Good morning, everyone. Welcome to Guggenheim's Third Annual Healthcare Innovation Conference. Our next presenting company is Avalo Therapeutics. Myself, Yatin Suneja, one of the Biotech Analysts here, and it is my pleasure to welcome the Chief Executive Officer, Garry Neil, here. Garry, thank you so much for your time.
Thank you for inviting me, Yatin.
Absolutely. Interesting day today, another news in the HS space.
Yeah.
I'd love to get your perspective on that as well. Why don't you make some opening comments, tell us a little bit about Avalo, where you are, what are some of the milestones that we and investors should be focusing on, and then we'll go into some Q and A.
Great. No, we're doing very well against all of our milestones and objectives at Avalo. After we had the very positive data from the LOTUS trial in the beginning of May, we were able to raise $430 million worth of capital, which is really helpful these days in the market. We reported that we still have $462 million at the end of September, which is enough to get us through our top line for phase III in 2029. We do not need to do any additional raises right now, and it also funds our soon-to-be-announced second indication, which will get us into a new therapeutic area, add more value to our overall program, as well as funding our AVTX-010 program, which is our engineered antibody with the extended PK, which is going to get into the clinic in 2027.
We were very pleased with the results that we had from LOTUS, and obviously the market recognized that at the time, showing a really consistent depth of response and consistent between the two doses that we tested, very consistent over time, and very consistent across all of the secondary endpoints. That has given us and continues to give us great confidence for going into phase III. We have been working hard on getting all of these programs going in parallel, upsizing the company a little bit. We are being very careful with our capital, but making sure we have the resources to do what we need to do. We have got our packages before the FDA and the EMA. We will have our feedback from those agencies before the end of the year. We have got our CROs lined up, CMO lined up. Everything is going great on the CMC.
We will be ready to hit the ground running early in 2027 once we get the feedback from FDA, and we are very, very excited. Also, we have seen there have been a number of interesting developments in the HS space, as you expect. There have been a number of entrants, people trying different mechanisms.
Yeah
I guess we will talk a little bit more about that.
Yeah. So perhaps let's just talk about the mechanism. I remember talking to you maybe a couple years, always believe in an IL-1 biology
Yeah
but more on the beta side rather than, let's say, an alpha beta. Just talk about that, because I think there is a little bit more news from AbbVie with their alpha beta, but your data clearly stands out, like, really robust study and the outcome that you ran in LOTUS. What is driving that?
Yeah. So we're very convinced, and there's very solid data showing the central role of IL-1β specifically, but not IL-1α, but IL-1β and the NLRP3 complex in driving the disease in a very substantial number of patients. IL-17 is also important, we know that, but the IL-1β has a more central role in the inflammatory cascade, which we think is very important in the disease, specifically around the control of neutrophils, which are important in the disease, macrophages, which also release TNF-α, but also with a secondary role on control of IL-17, in particular IL-17F. So, which seems to be the more important target on the T-cell side in the disease. We've seen this both with measurement of protein in the lesions in these patients. You can see massively increased CRP levels in these patients, consistent with that NLRP3-driven inflammatory response.
We've also seen this in RNA expression as well, and we've done a lot of work on that, looking at different profiles for RNA complex expression, and we're still actually doing deep analysis on our biomarker set. So we've been very convinced about the target, and we've seen now there hasn't been, with the two AbbVie phase II trials, their recent phase III trial, and the LOTUS trial, there hasn't been any failure yet in an IL-1β-targeted trial. I think what we do know that IL-1α doesn't work, and looking at the results of the INTREPID study, lutikizumab, I think it lays the issue to rest about the value of targeting IL-1α, which may, if anything, may be a detriment rather than an advantage.
Got it. What might be the hypothesis that, let's say, alpha is doing some form of an harm? Because I think the compression in efficacy was significant for AbbVie, but again, your data, so that was pretty good.
