Thanks so much for joining our 46th Annual Healthcare Conference. I'm Stacy Ku, part of the biotech team with my colleague, Vi Shah, and we're very happy to be hosting Avalo Therapeutics. With us today, we have Garry Neil, CEO, and in the crowd joining us is CFO, Chris Sullivan. Really thanks to everyone for coming today. A lot of interest in your asset, a lot of focus, a lot of investor inbounds these days. I'm sure you guys are getting the heat as well. We do know there's a much higher understanding of your asset in the background, but just remind us, what's the strategy for AVTX-009, and your, let's say, potential in HS? Start there.
Yeah, we're really excited about the opportunity, and we think there's really big potential in HS. I was very excited when we first brought this asset in to pursue that target because it is a very high-affinity human monoclonal antibody against neutralizing IL-1 beta. IL-1 beta is right at the bullseye, central driving the inflammation in HS. Since we have the most potent, highest affinity antibody with a good half-life, and I think a good dosing regimen, we aim to be best in disease with this antibody, for sure.
Okay. We get some questions, IL-1 beta versus IL-1 alpha.
Yeah.
Obviously you have done a lot of work to understand what really drives the pathogenesis of HS. Just help us understand that piece as well.
IL-1 alpha and beta are actually very different molecules, and they have very different jobs in the body, whereas IL-1 beta is this key driver following the inflammasome of chronic inflammation in a variety of different diseases, so important there. It's only really turned on in that context by NLRP3 and is especially prominent in neutrophilic diseases like HS. If you look at IL-1 alpha, it's completely different story. It's constitutively expressed on every normal epithelial cell in the body, it really has nothing to do with chronic inflammation. Its role is basically to alert the body to damage in an epithelial cell, bring in the cleanup crew, and then to stimulate regeneration of more epithelial cells to cover the defect. It's really a bit player in chronic inflammation.
Also, they do bind to the same receptor, but they have very different jobs and a very different sequence homology.
Okay. As investors are digging in, and doing work ahead of the update, just remind folks with J&J and the IL-1 alpha inhibitor with bermekimab, how do you think about that data? What are the kind of the key takeaways when you think about some of this off-label and small patient studies, but these outcomes for some of the other first-generation IL-1 assets for canakinumab and anakinra?
I mean, I think it's very exciting and validating of the overall concept. You have anakinra, which is binding to the IL-1 receptor, it's indirectly blocking IL-1 beta, and that has shown some effectiveness. Obviously, it's not a very practical drug to use. It's both very expensive. It has a very short half-life. It has shown efficacy in small trials, as you say. canakinumab, there haven't been any real formal studies. There are some case series that are published. There's anecdotal evidence out there. We've talked to a number of dermatologists who have used it with mixed results. Some patients have definitely had very dramatic responses to it. Again, we feel like that these anecdotal and small studies are validating the IL-1 beta hypothesis.
Okay. Our KOLs talk about the inability to really get to the right level of drug.
Yeah.
More of a potency issue when it relates to something like a canakinumab, which leads to some of the other kind of investor questions that we get a lot these days, which is around Novartis' MAS825 and how we should be interpreting those results when it comes to potency.
Right. The point you're making is really a very important one. It's really critical in the IL-1 beta inhibition that you maintain very low below inflammatory driving levels of IL-1 beta constantly. If you're not able to do that, then I think you're going to see a recurrence or a lack of response to the drug. You still may see some response, but not the optimal response. When you look at MAS825, so what is that? That's a bispecific that Novartis made, addressing both IL-1 beta and IL-18. Again, we know IL-18 is not playing a very prominent role in the disease. This is mostly about the IL-1 beta moiety. We've looked at the patent carefully of MAS825, and it does have the ILARIS CDRs on it.
You're basically looking at a bispecific version of ILARIS. There'd be some disadvantages, obviously, for making it into a bispecific and probably not very many advantages for targeting IL-18. One of those big disadvantages is reducing the half-life of the drug. They haven't published that. We don't really know what it is, but that's what you'd expect. Looking at the dose, 300 mg every four weeks for a 13-week trial. That, to me, that means only 150 mg is really the IL-1 beta. Again, you're going back to ILARIS, which has shown some efficacy, and this one did too at HiSCR 50. Small trial, not statistically significant difference, but a signal of activity nevertheless.
