LLY - Alector: Q4 2024 Data Release Could Provide Major Shift For Valuation

2024-01-17 17:32:22 ET

Summary

• Alector, Inc. expects results from its phase 2 INVOKE-2 study, using AL002 for the treatment of patients with Alzheimer's disease, in Q4 of 2024.
• IND clearance received to begin a phase 2 study using AL101 for the treatment of patients with Alzheimer's Disease.
• The global market for Alzheimer's Disease is expected to reach $15.5 billion by 2031.
• Enrollment completion has been achieved in phase 3 INFRONT-3 study, using AL001 for the treatment of patients with frontotemporal dementia with progranulin mutation.

Alector, Inc. ( ALEC ) has been able to complete enrollment of its phase 2 INVOKE-2 study, which is using AL002 for the treatment of patients with early-stage Alzheimer's Disease [AD]. With enrollment of this TREM2 activator complete, it expects to report results from this mid-stage study in Q4 of 2024.

The thing is that not only is it possible that positive data could be achieved, but that the company is in the process of developing the most advanced TREM2 activator in clinical development to date. That is, as of January 15th 2024, it is not aware of any other TREM2 activator being advanced in either a phase 2 or phase 3 study. Should this mechanism of action play out, then it could generate a huge competitive advantage of having a unique drug that is not currently approved.

Matter of fact, as I will explain below, the ongoing phase 2 INVOKE-2 study is deploying primary and secondary endpoints of that which was used for phase 3 testing from Biogen ( BIIB )/ Eisai with Lecanemab [LEQEMBI] and from Eli Lilly ( LLY ) with donanemab. The thing is that positive results from the mid-stage study wouldn't only mean a new treatment approach to treating patients with early-stage AD. In addition, it would open the door for a possible Opt-in agreement. AL002 is being developed in collaboration with partner AbbVie ( ABBV ) and there have been several payments made over the last few years. Should the trial go well, plus opt-in by AbbVie taken, then that would bring in $250 million in early 2025.

AL002 For The Treatment Of Patients With Alzheimer's Disease

One of the programs with huge potential in Alector's pipeline would be the use of AL002, which is being developed for the treatment of patients with Alzheimer's Disease [AD]. Alzheimer's Disease is classified as a disorder by which mental functions start to collapse. That is, patients lose memories and other important mental functions over time. It is the most common cause of dementia in older adults. The global market for Alzheimer's Disease is expected to reach $15.5 billion by 2031 . This is a very large market opportunity, should the company get through all clinical trials and eventually receive approval from regulatory authorities. This clinical drug is being evaluated in the ongoing phase 2 INVOKE-2 study , which is using TREM-2 activator AL002 for the treatment of patients with early Alzheimer's Disease [AD]. This trial has completed enrollment of approximately 381 patients randomized 1:1:1:1 to receive one of the following doses:

• 15 mg/kg IV infusion once every 4 weeks AL002
• 40 mg/kg IV infusion once every 4 weeks AL002
• 60 mg/kg IV infusion once every 4 weeks AL002
• Placebo.

As I noted in the beginning above, both Biogen/Esai and Eli Lilly ran their drugs LEQEMBI and donanemab respectively through phase 3 studies. Where I believe that Alector has a chance to do well in would be due to the way its phase 2 INVOKE-2 trial was designed. It was designed to incorporate endpoints that were similar to what each of these big pharmaceuticals deployed for their late-stage studies. However, in this case, Alector is taking a bold step in placing its harder to achieve endpoints in phase 2 testing for early AD. For instance, the primary and secondary endpoints being laid out for the INVOKE-2 study are as follows:

• Primary endpoint - Clinical Dementia Rating Scale - Sum of Boxes to establish disease progression [this was the phase 3 primary endpoint laid out by Biogen/Eisai to receive FDA approval of LEQEMBI]
• Secondary endpoints - RBANS, ADAS-Cog 13, ACDS-ADL-MCI, MMSE - several measures taken from Integrated Alzheimer's Disease Rating Scale [iADRS] - This was the primary endpoint for the phase 3 donanemab study.

