IBB - AlloVir: The Upside Potential Could Become Even More Attractive

2023-05-16 19:09:57 ET

Summary

• Many US-listed biotech companies are likely to trade cheaply relative to their prospects as a result of concerns about the stability of the US banking system and the risk of a recession.
• I believe biotech investors should consider a "Buy" rating on AlloVir, Inc. as this stock could potentially benefit significantly from advancements in the pipeline of products in development.
• AlloVir, Inc. is a US-based allogeneic, off-the-shelf multi-virus specific T cell therapy company working on antiviral therapies for immunodeficiency conditions prior to life-saving cell or organ transplantation.
• Despite the promising prospects for the company's lead candidate, posoleucel, the shares are not expensive but could become more attractive.

A Higher Likelihood of Bargains among US Biotech Companies Following Headwinds from the US Regional Banking Crisis and Recession Fears

Headwinds from fears over the stability of the US banking system as well as the risk of a recession due to aggressive monetary policy to counter elevated inflation, meant US-listed stocks could not grow as much as they could have.

In fact, so far this year, US-listed stocks have posted a slower growth rate of 8.45% compared to the benchmark represented by the performance of the SPDR® S&P 500 Trust ETF ( SPY ) for the corresponding period in 2019 before the issues of the pandemic and the war. The fund, which summarizes the performance of the entire US stock market, gained 14% from January 1 to May 15, 2019.

Some sectors have contributed less to U.S. stock market YTD growth than others, such as the biotechnology sector, which is up between 1.31% and 7.38%, depending on whether the SPDR® S&P Biotech ETF ( XBI ) or the iShares Biotechnology ETF ( IBB ) is used as a benchmark for US-listed biotech stocks.

Lower market valuations for US publicly traded biotechnology companies offer investors the opportunity to give their portfolio more exposure to the sector's greatest upside potential (I believe) by taking advantage of attractive prices.

Biotech investors should consider a Buy rating on AlloVir, Inc. ( ALVR ) stock as the shares of this US-based allogeneic, off-the-shelf multi-virus specific T cell [VST] therapy company I believe have the potential to make significant gains in the stock market.

Part of the investigational drug pipeline currently seems to be in the mid-final stage of research and development activities. So now things are getting serious, and I believe that any further progress should have a very positive effect on the share price.

About AlloVir, Inc.

Based in Waltham, Massachusetts, AlloVir, Inc. is the developer of a treatment for use during immunotherapy and is called posoleucel.

Posoleucel is designed to restore T-cell immunity in patients whose immune systems have been compromised after they had to be turned off or suppressed to prevent the rejection of life-saving cells or organ transplantations.

Allogeneic hematopoietic (or blood stem) cell transplantation [HCT] is the most common type of life-saving cell transplantation, while solid organ transplantation [SOT] is the most common type of organ transplantation.

Allogeneic HCT is most commonly used to treat leukemia and lymphoma and certain disorders of the blood or the immune system.

Until its complete reconstitution, the immune system of allogeneic HCT patients is subject to the reactivation of previously dormant viruses and, in most cases, to more than one life-threatening virus, according to the company .

By providing an immunological bridge from allogeneic HCT or SOT transplantation to the reconstitution of a patient's immune system, posoleucel can help either significantly reduce or prevent viral morbidity and mortality.

The set of viruses that most often constitute a life threat to transplant patients and that are the target of AlloVir are BK virus, cytomegalovirus, adenovirus, Epstein-Barr virus, human herpesvirus 6 and JC virus.

The company states that current antiviral therapies have very limited efficacy or are very toxic to those patients whose condition has been adapted for allogeneic hematopoietic cell transplantation [HCT] and solid organ transplantation [SOT].

Thus, these types of limitations define the unmet medical need that is the target of AlloVir's research and development activities.

Treatment Portfolio Under Development

Besides posoleucel [ALVR105], AlloVir is developing the following treatment candidates:

• ALVR106 is undergoing a Phase 1-2 double-blind, placebo trial for the respiratory syncytial virus, influenza, parainfluenza virus and human metapneumovirus.
• ALVR107 for treating hepatitis B. The company has completed both pre-clinical and the studies supporting the submission of an investigational new drug application and pipeline advancement toward the proof-of-concept study.

