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

Welcome to the Morgan Stanley Global Healthcare Conference. I'm Jeff Hung, one of the biotech analysts. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have Alector with CEO and Co-Founder, Arnon Rosenthal, and CFO, Marc Grasso. Welcome.

Great to be here. Thanks, Jeff.

So for those who may not be as familiar with Alector, can you just provide a brief introduction?

Sure. Alector was created with the idea of recruiting the brain immune system to counteract multiple disease pathologies. So whereas most other companies are going after typifying misfolded proteins as a therapeutic strategy, Alector is taking a chapter from the playbook of immuno-oncology. And instead of going after misfolded proteins directly, we are recruiting the brain immune system to counteract, not just the misfolded proteins, but multiple other pathologies that emerge in the brain. And the scientific rationale for this approach is human genetics. In the last decade, multiple risk genes have been identified for Alzheimer's disease, Parkinson's disease and other major neurodegenerative disorders. And it turned out that the majority of the risk genes are actually either immune checkpoints or immune stimulatory molecules. So although Alzheimer's disease is thought to be a disease where nerve cells are dying and synaptic connections between nerve cells are being destroyed, it turned out based on the human genetics that the immune system plays a key role in facilitating and not preventing the disease. So all our drugs are validated by human genetics, and they are all forms of either immune checkpoints or immune stimulatory molecules that harness the immune system to counteract the disease.

Great. Well, neurodegeneration is a crowded and difficult space, but there have been a string of successes in Alzheimer's. Can you just touch upon the insights that you've gained from these recent results?

Yes, there have been recent successes, not just in Alzheimer's disease in migraine, the CGRP blocking drugs in spinal muscular atrophy. So there's been actually -- even though no degeneration appear non-tractable for a long time, there are quite a few successes recently. And yes, so in Alzheimer's, the most notable are 2 or 3 beta antibodies that's been approved. What it told us first is that Alzheimer's is a tractable disease. I mean, it's not like a stroke that there's been more than 1,000 drugs that failed. So Alzheimer's is a tractable disease. On the other hand, the drugs that were approved showed very modest efficacy. So there is room for either novel drugs or drugs that act in combination with the anti-A-beta therapy. And the third thing that it told us again that the technology and the knowledge in how to run clinical trials in Alzheimer's disease is now mature, means we now have multiple imaging tools, PET imaging for beta and tau. We have multiple serum and CSF assays that represent disease progression and severity, we know how to identify Alzheimer's patients. So the tools to run a good conclusive clinical trials are there now. So I think the field is now mature to come up with really new revolutionary drugs.

And so how is the Alector's pipeline differentiated from these programs? And what gives you confidence that ineffective and damaged microglia could be a common pathology underlying many neurodegenerative diseases?

So as I mentioned, we are the first company that's really recruiting the brain immune system as a therapeutic strategy. And we know that the -- in the brain, the immune system acts like the national guard, the police force, the health care system, the garbage collector, this is the LTP that really makes sure that the brain functions. So imagine in New York, if the police force, national garbage collection are stopping to function how -- what sort of mayhem will occur? And that's what happens in the brain when the immune system stopped functioning either because of human genetics or because of aging. And we are ensuring sort of micro -- the immune cell health and ability to counteract sort of multiple disease pathologies. So in this respect, we are fundamentally different than all the other approaches that really target one pathology. We know that Alzheimer's disease is associated with multiple pathologies. There is a beta being accumulated, there is tau being accumulated, synaptic, the connections between nerves are being destroyed, half of the connections between nerves are being destroyed in Alzheimer's disease. The myelin wrapping on nerve cells is being destroyed. The support cells in the brain, the astrocytes are dysfunctional. These are the cells that nourish nerve cells and these are the cells that recycle neurotransmitter. They are disrupted. The nerves themselves don't function well. They're hyperactive actually. And the immune system in the brain controls all these aspects of brain health. So our therapeutic approach is significantly broader than going after a single misfolded protein. And we think that because of the broad therapeutic approach, ultimately, our microglia-modulating drugs will lead to better clinical efficacy.

Great. Well, let's start with your TREM2 program, AL002. Data from the Phase II INVOKE-2 study in Alzheimer's patients are expected in the fourth quarter. Can you just talk about the trial design and what's needed to complete the Phase II?

Yes. Sure, Jeff. So we're on track for the fourth quarter. And the trial is designed to really show what Arnon was mentioning in terms of the breadth of the activity of AL002. So the primary endpoint is measuring the slowing of disease progression as measured by CDR Sum of the Boxes, so kind of standard that we've seen for other Alzheimer's therapies. And we're measuring that over a time period of between 48 and 96 weeks. So it's a common close design study, and that means that the last patient is treated for 48 weeks and then you gather data up to 96 weeks for all of the additional patients. There's 3 active dose arms and there's a placebo group. And we'll be looking at the totality of the data. And from our standpoint, it's going to be very important to see the picture in the context of not just the slowing of the disease progression from the standpoint of the clinical the cognitive and functional measures, but also the biomarker evidence of this broader mechanism of action, including looking at amyloid, tau and other measures of microglial health.

