Shares of Allogene Therapeutics ALLO have lost nearly 23% year to date, underperforming the industry’s 7.0% decline. The stock has also underperformed the sector and the S&P 500 during the same period, as shown in the chart below. ALLO’s shares are trading below the 50 and 200-day moving averages.

ALLO Stock Underperforms Industry, Sector & S&P 500

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The decline in stock price can be attributed to the strategic changes in Allogene’s pipeline, announced at the start of this year. This delayed management’s plans to bring cema-cel, its lead pipeline drug, to the market by at least a couple of years.

Let’s dig into the stock’s prospects.

ALLO Explores Lead Drug’s Potential as First-Line LBCL Therapy

In January, management announced a major strategic update to its pipeline when it decided to upgrade cema-cel from being a third-line therapy in large B cell lymphoma (LBCL) patients to a frontline therapy.

Based on this pivot, Allogene started the phase II ALPHA3 study in June, evaluating cema-cel as a potential first-line treatment for newly diagnosed and treated LBCL patients who are likely to relapse and need further therapy. Management intends to administer the therapy to those patients who, despite having completed six cycles of R-CHOP, still have minimal residual disease (MRD). The company intends to position cema-cel as the standard seventh cycle.

Though Allogene’s pivot to frontline treatment provides access to a wider and more lucrative target market, it delays the company’s plans to bring the product to market by at least a couple of years.

Management expects a data readout from the ALPHA3 study in 2026, based on which it plans to make a regulatory submission to the FDA in 2027.

Other Pipeline Candidates Show Potential

Apart from cema-cel, Allogene is also developing allogeneic CAR T therapies for multiple myeloma (MM), renal cell carcinoma (RCC) and other cancer indications.

Last month, management reported data from the phase I TRAVERSE study on ALLO-316 in patients with advanced or metastatic RCC. As of the data cut-off date of Oct. 14, 2024, 26 patients were evaluated for efficacy outcomes, most of whom were heavily pre-treated with high CD70 expression (defined as a Tumor Proportion Score of more than 50%). Data from the study showed that patients with high CD70 expression who were infused with ALLO-316 achieved an overall response rate of 50% and a confirmed response rate of 33%. Additional data from this study is expected in mid-2025.

Allogene is also planning to explore the potential of allogeneic CAR-T cell therapies in autoimmune diseases. In this regard, it plans to start an early-stage study with a new candidate, ALLO-329, in lupus/systemic lupus erythematosus (SLE) indication by first-quarter 2025 and expects to have proof-of-concept by 2025-end. The candidate has been designed to reduce or eliminate the need for standard chemotherapy.

ALLO Stock Valuation & Estimates

The company is trading at a discount to the industry. Going by the price/book ratio, the stock currently trades at 1.12, trailing 12-month book value, lower than 3.71 for the industry.

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Estimates for Allogene’s 2024 loss per share have improved from $1.40 to $1.35 in the past 60 days. Over the same timeframe, loss per share estimates for 2025 have narrowed from $1.46 to $1.34.

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How to Play ALLO Stock?

Allogene has its fair share of problems, including the lack of a stable stream of income and a pipeline that is still in early- to mid-stage development. However, the company’s strong cash balance of more than $400 million (as of September 2024-end) ensures that management sufficiently funds its day-to-day operations. Management claims that this cash will help the company extend its cash runway into the second half of 2026.

ALLO stock is worth adding to one’s portfolio, considering its focus on developing a pipeline targeting different indications. The recently reported TRAVERSE study results demonstrated ALLO-316’s potential to treat patients who have failed multiple standard-of-care therapies, including an immune checkpoint inhibitor and a VEGF-targeting therapy. Management’s decision to advance its pipeline into autoimmune diseases also gets a thumbs up from us, considering the vast market opportunity in this space.

While we acknowledge that management’s pivot to develop the therapy as a front-line therapy for LBCL is more time-consuming, it significantly expands Allogene’s target market. Per management, nearly 30% of LBCL patients requiring front-line treatment who respond to R-CHOP treatment eventually relapse.

For those who have invested in the stock, we would suggest holding on to the same as it has growth potential. Consistently rising earnings estimates highlight analysts’ outlook for further growth. Allogene holds a Zacks Rank #2 (Buy) at present.

Other Key Picks Among Biotech Stocks

A couple of other top-ranked stocks from the sector are Castle Biosciences CSTL and Spero Therapeutics SPRO, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, estimates for Castle Biosciences’ 2024 loss per share have narrowed from 58 cents to 8 cents. During the same timeframe, loss per share estimates for 2025 have narrowed from $2.13 to $1.88. Year to date, shares of Castle Biosciences have surged 40.3%.

CSTL’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 172.72%.

In the past 60 days, estimates for Spero Therapeutics’ 2024 loss per share have narrowed from $1.59 to $1.13. Estimates for 2025 loss per share have narrowed from $1.54 to 54 cents. Year to date, shares of Spero Therapeutics have lost 22.5%.

Spero Therapeutics’ earnings beat estimates in two of the trailing four quarters and missed the mark in the other two, delivering an average surprise of 94.42%.

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