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

Good afternoon, and welcome to day 2 of the Barclays Global Healthcare Conference. My name is Carter Gould, covering U.S. biopharma. Pleased to welcome Alector to the stage. Joining us Co-Founder and Chief Executive Officer, Dr. Arnon Rosenthal and Marc Grasso, CFO. Alector has really been sort of an execution mode, the past 12 -- not there, not an execution mode now, but you're going to have some data at the end of this year and even more data next year. So it's a great opportunity to talk to the company ahead of those data sets. Maybe before we get started, I don't know if Mark or Arnon want to make some opening comments.

Yes. So basically, we are an older generation company and whereas everyone else in the field or most people in the field are focusing on countering misfolded proteins like A-beta and Tau in Alzheimer's disease, alpha-synuclein, in Parkinson's disease. We, in fact, recruit the brain immune scene to counteract multiple disease pathologies. So conceptually, what we do is similar to immuno-oncology, what revolutionized cancer treatment in the last decade is that instead of killing cancer directly with chemotherapy, radiation or toxin conjugated antibodies, we now recruit the immune system with CAR-T or immune checkpoint molecules to go after the cancer. And this is the first time that you see actual cures in cancer. We are doing the same thing about targeting the brain-specific immune system to counteract multiple disease pathologies in dementia and other type of neurodegenerative diseases. And we have advantage over cancer because -- so now, the generation, primarily for Alzheimer's disease, there is very strong human genetics that tells you which are the checkpoint molecules on the brain-specific immune system that I was targeting. And with this approach, we now have 3 clinical programs, two Phase II programs in Alzheimer's disease and a Phase III program in frontotemporal dementia that hopefully, we will talk about.

Absolutely. So I was going back to the Alector story, the past couple of weeks. And I went back to kind of when you guys came public with, and I thought it'd be a good opportunity to open up the conversation here with beyond sort of what's happened with your FTD data and some of the initial kind of reads with on the TREM2 side. Maybe just take a step back and you say like with your approach on targeting microglia, kind of how that has evolved when you think about the surrounding academic literature and additional data has come out. I mean when you guys came public, you had some genetic data, you had some preclinical data. But when you think about the rest of the field and how that's evolved since that time to support your approach, maybe you could speak to that, Arnon.

Yes, absolutely. So when we started the company almost 10 years ago, the immune system was not considered major player in older generation. And if anything, the idea was that in Alzheimer's disease and multiple other neurodegenerative disorders, the immune system may be detrimental that hyperactivity of the immune system may cause the disease and that you have to suppress the immune system as a therapeutic strategy. Since then, there was a wealth of information, human genetic information and biology information that suggest that the exact opposite means when we started around 20 risk genes identified for Alzheimer disease, now there are over 70 risk genes. And the surprising finding from the genetic is that the majority of the risk genes are actually immune checkpoints for the brain specific immune system. And the other surprising finding was that the genetic mutations that increase the risk for Alzheimer's disease are largely mutations that suppress the immune system. So the genetic tells us that the immune system plays a key role in order generation, again, primarily in Alzheimer's disease but also in other disorder, and that insufficient activity of the immune system causes the disease, so that if the immune system failed to surveil the brain, you develop the disease. And again, in this context, it's very similar to cancer. We developed new cancer cells every day, every minute and strong immune system, eliminate the cancer cells immediately. Only if the cancer has evaded immune surveillance and response, you develop clinical cancer. And we think that the same thing happening in older generation. You get emerging pathologists misfolded proteins, damage connections between nerve cells, damage myelin, lipid blood vessels constantly, and the immune system normally repair these pathologies and avoid the disease. But if the immune system failed to do that because of genetic mutations or normal aging sort of, it allows the disease to develop. So I think when we started the immune system was esoteric component of the disease, I think now it's becoming mainstream. If you see the recent AD/PD meeting, there are multiple sessions on microglia, the central role of microglia in Alzheimer's disease, the role of microglia in removing beta-amyloid, the role of microglia in basically maintaining brain health in general. So I think, it sort of since we started the company, something that was esoteric and unbelievable is now really mainstream and very hot topic in Alzheimer's therapeutics.

