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

Okay. Great. Well, good afternoon, everybody. Thanks for sticking around for our last session today. Really pleased to have Alector with us for the session. I'm Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Just quickly 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/researchdisclosures. So really pleased to have Arnon Rosenthal, who's the CEO; and Marc Grasso, the CFO with us. Arnon, I guess maybe a good place to start is just -- I mean, I know you probably do this a lot of the time, but I think it's always nice to just refocus on -- the focus here is immuno-neurology, which is, I think, different from some of the other neurodegeneration companies. So maybe just bring people back to sort of the underlying thesis for the company and how you think about the targets that you're focused on?

Great. Welcome, everybody. So as you know, for the last 2 or 3 decades, the dominant approach to treat neurodegeneration was to go after misfolded proteins. There have been more than 40 clinical trials with anti-A beta therapies, more than 3 clinical trials with anti-Tau therapies, there were clinical trial with anti-huntingtin, which is the misfolded protein that typifies Huntington disease, the clinical trials with anti-SOD, which is a misfolded protein that typifies the rare form of ALS. People are going after alpha-synuclein, which is the misfolded protein that typifies Parkinson's disease. People are going after C9orf, which is typifying misfolded protein in subset of ALS and FTD. So there's been, I think, close to 100 clinical trials targeting the concept or testing the concept of misfolded protein as the cause of neurodegeneration. And so far, largely the outcome was pretty disappointing. And we about 9 years ago, decided to take an alternative approach and the approach that we have taken is called immuno-neurology instead of going after the misfolded protein directly, we recruit the brain immune system a cell type called microglia to go after multiple disease pathologies. So the rationale for this approach is primarily human genetics. Human genetics of Alzheimer's disease, for example, have shown that the majority of the risk genes that increases the probability of developing Alzheimer's disease are genes that regulate the immune system in the brain. These are practically immune checkpoints for the microglia. They regulate proliferation, survival, migration and functionality of these cell types. And what we are doing is basically targeting this genetic risk with drugs and recruiting, by that recruit the microglia to counteract multiple disease pathologies. So conceptually, we are very similar to immuno-oncology, what revolutionize cancer treatment in the last 10 years or so was that instead of going after the cancer directly with chemotherapy or with radiation or toxin conjugate antibodies, what we do now is recruiting T cells to kill the tumor. And this is the first time that we see actual therapies. And we are doing the exact same things. And instead of going after individual pathologies in the brain, we are recruiting the brain immune system to go after all the emerging pathologies. And we hope to have the same impact that cancer -- that immunotherapy is on cancer on neurodegeneration.

Okay. Great. So maybe a good place to start is you had some news with a new trial start today on AL044, which targets MS4A. So maybe for people that aren't familiar with MS4A, what's the biology there? And why do you think that's an interesting target.

So we are targeting a risk gene for Alzheimer's disease called MS4A. It's a 4-quadrant membrane protein, member of the CD20 family. As you know, CD20 is a target for Rituxan and eculizumab which are prominent drug for non-Hodgkin lymphoma and multiple sclerosis. So MS4A is a unique risk gene for Alzheimer's disease because it seems to be involved not just in disease initiation like most other genes, it also is involving multiple aspects of disease progression. So either directly or through regulation of the TREM2 signaling system, MS4A appears to be strongly associated with the age of onset of Alzheimer's disease, with survival with Alzheimer's disease, with the rate of cognitive decline with Alzheimer's disease, with the rate of brain tissue loss with Alzheimer's disease, with the rate of conversion from mild cognitive inhibition to Alzheimer's disease with the rate of accumulation of A-beta and Tau in the brain. So broadly, MS4A is the protective variant that seem to impact multiple aspects of disease progression, and this is what we want to influence with drugs. So what we were able to do is to develop a drug that mimics and exceed the ability of the protective variant of MS4A to impact multiple biological system on microglia. And as mentioned, this drug is in the clinic now. We are starting with healthy volunteers, but we are very quickly going to Alzheimer's patients to look both at biomarkers and generally sort of impact on disease in Alzheimer subjects.

And Arnon, just as you think about the path forward, so is there a certain amount of target engagement that you're going to look for in healthy volunteers? Or how should we think about what we know about target engagement and what you can learn from your healthy volunteer study?

Yes, we have identified multiple biomarkers that represent engagement of the brain immune system. For example, we know that the protective variant of MS4A elevates the level of soluble TREM2 in the CSF, one of its mode of action is upregulating TREM2. So we want to see profound upregulation of soluble TREM2. We have identified multiple biomarkers that represent microglia engagement, for example, soluble CSF1R. CSF1R is a critical receptor for microglia proliferation and survival. We want to see significant elevation of this biomarker. We identified multiple immune biomarkers like IL-1RN which is an anti-inflammatory biomarker, osteopontin which is an immune regulator and again, we have a whole portfolio of functional biomarkers that we expect elevated in a dose-dependent and saturable manner that will tell us what's the dosing, the optimal dosing and what is the optimal dosing regimen. And we are also going to look at safety measures. So we are going to maximize microglia engagement, but still keep safety in line.

