Good afternoon, everyone. Thanks for joining us again. I'm Alex Thompson, biotech analyst here at Stifel. Very happy to have Garry Neil, CEO of Avalo Therapeutics, for a fireside chat. Maybe to kick things off, Garry, if you want to give a quick overview of Avalo, and then we'll get into it.
Thanks, Alex. Thanks for having us here. Avalo is a company based outside of Philadelphia, AVTX. We are building an immunology company around the NLRP3 IL-1 beta axis, and our lead compound, abdakibart, is a high-affinity human anti-IL-1 beta monoclonal antibody. Our initial target indication is hidradenitis suppurativa, and we have finished phase II with a very successful trial, a LOTUS trial, and we are about to enter phase III with the drug. We're very excited about that. We have a couple of other compounds in the pipeline, most notably AVTX-010, which is our own PK-extended version of abdakibart. It's also a high-affinity IL-1 beta, and we're also about to announce a new indication in another therapeutic area, which we'll talk about that before the end of the year.
Great. Maybe to set the stage, do you want to lay out where we are right now in the current treatment landscape for HS and sort of where the key elements of unmet need are?
Right. HS is a very interesting and a very difficult disease, both for the patients and to treat. My friend Kristian Reich at MoonLake describes it as Crohn's disease of the skin, which I think is a pretty accurate description. I remember, I'm a gastroenterologist and a physician, and I do remember seeing occasional patients with it back in the day when I was in practice, but we thought it was quite rare. It turns out it's not. There are about 3 million patients who suffer from this disease, and there's a very, very high need. It's taken a long time for There's been a long time interval between initial patient presentation and referral to a specialist where they could get definitive therapy. It's often misdiagnosed as boils or a rash rather than this severe autoinflammatory disease.
But as it's been increasingly recognized and biologic and targeted therapies have become available, there's been an explosion of recognition, growth, and development activity to try to bring new drugs to the market. The first of those was HUMIRA, then Cosentyx, and now we have BIMZELX. So there are three drugs approved and several others in development. The market is projected, again, there are at least 3 million patients in the U.S. with it. It's projected to be over $10 billion. I think personally that may underestimate what the real market opportunity is, because I think the closest analog for me would be inflammatory bowel disease, which again, we thought was going to be a relatively small market, but has turned into a very large one with a lot of need.
It is not going to be a market which will be dominated by any single drug or single class of drugs, but we've seen success with anti-TNFs, with anti-IL-17s, and now with the anti-IL-1β class, a little bit with the JAKs as well, which are more of a rescue medication. But I think all of those are going to continue to grow. But we feel most bullish about the potential role of IL-1β in treating the disease, as IL-1β is a central driver of the inflammation. It's the most abundant cytokine found within these lesions, and it's a driver both of macrophage and neutrophil biology, the tissue destruction enzymes, but it's also upstream of TNF and IL-17, particularly IL-17F. So it's playing a more central role and has a very, very good and well-tolerated side effect profile.
So we think it's going to find a real place, and we've been very, very pleased with the results from our own phase II program in that regard.
Yeah. I think that's a good jumping off point here, and we'll talk about trial conduct and the challenges of HS, but as you alluded to, you had a positive phase II study, it seems like ages ago, back in the spring. But could you walk through the design, some of the key takeaways from the LOTUS study?
Yeah. LOTUS was the largest phase II trial in HS done to date. We ran it to a pivotal standard and analyzed it as if it was a pivotal trial. 16-week study, three arms, two active drug, one placebo, 1:1:1 randomization. We studied two different dosing regimens, a 600 loading, 300 once a month dose, and a 300 loading with 150 every two-week dose. We were looking at two different dosing intervals over 16 weeks. What we found was very, very compelling efficacy. About 43% patients achieved, in both arms on drug, achieved a HiSCR75, 75% healing of their lesions. If you look, the response curves were nice and smooth. Some of the other programs that we've seen that were a little bit smaller, maybe weren't as rigorously run, showed some sawtoothing. These were nice and smooth.
curves, all of the secondary endpoints were positive. We're particularly gratified about the, what's called the IHS4 scale, which is a non-binary type. It's a linear measurement, so a little bit less confounded by placebo, but it's heavily weighted towards abscesses, deeper lesions, and draining tunnels, where we did very well. So our IHS4 75 data at 44.7%, I think the highest that's been recorded to date in an HS trial. The consistency of the data over time, across endpoints, and across both doses was remarkable, and therefore, we have very high confidence going into phase III that we're going to be able to replicate that.
