Alector Upgraded, Analyst Sees High Reward Potential Ahead of Alzheimer's Disease Candidate's Phase 2 Results

Stifel has upgraded Alector Inc ALEC, noting that while Alzheimer's is a very high risk, the probability of success for AL002 (TREM2 agonist) is above average, and the stock risk/reward is highly attractive ahead of phase 2 data in expected in Q4 2024.

In September, Alector completed enrollment in the INVOKE-2 Phase 2 trial of AL002 for slowing disease progression in individuals with early Alzheimer's disease.

The analyst downgraded ALEC in 2022 after becoming more skeptical about the prospects of AL001 in frontotemporal dementia due to a progranulin gene mutation (FTD-GRN). 

However, with AL002 data in Alzheimer's coming 4Q24, Stifel writes the stock sets up well, currently trading at around $125 million fully diluted enterprise value.

The analyst has upgraded the stock from Hold to Buy with a price target of $15 from $8.

Stifel notes that the preclinical findings indicate TREM2 agonism's potential in clearing amyloid plaques. The ongoing AL002 phase 2 trial, despite the observed ~20% rate of amyloid-related imaging abnormalities (ARIA), likely signifies a positive indication of target engagement.

However, it's essential to consider that this could also represent a non-specific inflammatory safety signal—meaning it's not guaranteed that AL002 is effectively functioning. Yet, consolidating the evidence supporting AL002, including genetic backing, a broader biological rationale, confirmed target engagement from phase 1, and a potential Parkinson's disease (PD) signal in ARIA makes the stock notably appealing.

Price Action: ALEC shares are up 16.49% at $8.04 on the last check Thursday.