And just maybe for people that are familiar with TREM2 mechanism, right, TREM2, CSF1R, all sort of the same. So what's the -- how do you think about this versus TREM2 and why go after both of them?

So MS4A genetically seem to sit above TREM2 in the regulatory hierarchy of the brain immune system. So it activates and regulates, we think, multiple signaling systems that are not regulated by TREM2, so we expect it to have a broader impact on microglia functionality, and as a result, better efficacy. We also think that MS4A is involved to [ a degree priming ] rather than constitutively activate microglia. So microglia will be better activated in a context-dependent manner. So we think there is a better element of safety here because we are trying to activate microglia, activate it constitutively everywhere in the brain, whereas with MS4A, you need disease context to get full activation. So we think that there's going to be really good safety margin and better efficacy because of the broader biological effect of MS4A. So again, neurodegeneration and Alzheimer disease is a $50 billion market that are -- it's completely unmet medical need that we think that there is significant justification to test more than one type of immune checkpoints. And by next year, we will have 3 different drugs for Alzheimer's disease. If any of them work, it will be pretty good.

So then, I guess, it's probably a nice place to go from there, talk about TREM2. You're in a Phase II trial there. Maybe just remind people the time line for that? And then how to think about trying 2 agonists in Alzheimer's.

Yes, maybe I'll start with agonist and then you can talk about the time line. Yes. So TREM2 is really a critical activating immune checkpoint for microglia. In the brain, microglia is the only cell types that express TREM2, and there is very strong genetic linking TREM2 with neurodegeneration. So if you have no TREM2, no functional TREM2 at all, like homozygous loss a function of TREM2, you develop dementia by the age of 40 and it's 100% penetrant. It's a disease called Nasu-Hakola disease. If you have one good copy of TREM2 and one partially bad copy, one of about a dozen point mutations that decrease ability to bind TREM2 ligands or change the processing of TREM2 or the sub [indiscernible] of TREM2, you triple your risk of developing Alzheimer's disease, which is the same risk that you have if you are born with one copy of APOE4. So TREM2 is clearly associated with Alzheimer's risk through its regulation of microglia. And functionality TREM2 was shown to be a critical signaling for microglia proliferation, survival, migration and multiple aspects of functionality. And we developed a drug that enhance TREM2 signaling. And in animal models, we were able to show that this drug is protective in Alzheimer's disease models and as well as in multiples sclerotic models in different context. So we took the drug to the clinic. As I mentioned, in Phase I, we saw multiple biomarkers that reflect target engagement. We are now in Phase II in double-blinded placebo control study with 256 patients. And we have sort of recently reported cases of ARIA in this study. As you know, ARIA is MRI abnormality. It's largely nonsymptomatic, but in rare cases, it is clinically symptomatic. And so far, all ARIA cases were reported with drugs that profoundly removed beta-amyloids, all the anti A-beta drugs that remove A-beta by 80% to 90% where -- are associated with ARIA, and conversely, when you see ARIA, you see significant removal of A-beta. So the study is blinded. We don't know if we removed A-beta, but basically both the kinetics and the effects are strongly similar to A-beta removing drugs. So we are hopeful that our drug is doing something to the disease. We think that if our TREM2 drug removes A-beta, it is just the tip of the iceberg because we are recruiting microglia and microglia would do a lot more than removing A-beta. Microglia, as I mentioned, are involved in recycling of damaged synapses, removal of any other misfolded proteins, ensuring that the blood vessels are intact and showing that all the other cell types in the brain are functioning. So if a drug is really recruiting microglia to do beneficial activities, we expect very broad beneficial activity. And regarding the recruitment, Marc, can really comment on that.

Yes, to fully enroll the study, we anticipate that would occur at some point next year. It's a common closed design, and you would anticipate data approximately a year after completion of enrollment. That's prior to the potential for an interim look on the data, which is something that we are looking at in the context of biomarkers together with our partner AbbVie and be something that could occur as early as next year.

And just because we haven't -- or I guess you haven't detailed before the interim, like you're thinking about biomarker activity to drive whether or not you might take an interim? Is that the right way to think about it...