As you can see above, Alector is incorporating two different primary endpoints used from other phase 3 studies for AD drugs, into primary/secondary endpoints for its own phase 2 INVOKE-2 study. The goal of AL002 is to improve TREM2 signaling observed in these patients and possibly increase microglia activity.

The advancement of this program brought about the completion of enrollment in the phase 2 placebo-controlled, dose-ranging study in Q3 of 2023. This brings about a very important catalyst for investors to look forward to towards the end of this year. It is expected that final results from this mid-stage study are going to be released in Q4 of 2024. This is when it will be known if a TREM2 activator is capable of helping early Alzheimer's Disease patients. It's hard to say for sure whether or not this study is going to be successful, but there is already huge demand for the long-term extension portion of the trial.

Why is that? That's because about 90% of the patients taking AL002 have rolled over into the long-term extension portion. Should the primary endpoint be met upon data release, then I believe there is a highly likelihood that AbbVie will exercise its $250 million opt-in payment towards Alector for further advancement of AL002.

Financials

According to the 10-Q SEC Filing , Alector had cash, cash equivalents and investments of $588.9 million as of September 30th of 2023. In its Corporate Presentation it updated its cash balance based on preliminary information to note that it had $548.9 million in cash as of December 31, 2023. It believed that this particular cash would be enough to fund its operations into the 2nd half of 2026. Despite having this extended cash runway, it chose to enact a public offering. That is, it announced an underwritten public offering of 10,869,566 shares of its common stock for total gross proceeds of $75 million before deducting expenses. This offering is expected to close on January 19th of 2024. Not only that, but with respect to this particular offering, the underwriters were offered a 30-day option to purchase up to an additional 1,630,434 shares of common stock at the public offering price.

Risks To Business

There are several risks that investors must be aware of before investing in Alector. The first risk to consider would be with respect to the advancement of AL002 as a TREM2 activator for the treatment of patients with early Alzheimer's Disease in the ongoing phase 2 INVOKE-2 study. There is no guarantee that the primary endpoint of CDR-SB will be met with statistical significance. On the flip side, the other secondary endpoint of iADRS, if met with statistical significance may still allow for further advancement. Especially, since this was an endpoint used in the phase 3 Eli Lilly AD study using donanemab.

A second risk to consider would be whether or not AbbVie will exercise its opt in of $250 million payment to Alector. This is a huge risk, because the big pharma partner could drop out due to weak results or just decide that it doesn't want to spend the funds to advance it. Either way, if this happens, then Alector will be left with having to raise the necessary funds by other means.

A third risk to consider would be with respect to the advancement of the ongoing phase 3 INFRONT-3 study, which is using Latozinemab for the treatment of patients with frontotemporal dementia with progranulin mutation [FTD-GRN]. This is another ongoing clinical program in Alector's pipeline and there is no assurance the primary endpoint is going to end up being met for this study. However, the good news is that even if this trial in FTD-GRN doesn't succeed, there is another shot on goal in the pipeline, which would be AL101 for the treatment of patients with AD. This provides another shot on goal for this large multibillion-dollar market.

The fourth risk to consider would then be with respect to the GlaxoSmithKline partnership. If either of two ongoing studies don't satisfy this big pharma, then it could end up terminating the partnership at any moment. This would not only mean the loss of a partner, but the loss of the potential milestone payments that could be obtained otherwise.

Conclusion

Alector has done well to advance two of its clinical candidates in the pipeline. One of them known as Latozinemab is being advanced in collaboration with GlaxoSmithKline to treat FTD-GRN, and the other one, AL101, has received IND clearance to begin phase 2 testing for AD.

The other candidate in the pipeline, TREM2 activator AL002, is being advanced in the phase 2 INVOKE-2 study for the treatment of early Alzheimer's Disease [AD]. This study had completed enrollment in Q3 of 2023 and is on track to have data released from it in Q4 of 2024. The fact that AL002 is the only TREM2 activator for a phase 2 or phase 3 study as of January 15th, 2024, highlights the uniqueness of the candidate. Having a completely different mechanism of action could differentiate it enough from the other monoclonal antibodies, like LEQEMBI from Biogen/Eisai and donanemab from Eli Lilly, which have been approved for AD.

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