Based in California, clinical-stage biopharmaceutical company Allakos (NASDAQ:ALLK) develops therapeutic antibodies for allergic, inflammatory and proliferative diseases. For folks who can tolerate volatility, ALLK stock has been interesting, to say the least.
Allakos is one of those biopharma businesses that focuses almost entirely on one drug. Therefore, the company’s investors are effectively making an all-or-nothing bet.
As we’ll see, Allakos was already in a precarious financial situation before the company recently released significant clinical data. Moreover, that data release effectively handed ALLK stock a worst-case scenario and a horrendous holiday-season disappointment.
Still, this may be an opportunity for dyed-in-the-wool contrarians and bottom fishers to capitalize on an admittedly awful situation. After all, if Allakos survives this dark chapter of its ongoing story, there may be a happy ending for stalwart shareholders.
A Closer Look at ALLK Stock
From $35 in the summer of 2018 to $150 in late 2020, ALLK truly rose to the occasion for a couple of years.
However, 2021 would be much less generous to Allakos’s shareholders. Indeed, the plunge in stock price that would ensue could aptly be described as cringe-inducing.
By mid-December of 2021, ALLK stock had drifted down to the $84 area. Clearly, the trend wasn’t a friend to Allakos’s investors in 2021. Yet, things would only get worse. Shockingly, the Allakos share price plummeted to $10 on Dec. 22. It trades today for just over $9.
It was a terrific pre-holiday gift to the short sellers, but a nasty lump of coal in the stockings of Allakos’s shareholders. So, what happened and is ALLK worth owning at this heavily discounted price point?
Before the Bombshell
Allakos’s primary clinical product is known as lirentelimab. It’s a therapeutic antibody targeting eosinophils and mast cells, with the potential to treat a broad range of serious, complex inflammatory diseases (according to Allakos, at least).
Lirentelimabeosinophilic seems promising in potentially treating conditions like gastritis, eosinophilic esophagitis, mast cell gastritis and severe allergic conjunctivitis. All are a range of hard-to-treat inflammatory diseases.
However, on the financial side of the equation, Allakos has been in rough shape lately. For 2021’s third quarter, the company reported a net loss of $62.7 million. That’s substantially worse than the already worrisome $42.1 million net loss recorded in the year-earlier quarter.
Yet, this is not unheard of with small biopharmaceutical businesses. By and large, the investors are willing to overlook short-term financial challenges in hopes of an eventual windfall.
At the end of November, it looked like that windfall could happen at any moment. Loudly and proudly, Allakos disclosed its expansion of lirentelimab development into the areas of atopic dermatitis, chronic spontaneous urticaria and asthma.
What could possibly go wrong?
Deeply Disappointed
On the evening of Dec. 21, Allakos released its top-line Phase 3 data from an ENIGMA 2 study, as well as Phase 2/3 data from a Kryptos study in patients with eosinophilic gastrointestinal diseases.
Both of those studies were for lirentelimab, of course. As it turned out, neither of the two studies achieved statistical significance on the patient-reported symptomatic co-primary endpoints.
Allakos CEO Robert Alexander commented on behalf of his company, “We are deeply disappointed that the studies did not achieve their symptomatic endpoints.”
The shareholders were equally disappointed, apparently, as ALLK stock took an 87% haircut upon the release of those results.
In the wake of this event, Barclays slashed its price target on Allakos shares from $36 to $8, while maintaining an “underweight” rating. Meanwhile, William Blair cut its rating on Allakos from “outperform” to “market perform.”
Nevertheless, Allakos will soldier on and pursue promising clinical avenues with lirentelimab. Allakos Chief Medical Officer Craig Paterson explained the company’s next steps:
At present we intend to continue our development efforts with subcutaneous lirentelimab in atopic dermatitis, chronic spontaneous urticaria, and asthma. The atopic dermatitis study is underway and we plan to initiate chronic spontaneous urticaria and asthma studies in 2022 and will continue to advance other programs in our preclinical pipeline.
The Bottom Line on ALLK Stock
Allakos and its stakeholders have suffered a major setback. There’s no denying it.
The company’s story isn’t finished, however. As Paterson pointed out, Allakos intends to continue advancing the research on lirentelimab across a variety of clinical applications.
So, there’s hope for a brighter future for Allakos. If you’re a dauntless contrarian with a stomach of steel, ALLK might be a worthy make-or-break bet for your biotech portfolio.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