Yep. I think the other big element of this trial too was safety, right?-
Yeah
-questions around infection risk in this population and with this mechanism, and also things like neutropenia. Can you talk a little about safety?
Yeah, that's really a great point because neutropenia has been associated with IL-1β blockade. The reason for that is that IL-1β drives G-CSF, which brings neutrophils out of the bone marrow and stimulates neutrophil growth. You tend to see real clinically significant neutropenia very rarely, though. If you look at the CANTOS trial, which was a three-year trial run by Novartis with their anti-IL-1, they showed a fatal neutropenic infection in 0.3 patients per 100 years of exposure on drug, 0.2 on placebo. So, a very small difference. You'd need a large trial to show it, but still, that was there. Now, in our study, these patients with HS have very high neutrophil counts to begin with. They're very inflamed, high CRP levels. We weren't really expecting a lot of neutropenia. Their neutrophil counts are high, and we didn't see it.
We didn't see anybody with an SAE of clinically significant neutropenia, even though there were some transient reductions in neutrophil counts. There were no serious infections. In fact, there were no serious AEs at all in the trial compared to placebo.
Great. Then, I think the other question in the HS space is just how do we think about data in the context of other HS trials? Can you talk about the population in your trial, how that compares to other contemporary studies, and then also the implications potentially of including prior IL-17 experienced patients?
Yeah. We looked at I think our population was maybe a little bit more severe than some others have studied. They are all really stage two and three patients, really stage two, three, they are moderate to severe. But we had more than a third of the patients had Hurley stage III, and almost more than a third, 36% or so, of these patients were prior biologic exposed. So, some of them had failed or had been on biologics before. The patients had very high CRP levels. I think the averages were in the teens, so they had very high inflammation, high rate of smoking, and a high BMI.
This has been fairly typical of the type of population that ends up in these studies. But I think it is exactly the population that we would expect to replicate in our phase III program, and therefore, our phase II data should translate well.
Yep. Then, you alluded to IL-1 β selectivity, but I think sort of one of the more recent datasets, I think that is interesting to put into context here is the lutikizumab data.
Right.
Right? Can you talk a little bit about the difference between abdakibart and lutikizumab and how that's translated, at least on face so far, to these differences clinically?
Yeah. Lutikizumab is a bispecific antibody that basically binds both IL-1α and IL-1β, and we don't think IL-1α is really playing any significant role in HS. But it is a bispecific. It has a little bit shorter half-life and lower bioavailability. It also has affinity that's at least sevenfold lower than the affinity of abdakibart for IL-1β. And we feel that that stronger binding and the long off time that we have with abdakibart does, and we can show this in vitro, have much more potent IL-1β neutralization. We think that can lead to better clinical outcomes.
Yep. We just had the phase III data for lutikizumab readout.
Yep.
I think that the notable thing from my perspective, I'm curious how you frame the data, is that it was a positive study, but the effect size in what is probably a more similar population to your phase II is smaller than your effect size.
Yes. Everyone noticed that. Now, I think that we believe that the AbbVie phase II data, which come from a trial which was a little bit smaller, and maybe not quite as rigorously run, still adequate and showing proof of concept, the data were a little bit less clear than ours, may have overestimated the drug treatment effect size in phase II, and their phase III probably comes closer to the true treatment effect size that you get with lutikizumab. They were in the low 30%s with a placebo rate that was in the 20%s, only a difference of 8%. Although, it was very statistically significant.
