Good afternoon, everyone. Welcome to Guggenheim Healthcare Innovation Conference. My name is Yatin Suneja, one of the biotech analysts here at Guggenheim. Our next presenting company is Avalo. From the company, we have a few executives here, but we will be chatting here with the Chief Executive Officer, Garry Neil. Garry, why do not you make some opening comments? Tell us about Avalo story. Tell us about the asset, where it came from, what you are doing right now, and then we will go into the Q&A.
Great. First of all, Yatin, thank you very much for inviting us and doing this. It's very much appreciated. Always a pleasure to be here. Avalo is a publicly traded company, AVTX on the Nasdaq, located just outside Philadelphia, the main line. We recapped the company last year and brought in a new asset, AVTX-009, a very high affinity human anti-IL-1 beta monoclonal antibody, and we're aiming at the indication HS. The antibody originated with Lilly. They originally discovered this, developed it for type 2 diabetes, and they did show an effect in patients. There is an inflammatory component, after all, to type 2 diabetes, with a moderate effect size of about 0.25 g-0.3 g reduction in hemoglobin A1C. That was considered inadequate to develop a biologic.
Although I would have to say it's in the same neighborhood as an SGLT2 inhibitor, and that's a fact that we would like physicians to remember because the HS population are actually challenged with prediabetes and type 2 diabetes. In any event, they didn't move forward with it, and the company changed hands once before we got it with Flame, who were looking to develop it in non-small cell lung cancer. They didn't really move forward with it, and when that company liquidated and sold themselves to Leap, it became available, and we grabbed it. We recapped the company in 2024. A lot of really top flight biotech specialist investors coming in. We raised $185 million, and we basically had a core team ready.
I expanded that a little bit, and we rapidly got an I&D open and started a trial, the LOTUS trial, towards the end of last year, a phase II-B proof of concept study, which we can talk more about later. I'm happy to report that that study is now fully enrolled. It was fully enrolled at the end of October, and we're expecting data out in mid of next year in HS. We are very excited about all of that.
Very good. Maybe if we can spend a little bit of time on the mechanism. I mean, IL-1, not just beta or alpha, has been out there for a while. There is a lot of development. I've heard you talking about it multiple times, but still, I want to repeat the same question again. How do we make sure it's the beta that is driving sort of the benefit? What exactly is the mechanism, and how does it play a role in HS, and in what compartments of HS?
Yep. IL-1 beta is a master regulator of the immune system, and it lives basically at the intersection between the innate and the cognate immune systems, if you like, subsystems. It is responsible for coordinating a lot of inflammatory activity, which is usually directed against bacterial infections, but it is also responsible for coordinating the destruction of tissue, and I'll come back to why that's important in HS, the liquefaction of tissue through the metalloproteinase system. These lesions start in the hair follicle, which becomes inflamed, drives an initial chronic inflammatory signal through NLRP3, which releases IL-1 beta. It becomes liquefied through this system and turns into more or less an abscess. IL-1 beta also attracts in neutrophils, so this becomes a very neutrophilic lesion and macrophages.
The neutrophils, of course, elaborate a lot of additional destructive enzymes, and the macrophages release a lot of TNF, and they're busy phagocytosing some of the debris left over in the abscess. IL-1 beta is responsible for driving TNF, which is a validated target in its own right in the system and in other diseases. Moreover, IL-1 beta turns on the Th17 T cell system, which releases IL-17, all the subunits of IL-17, including A and F. They, in turn, basically reinforce both TNF production as well as additional IL-1 production. You can see from all of this that IL-1 beta really is the bullseye and the master regulator of the inflammatory response that's going on inside the lesions with HS.
When you measure IL-1 beta levels, either protein levels or messenger RNA in these lesions, it is the most abundant cytokine and regulator that you find inside those lesions. That's why we're so excited about targeting it with a high affinity antibody that neutralizes it in the lesion.
Is there evidence that shows that IL-1 alpha blockade is not effective in HS?
