Alder is a Risky Allocation in a Crowded, but Rewarding Space

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At the end of June, 2015, Alder Biopharmaceuticals Inc. (NASDAQ:ALDR) reached its highest price since its 2014 IPO, reaching $53 a share. At last close, the company traded for $22.14 – a close to 60% decline across an eight-month period. Last Friday alone, Alder lost more than 8% of its market cap. From a fundamental perspective, however, there have been no major downside catalysts to underpin the selling pressure. Instead, it looks as though the action comes as collateral to wider market sentiment.

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At times like these, i.e. corrective phases, overselling can present opportunities to pick up value stock cheap, so here’s a look at whether Alder is one such opportunity, alongside its position in the space relative to its competitors and some catalysts that might have the potential to reverse the company’s fortunes.

Alder’s lead clinical development candidate – and in turn, the primary driver behind its valuation – is a migraine drug called ALD403. It’s a monoclonal antibody that targets and blocks the action of something called alcitonin gene-related peptide (CGRP). CGRP plays a role in the transmission of pain signals in the brain, and elevated levels of the peptide (which occur during migraines) lead to the vasodilation and pain associated with an attack.

The current SOC in the space are triptans, but a large portion of the patient population don’t respond to SOC, or experience reduced efficacy after prolonged use. As such, there is a pretty bug unmet need, and as always with an unmet need, a big reward for the company that can fill the gap. This hasn’t gone unrecognized across the biotech research and development space, and a few companies are working on treatments with a similar MOA to Alder’s lead. Perhaps the most high profile of the group, Merck & Co. Inc. (NYSE:MRK) sold its drug, along with development rights, Allergan plc (NYSE:AGN) last summer. As a quick aside, this sale may have been the catalyst behind weakness in the space, and probably accounted for some of the aforementioned selling pressure in Alder stock. Markets took Merck’s unwillingness to continue as a sign of skepticism for this type of therapy, and sold off on the associated treatments.

Back to Alder, the company is currently running a phase III in a frequent episodic migraine (FEM) indication and a phase II in a chronic migraine indication. These two trials serve as catalysts going forward, with the phase II set to report interim data this quarter. Data from a phase II in the FEM indication looked promising, and with a seemingly sound safety profile, if Alder can replicate the efficacy readout in the ongoing phase III it would have a good shot at an agency green light.

So what’s the downside? Well, it’s a crowded space. We’ve already addressed the Merck –turned-Allergen candidate, but in addition, Teva Pharmaceutical Industries Limited (NYSE:TEVA) and Eli Lilly and Company (NYSE:LLY) both have late stage CGRP candidates. Estimates put the FEM and CM market at between $8 billion and $10 billion annually, and big pharma is scrambling to be first to market. The comparably small resource pool that underwrites ALD403 when compared to some of its counterparts could drag on development pace, and if Alder gets pipped to the post, it could really hurt the company’s chances of gaining a significant market share. Additionally, mid stage data suggest ALD403 is less effective than at least one of the other candidates in the space – specifically, that of Teva.

Having said this, Alder is currently in the lead from a timeline perspective, and if it can maintain this pace and stick to its slated trial completion points, it has a good chance of getting an NDA with the FDA before its competitors.

So what’s the takeaway? Is Alder an opportunity at its current price? Well, as a potential allocation, it looks cheap. It’s a risky one though, and probably shouldn’t make for anything more than a speculative holding – at least until we get insight into the efficacy of ALD403 in the CM indication. Once we have that data – as mentioned, mid stage set for release this quarter – a comparison between the drug and Teva’s competing therapy will offer some much needed insight. Definitely one to keep an eye on, but be wary.

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