Good morning, everyone. I'm Sean Lyman, Head of U.S. Mid Cap Biotech Equity Research here at Morgan Stanley, and welcome to our Morgan Stanley Global Healthcare Conference. Before we commence, just to make you aware of some important disclosures. For those disclosures, please go to the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have the pleasure to host Alector with their CEO, Arnon Rosenthal, CBO and CFO, Neil Berkley, and Eric Brown, Senior Director, Antibody Discovery and Protein Engineering. Welcome, gentlemen. Maybe just some macro considerations to begin with before we dig into Alector. How are you thinking about the rise in China-originated innovation, and is it changing your competitive positioning and your R&D and BD playbook?
People are still suffering from cancer, from neurodegenerative diseases, from metabolic disorders. In my view, innovation in medicine is helpful and essential regardless of where it is coming from. I hope to see continuous innovation from the U.S. and from anywhere else in the world. I think that innovation sort of promotes even more innovation. I do see positively. For us specifically, so far the main competition or the main innovation from China is coming from immunology and cancer. Neurodegeneration is a more complex field with less clear pathways of how to get approval and less obvious drug targets and drugs. At this point, we don't see as much competition, and based on the inbound interest that we have from large pharma, we are still sort of a significant force in innovative medicine for neurodegeneration.
We are actually trying to use the innovation in China instead of fear it, so we work extensively with Chinese companies on the research stage level. We are looking at conducting possibly even clinical trials in China, means we are focusing on Alzheimer's disease and Parkinson's disease, and the available population in China is significantly larger and sort of they are just starting now to get up sort of updated with regard to clinical trials. We are exploring clinical trials in China, and we are absolutely working with Chinese companies to advance our own programs.
Amazing. Thank you. Second question on the macro, are you implementing AI across your business? If so, can you give an example where you've seen a benefit on cost, a benefit of function, maybe even a benefit on PoS assumptions?
Yes, we are implementing AI in every aspect of the company, and at this point, the main advantage or benefit is efficiency. We think we can achieve more with lower cost and fewer people. I f we are using AI to file our regulatory sort of applications, we are using AI to review business contracts. We are using AI to help design clinical trials. E very aspect of the company is assisted by AI. At this point, I think it's fair to say that actual drug discovery, like actual innovation, is still not there for AI. I don't think there are enough data to really predict a new drug target, means you can get help with analyzing a lot of sort of genetic data and clinical data, but I still think you need the human mind.
Sure.
To actually develop novel therapeutics. A t this point, we see AI as assisting with efficiency, but not really as much with actual innovation.
Yeah. Thank you, Arnon. Last question on the macro before we dig into the heart of Alector. E ven thinking generally or maybe specific to Alector, which policy variable do you consider the most important at the moment? Is it like the FDA? Is it Medicare negotiations, MFN, tariffs, global pricing? It's a lot to think about, but how do you generally think about those elements and what's the most important?
As a company that's sort of reentering the clinic in a few months, the most relevant for us is interactions with the FDA and the FDA in a way innovation or changes that we are really relying on are the Modernization Act. That reduces the amount of animal usage. Basically, the main costs in entering the clinic is non-human primate studies, and the FDA is proposing alternatives to non-human primates and maybe shorter toxicity studies, and we are sort of relying heavily on that. The second big thing is the surrogate biomarkers for clinical approval. I mean, so I think we are spending significant amount of time developing and trying to validate biomarkers as a sort of to both facilitate the sort of clinical development and ultimately clinical approval. I think the FDA is relying more and more on biomarkers, like the three anti-Abeta drugs that were.
Sure.
Approved, were initially approved based on surrogate biomarkers, the beta amyloid imaging. I think more therapeutics are being approved based on cell-based biomarkers. That's something we are looking at. The third thing is the increased frequency of interactions with the FDA. The FDA advanced multiple tools like INTERACT and pre-IND meetings that enables us to elicit feedback before we design our clinical trials. We are using this extensively with asking the FDA what their expectations are, what would be accepted on them, both with regard to clinical design, with starting doses, with toxicity study, with how many species we need for our pre-IND programs. We are interacting very constantly with the FDA to elicit information.
Wonderful. Thank you. Thank you, Arnon. Maybe some level-setting questions here to begin. Talk about the strategic shift to ABC. A year ago, Alector had a phase III program in FTD, GRN, and a phase II program in Alzheimer's. Today, neither remains. The GSK collaboration is winding down. The next clinical start is expected in 2027. How would you define to investors what Alector is today?