I think based on the pharmacokinetics and the dosing intensity, it was underdosed even for ILARIS, and then the lower affinity of the antibody compared to ours, not likely to have the same kind of sustained effect on IL-1 beta that we would have. The bottom line is, I interpret those data as being another positive signal for IL-1 beta, but with a drug which is not optimal in being able to suppress IL-1 beta.
Yep. On our end, they have not been what we'd characterize as very difficult conversations around the competitive dynamic MAS825. Funnily enough, sounds like Novartis is bringing it forward in Still's disease, which is an IL-18-driven-.
Yep
... disease.
Yep. Maybe IL-1's important there too, so that might be a better place for it.
Of course, on the other hand, there are other drugs in development for IL-1, right, in HS, and we'll hit on AbbVie's lutikizumab, which I know-
Mm-hmm
... investors have done a big deep dive there. Just quickly, what do you make of Sanofi's decision to also bring forward an IL-1 receptor inhibitor or IRAP?
Yeah. In the IL1RAP space. I think again, it's another play. It's more validation in the way people are looking at the importance of IL-1 and IL-1 beta in HS. That's more complex biology, it's a more indirect way of getting at it. I think it's much more efficient and much more likely to be successful to directly address the IL-1 beta levels in the cell as we are with our drug, especially with a high affinity. It's interesting. I'd expect it'll have some efficacy.
Okay. As we think about IL-1 and the level of de-risking by AbbVie's lutikizumab, just remind us what kind of read-through are you all taking as it relates to the POC for Phase II and TNF inadequate responders, as well as the open-label extension results in the bio-naive patients?
Well, Those are the best data generated to date with IL-1 beta. Lutikizumab has obviously been a very effective drug and provides us with a great proof of concept for our own program. We were really impressed about the same time that we were getting started with our drug, AVTX-009. They had released data at AAD in HS, in a really sick population. 71% of them were early Stage three. 100% of them were HUMIRA failures. You know this very well, and yet the data that they showed were extremely impressive in that group. Later last year, they showed data in a bio-naive population, which were very comparable to the data that they had with the bio-experienced patients. It's strong data.
They've gone into Phase III. I think they obviously are going to be a player in HS. Why we feel like we can be better is because we have a higher affinity antibody. We're not a bispecific, so we're not diverting drug into that. I've mentioned it of a compartment in normal tissue, so we can focus on the disease tissue. The much higher affinity and longer half-life and better bioavailability of our drug means that we're going to get higher levels of drug and therefore better neutralization of IL-1 beta in the lesion as well. All of that should translate into superior efficacy, we believe.
I know you all have talked about this high affinity aspect-
Yeah
... of your molecule, and it's something that I think has actually captured the attention of some KOLs as well. But just remind us, what's the relative competitiveness when it comes to lutikizumab?
Yeah. We're in 7x-10x more avid, more potent for the IL-1 beta than lutikizumab, in addition to the longer half-life and better bioavailability. We also have a much longer off time, which means that you have tighter binding and more neutralization of IL-1 beta with our drug. All of that should translate into lower trough levels of IL-1 beta, that should translate into better efficacy as well. I think I wanna make a point on the affinity. People have said, "Well, why does affinity matter in this situation?" It really is a critical point to talk about because you have to get drug into the lesion. The lesion is basically pus under pressure, you can measure that pressure.
It's about 4x higher inside the lesion than just in the normal skin. That pressure gradient will repel any drug from getting in there, even a small molecule, let alone a monoclonal antibody, which has a molecular weight of 150,000-155,000. How does it get in? It can't diffuse in, but it can get in through the affinity gradient. Basically, its affinity for the ligand is pulling antibody into the lesion. The higher the affinity, the higher the concentration you'll have, the better the neutralization, and that's where we have a real unfair competitive advantage over everybody else, including lutikizumab.
Okay. Another of the Phase II that we believe is a little underappreciated is, we'll try to frame it nicely. The amount of torture that you all have put yourself through to really think about all the trial nuances.
Yeah
... criteria, the type of baseline characteristics that you wanna see in a patient. Just remind us, all the different thoughts behind all that.
