Thank you. Thank you. Good morning, and thank you for your patience. Welcome to our next session here at Oppenheimer's 36th Annual Healthcare Life Sciences Conference. I'm Leland Gershell, one of the Analysts here, and we've been covering Avalo Therapeutics for some time, which we like the story very much in hidradenitis suppurativa, for which we expect a key clinical readout coming up next quarter. We have from the company Dr. Garry Neil, who is the company's Chief Executive Officer, and please post any questions you'd like to work into our Fireside Chat. First of all, welcome, Garry.
Thanks, Leland. Glad to be here.
Terrific. Yeah, I mean, you know, HS, I think just to set the stage here, it's been described as, you know, one of the more exciting emerging therapeutic areas in inflammation and immunology, still underdiagnosed, undertreated, despite having an incidence that seems to be comparable to some of the more major immune indications. How, how do you frame the addressable U.S. market in HS?
We know that it seems to be over 1% of the U.S. population, which is a big surprise to many people who thought of this as a rare disease. Still underdiagnosed, as you suggest, there's a very long lag time between patients first presenting to their GP, recognition of the disease, and them ultimately being referred to a specialist who can give them definitive therapy. That lag time is measured in the 8-12 year sort of time period. As there is increasing recognition, we expect that to shrink with more rapid referral and more definitive treatment, and that's going to help grow the market. There are already three compounds on the market approved, and the aggregate sales is in the multiple billions of dollars and growing very fast.
Let's jump right into your program. You're developing AVTX-009. That's an anti-IL-1β monoclonal antibody. As I mentioned, we expect a top-line phase II reveal in moderate to severe HS in 2Q.
Right.
Can you walk us through the rationale for IL-1β inhibition here and the unique value proposition for AVTX-009?
Yeah, we're really excited about the program. The IL-1β as a target is right at the bull's eye of the inflammatory process that drives this disease. It is one of the neutrophilic dermatoses, so the lesions that these patients get, small boil-like lesions, abscesses, throughout the body, but often in very sensitive parts of the body, are packed full of neutrophils. They're basically pus under pressure, and you can measure very high levels of IL-1β in each of these lesions. IL-1β is a really good target because it not only drives neutrophil ingress into the lesion and the production of all of the enzymes associated with that, it also turns on the matrix metalloproteinase system, which basically liquefies the tissue and helps to form the abscess and the drainage tunnels and so on, fistula.
It's also upstream of two very important and well-validated targets, namely TNF, which comes from macrophages and for which is a target that Humira addresses, was the original drug approved, and also the TH-seventeen IL-17 pathway, and there are a couple of drugs approved for that in, there as well, Cosentyx and Bimzelx. IL-1β is upstream of that, so you're really getting a very central target by targeting IL-1β.
As you mentioned, these lesions can have kind of pressure in them with fluid, and the compound is distinguished by particularly high affinity as well as specificity for IL-1β. You know, how should we think of that, those, that properties as being advantageous in this kind of setting?
Yeah. One of the challenges is you have to get drug into the lesion to be able to cool down the inflammation and allow the healing process to continue, and drugs have a very difficult time entering these lesions. They are effectively pus under pressure, and the pressure has been measured to be as high as 80 millimeters of mercury, which is about 4 times higher than the surrounding tissue pressure. Even small molecules, let alone, monoclonal antibodies, have a difficult time getting into these lesions in sufficient quantity to have any benefit. One of the things we take advantage of is we have a very high affinity monoclonal antibody. Antibodies ultimately are able to penetrate the lesion, and they do so by virtue of the fact that they follow the affinity gradient towards the target that they're binding.
The higher the affinity the antibody has, the higher the concentration one would expect to have in these lesions. We're very, very fortunate, and we targeted this particular antibody, AVTX-009, because it is a very high-affinity antibody, the highest in the class, and so it does give us an advantage of being able to get more drug into the lesion. It'll also increase the dwell time and increase the neutralization of IL-1β in that lesion to allow for better healing.
Great. The LOTUS trial is, it has the primary endpoint of the HiSCR75. That's a 75% or greater reduction in abscess or an inflammatory nodule count, with no increase in abscesses or draining tunnels.
