ABC Platform And Latozinemab Trial Will Yield Mixed Prospects

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AnalystConsensusTarget
Consensus Narrative from 6 Analysts
Published
03 Apr 25
Updated
24 Jul 25
AnalystConsensusTarget's Fair Value
US$4.76
63.0% undervalued intrinsic discount
24 Jul
US$1.76
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1Y
-72.3%
7D
8.6%

Author's Valuation

US$4.8

63.0% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update01 May 25
Fair value Increased 30%

Key Takeaways

  • Alector's ABC platform and late-stage trials, like those for latozinemab, could significantly boost revenue if successful, addressing unmet medical needs.
  • Strong cash reserves support pipeline progression, potentially stabilizing R&D costs and enhancing net margins as programs near commercialization.
  • Alector faces significant risks due to reliance on trial success, competitive pressures, high R&D costs, and dependency on external collaborations for financial sustainability.

Catalysts

About Alector
    A late-stage clinical biotechnology company, develops therapies that is focused on counteracting the devastating progression of neurodegenerative diseases.
What are the underlying business or industry changes driving this perspective?
  • Alector's proprietary Alector Brain Carrier (ABC) platform enhances the delivery of therapeutics to the brain, potentially improving efficacy, increasing safety, and reducing costs, which may positively impact revenue and net margins if clinical trials succeed.
  • The readout of the pivotal Phase 3 trial for latozinemab in frontotemporal dementia, expected in late 2024, could provide a substantial catalyst for revenue growth if results lead to FDA approval, addressing a market with no current treatments.
  • Completion of patient recruitment for the PROGRES-AD Phase 2 trial of AL101 by mid-2025 positions Alector to potentially capitalize on a significant Alzheimer's treatment market, likely affecting future revenue and earnings positively.
  • Advancements in the preclinical pipeline, such as ABC tech applications for drugs targeting amyloid beta and tau pathology, signal possible future revenue growth and earnings improvements through new product offerings.
  • A strong cash position ($413.4 million as of December 2024) allows Alector to support its pipeline development and strategic objectives, potentially stabilizing R&D expenses and improving net margins as programs advance toward commercialization.

Alector Earnings and Revenue Growth

Alector Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Alector's revenue will grow by 49.5% annually over the next 3 years.
  • Analysts assume that profit margins will increase from -139.7% today to 28.2% in 3 years time.
  • Analysts expect earnings to reach $83.2 million (and earnings per share of $0.8) by about July 2028, up from $-123.4 million today.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, up from -1.4x today. This future PE is lower than the current PE for the US Biotechs industry at 16.5x.
  • Analysts expect the number of shares outstanding to grow by 2.75% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

Alector Future Earnings Per Share Growth

Alector Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • The company's heavy reliance on a successful outcome for its INFRONT-3 Phase 3 trial presents a significant risk. If the trial does not meet its primary endpoint, it could severely impact the company's expected collaboration revenue and future earnings.
  • Despite having advanced clinical programs, Alector is operating in a highly competitive space with many companies developing treatments for neurodegenerative diseases like Alzheimer's and frontotemporal dementia. Increased competition could affect its market share and potential revenues.
  • The use of the proprietary Alector Brain Carrier (ABC) technology involves substantial research and development expenditures. There remains uncertainty around its efficacy and safety, which could impact future cost management and net margins if the expected outcomes are not met.
  • As a biotechnology company, Alector is substantially dependent on external collaborations for funding, such as its partnership with GSK. Any disruption in these alliances or failure to secure new partnerships could impact financial sustainability and cash flow.
  • The forward-looking strategy of significantly increasing revenue from 2025 onwards is contingent upon pipeline success and market adoption. This creates execution risks that could affect future earnings if the company's projections do not materialize as planned.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $4.76 for Alector based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $1.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $295.3 million, earnings will come to $83.2 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 6.7%.
  • Given the current share price of $1.72, the analyst price target of $4.76 is 63.9% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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