Good afternoon everyone. Thanks for joining us here, day two of the Leerink Partners Global Healthcare Conference. My name's Tom Smith, I'm one of the senior biotech analysts here at Leerink, and it's my pleasure to welcome our next company to the stage, Avalo Therapeutics, represented today by CEO Garry Neil. Garry, thanks for joining us.
Thank you, Tom, for inviting us.
Of course. Garry, maybe just to kick us off and level set, just a little bit of background, on the company for-
Mm-hmm
Those in the audience who may be less familiar with the story, and then maybe like 2025 highlights, big year of execution for you guys, and then some important data obviously coming up in 2026.
Yeah. Yeah, we do. Well, we're a relatively small company based outside of Philadelphia. We are in the I&I business, and we have one lead product, AVTX-009, which is now in phase II-B. Trial is completed. It's called the LOTUS trial, and we are expecting to have our data in the second quarter, so coming up pretty soon. Highlights for 2025 were, we actually got this trial going at the very end of 2024, in pretty much record time. We were really focused on enrolling the trial, upsized it at one point, to give us a little bit more power for subgroup analysis.
It'll be one of the larger trials in HS, where we're studying AVTX-009, which is an anti-IL-1β monoclonal antibody, which is right at the bull's eye mechanistically for treating the disease. That all went very smoothly. Now we've completed the trial at the end of October. We had the last patient enrolled and have moved forward to complete things and get it analyzed, get out there.
Yeah
with our data.
Yeah. Awesome. Yeah, let's high level, 009, there have been a lot of compounds drugging the IL-1 pathway. Talk about how 009 is differentiated from those historical attempts.
Yeah. There really aren't that many compounds, surprisingly, that drug the IL-1 beta platform, especially in the marketplace. You have drugs like ours, which hit IL-1 beta, the cytokine directly, and then there are others that hit the receptor as well. The only other IL-1 beta on the market at the moment is Ilaris, which is only indicated for rare and orphan diseases. We're moving more into the mainstream I&I space with our compound. The other compound that's being used in HS is Lutikizumab, which is an AbbVie compound. They're finishing phase III. Expect data at the end of this year in HS, and they've had some pretty spectacular data with that compound.
We feel like we have a chance to be a little bit better than them, and I can explain that in more detail if you like.
Yeah. Let's go down that path as you like Lutikizumab alpha beta, you are beta selective.
Yeah.
Yeah. Let's elaborate.
Right. We should take a step back maybe and talk a little bit about IL-1β in HS. HS is one of the neutrophilic dermatoses, so that means that neutrophils play a really central role in the disease. It's also driven by a couple of important cytokines for which there are drugs in the market, TNF and IL-17. It turns out that you wanna really address those three major targets, and IL-1β sits right in the middle of this. IL-1β is very important in attracting neutrophils into the lesion and stimulating them to release their various enzymes that cause a lot of the damage to the tissue in HS.
It's also upstream of both TNF-α and IL-17, and there are the two drugs, HUMIRA and COSENTYX and BIMZELX, which target TNF-α and IL-17 respectively. By drugging IL-1β, which is what we do and what the Avalo compound does, you're really getting at the heart of the inflammatory process that's causing the HS. The lesion, for those that don't know it, originates in a hair follicle, usually in fairly sensitive parts of the body, has a little bit of a proclivity for patients who have obesity, patients that smoke, and it can be quite disfiguring as well as painful for these patients. The lesions themselves really start in the hair follicle. The hair follicle gets inflamed, it gets destroyed, turns into an abscess.
There can be deeper lesions, tunnels and fistulas that can drain pus and so on. Again, very disfiguring, very socially isolating for patients, and often it's associated with very severe pain. Again, getting back to it, IL-1β seemed to be an ideal target for this. Now, just about the same time we were able to bring this antibody into the company, the idea of studying HS, we saw data emerging from AbbVie's Lutikizumab program. Lutikizumab is another anti-IL-1β monoclonal antibody, but it's a bispecific also targeting IL-1α. We'll get back to that. That really doesn't offer them any advantages, but in fact, probably has some disadvantages.
