Allogene Therapeutics: Multibagger Potential, Terribly Risky (NASDAQ:ALLO)

In April, when I last covered it, Allogene Therapeutics, Inc. (NASDAQ:ALLO) had just extricated itself from the clinical hold placed on earlier by the FDA, and resumed normal operations. This clinical hold was slapped on the company’s ALLO501A product for its phase 1 Non-Hodgkin Lymphoma (NHL) trial. I discussed the issue of chromosomal abnormality in a lot of detail earlier, so I will not go there again. I will just repeat that I was impressed by how quickly the company was able to lift the clinical hold “​​by developing a new kind of assay to track the chromosomal abnormality.”

This has been good for the company, which is up 15% since the news, in a market where downward spiraling stocks are the norm. This is also excellent because the CAR-T space, in general, has been the worst performer in the already poorly performing healthcare sector. Crispr is down 50%, NTLA is down 40%; and so on.

There are reasons the CAR-T space has done so poorly. Like HSCT or hematopoietic stem cell transplantation, CAR-T can also be curative – there are now approved CAR-Ts for B-cell lymphoma, leukemia and mantle cell lymphoma. However, autologous CAR-T can be hugely expensive. Kymriah costs $475,000 per treatment regimen; Yescarta costs $375,000. Moreover, the long waiting time for these treatments can be quite dangerous for patients. Not only so, many seriously ill patients may have poor quality T cells, so donor T cells from healthy patients may be more useful.

Allogeneic therapies could be made both less expensive and quicker, and that’s the draw of allogeneic CAR-T. However, the human body is designed to reject what it considers foreign bodies. This is among the chief problems facing allogeneic therapies today. Many companies are trying, but that the market thinks they are not succeeding too well is reflected in their stock prices.

Another major problem allogeneic CAR-T will face is immune-suppressing drugs will have to be given in almost all cases and to all patients. These are very powerful drugs that need to be taken over a lengthy period of time – sometimes for over a week. These drugs compromise the patient’s already-weakened immune system, making them susceptible to infections.

Allogeneic CAR-T uses gene-editing techniques, and while they have a lot of promise, there’s a reason some critics think editing genes is similar to playing God, without actually being, you know, God. Editing a gene may have unknown off-target consequences that will not be immediately discoverable. This could cause long-term secondary malignancies or any other disease or defect. It is just too early stage to be sure about.

Another problem allogeneic therapies are seeing today is the durability of response. Often their trials show efficacy similar to autologous therapies, but then the response tapers off. True, these therapies can be multiple-dosed, however, that will probably make them prohibitively expensive, as well as add to the immune suppression burden. So a key problem for Allogene will be to demonstrate adequate durability, as we saw with Crispr’s CTX110, where patents relapsed in less than 6 months. In their latest earnings call, the company did say:

You could see the response rates, you could see the durability showing 14 complete responders stay at home were still in complete response. And of all the patients that have had an opportunity to be followed for six months, they were all still in complete response…

These are, therefore, some of the headwinds Allogene is working against. The problem is huge, and a solution will be transformative; so any movement, any news, has a high impact on the stock. Look at this like a leveraged ETF. If the news is good, the effect is manifold; and so it is if the news is bad.

Do I doubt that allogeneic CAR-T will someday be an established therapy? Not at all; allogeneic is the next stage in therapeutic evolution and will be approved one day; however, Allogene is the pioneer and leader in the allogeneic space, and like all pioneers, it has to bear the brunt of uncertainty. As CEO David Chang said in their latest earnings call, what they are trying to do is industrialize CAR-T:

We are proud to have treated more patients with our AlloCAR T candidates than any other player in the field. But the true promise of allogeneic therapy comes not from treating tens or even hundreds of patients in clinical trials, but from being able to serve tens of thousands of patients in a commercial setting. With each advance we make in manufacturing, clinical development, research and execution, we are one step closer to achieving our vision of creating a new reality for patients, a reality in which all eligible patients can access this important modality.

Allogene has focused on manufacturing as its key USP, and with that in mind, they unveiled their new Cell Forge 1 facility. This is a crucial difference between cell therapy and other therapeutic approaches – even early-stage cell therapies need their own manufacturing facility because contract manufacturers are simply suitable as a modality for this sort of therapy. The company estimates that its new facility will be able to produce 20,000 units of allogeneic therapy per year; not only so, having its own CMC-aligned manufacturing will make its NDA and approval process much easier.

Once the clinical hold was lifted, Allogene began enrolling in the ALLO-715 and ALLO-605 trials in relapsed refractory multiple myeloma and ALLO-316 in advanced or metastatic renal cell carcinoma. The Phase 1 study of ALLO-501A is also enrolling patients again and will begin a pivotal trial this year.

Financials

ALLO has a market cap of $1.6bn and a cash balance of $732mn. In the first quarter of 2022, research and development expenses were $60.2 million, while general and administrative expenses were $19.9 million. At that rate, the company has cash for over 8 quarters.

Bottom Line

If you are investing in Allogene today, you are investing in a promise that will face many hurdles before it can be delivered. If successful, your investment could go up 5-fold in the next 5 years. If not, some other allogeneic CAR-T company will lead this revolution, but you will have lost your bet on the wrong horse.