ALXO - ALX Oncology: On Right Track With Latest Interim Analysis Of Evorpacept

2023-10-09 00:38:06 ET

Summary

• ALX Oncology reported positive interim results from its phase 2 study using its anti-CD47 drug for HER2-positive gastric/gastroesophageal junction cancer.
• Final results from the ASPEN-06 study are expected to be released in Q2 2024, potentially leading to further gains for investors.
• ALXO also announced a cash raise of $55 million, reducing the need for a future cash raise and lowering the risk of dilution.
• The global gastroesophageal cancer market is projected to reach $27.7 billion by 2029.

ALX Oncology (ALXO) is a good speculative biotech play to look into, especially after what it has just accomplished recently. It reported positive results from its phase 2 study, which used its anti-CD47 drug known as evorpacept for the treatment of patients with HER2-positive gastric/gastroesophageal junction cancer. Even though this biotech just reported positive results from this particular study, I believe that investors might still be able to benefit here. That is because the results that were just released from the phase 2 ASPEN-06 study were only based on an interim analysis. Where further gains can be made is when ALX releases final results from this study and it is not going to be long before it does that. It expects to release the final results from this ASPEN-06 study in Q2 of 2024.

The stock already popped on interim results released just a few days ago and I would think that the final results will also turn out to be good, but this remains to be seen. Besides this catalyst, there is another one on deck for investors to look forward to. That is, it is expected that this biotech will release results from an investigator-sponsored phase 1b study, which uses the evorpacept combination regimen to treat 2nd-line/3rd-line Gastric/GEJ cancer patients. Even though the interim analysis noted above from this study was positive in terms of ORR, there is no assurance that the final results will show the same or superior ORR percentage. A second risk to consider would then be the possible phase 3 portion of this ASPEN-06 study to be initiated.

Evorpacept For The Treatment Of Patients With Gastric/Gastroesophageal Junction Cancer

I believe that the most notable program in the pipeline for ALX Oncology would be the use of its CD47 drug evorpacept, which is being advanced for the treatment of patients with HER2-positive gastric/gastroesophageal junction cancer [GEJ] cancer. The global gastroesophageal cancer market is projected to reach $27.7 billion by 2029. This is a large market opportunity, but as I stated above, the goal is to target such patients who are HER2-positive. It is said that about 20% of gastric cancer patients are HER2-positive. The use of this drug is being advanced in the phase 2 ASPEN-06 study to treat these patients. I believe it is important to go over this biotech and this particular study because there is a major catalyst that is approaching for this program. It is expected that the final results from this ASPEN-06 study are going to be released in Q2 of 2024. This data from this trial is not only important, because it may allow the stock to trade higher [should positive results be achieved], but it would also allow ALX Oncology to advance this program into phase 3 clinical testing. Should the phase 2 study go well, it anticipates that it could initiate a phase 3 study using evorpacept + trastuzumab + CYRAMZA + paclitaxel in late 2024. This 4 drug combination regiment of evorpacept will be pitted against the two-drug global standard of care [SOC] CYRAMZA + paclitaxel.

Having said all of this, I believe that ALX Oncology is on the right track thus far. This is because as I noted above, it has already released a positive interim analysis of the phase 2 ASPEN-06 study . A total of 54 second and/or third-line gastric/GEJ cancer patients were randomized to either one of these treatment groups:

• evorpacept + trastuzumab + CYRAMZA + paclitaxel or
• trastuzumab + CYRAMZA + paclitaxel

The interim results were highly positive, because the evorpacept 4 drug combination regimen was able to achieve a substantially superior overall response rate [ORR] of 52% , compared to those who were in the other trastuzumab group noted above who only achieved an ORR of only 22%. The median duration of response [mDOR] was not achieved in the evorpacept regimen group. On the other hand, the control group had a mDOR of 7.4 months. Then when looking at the two-drug regimen of CYRAMZA + paclitaxel from the RAINBOW study, there was only an ORR of 28% achieved and a median duration of response [mDOR] of 4.4 months. Besides the fact that ALX Oncology could greatly improve upon SOC for these 2nd-line/3rd-line HER2-positive gastric/gastroesophageal junction [GEJ] cancer patients, it is the first CD47 drug to be able to show clinical activity in a global randomized trial in treating patients with solid tumors.

