Good morning, everyone. Welcome to our Piper Sandler Healthcare Conference. My name is Yasmeen Rahimi . I'm a Senior Biotech Analyst here at Piper Sandler. Excited to have Avalo Therapeutics with us. Garry, thank you so much.
Thank you.
Obviously, it's been a great—2025 was an exciting year, but 2026 is going to be even more exciting.
Yes.
This morning, we noticed there was an Form 8-K that included a new deck. Obviously, I've been trapped doing fireside chats. What is the new information that was provided in the Form 8-K?
There's just one change, which is a small change, but I think significant in that we've announced that we're going to have data in the second quarter from the top-line data from our LOTUS trial, phase II trial of HS with AVTX-009.
Okay. That's a good topic to start. I think you announced enrollment completion October 29th.
We did.
If you follow our math, correct me if I'm wrong, it's 16 weeks treatment duration. There's a six-week follow-up.
Correct.
We're just estimating about four weeks- six weeks for time of analysis. That would put us into 2Q, sometime in the middle of it or in June.
We expect the last patient at last visit sometime around the end of March.
Okay.
Then we'll need a little time to clean and analyze the data, and then we'll come up with the top-line results.
Okay. Perfect. One of the things that you guys also did recently is, when you finished enrollment October 29, you over-enrolled the study, right? It was targeted to do 222. You ended up with 250. You have also said that the study is powered for 80% power to show a 20% delta difference in the HiSCR75 on a placebo-adjusted basis, and 90% power to show 25-30. What does that incremental additional upsizing allow you in terms of flexibility in your powering assumption?
Yeah. We were conservative in the way we did this, right from the beginning, even with 222 patients. We did enroll it. We allowed patients that were in screening at the time to enter. They qualified for the trial. That put us up over 250, which makes this one of the largest phase II trials that's ever been done in HS. It is now generously powered to show those differences. We were thinking, again, being conservative, we were thinking that we wanted to make the trial a little bigger, a little bit more robust, to get a little tighter estimate of the effect size that'll help us in planning phase III. Also, we wanted to do, which was part of our original thinking when we went to 222 patients, some subgroup analyses, for example, looking at patients who were bio-experienced versus not bio-experienced.
Within that group, we have some that are TNF experienced, some that are 17. That will give us a little bit more power to do that. We are really well powered now to show that difference at 80% power.
Before enrollment, there was some thought process on sharing baseline demographics of the LOTUS study. How are you thinking about that?
It is not the standard, right? We know that some of our peers in the HS field have done that before. We have not locked down whether we would or we would not. I must say that I think that those data probably are most meaningful to investors and to the scientific community when they are presented alongside the efficacy and safety data. You can evaluate them in their whole context. Again, we have not said we would not do it, but I think it would probably be most meaningful.
Okay. No, that makes sense. Maybe help us understand, since the study has finished enrollment, sort of where you ended up on percentage of patients that are biologically experienced, maybe baseline, and just broad spectrum. I know you had a target, but just broad commentary around the baseline now that it's done.
Yeah. That's a great question. We're very pleased with the demographics that we had. They're going to be, as everyone will see, very comparable to what most of the other peer group has done in the field with respect to age and gender and duration of the disease and so on. One area that we will be a little different than most of our peers is that we will have an increased number of biologically experienced patients. The main reason for that is we allowed both TNF failures and 17 failures to come in. That would make us a little bit more like brepocitinib, who did the same thing.
Okay. What do you think? Like 30?
Yeah. Something over 1/3 of patients will be biologically experienced.
Okay. That's helpful. Should we expect that you're going to have those subgroup analyses at the time of the top-line data in 2Q?
That is our intention, right, to try to do that. Maybe not every subgroup, but a meaningful subset of them.
Okay. You guys have obviously the competitor HS data set with the high placebo response shook a lot of investors.
Yes.
It also provided an opportunity for you guys to kind of share the hard work that you guys put into the study in terms of really ensuring very stringent site visits and qualification of the sites. Garry, it'd be great to kind of recap that, right? What is the total number of sites? How are the sites qualified? What is the cadence of the qualifications? I think all of these little things that you guys did could actually be incredibly helpful at the time of the top-line.