The fact is that they released data around March 2024 which demonstrated really the best data that had been seen to date in HS in a pretty sick population, a population of patients that were 100% TNF alpha HUMIRA failures, and 71% of them had the highest stage of the disease, Hurley stage 3. We were very impressed by that. They were able to at HiSCR75, which is a pretty high standard of treatment progress, show at that endpoint about 45% on average of patients showing a response and better than placebo, and they took the drug into phase III. We looked at that and thought, "Well, that's really impressive data, certainly supportive of what we're trying to do, and we think we can better, be better." Why?
Because we are a pure anti-IL-1 beta play, so the drug is not really sidetracked or diverted by also binding to IL-1 alpha. The fact that we're not a bispecific antibody as they are meant that we have a longer half-life, better bioavailability, lower risk of anti-drug antibody, so that was important. But I think the unfair competitive advantage that we have is we have a drug which is a much higher affinity than Lutikizumab for IL-1 beta, and we can get into that if you want to. But affinity is a big driver of potential therapeutic benefit to these patients, and we have much higher affinity than they do.
Taken altogether, we thought, this gives us the opportunity to have higher efficacy and also to have a better dosing regimen, which would be more patient friendly, up to every four weeks instead of every week that they had.
Yep. That's great. You alluded to IL-1 alpha not conferring much of an advantage, potentially conferring disadvantages.
Yeah
...for Lutikizumab. Could you just expand on that, remind us what the potential liabilities are?
There are two forms of IL-1, IL-1α and IL-1β. They were both discovered at the same time. They both bind to the IL-1 receptor. They're very different molecules, and they have very different jobs in the body and a very different distribution. IL-1β is released by the inflammasome in areas of acute and chronic inflammation, where it drives the inflammatory process, again, by bringing neutrophils into the lesion, by stimulating macrophages to produce TNF-α and also the Th17 cells to produce IL-17. It also stimulates enzyme systems which further liquefy tissue. It's there teleologically to defend the body against acute bacterial infections. In diseases like this, an uncontrolled and sustained inflammatory process like that can cause a lot of tissue damage and morbidity. Now, IL-1α is completely different.
This is a compound or cytokine that is expressed constitutively, which means all the time, on every normal epithelial cell in the body. I want to stress that normal epithelial cells, so the skin, the lung, and the gut, and it functions as an alarmin. Its real role is to signal the body to let it know that an epithelial cell has been damaged, to bring in the cleanup crew, to clean up the cell, and to stimulate cell division to fill in whatever gap is caused by dead or dying epithelial cells. It doesn't really play a very significant role at all in chronic inflammation. When you look inside the lesions of HS, you find more than a hundred-fold increase in IL-1 beta levels in those lesions, but you don't find any increase in IL-1 alpha.
We know a little bit more about it now that perhaps, others didn't know before. J&J tried an experiment with a pure anti-IL-1 alpha drug, Bermekimab, that they didn't license. They bought it from XBiotech for $650 million, took it into a phase II trial in HS, and it didn't show any activity at all, as you would have predicted based on the mechanism. It's easy to say this in hindsight, but now that we have the benefit of knowing a little bit more about the mechanism, you can see that targeting IL-1 alpha isn't going to have any benefit.
However, on the other side of the coin, if you're targeting IL-1 alpha, you're pulling your drug away from the lesions that you wanna hit, and you're pulling it towards normal epithelial cells, and that's a big sink in the body. I think that diversion makes less drug available to treat the lesions.
Interesting. Okay. When we think about the data that AbbVie's generated there, you mentioned the compelling response rates in the
Mm-hmm
Bio-experienced patients. They also have an open label experience in bio-naive patients.
Yeah
that also looks.
Looked very similar.
Yep.
Very good.
Yep. potentially not maximizing.
Right
the impact of the pathway, and if anything, perhaps increasing infection risk?
Possible. Or at least, maybe interfering with wound healing as well. As impressive as those data are, right? The increased affinity that we have and the other characteristics that I've already talked about give us a chance to have, I would say very substantially better efficacy on top of what AbbVie's already shown. Since AbbVie's data are really the best that anyone's demonstrated so far, if we do exceed that level or that threshold of efficacy, we would have the best in disease molecule.
Have there been many case reports? You mentioned Ilaris canakinumab.
