STIFEL 2026 HEALTHCARE CONFERENCE - AVALO THERAPEUTICS INC

Good afternoon, everyone. Thanks for joining us again. I'm Alex Thompson, biotech analyst here at Stiefel. Very happy to have Gary Neal, CEO of Avalo Therapeutics, for a fireside chat. Maybe to kick things off, Gary, if you want to give a quick overview of Abalo, and then we'll get into it. Thanks, Alex. Thanks, for having us here. Yeah, Avalos 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, Abdacobart, is a high-affinity human anti-IL-1-beta monoclonal antibody. Our initial target indication is hydradenitis suppurativa, and we have finished phase 2 with a very successful trial, a lotus trial and we are about to enter phase 3 with the drug we're very excited about that we have a couple of other compounds in the pipeline most notably ABTX-010 which is our own PK extended version of abdacobar, 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. So maybe just at this stage, do you want to lay out where we are right now in the current treatment landscape for AHS and sort of where the key elements of unmet need are? Right. So AHS is a very interesting and a very difficult disease, disease, both for the patients and to treat. My friend Christian 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 so there's a very, very high need. And 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 auto-inflammatory 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 Cosentix, and now we have Bemzelex. 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-1 beta 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-1-beta in treating the disease, as IL-2-bета 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-7F. 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 And we'll talk about trial conduct and the challenges of H.S., 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? So LOTUS was the largest Phase II trial in H.s. 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 one one one 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 so we were looking at two different dosing intervals over 16 weeks and what what we found was was really very very compelling efficacy about 43% patients achieved in both arms on drug achieved high score 75 75 percent healing of their lesions if you if you look and and the the response curves were nice and smooth some some of the other programs that we've seen that were a little bit smaller maybe weren't as rigorously run showed some sawtooth thing these were nice and smooth curves all of the secondary endpoints were positive and We're particularly gratified about what's called the IHS-IV 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 IHS-475 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 three that we're going to be able to replicate that. Yep. And I think, you know, the other big element of this trial, too, was safety, right? So questions around infection risk in this population and with this mechanism and also things like neutropenia. Can you talk a little bit about safety? Yeah, that's really a great point because neutropinia has been associated with IL-1 beta blockade. The reason for that is that IL-2 beta drives GCSF, which brings neutrophils out of the bone marrow and stimulates neutrophil growth. you you tend to see real clinically significant neutropenia very rarely though if you look if you look at the cantos trial which was a three-year trial run by a loris with with their anti-il-1 they showed a neutropene fatal neutropena infection in 0.3 patients per 100 years of exposure on drug 0.2 on placebo so a very small difference you 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 neutrophils counts are high, and we didn't see it. So we didn't seen anybody with an SAE of clinically significant neutropinia, even though there were some transient reductions in neutrophile counts. And there were no serious infections. In fact, there were no serious AEs at all in the trial compared to placebo. Great. And 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? And so 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. We had, they're all really stage two and three patients, early stage two, three, they were moderate to severe. But we had more than a third of the patients had early stage three. And almost more than 1 3rd, 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 higher inflammation, high rate of smoking, and high BMI. This has been fairly typical of the type of population that ends up in these studies, but I think it's exactly the population that we would expect to replicate in our phase three program, and therefore our phase two data should translate well. And then, you know, you alluded to IL-1 beta selectivity, but I think sort of one of the more recent data sets I think that's interesting to put into context here is the ludicizumab data, right? And sort of, can you talk a little bit about the difference between abdacobart and ludicuzumab and sort of how that's translated, at least on face so far, into these differences clinically? Yeah. Yeah, so lidocizumab is a bispecific antibody that basically binds both IL-1-alpha and IL-2-beta. Now, we don't think IL-3-alphas are 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 seven-fold lower than the affinity of abdacobart for IL-1 beta. And we feel that that stronger binding and the long off time that we have with abdocobart does, and we can show this in vitro, have much more potent IL-2 beta neutralization. We think that can lead to better clinical outcomes. Yep, and so we just had the phase 3 data for ludicizumab readout, And 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, and everyone noticed that. Now, I think that we believe that the AbbVie Phase 2 data, which come from a trial which was a little bit smaller and maybe not quite as rigorously run, still adequate in showing proof of concept, the data were a little less clear than ours, may have overestimated the drug treatment effect size in Phase 2. And their phase 3 probably comes closer to the true treatment effect size that you get with litikizumab. So they were in the low 30s with a placebo rate that was in the 20s, only a difference of 8%. Although it was very statistically significant, and they did hit on most of their secondary endpoints, and they had a positive effect on flare. So, 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. And I think their going to do very well because it really has a comparable efficacy profile if you just look at the drug treatment effect size to Bemzelex, 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 two. I think because of our trial size, how rigorously we ran it, and how rigoriously we analyzed it with very strict imputation, that we expect that to read through to phase three much better than the AbbVie did. And again, what's the difference? I think it's 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 longer half-life. And look, I think sort of this gets to one of the broader questions in the HS space now that we've seen a handful of studies over the last year or so read out with, you know, placebo responses in the sort of low to mid-20s versus historically the mid-teens, you know, and then we had the Tulasocobar data EADV with back to a mid-teen's placebo response least on high score 75. 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're 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, but as physicians see it, and they're not really that interested in the placebo rate or placebo-subtracted difference, I think it's a way that investors use to sort of compare across different 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. So from an approvability commercialization point of view, it's not as important. That said, it is something that we definitely want to try to control. We know that these patients have a very variable disease course. They're enrolled in the 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 end point. 