Alto Neuroscience is a clinical-stage biotechnology company headquartered in Mountain View, California. The company's mission is to redefine psychiatry by leveraging neurobiology to develop personalized and effective treatment options for neuropsychiatric disorders. Their general business focus is on advancing a pipeline of drug candidates for conditions such as major depressive disorder (MDD), schizophrenia, and bipolar depression, using a precision psychiatry platform to identify patient subsets most likely to respond to a given therapy. This approach aims to move beyond the traditional trial-and-error method of treatment selection.
Alto Neuroscience's lead products are a suite of candidates that utilize the company's precision psychiatry platform. The core of their approach involves using biological and clinical data, including electroencephalography (EEG) and cognitive tests, to stratify patients and match them to the most suitable drug candidate. This patient selection is designed to increase the probability of a positive clinical outcome. Their pipeline includes several key assets. ALTO-100, an oral small molecule, is being developed for bipolar depression and is believed to act by enhancing neural plasticity in the hippocampus. Patients are selected for this trial based on a cognitive biomarker, a verbal memory test. ALTO-300, a melatonergic agonist and serotonergic antagonist, is being developed as an adjunctive treatment for MDD. The mechanism of action is thought to increase dopamine and norepinephrine levels. Patients for this program are identified by a machine learning-derived EEG biomarker. ALTO-203 is a histamine H3 receptor inverse agonist designed for patients with MDD who have higher levels of anhedonia, with its mechanism of action thought to increase dopamine release in the brain's reward system. The company’s pipeline also includes ALTO-101 for cognitive impairment associated with schizophrenia (CIAS). The differentiation of Alto's approach lies in the use of objective biomarkers to guide treatment, aiming to improve upon historical success rates in CNS drug development by targeting specific biological drivers of disease rather than using a one-size-fits-all approach.
As a pre-commercial company, Alto Neuroscience has no revenue and reports consistent net losses from operations. As of the end of the fourth quarter of 2023, the company reported a cash and cash equivalents position of approximately $168 million. The quarterly research and development expenses for the same period were approximately $13.1 million, while general and administrative expenses were $5.8 million, leading to a total net loss of about $16.8 million for the quarter. Based on these figures, the company’s operating cash burn is approximately $17 million per quarter. The company has stated this cash position is expected to fund planned operations into 2027, through several upcoming clinical study readouts, suggesting a runway of around three years.
The market for central nervous system (CNS) disorders, including depression and schizophrenia, is large, with billions of dollars in annual spending and a substantial unmet need for more effective and personalized treatments. The current standard of care often involves a trial-and-error process with existing antidepressants and antipsychotics, which can lead to extended periods of inadequate treatment and patient suffering. Alto’s precision psychiatry platform addresses this inefficiency. The competitive landscape is crowded with established pharmaceutical companies and other biotechs developing CNS drugs. Major competitors include companies with approved products such as Merck & Co., Bristol Myers Squibb, and others with drugs for depression and other CNS disorders. Other biotechs are also exploring novel mechanisms. Alto’s differentiation comes from its biomarker-driven approach, which seeks to reduce the historical failure rate of CNS trials by targeting therapies to the patients who will most likely benefit from them.
Near-term catalysts include data readouts from its ongoing Phase 2 proof-of-concept trials. The company is expected to report topline data from the ALTO-203 Phase 2 trial in MDD and ALTO-101 in CIAS. The company is also continuing its Phase 2b trial for ALTO-300 in MDD and ALTO-100 in bipolar depression. In addition, the company recently went public through an IPO, which was completed in February, providing a new source of capital.
The bull case for Alto Neuroscience centers on its precision psychiatry platform, which aims to de-risk CNS drug development. The company’s use of objective biomarkers to identify patient subsets could lead to higher success rates in a therapeutic area with a high historical failure rate. A positive data readout from any of its four clinical-stage candidates could provide validation for the entire platform, creating value. The company’s long cash runway into 2027 provides a buffer to execute on its clinical plans without needing immediate dilutive financing. The potential for a first-in-class biomarker-guided therapy in a major CNS indication could attract significant partnership interest from larger pharmaceutical companies.
The bear case highlights the inherent risks of clinical-stage biotechnology. The company's success is entirely dependent on positive clinical trial outcomes, and the biomarker-driven approach has not yet been fully validated in a regulatory-approved product. A negative data readout from any of the upcoming trials, especially from the Phase 2b studies, could undermine the investment thesis and result in a loss of capital. The CNS market is intensely competitive, and established companies could develop competing biomarker-guided approaches. The company has a substantial cash burn and a continued need for funding to support its extensive pipeline, which will likely require future capital raises that could dilute existing shareholders.
We are neutral on Alto Neuroscience. The company’s approach is compelling in a field with a high unmet need, and the use of biomarkers to personalize treatment is a logical and potentially transformative strategy. The company’s pipeline is broad, and its cash position provides a solid runway to reach several upcoming milestones. However, the investment is not without significant risk. The entire model is predicated on the success of the biomarker platform, and a negative trial result could call the entire approach into question. The company has already had a setback with a prior ALTO-100 trial failing to meet its primary endpoint in MDD, underscoring the challenges of this space. The ultimate value of Alto will depend on its ability to replicate its biomarker-driven success in larger, later-stage clinical trials, and the outcome of these trials is still unknown.
This due diligence report is for informational purposes only and does not constitute financial advice or a recommendation to buy, sell, or hold any securities. The information contained may not be exhaustive or entirely accurate due to the dynamic nature of market information. Investing in biotechnology companies, especially those in clinical stages of development, involves risks, including the risk of substantial loss of capital. Clinical trial outcomes, regulatory approvals, and commercial success are inherently uncertain. Readers should conduct their own thorough due diligence and consult with a qualified financial advisor before making any investment decisions. The author has no personal financial interest in Alto Neuroscience ($ANRO) and has received no compensation for this report.