Mm-hmm. Yeah
that is commercially available. Like, what clinical data exists for canakinumab in HS? Does that boost any confidence or there's just not a lot there?
Yeah. It hasn't been systematically studied, and it's not going to be studied, so I don't think we should look at Ilaris as a competitor. It does offer very interesting proof of concept. There haven't been any real formal studies in HS. It's a very good drug for familial Mediterranean fever and the CAPS and a lot of these rare diseases that it's indicated for. It has been used off-label because many of the academic dermatologists understand that IL-1 beta is playing an important role in the disease, so they've tried it, despite the fact that it has very high orphan disease pricing and needs to be used more frequently to be effective.
Some of them anecdotally have said, and it's also been published in some smaller case series, that they've had very good results in some patients who've used it. We're talking probably around half of the patients responding, some spectacularly well. Again, there's no systemic study to be able to support it. However, we take it as being, again, supportive of the data that we're trying to show in our trial.
Yeah. That makes sense. Wanna turn to your LOTUS study?
Mm-hmm
maybe remind us of the design. You said well, you upsized it from initial plan.
Yeah.
Maybe also talk about, we've seen some variability in placebo response.
Mm-hmm.
Some of the steps that you've taken to minimize that variability or mitigate potential placebo impact.
The LOTUS trial it will have 250 patients in total now. We originally planned 180, which gave us 80% power to document a difference of 45%-20% or about a 25% placebo-adjusted difference. We upsized it when we saw that we were getting a lot of both IL-17 experience patients as well as TNF experience patients in our trial, and we wanted to do some subgroup analyses with those. We upsized the trial to 222 patients last June. Beyond that, then as we completed enrollment to the planned enrollment of 222, we found we still had 30 patients who were in screening, and we let them enter the trial.
We ended up with over 250 patients in this phase II-B trial, which makes it one of the largest that's been done to date in HS. It's a 16-week endpoint with a 6-week safety follow-up. There is no long-term safety extension for the trial. There are three arms in the trial, two active drug doses, one 300 mg every four weeks, the other 150 mg every two weeks, and placebo, 1:1:1. Both of the active doses have large loading doses as well to get the patient into the therapeutic zone, basically from day one.
How are you framing the bar for success? I know you just walked through the powering assumptions. I think for most of the contemporary late-stage studies, we've kind of around HiSCR75, 20%.
Yeah
We've kind of collected around that number. Do you need to see something meaningfully higher than that? Or how do you think about the bar?
No, I don't think so. As you say, we've chosen as our primary endpoint HiSCR75. That maximizes the signal-to-noise ratio in the disease. At that level, what we've seen is a placebo response rate. There is some variability in this disease, there's no doubt about it, but the placebo response has been pretty reliably in the 13%-18% range, with a couple of exceptions that have been higher than that. That's why we chose it. We will also, of course, be studying the endpoints of HiSCR50, 90, and 100, so we'll have the whole gamut of possible outcomes, as well as IHS4 and quality of life and skin pain scores.
We chose that again to maximize the signal-to-noise ratio and help to minimize any placebo effect. That's what we powered it on.
Just to come back to the minimizing placebo effect, I guess specific steps that we've taken were investigator education, leveraging a CRO that's experienced.
Yeah
... with running HS studies, dermatology-focused.
Right. Having the right mechanism and the right drug are very important, having the right study design very important, but none of that matters if you don't have operational success. That begins with selecting the CRO. Our partner on this study is Parexel. We chose them because they'd done an excellent job on the BIMZELX trials. They were just rolling off the end of their phase III program, fortuitously for us. They also had a lot of highly experienced investigators, which is the next part of the equation, that were able to sort of roll over into our study. We only wanted board-certified dermatologists who are experienced in doing HS trials, and that's by and large what we got. We had 90 sites, mostly in the U.S., Canada, Australia, Western Europe, a few in Eastern Europe.