There's hypothetical reasons why targeting IL-1 𝛼 a might exacerbate inflammation in a chronic inflammatory lesion like this because of its central role as an alarm and in protecting against skin infection. So, if secondary skin infection becomes a problem, then targeting IL-1 𝛼 might be something that you don't want to do. There's not solid data to support this. It's just hypothetical. I think the two other reasons why targeting it in a bispecific format really creates some doubt in my mind. One is that there's a very large sink of IL-1 𝛼 throughout all of the normal epithelium in the body. If you're targeting both IL-1 𝛼 and IL-1 β, some of the IL-1 𝛼 targeting is going to draw that antibody into normal tissue compartments, and that'll be less antibody to get into the inflammatory nodules.
Since only a small fraction of antibodies ever going to get there, that could be important. Secondarily, what happens if you do happen to target IL-1𝛼 in the lesion? Can that have a negative effect stoichiometrically on the affinity binding to IL-1 β? So, those are a couple of things. Again, we don't have a lot of data on this, but it's very clear looking at the bermekimab studies where J&J specifically targeted IL-1 𝛼 with a high affinity antibody. They didn't see any impact at all on the disease. So, we've never seen anything positive from it, and there's hypothetical reasons why this may not be an ideal target for HS.
Got it. Let's maybe double-click a little bit on the phase II LOTUS study. You ran, you used two arms, very high, I would say, HiSCR75 number, close to 43%. Talk about the dose response because it was evident more in the advanced patient than that's the naive.
Right. I would like to point out, it was a three-arm study because there was placebo and two active arms. We tested two dosing regimens. We studied 600 mg loading dose and 300 mg every four weeks versus a 300 mg loading dose and 150 mg every two weeks. We know that the half-life can be shortened in very high inflammatory states, and we wanted to see whether or not we could maintain a high level of anti-inflammatory effect with a four-week dose using a similar exposure. The advantage of this, of course, we did answer that question, which is that both of the regimens are quite similar, and that actually allows them to be combined, so you can get even more power from the study because you can look at a much larger sample size of patients on drug.
We did see a slightly improved efficacy pattern in patients who had the 600 mg loading dose. We think that probably matters a little bit, gets patients into the therapeutic range a little faster than the 300 mg. We answered both of those questions. But I would say that overall, there is not a significant difference between the clinical response for both of those regimens. We are very pleased about that. With patient convenience and compliance in mind, the dose we want to take forward, we propose to FDA, is a 600 mg, 300 mg dose as an ideal dose. Both doses showed a very, very benign safety profile, really no difference from placebo with respect to SAEs, neutropenia, infections, any of that stuff. So both of them were extremely well tolerated.
Got it. One dose, I mean, makes the trial more efficient as well, right?
Yeah.
More power into your study.
Exactly. What you want to get out of this is you want to have a dose that you feel really confident about to take into phase III.
Got it. With regard to the efficacy or the consistency of the signal, how would you characterize, let's say, the efficacy in naive experience? Within their experience, how would you expect the drug to perform in TNF-exposed patient and IL-17-exposed patients?
Yeah. We really have the answer from that question too. I mean, 37% of the patients in our trial, roughly
were biologically experienced patients, and about half of those were TNF alone, and the other half were either 17, only a few of those alone, or TNF and 17 prior exposure. They weren't on at the same time. We saw a remarkably similar efficacy result whether or not the patient was naive or whether they were exposed to prior biologics, which makes sense given the central positioning of IL-1β in the pathway. So unlike TNF, where you get a compensatory increase in IL-17, TH17 responses, which can ultimately reduce the efficacy of the drug, and there can be potentially some reciprocal effect as well. IL-1β is upstream of both of those, so it doesn't seem to matter. I think the other thing about IL-1β, and this shows up very nicely in our IHS4-75
Yeah
results, which we just showed at EADV as a late breaker. We showed the highest response rates of any drug in IHS4. That, of course, is a better measurement with a little bit lower placebo response than you see with HiSCR75, but it's weighted towards deeper lesions for draining tunnels and abscesses, which again, is where we think IL-1β inhibition is going to have an advantage in the marketplace.
Got it. What about, thank you for that, what about some of the PROs outcomes like pain and flare? What would you expect or what do you see with the product?
