Arovella Therapeutics Limited


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Investment Memo: Arovella Therapeutics (ASX:ALA) - LIVE

Opened: 18-Feb-2022

Shares Held at Open: 13,631,579

What does ALA do?

Arovella Therapeutics (ASX:ALA) is an early stage biotech research company seeking to develop an off-the-shelf cancer cell therapy treatment - part of the broader field of cancer immunotherapy.

What is the macro theme?

Cancer cell therapy is a burgeoning industry and the next frontier of cancer treatments.

The worldwide spend on cancer therapies is immense and cancer immunotherapy, and cell therapy in particular, hope to unlock new avenues for treatment that are more efficient, more readily available, and ultimately, more successful at treating cancer.

Why did we invest in ALA?

New technology to treat cancer with large commercial upside

Cancer cell therapies exist today, but it is in a form that is inefficient, expensive and unreliable - it needs to be individualised to each patient and can cost up to $500K.

ALA's technology aims to produce an ‘off-the-shelf’ treatment that can be produced using healthy, non-patient specific engineered cells, which if successful, will have significant commercial value.

Team with strong track record behind the project

We are impressed with the board and CEO. Chairman Paul Hopper has backed a number of successful ASX-listed biotechs including Imugene (1,160% returns in under 2 years).

Cornerstone ALA investor Merchant Funds Management has an impressive track record in biotech investing.

Licensed technology from top research institutions

The two primary technologies that ALA has licensed both come from top cancer research institutions, the Imperial College in London and MD Anderson Cancer Center.

What do we expect ALA to deliver in 2022?

Objective #1: Prepare for Phase-1 clinical trial for treatment #1

Preclinical studies have been completed for ALA’s first treatment (CAR19-iNKT) and we expect ALA to spend the next 12-18 months preparing for a Phase I clinical trial.

This involves completing the manufacturing milestones for the treatment, completing the trial design and securing ethics approval.

Objective #2: Undertake preclinical trials to confirm safety and specificity of treatment #2

ALA will need to confirm that it’s second treatment (DKK1-CAR/mAb), can successfully combine with the iNKT technology and that it does not target healthy cells.

We expect ALA to do this through a preclinical study in mice.

Objective #3: Explore complementary licensing opportunities

ALA’s board has deep knowledge of the cancer immunotherapy market. If a compelling opportunity to licence further tech for their portfolio emerges, we want to see ALA expand on their existing base of technology.

What could go wrong?

Early Stage Biotech Risk

There are some standard risks that are associated with early stage biotechs, although the treatment appears effective in mice, this might not translate to humans. Key risks:

  • The treatment is ineffective
  • The treatment is not considered safe for human use
  • Patient recruitment is delayed
  • Ethics approval is delayed

Competition risk

There are a large number of companies targeting cancer cell therapies. If a company makes a breakthrough targeting the same disease or using a similar technology to ALA, it may damage the commercial value of ALA’s technology.

Manufacturing risk

As ALA has licensed cutting edge technologies, it may encounter difficulties in the manufacturing process. These could include hurdles found in the manufacturing partner selection process or difficulties scaling the process.

Funding risk

ALA says it is fully funded to prove out the safety profile and get initial manufacturing going through to Phase I trials, but should additional research be needed or manufacturing hurdles encountered, ALA may need to raise more funds before Phase I trials can commence.

What is our investment plan?

We plan to patiently wait with our investment as the company delivers on the above objectives towards its next major catalyst, which for ALA is the commencement of Phase I clinical trials in the first half of 2023.

We will hold the majority of our position into the Phase I trial and re-assess our investment based on the results. As with all our early stage investments we will look to take some profit in the lead up to the key catalyst event, looking to sell ~20% of our position.

Disclosure: The authors of this article and owners of Next Investors and Finfeed, S3 Consortium Pty Ltd, and associated entities, own 13,631,579 ALA shares. S3 Consortium Pty Ltd has been engaged by ALA to share our commentary on the progress of our investment in ALA over time.

Investment Milestones for ALA

Initial Investment: @3.8c
🔲 Top Slice
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
🔲 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years

Investor Presentation

Anagrelide patent for the United States

ASX:ALA Apr 05, 2022 Announcement

Investment Memo: ALA IM-2022

ALA today announced that the US Patent and Trademark Office has accepted its patent application covering its legacy asset, Anagrelide, and the patent will proceed to grant.

Anagrelide is part of ALA’s OroMist portfolio of treatments and the US patent comes in addition to existing patents in the EU, Japan and Australia.

While not part of our Key Objectives from our ALA Investment Memo, we did flag that legacy assets could play a role in reducing cash burn and help ALA focus on their iNKT Cell Therapy Platform and DKK1-CAR/mAb in our portfolio launch note.

Anagrelide may prove to be complementary to drugs called checkpoint inhibitors.

Two of these drugs, Keytruda (Merck, generated US$17B in revenue in 2021) and Opdivo (Bristol Myers Squibb, US$7.5B in revenue in 2021) are the dominant treatments.

We think the muted market reaction to today’s news is indicative of the limited interest in ALA’s legacy assets. As recent ALA investors, we are looking for ALA to piggyback on the larger market for checkpoint inhibitors and derive some revenue from these assets.

ALA stated it intends to pursue this:

Arovella is actively seeking to find co-development partners to fund ongoing research or to out-licence the anagrelide intellectual property.

Here is why we invested in ALA and what we expect it to achieve in 2022 - ALA Investment Memo.

Share Purchase Plan completed, shares now trading

ASX:ALA Mar 17, 2022

Investment Memo: ALA IM-2022

The shares from ALA’s Share Purchase Plan (SPP) were issued to investors yesterday. Approximately 58m shares were issued @3.8c, raising a total of ~$2m, and we expected the share price to naturally come back down towards the capital raise price.

After peaking at ~4.5c — which represents an almost 15% profit for those who took shares in the SPP — the share price closed down ~9%. But this is completely normal with some of the shareholders who took up the offer looking to sell out for a quick profit.

The share price might trade sideways in the short term as SPP investors look to sell out for the quick profits. The positive is that when those investors sell, the buyers of those shares help to form a new base for the company’s share price.

We expect that with a new base for ALA’s share price and progress on the key objectives (as set in our 2022 Investment Memo) will see the price move in line with the company’s progress, as opposed to general market dynamics.

Below is an image of the objectives we want ALA to achieve in 2022:

New-T cell therapy approved for Multiple Myloma

ASX:ALA Mar 07, 2022

Investment Memo: ALA IM-2022

Last week the FDA approved a new CAR T cell therapy for Multiple Myeloma - the main cancer that ALA is targeting (source).

An in depth discussion of this development can be found at 1:19:22 on last week's episode of our favourite podcast - the All In Pod.

In there, biotech expert David Freedberg explains in depth the benefits of cell therapy in treating cancers compared to traditional chemotherapy as well as a high level overview on the limitations of the technology, including the exorbitant cost as well as the reliability issues.

The cost of the therapy currently sits around US$400-450K for a “one time shot” at eliminating the cancer, however Freedberg believes that the cost of the therapy “could be reduced to US$4000” through new innovations and technology.

ALA is involved in this cutting edge space by developing an ‘off the shelf’ cell therapy to mitigate the cost and reliability issues of existing cell therapy treatments.

In our 2022 Investment memo the first reason “why we invested in ALA” is based on the economics of these therapies and how we think ALA’s tech could potentially be the key to reducing the costs of these therapies through an “off the shelf” solution.

Check out our 2022 ALA Investment Memo here where you can read more about why we invested and what we want to see ALA achieve in 2022.