Alector has not really changed conceptually and philosophically.
We were started as a company that is dedicated to cure neurodegenerative disorders, to eradicate Alzheimer's disease and Parkinson's disease and Lewy body dementia and frontotemporal dementia, and our commitment to this mission remains. We took six drugs to the clinic under a certain hypothesis that brain-specific immune checkpoints could provide effective therapeutics for Alzheimer's disease and other neurodegenerative disorders. This specific hypothesis didn't pan out so far, but we are continuing now. We are advancing enzyme replacement therapies for neurodegeneration, blocking misfolded proteins for neurodegeneration. We are continuing to explore hypotheses for neurodegeneration with multiple different targets. We are advancing technology that enable delivery of enzymes, RNA, siRNAs, and antibodies to the brain. Yes, we were a phase III company. We are a pre-clinical company now, but we expect to be in the clinic by early next year. We'll again become a clinical company.
Our mission has not changed, just the type of drug targets that we are advancing has evolved.
Okay, good.
Can I just add one thing?
Sure.
Also, the team has been working on the Alector Brain Carrier for seven years. This is not something that we started last year. This is something that's got a really deep foundation and very good science. We've been at the forefront of the blood-brain barrier delivery space as well for many years now.
Yeah, sure. It's a very important point. Thank you. Maybe the core value driver today seems to us the ABC platform. Can you give us a bit of a detail on the ABC platform? You mentioned first patient dosing. Can you be a bit more precise on when that might occur?
I think just to give a brief overview of the platform, as Neil said, we started working on this well over seven years ago as a way to deliver our highly novel antibody targets into the brain. As we've worked on it over the years, we've realized that it actually enables the delivery of so much more than just antibodies, which is how we built out our GCase program, which simply wouldn't work without blood-brain barrier technology. Recently, we've pivoted towards siRNAs, where really pairing siRNA and blood-brain barrier really gives you amazing therapeutic potential. We've seen knockdown of up to 90% in certain targets in the brain. To get back to the last part of your question, we are looking to dose very early in Q2 in 2027.
I believe Arnon might know a little bit more on the specifics, but the platform is much more than just the Abeta drug.
Sure.
Yes. We have five drugs that we are advancing to the clinic now. The most advanced one is the anti-Abeta antibody, which is brain-enabled, that is expected to be in the clinic by April next year. We have Tau siRNA, which is brain-enabled, and there is some supportive data from the Biogen- Ionis clinical trial. We have Tau siRNA, which is brain-enabled. Again, that's alpha-synuclein siRNA, which is brain-enabled. Alpha-synuclein is the hallmark misfolded protein in Parkinson's disease. W e have enzyme replacement therapy for Parkinson's disease and Lewy body dementia. This is a GCase, which is a lysosomal enzyme that's mutated in a large percentage of Parkinson's patients and Lewy body dementia patients.
Sure. Maybe just on the resourcing of the platform. You reduced workforce significantly. What capabilities remain in-house and do you have the team in-house to move AL137 through?
Yeah, we absolutely have the capability. We did reduce the team, but that was actually an opportunity for us to implement a lot of AI tools to really compensate for the reduction in head count. We retained all our basic R&D capabilities, like in drug discovery, antibody and protein engineering, pre-clinical, non-clinical studies. We have a clinical team that's advancing AL137. We are a more nimble team, but we didn't really lose any core capabilities. B ecause of our smaller size, we are really implementing more AI to substitute for headcount. A lot of things that were done manually are now done through sort of computerized system. For example, we had a very large clinical operation team.
Sure.
We are sort of supplementing it with AI. W e are using a lot of outsourcing, including from China, to really substitute for our sort of smaller size. We think that with regard to capabilities, we found alternatives to the larger headcount.
Sure. Thank you. With AL137, first patient dose early next year, how should you, or how would you phrase the data map and milestones looking forward over the next few years? What would it look like?
We are going to start with healthy. Again, this is an anti-beta amyloid antibody that is brain-enabled. It recognizes the so-called pyroglutamate epitope on the beta amyloid peptide, which we think is the most toxic and aggregating sort of stimulator version of Abeta. We have a very potent blood-brain barrier shuttle that brings a lot of drug to the brain at very low dose. Our brain shuttle, because of the unique site that it binds the transferrin receptor, reduces the anemia risk. This enables us to use what is called the full effector function, full ability to recruit immune cells to remove beta- amyloid plaque. We are targeting a best-in-class drug that is going to be delivered subcutaneously once a month. We are going to start seeing data in healthy volunteers by Q2 next year. The healthy volunteers data here will show us pharmacokinetics.