Okay. We're going to come back to Alzheimer's. But let's focus on FTD for a minute. You had actually a very active '23, though it was less about data, and it was more about changes to the trial and some negotiations with the FDA. Let me walk through some of those nuances. And specifically, as we think about how that maybe either change -- I mean I think there's an appreciation that has changed the timelines. But when we think about also like maximizing the opportunity of the probability of success here?

Yes, maybe I can take that one. Thanks, Carter. So with latozinemab and FTD, GRN, we did make some significant progress over the course of the last 12 months. A few things I'd highlight. First, most recently, we received breakthrough designation for the program, which we're excited about. We intend to continue to engage as closely as we can with the regulatory agencies in the FDA. Also later last year, we completed enrollment for the Phase III. And it was ahead of the target that we had set. And as you mentioned, we engaged with the agencies mid last year around our plan for the study and specifically, the plan to focus on the symptomatic patient population for the primary analysis. And what we're able to do both in the context of additional data from the longitudinal cohorts that are being followed in the space of both GENFI and all FTD as well as a blinded sample size analysis of our own data, we're able to see that the variability within the symptomatic patients is reasonably predictable. And we could appropriately power our study for 90 to 100 symptomatic patients for the primary endpoint. We ended up coming in ahead of that 103 symptomatic patients. And we think we're well powered at that level, and it's improved actually relative to when we started the study. Initially when we had started the study, we anticipated that we were powered to detect a 40% change in disease progression over the time frame of the study. And now we believe that we can actually detect as low as the mid-20s strolling of disease progression over the 96 weeks.

When we think about those changes, what does that mean for a potential labels given the focus on the symptomatic patients, the FDA indicate anything on that front that we should be aware of?

Well, I think the first point is we are going for complete approval with this approach. And we do anticipate that the symptomatic patients, which are the patients with the most unmet need would be the first approval. We do see an opportunity to broaden that. And we think we want to -- we do want to address the presymptomatic patients as well. And we have presymptomatic patients in this study. And depending on how the data come out, we plan to go to the FDA with the totality of the data we have and to get as broad a label as possible.

Okay. And when we think about -- going back to the Phase II, it is the data we have. We interrogated a lot. When you think back to that synthetic control arm and just maybe how the conversations around that being representative has kind of evolved over the past year? And maybe, again, I think something gives you confidence that the Phase III is going to play out the way you expect given the strength of the signal coming out of the Phase II?

Yes, we are as confident with the analysis of the Phase II as one can be with historical control means with the open-label Phase II, again, we were able to show complete normalization of progranulin throughout the one is trial-period normalization of multiple biomarkers, including GFAP, multiple lysosomal enzymes, multiple inflammatory biomarkers, [ apparent ] slowdown in brain tissue loss, with volumetric MRI and approximately 50% slowdown in cognitive decline over 12 months period, which is, in our view, very profound. And yes, there's been criticism that it's an open-label study with sort of historical control. I mean the historical control patients, actually, many of them became part of our Phase III trial. It's the exact same population. And as Mark mentioned, we received breakthrough therapy based on this Phase II data, which the FDA reviewed critically and accepted as a basis for breakthrough therapy, which is fairly relevant, especially for neuro-degeneration. So again, we are confident in the data, the FDA was confident enough in the data to allocate us give us breakthrough therapy. And we think that hopefully, the data will be produced in a placebo-controlled double-blinded Phase III trial.

Okay. So with the pivotal set to read out later next year, when we think about sort of in the meanwhile, are there any additional data cuts from the Phase II we should keep in mind? Or any other data flow in this program in the near term that we should think on?

Yes. I think right now, the focus is really on delivering the Phase III. That's the main focus for the team. We are continuing to offer drug to the patients that are on the Phase II. Some of those have now gone on to the extension study. And we think that's encouraging. But right now, the focus is really on the Phase III.

Okay. Perfect. Why don't we transition to TREM2, expect data to see -- expect to see data on this program later this year. At this point, kind of how are you framing expectations for folks? You guys have talked around the need to consider this differently than the amyloid betas on a number of different axes, but again, as you make that conversation with investors, at this point, how you frame that conversation?

