On Tuesday, Alector Inc . (NASDAQ: NASDAQ:ALEC) stock experienced a shift in market expectations as Mizuho (NYSE:MFG) Securities adjusted its outlook on the biopharmaceutical company. The firm downgraded Alector's rating from Outperform to Neutral and lowered the price target significantly to $2.50 from the previous $9.
This adjustment follows the disappointing Phase 2 INVOKE-2 trial results for Alector's AL002, which was being developed in collaboration with AbbVie (NYSE:ABBV). The stock, currently trading at $1.98, has declined 75% year-to-date and sits near its 52-week low, though InvestingPro analysis suggests the stock may be undervalued at current levels.
Mizuho's decision to downgrade Alector was influenced by a thorough revision of their financial model for the company. The analysis led to the removal of AL002 and the AbbVie collaboration from their projections, which was a major factor contributing to the reduction in the price target.
The firm's new focus is on Alector's two remaining clinical assets: AL001, also known as latozinemab or lato, currently in Phase 3 trials for frontotemporal dementia (FTD), and AL101, which is in Phase 2 trials targeting Alzheimer's Disease (AD).
Despite the setback, InvestingPro data shows the company maintains a strong liquidity position with a current ratio of 3.29 and more cash than debt on its balance sheet.
In addition to the changes in Alector's clinical portfolio, Mizuho also revisited assumptions regarding Alector's collaboration and profit-share arrangement with GlaxoSmithKline (NYSE:GSK). This partnership is now garnering more attention as a key area of focus for Alector's future prospects.
However, with the next significant market catalyst for Alector not expected until the end of 2025 or potentially even the first quarter of 2026, when top-line Phase 3 data for AL001 in FTD-GRN is anticipated, Mizuho expressed concerns about the visibility of news flow that could materially raise the stock's performance. The limited opportunity for stock outperformance in the near term has led to the more conservative stance of a Neutral rating.
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In other recent news, Alector Inc. experienced a major setback as its Phase 2 INVOKE-2 clinical trial for Alzheimer's disease treatment AL002 failed to meet its primary endpoint, leading to the discontinuation of the program.
In response to this, Stifel downgraded Alector Inc. from Buy to Hold, Morgan Stanley (NYSE:MS) downgraded the stock from Equalweight to Underweight, and H.C. Wainwright maintained a Buy rating but with a reduced price target.
Alector Inc. also announced plans to reduce its workforce by approximately 17% and will focus on other therapies aimed at neurodegenerative diseases. The company's next major milestone is the Phase 3 INFRONT3 data expected to be released in late 2025 to early 2026.
Alector secured a $50 million credit facility from Hercules Capital (NYSE:HTGC) Inc., aimed at supporting ongoing research and development efforts. The company continues to focus on its other programs, including the PGRN program and five early-stage programs based on their ABC transport technology.
In terms of governance, shareholders elected Louis J. Lavigne, Jr., Richard H. Scheller, Ph.D., and Mark Altmeyer as Class III directors, while Ernst & Young LLP was ratified as the independent accounting firm. As of September 30, 2024, Alector reported having $457.2 million in cash, cash equivalents, and investments, projecting a financial runway through 2026.
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