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

Great, everybody. Still good morning. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Very pleased to have a Alector with us for the next session. Before we get started, I need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/research disclosures. And with me, pleased to have Arnon Rosenthal, who's the CEO of Alector. And Arnon, I'm going to turn it over to you to make some opening comments, and then we can get started.

Great. Thank you, and welcome, everyone. So Alector was created with the purpose of developing and executing a novel therapeutic strategy for dementia, neurodegeneration. And instead of going after the misfolded proteins, like A-beta and tau and alpha-synuclein in Parkinson's disease, what we do is recruit the brain immune system to counteract multiple disease pathologies. So in this realm, we are conceptually similar to immuno-oncology. Immuno-oncology really revolutionized cancer by recruiting T cells to counteract cancer, and we are doing a very similar approach. We are recruiting the brain immune cells, a cell type called microglia, as a therapeutic approach for neurodegeneration. And we have advantage over cancer in the way that all our drugs are targeting immune checkpoints, which are genetically validated, all our targets are risk genes, consequent risk genes for different types of neurodegenerative disorders. And with this approach, by next year, we will have 10 clinical trials ongoing with 7 different drugs, 6 different indications, ranging from Phase I to Phase III. And we have multiple partnerships, including with GSK, with AbbVie and with Innovent that allow us a good mixture of stand-alone, fully owned drugs and drugs that are fully funded but still half owned by us. So we have a mixture of partners, the non-partnered drugs, a mixture of small indications like ALS and FTD and large indications like Alzheimer's disease and next-year Parkinson's disease. And we have more than $1 billion in the cash. So we have resources to really continue to pursue our broad therapeutic strategy and drugs.

Great. Perfect. Thank you, Arnon, and thanks for that introduction. I thought maybe a good place to start is just with the recent management changes that you had. I think people would sort of value just a commentary on what's happening and to the extent you can give people some commentary around that, that would be helpful?

Sure. So the management changes are that our CMO, Robert Paul and our Chief Operating Officer, Shehnaaz Suliman will be transitioning out of Alector by the end of the year, this was a very amicable and well-planned transition that basically match the personal inclination and ambitions of the individual with our needs for the future. So as I mentioned, Alector, it's in the strongest position it's ever been with $1 billion in cash, 6 drugs next year with multiple indications, multiple clinical trials from Phase I to Phase III, and we thought that this is the best position, the best time to really elicit a planned transition. And we have a very deep bench of V.P. level executives. We have 22 vice president level executives that are executing the plan. So we don't expect any delay in time line or any sort of meaningful impact on the company operation. And again, both of these executives are staying with the company until the end of the year and are continuing to work full time, and it's really just -- there is really note there that is it's just pursuing personal inclination, combining it with company needs at the strongest point of Alector history.

Great. Thank you for addressing that. So maybe why don't we turn to the lead program and your recent deal there with GSK. And why don't we address 2 factors? So obviously, the first one is that you've got a wide range of biomarkers and clinical data there, but The Street seems to have focused disproportionately on neurofilament. And maybe just give us your perspective, given the data that you've seen, et cetera, what you think is; a, happening with neurofilament and b, why you as a company maybe don't focus as much on that as a key component of whether or not that drug is having an impact on patients?

