Alector, Inc. (ALEC) Earnings Call Transcript & Summary

Thanks for joining us for the next session. I'm Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Pleased to have Alector joining with me. Quickly before we get started, I just need to read a disclaimer. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. And for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/research disclosures. If you have any questions, please reach out to your Morgan Stanley representative. So very pleased to have Arnon Rosenthal, who's the CEO of Alector. Arnon, I'm going to just turn it over to you to make some opening comments, and then we'll jump into Q&A.

Great. Thank you, everyone, for joining us. As Matthew said, I'm the CEO, Co-Founder of Alector. And as you know, for the last few decades, the main therapeutic approach to treat neurodegeneration was to go after the misfolded proteins. So there have been dozens of therapeutic approaches, targeting beta-amyloid, dozens of therapeutic approaches targeting TAU. There are now significant effort on targeting alpha-synuclein in Parkinson's disease. And we, 6.5 years ago, concluded that this approach is insufficient. It's not broad enough. And instead, we decided to develop an alternative approach, which we call immuno-neurology. And this approach basically target the brain immune system and to treat neurodegeneration. And the brain immune system is really the police force, the National Guard of the brain. It has a very broad role in maintaining homeostasis in the brain, maintaining the brain in healthy state. And our hypothesis is that when this police force or National Guard is not functioning well, a lot of things sort of become wrong in the brain. And as a result, you develop the disease. And the scientific rationale for our approach was human genetics. In the last 7 to 10 years, multiple risk genes for neurodegenerations have been identified, primarily for Alzheimer's disease. And the surprising finding was that the majority of these genes are actually immune checkpoints for the brain immune system, a cell type called microglia. So all our drugs are targeting genetic -- genetically validated risk gene for neurodegeneration, and they're basically counteracting immune checkpoints in the brain as therapeutics. And we think that this will open a very broad therapeutic opportunity for dementia in neurodegeneration.

Okay. Great. Well, thanks for that introduction. I guess, maybe if you could just -- maybe it would be good to outline the portfolio and just broadly talk about your targets as they relate to immuno-neurology and how you thought about your targets related to that approach in terms of their mechanistic action?

So we currently are pursuing about protein programs. All of them, again, are genetically validated risk gene for different types of neurodegeneration. We have 4 programs in the clinic. Our most advanced program is in Phase III. We have 2 Phase II ready programs for Alzheimer's disease, AL program is going to the clinic either or later this year or early next year. So we have a really broad portfolio of drugs or best -- for different neurodegenerative diseases. And again, we are looking at the risk gene for Alzheimer's disease or frontotemporal dementia, for Parkinson's disease, for multiple sclerosis, and we developed drug that counteract the risk. So it's a loss of function of a given gene leads to the disease. We develop a drug that enhance the activity of this gene. And conversely, excessive activity of a given gene cause the disease, we developed a drug that suppresses, that normalizes the activity. And again, all these genes or targets are immune checkpoints for the brain immune system. As you know, our first drug that's in Phase III is targeting the progranulin cascade -- progranulin is an immune moderator. We secrete that protein that control the functionality of the microglia, and in multiple diseases that is -- you see that there is decreased activity or decreased expression of progranulin. So in frontotemporal dementia with progranulin mutation, you see 50% to 70% decrease in the level of progranulin, and even a modest decrease in the level of progranulin, 10% to 15% is associated with increased risk of Parkinson's disease, ALS and possibly in Alzheimer's disease. So we developed a drug that increased the level of progranulin, basically counteract these pathologies. Our Alzheimer's drugs, we have a drug that counteract the loss of function of TREM2. TREM2 is a major risk gene for Alzheimer's disease. Again, it's activating immune checkpoint for microglia. Loss of function is associated with dementia and Alzheimer's disease, and we developed a drug that activates from -- to counteract this decrease. Our third Alzheimer drug is SIGLEC 3 targeting drug. SIGLEC 3 is another immune checkpoint risk gene for Alzheimer's disease. It's a very similar functionally to PD1 or to the receptor for CD47, but it acts on microglia and myeloid cells. And because it's an inhibitory checkpoint, excessive activity leads to the disease, and we develop a drug that shuts down the system. Again, conceptually very similar to PD-1 antibodies or CD47 antibodies. So again, the genetic post direct us to the targets and to the direction of how we need to modulate the targets in order to develop drugs.

Okay. Perfect. So maybe let's start with FTD because that's clearly been an investor focus. You had some updated data that you presented at AASC this year. I think investors had mixed views on that data. So maybe it's a good place to start. Just talk about what's your view of that data and what do you think investors are missing?

