On Tuesday, Morgan Stanley (NYSE:MS) adjusted its stance on shares of Alector Inc . (NASDAQ:ALEC), downgrading the stock from Equalweight to Underweight. The firm also revised its price target significantly downward, setting it at $3.00, a steep decrease from the previous target of $10.00.
The downgrade comes in the wake of Alector's AL002 Phase 2 INVOKE-2 study, which did not yield the positive results anticipated. The study's outcome has prompted a reassessment of the biotechnology company's stock by the financial services company.
It is indicated that while there may be some promise in one of Alector's treatments, the firm believes there are more attractive investments available within its purview at this time.
Investors are now looking ahead to the next major milestone for Alector, which is the Phase 3 INFRONT3 data expected to be released in late 2025 to early 2026. The outcome of this future study could be critical for the company's prospects and the performance of its shares.
The adjustment of Alector's stock rating and price target reflects Morgan Stanley's current view on the stock's potential performance relative to other opportunities in the market. This reevaluation is a direct result of the latest clinical trial outcomes and the anticipated timeline for forthcoming data.
In other recent news, Alector Inc. faced a setback as its Phase 2 INVOKE-2 trial for the Alzheimer's disease treatment AL002 failed to meet its primary endpoint, leading to the discontinuation of the program. Despite this, H.C. Wainwright maintains a Buy rating for the company, albeit with a reduced price target of $7, down from $35. Goldman Sachs, however, reaffirmed its Sell rating with a price target of $4.
Alector also 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. These are among the recent developments shaping the course of Alector Inc.
InvestingPro Insights
The recent downgrade by Morgan Stanley aligns with several InvestingPro metrics and tips for Alector Inc. (NASDAQ:ALEC). According to InvestingPro data, Alector's market capitalization stands at $387.81 million, reflecting the market's current valuation of the company. This relatively modest market cap is consistent with the challenges highlighted in the article.
InvestingPro Tips indicate that Alector is "quickly burning through cash" and "not profitable over the last twelve months," which supports Morgan Stanley's cautious stance. The company's revenue for the last twelve months was $61.51 million, with a concerning revenue growth of -36.14% over the same period. This aligns with another InvestingPro Tip stating that "analysts anticipate sales decline in the current year."
The negative sentiment is further reinforced by the stock's recent performance, with InvestingPro data showing a one-month price total return of -16.81% and a year-to-date return of -50.38%. These figures underscore the market's reaction to the disappointing Phase 2 study results mentioned in the article.
Despite these challenges, it's worth noting that Alector "holds more cash than debt on its balance sheet" and "liquid assets exceed short term obligations," according to InvestingPro Tips. These factors could provide some financial stability as the company progresses towards its Phase 3 INFRONT3 data release in late 2025 or early 2026.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Alector, providing a deeper understanding of the company's financial health and market position.
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