This means we will have exposure data in the CSF, which in our case, based on non-human primate data, reflects very well on brain exposure. We will show multiple safety features. Anemia is a major risk factor for the brain shuttle that everyone is using. We are going to look at anemia. We are going to look at infusion reactions that competitors like gantenerumab are suffering from. We are going to show that subcutaneous delivery does lead to efficient exposure. By midyear next year, we will have a really good package of pharmacokinetics and safety. Right after that, we are going to move to patients. With brain shuttle, as was shown by, again, the Roche antibody, within three months you start seeing significant impact on the Alzheimer's pathology. By PET imaging, you should see reduction in Abeta plaques.
By serum and CSF biomarkers, you should see reduction in, for example, p-tau217, which is a reflector of Abeta pathology. We will be able to show minimized sort of effect on ARIA and other safety features. By the end of 2027, early 2028, we will have a good package.
Sure.
Of clinical benefit based on biomarkers and safety package.
Sure. Thank you. Just to maybe pinpoint to investors, what's the strongest translational evidence that you have that you can deliver meaningful brain exposure in a safe manner?
We have conducted IND-enabling toxicity studies and pharmacokinetic studies in non-human primates. We see with subcutaneous delivery at low dose, single- digit dose, we see brain exposure that significantly exceeds what in our calculation was reported by any other, either naked antibody or antibody with brain shuttle. W e see several-fold higher brain exposure. We see a very manageable hematologic sort of effect, and we don't see adverse effects associated with anemia. Again, our data suggests that a monthly subcutaneous delivery will be more than sufficient to get maximal brain exposure.
Just to chime in a little bit. On the platform side, beyond the Abeta antibody, if we look at our enzyme or our siRNA program, because we're able to utilize an effectorless Fc because it's not part of the mechanism, we've dosed at very high levels in non-human primates, up to 250 mg per kg, and we've seen no effect on hematological parameters. T here's an additional layer of safety on the platform.
Sure. That's very important. I guess, thinking about the platform more broadly and your competitors, donanemab-Denali's approval validates TfR and mediated transport, but also sets a pretty high competitive bar in our view. What does ABC do differently? Transport efficiency, brain distribution, dosing, manufacturability, or what we just discussed, the hematologic safety?
I would argue that the donanemab-Denali approval sets really a good standard for the field, but it's also, I would say, a relatively low bar. They picked a really good area to start with, right?
It's a rare disease where you can tolerate not a great route of exposure. They're doing weekly IV, right? Because they need that to drive enough enzyme in. Because it's an enzyme replacement therapy where there's no copy of the native enzyme, you only need to get delivery of a very low absolute amount of enzyme into cells in the brain to see a large therapeutic effect. It really is a great beachhead drug, but if we compare our drugs to theirs and what's been reported in the literature, the main difference that we see is much higher absolute level of brain uptake. We've seen this both with antibody cargos, with siRNA cargos.
With their enzyme cargo, they don't actually show the absolute level of brain uptake, but we expect based on what we see, which is around or higher than 10 nM exposure in the brain with our GCase drug, that we're also seeing significantly higher uptake of an enzyme replacement drug. For anything other than an absolute knockout, like for the GCase, we're looking to actually replace an enzyme that is half of the normal activity level. Rather than just getting a tiny amount in to catalytically remove a highly increased substrate, we need to actually double the amount of therapeutic enzyme that's in the native body. We've shown that we can do that in the brains of non-human primates.
I'd say first and foremost, the absolute level of brain uptake that we're able to drive, and especially the level of uptake we're able to drive into cells, is one of the main drivers.
Sure. Thank you. AL137 targets pyroglu form of Abeta, with potential monthly sub-dosing. Can you comment on the differentiation on targeting specificity and on administration frequency?