I've been doing this for a long time, and we do spend a lot of time thinking about trial design and trial execution. it's really very critically important. We started off with the CRO that we selected. We picked Parexel as our partner specifically because they just had a really successful program with BIMZELX and UCB, and they had a number of really highly experienced and qualified dermatologists who worked in that trial, very good placebo rates. We definitely wanted to work with them, and they promised us, and they gave us their most experienced HS team. We got many of those investigators and a number of new ones that were equally well qualified. We only worked with board-certified dermatologists in the study.
I made my pitch early on to Alexa Kimball to get her to come in as the PI of the study. Somehow I was able to persuade her to do that. Also Tina Porter , who's also here in Boston at Harvard, who's one of Alexa's proteges. She really helped us to design the training program. They gave us a lot of input on the study design to make sure that we were gonna do this in the optimal way, and I think we've done that. The training program that we're very aggressive about making sure that no one could, they'd gone through the training program on the primary endpoint, passed an exam on it. We monitored it very tightly.
Some of them, not many, but a few needed remediation along the way. We made sure that we stayed very on top of the overall management of the trial. We even trained the patients and the physicians on the placebo effect. I think we did put in a lot of effort to try to make sure that the trial was operationally optimized.
Yep. As we get questions on the placebo, you all also have really powered the Phase II study.
Yeah.
Just remind us where you started, where you're going, and what we should expect?
Right. We started off, of course, which is the trend now, to go for HiSCR 75 because that's associated with a much better signal-to-noise ratio. Placebo rates have been in the 13%-18% when you go to HiSCR 75, we haven't really seen a trend any other way, although there's been a couple of highly visible and notable exceptions lately, especially VELA- 2. We made sure that we did that as part of our overall program.
Okay. of course, the bio-experienced patients-
Yeah
... with lutikizumab, POC in the TNF inadequate responders, Our KOLs also have told us that's almost a proxy for severe disease.
Yeah
... which hopefully should lead to less cyclical disease. As we think about the 1/3 choice for you all of bio-experienced patients, that's a little bit higher obviously than the UCB MoonLake studies. How do you think that grounds your trial when it comes to the Phase II and placebo response?
Yeah. When you look at the data across the field, there's not a huge difference between the response rates in bio-experienced and bio-naive patients. There is a difference with early stage three versus early stage two with some mechanisms. We're comforted by the fact that AbbVie had almost no difference in responses between bio-experienced and bio-naive. Again, same mechanism, which is very proximal in the pathway upstream of both TNF and 17. That's very important, and we're feeling really confident about being able to have good efficacy in that same population. The reason we have more bio-experienced patients is we, of course, are allowing patients who failed IL-17 into the trial. You go from 20% up to something a little bit over a third of those patients. That's similar to what povorcitinib had in their trial.
Again, they didn't show any degradation in response in that population of bio-experienced patients. I'm feeling pretty good about that. We wanna be able to say something about how well our drug performs in both TNF and IL-17 experienced patients and in patients with early stage three.
Okay. It sounds like when we get the data, we're skipping ahead, and we'll come back. It sounds like we're gonna get some type of nuanced view on efficacy in these two populations.
Yeah. Yeah. We're gonna try to provide as much color on that as we can.
Okay. We get this question on the Phase II trial design as well. What's the powering that you all have now with the over 250 patients?
We originally designed the trial with 180 patients, so that was powered at 80% to show a placebo-adjusted difference of 25%, given a similar drug effect size to what AbbVie had shown. We expanded the trial from 180 to 222 because we were seeing more patients that were bio-experienced coming into the study, and we wanted to be able to have enough power to be able to make some of those subpopulation analyses. We, as is our practice usually, there was a lot of patients who'd got into screening that we didn't want to turn away from the trial. We allowed those patients to come in.
We ended up with something over 250, and now we're very adequately powered to show our original assumptions.
Okay. Wonderful. As we think about some of the efficacy hurdles set by the current agents, commercialized and in development, what are the company goals for the Phase II profile in terms of HiSCR 75?
Well, I mean, we want it to be as good as we can. We think that anything over 20% placebo subtracted would be a clear win for the drug, even though we are hoping, and I think we have a reasonable expectation of doing better than that. If we get to 25%, it'll be really a home run, and north of that, well, call it what you want, a grand slam maybe. That's our goal, to show clear benefit and difference, and also to be able to say something about HiSCR 90 and HiSCR 100 levels too.