Right. IL-1 alpha has a distant relationship to IL-1 beta. They share about 25% sequence homology, and they do both bind to the IL-1 receptor, but the similarities really end there. IL-1 alpha, unlike IL-1 beta, is an alarmin. It is expressed mostly on the surface of every normal epithelial cell in the body: the skin, the lung, the gut. Its function is to basically signal cell injury to the rest of the body and institute an acute inflammatory reaction, which usually leads to apoptosis of the epithelial cell that's been impacted. It plays a minor role in stimulating IL-1 beta production locally in those situations, but that's really the end of the story. It is not a player in chronic inflammation in HS.
If you measure IL-1 alpha levels in the lesion, yes, you find them there as you find them in every normal epithelial setting in the body, but the levels are not elevated. We also know from experiments that have been done in HS, neutralizing IL-1 alpha, J&J did a study with a drug called bermekimab, which is a high affinity anti-IL-1 alpha blocker, pure IL-1 alpha blocker in HS and in atopic dermatitis. In both of those experiments, there was really negligible drug effect on the disease, even though positive controls with, for example, HUMIRA showed that the experiment was successful, but the drug just did not have any activity. I think we can basically rule out IL-1 alpha as a target for HS.
Got it. Got it. I think the reason I ask you all of these questions is to sort of understand how you are differentiating relative to the AbbVie lutikizumab, right? So I think I understand now the differences. Can you put in perspective what is appealing about the lutikizumab data? Because earlier, they only had data in advanced patient or bioexposed patient. Now they have data in naive patients. If you can put both of them together and tell me, or tell us, what is the excitement there?
Right. For the benefit of people that may not know, lutikizumab is AbbVie's bispecific anti-IL-1 beta, anti-IL-1 alpha drug. It is a reasonably high affinity anti-IL-1 beta and alpha. It suffers from the same disadvantages that other bispecific drugs do, which is that it has a shorter half-life as a consequence of modification of the structure. Theirs is down to about 10 days, which is about half of what our drug is. It does have a lower affinity by a factor of about 15 for the IL-1 beta target, which, as I said, is the target that is of importance here. It also has a lower bioavailability than our drug.
The disadvantage of having the second binding domain, IL-1 alpha, I think originally before they'd seen the bermekimab data and they came up with this molecule, there may have been some interest in trying to see if you could inhibit both cytokines that that might give you an advantage. What happens is, and again, I don't have data. This is basically first principles here, but you would expect the IL-1 alpha targeting of that molecule to pull that drug largely into normal tissue, so binding to normal cells throughout this giant sink of epithelial cells throughout the body. That will dilute its effect relative to ours. Now, despite that, they've enjoyed very good success with this antibody, and we were very impressed by it. It is, I think, a very credible proof of concept for our drug in HS.
They showed in a randomized double-blind control trial at the American Association of Dermatology last year, they showed that their drug was as effective or more effective than any of the other currently approved drugs against a very sick population with HS. By sick, I mean this was a population of 100% TNF-exposed, TNF-resistant patients. More than 70% of those patients were early stage three, which is the highest stage of the disease. Very severe disease. Despite that, with both their effective doses, 300 mg, either weekly or every two weeks, they were able to show a drug effect size of approximately 46%, placebo-subtracted about 25%. Now, 46% may not seem like a lot that you're successfully at the endpoint was HiSCR75, which is a stringent endpoint.
I have to say that this is 10 points higher than what we've seen with the best 17 data. We were very, very impressed with that. The drug was well tolerated, had an effect on healing tunnels and lesions. Despite the fact that it has the less than desirable characteristics, they were able to show very good data. They also recently showed data. I mean, people have asked the question, how do you know it's going to give you the same effect in a biologically naive patient population? After all, aren't most patients with HS biologically naive? Of course, they are. They did a study, an open-label trial in 47 patients. They revealed the data at EADV this year. In that study, they showed virtually an identical treatment effect to the randomized placebo-controlled trial, about 46%. Again, very well tolerated.