Yes, if we do an interim analysis, which is something -- means the interim analysis is built in into the Phase II clinical trial, and we are in discussion with AbbVie and yes, if internal analysis for biomarker could help with -- if we want to prepare for a Phase III, if we want to maybe adjust the trials slightly with the number of patients to get a clear clinical readout. So that will give us indications how the trial is going. And again, because we see ARIA that suggest that we may be removing A-beta because we see engagement of multiple microglia biomarkers, we are sort of eager to see whether there is a consequence of multiple disease biomarkers, including A-beta, Tau, may be neurofilament, GFAP, all the neurodegeneration biomarkers. And yes, it will tell us how to plan for a Phase III and maybe even somehow adjust the Phase II.

Got you. Okay. The [ BM ] just to be clear, would be a biomarker only readout, it would not be a clinical endpoint readout that would be preserved or still [ TDP ], I guess...

It's still [ idiopathic TDP ] but that our preference at this point to leave the cognitive aspect blinded because opening this could lead to bias.

We'd rather maintain the power of the [indiscernible] for all of that and have a clear readout on cognitive...

Yes, that is correct.

Okay. Okay. And then I guess, you mentioned MS4A TREM2, third target for AD or immuno-neurology target for [indiscernible] maybe we should just round it out and talk about all 3 of them.

Yes. So the third target that we are going with AD, it's our progranulin elevating drug -- we have an entire franchise of progranulin elevating drug that's composed of 2 different drugs. This program is partnered with GSK on multiple indications, progranulin is immune-regulatory molecule, secreted immune-regulatory molecule that appears to be a risk gene for practically every neurogenerative disease that was explored. So it's a genetic risk for frontotemporal dementia. It's a genetic risk for Alzheimer's disease. It's a genetic risk for Parkinson disease. It's a genetic risk for C9Orf or TDP-43 pathology for the age of onset and the rate of decline. It's a risk gene for LATE, which is a prevalent dementia with TDP-43 pathology. So it seems to be one of the few universal risk genes. And it's also -- it's an immunoregulatory molecule. If you don't have progranulin, the immune system in the brand sort of become completely abnormal and starts destroying the brain instead of protecting it and it's also lysosomal chaperone, it is really [indiscernible] lysosomal functions. And we developed 2 drugs that elevates progranulin by blocking the degradation cascade, so very similar to the SSRI that blocks neurotransmitter reuptake by that, increase the level of serotonin by 2 to 3 folds and impair therapeutic benefits. We do the exact same thing we developed a drug that blocks the uptake of progranulin and elevates progranulin 2 to 3 folds in the -- [indiscernible] and CSF with this drug, we started with FTD with progranulin mutation and in open-label studies, Phase II study, we saw approximately 50% slowdown in cognitive decline over a year, slowdown in brain tissue losses measured by volumetric MRI on the -- and also normalization of multiple biomarkers, including complement biomarkers that are known to destroy synapses in the brain, lysosomal biomarkers, which are known to be abnormal in FTD and GFAP, which is an inflammatory biomarker. So progranulin mutation carriers that developed FTD was one indication that's now in Phase III, and hopefully, pivotal registrational trial. We have an open-label Phase II study with another subset of FTD that's caused by C9orf mutation carriers. Again, we saw in an open label Phase II 54% slowdown in cognitive decline over a year and decreasing the level of GFAP, which is, again, inflammatory biomarker. And because progranulin is a genetic risk for Alzheimer disease, Parkinson's disease, ALS, we are going after these indications. Also, we will start another ALS soon and we are planning to start a Phase II in Alzheimer's disease soon. So this will be our third Alzheimer's disease study.

You talked about progranulin and the Phase III program. Maybe just any updates on where we are in terms of enrollment in that program and how investors should just think about data from that program?

Yes, happy to comment on that, Matthew. So we announced in the second quarter press release that we added some sites to expand enrollment for the FTD-GRN program. So as you recall, that's a 2-year study that is currently designed from -- so that would be 2 years post the last patient in. And that's also under discussion with our partner, in this case, GSK. And there's a possibility there as well that we could be engaging with the agencies around a potential accelerated path and an earlier look at the data with this.

And when you talk about a potential accelerated path, are you talking about -- because obviously, we started to see some more flexibility on biomarkers as opposed to clinical outcomes. And I remember when you started this program, right? I think there was more hope and then the regulators seem to not want to engage in that. So we're -- I guess, there's a one when you say, Are we talking about progranulin here? Or what are we talking about a potential accelerated path?

Yes. Yes, I'll start. Arnon please add. So just to remind folks, I mean, we are certainly the most advanced in the setting in FTD-GRN and 45-plus sites globally. And I think at this point, on a prospective placebo control basis have a significant bolus of patients that would be relevant in this significant unmet need. And to your point, Matthew, in the context of the current regulatory environment, we do think there's an opportunity to engage with the totality in the data. So that includes the Phase II data we have, the biomarker data that we have, the volumetric MRI data that we have and also the data from INFRONT-3, including the clinical data. And that's again something that's under discussion. But Arnon, if you want to add?