Okay. we'll expect a really full update-
Yeah
... when it comes to the data. Okay. Do you wanna give us an update on or maybe narrow the timing from Q2?
Right. We're now 17 weeks past the point where we announced that the trial was fully enrolled. It was a 16-week is the clinical part of the study with a six-week safety follow-up. From that, you can basically deduce that everybody's through the clinical part of the trial and in the six-week safety. If you count that out, if you do the math, that means that the last patient should be out by the end of March. The benchmark for cleaning and analysis is anywhere from four to eight weeks, and we feel very good about being within that window.
Okay. Wonderful. One thing before we move on to maybe the size of the market, how big I would say the promise of a large nascent dynamic HS market, the safety. When it comes to safety of IL-1 agents so far, there's been increased clinician sensitivity to the safety profile of agents as they're getting more and more.
Mm-hmm
... options. Just help us understand how you are thinking about that piece.
Yeah. I mean, I think the IL-1 beta mechanism is very safe and will have a differentiated profile based on that safety. Unlike TNFs and IL-17s, we don't expect to see opportunistic infections. We don't expect to see abnormal liver tests. We don't expect to see depression, suicidality, skin rash, any of that. IL-1 beta is very important in the innate immune response to bacterial infections, so there will be some increase in bacterial infections, but those are usually easily handled with antibiotics. What's really exciting, and we talked to dermatologists about this, not all of them are aware, but if you look back at the CANTOS trial, this was a three-year study with ILARIS that Novartis did in over 10,000 patients, and they did it to demonstrate a reduction in major cardiovascular risk as secondary prevention, which they did.
There was about a 20% reduction in cardiovascular event. That part is exciting to them. The other really noteworthy discovery from that trial was a 50% reduction in cancer risk overall and a 75% reduction in lung cancer risk in a population that had high prevalence of smoking. The reason is, we believe that it's reducing inflammation overall, and many of these big epithelial cancers do arise on a background of inflammation. That's very exciting 'cause you're dealing with a population of patients to dermatologists who have a high BMI. Many of them are smokers. They are at risk. A lot of them are premenopausal women, but many of them aren't. They are at risk for cardiovascular disease. They may already have type two diabetes.
by the way, in the hands of Lilly, this drug was tested in type two diabetes and did have a positive effect on A1C, not as high as a GLP-1, so they didn't pursue it. You have all of these potential ancillary benefits that are basically something that every physician takes into account when they're thinking about the risk-benefit of a particular drug. They're looking at it as a potentially safer, differentiated safety profile that might have some benefits for their patients.
Okay. It sounds like you all are thinking about how to better position the drug in success.
Yeah. I mean, a lot of these things are not going to be labeled obviously. Still, I think we can feel confident that this is gonna have a good risk-benefit profile for these patients.
Okay. Wonderful. We do get a question or two on neutropenia. Are you at all concerned?
I'm not because the reality is that you do see it. IL-1 beta has a direct effect on G-CSF, that is the signaling mechanism that brings neutrophils out of the bone marrow and attracts them to the lesion. Again, this is a neutrophilic disease. You want to interrupt that. A consequence of that can be a reduction in neutrophils in some patients. It's not really dose-related in the usual sense, but it can be seen. Most of the time it's stage one, stage two, very rarely above that. At those clinical stages, it has no clinical relevance. Neutropenic infection is very rare. If you go back to the CANTOS trial on drug, the incidence of neutropenic infection, severe neutropenic infection was 0.3 per 100 years of patient exposure and 0.2 on placebo.
That difference is very small, 0.1 per 100 years of patient exposure. That's one per 1,000 years of patient exposure. That was an elderly population of smokers who had some bone marrow suppression to begin with. I think in the HS population that have very high neutrophils and is a younger population, this just isn't gonna be a great concern.
Okay. Understood. How quickly in success could you move to pivotal well, development?
As soon as we get the data, we're going to compile it and put our package together and request an End-of-Phase II meeting with FDA. We wanna get down there as soon as we can. We've already started to interview and take early preliminary bids from CROs, so we can sort of hit the ground running doing that. We're hoping to start enrolling patients for Phase III in the early part of 2027.