We wanted to stay with these experienced investigators in those countries where there's a high standard of healthcare. We have Alexa Kimball as our PI, and we've also worked with Dr. Tina Bhutani from Harvard. Both of them are highly experienced. They gave us really good advice in fine-tuning the design of the trial. Even though these investigators were experienced and successful, we wanted to make sure that they were adequately trained, especially on the primary endpoint. Tina prepared a video training program for us around that endpoint. Each investigator had to go through that training and do an exam before we opened their site. We trained them on the placebo effect. We trained the patients on the placebo effect as well, and we really rigorously monitored the trial almost in real time.
We were in contact with the site. Of course, we had investigator meetings and so on, but a lot of site contacts, so that if there were any potential discrepancies in the data being entered, especially on the primary endpoint, we made sure that we contacted them and resolved that right away. Sometimes it lags until the end. We also implemented a number of other strategies to try to make sure that the data were very rigorously collected, such as having the investigator use a scribe. They have to glove up and palpate the patients. There's no central read, so that exam is very important.
They would examine while their nurse entered the data into the iPad so the patient wouldn't or the physician wouldn't have to unglove to enter data, then reglove and prolong the investigation. We also made sure, again, because there's subjectivity involved here, that the doctor, the same investigator, did the primary endpoint evaluation on each visit, particularly the first and last visit, which are most critical. Taken together, I think it was a really good operational plan, and the team executed very well against that.
Yep. Got it. Given I guess what we've seen from Lutikizumab, and also what you described mechanistically, impact on draining tunnels.
Mm-hmm.
Although we have HiSCR75, that's your primary endpoint, doesn't really count improvement in draining tunnels, right? It's just no worsening of draining tunnels. Does that make you, I guess when you're orienting investors to what to watch for from this study, does that make you, I guess, more excited about some of the signals we might see on something like IHS4?
Yeah. It does mechanistically because we think IL-1 is very much involved in the formation of those tunnels and the deeper lesions. A healing there. Likewise, IL-1β is very important in pain, and we're paying close attention to those pain scores as well, and the IHS4, which is a really good scale to use alongside HiSCR, I think will give us good information on that.
Yep. Okay. Let's talk a little bit about the safety profile.
Mm-hmm.
You know, we do have just conceptually some infection risk, I guess, associated with the pathway. I think investors when they think about like analogs for that risk, I think they gravitate towards canakinumab and that experience. Maybe you could just help frame your expectations in LOTUS. I mean, this is a relatively short course study. What are your expectations on safety tolerability?
Right. When the first anti-IL-1 drugs appeared, there was concern that this is a very central mechanism. It might be associated with profound immunosuppression and other issues, infection risk. What we found is that it just isn't true. This is not an immunosuppressant, it's an anti-inflammatory drug, and I think that's very important to be aware of that. As such, you don't see the opportunistic infections, fungal infections, viral reactivation, or cancer risk that you see with most of the other immunosuppressant drugs. It is associated with neutropenia. Again, these are neutrophilic diseases, and IL-1β does basically stimulate the production and basically summons neutrophils from the bone marrow to the site of inflammation and then regulates neutrophil ingress into the lesion.
When you turn that off, you may get less neutrophil production. Neutropenia is only important, as you just heard from the last talk, when it's associated with infection, neutropenic infection, and that's not something that is generally a feature. It's a very uncommon feature with IL-1β inhibitors. Usually it's only grade 1 or grade 2, which is basically a non-issue. I might also add that the HS patients have very high levels of neutrophils to begin with, so reducing them by a moderate amount really is not clinically consequent. There is a risk. I mean, again, IL-1β exists to defend the body against bacterial infections, so there is an increased risk of bacterial infections. Usually, these are mild and easily handled with antibiotics.
Very different than severe opportunistic infections, for example. As you dig deeper into the data, what's really interesting is what's not there, what might actually be improved. Our drug was originally developed by Lilly for type 2 diabetes, and although they didn't move forward with it because it doesn't have the same clinical impact as, let's say, a GLP-1. There is a significant reduction in hemoglobin A1C, which makes sense because there's a big inflammatory component to Type 2 diabetes. These patients, obese smokers and so on, are at risk for that or may have prediabetes or diabetes. Two, there's a reduction in cardiovascular risk, which was shown in the CANTOS trial by Novartis, where there was about a 20% reduction in major cardiovascular events.