The facts are that basically, we have a drug -- again, we are focusing on progranulin and mutation carriers that leads to FTD. People that have one good and one bad copy of progranulin invariably developed frontotemporal dementia, which is a very rapidly progressing neurodegenerative disease hitting people before the age of 60. And basically, for the first time, we have a drug that shows that it can restore progranulin to normal level chronically. We treated patients up to 6 months, and you can see normal level of progranulin that's indistinguishable from healthy volunteers. The drug is completely safe, the drug counteract multiple disease hallmarks. Frontotemporal dementia is a highly inflammatory disease that sort of leads to high level of inflammatory biomarkers like osteopontin. And it's also a disease that's associated with supression of lysosomal enzymes. And we showed that our drug counteract these 2 major hallmarks, our drug-suppressed inflammatory biomarkers and our drug enhanced lysosomal biomarkers like cathepsin D. So we have a drug that's safe, that restore a progranulin, which is the disease-causing protein back to normal and that largely counteract multiple disease signature, like inflammatory biomarkers and lysosomal biomarkers. What we were not able to show, and I think sort of investors expected is a very profound decrease in neurofilament. In our Phase Ib, we showed a 14% decrease in neurofilament. And here, we didn't really have -- because of COVID-19, we didn't have long enough treatment, I think, to show a profound decrease in neurofilament. But still, 6 of the 8 patients that we treated show decrease in neurofilament. The longest treated patient, that was treated for 6 months, showed 30% decrease in our neurofilament. So we have, again, a drug that's completely safe; restored progranulin back to normal level; counteract multiple disease biomarkers, inflammatory and lysosomal enzymes; pushed neurofilament to their correct trajectory. So we think we have a very promising drug. And so we were actually very puzzled by the investors' response.

Arnon, can you discuss -- I mean, I guess, 2 other things. So one, what do we know about neurofilament in patients? And how that compares to what you have so far in terms of the kinetics and the time line? And what you would expect neurofilament to do over time in these patients? And then second, one of the areas, which I think causes debate is in neurological diseases where you're just -- where essentially, I think the hope is that we can slow the decline. When you enroll those patients, whether they're presymptomatic or just symptomatic or have significant disease, may impact sort of the clinical outcomes that you can achieve. So can you talk about those 2 factors and how you think about that in terms of the patients and the data that you can produce?

So in FTD risk progranulin mutation, when they are symptomatic, the level of neurofilament is 5 to 7 fold higher than normal. It continues to increase throughout the disease progression at the rate of about 24%, 25% per year. Before progranulin FTD mutation carriers become symptomatic, they have normal level of neurofilament and the longitudinal data suggest that yield between 1 and 2 years before they compare, they have -- they develop high level of neurofilament. Again, this goes to 5 to 7 fold higher than normal. So -- and the absolute level of neurofilament, once you are symptomatic, really determine or [ repeat ] the rate of disease progression. The higher the neurofilament, the faster the disease progression. And basically, again, because we didn't have patients long enough, what we were able to show is that overall, with drug treatment, we didn't see patients that have like increased neurofilament for [indiscernible] we expected based on the longitudinal data. And the majority of the patients actually showed reduction in neurofilament. A trend of reduction in neurofilament. So we think that it just requires longer time to see neurofilament effect. The disease is progressive, and I think that what basically, what's happening is that you have low level of progranulin. The low level of progranulin poses, abnormalizes the normal function, abnormal immune system function that become inflammatory. The high inflammation and low lysosome cause neuronal damage. The neuronal damage eventually lead to release of neurofilament. And it's a cascade of event that once you heal, it's not going to happen immediately. And basically, you need to restore progranulin, then you need -- once progranulin is restored, you need to restore the inflammation to normal level. You need to restabilize the lysosomes to normal level. And only then the damage to neurons will start filling, and then we'll see decreasing neurofilament. So we expect this thing to take time. Again, I compare it to a braking distance in the car. In the car, once you press the brakes, you don't stop the car immediately. There is sort of some time before the car stops. And I think the same thing will happen here. Even if we stop the [ assault ] that causes the disease, the healing is going to take some time. And you see that in other diseases, like multiple sclerosis, for example, you see in Huntington disease, the indications are it takes 6, sometimes 12 months for neurofilament to start responding to the medication, even though we see that the medication is effective. So I think we just sort of have to adjust to the time frame of the healing. And I think that's what we failed to communicate because we were doing [ best of ].

