JuSun
Today I’m taking another look at Alpine Immune Sciences (NASDAQ:ALPN), following my last article about the company, published more than one year ago. Why now? Because news came out a few days ago about another patient who died during the company’s davoceticept trials. In this article, I’m going to take a new look into the company, in light of this event, and decide whether it still represents a good investment opportunity.
What happened
As I mentioned earlier, a patient enrolled into the company’s davoceticept trials died a few days ago, due to cardiogenic shock. The patient was enrolled into the NEON-2 study, which includes the administration of davoceticept together with Merck’s PD-1 inhibitor, Keytruda. Earlier this year, the company had encountered the death of another patient, also from cardiogenic shock, who was also enrolled in the NEON-2 study. Then, the FDA had placed the trial on a temporary hold, which was lifted a few weeks later. Following this second death, the company decided to drop the ALPN-202 trials and focus in the development of their other two basic candidates, ALPN-303 and ALPN-101, together with early-stage drug candidates.
What is currently running
The company has currently two drugs under trials, the ALPN-101 (Acazicolcept) for the treatment of systemic lupus erythematosus and the ALPN-303, for the treatment of systemic lupus erythematosus and several B cell-mediated diseases.
- ALPN-101: This is where the company has made the greatest progress, in terms of trials, which are now in Phase 2. Alpine has signed a structured deal with AbbVie, for the testing of this drug, which includes some multi-million development milestones, as well as potential sales proceeds percentage, in the high single to low double digits. Until now, the company has received over $100 million in payments, including a $60 million upfront payment and a $45 million pre-development option fee. According to the deal, AbbVie is responsible for the commercialization of the final product, should the trials come to fruition.
- ALPN-303: This trial is funded solely by the company, and it is currently in Phase 1 of development. Potential applications of ALPN-303 B – cell cytokine antagonist, include, except for systemic lupus erythematosus, immune thrombocytopenia, warm autoimmune hemolytic anemia, lupus nephritis and other diseases. The increased number of potential applications is why the company has created 4 test groups, with Phase 2 of the lupus erythematosus basket starting in the second half of 2023.
According to the company, after the termination of the davoceticept trials, the main focus will now be in the acceleration of the development of ALPN-303 and ALPN-101.
Do they have the cash?
The problem with companies not generating profits is exactly this: They’re not generating profits. And this can be excruciating for investors. No matter how good a company’s drug or device may be, a stock may get hammered by the lack of liquidity and the subsequent offerings and a reverse stock split.
Fortunately, this is not the case here. I mean, it’s not the case due to the successful completion of Alpine’s $100 million common share offering. The offering was made at a price of $7.35 per share. At the end of Q2 2022, the company had $200 million in cash and investments, which according to them, are enough to bring them to 2025. This seems like an adequate cash runway, for the advancement of their candidate trials. For the three months ended June 30th, 2022, the company reported operational expenses of $21.8 million, which, for the first six months of this year reached $42.9 million. On a “ceteris paribus” basis, this gives the company a cash runway of approximately 2.5 years. Any potential collaboration contribution will extend this period significantly.
Game-changing characteristics of ALPN-101
Investment in early-stage biotechs is characterized by an enormous amount of risk, since these companies rely on their trial results for a chance to reach profitability. But that’s not where the story ends. Successful trial completion needs to be followed by very high product commercialization costs, from manufacturing to pharmacy placements and doctor/hospital prescriptions. Especially, new drugs need an extra effort to become the new standard of care. All these require time and money, two things that a negative EPS biotech can’t afford to lose.
What is different here is both the very fact of the AbbVie deal and its current structure. It contains very large amounts of cash, in the form of milestone payments, during the development of ALPN-101. But what is really positive, is that commercialization is AbbVie’s responsibility, while Alpine gets a share of sales.
While we cannot be sure to how much money these sale royalties translate to, we do know that the deal contains a total of $865 million in potential payments. Lupus erythrymatosus market will reach a valuation of $2.7 billion by 2026. Assuming a 20% market capture and a 9% royalty percentage, we’re talking about almost $49 million per year in revenue. Adding these parts together, and applying a 20% margin and a 10x P/E multiple, with a 10% chance of getting there, we get a value of $7.30 per share. That is a 28% upside potential from the successful completion of ALPN-101 trials alone. I’m deliberately ignoring ALPN-303 and the pre-clinical developments.
Risks
Early-stage biotechs come together with significant risks. They are essentially companies that most of their revenues are generated through research and development agreements and rely heavily into the successful outcome of their trials. As such, examples of biotechs that are caught in a death spiral of dilution, NASDAQ delisting notice, reverse stock splits, etc., are seen quite often. If the outcomes of ALPN-101 and ALPN-303 are not satisfactory, Alpine’s shares will suffer. We should have a pretty good view of how their ALPN-303 Phase 1 study is going, in some upcoming scientific conferences. However, the deal with AbbVie makes the successful completion of ALPN-101 Phase 2 trials more important, from a purely financial standpoint.
Bottom line
I continue to be long Alpine Immune Sciences because, despite the recent negative development with ALPN-202, the company has a multi-faceted pipeline, strong cash position, and is backed by a top biotech player, AbbVie. Let me point out here that the fact that both deaths occurred within the combined trial of ALPN-202 may signal that it’s not yet time for this to be completely tombstoned. However, even if this never occurs, just the fruition of the ALPN-101 trials will have a tremendous impact on the share price. Based on this extreme scenario, there’s a significant upside in the company’s shares.
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