I mean, the reason for selecting HiSCR75 was that there was a favorable signal-to-noise ratio there with a lower and more predictable placebo response rate of 13%-18% historically. As I look at the trends, we haven't really seen that trend line change all that much. I know everyone's very concerned about the fact that the MoonLake VELA-2 study had a 26% placebo rate. That really is an outlier. If you look at the brepocitinib data that came out, they're well within that range. So were the BIMZELX data. I'm not as alarmed about that. We'd always been a little bit more conservative in our powering assumptions around what the placebo rate could be to begin with.
We also, as you said, right, we had around 90 sites in the trial with the majority of the patients and sites coming from the U.S. and Canada. We did have European and Australian sites as well. We did, first of all, select a very experienced CRO. That was a very deliberate choice to select Parexel. Why? Because they had done the BIMZELX studies for UCB. They were just fresh coming off that. They had great relationships with a number of highly experienced dermatologists, highly experienced at doing HS trials, and obviously a very successful result. We wanted to work with them. That has been a good decision. It has been a good partnership with them. We selected only, for the most part, board-certified dermatologists. Again, who were experienced in HS trials to start with.
I think only one or two of them were not board-certified dermatologists in the whole study. We then really trained the patients, and we did train the patients as well as the investigators on the placebo effect. They had to go through that training so they would understand what the placebo effect is, how you can avoid it, to make sure that they understood that they had to strictly follow the protocol. We were very strict about people using medications that.
You did that with the patients early on before they were eligible for this? Before we randomized patients.
Every patient that came in had to go through that training program as well as the investigators. We had developed our own special training module on lesion assessment, which is the whole ballgame in an HS trial, is assessment of the number of active lesions that these patients have, a video training program. There were two investigator meetings that we had with Tina Porter and Alexa Kimball. These are the experts and gurus in the field. They did that training to the investigators. Every one of them had to then pass an exam. There were 14 questions, and they had to score at least 80% before they were eligible to open their site. Beyond that, we monitored all these sites very, very carefully. Our own internal medical monitors were looking at the assessments as they come in.
If we saw anything that looked like it might be an anomaly or a deviation or inconsistency, we talked to those investigators. We did queries with them. In some cases, but in very few, did we have to do this. There may have been some retraining involved, but we wanted to make sure we got highly consistent results. We also insisted that they could have sub-I's, of course, in a 16-week study with follow-up. That's always something that's just a practical necessity. We insisted that the PI of record do at least the initial assessment and the final assessment in the trial. We would get as much consistency as possible. Any sub-I had to be approved by us. We were very rigorous about that. We also limited the number of patients that any one site could enroll.
We would have this no jackpotting effect in the trial. This comes from sort of long experience that both I and our team have had in doing clinical studies. All of that was to try to best manage the placebo effect. We know from experience that operational issues, if they're allowed to creep in, we've also kept enrollment going at a very steady rate. If you're trying to rush at the end because you're behind, that sometimes results in corners being cut, maybe some of the precise entry or exclusion criteria not being followed. We avoided all of that. I think we had really great, steady enrollment for the whole time.
Were the sites, once they were qualified, did they have to be requalified again? Other than an external also reviewing, making sure that.
Yeah. If we thought there were issues, we would make sure that they had to be requalified. If their performance was up to speed, we didn't do that.
Is there, given that the CRO that you selected, that random BIMZELX study, which was highly successful, were some of these elements of execution implemented in that study as well? Or a lot of these training of the sites, picking the dermatologists, making sure the patients know about placebo responses as well as the trained sites, keeping enrollment at the same pace, going to high center selections, were all these things implemented in the BIMZELX study? Are you guys aware of?
I can't directly answer that because some of this is proprietary information. I think what we did is we took a very strong core with an experienced partner and investigators, and we strengthened it as much as we could based on these things.
There's literally nothing more you can do. I don't even know.
I think we did really a very rigorous job on this. I mean, it is a variable disease. It can be impacted by hormonal changes. The weather can have an impact on it. Food. You want to be as rigorous in control of things you can control as much as possible.
Okay. Now let's kind of think about, before we go into positioning competitively, fast forward, you show 20% HiSCR75, which is the study's power, very well powered for. How are you thinking about which dose you would plan to move forward into a registrational study? Were several doses? How are you thinking about there's two pivotal studies that would be required potentially, whether you would stagger them or start them the same? What the design? Help us understand sort of the next step beyond the LOTUS data in 2 Q.