And you saw ARIA in the subset of APOE4 homozygous patients. Can you just talk about the ARIA that was observed, how serious were they? And what modifications were made to the study for mitigating ARIA?

Sure. So first, just to recap, we are -- the 002 is a drug that activates TREM2. TREM2 is a prime immune stimulatory receptor for the microglia. It's a major genetic risk for Alzheimer's disease and other neurodegenerative disorders. So really, it's a prime example of immune checkpoint, immune stimulatory molecule for the brain, and we have a drug that activate it based on the human genetics. And as Jeff noted, we are completing Phase II data, we'll have data by the end of the year. And one of the things that we have seen in the Phase II are incidences of ARIA MRI imaging abnormalities that were reported with the anti-A-beta antibodies. They are thought to be related to removal of beta-amyloid from the vasculature. So once you remove beta-amyloid plug from the vasculature, you create small holes in the blood vessels, leading to leakage of blood products from the vasculature to the brain, and this is basically what caused the ARIA. So the ARIA with anti-A-beta antibodies are shown to occur early. They are reversible. They occur largely once. They are dependent on the copy number of APOE4 and we saw incidents of ARIA, which are indistinguishable from the ARIA that was reported for beta-amyloid. So first, this suggests that we have an active drug, maybe possibly even a drug that remove beta-amyloid similar to the anti-A-beta drug. And it's important to note that the ARIA is a very manageable phenomenon. Again, it's an MRI abnormality. It rarely leads to clinical symptoms, means the percentage of clinically severe symptoms that we see is less than 1%. We identified 2 patients out of over 300 patients that were treated. And even in the severe cases, the ARIA resolve and sort of the patients are generally fine. So in order to manage the ARIA, what one does now is doing a slower dose escalation. So you start with a low dose and every month or every 8 weeks, you escalate the dose until you reach the targeted dose. And when we are doing that, we see sort of, again, very mild cases of ARIA that are largely non-symptomatic at all in less than 10%. They have mild symptoms like headaches and nausea, that is rapidly reversible. And in very cases, we see more severe symptoms, again, less than 1% in our clinical trial.

And you recently reported baseline characteristics. So given heterogeneity with dementia and cognitive impairment, what gives you confidence that you're studying the intended early AD population?

Yes. We -- I mean like in any disease, prevention is best, like starting early in the treatment is better. And we are -- we elected to conduct a Phase II clinical trial with people that either have what's called mild cognitive impairment or very early Alzheimer's disease to really capture the disease before it becomes too severe and possibly irreversible. So we presented the baseline characteristics of our patients, and they are consistent with the patient population that we intended to treat. Based on the CDR, this is the clinical readout. We see that our patients are in B a very early stage of the disease. They basically have very mild clinical Alzheimer's symptoms, and they are -- they would be amenable for treatment that would slow down, hopefully, even stop the disease progression. So the clinical patients that we are treating is very similar to the clinical patient that was used for the anti-A-beta antibodies. And again, so it will give some perspective of our clinical trial.

And the baseline data, you saw mean amyloid centiloid of around 100. Can you just talk about your expectations for what level of amyloid clearance you would expect in INVOKE? And maybe just more broadly, you guys touched upon this a little bit ago, but what would you want to see in the study? What's kind of the bar for success?

So one of the critical criteria for recruitment into Alzheimer's disease patients now is PET imaging that measure that patients actually have a high level of a beta or beta-amyloid plugs. In the past before the emergence of PET imaging, about 30% of people with dementia turn out to be not to have Alzheimer's disease as defined by beta-amyloid plugs. So all our patients have to go PET imaging for a beta or serum or CSF testing for beta-amyloid to ensure that they have actually Alzheimer's disease. And for people that have even mild symptoms, Alzheimer's beta plugs are fully loaded in the brain if you measure it, it's called 100 centiloid. That's the maximum level of A-beta plugs that you can measure with this PET imaging. And with anti-A-beta antibody is what was observed is that the antibodies can reduce beta-amyloid very significantly. They required to reduce beta-amyloid by 80% to 90% to at least see some clinical benefit. So we, again, measuring the beta-amyloid with PET imaging because of the broad mechanism that we have, we don't think that we are dependent on complete removal of beta-amyloid for clinical efficacy. We think that we can at least see clinical efficacy even with modest reduction of beta-amyloid. So we are looking forward to see some effect on beta-amyloid, but we don't think that the trial and the clinical efficacy of this drug are really dependent on complete removal of beta-amyloid which is different than what you see for anti-A-beta drugs.