Financials

According to the 10-Q SEC Filing , ALX Oncology had cash, cash equivalents and investments of $224.5 million as of June 30, 2023. In addition, it also stated that it does have the ability to draw down an additional $40 million of a term loan if it decides to do so. Taking all of these into account, it stated that it would have enough cash to fund its operations through mid-2025. Despite this cash runway, management chose to enact a cash raise to fund itself. That is, it enacted a public offering of common stock and pre-funded warrants. It expects to generate total gross proceeds of about $55 million from this offering, before deducting expenses. This newly added cash helps, but the reason why I disagree about the runway is because of the cash burn rate. In the most recently reported quarter ending June 30, 2023 it burned through $36.8 million cash. Thus, this financing helps, but I believe that another cash raise might be necessary again at some point in 2024.

Risks To Business

There are several risks that investors should be aware of before investing in ALX Oncology. The first risk to consider would be with respect to the final results to be released from the ongoing phase 2 ASPEN-06 study, which is using the evorpacept combination regimen to treat 2nd-line/3rd-line Gastric/GEJ cancer patients. Even though the interim analysis noted above from this study was positive in terms of ORR, there is no assurance that the final results will show the same or superior ORR percentage. A second risk to consider would then be with the possible phase 3 portion of this ASPEN-06 study to be initiated.

The reason is that the phase 2 portion is only using ORR as the primary endpoint. However, the phase 3 trial is going to pit the evorpacept 4 drug combination regimen versus CYRAMZA + paclitaxel in terms of the primary endpoint of overall survival [OS] instead. Thus, there can be no assurance that the evorpacept combination regimen will be able to beat this SOC regimen in terms of this specific endpoint. I'm still rating this biotech as a strong buy despite a different primary endpoint in the phase 3 trial, because of the positive data that has been observed thus far. In essence, CYRAMZA + paclitaxel is the standard of care [SOC] for 2nd line gastric/GEJ cancer and the ORR it achieved from the RAINBOW study was 28%. Whereas, with respect to the evorpacept treatment regimen the ORR it achieved for these patients was 52%.

This is my reasoning on why I believe that despite the primary endpoint change of overall survival in the phase 3 portion of the ASPEN-06 study, ALX oncology's drug should still perform well. A third and final risk to consider would be with respect to the release of results from the phase 1b investigator-sponsored study, which uses evorpacept in combination with rituximab + lenalidomide for the treatment of patients with NHL. Results from this early-stage study are expected to be released in Q1/Q2 of 2024 and there is no assurance that it will be a positive data readout.

Conclusion

ALX Oncology has made great progress in being able to advance the use of evorpacept for the treatment of patients with 2nd-line/3rd-line Gastric/GEJ cancer. While this biotech has had a rough past, I believe that being able to combine its CD47 drug together in a 4 drug combination regimen seems to be working out. Such proof of concept was displayed in the most recently released results from the phase 2 ASPEN-06 study, whereby Gastric/GEJ patients in the evorpacept group achieved an ORR of 52%, compared to those in the trastuzumab group who only achieved an ORR of 22%.

Besides the release of final results from the phase 2 ASPEN study expected in the 1st half of 2024, investors also have the release of data from the investigator-sponsored study I discussed above. Even though I'm rating this a strong buy now, there might be something that might change my investment thesis, which is the next set of data. Final top-line results from the phase 2 ASPEN-06 study are expected in Q2 of 2024. Should this data disappoint, then I would change the rating from a strong buy to a hold.

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