Breakthrough CNS Treatments Will Reshape Neurodegenerative Care

Key Takeaways

• Success in upcoming clinical trials could position Alector as a commercial leader in treating neurodegenerative diseases, expanding its patient reach and supporting sustained growth.
  
• Proprietary technology enables innovation and efficiency in CNS drug development, with regulatory tailwinds and strong partnerships enhancing long-term earnings prospects and de-risking the pipeline.
  
• Heavy reliance on successful clinical trials, a small addressable market, high R&D costs, and strong competition threaten future revenue growth and financial sustainability.

Catalysts

A late-stage clinical biotechnology company, develops therapies that is focused on counteracting the devastating progression of neurodegenerative diseases.

• Imminent pivotal data from the late-stage INFRONT-3 trial of latozinemab for FTD-GRN serves as a near-term catalyst; if results are positive, it should unlock the first disease-modifying therapy for a fatal neurodegenerative condition with high unmet medical need, positioning Alector for potential first-mover commercial revenues and expanding its patient base.
  
• Alector's proprietary expertise and platform for blood-brain barrier delivery of large therapeutic molecules addresses a critical bottleneck in CNS drug development and enables pipeline programs targeting Alzheimer's, Parkinson's, and additional neurodegenerative diseases, laying the groundwork for sustained long-term revenue growth and enhanced gross margins if these programs advance.
  
• There is increasing scientific and political focus-and thus funding-on brain health and neurodegeneration, which supports higher R&D investments, collaborative partnerships (as seen with GSK), and potentially accelerated regulatory pathways, favorably impacting both net margins and risk-adjusted earnings expectations.
  
• The company's biomarker
• and genetics-driven drug development approach takes advantage of advancements in personalized medicine and genomics, driving higher success rates for approval and allowing for potential premium pricing, directly supporting future revenue and margin expansion.
  
• Enhanced regulatory support for expedited CNS drug approvals (e.g., breakthrough/fast track/orphan designations already achieved by latozinemab) may reduce development costs, mitigate time-to-market, and de-risk Alector's pipeline, which could positively impact future earnings and investor sentiment if the company secures market entry ahead of emerging competition.

Alector Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alector's revenue will grow by 65.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -142.1% today to 18.4% in 3 years time.
• Analysts expect earnings to reach $68.1 million (and earnings per share of $1.02) by about August 2028, up from $-115.3 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 9.1x on those 2028 earnings, up from -2.2x today. This future PE is lower than the current PE for the US Biotechs industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 4.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

Alector Future Earnings Per Share Growth

Risks

• Successful commercialization of latozinemab is highly dependent on positive Phase III clinical trial data; if the clinical benefit does not reach statistical significance on both co-primary endpoints (especially given recent FDA requirements), this could result in no approval, sharply reducing Alector's future revenues from its lead program.
  
• The patient population for FTD-GRN is very limited (8,000–17,000 in the US and EU combined), restricting the maximum market size and revenue potential for latozinemab, and increasing Alector's reliance on successful expansion into more prevalent but highly competitive neurodegenerative indications like Alzheimer's disease.
  
• The company's late-stage and preclinical pipeline is focused on high-risk neurodegenerative diseases with a history of late-stage clinical trial failures and uncertain translation from biomarker improvements to meaningful clinical outcomes, presenting a persistent risk to future product approvals and long-term earnings growth.
  
• Alector faces ongoing high R&D expenses ($130–$140 million guidance for 2025 against low near-term collaboration revenue of $13–$18 million), which may erode existing cash reserves and lead to shareholder dilution or reduced net margins if commercial or milestone payments are delayed or fail to materialize.
  
• Regulatory changes, ongoing cost containment pressures in healthcare, and intensifying competition from major pharmaceutical companies or biosimilars in the CNS space may further limit reimbursement, lower pricing power, and depress long-term revenue and earnings outlook even if certain Alector products reach the market.

Valuation

• The analysts have a consensus price target of $4.509 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 $370.5 million, earnings will come to $68.1 million, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $2.46, the analyst price target of $4.51 is 45.4% 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.