Yes. I'll just recap the deal struck, the deal a little bit and the target, and then we go to the neurofilament. So we have a franchise of 2 drugs that elevates an immune regulatory protein called progranulin. Progranulin is a very unique target because it's a genetic risk for multiple neurodegenerative disorders, including frontotemporal dementia, Parkinson's disease, Alzheimer's disease late, which is another type of dementia, typified by TDP-43 pathology, multiple lysosomal storage diseases with neurodegenerative pathology. So progranulin seem to sit at the top of the neurodegeneration pyramid and our deal with GSK really allow us to expand into multiple indications, both small and large indications in parallel. And what the deal provided us is very sort of significant financial stability with $700 million upfront payment, a $1.5 billion in early-stage milestones, 50-50 profit share in the U.S. and the equivalent ex U.S., full control of drug development for the small indications, all the way to approval and control for the larger indications until proof of concept. So we have control, basically we are not dependent on any shift in priorities in large pharma. We retain our destiny in our hands by our ability to develop the drugs. We have the drugs, the 2 drugs that we have in this franchise fully funded. And the deal was very competitive and the reason for the deal with GSK, and the competitive nature of the deal was that we did present what we consider very supportive and exciting data and AAIC scientific meeting last month. And what we showed is that we are able to elevate the level of progranulin back to normal level chronically as long as we treat. And we were able to biochemically reverse multiple pathologies, including lysosomal pathologies, inflammatory pathologies by normalizing complement proteins. We show that comparing to age-matched controls, we are able to slow down brain tissue loss, especially in the ventricles by 50%, and we are able to slow down cognitive decline by 47%, which is, I think, a very profound effect. For neurofilament, what we've shown is stabilization of neurofilament. Last year, there was a lot of excitement about neurofilament because it does track with disease progression in multiple neurodegenerative disease including MS, ALS, spinal muscular atrophy, Alzheimer's disease, Parkinson's disease. But if you look at whether it tracks following therapeutic intervention -- and the tracking following therapeutic intervention is not as good. It tracks very well with MS therapeutics, it goes down with MS therapeutics, it goes down with spinal muscular atrophy therapeutics, but it does not go down, those recent clinical trial in ALS, a 24-month clinical trial that show clinical efficacy on the background of an increase in ALS. And there were 2 clinical trials in lysosomal storage diseases with neurodegenerative pathologies: one, Hunter disease by Denali that showed possible clinical benefit on the face of actually an increasing neurofilament. And at the AAIC meeting, there was another presentation of enzyme replacement therapy for CLN2 and other lysosomal storage disease where the enzyme replacement led to immediate clinical benefit, but neurofilament took four years to go back to normal. So frontotemporal dementia is a form of lysosomal storage diseases, so we expect neurofilament to be a slow responding biomarker for the therapy. We think that the clinical endpoints, the other biomarkers and the anatomical endpoint, the volumetric MRI will respond to the therapy before neurofilament. So we no longer view neurofilament as a predictive biomarker for therapy. We think it will eventually go down, but sort of we don't think that the decline in neurofilament will proceed clinical efficacy, which is the only utility of a biomarker. So we are continuing to monitor neurofilament. We actually saw stabilization in neurofilament when we expected an increase but we have we think much better disease biomarkers that actually directly represent the disease progression, including lysosomal biomarkers, complement biomarkers, brain volume changes and cognitive changes that really -- the totality of the data shows that our drug really is effective in modulating these endpoints.

Perfect. Thank you, Arnon. I guess there are a couple of areas I want to touch on here, but maybe we could just go to the Phase III program and just outline for people, what you need to demonstrate in the Phase III program? What you're powered for? And I think there's just been some confusion, and you could probably clarify this, that is there an interim in Phase III? Is there not an interim? What -- when will we actually get full data from Phase III?

So the Phase III is -- will include 180 million patients that have the genetic loss of function of progranulin. There are going to be 3 groups in the clinical trials. Going to be early symptomatic patients that are very similar to our Phase II open-label patients. It's going to be a group of what we call at-risk patients, patients that carry the genetic mutations that are destined to develop the disease, but don't have symptoms yet. And we think that these patients will convert to symptomatic because they have a spike in their neurofilament. So this group is a genetic carrier with high level of neurofilament, which we predict will convert to symptomatic within the next 2 years. So there is a symptomatic group, at-risk group and a placebo-controlled group. And basically, our goal is to show is the symptomatic is slowdown or maybe even stopping disease progression and with the presymptomatic to show if whether we can prevent this symptom from ever occurring. And it's going to be a 2-year trial. There is no interim analysis. The FDA discouraged us from doing an interim analysis. The end point that was agreed and was accepted by the FDA as an improvable endpoint is the CDR sum of box for FTD with composed of 8 domains, the same 6 domains that are used in Alzheimer's disease, plus 2 additional domains, which are specified for FTD. So in addition to the primary endpoints, we will have both multiple imaging endpoints as well as a secondary clinical cognitive and behavioral endpoints. But again, we agreed with the FDA on the CDR sum of box for FTD and this will be an acceptable approval for -- point for pivotal Phase III trial.