So first, yes, it is a placebo-controlled, double-blinded Phase II study with -- we recruited 381 patients, 4 of those are on 3 doses and 1 placebo, and we have a comprehensive set of measurements. We are measuring 5 different cognitive readouts, both cognition and activity of daily living CDR Sum of Boxes, the gold standard for Alzheimer's disease is our primary readout. We have a PET imaging for both A-beta and Tau, MRI imaging for brain volume and incidence of ARIA, CSF and serum biomarkers, again, A-beta 40/42 multiple types of Tau, GFAP, neurofilament and multiple other targets. And we think that the totality of the data should tell us pretty conclusively if we have an effective drug. Because of the broad mechanism of the drug, again activating the immune system that is the garbage collector for all misfolded proteins, not just A-beta immune system that replaced the facility, the replacement of damaged synaptic connections, damage myelin, induced the functionality of the other support as in the bandwidth because of the broad mechanism, we ultimately expect the drug to be clinically better than A-beta. We expected to have longer sort of durability and we have to possibly be effective both at early and late stage of Alzheimer's disease. So the way we phrase it, again, we are looking at the totality of the data, we want to see at the minimum positive trend in cognition and in biomarkers, A-beta or Tau and possibly additional biomarkers, and we think that this would justify a continuation of the program.

On some of those biomarkers, let's focus on amyloid beta because it's the one I think people have the most kind of familiarity with. Again, you have a broad mechanism here. So on some level, you should be able to potentially show an impact across a number of these markers. At the same time, rightly or wrongly, people are going to benchmark you against what the amyloid-beta directed antibodies have shown at least on that specific biomarker. How do you -- I mean on some level, you're doing the experiment, but again, how are you sort of level setting expectations and specifically on this marker?

Yes. We think that sort of it's wrong to benchmark this drug based on A-beta because it has broader mechanism means it could have a profound effect on Tau. And again, ultimately, we would want to see better clinical effect, and that's really be the ultimate judge of any drug. What we see, as you know, are incidences of ARIA like events in our Phase II, as you know, ARIA are amyloid-related imaging abnormalities that were detected with MRI. And so far with multiple anti-A-beta antibodies. ARIA was associated with removal of -- extensive removal of A-beta with clinical benefit. We see ARIA like events, which are indistinguishable from the ARIA observed by anti-A-beta antibodies like the appearance on MRI, the timing of appearance, which is early after just 1 or 2 injections, the reversibility, the fact that patients invariably recover from the ARIA, the dependency on the APOE4, allele copy number, all sort of are completely indistinguishable sort of, again, the ARIA that we see is completely indistinguishable from the ARIA that suppose observed with anti-A-beta antibody. So the simplest explanation is that we may be -- again, that we see an active drug and that we may be seeing even some efficacy related to A-beta. But we don't think that our drug is dependent on extensive removal of A-beta for efficacy. And again, because the mechanism is way beyond A-beta and this is very different than anti-A-beta, anti-antibodies, the only thing that they can do is removing A-beta. And there is a complete dependency between removal of -- extensive removal of A-beta and modest efficacy. Here, we don't think that this link is necessary.

When that first came out, was that surprising to? Was it more confirmatory and you sort of expected something along those lines, maybe a risk too, but risk -- yes?

No, it was confirmatory to us because we know that the sort of the microglia is the garbage collector. This is the cell entity that contain and eventually remove beta-amyloids. We saw both in animal models and in human that if you don't have TREM2, the A-beta plaques are much larger, they are less compact, they are much more injurious to the surrounding nerve cells. There is, again, recent talk at the AD/PD showing direct convergence between TREM2 and A-beta removal, means there was work by Christian Haas in animal models showing that if you don't have A-beta, if you have one of the genetic mutations that increased risk for Alzheimer's disease and you inject beta amyloid peptides there spreading and damage that the beta amyloid is significantly larger. And when you inject anti-A-beta antibody, I think he used gantenerumab. If you don't have TREM2, again, the ability of this antibody to remove A-beta plaques significantly reduced. So there is really the sort of very strong convergence between microglia, TREM2 activity and A-beta. So we may see effects on A-beta. But again, we don't think that complete removal of A-beta will be needed to see clinical efficacy.