Portfolio Update

The company is conducting three Phase 3 studies in which its research and development team is evaluating posoleucel in individuals around the world.

The aim of the study is to develop a treatment to prevent or cure viral infections that are common in patients after allogeneic HCT . Therefore, these three Phase 3 studies are evaluating posoleucel against adenovirus [AdV], BK virus, cytomegalovirus [CMV], Epstein-Barr virus [EBV], human herpesvirus-6 [HHV-6], the JC virus [JCV] and the virus -associated with hemorrhagic cystitis [vHC].

The results of these studies are expected to be published throughout 2014.

Pending the publication of these results in 2014, the development of the product is supported by the positive progress of the Phase 2 studies, which are providing meaningful long-term follow-up data.

These studies demonstrate that the administration of posoleucel to allogeneic HCT patients, who are at high risk due to the awakening of previously dormant viruses, has yielded very remarkable results in terms of reducing clinically significant infections as well as end-organ disease in addition to the absence of non-relapse mortality rate.

The achievement of a zero percent non-relapse mortality rate at week 52 of follow-up in high-risk allogeneic-HCT patients receiving up to seven biweekly posoleucel infusions compares favorably with published data from other studies as the latter indicate a 9 to 15% range instead, according to Diana Brainard, the managing director of AlloVir.

In addition, the company has reported the successful administration of Posoleucel to a CAR-T recipient, as this patient had a refractory AdV infection. This could provide further evidence of the safety profile and product efficacy of AlloVir treatment against devastating viral infections in patients receiving chemotherapy for lymphodepletion and undergoing chimeric antigen receptor [CAR]-T cell therapy.

CAR-T therapy is a novel treatment for blood cancer that uses the patient's immune system to fight the disease.

The treatment portfolio under development includes final and positive results from a Phase 2 study evaluating the safety and efficacy profile of AlloVir’s posoleucel, aiming to develop a treatment against BK virus infections occurring in adult kidney transplant recipients/patients .

These results were announced in February 2023 and show that Posoleucel is safe while the treatment's active ingredient has an antiviral effect in the sense that it inhibits the virus' ability to multiply and reproduce.

The results were quite promising as the antiviral activity was particularly evident in those patients with high viral loads (?10,000 copies/ml) who have the greatest unmet medical need.

However, the company intends to present more comprehensive results from the BKV Phase 2 study at the next American Transplant Congress which will take place around the end of June 2023.

Posoleucel “could potentially offer a transformative treatment option for kidney transplant patients with BK viremia”, said Anil K. Chandraker, M.D., Director of Renal Transplant Medicine, Brigham and Women's Hospital. Anil K. Chandraker is also the main investigator of posoleucel in kidney transplant recipients with BK virus infection.

The Financial Situation

AlloVir does not sell any treatments yet and therefore does not generate any revenue.

In the first quarter of 2023, the company charged the income statement with total expenses of $53.2 million, which was nearly flat year-over-year. Of this, around 57.7% related to research and development activities, 24.7% to general and administrative expenses and the remainder to expenses for stock-based compensation.

The company incurred a net loss of $41.2 million (or $0.44 per share) in the first quarter of 2023 which was slightly better than the net loss of $43.9 million (or $0.69 per share) in the same quarter of 2022.

As of March 31, 2023, AlloVir's balance sheet reported $202.6 million in cash and cash equivalents which, combined with total debt of $33.82 million, results in net liquidity of nearly $170 million to support operations for a few quarters.

The Stock Valuation

The stock has some positive catalysts that could lead to an uptrend in the stock price in the upcoming period. Against this background, the shares probably do not appear expensive.

As of this writing, shares were trading at $4.28 per unit, giving it a market cap of $384.82 million.

Shares are trading below the 200-day simple moving average of $6.32, below the 100-day simple moving average of $5.02, while almost on par with the 50-day simple moving average of $4.20.