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're very commonly present themselves the lesions in the most sensitive parts of the body or the genital region under the breasts and so on so it's a it's a little bit difficult and 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 the other inherent difficulty is with the high score 75 or 50 end point because it's a binary end point and that means you're either positive or you're negative and a difference of just one lesion could make the difference and so that that makes it a little bit more difficult and when you're assessing placebo but these are issues that are not new and we've always had to deal with them so I what do you do right I mean I think from our point of view and we analyze their 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, 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, and we also took time, and I think we're going to redouble our efforts in phase three 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. But that all said, right, I think you can control it. I mean, we would have had a placebo rate of only 20 if we'd have had just five fewer placebo responders. So 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 mean I've worked in high placebo response 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. So that's what we're gonna do. And I guess sort of, you know, just recently now, we had another failure with Xura with another apparent high placebo-response. I guess, I mean, any sort of takeaways from that particular study, and then maybe the second question is just, to your point is, you now, is the base case assumption now moving forward that placebo responses on high score 75 are gonna be 20 to 25%? Well, I think they're gonna 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 better. But I don't think that they had a negative trial because they had a high placebo effect, I thinks it was that plus the fact that they didn't get the degree of drug treatment effect that they'd hope to from that drug, and that just happens. Yep. So, yeah, you alluded to some next steps here for you and the 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, and 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 a 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. So we just need to make sure we have a 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 Abdakabart? Right. So we're thinking these programs are subject to ICH guidelines. There'll be two studies, placebo-controlled, early stage 2, 3 patients, similar to what we did before. Again, we expect around 40% of patients to be biologic experience. The endpoint will be high score 75 with a step down analysis to high score 50 secondaries IHS for skin pain quality of life flares etc okay and then one does 16 weeks 16 weeks induction and then 52 weeks maintenance which is FDA standard we proposed the single dose to the FDA we'll see whether or not they they would want us to do any additional dose ranging in phase three. Sometimes they do. Yep. And do you expect to have them at least acknowledge that the phase two could count potentially as a pivotal trial? Yeah. I mean, we will have that discussion as part of the end of phase two meeting. I think that there is a precedent with the Moonlake trial in phase two, but we're not asking them to accept it as a pivotal trial right now, but I think it's nice to have it in your back pocket as a way of further derisking the program. So I think, you know, getting off the ground with the phase three is great. I think one of the questions that will come up is, you look historically, there's been some degradation from phase two to phase three. Look at benzelex, look at sonolocumab. How do you respond to that and sort of get comfortable with the effect size you saw in phase two translating to phase two? Yeah, I expect, I mean, having done this for a long time, we especially see regression to the mean from phase two 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 three. We're a little bit more cautious here because of the high placebo rates, and we've seen other programs fail. So 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, as often happens with monoclonal antibodies. You can expect to see variability as you're 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 didn't do that. We don't need to do that because the doses were so consistent. So I think when you do it that way, when you apply those rules to powering phase three, you see less degradation because there is more consistency. Likewise, I want to make sure that the population is as close to what we're going to study in Phase III, and that will be the case. And, again, we use the very rigorous imputation methodology, exactly the same as we're gonna use in Phase II. So taken all together, no, I don't expect that degree of degradation. But I will say this, as we plan the study, it will be adequately powered so that if worst comes to worst, that we're not going to be caught with our pants down, so to speak, with an underpowered study. Yeah, and 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 time frame? Yeah, well, that's always the trick of it, right? You have to make sure you have enough sites with well-trained investigators, the right CRO and and the right team and we do have a very good team and and very diligent we'll be able to 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 in rolling phase two I think we're going to have an easier time in rolling phase three because patients really prefer to go into a phase three trial and investigators really prefer to to be investigators in a phase three trial it's a it's longer gig for them it's little bit more stability and by that time they're working with a drug that they know actually works so and I thought I don't expect I mean now that that the ABV phase three is finished I think Merck is going to be out there with Thule but but we shouldn't have a lot of competition for for sites and patients so I think we're going to be able to do just fine. And we'll be able to use many of the best sites that we had in our Phase 2 trial as well. So maybe let's talk a little bit about your next Gen I1 beta. How are you framing that molecule versus abdacobard, and where do you expect to move forward with that? Right. So we've engineered this molecule ourselves 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 abdacobart. What we did, we tried to preserve the epitope and the high binding affinity of abdracobart 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, 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 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 and when is that going to get into the clinic so we're going to have that in the clinic first half of next year and then maybe that dovetails kind of thinking about indication expansion where should we expect you to go with abdacabart next Right. So we're 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 INI. It's one which is less crowded but where there's very strong clinical validation, a lot of unmet need, and a lot of excitement in the patient and provider community for it. So we're looking forward to rolling that out. We've 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'm looking forward to sharing it with everybody. And will this come with sort of an immediate start to a clinical trial or is that something like that? Yeah, we're planning to get that going early in next year as well. And so maybe in that context, can you talk about where are you currently with cash runway and what's included in that assumption set? Yeah, we last reported $462 million. We took down $430 million after the Lotus trial. So we're well capitalized, and we have enough money to get us through 29 top-line data for Phase 3. And also we funded the Phase 2 program and the new indication and the Phase 1 program with 010. So, I'm glad I'm not having to go out and raise money right now in this market. But I think we're in good shape. So you're saying runway into 29, is that correct? Yes. And so, I guess HS data in 2028, is that on the more rapid side relative to contemporary studies? No, we're expecting the HS top line data in 29. 29, okay. And we have money through top line date in 29 Okay, 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-1 beta hypothesis, but they've still left room for us to improve upon that result. I think given the higher affinity of our drug, I think do have that opportunity to do that. And I think were very excited about the future. If they present data at AAD next year, what are you most interested in seeing? Everything they didn't present in their press release, I think. Patient population, et cetera. Great. Well, Gary, thank you so much. Thank you, Alex.