ALEC - Alector: Good Data Huge Cash No Near Term Catalyst

2024-01-16 11:12:10 ET

Summary

• Alector's stock has traded mostly sideways, down 18% from last year, despite having a promising late-stage CNS pipeline, loads of cash, and two big partnerships.
• The company has trimmed down its pipeline from 9 programs to 3, but this is a good thing.
• Alector's latest news is scarce, with no recent press releases or updates, leading to a lack of catalysts for the stock in the next few quarters.

I covered Alector ( ALEC ) almost a year ago last year, and the stock has traded mostly sideways in these months, being down 18% right now from that time. That is interesting because ALEC happens to have a late stage CNS pipeline. They have one molecule (AL001, latozinemab) in GSK-partnered phase 3 trials targeting frontotemporal dementia ((FTD)) associated with mutations in the progranulin ((GRN)) gene. They have the same molecule (now called AL101) in another phase 2 trial in Alzheimer’s, and a third program with another molecule (AL1002) in a phase 2 trial partnered with AbbVie and targeting Alzheimer’s Disease as well. That is not a trifling pipeline in any way.

However, as I noted at the very beginning of my article, there’s been constant delay in completing the phase 3 trial, which has been primarily responsible for holding up the stock price. A casual glance at the pipeline now and last year shows up a difference, however, that seems crucial. Last year, they had 9 programs in the pipeline, all told, which included oncology targets and 4 GSK programs. Currently, they have 3, 2 of them GSK partnered, one with AbbVie. This trimming down needs exploring.

Early data from the FTD-GRN program has shown promise, although the key data was from a primary endpoint that was, at best, surrogate, and did not cover functional aspects. That data, from a phase 2 trial, showed that AL001 was “able to increase the level of PGRN back to normal in FTD-GRN patients.” Patients also showed a decrease in plasma neurofilament light chain levels from baseline. These Neurofilaments are structural proteins found in neurons, and when nerve cells are damaged or degenerate, neurofilaments can be released into the cerebrospinal fluid ((CSF)) and, to a lesser extent, into the bloodstream.

Neurofilament light chain ((NFL)) is one of the subunits of neurofilaments, and elevated levels of plasma NfL have been observed in various neurological disorders. Measuring plasma NfL levels is a non-invasive and potentially informative way to assess neuronal damage and neurodegeneration.

Apropos of my comment earlier about lack of functional metrics in the phase 2 trial, another interesting thing is that the phase 3 endpoint is a functional endpoint. It is called the CDR® plus NACC FTLD-SB. The “Clinical Dementia Rating plus National Alzheimer's Coordinating Center Frontotemporal Lobar Degeneration - Specific Protocol” is a specific assessment tool used in clinical research to evaluate individuals with frontotemporal lobar degeneration (FTLD) and related disorders. It assesses cognitive and functional performance in individuals with various forms of dementia, including Alzheimer's disease and FTLD. The CDR® plus NACC FTLD-SB is an extended version specifically designed to capture the unique features associated with FTLD. It includes language, behaviour and execution domains, and the overall CDR scale, which ranges from 0 (no cognitive impairment) to 3 (severe cognitive impairment), is used to provide an overall rating of an individual's cognitive and functional status.

Interestingly, this same measure was used in the phase 2 trial to assess cognitive, functional, behavioral and language impairments over time, and saw the score increasing 6.4 points from baseline in the matched (control) cohort, while it increased only 3.4 points in the drug cohort. It just was not the primary endpoint.

All that is good, but what about latest news? Alector is a very silent type of company. The last press release is from November, there are no 8-Ks, the last earnings call is from August. There are two “detailed reviews” of their two programs from early December, but in general, the company is thrifty with communication.

Last September, the company completed enrollment in the INVOKE-2 Phase 2 clinical trial for Alzheimer’s candidate AL002, jointly developed with AbbVie. Topline data is expected in Q4 2024.

In October, the company completed enrollment in the INFRONT-3 Phase 3 trial for dementia. Treatment duration here is 96 weeks, so topline data is a while away.

However, there is no further update, and there’s a stark catalyst desert at least for the next 2-3 quarters. This is the primary reason the stock is trading broadly sideways. ALEC has gone up a lot since November, but still looks attractive given the previous data and huge cash.

Financials

ALEC has a market cap of $654mn and a cash balance of $589mn. Collaboration revenue for the quarter ended September 30, 2023, was $9.1 million. On top of that, Alector received payments totaling $12.5 million from AbbVie to support enrollment in the INVOKE-2 trial. Total research and development expenses for the quarter ended September 30, 2023, were $46.3 million, while general and administrative expenses were $13.4 million. At that rate, the company has a cash balance of over 10 quarters. The huge $700mn upfront payment from GSK has been a boon for ALEC, but what matters is what it does with all that money.

Bottom Line

ALEC is a difficult stock for impatient investors. However, if you see their prior trial data, their cash reserve, and the stock’s current price, you would agree with me that this is a buy the dip stock for patient, longer term investors.

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