Sure.
They did hit on most of their secondary endpoints, and they had a positive effect on flare. As you say, it was definitely a positive clinical trial, and I think they've said that they plan to file this for registration and then launch the product. I think they're going to do very well because it really has a comparable efficacy profile if you just look at the drug treatment effect size to BIMZELX, which is off to a really great launch, and it has a differentiated mechanism and side effect profile. In our case, again, we had a much higher level of efficacy, 43%, more than 10 points higher than they did in our phase II.
I think because of our trial size, how rigorously we ran it, and how rigorously we analyzed it with very strict imputation, that we expect that to read through to phase III much better than AbbVie did. What is the difference? I think it is mostly due to the potency and the higher affinity of our antibody, as well as the fact that we use the high loading dose and we have the-
Yeah
-longer half-life.
Look, I think this gets to one of the broader questions in the HS space now that we have seen a handful of studies over the last year or so read out with placebo responses in the low to mid-20s versus historically the mid-teens.
Yeah.
Then we had the tulisokibart data at EADV with back to a mid-teens placebo response, at least on HiSCR75. I guess, how should we think about understanding the efficacy of these trials in context when you see this variability in placebo effects? It seems like you are focused a lot on this absolute response rate. Is that the better way to think about clinical activity, or how do we think about these data sets?
I think they're both important.
Yeah.
But as physicians see it, they're not really that interested in the placebo rate-
Sure
-or placebo subtracted difference. I think it's a way that investors use to sort of compare across different-
Sure
-regimens. But physicians keep telling me, "Look, we don't care about that because we don't prescribe placebo, we prescribe drug." FDA's concern is going to be not on the absolute difference, but on how statistically significant the difference is and whether they show that they are, in fact, better than placebo, and they'll put all of this into the label. From an approvability commercialization point of view it's not as important. That said, it's something that we definitely want to try to control. We know that these patients have a very variable disease course.
They're enrolled in a trial during a flare, and the disease waxes and wanes, so the likelihood is that they'll experience some spontaneous remission of the disease as they move along. That's just going to be expected. We know that it's difficult to assess the endpoint. Again, simplistically, you think, "Well, they're just counting up the number of lesions, aren't they? Can't they count?" There's no central read. You can't photograph the lesions. They have to glove up, and they have to actually palpate these lesions. Some of them are under the skin. Some of them are visible. They all hurt.
They very commonly present themselves, the lesions, in the most sensitive parts of the body, in the genital region, under the breasts, and so on. It's a little bit difficult and challenging for the physician to get an accurate count. They need to be really diligent, and the training of them is very, very important. I think the other inherent difficulty is with the HiSCR75 or 50 endpoint, because it's a binary endpoint.
Yep.
That means you're either positive or you're negative, and a difference of just one lesion could make the difference. That makes it a little bit more difficult when you're assessing placebo. But these are issues that are not new, and we've always had-
Sure
-to deal with them. What do you do? I think from our point of view, and we've analyzed our data very carefully with this in mind, it's a matter of good patient selection, making sure that patients have an adequate number of lesions so that you can assess them properly. We've seen that patients with a smaller number of lesions, maybe just because of the mathematics-
Sure
-may be more prone to having a placebo effect. Training of the investigators, making sure they're diligent, and making sure that they are doing a thorough examination, even of these most sensitive parts of the body. We also took time, and I think we're going to redouble our efforts in phase III, to train the patients on the placebo effect and why it's important for them to continue their usual routine and not to self-medicate with other drugs and so on and so forth, which could also be confounding in this setting. That all said, I think you can control it. We would have had a placebo rate of only 20% if we'd have had just five fewer placebo responders.
Sure.
I think at the margin, putting the work in can help you get to a more reasonable placebo rate. But in the end, if you've got a drug which has got a robust treatment effect and you plan your study and power it appropriately, I've worked in high placebo response-
Sure
-indications over a 30-year career. It's not that you can't work in them. You can. You just have to plan and power for it appropriately.
