Mixed Reviews For Allakos As Sell-Side Starts Coverage Of Biotech

Allakos Inc ALLK, a clinical-stage biotech company developing treatment for various eosinophil and mast-cell related diseases, offered 7.13 million shares in an IPO at $18 per share.

The Analysts

Following the IPO quiet period expiration, Goldman Sachs analyst Terrence Flynn initiated coverage of Allakos with a Neutral rating and $31 price target.

William Blair's Tim Lugo initiated coverage of Allakos with an Outperform rating and $72 fair value estimate. 

Goldman: Blockbuster Potential, But Fair Valuation 

AK002, the company's antibiotic drug in clinical development, has blockbuster potential in gastrointestinal diseases and hives/skin rash, with a peak sales potential of $1.9 billion, Goldman analyst Flynn said in a Monday note.

The drug's mechanism of action is by binding a target called Siglec-8 found in eosinophils and mast cells, which are responsible for a variety of allergic and inflammatory diseases affecting the gastrointestinal tract, skin, eyes and lungs, among other organs.

Flynn said he sees opportunities for the candidate in severe allergic conjunctivitis and indolent systemic mastocytosis, with peak sales potential of $625 million and $388 million, respectively.

Although Goldman expects the Phase 1/2 data from four trials due in the first half of 2019 to de-risk the estimates, the firm said Allakos' valuation is fair due to the stock's strong performance since its IPO.

William Blair Sees Unique Positioning In Asthma, Larger Markets

AK002 is a best-in-class eosinophil depletion agent, according to William Blair's Lugo.

"Impressive Phase 1 data in healthy volunteers suggests AK002 can deplete blood eosinophils one hour after intravenous infusion and maintain this depletion up to 84 days," the analyst said.

Additionally, open-label data in indolent systemic mastocytosis patients showed an 83-percent response rate, vouching for its efficacy in mast cell-driven indications, Lugo said. 

Lugo estimates peak sales potential of more than $4 billion using conservative penetration estimates, though he said the drug may not be marketed until 2022.

The lead asset is uniquely positioned in asthma and other larger markets due to its dual — likely complementary — mast cell and eosinophil inhibition mechanism and efficacy, according to WIlliam Blair. 

AstraZeneca plc (ADR) AZN's Fasenra is the gold standard in eosinophil depletion, Lugo said. Fasenra, along with the  Roche Holdings AG Basel ADR RHHBY-Novartis AG (ADR) NVS combo's Xolair are FDA-approved treatments for asthma.

The Price Action

Allakos shares have gained about 25 percent since listing on July 19 and were trading up more than 4 percent to $40.49 at the time of publication Monday.

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