Updated: May 16, 2020
UPDATE (5/13/2020): ALLO demonstrated positive safety and efficacy data from their phase 1 ALPHA trial. Shares rose up to 45% after-hours when the research abstract was published.
Summary: Allogene is a ~$4B market cap clinical stage biotech company developing allogeneic (‘off the shelf’) CAR-T therapies for hematologic cancers and solid tumor indications. Allogene was founded in 2018 by Arie Belldegrun and David Chang, who previously led Kite Pharma to the Yescarta approval and an $11.9 B acquisition by Gilead. While the current high price point presents risks, 2020 will be a critical year for Allogene with multiple early-stage readouts: this presents an opportunity to ride several key value inflection points over the next 6 - 12 months.
There is a lot to like about the experience the Allogene team brings to the table and the promise of their platform to address the clinical and commercial shortcomings of current marketed CAR-T therapies.
P1 results in NHL for ALLO-501 (ALPHA trial) will be presented this month at ASCO, following which Allogene plans to initiate an abbreviated P1 trial for the next-generation construct ALLO-501A in 2Q20 to confirm ALPHA trial results prior to potentially advancing ALLO-501A to pivotal P2 development.
If the lead program in NHL (ALLO-501/ALLO-501A) is successful, that represents in the range of 100% upside using Kite Pharma, another CAR-T company, as an analogue.
Kite Pharma was valued at $8.4B prior to the Gilead acquisition with a filed BLA in NHL for Yescarta, double what Allogene is trading at today: given a high PTRS for Allogene’s program in NHL (rationale outlined below), this directionally represents where we would expect Allogene’s value to land in the future.
However, current market cap of >$4 B constrains achievable upside versus the downside risk if near-term value clinical catalysts go against our expectation.
We are taking a modest (1 - 2% of portfolio) position ahead of two key clinical readouts on 5/13 and 5/29 given our expectation for positive P1 results for ALLO-501 and the timely 2Q20 initiation of P1/P2 ALPHA2 trial for ALLO-501A, based on the following:
Strong preliminary P1 safety and efficacy data was presented in 2018 for UCART19 in ALL, which is the same molecular design as ALLO-501.
ALLO-501/ALLO-501A target CD-19 in NHL patients, which is the same target as the approved CAR-T’s Kymriah and Yescarta in an overlapping patient population (DLBCL, a subtype of NHL), defraying clinical risk.
Allogene will be taking the dose-finding learnings from the ALPHA trial into the ALPHA2 trials for ALLO-501A, the next-generation construct and P2 candidate in NHL, a switchover that has been planned since before the ALPHA trial was initiated.
In an earnings call on 05/06, Allogene CEO David Chang indicated that the abbreviated P1 portion of ALPHA2 is on track to begin 2Q20.
However, the current price point is somewhat overvalued, and thus does not support us taking a larger position given the potential downside is substantial and potential gains partially already baked in.
Key Stock Drivers:
High unmet clinical need: substantial need for accessible and efficacious therapies remains in NHL & other hematological malignancies given limited options for r/r patients and the time-consuming and burdensome process required to produce current CAR-T's.
‘Off the shelf’ CAR-T therapies address shortcomings of current CAR-Ts: this approach would theoretically mitigate the manufacturing issues that continue to drag down the commercial potential of and patient access to existing CAR-T’s.
Several critical near-term inflection points in 2020: ASCO poster abstract covering initial P1 data for ALLO-501 in r/r NHL (ALPHA trial) will be released on 05/13, with further data including additional patients presented on 5/29. These data will support the ALPHA2 P1 and potential pivotal P2 trial for ALLO-501A, their next-generation construct for NHL. Initial P1 data for ALLO-715 in r/r MM (UNIVERSAL trial) remains on track for 4Q20 despite impact of COVID-19.
Experienced leadership team with track record of rapid development and regulatory success in cell therapy: CEO David Chang and Executive Chairman Arie Belldegrun were formerly CMO and CEO of Kite Pharma, respectively, and led Yescarta, one of two CAR-T’s on market today, to FDA priority review prior to acquisition by Gilead for $11.9 B (29.4% premium over market close prior to announcement).
Clinical programs focus largely on proven targets: ALLO-501/ALLO-501A and UCART19 are anti-CD19 therapies, which is the same target as the approved autologous CAR-Ts Yescarta and Kymriah, which somewhat de-risks these programs. Additional targets in development include BCMA for MM (ALLO-715, including in combination with nirogacestat in collaboration with SpringWorks).
Preliminary UCART19 data offers additional validation of platform: preliminary pooled data from P1 trials in ALL indicated that 14/17 (82%) of patients receiving an anti-CD52 antibody during lymphodepletion achieved a complete response (CR/CRi) to UCART19. The anti-CD52 antibody serves to protect the allogeneic CAR-T’s from being cleared by the body’s immune system. ALLO-501, ALLO-501A, and ALLO-715 are all dosed with ALLO-647, Allogene’s internally developed anti-CD52 antibody, creating a “window of persistence” during which the allogeneic CAR-T’s can exert their therapeutic effect.
Key Stock Risks:
Value of pipeline programs heavily interdependent: Given the clinical stage therapies are rooted in the same technology platform, any issues that emerge from the ALPHA or UNIVERSAL trials could feasibly drag down the value of the entire pipeline. On the flipside, however, positive preliminary ALPHA data would likely have the reverse effect of increasing PTRS across the clinical-stage portfolio.
Stock currently trading at / near 52 week high: While Allogene traded in the $18 - 20 range for the latter part of March, the price has rebounded steadily upwards and scraped against an all-time high today on just-shy of average volume, reflecting both the overall market rebound and likely enthusiasm from the market for the impending ASCO data. This suggests there is significant immediate downside if the data falls short of expectations on 5/13 and 5/29.
Long-term competitive risk is substantial: While Allogene is a leader in the field, the next-generation CAR-T space is fairly crowded. In addition, Fate Therapeutics (market cap: $2.3 B) has a pipeline of iPSC-derived natural killer and T cell therapies for hematologic malignancies and solid tumors reaching the clinic. While Allogene is exploring the iPSC space through a collaboration with Notch Therapeutics, Fate has reached the clinic already, which may provide them with a leg-up in the long-run.
Disclosure: We currently own shares of Allogene Therapeutics. This article expresses our own opinions, not Allogene’s or any other party’s opinion. We are not receiving compensation for this report. We do not have a business relationship with the company mentioned in this report.