Yeah.
That's what we're going to do.
I guess, just recently now, we had another failure with Zura with another apparent high placebo response.
Yeah.
I guess, any sort of takeaways from that particular study? Then maybe the second question is just to your point is the base case assumption now moving forward that placebo responses on HiSCR75 are going to be 20%-25%?
Well, I think they're going to be a little bit higher.
Yeah.
I think that's demonstrated from the literature. We're doing our best to control it. I feel bad for my colleagues at Zura with that. We'll try to understand their data a little bit better. But I don't think that they had a negative trial because they had a high placebo effect. I think it was that plus the fact that they didn't get the degree of drug treatment effect that they'd hoped to. From that drug, and that just happens.
Yep. So yeah, you alluded to next steps here for you, end of phase II meeting with the FDA.
Right.
What's the timing for that?
We'll have our feedback from the FDA before the end of the year. They're reviewing our package right now, as is EMA, so we'll be getting our feedback and finalize the trial. We've done all of the other preparation with the CMO. We have our clinical trial supplies ready to go. That's gone extremely well. We have our CRO lined up, ready to do the final contracting when we have the final protocol. But we've done a lot of pre-work there. We just need to make sure we have the final protocol done and we'll be able to get started enrolling patients early next year.
So broad strokes, how are you thinking about what a phase III program looks like for abdakibart?
Right. So we're thinking, these programs are subject to ICH-
Sure
-guidelines. There will be two studies, placebo-controlled, early stage two , three patients. Similar to what we did before. Again, we expect around 40% of patients to be biologic experienced. The endpoint will be HiSCR75 with a step-down analysis to HiSCR50, secondaries IHS4-
Sure
-skin pain, quality of life, flares, et cetera.
Okay. And one dose?
16 weeks induction and then 52 weeks maintenance, which is FDA standard. We proposed a single dose to the FDA. We'll see whether or not they would want us to do any additional dose ranging in phase III. Sometimes they do.
Yep. Do you expect to have them at least acknowledge that the phase II could count potentially as a pivotal trial?
Yeah, I mean, we will have that discussion as part of the end of phase II meeting. I think that there is a precedent with the MoonLake-
Yep
-trial in phase II.
Yep.
But we're not asking them to accept it as a pivotal trial-
Yeah
-right now, but I think it's nice to have it in your back pocket as a way of-
Sure
-further de-risking the program.
I think getting off the ground with the phase III is great. I think one of the questions that will come up is, you look historically, there's been some degradation from phase II to phase III. Look at-
True
-[inaudible], look at sonelokimab. How do you respond to that and sort of get comfortable with the effect size you saw in phase II translating to phase III?
Yeah, I expect, I mean, having done this for a long time, we especially see regression to the mean from phase II trials, particularly when they're small and you're doing a proof of concept, and you feel confident enough that this trial is going to be positive in phase III. We're a little bit more cautious here because of the high placebo rates, and we've seen other programs fail. We took pains to make sure that our trial was appropriately sized, and we had the two different treatment regimens, the two different doses, which had similar exposure that we could combine. We could also analyze how consistent they were.
This has been a problem within the HS. As often happens with monoclonal antibodies, you can expect to see variability as you are in the dose efficacy plateau and not understand that you really need to take an average of those two doses to get a better estimate of treatment effect. You might convince yourself that you should just go with a higher dose and maybe mispower your study that way. We did not do that. We do not need to do that because the doses were so consistent. When you do it that way, when you apply those rules to powering phase III, you see less degradation.
Yeah
Because there is more consistency. Likewise, I want to make sure that the population is as close to what we are going to study in phase III, and that will be the case. Again, we used a very rigorous imputation methodology, exactly the same as we are going to use in phase III. Taken altogether, no, I do not expect that degree of degradation. I will say this, as we plan the study, it will be adequately powered so that if worst comes to worst, that we are not going to be caught with our pants down, so to speak-
Sure.