Yeah. We didn't really power the study as a phase II trial to get significance there, but we did see very positive trends, and we expect that's going to show up nicely in the phase III trials, consistent with the reduction in the deep lesions and nodules.
Got it. Despite the high placebo response of about 25%, I think the study was successful. The question I have for you is, what were some of the learnings? How are you going to apply that in the phase III program that you're running? Are you also going to go with the HiSCR75 as a primary endpoint? Is there even a consideration for 50 at all? Maybe talk a little bit about that.
Yeah. HiSCR75. In my view, and I think in the view of most thought leaders, IHS4 is probably a better measurement. But the regulatory anchor and the ICH guidelines point to HiSCR. Originally, HiSCR50, because that was thought to be an attainable bar, but now patients expect more. They want at least HiSCR75. This has been recapitulated before in psoriasis and AD with the PASI and EASI scores. It is going up. We think HiSCR75 is a more clinically relevant bar that other sponsors are using. When you do that, you agree to it with FDA. You then do a step-down analysis to HiSCR50, so you end up with both of those. We would also, of course, include IHS4 because, again, I think that is very relevant to the thought leader community and really allows us to help to demonstrate the overall efficacy of the drug and the program.
That is what we will be doing, and with all the other secondary skin pain scores and the quality of life and so on.
Got it. With regard to the placebo, I mean, is that sort of, you think, is a new norm of about 25% on HiSCR75?
We have looked at this very carefully.
From our own data, we're also, of course, studying the recent results from other sponsors too. We think we've gained a lot of insights from our own data on what we need to do. We got a little bit unlucky in that if you look carefully at our data, our placebo cohort was a little bit less sick than the patients who were actually on drug. We thought that randomization alone would be able to take care of that. We're going to be doing more stratification now to make sure that we get a very even distribution of patients across the spectrum. I think we've learned some other things, which we're baking into our phase III program, that we believe are going to help us to control placebo better as well.
That said, you can't ignore the fact that in the current clinical trial environment, we're seeing higher placebo rates. You simply have to power your study, which is what we did in our phase II, in such a way that you're going to be able to succeed even if you do get a higher-than-expected placebo rate. Again, starting off with a good drug effect size makes that a little bit easier for us. The size of the safety database that you need to meet the ICH guidelines by itself gives you enormous power to be able to detect that. Even in our LOTUS study, we could have withstood a placebo of 30%.
Wow. Yeah. With regard to the phase III program, how many studies, what is the scope and size and the duration of that program? How should we think of it?
Right. We're negotiating all of this with FDA. We've proposed two studies rather than a single study. We think that limits risk overall without increasing administrative cost or expense in general by very much. We ran the LOTUS trial at a pivotal standard, and we analyzed it at a pivotal standard. So, using the MoonLake precedent that was set, we believe that if we needed to, we could use the LOTUS trial as a pivotal study. So when you have two trials, you have a better chance of getting approval because if one of them happens to not be positive, we would still have the LOTUS trial in our back pocket for approval, which is what MoonLake God forbid that it comes to that.
We think we're going to design a program where that won't be necessary, but it should give investors a little bit more comfort that the program is better de-risked when we do it that way. As to number of patients, the ICH guidelines require that you have a total of 1,500 patients studied. They want at least 100 for a year, that will be no problem. But we think that somewhere in the 1,200- 1,600 range will satisfy what FDA requires.
Got it. Perhaps your view on the market in the next, let's say, couple of years, how do you see that shaking out? What mechanism? I think TL1A seems to be coming in. Love to understand the positioning that you think an IL-1β would have.
Right. So this market, to me, is in a lot of ways recapitulating the IBD market. It's interesting that Kristian Reich, who's the CMO and a dermatologist, a CMO at MoonLake, he describes the disease as Crohn's disease of the skin, which I think is pretty apt as a gastroenterologist myself. The IBD market has evolved so that you have multiple mechanisms and multiple drugs, now moving to combination therapy. It's become an enormous market, even though there appear to be more patients with HS than IBD. The IBD market has become, as it matures, very robust. They're still looking for new mechanisms, and the introduction of combination therapy starting to maybe move us closer to getting the majority of patients into actual remission with the disease.