You're talking about other drugs that actually increase cardiovascular risk, and here you have a drug that, if anything, decreases it. What about cancer? This is the most amazing thing of all, when we talk to dermatologists about this, that again, in the three-year CANTOS study of more than 10,000 patients, there was a 50% reduction overall in cancer risk in patients on drug versus placebo, and a 75% reduction in lung cancer, which is why Novartis went off and tried to develop Ilaris as a potential treatment for lung cancer. That didn't work. This isn't a therapeutic for cancer, but it is. Cancer arises on a background round of inflammation, so this is a way to actually prevent that from happening.
These sort of play into the overall safety perception that a physician has, not something that we would be able to put into the label, but still very important because a lot of the drugs that they're using, they worry about cardiovascular risk, cancer, and opportunistic infection, and that's not gonna be a concern here. We also don't expect things like suicidality, depression, abnormal liver tests, skin rash, or increased risk of IBD, which they see with some of the other drugs that they're using right now.
Yep. That's great. You alluded to earlier some of the early enrollment trends. You were seeing a lot of bio-experienced patients.
Yeah.
Have you disclosed what the balance is in?
We think about a third we'll end up with biologic-experienced patients, which will give us a good mix. That's because we'll lead both TNF failures and IL-17 experienced failure patients into the trial. It'll be more similar to Povorcitinib in that regard. We've been asked a lot about, well, do you think that's going to make skew your results of a harder population to treat? We don't think so. We think the IL-1β, again, centrally placed upstream of all of that, is going to work there. We've also looked at the data in biologically experienced patients versus non-experienced patients with Lutikizumab or and with many of the other drugs, and they look very similar.
We do think it's going to be good to have those data showing that we can be effective in both TNF and IL-17 experienced patients.
Yep. Great. You also alluded to the AbbVie timeline. Obviously, we know your timeline for phase II data.
Mm-hmm.
AbbVie data, phase III.
Right.
If LOTUS is successful, I guess what's your perception of maybe how far behind you are relative to Lutikizumab, and is there an opportunity that you see to maybe close that timing gap?
I think we're perfectly positioned time-wise because they're going to complete their phase III trial the end of the year. About the same time we're getting started in phase III. They've got about a two-year lead on us in that regard. When they come to market, and I'm confident that they will, they are a very strong marketing and sales company with a very great reputation in the I&I space. They're going to establish this market for IL-1β. We know that the dermatologists are already waiting for this and excited about it because they wanna see new mechanisms coming in. I'm sure AbbVie will help to establish the market, and if we can enter with a drug which has at least as good or better efficacy plus a more patient-friendly dosing form.
Again, we're studying once a month. They're studying every week dosing during the induction period. That should give us a very favorable position in a market that they're going to help to create. I don't think we really need to catch up. We're not gonna try to drag this out. We're gonna try to get it done as expeditiously as possible, but I think our timing is going to be very good in this situation.
Yep. That makes sense. Just in the last minute or so that we have, I think you've described the biology and potential pretty broad impact, and I imagine there's a lot of different settings where we could take this compound.
Yeah.
Like, how do we think about indication expansion and prioritization after HS?
We thought a lot about this and done a lot of work on it. We haven't said much about it at this point. We wanted the focus to remain on the HS program, and with the data coming up so imminently, I don't think that's gonna change. We're gonna make some announcements about that after we get the data out about where we're going to go next. I will say this, you could look at what AbbVie is doing. They've studied a number of indications in GI, rheumatology, and dermatology with their drug. We're most excited about their combination program with SKYRIZI in Crohn's disease right now. That looks really exciting, and that market is moving in that direction. They're also doing some interesting work in psoriatic arthritis and rheumatoid arthritis. That one is a combination as well.
We're looking at that. We have our own ideas, and again, I want us to stay focused as a small company on diseases that have a validated mechanism of action that involves IL-1β and some clinical proof of concept, and there are those diseases out there, both in gastroenterology, dermatology, and also in rheumatology.
Perfect. Well, unfortunately, we're up against time.
Yeah.
Garry, thank you so much for joining us.
Thanks, Tom.
I'm looking forward to the data coming next quarter.
Great, yeah. We're excited, so.
Yep. Looking forward to it.
All right.
Thanks, Garry.