-with an underpowered study.
Yeah. Then maybe as a follow-up to that, I guess, how do you balance running a rigorous, correct study that gets you to the right answer, and efficiency of running that study within a reasonable timeframe?
Yeah. Well, that's always the trick of it, right?
Yeah.
You have to make sure you have enough sites with well-trained investigators, the right CRO, and the right team. And we do have a very good team and very diligent. We'll be able to balance that. The good news is there are lots of patients out there that want to get in these trials. We had a very easy time enrolling phase II. I think we are going to have an easier time enrolling phase III because patients really prefer to go into a phase III trial, and investigators really prefer to be investigators in a phase III trial. It is a longer gig for them. It is a little bit more stability. And by that time, they are working with a drug that they know actually works.
I do not expect. Now that the AbbVie phase III is finished, I think Merck is going to be out there with two lead, but we should not have a lot of competition for sites and patients. I think we are going to be able to do just fine. And we will be able to use many of the best sites that we had in our phase II trial as well.
Okay. Then maybe let us talk about your next-gen IL-1β. How are you framing that molecule versus abdakibart, and where do you expect to move forward with that?
Right. So we've engineered this molecule ourself to have an extended PK. We don't know exactly what that will be in humans. You can extrapolate from primates, but we need to get it into humans to see what it actually will be. We think it's going to be significantly longer than abdakibart. What we did, we tried to preserve the epitope and the high binding affinity of abdakibart because we think that's very important for most of the indications that we intend to study. We're not talking about exactly what we did and how we engineered the molecule.
But we have got IP on this, and we've had a very successful manufacturing run, so we'll be ready to get into the clinic, file the IND, and get into the clinic. FDA's been great to work with, and we had an abbreviated toxicology program with it that's going to help us accelerate that program as well. So we're really excited about it. We think that it can have application in HS, but in other indications-
Yeah
-as well, where you might, something that you could give every three months, every six months, maybe even less frequently than that, might have real advantage for patients.
When is that going to get into the clinic?
We're going to have that in the clinic first half of next year.
Okay. Then maybe that dovetails kind of thinking about indication expansion. Where should we expect you to go with abdakibart next?
We are going to make an announcement about the next indication. There are very interesting adjacencies in dermatology, which we are still interested in, but this next indication is going to be in a different indication, in I&I. It is one which is less crowded, but where there is very strong clinical validation, a lot of unmet need, and a lot of excitement in the patient and provider community for it. We are looking forward to rolling that out. We have had a lot of communication already with FDA and investigators and CROs, so we are getting pretty much ready to go with this, and I am looking forward to sharing it with everybody.
Will this come with sort of an immediate start to a clinical trial, or is that something?
We are planning-
Okay
-to get that going early next year as well.
In that context, could you talk about where you are currently with cash runway and what is included in that assumption set?
Yeah, we last reported $462 million. We took down $430 million after the LOTUS trial, so we are well capitalized, and we have enough money to get us through 2029 top line data for phase III. Also, we funded the phase II program in the new indication and the phase I program with AVTX-010. I am glad I am not having to go out and raise money right now in this market, but I think we are in good shape.
You are saying runway into 2029, is that correct?
Yes.
I guess like HS data in 2028, is that on the more rapid side relative to contemporary studies?
No, it is, we are expecting the HS top line data 2029.
2029, okay.
Yeah. We have money through
Through 2029.
Top line data in 2029.
Okay. Great. Any final thoughts or questions?
No, I think it's great. I think we take the AbbVie data as being very validating for the IL-1β hypothesis, but they've still left room for us to improve upon that result. I think we do, given the higher affinity of our drug, I think we do have that opportunity to do that, and I think we're very excited about the future.
They present data at AAD next year.
Yeah.
What are you most interested in seeing?
Everything they didn't present in their press release.
Sure
I think would be very interesting.
Patient population, et cetera.
Yeah.
Great. Well, Garry, thank you so much.
Thank you, Alex.