That's what I expect the HS market to look like, multiple mechanisms ultimately moving to combination therapies in an attempt to get patients to where the psoriasis patients are today, with a high expectation of being clear of and free of the disease and able to live a normal life. We also expect that, as has happened in IBD, there's been a tendency to move faster to targeted therapies, more aggressive, rather than allowing damage to continue to occur and scarring, which often needs plastic surgery. These patients do suffer a great deal. When we started this, I think the average time between presentation and referral to a specialist who could give the patient definitive therapy was 8- 12 years. We're seeing that shrink dramatically as patients and physicians become more aware of it, and they'll also be willing to use biologics a lot earlier.
I think right now, as I recall, UCB mentioned in their last earnings call, they had about 10,000 patients on drug, and it was growing very fast. That is still very, very low penetration into the market by biologics. I think we are going to see this market grow very robustly. No one category, no one mechanism is going to dominate. Patients are going to want choices. Right now, it is dominated by the IL-17s, especially by UCB. MoonLake is going to be entering. You have Cosentyx as well. The TNFs are going down because they are just considered not as durable or not as effective, and the IL-1s are going to come in. We think we are going to be able to have the premium offering in the IL-1β category, especially after seeing the lutikizumab results.
Got it. Beyond HS, what is the strategy in terms of indication expansion? Would you go after areas or diseases where there is some proof of concept, or are you breaking and already going after novel indications where you have to prove the biology?
We always like to have clinical proof of concept and validation before we start spending shareholders' money. It is not just good enough to say, "Oh, we found IL-1β here in the lesion." We want to see evidence that IL-1β inhibition is actually associated with both mechanistic and clinical evidence of benefit for the patient. The next indication that we have will definitely be able to do that. We are also looking for it is not good enough to have even that, though, alone. You need to have a credible pathway forward. You need to be able to measure those outcomes in a way that is going to allow FDA to approve the drug and for you to understand who the right patients are for the drug so that you are able to write a label. There also has to be a large potential market.
We have got all of that covered in what we are working on right now, and we think the market we are intending to enter is going to be much less crowded than HS and provide us at least as strong an opportunity as HS is. That is really the beauty of being in the IL-1β, NLRP3, and the I and I space. It offers you lots of breadth and lots of opportunity. I also think that, and we are doing work on this right now in combination therapy, looking at that, IL-1β drugs like abdakibart that are so safe are really ideal components of a combination. These diseases are not fatal diseases, so you do not want to over-suppress somebody's immune system and put them at risk for an opportunistic infection.
Therefore, we think that the combination with a number of the other successful drugs, both in HS and in other diseases, including IL-1β, is going to be very interesting.
Got it. Perhaps, the last question on AVTX-010.
What exactly is that product? How is it engineered? What type of frequency from a dosing standpoint are you thinking about there?
It's engineered. We used some of our own proprietary ideas here, so we're not talking about the sequence or anything at this point. But we've engineered it to retain what we think is really important is high affinity of the molecule, as well as extend its half-life, and also to be able to use an abbreviated toxicology package. We don't know. Animal PK extension extrapolation to humans is a little bit challenging, so we'll see what that is. We're going to start our PK study. We've already been doing the CMC, get our IND filed, and get into the clinic in 2027, so we'll know about that.
Again, on the affinity side, I just wanted to say, people have said, "Well, why do you think you're going to be better than lebrikizumab?" Well, because we're a pure IL-1β play, we don't necessarily have any of the IL-1α baggage that comes with the bispecific. But affinity really does matter, and if you just look at the recent IL-13 lebrikizumab versus Adbry, lebrikizumab in another skin disease, atopic dermatitis, has tenfold higher affinity, which is similar to the difference between us and lebrikizumab against IL-13. You're looking at EASI 75 results in the 50s with lebrikizumab versus ADBRY, which is in the 30s.
Right.
Affinity does matter in selected diseases, and these are the reasons why we feel that we have a better drug. Our data's more robust and will translate better into phase III.
Very good. Thank you so much, Garry.
Thank you very much.
Appreciate it. Any questions?