Wonderful. Obviously I think as folks talk about the efficacy hurdle that needs to be brought forward, many have peace with the fact that really the HS market is very large.
Yes.
We're kind of seeing in real time, we're learning about how large it really could be. What are, what are your views on IL-1, and the potential positioning? Obviously have to wait for data, but the potential positioning in the HS market, what the size of the market could be.
Yeah, we've done our own analysis on this and been pretty thorough on it. We believe the market will be $10 billion-plus over the next five, six years. I mean, recently Novartis said that COSENTYX will probably hit $1 billion in sales in HS. It's still continuing to grow this year. BIMZELX has only been on the market for about a year now, and their sales are already projected to be $600 million this year, which is one of the fastest launches, if not the fastest launch in the history of dermatology. You have new products and new players coming into the market. It's only going to expand.
There's still very low penetration of biologics, in a delay in diagnosis in the market of years before they're actually referred to somebody who can give them definitive therapy. We've recognized that this is maybe 1% of the population in the U.S. I think this has massive potential. These patients are really suffering. We've done a lot of our own market research talking to some of these patients ourselves. They're really looking for better solutions. I think IL-1 beta is gonna be part of that.
Okay. What we hear obviously for you all ahead of Phase II is the heterogeneity of the HS patient population.
Mm-hmm.
Of course that also helps you as we think about the positioning in the HS market. Our KOLs tell us about 50% of the patients are not well controlled and could be candidates for IL-1.
It's absolutely true. You're looking at COSENTYX with a 10% placebo-adjusted success rate. The BIMZELX sub-20%. You still have the majority of patients looking for better solutions, and we do believe we can be part of that.
Of course, as we think about, maybe some of the... At first, everyone's gonna look at HiSCR 75, but there are some secondary endpoints that our KOLs have also told us is more differentiated when it comes to IL-1, draining tunnels, for instance.
Right
... obviously, as it comes to the second cut, how are you all thinking about that type of positioning?
Yeah, we're very excited about that. There's a lot of indications that IL-1 beta is really driving tunnels and fistulas and that basically neutralizing that can allow that to heal. That's a source of morbidity for these patients. Pain is an incredibly disabling feature of the disease and really interferes with their life. And we know that there are IL-1 beta receptors directly on the pain nerve endings in the lesion, and that IL-1 beta blockade has been associated in a number of models with improvement in pain. There are even IL-1 beta receptors on the dorsal root ganglia, which take pain from the skin and other parts of the body back into the spinal cord.
We're very interested in looking at that and seeing whether we can have a better effect on pain than maybe some of the other drugs have.
Okay. In the last few moments, post-Phase II in HS, I know all hands on deck, complete focus is on HS, but what are.
And then-
... what are the other potential considerations for AVTX-009?
Yeah, we're looking at a number of different potential indications both in dermatology across the neutrophilic space where we know. One of the factors that we're definitely going to focus on is diseases that have a mechanism that's validated to be related to IL-1 beta, and especially if there's some clinical data. There's plenty of room in dermatology. In rheumatology, in the crystal arthropathies, we see also AbbVie doing psoriatic arthritis and rheumatoid arthritis. We've done some biomarker work there. We think there's opportunity in rheumatology and in GI. We've seen AbbVie show an improvement over Humira in monotherapy and ulcerative colitis, and we expect data which will be a useful external catalyst for us of their study of SKYRIZI plus lutikizumab in Crohn's disease.
They just released data on their SKYRIZI program in Crohn's disease yesterday, Phase III, which is very positive. I think it would be great if adding IL-1 beta to that could take those numbers up even higher. We think we have some opportunities across all of these different indications.
Okay, wonderful. Well, what we'd say on our end is when we talk to KOLs, the next key modality that they're interested in is IL-1. Of course, as we think about the market, our view is that the total addressable market, from a very conservative standpoint, could be 200,000 or more for the branded biologic segment of HS patients. Obviously we can get far above that. A 5% penetration of this patient population gets us to $1 billion.
Yeah. Well,
... stay tuned on the efficacy, but clearly.
Pretty, pretty amazing.
Very, very interesting set up for you all ahead of data.
Yeah. Yeah.
Okay. Well, thanks so much for the time.
Thank you, Stacy.
Thank you. Thank you all for listening in.