We rate ALLO Buy/High Risk with a $8 target price per share. We utilize a discounted cash flow (DCF) analysis where we project probability-adjusted free cash flows (FCF) explicitly through 2035. From 2036-2040, we grow FCF by 50% of the prior year’s growth rate. We utilize a -1% terminal growth rate to account for anticipated pipeline progress. We then discount cash flows by 12.5% annually. Within our coverage, we utilize a 12.5% discount rate for companies that have established proof-of-concept.

We rate ALLO High Risk based on the usual volatility of biotech stocks and uncertainty/risk associated with clinical trials and drug development. Allogene has many of the risks frequently associated with biotech companies. Share performance is closely linked to clinical and regulatory updates, and therefore any updates that fall short of expectations could lead to downside vs. our target. 

Downside risks include: (1) Data readouts across Allogene’s pipeline are unfavorable. (2) Enrollment into ALPHA3 is slower than expected. (3) Unexpected safety signals arise in preclinical or future clinical studies. 

If the impact on the company from any of these factors proves to be greater or less than we anticipate, the stock will likely have difficulty achieving our target price.