Correct
from baseline, and that's a deeper level of response than the HiSCR50, which many people are familiar with. That's been kind of the standard for other programs and approvals. You know, from the investor's point of view, how should we think about the HiSCR75 and the advantages of this analysis as well as, you know, likely to achieving the threshold?
Right. There are two really important advantages: one, the 75% reduction level is much more clinically relevant to patients and physicians than 50%. Obviously, they'd prefer 100%, but 75 is getting them closer to that. Two, the signal-to-noise ratio is improved in clinical trials when you use HiSCR75 versus HiSCR50. The placebo effect using HiSCR75 has been fairly consistent between the 13%-18% level across a variety of trials and different mechanisms. There have been 1 or 2 notable exceptions, but it's generally stayed in that range, even in recently reported trials. That's why we've tended to focus on that as the primary endpoint. That said, we're going to be reporting data from HiSCR50 measurement, as well as HiSCR90 and HiSCR100, in addition to HiSCR75. We're giving a complete response data set to the market.
I just want to touch on, you know, the placebo response potential. You know, we saw MoonLake's data last fall with sonelokimab, which achieved statistical significance on one of its phase III trials in the HiSCR75, and then just missed on the other with an unusually high placebo response. You know, how do you think about this kind of risk, you know, in LOTUS? Do you have any design implementations that could help mitigate that impact?
It was a real shame on the sonelokimab trials because they had a what really looks like an anomaly in the placebo response at week 16. Even the previous visit looked, had a lower placebo response. It was only 1 of the 2 trials, a little bit of bad luck there. What we've done is to try to manage the placebo response. We've done a fairly large trial, over 250 patients, which is large by phase II standards. We selected deliberately Parexel as our CRO partner because they had executed the BIMZELX trials for phase III, they were just rolling off those and had a number of highly experienced investigators.
We were pretty impressed with the job that they did with BIMZELX in managing the placebo. We were fortunate enough to get Alexa Kimball as our Principal Investigator, very experienced, who gave us a lot of advice and guidance in designing the trial and implementing it. We've also worked with Dr. Martina Porter at Harvard, who's one of Dr. Kimball's colleagues, and she helped us to design a training module, a video training module, to train investigators on the primary endpoint. We also did special training on the placebo effect for the investigators and also for the patients. We've monitored the trial against the primary endpoint pretty carefully.
We've tried to keep a nice, even enrollment rate, trying to avoid any last-minute addition of sites or ramping up enrollment to avoid any quality discrepancies, and we've tried to keep the trial in More developed countries in the EU. There are a few Eastern European sites, but not that many. Majority of patients are coming from the U.S. and Canada, and we have a few sites in Australia as well. Taken altogether, we think this is going to help us to be able to manage the placebo rate and the quality of the trial in general.
Great. You know, presuming success in LOTUS, you know, what are your thoughts in terms of phase III design and the registration path? I, and I ask this not only with precedents in HS, but also with the recent FDA guidance for a single pivotal trial being sufficient for the majority of approvals going forward.
Yeah, we definitely took notice of that when we saw that article in the New England Journal. We're definitely going to follow up with the FDA at our end of phase II meeting to see whether or not there's an opportunity for us to be a little bit more efficient in our trial design. What most sponsors are doing short of that are 2 well-controlled trials, 16-week induction, and then a 52-week follow-up. AbbVie has done a single larger trial with FDA input. Well, we may be evaluating that to see if there's opportunity. It's a fairly standardized pathway through phase III into registration, with ICH guidelines. That program should be adequate for both U.S. and European registration. We're very eager to get our data and get down to FDA as quickly as we can and have those discussions and finalize our phase III design plans, and then get moving.
I mean, we obviously have an evolving landscape in HS in terms of, you know, recently approved drugs and those that are launching, those that are in development. As you think about kind of best-in-disease potential for O-nine, you know, what aspects do you think will really shine here? Whether it's onset or depth of response, perhaps durability, safety, dosing convenience, what do you think could be most disruptive, given the current environment?