Yeah, that's a great question, actually. The two anti-Abeta antibodies that are on the market now, one of them is targeting the pyroglutamate from Lilly donanemab, and the other is targeting a soluble protofibril, like the N-terminal of soluble protofibril. This is lecanemab. They show generally similar efficacy. Donanemab, which targets the pyroglutamate, incrementally show a deeper removal of Abeta plaques, faster removal of Abeta plaques, and incrementally possibly better clinical outcome. We chose the pyroglutamate because of the comparative clinical data of donanemab and lecanemab. The other advantage of the pyroglutamate is that there is no pyroglutamate versions of the Abeta peptide in the periphery, so there is no what so-called sink effect. The antibody doesn't get stuck in the periphery. It all goes to the brain. We think that at lower dose, you can get the same efficacy.
The subcutaneous delivery and monthly doses are really related to the potency of our antibody and to the potency of the brain shuttle. Once again, as Eric said, we have very potent brain shuttle that enables several-fold higher exposure in the brain compared to competitor, and this really enables us subcutaneous delivery and monthly dosing. We think that the pyroglutamate target will be very effective in removing Abeta plaque.
Wonderful.
Yeah.
What do you think AL137 would need to demonstrate to be commercially relevant, versus approved anti-amyloid antibodies? Is it materially lower ARIA, monthly subcut administration, better plaque clearance, or some combination?
I think to a large degree, all of the above. I think you need to have extensive removal of Abeta plaques. We know based on the first generation of our antibodies, donanemab, lecanemab, aducanumab, gantenerumab, and crenezumab, that partial removal of Abeta plaques does not lead to clinical benefit. The Roche antibody gantenerumab reduced Abeta plaques by 60%, 70%, was not associated with any clinical benefit. You need to reduce Abeta plaques by 80%, 90%, 100% to see clinical benefit. E xtensive removal of Abeta plaques is really essential. One of the main sort of predicted benefit of brain shuttle-associated anti-Abeta antibodies is reduction in ARIA or elimination of ARIA, so we have to show that. You have several questions around the ARIA. This is actually a great question.
The hypothesis is that with brain shuttle, the mode of entry of the drug to the brain will eliminate ARIA, but so far we have only one example that with the Roche antibodies, so we actually have to see.
Yeah.
If that's the case. W e need to show extensive and rapid Abeta plaque removal. We need to show no ARIA. I think the subcutaneous delivery will be significant advantage. The Roche gantenerumab is still being delivered with IV infusion that require infusion centers, and it's much less convenient and scalable. B eing able to deliver drugs subcutaneously, likely at home once a month, would be a significant advantage. Also minimal anemia or hematologic adverse effects, which are the side effects that comes with the brain shuttle technology. I think you'll have to be competitive, you have to show all of the above.
Sure. Okay, moving on a little bit to just some financing and strategic questions. Y ou finished the period, I think, with around $170 million cash on balance sheet. Does that get you through to proof of concept data, or does it only get you to the initial dosing?
No, our current capital allows us to get into patient dosing.
Okay.
The patient trial.
Got you.
We have a lot of flexibility financial. We announced that, yes, we have enough resources through 2027, but we have a lot of flexibility of how we use the resources.
Yes.
How aggressively we advance other programs.
Sure.
Also, we have a lot of inbound sort of partnering interests that could or would bring additional resources. We think we will be able to go to absolutely proof of concept in patients with the resources that we have and will gather.
All right. T hat leads into the next question, which is the financing strategy to partner the ABC platform, partner individual assets, or advance AL137 independently and raise against early human data?
Maybe I'll take that. The way we look at partnering is that we're asset- focused on partnering. We do not typically look at broad platform deals.
Sure.
Monetization of the platform. We're in the fortunate situation to have multiple assets and across the board, there are companies who are interested in all the different assets we're doing. We are very focused on moving Abeta through to clinical proof of concept ourselves. We are open to discussing other programs and partnering opportunities. We're very active in the partnering space and hope to be able to close one of those in the short term.
Got you. Thank you. I look forward to that. Moving on a little bit on to some of the follow-on platform programs, AL164 is a modified version of AL064, moving into IND-enabling studies. Why the reformulation? Can you talk about the changes you've made that increases your confidence in the program?
Yeah. AL064, in a sense, was a proof- of- concept study that we could deliver and significantly knock down Tau in the non-human primate brain. Between AL064 and AL164, we simply made some tweaks to the chemical modification on the siRNA, using well-validated chemical modifications that are designed to increase the stability of the siRNA. This gives us really good confidence because already with AL064, we were seeing significant knockdown of CSF Tau that was lasting up to 70 days post-administration. Now with stability-enhancing chemical modifications, we're also seeing stronger initial knockdown for AL164, especially with subcutaneous administration than we saw with AL064. Putting those pieces of data together, it gives us really good confidence that we'll have both high level of absolute knockdown and also a sustained knockdown of both Tau mRNA and Tau protein.