Perfect. Perfect. Can we also talk about additional expansion? You're obviously looking at C9orf patients here as well. Maybe just remind us of the case for C9orf and when's we might see some initial clinical data on that patient group?

So as I mentioned, progranulin is a genetic familiar risk gene for FTD with progranulin mutation, for Parkinson's disease, for Alzheimer's disease, for late, and even as a small regulatory mutations that decrease progranulin level by 15% per gene copy accelerates the rate of disease progression in ALS and decrease the age of onset. So there's really strong genetic evidence for supporting the role of progranulin in ALS. In addition, animal model study shows that elevation of progranulin by about twofold is therapeutic for TDP-43 pathology, which is practically an ALS disease model in Parkinson's disease and in Alzheimer's disease. So based on the animal model data and the genetic evidence, we are running an ongoing clinical trial in FTD with C9orf mutation carriers, have an ongoing Phase II in C9orf with ALS. Both of these diseases, the hallmark protein is TDP-43 and progranulin was shown to counteract TDP-43 in animal models. And as I mentioned, even a small decrease in the level of progranulin in human accelerates TDP-43 pathology. So we think that there is really a good rationale for expansion from progranulin mutations to C9orf mutations. In most cases, the hallmark protein is TDP-43, which is -- can be counteracted by progranulin elevation.

Okay. Okay. Good. And then I think the second thing is, when you did the deal with GSK, you also talked about potentially expanding into other indications. So can you just give people a pathway towards how you're thinking about running some of those earlier mid-stage studies and when we might get some evidence around the clinical effect there?

Yes. So again, human genetic data shows that even a modest decline in progranulin level increases the risk for Parkinson's and Alzheimer's disease. Progranulin is a formal risk gene for these 2 large disorders. And animal model studies published by [ academic lab ] show that elevation of progranulin is therapeutic for Parkinson's and Alzheimer's disease. And we know that progranulin is a lysosomal chaperone, it can optimize lysosomal function. And Parkinson's disease is considered the chaperone lysosomal disease. So in Parkinson's, our plan is to start with genetically stratified populations that have the GBA mutation, GBA is the lysosomal protein, and we know that progranulin can counteract this and other lysosomal proteins. So we are starting with genetically stratified Parkinson's population, there are about 100,000 Parkinson's patients with GBA mutation. We think that that's the best genetically stratified population to start with, and then we will expand into the sporadic or idiopathic population. And again, we are planning on starting this next year. For Alzheimer's, we are still working with GSK on the details. But for Alzheimer's based on animal models that published by academic clubs, we are going for idiopathic Alzheimer's disease. But we are going to stratify post -- sort of post-hoc analysis to see if patients that have the genetic mutations that reduce progranulin, respond better to the drug. About 30% to 40% of the Alzheimer's population carry these genetic mutations that reduce progranulin by 15% per copy -- per gene copy. And basically, our clinical trial will include both these mutation carriers and nonmutation carriers, and we will see whether progranulin mutation cares respond better to the drug and then we'll decide how to design the Phase III accordingly.

Okay. Okay. Good. Good. I guess maybe one other thing I want to talk about 003 and 002, but maybe before we do that, just one last thing. You obviously have a second molecule for FTD from presentation. Maybe just remind people about how you're thinking about using that molecule and what's useful for that?

Yes. So our progranulin franchise is composed of 2 drugs, 001, which is now in Phase III for FTD and Phase II in ALS. And a second drug called AL101. And AL101 is actually designated to go to the larger indications, Parkinson's disease and Alzheimer's disease. AL101 has a longer half life, probably 3x longer half-life. And we are working on formulating it to a subcutaneous delivery. We think that for the larger indications ease of use to subcutaneous delivery would be beneficial. So our goal is eventually to basically use subcutaneous for Parkinson and Alzheimer disease. And for the smaller indications, we think that compliance basically IV infusion sites may be better. So we are staying with IV infusion for 001 and hopefully, we will be able to move to subcutaneous delivery for the large indications. So the 2 drugs are divided by small and large indications, IV versus subcutaneous delivery.

