ALLO's valuation is attractive, with a low P/B multiple and sufficient liquidity to fund operations until the ALPHA3 trial's primary data readout in 2026.
Allogene Therapeutics, Inc. (NASDAQ:ALLO) is a clinical-stage biotech company developing allogeneic chimeric antigen receptor T cell (AlloCAR T) therapies for cancer and autoimmune diseases. ALLO uses advanced gene-editing platforms like TALEN and CRISPR/Cas9 to engineer donor-derived T cells. These off-the-shelf treatments overcome the limitations of autologous therapies by targeting and killing malignant cells. The company's robust pipeline covers hematologic malignancies, solid tumors, and autoimmune conditions. Interestingly, ALLO's flagship IP is Cema-cel, and it's currently in the ALPHA3 trial. This is a Phase 2 registrational study for first-line consolidation therapy in large B-cell lymphoma [LBCL]. Still, I have concerns regarding its cash runway because it leaves no room for potential trial delays. Thus, I consider ALLO a reasonable DCA "buy" for investors who understand the clinical trial risks involved.
Allogene Therapeutics is a clinical-stage biotechnology company headquartered in South San Francisco, California. It was founded in 2017 and went public in October 2018. ALLO specializes in developing allogeneic chimeric antigen receptor T cell [AlloCAR T] treatments for cancer and autoimmune diseases. The company's approach tries to make CAR-T technology accessible and scalable. The idea is to offer off-the-shelf CAR T allogeneic therapies from healthy donor cells.
CAR T allogeneic cell therapy is an immunotherapy in which donor T cells are edited in laboratories. This way, T cells express CAR receptors that recognize antigens on the surface of cancer cells. Then, the company can use its engineered T cells to infuse patients, prompting them to detect and kill malignant cancerous cells. ALLO uses its TALEN or CRISPR/Cas9 platforms for gene editing, deactivating endogenous T cell receptors on donor T cells. This process decreases the risk of adverse immune responses due to donor cells attacking healthy cells. This principle is key because it theoretically increases effectiveness and tries to maintain a reasonable safety profile.
Consequently, ALLO's pipeline focuses on 1) hematologic malignancies, 2) solid tumors, and 3) autoimmune diseases. ALLO's 1) hematologic malignancies program is just one drug candidate. Cemacabtagene Ansegedleucel [Cema-cel] currently enrolls patients for trials, although other investigational products have been paused for now. It's worth mentioning that Cema-cel's trial is called ALPHA3, testing for first-line consolidation for large B-cell lymphoma [LBCL]. ALPHA3 is in registrational Phase 2 and is designed to use positive results to seek FDA approval without needing a subsequent Phase 3 trial. ALLO's ALPHA3 trial started in June 2024, so it's relatively recent. Additionally, ALLO has Cema-cel in another Phase 1 trial called ALPHA2. Here, Cema-cel is being tested for relapsed/refractory chronic lymphocytic leukemia (r/r CLL), with data expected by early 2025.
Moreover, ALLO's pipeline for 2) solid tumors includes ALLO-316. This one is a Phase 1 drug tested in ALLO's TRAVERSE trial. ALLO-316 is intended to treat clear-cell Renal Cell Carcinoma [ccRCC], and the FDA granted this program Fast Track Designation [FTD]. Interestingly, ALLO also has ALLO-316 in an IND-enabling Phase for other solid tumors, so this particular drug candidate might be flexible enough to extend across several additional potential indications. Lastly, the company works on ALLO213 for small cell lung cancer [SCLC] and ALLO-182 for gastric and pancreatic cancers.
For its 3) autoimmune disease program, ALLO has developed ALLO-329, with an IND submission planned for Q1 2025. This drug, potentially useful for various autoimmune conditions, leverages ALLO's "dagger technology" to reduce or even eliminate the need for chemotherapy. Although ALLO-329 is still in the relatively early stages of development, with Phase 1 trials anticipated to begin by early 2025, it represents a significant part of the company's next-generation allogeneic CAR-T therapies.
ALLO's dagger technology is noteworthy because it allows ALLO-329 to deplete CAR-T cells post-administration selectively. This is crucial for reducing the risk of graft-versus-host disease [GVHD] and other immune-related complications. This technology also allows care providers to eliminate CAR-T cells in vivo through a ligand-activated system if needed, enhancing the treatment's safety profile. Importantly, this mechanism selectively depletes CAR-T cells without compromising the patient's immune system or harming healthy cells. If ALLO-329 proves its efficacy, I believe it will likely have an exceptionally compelling safety profile, a key factor in its potential regulatory approval.
