineered T-cell therapy addresses solid tumor cancers. The first engineered T-cell products from Adaptimmune, afami-cel and lete-cel, will target soft tissue sarcomas (STSs), specifically synovial sarcoma and myxoid/round cell liposarcoma (MRCLS). Approximately 13,000 soft tissue sarcomas are diagnosed each year in the U.S., of which synovial sarcoma and MRCLS account for an estimated 1,000+ cases. Both cancers are characterized by lower survival rates and limited treatment options, and mostly impact younger people and middle-aged adults.

2. Commercialization inflection point: The pending launch of afami-cel (assuming FDA approval) marks the transition of Adaptimmune from a clinical-stage biopharmaceutical company to a commercial-stage cell therapy company. From the start, Adaptimmune has been constructed as an integrated company, with the vision of developing and delivering cell therapies to treat patients with cancer. The firm leverages integrated research, clinical development, translational sciences, manufacturing, and commercial capabilities to facilitate delivery in an efficient and timely manner. A key component of Adaptimmune's integrated approach is the company's in-house manufacturing facilities here in the U.S., as well as in the UK, that allow for scaling supply to meet demand and quickly iterating on process and supply chain improvements.

Adaptimmune's transition to commercialization will be led by afami-cel, the company's first engineered TCR T-cell therapy targeting the MAGE-A4 biomarker presented on HLA for treatment of synovial sarcoma. The FDA accepted Adaptimmune's Biologics License Application (BLA) for afami-cel with a Prescription Drug User Fee Act (PDUFA) date of August 4, 2024. Assuming FDA approval, the plan is to immediately launch afami-cel, with an initial focus on six to 10 Authorized Treatment Centers (ATCs), expanding to 30 ATCs across the U.S. over the following 18 to 24 months leveraging the company's established infrastructure and relationships. Looking ahead, we see opportunities for afami-cel to target other sarcomas and/or expand into different geographies.

3. Robust product pipeline: Adaptimmune maintains a diversified pipeline of late-stage programs, as well as a deep preclinical pipeline across multiple autologous and allogeneic cell therapies. From an R&D perspective, Adaptimmune maintains alliances with several cancer centers of excellence focused on a number of clinical and preclinical studies for the development of T-cell therapies for multiple types of cancer including bladder, lung, ovarian, head and neck, melanoma, esophageal, and gastric indications.

4. Powerful economic opportunity: While we expect Adaptimmune to report net losses through for the next couple of years, the key driver for an inflection in net income remains how quickly afami-cel sales ramp up (assuming FDA approval). Our model assumes related sales start in 4Q24, with ~$80 million of gross sales in 2025. Management is targeting $400 million of peak sales for ADAP's sarcoma franchise (afami-cel and lete-cel), with peak gross margins of 70%. Importantly, there are no other engineered cell therapies developed to treat solid tumors on the market. Over time, we expect operating leverage to build as revenues scale, particularly as the commercialization of lete-cel will follow similar development and distribution approaches as afami-cel.

From a capital perspective, current liquidity, upcoming revenue from the launch of afami-cel, and several $25 million tranches of the recently announced $125 million term loan facility are likely sufficient to fund operations into late 2025. Additionally, Adaptimmune is eligible to receive $100 million of initial payments as part of the recently announced clinical collaboration agreement with Galapagos NV. Furthermore, management can opt to tap the company's $200 million at-the-market (ATM) facility ($171 million available as of 3/6/24).

5. Probability-weighted DCF model points to meaningful upside for the stock: We are initiating coverage of Adaptimmune Therapeutics plc with a price target of $3.00 representing meaningful upside potential from the stock's current price. Our price target is based on a probability-weighted DCF model incorporating the company's three late-stage clinical programs currently underway (afami-cel, lete-cel, and uza-cel for ovarian cancer), with a near-term eligible patient population of ~4,600 per year (afami-cel and lete-cel in the U.S. + ovarian uza-cel in the U.S. and Europe). Importantly, our valuation work does not incorporate head & neck and bladder indications for uza-cel, PRAME, or CD70 – all targeting much larger indications, but not as far along the development curve.

Our report provides a deep dive into Adaptimmune's unique T-cell therapy platform, commercialization strategy, and robust product pipeline. In addition, we introduce the senior management team, and walk through our financial model and valuation analysis. The final section summarizes what we believe to be key investment risks specific to FDA approval and commercialization processes, ongoing funding needs, manufacutring capacity, and strategic/financial partnerships.