Okay. Perfect. Good. Maybe we can talk about 003. Remind people of the mechanism there, but I think probably top of people's mind is we're supposed to get Phase Ib data here. Just set the stage for what kind of data we're going to get? And what sort of signal is possible out of that study?

Yes. So we currently have 2 ongoing clinical trials in Alzheimer's disease. One is the TREM2 002 that's ongoing Phase II. And the second is 003, the target SIGLEC 3. So TREM2 is an activating immune checkpoint for the microglia immune system and our drug is enhancing and activating drug and SIGLEC 3 is an inhibitory receptor for the microglia immune system. The signaling of SIGLEC 3 is identical to the PD-1 signaling but PD-1 shuts down T cells, SIGLEC 3 shuts down microglia in the brain. So our drug is very similar to KEYTRUDA. Basically, we are shutting down an inhibitory receptor. We are releasing the brakes and basically allowing the brain immune system to go after the pathology. So, so far, what we did, we tested the drug in 36 healthy volunteers. We showed very -- sort of we show prolonged target engagement in healthy volunteers, complete target engagement that went after a single injection for about 2 months. And the CTAD at the end of the year, we will present data on target engagement in the brain, and basically dose-dependent target engagement and duration, we will show safety data, and this will be in Phase Ib with a dozen of Alzheimer's patients after multiple dosing. So again, we'll show brain target engagement, safety, and we are still analyzing the data we may be able to show additional biomarkers for microglia engagement. But the study is mainly for safety and target engagement so we can determine the dose. And we are planning on starting Phase II next year.

Okay. So from that perspective, the Phase II data, both for TREM2 and SIGLEC are really the definitive data set in terms of clinical outcomes for patients?

Yes, absolutely. Both studies are going to be sort of over 250 patients, a multi-dose studies, we are going to analyze at least like for TREM2, we are analyzing 3 doses. It's going to be an adaptive component, but it's sort of 2 years trial, placebo-controlled, double-blinded with the clinical endpoint that's approved by the FDA for Alzheimer's disease as well as multiple imaging for A-beta, for tau, volumetric MRI to look at brain tissue loss and multiple secondary clinical endpoints. So this will both Phase II, for TREM2 and SIGLEC 3 will be very informative with regard to efficacy and we'll direct the upcoming Phase III.

Okay. And then I think one other thing which is probably useful is just remind everybody how your partnership with AbbVie works here? When they -- if there's an opt-in or not and when that could occur?

Sure. So with AbbVie, we did a preclinical partnership, which was a profit sharing partnership 50-50 worldwide. It's an option partnership. So we are -- we have the authority and responsibility to develop the drugs until the end of Phase II. And once we have data for Phase II, AbbVie has 3 months to decide whether they opt-in to the drugs. The partnership was both on AL002 and 3. We received $205 million upfront in cash, $20 million equity investment. We will have about $1 billion worth of milestones. And once AbbVie opt-in for each of the drug, we will receive additional $250 million option payment. So again, we are controlling Phase II. We have the complete authority and responsibility to design and run the Phase II. And at the end, AbbVie will have 3 months to decide whether they opt-in independently on AL002, 3. And for each opt-in, it's $250 million upfront. And then we will have profit sharing at the end.

Okay. Okay. Great. Good. Maybe a broader question, and then I want to spend some time on some of the earlier-stage pipeline. But you've got a wide number of compounds now either heading towards the clinic or in the clinic outside of these 3 lead programs. How are you just thinking in terms of pipeline prioritization and additional pipeline development more broadly?

So we are sort of combining sort of fully owned drugs with partnership drug, we were able to partner so 5 of our drugs, 2 Alzheimer's drugs, 2 of our progranulin franchise drugs and 1 of our oncology drug. So basically, these drugs are fully paid for and still have owned by us. And in addition, we will have -- we have like fully owned programs. We have another exciting neurodegeneration drug that will go to the clinic that's fully owned and another innate immunity cancer drug that is fully owned. So we are sort of combining, again, fully paid for half-owned drugs with fully owned drugs and we are not going to let any drug sit on the bench because of resources, we will partner if we need resources to develop the drug. There is a lot of interest in our drug because they really all modulate the innate immune system and there's broad applications for neurodegeneration, cancer and other diseases. So we are really taking every drug that we have to the clinic. And if we have the resources, we'll develop the drug alone. If we don't have the resources, we will partner it and secure the resource that way. Again, we have $1 billion in cash in the bank. So we have very significant resources for drug development.

