ALX Oncology: Finally Reaching A Reasonable Buy-In Valuation (NASDAQ:ALXO)

DNY59 Topline Summary and Update ALX Oncology (NASDAQ:ALXO) is a cancer-focused biotech I’ve expressed deep skepticism in over the course of various articles, stating unequivocally that I did not feel that the risk to reward ratio was appropriate at the billion-plus market cap that the company was commanding as a phase 2 entity. They had generated compelling findings in their early trial readouts, but the CD47-based approach carries too much baggage for me to get too excited. Since then, the company’s valuation has fallen below $500 million, and they have presented other studies at venues like ASCO, so it’s worth taking another look. Long story short: I feel the company is reaching near or has already hit a point of inflection and is now worthy of consideration in your portfolio, assuming you respect the risks that remain. Pipeline Updates Evorpacept The main focus for ALXO is in developing a molecule called evorpacept, which targets the “don’t eat me” molecule CD47 in a different way than failed projects like magrolimab. The mechanism of action I have delved into in more detail in past writeups. I’ve also focused on their key trial updates, most notably in gastric cancer, giving my thoughts on the promise and potential limitations of their ASPEN-06 study, which combines evorpacept with ramucirumab, paclitaxel, and trastuzumab in the setting of HER2-positive disease. We have not heard another update on the gastric cancer story since my last article on ALXO, so if you want to learn more I invite you to read my other analyses. Long story short: it’s a promising activity signal, but I have reservations about it being incorporated in this regimen, and in terms of the cross-trial comparisons the company has made to historical standard of care data. The big catalyst that’s coming next for the esophagogastric cancer story is the guided data update of ASPEN-06, anticipated in July 2024, which should include analysis of a much larger number of patients. This will hopefully give us a clearer picture of what evorpacept is adding in terms of efficacy. The more concrete data update we did receive came out of ASCO 2024, where ALXO presented findings from ASPEN-07, a trial of evorpacept plus enfortumab vedotin in patients with advanced urothelial carcinoma, the most common form of bladder cancer. In the poster, the authors noted a 59.1% objective response rate among 22 patients treated with one of two doses of evorpacept. Disease control was achieved in 21 of 22 patients in the study. The benchmark they compared this to was enfortumab vedotin alone, which has previously shown a 41% response rate in a similar population of patients, suggesting adding evorpacept may be adding something. Of course, the numbers for the phase 1 trial are too small to draw definitive conclusions, good or bad. A few patients added in who would respond would increase the response rate by quite a bit. So it would be ill-advised to try and make the cross-trial comparison. There is no clear signal that evorpacept lacks activity, at least, which is a good sign. Evorpacept is also the subject of numerous studies that are ongoing or opening up, with notable milestones anticipated for the next few months including top-line findings in breast cancer and head/neck cancers, as well as initiating a pivotal phase 3 trial in esophagogastric cancer. Financial Overview As of their most recent quarterly report, ALXO held $167.9 million in current assets, including $14 million in cash and another $143.4 million in short-term investments. They also held another $27 million in long-term investments. Operating expenses reached $37.8 million for the quarter, and after interest, the net loss for the quarter was $35.6 million. This cash burn rate implies an operational runway of between 5 and 6 quarters. This is consistent with corporate guidance that they should have operational funding into Q1 2026. Strengths and Risks Strength – Promising early signals of activity for evorpacept ALXO has continued to stack up early trial wins for evorpacept, in contrast with the ultimate failures that were faced by the likes of magrolimab using the same target. I have been skeptical at go about targeting CD47 because of Gilead’s failure, but evorpacept appears to be showing some signs of differentiation in solid tumors and non-MDS blood cancers. I had noted in my last article that the failure of evorpacept in leukemia and MDS gives me pause at its face, but the flip side is that evorpacept is continuing to show some signs of life outside of those areas, lending some evidence (though preliminary) to the idea that there’s somethiing different here that wasn’t there in the MDS/leukemia space. Risk – A perceived history of failure drags on these companies like lead When a treatment approach has been dubbed a failure by the market, they tend to punish laggards even harder than they might other entities. In the case of ALXO, for example, the market has taken the nominally encouraging data readout from ASCO and reacted with disappointment, taking the share price down by nearly two thirds as I write this. It speaks to the inherent volatility of biotech stocks, certainly, but also the enhanced scrutiny that companies can find themselves under if they are pursuing a strategy deemed particularly risky. Strength – Reasonable cash pool to push to the next round of catalysts Although not bulletproof, ALXO definitely has the cash it needs to continue funding operations for the near term, with a crisis not forthcoming for at least another year. This gives them time to continue to mature the clinical pipeline and develop a position of strength. Dilution is almost certain at some point, but I don’t think it will likely come at these deeply discounted levels, given the sheer number of shots on goal the company has for now. Bottom-Line Summary I’m not a true believer or “hater” of pretty much any biotech stock. One has to evaluate and re-evaluate whether the valuation makes sense frequently. ALXO has shown maturing, encouraging data that I liked, but I did not like the premium they seemed to be commanding on the market for those data. At a market cap of between $300 and $400 million (at the time of this writing), ALXO is definitely reaching into “priced right” territory, implying that the market is no longer pricing in radical success. Therefore, the risk/reward proposition has similarly shifted, and I now think this equity, at these prices, are worthy of a “Buy” consideration. Don’t get me wrong. The anti-CD47 approach continues to carry a boatload of risk, just like all cancer medicine programs. And the cash pool is not as strong as it could be. There’s more room to fall, but I think they are rapidly approaching oversold territory.

Buy cryptocurrency

Source link

Refer And Earn Demat Account – Get ₹300 | Referral Program

Open Demat Account In Angel One For FREE