On Tuesday, Goldman Sachs (NYSE:GS) reaffirmed its Sell rating on shares of Alector Inc . (NASDAQ:ALEC), maintaining a price target of $4.00. The focus is on the upcoming Phase 2 results from the INVOKE-2 study, which is evaluating Alector's AL002 for the treatment of Alzheimer's disease. Goldman Sachs provided an in-depth background on the asset and study, previewing possible outcomes and discussing the potential impacts on their valuation of the company.
The analysis included an Internal Rate of Return (IRR) to assess potential returns for AbbVie (NYSE:ABBV) should it decide to opt-in for further development of AL002. According to Goldman Sachs, an IRR analysis suggests that to justify further development, expectations would have to be set at $1.4 billion to $1.7 billion in peak sales at a 50% probability of success. These figures surpass Goldman Sachs' base case, which estimates $1.3 billion in peak sales with a 15-50% probability of success, depending on the study outcomes.
Goldman Sachs noted that while investors and AbbVie might have different views on the potential peak sales and probability of success for AL002 post-data, achieving statistical significance on the primary endpoint would present the most compelling case for AbbVie to continue development. The firm highlighted that other scenarios may support further development, but these would be challenging to interpret when the topline data becomes public.
The decision by AbbVie on whether to proceed with AL002 is considered the most critical outcome of the study. Goldman Sachs anticipates this decision will not be made until the first half of 2025. The investment firm's current 12-month price target of $4 for Alector reflects an estimated upside/downside potential of more than 150% to 25%, depending on the results of the INVOKE-2 study.
In other recent news, Alector Inc., a leading biopharmaceutical firm, has secured a credit facility of $50 million from Hercules Capital (NYSE:HTGC) Inc. This financial boost is aimed at supporting the company's ongoing research and development efforts. The initial draw of $10 million has been received, with the option of an additional $15 million available through June 2026 and a further $25 million subject to lender approval.
The company's financial position has been further bolstered by recent earnings and revenue results. Alector's second-quarter results were released, with Mizuho (NYSE:MFG) Securities maintaining an Outperform rating on the stock. TD (TSX:TD) Cowen also maintained a Buy rating, citing the upcoming trial data as pivotal for Alector's progress.
In terms of governance, shareholders elected Louis J. Lavigne, Jr., Richard H. Scheller, Ph.D., and Mark Altmeyer as Class III directors at the 2024 annual meeting. Ernst & Young LLP was ratified as Alector's independent accounting firm.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Alector Inc.'s financial position and market performance, providing context to Goldman Sachs' analysis. The company's market capitalization stands at $371.16 million, reflecting the current valuation by investors. Alector's revenue for the last twelve months as of Q3 2024 was $61.51 million, with a concerning revenue growth decline of -36.14% over the same period.
InvestingPro Tips highlight some challenges facing Alector. The company is quickly burning through cash, which aligns with Goldman Sachs' cautious stance. Additionally, six analysts have revised their earnings downwards for the upcoming period, suggesting widespread concern about the company's near-term financial performance.
On the positive side, Alector holds more cash than debt on its balance sheet, providing some financial flexibility as it awaits the critical INVOKE-2 study results. This cash position could be crucial for the company's operations and potential future development of AL002, depending on AbbVie's decision.
The stock has taken a significant hit recently, with a one-week price total return of -32.25% and a year-to-date return of -52.88%. These figures underscore the market's current skepticism, which may be influenced by the uncertainty surrounding the upcoming study results and AbbVie's subsequent decision.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on Alector, providing a deeper understanding of the company's financial health and market position.
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