Okay. Great. Good. And that maybe leads me to 014, which is sort of what I think of as the next drug. Maybe you'll tell us you think of something else is the next drug, but just tell people about the target and sort of next steps there?

Yes. So next year, as I mentioned, we have 3 drugs in the clinic, 2 in oncology, which we can go over if you like. And the third drug is what we now call 044. It's a drug that target for transmembrane protein called MS4A. It's a risk gene for Alzheimer’s disease, and it's a unique risk gene because it's not only determine the risk of developing the disease, it also controls the rate of conversion from mild cognitive deficit to Alzheimer disease. It controls the rate of disease progression, it controls the age of disease onset and it controls the rate of brain tissue loss both in the hippocampus and cortex, which are 2 main brain regions impacting the Alzheimer's disease. So it seems to be, again, a unique risk gene that's I think is a master regulator of microglia, the immune cells in the brain that controls multiple aspects of neurodegeneration progression. And we develop a drug that can mimic and exceed the protective variant of this risk gene. So all the pathologies that I described are assigned to the risk variant of the gene with AD development risk progression rate. It's all about the risk variant. The protective variant does the opposite, and we have a drug that functionally mimic and significantly exceed the ability -- the functionality of the protective gene. And this drug will be in the clinic next year. And again, we are going to develop it, initiative on our own, both for Alzheimer's disease and for other orphan neurodegenerative disorders that are impacted -- that are caused by microglia dysfunction. And we will see -- and again, there is a lot of inbound approaches to license this drug. At this point, we are developing it on our own. And we have very, again, profound animal model data in nonhuman primates, really showing that this drug is impacting practically all aspects of immune cells functionality, survival, proliferation, migration, energetics. And so we are pretty excited about this drug.

Okay. Good. Arnon, maybe in the last minute because you do have some oncology programs, maybe just touch on those and sort of remind people of some key milestones there?

Yes. So the innate immune system, which we are targeting in the brain is very similar to the innate immune system in the periphery, the microglia in the brain are very similar to macrophages. And we have a lot of understanding of how to modulate innate immune cells. We have multiple immune checkpoints. And we think that the same or similar immune checkpoints that would work for neurodegenerations would also work for cancer. People really underestimated the role of the innate immune system in cancer, people are still focusing primarily on T cells with the exception of the SIRP-alpha CD47. There are really no -- there are very few programs for the innate immune system in cancer. So we have a whole portfolio of innate immune cells. We have a multi-SIGLEC inhibitor. SIGLEC is a family of inhibitory checkpoint molecules for macrophages and dendritic cells. The issue with this family was the redundancy. There are just 5 or 7 receptors, inhibitor receptors like some macrophages and microglia, for example. So we developed a drug that can shut down all these inhibitory receptors to release the immune system. I mean animal models for cancer, we see very profound efficacy, and we are taking this drug to the clinic next year. We have what we think is a best-in-class drug in SIRP-alpha CD47 cascade that now competitively blocks alpha and also activates an Fc gamma receptor. So unlike the other drugs, which only SIRP-alpha or CD47 drugs, which primarily release the brakes, our drug both release the brakes and activate an accelerator receptor on macrophages. And we don't see any of the safety studies like -- safety issues like anemia that reported for other drugs and we are able to block all the 3 ligands for SIRP-alpha, CD47 is just 1 of 3 ligands. So we think we have a best in class. And again, this was partnership in China, only in China by Innovent and Innovent just filed an IND on this drug, and we will be in human next year. And this is just the beginning of our innate immunity portfolio for oncology. So just again, to summarize, we have really about portfolio of immune checkpoint for neurodegenerations, Alzheimer's, Parkinson, ALS, frontotemporal dementia. We are working on a multiple sclerosis program and the broad portfolio for innate immunity and oncology and $1 billion in resources to really develop these programs.

Great. Perfect. Arnon, thank you for being here. We appreciate the time.

Thank you for hosting me.