Definitely, the anchor dose for the phase three program will be one of the two doses that we've selected to test in phase II. Our preference, of course, because we know it would be better for patient compliance and more patient-friendly, would be the every four-week dose with the 600 mg loading dose. I think either one of them would be fine. If there's no appreciable or significant difference between the two, I would naturally pick the every four-week dose. Whether or not FDA will require an additional dose ranging in phase three will have to be determined by discussion with them. We have explored the upper end of the dose response curve. That was my intention.
Because I find when doing these studies, you want to get the best risk-benefit that you can, and you want to show to the agency that the drug is safe as well as effective at that dose, and then you can work down from that. We think we're going to be pretty much on the dose efficacy plateau with both of these doses. It is very difficult to, unless you go to a much lower dose, to get an ineffective dose. We will have that discussion. You try to have a dose which is going to benefit and still be safe for the largest number of patients hitting EC90. I think that is the discussion we will have with the FDA, bolstered by PK and what we hope will be really good safety and efficacy data.
The statute clearly, I mean, and there are ICH guidelines for this, how many patients need to be exposed, needs to be a 16-week induction phase and 52 weeks of safety data. Usually, the statute says more than one adequate and well-controlled clinical trial, which is usually taken to mean two studies. We know that the phase II trial, FDA does not usually accept those as pivotal studies, although they may still have regulatory value beyond just setting up phase III. That is all what we will discover in our end of phase II meeting with the agency when we go forward with this. I think you can look at what, and again, the exact powering of the study will be based on the treatment effect. You can look at what other companies have done and get a rough idea about what it would take.
We don't want to underpower the study, though.
Yeah. I think question for the two doses there you're exploring, I assume you would expect to get sort of a dose response that it would make it clear to move forward with the.
Yeah. I mean, I think if either or both doses are positive, you know, monoclonal antibodies are tricky to get a precise dose response on. Usually, until you reach a certain critical concentration, there is almost no effect size. Then they tend to go straight up, especially ones that bind cytokines, to reach the dose efficacy plateau or equilibrium saturation kinetics. Beyond that point, it is very difficult to differentiate. We will see where these two doses come out. They may both be on the upper end, in which case FDA may ask us to do a lower dose just to show them that there would not be an equally effective lower dose to give to patients. We will explore that with them when we come to that.
Okay. I think fast, like one of the questions that we get is sort of, I think investors understand that 002 is like 15 x more potent, has a much more longer half-life, and therefore could support every other week or once-a-month dosing versus lutikizumab, which is a weekly dosing. lutikizumab is currently in a phase three study in HS. Investors are always trying to figure out first step is like, what do you need to differentiate in LOTUS versus lutikizumab, given lutikizumab is going to potentially be on the market ahead of 002? We can start there.
The first thing to say about that is that there's plenty of examples of second, third, or even fourth entries into the INI market with drugs that are really not all that differentiated that still do very well, that become blockbusters. We just need to look at ILUMYA, for example, which is a late entrant in the IL-23 class, and it's already a blockbuster drug. We do think we have significant opportunity to differentiate from lutikizumab, both on patient-friendliness of the dose with a longer dosing interval, fewer needles to take, especially during the induction phase. We do think that because of the higher affinity, it's plausible that we can show higher efficacy in the trials at HiSCR75 and maybe even at 90 and 100. We'll have to determine that. I think that would be the big differentiator.
I think we expect to have a similarly benign side effect profile to what lutikizumab is going to show. I mean, some of the work that you've done and others show that at least 70% of dermatologists are very interested in a new mechanism, and in particular this mechanism, IL-1 beta, and what that might offer to them, both in terms of safety, efficacy, maybe better efficacy in the later stage, early stage three lesions, and so on. I think there would be room for both drugs even if they were not differentiated, but I think we have a very good chance to show some superior efficacy.
For investors who may have not taken a look at Avalo, if you could just put into perspective lutikizumab data both in the naive patients, which they recently shared at AADB, as well as the biologically experienced, maybe just kind of voice over what they showed, and also like how does that compare versus the IL-17 class and others. That could be very helpful.
