SCHEDULE 13D/A: Shareholder Criticizes Aadi Bioscience Board for Rejecting Superior Buyout Offer and Pursuing Dilutive Financing

A significant shareholder, BML Investment Partners, L.P. and Braden M. Leonard, has reduced its stake in Aadi Bioscience, Inc. after criticizing the company's Board for rejecting a buyout offer of over $5 per share in favor of a dilutive $2.40 per share PIPE financing and a risky pre-clinical asset acquisition.

Summary

• BML Investment Partners, L.P. and Braden M. Leonard, significant shareholders in Aadi Bioscience, Inc., have reduced their beneficial ownership to below 5% as of March 5, 2025.
• The reduction followed sales of 8,863 shares at $2.55 per share on February 28, 2025, and 120,000 shares at $2.22 per share on March 5, 2025.
• The reporting persons criticized Aadi Bioscience's Board for rejecting a superior offer from "Kraken" to acquire the entire company.
• The Kraken offer, initially made on October 17, 2024, valued the FYARRO business at $80 million, plus $40-$50 million in excess cash, equating to $4.38-$4.74 per share.
• The Kraken offer was subsequently raised by $20 million in December, increasing the per-share value to $5.12-$5.48 in cash.
• Instead, the Board opted to sell FYARRO as an asset for $100 million, retaining all proceeds to fund the in-licensing of three pre-clinical molecules from China.
• This strategy involves a private investment in public equity (PIPE) financing, issuing 41.66 million shares and pre-funded warrants at $2.40 per share, resulting in over 60% dilution for existing shareholders.
• BML Capital Management, LLC, on behalf of the reporting persons, stated they are emphatically voting NO to all proposals related to this strategy.

Sentiment

Score: 2

Explanation: The document, particularly the attached letter, expresses strong negative sentiment from a significant shareholder regarding the company's strategic decisions, highlighting rejected superior offers, significant shareholder dilution, and high-risk, long-term investments.

Positives

• The company successfully obtained Required Stockholder Approval for the 2024 PIPE Financing, which closed on March 4, 2025.

Negatives

• Aadi Bioscience's Board rejected a "far superior" offer from Kraken to buy the entire company for $5.12-$5.48 per share in cash.
• The Board chose to sell the FYARRO business as an asset sale for $100 million, with shareholders not receiving any direct proceeds.
• The company is proceeding with a dilutive PIPE financing, issuing 41.66 million shares and pre-funded warrants at $2.40 per share, which is less than half of the rejected Kraken offer.
• This financing will dilute current shareholders by over 60%, reducing their ownership from 100% to approximately 39%.
• Proceeds from the FYARRO sale and PIPE financing are intended to fund the in-licensing of three pre-clinical molecules from China, which are described as "risky" and will not be ready for clinic for 12 to 24 months.
• The development of these new drugs is expected to incur "cash burn likely in the $100s of millions" and require several years of late-stage trials before generating revenue.

Risks

• Significant shareholder dilution (over 60%) from the issuance of 41.66 million shares and pre-funded warrants at $2.40 per share.
• High cash burn, potentially in the "hundreds of millions of dollars," associated with the development of new pre-clinical assets.
• Long development timelines for new pre-clinical drugs, which are not expected to enter the clinic for 12 to 24 months and will require several more years of late-stage trials.
• Uncertainty and risk associated with the success of pre-clinical assets, as they may not generate revenue.
• Potential for continued shareholder dissatisfaction and activism due to perceived poor capital allocation and governance decisions.

Future Outlook

The company's chosen strategy involves a long-term, high-risk path focused on developing three pre-clinical molecules from China. These drugs are not expected to enter clinical trials for 12 to 24 months and will require several more years of late-stage trials, incurring significant cash burn, potentially in the hundreds of millions of dollars, before any revenue generation is possible. This contrasts sharply with a previously available immediate cash buyout offer.

Management Comments

• "Aadi Biosciences Board of Directors has recently issued two letters extolling the virtues of the proposals they're asking shareholders to approve on February 28th."
• "What the Board doesn't mention in either letter is that it turned down an offer that was far superior to what it's asking us to vote in favor of one that would have instantly doubled the stock price instead of diluting us all by over 60% at a terrible price."
• "Instead of accepting over $5 in a sale, the Board is asking shareholders to approve the issuance of 41.66 million shares and pre-funded warrants at a price of $2.40, or less than half of what Kraken offered to pay us."
• "Management is asking you to approve a deal that dilutes your percentage holding by over 60% (current 100% ownership goes to about 39%) by selling shares and pre-funded warrants (some to insiders) at less than half what we could have gotten had the Board just sold the entire company."
• "BML is emphatically voting NO to all proposals and believes other self-interested shareholders should do the same."

Industry Context

The decision by Aadi Bioscience to divest its commercial asset (FYARRO) and pivot towards in-licensing early-stage, pre-clinical assets from China reflects a strategic shift common in the biotechnology sector, where companies often seek to replenish their pipeline with potentially high-value, albeit high-risk, future drugs. However, the criticism from a significant shareholder highlights the tension between long-term R&D investments and immediate shareholder value, especially when a clear acquisition offer for the existing business is on the table. The in-licensing of Chinese assets also points to the increasing globalization of pharmaceutical R&D and partnerships.

Comparison to Industry Standards

• The Board's decision to pursue a dilutive PIPE financing at $2.40 per share and invest in pre-clinical assets is directly compared by the reporting person to a rejected offer from Kraken valuing the entire company at $5.12-$5.48 per share.
• The rejected Kraken offer would have provided immediate cash returns to shareholders, doubling the stock price compared to the current strategy.
• The chosen path involves significant shareholder dilution (over 60%) and a long, uncertain development timeline for new drugs, contrasting with the immediate, certain value of the Kraken offer.

Corporate Governance

Related Party Transactions

• Some pre-funded warrants issued in the 2024 PIPE Financing were sold to insiders.

Stakeholder Impact

• Shareholders: Significant dilution (over 60%) from the PIPE financing, loss of potential immediate cash return from a higher buyout offer, and exposure to long-term, high-risk drug development.
• Management/Board: Facing strong criticism and potential opposition from significant shareholders regarding strategic decisions and capital allocation.
• Employees: Potential shift in focus from commercial operations (FYARRO) to early-stage R&D, which could impact roles and organizational structure.

Next Steps

• Development of three in-licensed pre-clinical molecules, with clinical trials expected to begin in 12 to 24 months.
• Further late-stage trials for the new drug candidates over several years.
• Potential for continued evaluation and possible acquisition or disposition of securities by the reporting persons.

Key Dates

Recommendation

Keywords

Aadi Bioscience, Schedule 13D, Beneficial Ownership, Shareholder Activism, PIPE Financing, Dilution, FYARRO, Kraken Offer, Pre-clinical Assets, Biotechnology, Pharmaceuticals, Investment Partners, Braden M. Leonard, Corporate Governance, Asset Sale