And I guess you mentioned some data points around why you're thinking about 6 to 12 months makes sense. I guess one of the questions that I get pretty often is because this is a genetic mutation, people have high levels progranulin for years potentially. Why -- if you can intervene and bring those levels down pretty quickly, I guess, why do you feel confident that then you can see an impact on neurofilament over a 6- or 12-month period as opposed to -- it would take multiple years because they've had this high progranulin level for life growth?

No. That's a great question. Yes, we extrapolate from other diseases. Again, there's very sort of this scarcity of information on therapeutics, but in multiple sclerosis, in the antisense treatment for ALS, the antisense treatment for Huntington disease, it seems as if it takes at least 6 -- most times it takes 12 months to see sort of effecting this chronic neurodegenerative -- chronic adult neurodegenerative diseases. So we think that our drug may behave the same. It's a good question. Basically, people are born with the mutation. They develop the disease by the age of 58 to 60. And the question whether we can reverse the disease once in adult. And we think that we can -- because the disease is progressive. You see, again, until they become symptomatic, people have a normal level of neurofilament suggesting that the neurons are not injured. And then the injury is initially focal in the frontotemporal cortex and then it expands. So first the clinical symptoms become more and more severe and the areas where the brain damage -- so it's manifested, become more and more sort of broader. So we think that because it is a progressive disease, if we intervene early, even when the disease symptoms occur, we can still sort of stop the disease or halt -- slow down the disease. Okay. So we think that, that treatment would be beneficial. It would take sort of a few months. Again based on animal models, based on other diseases, this is our prediction. And to make sure that we are not treating too late, basically, we are going to include a cohort and arm of presymptomatic patients as well as early symptomatic patients in our Phase III clinical trial. So we will make sure that we are catching the patients at the right time.

Okay. And I believe you guys have committed to before the end of the year, providing some additional data on a cohort of patients. Maybe just remind people what we could expect to see in that data set in terms of what endpoints and what biomarkers we may get? And then sort of your view on what to look for there?

Yes. As you may know, we sort of -- we closed the Phase II with 11 symptomatic progranulin FTD mutation carriers to focus on the Phase III. We think that the Phase Ib and Phase II provided enough scientific rationale to start Phase III, and we want to recruit patients primarily to Phase III. So we are treating now 11 symptomatic progranulin FTD patient, 5 nonsymptomatic progranulin FTD mutation carriers. And because of COVID-19, we want to wait until at least the end of the year or early next year to really see how many patients really continue the treatment. And in January, we will really give clarity on what we expect. In addition, in the Phase II, we are recruiting FTD mutation -- FTD patients that is caused by the C9 mutation. We have recruited 5 patients so far. We intend to recruit 20 patients. And again, by early next year, we will know how many patients we have or how much time. And we don't -- because of COVID-19, we don't want to commit. We made premature commitment in the recent past, and we are not going to do it again. We want to have a meaningful number of patients that were treated for at least 6 months. We didn't disclose the date. Again, early next year, we will really give the guidance for what to expect.

Okay. And would you also expect to be able to talk about some clinical endpoints on those patients such as brain volume or other cognitive tests? And I guess maybe just a little bit of context for how you think about those markers in a small sample set?

Yes. We are measuring -- actually, now we are going to measure 5,000 CSF biomarkers to look at disease signature broadly. We are looking at neurofilament. We will remeasure -- will be measured volumetric MRI. Again, frontotemporal dementia patients lose 5% to 7% of their brain volume per year in specific brain region. So we are looking to capture that. We are going to look at the CDR, the clinical endpoints. But this is, as you said, a small open-label clinical trial. So we hope to see some clinical and volumetric measures, but we cannot guarantee that because it's a very small open-label trial and these measurements require much larger cohort. It's a meaningful data. But we measure them, and we will show the data.

Okay. And C9orf patients, what kind of data will you be looking for in those to decide whether or not to move forward with them as an additional group of patients where you could expand to?

Again, sort of the mechanistic commonality between progranulin FTD mutation carriers and C9 FTD mutation carrier is TDP-43 pathology. There are a lot of animal model data showing that progranulin -- high level of progranulin could counteract TDP-43 pathology. And this allow us to go to C9orf mutation cells, which have TDP-43 pathology as well as to ALS, which 98% of ALS -- TDP-43 pathology. So we think that our drug has significant potential in TDP-43 pathology with pathologists, which is a much larger end market. And again, we are looking at the same measurements, effect on neurofilament, the effect on CSF and blood biomarkers and to see if we can counteract what we call the disease signature and cognitive and volumetric MRI measurements. So it's going to be the same measurement as the progranulin mutation cells.