Is Alector Stock a Buy?

Alector (NASDAQ:ALEC) is a biotechnology company that specializes in developing immuno-neurology treatments for neurodegenerative diseases like Alzheimer’s disease, Parkinson’s disease, and dementia. With groundbreaking drugs in the pipeline and deals in place with major pharmaceutical companies, the future seems bright for Alector.

But investors have gradually tuned out on the stock, with ALEC shares down around 18% over the past 12 months. Currently trading under $10, it has fallen by around 50% from its 52-week high of $13.50. Since the company’s IPO in 2019, the stock is down 56%.

That’s because all of the company’s treatments are still in clinical trials. Impatient investors began looking elsewhere due to the time it’s taken to get the therapies to market. And with the company’s first drug still not on the way until 2025, there isn’t a lot of buzz around Alector.

But the biotech has a cash stockpile of $669.3 million that Alector’s leadership believes will fund operations through 2025. That’s the year when the company is most likely to get its first drug on the market and launch a virtual monopoly on neurodegenerative disease treatments.

So is Alector stock a buy?

Alector Partnership with GSK Brings In $700M

Founded in 2013, the San Francisco-based biotechnology company’s goal is to create immune system therapies that will treat neurodegenerative diseases. With 273 employees and a market capitalization of $596.38 million, the drug discovery company is firmly established for the future.

In 2021, Alector signed a deal with GlaxoSmithKline that would bring in $700 million in upfront payments and up to $1.5 billion if Alector meets development milestones. The partnership with one of the biggest pharmaceutical companies in the world provided collaboration revenue, but it also provided confirmation for the company’s technology.

Unfortunately, a 2017 deal with Abbvie to create a new Alzheimer’s drug fell through in 2022. That drug, labeled AL003, failed early-stage clinical trials and was abandoned and removed from the pipeline. But Abbvie and Alector are still working together to produce another drug named AL002.

Alector’s Products and Services

AL001 (FTD-GRN), produced in collaboration with GSK, is used to treat patients with frontotemporal dementia. This drug modulates progranulin, an immune system regulator in the brain that has been tied to several neurodegenerative diseases. The company expects a data readout from phase 3 trials in early 2025.

AL001 (C9orf72) is another version of the drug that targets patients with dementia caused by the c9orf72 mutation of the disease. Currently in phase 2 trials, Alector hopes to provide additional results later this year. Initial results have been positive, indicating that the drug can increase progranulin levels to the point where the treatment will be effective for neurodegenerative diseases.

AL101 has been developed in collaboration with GSK and it’s targeted at Parkinson’s disease and Alzheimer’s disease. The drug is intended to elevate Progranulin levels in an attempt to slow the onset of those diseases. AL101 is in Phase 1 clinical trials.

AL002, produced in collaboration with Abbvie, aims to boost the production of Triggering Receptor Expressed on Myeloid Cells 2 (TREM2) in the brain, as opposed to progranulin. It’s another drug that’s designed to stave off the degenerative effects of Alzheimer’s disease. This drug is currently in phase 2, with a data readout from the trial expected in the 4th quarter of 2024.

Alector’s Financial Performance

Collaboration revenue of $16.5 million in the first quarter of 2023 was down from $24.5 million year-over-year. This was attributed to decreased revenue from the GSK deal. R&D expenses were $51.9 million as compared to $53 million in the same quarter of 2022. Decreased expenses were mainly due to the timing of production for clinical trials.

General and Administrative expenses were also slightly down from last year, from 15.6 million to 14.8 million in the 1st quarter. This is due to the company reducing consulting costs that were tied to the accounting, IT, and personnel functions.

The company’s net loss was up from $44.6 million, or $0.54 per share in March 2022 to $45.9 million and $0.55 per share in the first quarter. Despite the loss, the company’s leadership expects the current cash stockpile to be able to keep the company afloat into 2025.

For 2023, the company expects collaboration revenue to come in the $15-$25 million range. R&D costs should range between $225 and $245 million, while G&A expenses should come in at $60-$70 million.

Analysts’ Ratings for Alector

Given the falling stock price, the majority of analysts believe that ALEC is a buy. Ten analysts from such firms as Barclays, Citigroup, and Bank of America agree that Alector is poised for future success.

The highest analyst’s rating has the stock soaring up to $41 in the next twelve months. But the general consensus is that ALEC will hit $12–$17. That’s a 70%-140% gain from where the stock is currently trading.

The lowest forecast has the stock reaching $10 over the next year. That would still represent a 39% increase from where the stock sits today.

Is Alector Stock a Buy?

Alector is a biotechnology company that currently has four drugs in different stages of clinical trials. Even though the company has lucrative partnerships with GlaxoSmithKline and Abbvie, it’s not currently enough to cover expenses. But Alector still has plenty of cash to cover the difference until its first drug hits the market.

All four of its drugs represent breakthroughs that will corner the market on neurodegenerative disease treatment. But it may be years before the first drug hits the market. Still, once the drugs do hit the market the company will have a near monopoly on the treatment of diseases that affect millions of people.

The long window for drug approval has caused many investors to lose interest, but given the discounted stock price and positive forecasts, now could be a great time to take a position in Alector.

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