10 Jan Should Allakos Inc be on Your Investment Watchlist?
Allakos, Inc. (NASDAQ: ALLK), a clinical-stage biopharmaceutical company developing therapeutic monoclonal antibodies for treatment of inflammatory, and proliferative diseases, faced a setback with disappointing results from a crucial phase 3 trial named Enigma 2 and phase 2/3 Kryptos trial. The studies were evaluating the Company’s lead monoclonal antibody candidate lirentelimab for the treatment of eosinophilic gastrointestinal diseases (EGIDs).
Lirentelimab (AK002), which is intended for the treatment of eosinophil and mast cell-related diseases, was able to meet their histologic co-primary endpoints in both ENIGMA 2, a 24-week Phase 3 trial in patients with biopsy confirmed eosinophilic gastritis (EG) and/or eosinophilic duodenitis (EoD) and KRYPTOS, a 24-week Phase 2/3 studying lirentelimab in patients with biopsy-confirmed eosinophilic esophagitis (EoE), however it failed to achieve statistical significance on the patient reported symptomatic co-primary endpoints.
Allakos Inc (NASDAQ: ALLK)
Market Cap: $455.69M; Current Share Price: 8.39 USD
Data by YCharts
Strengths
The Global market for therapeutic monoclonal antibodies (mAb) is expected to reach $114.6 billion by 2022, growing at a CAGR of 6.3% from $84.5 billion in 2017 according to a report by bbcresearch.com. Monoclonal Antibodies consist of identical immune cells derived from a single parent cell and have revolutionized the way therapeutics are developed. Monoclonal antibodies have the ability to bind specifically to cells and proteins and stimulate the immune system to fight foreign cells and possess characteristics such as affinity to antigens and antigen specificity.
The treatment market is divided into cancer, autoimmune diseases, hematological and dermatological disorders, with breakthrough treatments emerging in the field of cancer. There is a growing demand for human antibody therapeutics though there are other sources from which antigens can be derived such as chimeric, humanized etc.
The demand for mAb is driven by increasing research and development owing to government and regulatory impetus to the industry. Furthermore, the rising demand for personalized and customized therapeutics and the fewer side effects and specificity offered by mAb will contribute to the growth in the market.
The Company’s lead drug candidate is an investigational antibody which targets Siglec-8, an inhibitory receptor selectively found on mast cells and eosinophils. The candidate has demonstrated the ability to inhibit mast cells and rapidly deplete eosinophils. Lirentelimab had previously demonstrated positive clinical activity in eosinophilic gastritis (EG) and/or eosinophilic duodenitis, chronic urticaria, severe allergic conjunctivitis, and indolent systemic mastocytosis.
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The Company’s approach is to target Siglec-8, an inhibitor receptor, thereby blocking several inflammatory pathways. The binding of lirentelimab to Siglec-8 causes inhibition of mast cells, apoptosis of tissue eosinophils, and depletion of blood eosinophils by antibody dependent cellular cytotoxicity (ADCC) as per the results demonstrated in preclinical and clinical studies.
Image Source: Company
The Company is currently engaged in the development of subcutaneous lirentelimab in indications such as atopic dermatitis, chronic spontaneous urticaria, and asthma. Allakos intends to initiate studies in chronic spontaneous urticaria and asthma studies in 2022 and work on other candidates in its preclinical pipeline.
Opportunity
Eosinophilic gastrointestinal disorders (EGID), which include eosinophilic esophagitis (EoE), eosinophilic gastritis (EG), eosinophilic gastroenteritis (EGE), eosinophilic enteritis (EE), and eosinophilic colitis (EC), are characterized by severe inflammation in the gastrointestinal tract caused by abnormal numbers of eosinophils. Eosinophils are a kind of white blood cells that are part of the immune system and are capable of mounting a response against allergies or infections. However, in EGID the eosinophils are present in areas of the body where they are not normally found and cause chronic inflammation. Prolonged inflammation can lead to a negative effect on the functioning of the organs.