Again, this really settles the issue about whether or not the IL-1 beta mechanism, which you'd expect, but it conclusively proves that it is effective across the entire spectrum. In these biologically naive patients, a much higher proportion of them were early stage two than three. That is basically the proof of concept. Now, we think we certainly will not do worse than that with our molecule having a 15-fold higher affinity, but we have a very good chance of actually doing better. Why do I say that? I think it goes back to the particulars of the HS lesion itself. These lesions are abscesses. They are essentially pus under pressure. You can measure the pressure inside the lesions. It is about 80 mm of mercury when it has been measured versus 20 mm or so in normal skin. You have this massive pressure gradient.
Now, macromolecules, in fact, even micromolecules cannot diffuse against that pressure gradient into the lesion. That is where you have to get the drug if you want to be effective. That is where the IL-1 beta is that you want to neutralize. How does the drug get in there if it cannot passively diffuse? There is a lot of controversy about this and people talking about smaller molecules and nanobodies and so on. None of that really plays a significant role. What is really going on here is affinity pull or towards the affinity gradient towards the higher concentrations of IL-1 beta. Here we have a big advantage because it is proportional. The ultimate concentration of drug that you end up with in the lesion is proportional to the affinity of the drug for the ligand, and in our case, 15-fold higher. We have a higher drug concentration.
It stays there longer. It has higher neutralization capability. Therefore, we should end up with a lower IL-1 beta concentration in the lesion, which gives us a really excellent chance of having even better efficacy than AbbVie had seen. So far, as I said, they've been the benchmark. That's why we're so excited about it.
Got it. Got it. LOTUS study, as you mentioned, has completed enrollment recently. Talk about the assumptions for placebo there. What exactly have you done to mitigate the placebo responses? I mean, obviously, we have seen placebo, especially in HS, being very tricky.
Yep. This is a three-arm randomized double-blind study, two arms on drug, one on placebo, one-to-one-to-one randomization. We initially powered it at 180 patients for 80% power to show a difference of 25% using a 20% placebo rate. I have to say that if you look at the basically band of placebo responses over the last 10 years or so in all the studies that have been done in HS using HiSCR75 as the endpoint, they range from 13%-18%. There are a couple of outliers. Of course, the VELA-2 trial is the most outlier of all of them at 26%. Most of these fall within that range. It has been pretty tight. We were conservative. We went to 20%. That was when we had 180 patients.
As we saw the trial enrolling well and us ahead of our projected enrollment targets, we took advantage of that fact, and we decided to increase the size of the trial. In addition to that, we over-enrolled it by about 10%. We ended up with 250-plus patients in the study that were randomized. This gives us power to get into the mid-20s on the placebo effect size if it came to that based on a presumed effect size for drug similar to what AbbVie had shown.
Yeah. Now, so what would you like to see? I mean, obviously, it's a differentiating mechanism. I think VELA or MoonLake was going after the same mechanism. The question that I have for you is, is the bar different for you? Or what is the bar that you think that you have to achieve?
Right. I think, first of all, it is a different mechanism. We also have a different dosing regimen. We're using a loading dose or starter dose of 600 mg for our top dose. That gets patients into the therapeutic range on the very first dose, so faster onset of action. Then 300 mg every four weeks or 150 mg every two versus placebo. We will be differentiated immediately based on our dosing regimen and what we hope will be faster achievement of therapeutic effect. Again, the IL-1 beta mechanism has so far shown to be the most efficacious in HS against all of the other mechanisms that have been studied. That's based on the AbbVie lutikizumab data I referenced earlier. Since our drug is that much more potent, we think we have a serious chance of being even better than that.
However, we don't have to be. I think having a different, we don't have to be better than an IL-17. We don't have to be better than lutikizumab. We'll be differentiated based on the mechanism, our safety profile, and also our dosing regimen. I want to emphasize that we do believe that we have a good chance to be better.