Yes, I think it will be based on the totality of the data, not on just catch-hold granulary and even though we at best sort of -- conceptually this disease is an enzyme replacement disease, there is a single [indiscernible] half the normal level. We were able to restore it back to physiological level, and we hope to see all the benefit. Further, we don't think at this point that they will allow the approval just based on one biomarker. So it will be multiple biomarkers, imaging and evidence of some clinical benefits.

Got you. And so the discussion is around, I guess, whether or not to take an interim from INFRONT-3 and provide some of that data to the FDA as part of making the case for a potential accelerated filing, is that's sort of what's under discussion? Or how should we think about that?

Yes, the question is whether we should do early read or not.

Okay. And I mean, any sense for when you make a decision on that? Or what are some of the gating points for you to decide about when or not to make a decision on that?

Yes. I'm happy to provide some color there. I think that, obviously, this is something that's of high focus, would engage with Glaxo around this, obviously, engage with the agencies. We haven't provided any specific guidance around when that may occur.

Arnon. You obviously also talked about TDP-43 pathology. We've got C9Orf pathology, et cetera. So I guess maybe how to think about some of those other subsets with progranulin.

Yes. So TDP-43 pathology is a hallmark of 50% of all FTD or 98% of all ALA. And there are animal model data showing that progranulin elevation can counter TDP-43. In animal models of TDP-43 pathology, if you over expect progranulin, you see significant decrease in TDP-43 accumulation, protection from neuronal damage and extension of life span. And we think that our progranulin elevating drug can counter a TDP pathology. And we think that we will see this in our FTD and with progranulin mutations, which is 100% TDP-43 pathology, we'll see it in our ALS study, which is going to be 100% TDP-43 pathology. Based on the, again, animal model studies and human genetics, we think that progranulin elevation will counteract TDP-43. And we think that -- again, it's going to be part of a broad effect on the brain immune system and on lysosomal function that's going to be very different than the trials of just removing C9orf, which also leads to TDP-43 pathology. We think that there is a very big difference between going after one misfolded protein and basically enhancing the entire immune system and the lysosomal function that would have a broad counter disease impact.

And as we think about some of the other studies that you're starting with GSK, right? I mean, we talked about ALS, we've talked about AD. Just broadly remind people what's the time line for those? And how should people think about initial data that's going to be -- assuming they are only Phase II studies?

Yes, we are going to start this the next year. And yes, we are not committing today but we are going to do it as fast as we can.

Arnon, obviously, outside of some of these compounds, you've talked about some focus in oncology and some other compounds, maybe just in the last couple of minutes to remind people some of the efforts that you have ongoing there?

Yes. So we are basically modulating, we're developing immune checkpoint for the innate immune system in the brain, the cells that is called microglia. Microglia are practically identical, very, very similar to the macrophage in the periphery. Macrophages in the periphery play a key role in tumor site sort of in the tumor environment and in fighting tumors and enabling recruitment of T cells. So we think that many of our innate immune modulatory drugs will work both in the central nerve system and in the peripheral nervous system to enable innate immune cells to fight disease. We think that conceptually, many of our drugs will be like the CD20 drug that started as drugs for non-Hodgkin-lymphoma for blood cancer and are now the best drug for multiple sclerosis. So this mechanistically link innate immune system is a link between neurodegeneration and [ cancer ] is going to be exploited by us and we are going to develop drugs for both indications that we are testing this hypothesis with 2 oncology drugs that are going to be in the clinic early next year -- this year or early next year. So again, we see the mechanistic link between innate immuno-neurology and innate immuno-oncology. We are modulating the same cell types with the same drugs, and we -- hopefully, we can leverage the 2 indications with our drug.

Great. Maybe, Marc, just to wrap this up, remind us of your cash position, where you are from a funding perspective. And also, I guess, any milestones we should be thinking about with your various partnerships.

Yes. Happy to do it, Matthew. So ended the second quarter with $809 million in cash and that we feel is runway into the second half of '24. That's likely conservative. It doesn't assume any additional partnering. There's a significant amount of partnering interest in the wholly owned assets and Alector is a company that has a history of raising 2/3 of its capital from partnerships. And I think that's a bit of a distinction. The milestones that are funded, I would highlight 5 significant potential data events within the time frame of the runway that would include, as we were discussing the potential earlier path with FTD-GRN for the progranulin franchise to include potential interim as well as the full data on the TREM2 program would include the healthy volunteer biomarker data as well as IB data on the AL044 program. And it would also include mono and combo data on the AL008 and AL009 oncology programs. So 5 potential data events on 5 different molecules.

Great. Well, perfect. Thanks for being here. Thanks for taking the time. We appreciate it.

Thanks, Matt. Thank you.