Right. You talked about in that patient population sort of potentially to work more broadly. Do you feel like the study is large enough and has enough representation across the different stages or in a severity disease to potentially inform the optimal population in advance in the Phase III?

So we are focusing initially on early-stage Alzheimer's disease, so the patient population is a mild cognitive impairment too early AD. We think that it's a modest sized trial, but we think that it's large enough to show effect, especially because of the trial design, it's a common close trial design, and we are looking at patients at 3 time points, 96 weeks, 72 weeks and 48 weeks. So we will have data from 3 time points. We are looking at clinical measurements every 6 months. We have multiple readouts. And these patients, once they complete 2 years are voluntarily moving to long-term extension for another year. So we could have data for up to 3 years reasonably soon. So we think that the overall duration of the trial, the fact that we have repeated measurements, not just baseline and one time point increases the power, and it will enable us to see a clear trend. And just sort of one thing to mention, so far, 95% of the patients that completed 2 years, elected to switch to move to the -- to continue with the long-term extension, and sort of that's encouraging that again, there is no -- there are no adverse effects that prevent people from continuing and that people consider sort of, for the while -- consider the drug will also have continuing on, so...

So I should probably know the comparable benchmark from our friends at BioGen and Lilly, but maybe just put that in the context of what we saw with the...

Yes, I think it's lower than that it is, still I think high participation, but that's a good question. I don't know the number.

So Marc, Clearly, the program at this stage is partnered with AbbVie. Do you -- at this point, how should investors expect those results to be communicated. It clearly -- AbbVie is a large company. It's clearly more material to you, but I mean it could be pretty transformative for AbbVie, too. So how should the Street expect the data to be communicated?

Yes. Thanks, Cart. So first, to know it's an option deal with AbbVie and they paid us to this point, substantially to fund the development of the program, including $220 million upfront, both $200 million in cash, $20 million equity. And then additional milestones along the way, both from the standpoint of the commencement of the extension study, Arnon mentioned as well as support for additional patients in the Phase II. So we've seen good support from AbbVie along the way, which is great. It is an option deal, as I noted. So there will be a decision after the completion of the Phase II whether they choose to opt in. If they choose to opt in, it will be a $250 million payment at that time. And we're anticipating to your question, releasing the data end of this year, we think that it will be in the format of a top line plus release. So we want to have a fulsome data package, both for investors and also for AbbVie, from the standpoint of clarity around the clinical progression, clarity around the results for the key biomarkers, clarity around the results for imaging, and we would anticipate that, that would be in the format of the press release later this year.

All right. Perfect. We've a 1.5 minutes. I wanted to ask Arnon one last question and that is, so you have more insight into your trials platforms and the underlying science than we, the Street or investors do. So like what are we missing? What's going better than expected? Is it FTD post-trial changes, you have more confidence there? Is it the broader platform? What's the biggest disconnect to the Street in your mind?

I think people are sort of adverse to novelty, still means that they don't distinguish maybe enough between the mechanism of action of our drug and anti-A-beta drug, the potential for much more profound clinical benefit. And yes, it's a completely novel mechanism, like nobody believes in immuno-oncology until there were like clear sort of transformative data. I mean people in a way, justifiably are conservative. They don't want to switch to new things unless they are completely validated. But we think that the human genetics for our approach is very strong, stronger than any other sort of approach. We think that, again, our initial data in sort of our open-label Phase II, our phase in progranulin elevating drug, our Phase I with the TREM2 drug showed, target engagement, the right PK, very good safety and the ARIA suggest activity and possibly even efficacy. So I think people will come on board. I mean again, it took probably 9 years to convert immuno-neurology hypothesis from esoteric thing that everyone thought we are crazy doing it to a mainstream. Now it's really, I means, we get incredible interest now in what we do. So I think it's a matter of, in my view, a fairly short time before people will get on board and see that, that could be the next big thing in older generation.

All right. Perfect. We're going to have to leave it there, but data later this year is going to kick off a potentially transformative period for the company. Thank you again, Marc and Arnon.

Thank you.

Thank you, Cart.