Adlai Nortye dives in Nasdaq debut, as key product faces hurdles

Shares of the drug maker that licenses its products from other companies lost more than half their value in the two weeks after their listing

Key Takeaways:

• Newly listed Adlai Nortye has yet to bring any products to market, and has lost more than $130 million in just over two years
• The company’s key drug candidate is a PI3K inhibitor now in global trials, even as several candidates from the same class have suffered setbacks in recent years

By Molly Wen

Weak sentiment has cast a cloud over Chinese stocks this year, and it’s even chillier for unprofitable biotech companies that were always a difficult sell even in the best of times. But that hasn’t stopped some from trying, even if the odds are against them. A case in point is Adlai Nortye Ltd. (ANL.US), a cancer drug startup, which failed to list in Hong Kong two years ago and is probably now wishing its recent IPO on the Nasdaq met the same fate, or at least waited for better times.

The company issued 2.5 million American Depository Shares (ADSs) priced at $23 each, giving it a quite respectable market cap of about $849 million. In addition to its shares sold publicly, the company sold another $40 million worth to Japanese pharmaceutical company Nippon Kayaku (4272.T), bringing its total fundraising to nearly $100 million.

Adlai Nortye licenses cancer drugs from other companies using a “license-in” model, and has introduced candidates from global pharmaceutical giants such as Novartis (NOVN.SWX) and Eisai (4523.T). Three of the company’s six drugs in development have entered clinical stage tests, with the two most advanced as license-in products.

While the company was one of the few from China to make it to the Nasdaq this year, that’s where the good news ends. The stock opened at only $18 on its first day of trade Sept. 29, down 21.7% from the issue price, and continued to fall to close down 34.8% on its first day. The shares continued to slide over the next five days, ending just above $10 on Thursday. So, in its first two weeks the shares have already lost more than half their value.

As a pharmaceutical company without any products on the market, Adlai Nortye’s financials are tough medicine for investors to swallow. According to its prospectus, its work in 2021 with Biotime earned it $45.73 million in intellectual property revenue that year. Since then the figure has fallen to nil. Meantime, its operating losses have climbed from $8.65 million in 2021 to $67.3 million last year, and $15.3 million in this year’s first quarter. Its net losses held relatively steady at $56.7 million in 2021 and $58.79 million last year, and totaled $15 million in this year’s first quarter.

Adlai Nortye needs to pay hefty sums to license its drugs, and also incurs big costs for its R&D and clinical development efforts, even as it has yet to earn any recurring revenue. It has raised over $200 million since its inception.

The company’s investors include some big names from the pharma sector, such as CRO sector leaders Hangzhou Tigermed and a fund backed by Wuxi Biologics, as well as well-known institutional investors like Matrix Partners, DT Capital Partners, ICBC Asset Management and Legend Star. It received $97.4 million during its latest funding round in 2021, giving it a valuation of about $647 million – well above its current level of about $370 million on the Nasdaq.

Advanced candidate

The company’s most promising candidate is AN2025 (Buparlisib), which is now in a global multi-center, randomized, open Phase 3 clinical trials at more than 180 research centers in 18 countries and areas across North America, Europe, Asia, and South America. Patient enrollment is expected to be complete by the end of this year.

Buparlisib is a pan-PI3K inhibitor expected to be a first-in-class drug to treat recurrent or metastatic head and neck squamous cell carcinoma (HNSCC). HNSCC is the seventh most common cancer worldwide, with more than 800,000 new cases reported each year.

But the class of drugs has suffered setbacks in recent years due to its strong toxicity, leading the U.S. Food and Drug Administration (FDA) to tighten its standards. In January last year, global pharma company Gilead Sciences (GILD.US) withdrew some indications for its PI3K delta inhibitor Idelalisib, which had been on the market for six years, while Bayer (BAYN.DE) withdrew an indication application for its PI3K inhibitor Copanlisib in the EU. Chinese pharmaceutical company Innovent Biologics (1801.HK) also voluntarily withdrew its marketing application for a PI3K inhibitor in China at the end of September.

The increasing caution has tamped down competition among PI3K inhibitors in development, making Buparlisib the only candidate from the class now in Phase 3 clinical trials worldwide. Buparlisib was already in Phase 2 clinical tests while it was still being managed by its previous sponsor Novartis, and was granted fast track status by the FDA in July 2016 based on efficacy data. Even so, Adlai Nortye got the rights to Buparlisib from Novartis for relatively little because of its toxicity-related side effects and lukewarm efficacy results.

Whether Adlai Nortye can overcome the issues and bring Buparlisib to market will be key to the company’s future. According to its IPO prospectus, the company hopes to file a New Drug Application (NDA) with the FDA for expedited marketing approval in the first half of 2024 after the interim analysis of its Phase 3 clinical trial, and will seek marketing approvals with the Chinese, EU, Japanese and other drug regulators after that.

Meanwhile, its other drug candidates are still in the initial clinical stages. One of those, AN0025, is in Phase 1 clinical trials for treatment of non-small cell lung cancer (NSCLC), triple-negative breast cancer (TNBC) and other diseases. Another, AN4005, is in Phase 1 trials in the U.S. and China.

Once a relative favorite among earlier-stage investors, Adlai Nortye could fare far worse as a publicly traded company if Buparlisib fails to get approval, making it hard to raise additional funds to support development of its other drugs. Conversely, Buparlisib’s approval in one or more major markets would considerably brighten the company’s prospects, meaning investors will be closely watching to see how the drug develops.

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