The 52-week range is $3.17 to $10.29, so the share price is currently well below the middle point of $6.73 of the interval.

The 14-day relative strength index of 53.97 suggests the shares are neither overbought nor oversold and although shares have recovered somewhat over the past trading day, it seems that a bearish mood is reigning over AlloVir at the moment.

A short interest of about 22.77% suggests negative sentiment around the stock and this could drive shares further down from current levels. So, investors may want to wait for the possible creation of more attractive prices before adding shares to the position.

Investors should of course be aware of the risk associated with investing in AlloVir stock, as setbacks during treatment development cannot be ruled out and, if occur, they could put downward pressure on the share price.

Pipeline setbacks are possible and can delay the time to market for treatments. Regulators may require the company to support treatment development with additional clinical data or to improve certain research findings. In this scenario, the company may need to raise additional funds to support further studies and to comply with regulatory requirements. Given the current economic climate, this task may not be easy and also quite expensive.

This could pose a problem as the company would then have to resort to borrowing, the cost of which will not be cheap due to rising interest rates policy to fight the elevated inflation.

In addition, AlloVir will face tightening credit conditions put in place to make the banking system more resilient following the failures of Silicon Valley Bank, Signature Bank ( SBNY ) and First Republic Bank (FRCB).

Ultimately, it will be much more difficult for AlloVir to raise money through debt if management has to.

Alternatively, or in addition, the company could also issue new equity, although this would be no more viable way of raising funds than debt financing in the event of a standstill in the pipeline. Because a possible stop in the advancement of the treatment could dampen investors’ enthusiasm and significantly reduce their involvement in the company's project.

However, the risk of investing in AlloVir is mitigated by the following factors. First, the company received Regenerative Medicine Advanced Therapy designation from the US regulator, meaning posoleucel benefits from a significantly simplified and accelerated commercial approval process. Therefore, the likelihood of any regulatory hurdles is reduced to a minimum.

Second, in this rush to secure commercial approval for its posoleucel, AlloVir does not appear to have much competition that could hurt its profitability once the product hits the market.

According to a list of Regenerative Medicine Advanced Therapy (RMAT) grants issued by the US regulator, there are no other healthcare companies working on products with similar therapeutic indications to AlloVir’s posoleucel.

Also, currently, transplant specialists must resort to standard care treatments to combat most viral infections that threaten the recipient's life during the rebuilding of the immune system after conditioning to welcome cell/organ transplantation. However, the company reveals that the available therapies are severely limited due to toxicity concerns, and this is making it impractical to achieve greater efficacy through an optimal use of treatments.

Third, the small margin between the current share price and its 52-week low offers a good cushion against the risk of a significant share price devaluation.

Fourth, analysts' upbeat view of the stock limits the investment risk.

Wall Street analysts have assigned one Strong Buy rating and 3 Buy ratings, so the stock has a median recommendation of Buy.

AlloVir stock has a price target of $21.75 reflecting a 408.18% upside potential.

Conclusion

AlloVir, Inc. is developing a treatment called posoleucel that is designed to restore T-cell immunity in patients whose immune systems have been turned off or suppressed, leaving life-saving cells or organ transplants at reduced risk of rejection.

Three Phase 3 studies are ongoing in the attempt to continue to assess posoleucel safety profile and antiviral activity against up to six of the most common viruses that can occur in immunodeficient allogeneic HCT patients. Results from Phase 2 of the study were encouraging and strongly suggest an effective treatment in patients with the highest viral loads.

Phase 2 study’s preliminary results also indicate a safe profile and viral activity of bi-weekly infusion of posoleucel against the BK virus in adult renal transplant recipients/patients with very compromised immunity.

More extensive data from the study will be presented later this year.

The company's portfolio has some catalysts that could potentially lead to an increase in the share price, and the latter does not seem expensive in return. However, with some bearish sentiment towards this stock that could soon lead to a more attractive share price, investors may want to wait for a significant pullback before adding shares to the position.

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