In the latest earnings call, the company announced that the FDA had supported the ALPHA3 trial for the drug candidate Cema-cel, acknowledging its innovative design and three key benefits: 1) early line setting to maximize its potential, 2) minimal residual disease [MRD] to make the therapy safer and more effective, and 3) targeting patients likely to present recurrence, making the study more effective. The company's capacity to innovate within these frameworks granted FDA support and underscores its potential to lead in the CAR T technologies against hematologic malignancies.
Nevertheless, ALLO's most advanced drug is Cema-cel. Its Phase 2 ALPHA3 for first-line (1L) consolidation therapy indicated for LBCL has an expected BLA submission for 2027. While this is still far away, the market opportunity for LBCL is potentially over 14,700 patients per year in the US and EU5. This market is estimated at $5 billion if successfully introduced as a standard of care, which is a major assumption but also shows its tremendous upside potential. This is why I believe Cema-cel is the company's main value driver at this juncture. If it's successfully developed and commercialized, it could position ALLO as a leading biotech in oncology.
Furthermore, ALLO's executives mentioned that they manufacture all their CAR T product candidates at its Cell Forge 1 facility. This eliminates the necessity for external contract plants, but I also think it foreshadows early preparations for eventually mass-producing its products. This facility could theoretically be expanded into a key strategic asset that ensures consistent product quality and reduces outsourcing costs. So, I suspect that if ALLO's drugs receive a regulatory greenlight, the company will use these installations to scale up to meet market demands rapidly.
From a valuation perspective, ALLO trades at a $545.8 million market cap, making it still a somewhat small biotech in its sector. Its balance sheet holds $170.7 million in cash and equivalents and $274.0 million in short-term investments. This amounts to $444.7 million in available short-term liquidity against no financial debt other than operating lease liabilities. Its book value is $515.0 million, implying a low P/B multiple of 1.1. For comparison, its sector's median P/B is 2.5, so ALLO seems considerably undervalued relative to its peers.
Moreover, I estimate the company's latest quarterly cash burn was $63.6 million by adding its CFOs and Net CAPEX. This suggests a cash runway of 7.0 quarters, which should be enough to fund its research for the foreseeable future. In my view, the company's closest potential catalyst is the upcoming RCC trial update for ALLO-316. Also, ALLO-329 will hopefully initiate its Phase 1 trials by early 2025. These two are potentially interesting and could give investors confidence while ALLO works on its flagship Cema-cel product. However, Cema-cel is a longer-term bet, as the primary data readout from ALPHA3 is expected by yearend 2026.
Also, while I estimate just 7.0 quarters worth of cash runway, management mentioned that they project $200.0 million in cash burn for the full year 2024. If I use those figures instead, this would suggest a cash runway of 2.2 years, enough to sustain operations until it reaches ALPHA3's primary data readout. However, it also makes ALLO an inherently long-term investment. Still, it could pay off greatly if that primary data readout is promising, prompting ALLO to submit its BLA in 2027 shortly after.
Naturally, this investment thesis contains several assumptions and is a long-term commitment for investors. However, the upside potential is worthwhile because Cema-cel alone could help the company tap into a $5.0 billion market with a robust competitive profile. Moreover, ALLO-316 and ALLO-329 act as intermediate catalysts, indirectly validating Cema-cel. Promising data from these two drug candidates also corroborates the company's broader CAR-T technology.
On the other hand, it's also worth mentioning that ALLO has a very tight runway to reach its main milestone with ALPHA3, making dilution risks a relatively realistic prospect that investors must consider. Thus, I think ALLO is a suitable candidate as a DCA "buy." This way, investors can gradually build their positions in the company, potentially allowing for future updates to be reassessed if necessary.
In my view, management will likely provide small updates and hints regarding ALPHA3's progress before its primary data readout by yearend 2026. If such early signs are positive, it could further derisk ALLO as it draws closer to that milestone. Conversely, it could be a potential red flag if the company provides little to no updates. Therefore, it's key to slowly build your position on ALLO over time rather than all at once. Nevertheless, I believe it's fair to maintain a bullish stance with the data available to us today.
Overall, ALLO is a promising biotech that trades at a cheap valuation. On top of that, it has a diverse product pipeline of CAR T therapies. However, I believe the main value driver is Cema-cel, a long-term bet that should give us a primary data readout by late 2026. In the interim, data from ALLO-316 and ALLO-329 could also provide additional confidence and validation to ALLO's technology. Yet, the company has little room for error due to its cash runway. While I think it has enough resources to reach its major ALPHA3 milestone, any delays could force ALLO into another capital raise, likely at unfavorable terms. Still, overall, I think ALLO makes sense as a DCA "buy" for investors who understand the embedded clinical trial risks.