I think it's really all of the above. The market is really looking for new mechanisms of action. Again, IL-1β is very central, and so it's very attractive from that point of view. We are studying from a dose convenience point of view, a patient compliance point of view, 1 dose at every 4 weeks, and with an initial loading dose, which we think will help get the patients into the therapeutic range right away and may give us faster onset of action. But it would be differentiating and convenient for patients to be able to have only a single dose every 4 weeks during the induction period. We'll see how that plays out when we get our data.
The safety profile of IL-1β is actually remarkably benign, IL-1β blockade, and is differentiated from the TNFs and the JAKs and the IL-17s in a number of important ways. We think that's going to appeal to dermatologists, particularly in this market segment, where patients are obese. They often have many of them have pre-diabetes or type 2 diabetes. Many of them are smokers and at increased risk for cardiovascular disease as a consequence of all of that. We know that from previous trials, that IL-1β inhibition's been associated with a decrease in major cardiovascular events. We think all of that's going to really appeal to dermatologists when they're selecting therapy.
This is obviously a sizable market, as you've mentioned. Any thoughts in terms of kind of strategic directions for Avalo? This could be, you know, an international market. Wondering if you have any thoughts there on partnerships and the like?
Yeah, we're open to all of that. I mean, our main focus is going to be the U.S. market as we develop our product in phase III, looking at expansion into other therapeutic areas and maybe follow on products as well. We'll have more to say about that after we release our data. Most small companies like ours who do commercialize, tend to look for partners in the geographies outside the U.S., that's usually a sensible strategy. We're open to a number of different ways to move forward to commercialize.
There's clearly a lot more potential beyond HS in terms of other, you know, I and I, so-called I and I indications. You've been strengthening your team the last, you know, year or two with other members who may be able to, you know, help you take advantage of those. Could you share with us your thoughts for indication expansion or looking at, you know, other market opportunities here?
Yeah, we've done a lot of work on this, and we know that there are a lot of potential additional indications in dermatology that would be a good fit. As I mentioned, HS is one of the neutrophilic dermatoses, and there are a number of opportunities there as well as other dermatologic diseases. Fortunate to have a really top flight CMO, Dr. Mittie Doyle, who's a rheumatologist, and we know that there's lots of opportunities in the rheumatic space as well as in GI. We see AbbVie, for example, with rituximab, studying psoriatic arthritis, rheumatoid arthritis in the rheumatology area, and also studying Crohn's disease in combination with SKYRIZI. We're going to see readouts from those trials soon, and that could provide some interesting proof of concept where we could also enter. We'll have more to say about that after we release our data.
BIMZELX, which is out of AbbVie, has been having a pretty stellar launch here. They're in a couple of indications, you know, also plaque psoriasis. Just wondering if you have any sense of. I think they did, you know, close to $1 billion in sales in just the first half of 2025 in terms of worldwide. Just wondering if you have any sense of what fraction that might be in HS per se?
I don't think they've broken out their sales by indication, but I know they've had a remarkably good launch in HS, one of the fastest in the history of dermatology. I think it reflects the fact that there is this very large unmet need for patients and a desire for new drugs. It just tells us that we're in a really great market, and there's a great opportunity ahead for us.
Terrific. We have the top line data from LOTUS coming next quarter. I think we're all going to be tuned in for that. Presenting success, regulatory discussions in terms of phase III, and that could be maybe up and running sometime in 2027, I would presume.
We'll try to get there as fast as we can once we've had our discussions with FDA and locked down our plans for phase III. We're very excited about this, and we're feeling very confident as we go into data release.
Great. Just lastly, on your, on your cash resources, certainly you're able to fund yourselves.
Yes
the readout. You have more cushion. If you could just remind us where you can get on that cash balance.
Yeah. We last reported, I think we have about $95 million left in cash, which gets us comfortably well beyond data release. We will need to raise for phase III, and we have plans to do that once we have the data in hand.
Excellent. All right. Well, I think we're at our time here. Garry, thank you very much for joining us. Thank you, all for zooming in, please enjoy the, rest of our conference.
All right. Thank you, Leland.
Okay. Thanks, Garry. Bye-bye.