We now have data with AL167 in non-human primates.
That sort of on our on the corporate deck that we just posted and with sort of AL164, we do see over 70% knockdown of Tau mRNA with subcutaneous delivery. We think based on our other data that it is going to be durable for at least three months.
Yeah.
We have a potent what means we don't see any safety signals, so we think we have a potent, safe and durable anti-Tau drug that can be delivered peripherally, subcutaneously, and could be very competitive with the Biogen- Ionis drug.
Sure. It sounds really interesting.
Maybe moving on to AL050. It showed increased GCase activity in NHPs with no hematologic findings. I believe others have ETV GCase program too, like Denali. What is the differentiation and what is the IND timing?
I will take the differentiation part. We extensively engineered our GCase enzyme to have both greatly enhanced activity, like more than 50-fold increase in activity over the native enzyme, but also greatly enhanced stability, also 50-fold increase in stability over the wild type enzyme. Then we had to search and pair it with the exact right anti-TfR ABC. We conducted multiple NHP studies. It was only when we paired the most active GCase with the most optimized TfR that we were able to see that 100% increase in activity in NHP brain. To my knowledge, Denali has not shown NHP data showing that level of it. I have not actually seen any in NHP data for their program. One thing we have seen working over this program for seven to eight years is that really the translation from mouse to NHP is the biggest hurdle.
There are a lot of things we tried that work in the mouse and show great data, and then you put it in the NHP and they just do not show.
Right.
The same level. We think having that level of data in non-human primates is what makes us really confident we can move this program forward.
Yeah. Our main differentiation is that our drug actually works in non-human primates. That's a good predictor for human, and we are not aware. Multiple companies, you said Denali and Roche, reported data in rodents. Rodents are much easier to cure than non-human primate and humans. The transition from rodents to non-human primate is something that we were the only one who were able to demonstrate as far as we know.
Thank you. Beyond AL137, which program offers the fastest path to demonstrating that the ABC platform is repeatable versus a single asset story?
After the AL137, the second most advanced drug that we have is the Tau siRNA.
We have two Alzheimer's programs that are advancing to the clinic. For both programs that are really good imaging and biomarker tools that with a fairly small cohort of patients with a fairly short timeframe of three to six months, you can start seeing efficacy for Abeta, the PET imaging for Abeta, the soluble biomarkers, p-tau217, Abeta 40 to 42, means can give you really good indications of efficacy. For Tau, the Tau PET imaging and multiple measurements of total Tau and phospho-Tau can give you indications of efficacy. These two Alzheimer's programs, I think by next year, we will start hopefully seeing some data that will indicate that both the drugs themselves and the technologies are working. Beyond that, we have the two Parkinson's program.
One is the enzyme replacement therapy, and the second is the alpha-synuclein siRNA that also is advancing. For example, for alpha-synuclein siRNA, we see 94% knockdown of mRNA with subcutaneous delivery, which is very profound. We think we have, again, two drugs for Alzheimer's disease, two drugs for Parkinson's disease that look very promising, and they're all advancing.
Fantastic. Y ou have got five programs advancing towards the clinic. AL137 will get data next year. Maybe some differentiation there with subcut dosing, hematological safety, and we look forward to the safety and maybe some efficacy data at some point. You've got cash runway, $170 million finish to the quarter, gets you through 2027, will get you through proof of concept data. You've got good pharma interest on potential partnering opportunities across the pipeline. Now, I've come to the end of my questions. Is there anything that I've missed, or anything I should have asked that I didn't, or any message that you'd like to leave investors with?
I think you summarized it really well. Y es, I think that some investors define us that we are still in the penalty box because of our past portfolio. We have now a completely new portfolio of drugs that's really much more validated, like the risk associated with anti-Abeta antibodies, Tau, siRNA, alpha-synuclein siRNA, GCase. These are all validated programs based on human genetics, based on past experience. We have great technology to transport these drugs to the brain. I think our next wave of drugs is much more likely to succeed. We have the resources and the tools and the experience to get it done. I think people still underestimate the value that we can create in the next two, three years.
Wonderful. Well, that might be a nice place to park our conversation.
That's good.
Thank you for attending. I appreciate you coming.
Thank you.
Thank you.
Thank you.
Great questions.