ALT+CTRL
Intro:
Unless you have been hiding under a rock the last 12 months you will have noticed the weight loss drug craze. GLP-1s have taken the market by storm with NVO (Novo Nordisk) and LLY (Eli Lilly) leading the way. Those two stocks are up 53% and 59% in that time on the backs of Ozempic/Wegovy and soon to be Mounjaro/Zepbound for Lilly. That may seem like a crazy increase in valuation, but the anticipated obesity market is 100B (this doesnt even factor in NASH, heart and kidney diesease indications) and the NVO earnings reports from the last 3 Qtrs validate this narritive. 40+% increases in revenue y/y will do that for you when you’re generating billions. This brings me to ALT (Altimmune). There are a few other small bios working in this space but I want to focus here as it’s one of the lowest MC (market caps) and one of the most promising.
Background for this Setup:
ALT is a company working on treatments for obesity and liver disease. They saw a huge push up last week on their MOMENTUM trial data. In the trial, 50% of patients achieved at least a 15% weight loss, with 30% of patients achieving a 20% weight loss or more. This is impressive and inline with what we saw in the early phases for both Wegovy and Mounjaro. Even more impressive was the drugs impact on LDL cholesterol and blood pressure which appears to be better than its peers. The potential as a NASH treatment differentiates it from its peers.
From their CEO (Dr. Vipin Garg):
Dr. Garg continued, “We believe the magnitude of weight loss, robust reductions in triglycerides, LDL cholesterol and blood pressure, together with the safety profile observed in this trial, could potentially differentiate pemvidutide from the other incretin-based therapies. If approved, we believe pemvidutide could offer an important option for obesity patients, including those with risk factors for cardiovascular disease.”
The results from Altimmune came shortly before pharmaceutical giant Pfizer Inc. (PFE) reported it was stopping the development of its weight loss pill in trials. Increased interest from investors in Altimmune could also bring a merger or takeout, they are in the same sector with Roche announcing it was buying obesity drug developer Carmot Therapeutics for $3.1 billion. Note - the market cap for ALT is only 300m - the market has been set 10x higher than their current open market valuation.
Potential Negatives
One of the negatives floated around on social media is the drop out rate from the trial, but its the same rate as what was seen in Wegovy phase II, the difference being that the drug will be titrated in phase III which substantially reduced adverse effects as seen in the Wegovy trials. The leadership of ALT has already said they plan to do this as well for phase III.
Late to the market - possibly, but anything approved before 2026 is still in the front half of the obesity market. Right now the only players are LLY and NVO, with no one else really close. This makes the stock still very attractive, as it’s borderline malpractice for a mega cap pharma company NOT to try and break into this space. This is clearly supported by Roches recent acquisition and the attempts by PFE and Astra to get drugs into late phase for approvals.
Risk of not finding a partner - this is a very real possibility, I foresee that the demand is too high for nobody to show an interest. If this did happen though, dilution would absolutely happen next year or early 2025.
Charting / Crayons / Astrology for Stocks:
First, lets look at the major trades for this stock in 2023.
You’ll notice alot of the largest block trades were placed well above the current level and that the 7, 10, 11th largest trades were made on the dip around $4. Given the recent news and popularity of these drugs I think the floor will be set at the $4 level, with resistance at $7-8 where we just rejected. Over that, ALT has blue skies till the gap fill at $10. I expect a fair amount of resistance there, if it makes it.
Here we see the weekly chart overlayed with SPX performance. As extreme as the move is, you can clearly see alot of the volume, all time, was still traded above current levels. The red line below in the volume graph is the point of control (POC) and it is also acting as support in the $4 area previously mentioned. I think the down side from the current $6.50 share price is about 33% with the upside being around 100% (barring buyout news). This would be around $13 which is the top of the value zone in gold.
This chart shows the daily. We just had the 20MA cross the 50MA and both are heading for a golden cross of the 200MA (red). This could happen before EOY and is usually a bullish reversal. I will be very surprised if the gap doesn’t fill before the end of Q1, given the data, the sector, broader market and the general desire for mega pharma to have a player in the weight loss game.
Financials / Stats:
Below is the 10-Q filed in Novemeber. Since this is a small cap, the first thing I want to look for is cash in hand and the potential risk of dilution. You don’t want to be exit liquidity for a share raise.
As stated in the filing, they have about 87M cash in hand and short term treasury investments, all told 139M. Now let’s see what they burn in a quarter.
Based on this it looks like there is about 1-1.5yrs of cash burn left. That is plenty of runway to get to their phase III filing and trial initiation, summer of 2024. I would normally be concerned about this, but the leadership from ALT has repeatedly stated they would like a partner or seek buyout headed into their Phase III trials. This was stated as recently as their Dec 1st trail data conference call. Presentiation linked below:
From Roger Song (Jefferies stock analyst) -
“And second question is related to the partnership. So I think on the call, you mentioned you will start a Phase 3 in second half next year with the partner, maybe just can you give us some color around the partner discussion at this point, particularly with the momentum 48-week data, how and when will trigger additional discussion to make this material? Thank you.”
Reply Vipin Garg (President and CEO)
“Yeah. Thanks, Scott. So Roger, as we have said before, obviously, this 48-week data is very fast moving our partnership discussions forward with we've already received with people discussing out there, and our goal is to be Phase 3 ready by the second half of next year, and that gives us enough time, plenty of time to also line up a partner to initiate that Phase 3 program.
That's really what we are executing to, we feel that with the data that we are expecting at 48-week read out that would give us the best opportunity to line up a partner to move forward into Phase 3.”
To this point there is no risk of dilution. Otherwise their balance sheet is pretty typical for an early phase biopharma. Don’t expect to see an revenue or positive EPS here.
Lets see some share and SI (short interest) stats:
Fairly small float - 50M and around 13% short, with the recent run up, that number is sure to be 15-20%. This is pretty significant if you’re hoping for volatility and a squeeze upside. But again, thats only for a short term mindset. Institutions control this stock at 80%. I dont think there has been much buying or selling from them since we saw the #48 largest block trade print ever (chart at the top), on Dec 1st. This kicked off the move higher on the trial data. That trade was at $5.78, based on the price action, it was likely a sell. This only represented 688k shares, recall the float is 50M, so it was large, but not a massive order.
All in all, there is low risk of dilution and high potential for buyout or partnership representing over $1B+ based on the going market.
Conclusion:
I think this stock is likely a buy, even with the recent double in share price. It is trading at a discounted valuation for a company with a phase II weight loss drug that has a major secondary indication for the treatment of NASH. There will be support below with the 200MA at $4.18, the point of control at $4.42 and a major trading level right at $4 historically seen. First upside target is a break of $8 and then the gap fill at $10. After that, it would probably need a buyout or partnership rumor. Note - there is a big bio conference coming up in a couple of weeks they will present at, maybe it serves as a catalyst.
Also, consider there is no case for dilution and that based on technicals and previous positioning, the upside is about 3x that of the downside. Carmont was purchased by Roche for 3.1B, their drug was only phase I and at least 6 months behind ALT. There is nothing to say they will be bought out, but anything in that ballpark would send this north of $50.
I suspect they will partner rather than buyout. They would receive 100s of millions with milestone bonuses that will put them into the 1-3B range. My preference would be a buyout above market, rather than the former.
Current holdings are 2200 shares at a cost basis of $4.17 with covered calls at $5, $7 and $8 expiring 15Dec23. The $5 ccs are most likely lost, which will leave me with a few hunderd shares after Dec 15th if we close below $7.
“Monies not everything, not having it is”
Kanye West