Their data has been very exciting right from the beginning, and we were very pleased to see it. Initially in their control trial, they were all TNF alpha failure patients, and 71% of them were early stage three, as we've talked about before. Yet, they still showed an excellent treatment effect. If you look at the non-placebo subtracted effect size, it's in the mid-40% with the IL-1 beta class and what they showed with lutikizumab. The question remained, what would it be? I mean, do you need to focus on TNF alpha failures? Is there something different about them which makes them more likely to respond to an IL-1 beta? The biology of that never really made any sense. We were really happy to see AbbVie come out with their data in a biologically naive patient population.
Yes, it was open label, but it showed a crude non-placebo subtracted effect size identical to what they showed in the TNF experienced patient population. That put to rest, I think, the question about whether or not the drug would succeed in all-comer patients. Seeing all of that and seeing that their effect size is about 10 points higher than what we've seen with the 17s. Again, what you would expect, right? Because it's having an effect on IL-17, it's having an effect on TNF, it's having an effect on metalloproteinase, and it's having a big effect on neutrophils. It's doing a lot more than what any of the other cytokines are doing, being more central in the pathway. That made sense. Now, with our higher affinity, 15-fold higher, we expect to get higher penetration of drug into the lesions.
We expect to be able to reduce IL-1 beta levels, particularly in those, some of these patients are very heavy. They have high BMIs, high body weights. In that patient population especially, we might expect to have better neutralization of IL-1 beta and a better healing response. Again, I think it's very plausible that we might expect to see higher efficacy than what lutikizumab did. If we don't, if we're only equal to them, we still have the dosing interval advantage, the loading dose, and so on. I still think that will differentiate us, but we do have that chance to be better.
No, that's very helpful. Maybe, obviously, the company will be very active in moving the program into a phase three study. Maybe just talk about the capital needs for funding those. I know because this is in the audience. Maybe also think about what are other indications that could also be really exciting to move 002 in.
Yeah. I mean, the capital required for doing two large phase III trials, a year duration, is not small. We know that we're going to be out looking for capital. The opportunity is so large that I think it's going to be very fundable, and a lot of investors are going to get that, and there's going to be a lot of interest in the community for a drug like that. When we do achieve a positive phase II proof of concept, our cost of capital is going to go down. We should also have some opportunities to think about how we want to expand the company into other indications related. We want to stay focused on IL-1 beta. We think it's really a great mechanism with a lot of opportunity. There are a lot of collateral adjacencies in the dermatology space.
There are GI opportunities in IBD. We see AbbVie pursuing both dermatology and GI, as well as rheumatology, and especially combination therapies where IL-1 beta would be really a great partner. In the rheumatology space, as I've said before, we've been very excited about the crystal arthropathies, which are clearly IL-1 beta-driven diseases. Again, I want to stick with where we have a mechanistic advantage. And crystal arthropathies like CPPD, which is calcium pyrophosphate deposition disease, this is a disease where crystals are deposited into every joint, but the knee is particularly susceptible, the largest joint in the body, the greatest source of morbidity in arthritis. Those crystals cannot be dealt with except by being phagocytosed by macrophages, which then turn on the NLRP3 and other IL-1 beta releasing systems, and massive amounts of IL-1 beta are produced. That is a really tempting target for us as well.
We're going to look at all of that.
Wonderful. I had the chance of hosting Garry for Fireside Chat last year at our healthcare conference, and I was talking to him as he was kind of connecting the dots, right, of the story of lutikizumab's existing data, how it already achieved the highest bar. At that time, it was only biologic experienced, and you guys had the LOTUS study up and running, and the evaluation gap to HS was significant. Immediately, I will never forget, right? I walked out of the Fireside Chat, and I said, "I'm going to be covering you. I'm going to cover you. You're going to be a great stock call. And you have proven through your execution all the hard work that you've put into that.
Obviously, we will see more fruits of your labor next year. I think the stock definitely has reacted and has a lot more to go. I just want to say congrats. It's been honestly a pleasure working with you guys and seeing the great work that you guys have done. An incredible year ahead of us. For our audience, if you don't know Avalo, you got to take a look.
Thank you.
We have a table meeting at HS. Thanks.
That's high praise coming from such a great analyst. Very much appreciated. Thank you.