ALX Oncology (ALXO) is a biotech that has a lot of upside potential. The basis for this statement is that it has teamed up with Merck (MRK) to treat patients with head and neck squamous cell carcinoma (HNSCC). The goal is to use ALX148 a checkpoint immunotherapy. It’s on the basis of many other immunotherapies that are starting to be combined with other checkpoint inhibitors. Checkpoint inhibitors do a good job to block proteins (checkpoints) so that a patient’s immune system is able to recognize the cancer cell and destroy it. While this method is good, it is not foolproof. Thus, Merck is seeking out other complementary immunotherapies that add an additional function. More detail below, but why I think ALX Oncology is a buy is because it targets the CD47 blockade, which has been proven in several other companies already.

CD47 Is A Proven Method In Treating Patients With Cancer

ALX Oncology announced that it had entered into a clinical trial collaboration agreement with Merck. The goal is to study ALX-148, a next-generation CD47 blocker, along with Keytruda to treat patients with head and neck squamous cell carcinoma (HNSCC). The global head and neck cancer market is expected to reach $4.5 billion by 2027.

Before discussing the agreement at hand, it’s important to note how powerful the science of CD47 blockade is. The thing is that CD47 exists as a protein on immune cells and lets macrophages know that such cells shouldn’t be attacked. The goal of ALX-148 and other CD47 blockades is to interrupt this process. Just as CD47 is found on healthy cells, it is also overexpressed in many tumor cells. That’s what makes the CD47 technology so strong. In essence, this blockade provides macrophages and other innate immune cells the “Don’t Eat Me” signal. There are suggestions that CD47 alone may not be enough to trigger phagocytosis (cells plasma membrane engulfing another particle). Thus, what may be appropriate is to use another checkpoint blockade such as Keytruda.

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There are a few other CD47 biotechs that have been proven to work. These other companies are Forty Seven Inc. (now a part of Gilead Sciences (GILD)) with the drug magrolimab and Trillium Therapeutics (TRIL) with TTI-621 and TTI-622. As it relates to ALX Oncology, the deal with Merck involves a few studies. Specifically, ALX Oncology will run two separate phase 2 studies. The breakdown is as follows:

  • 1st study – Efficacy of ALX148 in combination with Keytruda for 1st line treatment of patients with PD-L1 expressing metastatic or unresectable recurrent HNSCC.
  • 2nd study – Efficacy of ALX148 in combination with Keytruda and chemotherapy for 1st line treatment of patients with metastatic or unresectable recurrent HNSCC.

What I like about this deal is that it was not made as an exploratory deal. Primarily because positive data was just released recently. That is, results were already released from a phase 1b study using ALX148 in combination with Keytruda to treat patients with HNSCC. It was shown that patients treated with this combination had achieved a 40% objective response rate (ORR). There was a median progression-free survival (PFS) of 4.6 months and median overall survival not yet reached. That’s quite impressive for this population with metastatic unresectable disease. What’s even more impressive is that these HNSCC patients were those who had not received checkpoint inhibitor therapy prior to being given the ALX148/Keytruda combination. This data pretty much proves that combining A CD47 blockade with a PD-L1 checkpoint inhibitor can work in treating this 1st-line patient population.


According to the 10-Q SEC Filing, ALX Oncology had $98.1 million of cash and cash equivalents as of June 20, 2020. On top of that, it had completed an upsized IPO in July 2020. This is where it sold roughly about 9.77 million shares of its common stock, including the exercise in full of the underwriters option at a public offering price of $19 per share. The total gross proceeds from this public offering amounted to $172.7 million. Trading of the stock began on July 17, 2020. With the cash on hand currently, the company anticipates that it can fund its operations through 2023. Based on this, I don’t foresee any near-term dilution being needed. If anything, it may consider raising additional cash by late 2021 as needed based on the advancement of its pipeline.

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Risks To Business

Thus far, preliminary data looks good, but this needs to be confirmed in the phase 2 study. There will likely be a larger group of patients being tested in the mid-stage study. There is no guarantee that the phase 2 study will yield similar or superior results to the most recent preliminary study. A second risk factor to consider is that while ALX Oncology has a strong CD47 blockade product, it doesn’t exist in this space alone. There are many biotechs that are getting into this space. Trillium Therapeutics is differentiated from most in that it has a few advantages for its drugs, like no red blood cell (RBC) binding and monotherapy included response. It’s still early to see how it plays out in late-stage studies, but things could change depending on combinations and other factors as time goes by.

Forty Seven Inc, which was acquired by Gilead, is furthest along with its programs. In my opinion, magrolimab is likely to be the first CD47 approved. However, this depends upon whether or not the late-stage study succeeds. Magrolimab is currently being explored in a phase 3 study known as ENHANCE. It received Breakthrough Therapy designation from the FDA just the other day. This study is evaluating the use of magrolimab in combination with azacitidine (chemotherapy) for the treatment of patients with untreated higher-risk myelodysplastic syndrome (MDS). Should this late-stage study succeed in the primary endpoint of complete response rate (CR) and duration of complete response, then the company will be able to file an application to the FDA for approval. If everything lines up accordingly, I believe magrolimab from Gilead Sciences will be the first CD47 drug to be approved.

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I think that ALX Oncology has a good shot at succeeding with its drug ALX148 for the treatment of patients with cancer. It has its own advantages in terms of being a differentiated CD47 blockade drug. For example, ALX148 offers an inactive FC domain, thus eliminating detrimental binding activity. How does this help? An inactive FC domain means no dose-dependent cytopenia occurring. Cytopenia occurs when there is a reduction of mature red blood cells, which is something that patients don’t want to happen when receiving treatment with a CD47 drug. The drug, with its Fc domain, provides a slow clearance from the patient’s body, which, in turn, means a longer half-life. Thus, a patient can be dosed less frequently with ALX148 and still achieve a response to treatment. These are all the reasons why I believe ALX Oncology is a good speculative biotech to buy.

This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to, I’m currently offering a two-week free trial period for subscribers to take advantage of. My service offers a deep-dive analysis of many pharmaceutical companies. The Biotech Analysis Central SA marketplace is $49 per month, but for those who sign up for the yearly plan will be able to take advantage of a 33.50% discount price of $399 per year.

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