Got it. Got it. How would you characterize the patients in the LOTUS study ? Are they more similar to the UCB or MoonLake study or more like, yeah, just curious.
In most respects, they are, in that we're looking at an age, gender, weight demographic, which is similar to what they had. We're looking at a number of active nodules similar in number and draining tunnels similar in number to what was seen. Where we are in the other sponsors' trials, where we are different is that we allowed both TNF and IL-17 failures into the study. By doing that, we increased the number of biologically experienced patients a little higher. MoonLake had about 20%. We'll have something a little bit over a third. Within that group, it's about evenly split between TNF failures and IL-17 failures. The size of our trial should allow us to make some subgroup comparisons in that regard. Other than that, people should expect a study which is quite similar.
Geographically, we did our trials in or we're doing the trial in the United States, Canada, Australia, Western Europe, with a few sites in Eastern Europe. We've stayed out of places like France and Spain, and we didn't have very many studies in Bulgaria. I know that in VELA-2, they had a lot of their sites in some of those countries. We also used Parexel as our CRO. That was the same CRO that UCB used for the BIMZELX trials. We got a lot of those investigators who were highly experienced. We also trained them very rigorously on the protocol. We even gave them training on the placebo response, by the way. I think it's important for people to understand that they need to be as objective as they possibly can in doing these assessments.
It doesn't help anybody if you're a little bit more generous in your scoring system. We want the absolute truth ruler flat. So we did all of that and carefully monitored and partnered with the CRO. I think taken together those measures, plus the fact that we continue to have a good steady enrollment rather than trying to rush at the end where things could be compromised to avoid any of those issues that, in my experience in the past, have been associated with a decreased separation of drug from placebo.
Got it. Got it. In terms of the statistical plan, how are you imputing for non-responder, and how are you handling antibiotic usage?
Yeah. So that's the one choice you have with the estimand protocol, which has been devised by the ICH. It's a kind of a complicated scheme. We don't have time to go through all of it, but it's rather interesting reading. You do have the choice of how you impute subjects who've used an antibiotic for a lesion or disorder other than HS. You can choose to call those patients or count those patients as non-responders, even if they responded, if they took, let's say, amoxicillin for a strep throat or for an infected toenail or something like that. You can just basically evaluate them according to their actual response in the trial. I think it's more scientific to impute them based on how they actually responded in the trial rather than artificially calling them a non-responder and let randomization take care of it.
BIMZELX chose the other method. I think that that ended up reducing their overall efficacy by several percentage points. I do not know whether it helped the placebo response or not, but I think an analysis showed that it did not make much difference. I think this is the right way to do it, and that is how we will handle it.
Okay. Okay. Very good. AbbVie is running, I think, multiple studies with their drug. How are you thinking about indication expansion beyond HS?
Right. AbbVie is investing in the drug in a very appropriate way and doing a lot of exploratory studies across the IL-1 spectrum. They have chosen, in addition to HS, AD in dermatology, they are doing rheumatoid arthritis and psoriatic arthritis in rheumatology. They are doing, and they have done really, monotherapy in Crohn's disease as well as dual therapy with SKYRIZI in Crohn's disease. Those are all very interesting indications and highly plausible from an IL-1 beta targeting point of view. They have reported but not shown the data yet from the ulcerative colitis trial. They did say that lutikizumab was numerically superior to HUMIRA in the ulcerative colitis trial, but they did not feel that the magnitude of drug effect was sufficiently high to merit a monotherapy trial. They are putting more of the emphasis on the dual therapy with Crohn's disease. We are interested in all of those indications as well.
In addition to that, we're also interested in crystal arthropathies, which I think is a big category.
Like gout, right?
Yep.
All right. Very good. Final question. How's the balance sheet?
Balance sheet is good. We have $115 million. It's enough to get us through data and get us into 2028. We'll be raising for phase III, of course.
Very good. Very good, Garry. Thank you so much.
Thank you.