The most common symptoms of EGID are dysphagia, abdominal pain, nausea, diarrhea and weight loss among others. Presently, there is no cure for the disease and treatment is centered around dietary therapy and identifying allergen triggers.
According to a report, the standardized estimated prevalence of eosinophilic gastritis, gastroenteritis, and colitis stood at 6.3/100,000, 8.4/100,000, and 3.3/100,000, respectively. Children below the age of < 5 years were the worst affected by eosinophilic gastroenteritis, while the elderly suffered most from eosinophilic gastritis. The total number of non-EoE EGID’s in the U.S are pegged at approximately 49000.
Weakness
The Company’s stock was trading at $35 in 2018 and zoomed to around $150 in 2020, however it suffered a drastic reversal of fortunes in 2021. Before the results from the Phase 3 were announced, the stock was down to approximately $84, which was completely decimated on 22 December 2021 and plummeted to $10 over the disappointing results.
Allakos isn’t doing much better in terms of its financial results either, as per its Q3,2021 financial results, the Company reported a net loss of $62.7 million as compared to $42.1 million net loss in Q3,2020. The cash, cash equivalents and marketable securities stood at $505.6 million at the end of the quarter.
The stock has also been downgraded by multiple analysts such as Barclay’s, which lowered its price target from $36 to $8, with an “underweight” rating. While William Blair revised its rating from “outperform” to “market perform”. Furthermore, Morgan Stanley lowered the price target from $88.00 to $10 with a rating of “equal weight” and SVB Leerink lowered the price target from $150.00 to $17.00, with a rating revision from “outperform” to “market perform” rating. HC Wainwright revised the target stock price from $230 to $20 with a “Buy” rating.
Threats
The Company’s pipeline consists of only one candidate being evaluated in multiple indications. Clinical Trials are fraught with risk and uncertainty. There is a possibility that the candidates in the Company’s developmental pipeline may not be able to meet their clinical endpoints in trials.
However, a diverse pipeline will help mitigate the risk in case of adverse results or the failure to meet endpoints in any of its ongoing trials. The success of its clinical trials will help the Company advance its pipeline but it should also be prepared to face any setbacks, in case its ongoing trials fail to meet their endpoints.
The Company has entered into licensing agreements with The Johns Hopkins University for the development, use and commercialization of products candidates including lirentelimab and has made upfront and milestone payments of $0.7 million through September 30, 2021. Allakos is required to pay aggregate additional milestone payments of up to $1.8 million and has issued 88,887 shares of common stock, in addition to low single-digit royalties to JHU based on future net sales of each licensed therapeutic product candidate.
Allakos has also entered into a tripartite agreement with BioWa and Lonza for non-exclusive worldwide license to develop and commercialize product candidates including lirentelimab that are manufactured using a technology jointly developed and owned by BioWa and Lonza. The Company has made milestone payments of $3.4 million through September 30, 2021 and has to pay an aggregate additional milestone payment of up to $38.0 million, in addition to a minimum annual commercial license fees of $40,000 per year to BioWa until such time as BioWa receives royalty payments.
The Company may not be able to raise sufficient capital to honor these commitments and may fail to protect its intellectual property.
The Company intends to push ahead with developing its pipeline, however, it has incurred significant net losses since inception. In December 2020, the net loss was $153.5 million and $175.5 million for the nine months ended September 30, 2021. The Company had an accumulated deficit of $518.5 million as of September 30, 2021.
Allakos is years away from commercializing a product candidate and will require significant monetary resources to undertake any developmental activity to advance its pipeline. The failure of its clinical trial may impact its ability to raise additional funds for funding its clinical activities.
Key Takeaways
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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References
https://pubmed.ncbi.nlm.nih.gov/30903439/
https://badgut.org/information-centre/a-z-digestive-topics/eosinophilic-gastrointestinal-disease/
https://www.fda.gov/media/151695/download
https://www.marketbeat.com/instant-alerts/nasdaq-allk-52-week-low-2021-12-2-3/
https://investor.allakos.com/node/7866/html
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