Yes, For TREM2, some of your competitors have established other modalities like small molecules with some data support differences and target profile. Do you have data as to what extent the monoclonal antibody binds soluble TREM2 versus membrane-bound TREM2? And what are your thoughts on how this could impact efficacy.

So in our view, and I think it's still the prevalent view in the field, what's important is activation of the membrane TREM2. This is the receptor that's expressed on microglia and TREM2 signaling that stimulate microglia to proliferate, to survive, to migrate to the site of injury, to enhance its ability to phagocytose misfolded protein and hence its ability to protect the surrounding neurons. TREM2 as part of its regulation is being cleaved by membrane protease. So you see, if you measure in the CSF of human, for example, you see some level of soluble TREM2. And there's a debate in the field whether soluble TREM2 is just a byproduct of negative regulation of the receptor, just cleavage or whether it has some independent activity. We think that what the soluble TREM2 does is just prevent the system from activated prematurely. If there is normal wear and tear in the brand, there is some release of damage membrane, fragment or there is some low level of beta-amyloid that is not sufficient for immune response, you want to capture and prevent it. So the soluble TREM2 just sucks low levels of ligands and prevents it from reaching the membrane TREM2 and activate the system. Once there is a lot of damage or stress ligands, it over went the soluble receptor reach the membrane TREM2 and then the immune system can be recruited and deal with the disease. So we think that soluble TREM2 has no independent function outside of modulating the membrane receptor. So our drug is really designed to bind the membrane TREM2 to activate the receptor on the microglia cell surface. It does it both as a stand-alone drug and it does it also together with the natural ligand. It actually enhances the ability of the natural ligand to activate TREM2. So we think that, again, our drug is focused. It binds in what's called the stalk region of the receptor in a region that is different than the ligand binding region, and it's basically primarily activate the member receptor. It doesn't really impact the soluble receptor.

Okay. Great. Let's move on to latozinemab. Could you just talk -- give a brief overview of the program, how FTD differs from late onset dementias and what you and your partner GSK hope AL001 can achieve?

So the second disease that we are going after besides Alzheimer's disease is frontotemporal dementia. It's an early onset form of dementia. It's the largest type of dementia that hits people under the age of 60. It's a very rapidly aggressive form of dementia. It progresses at least 3x faster than Alzheimer's disease. People lose brain tissue very rapidly, again, 3 to 5x faster than Alzheimer's disease. Clinically, the disease is different than Alzheimer's dementia. Alzheimer's dementia is primarily typified by loss of short-term memory, recall memory. Frontotemporal dementia is typified by behavioral disinhibition and speech pathology. And again, it's very lethal. Once you get diagnosed, you die within 7 to 10 years. And because it's a different disease, again, there are no drugs for this disease, either disease modifying or even symptomatic. And because it's a different disease, we developed a different drug for this disease. And the disease has genetic underpinning and one of the genetic causes of the disease are mutations in an immune regulatory protein called progranulin. And basically, patients that have one good and one bad copy of progranulin invariably develop this frontotemporal dementia. And we develop a drug that elevates progranulin back to normal level in these patients by blocking the gradation cascade of progranulin.

Now Alector is presenting INFRONT-3 baseline characteristics in the next few weeks. What should investors focus on in the baseline characteristics?

Yes. I think the thing to look for is have we enrolled the representative population for studying this medicine. And I think what you'll see is that we have. And we'll be presenting this at a conference ISFTD, which is the frontotemporal dementia conference coming up in September in Amsterdam. And similar in some ways, in Alzheimer's studies, you want to see that we're enrolling the target population. A significant number of patients in our Phase III are symptomatic frontotemporal dementia patients. We enrolled 103 symptomatic patients that's ahead of our target of 90 to 100. And again, you'd look to see that it's representative of that population.

Now if I'm not mistaken, for INFRONT-3, enrollment completed last October and the study is expected to go 96 weeks. Can you just talk a little bit more about the trial design and when you would expect to start reporting results.

Yes, absolutely. So that's correct. So we completed enrollment in the fourth quarter of last year and again, ahead of our target in the symptomatic population. We also have some presymptomatic patients as well. It's comparing treatment arm, so 60 milligrams IV once monthly as compared to placebo. And as you mentioned, it's over a treatment period of 96 weeks. We're looking at an adapted end point similar to CDR sum of the boxes for Alzheimer's, but it's made specific with two additional domains. And as Arnon mentioned, in frontotemporal dementia, there's differentiated impact on the frontotemporal cortex as compared to the hippocampus and Alzheimer's. And that affects behavior, and it affects language. So those are two additional domains that are included in the CDR Sum of the Boxes. It's an adaptive CDR Sum of the Boxes as the primary endpoint. And then also similar to TREM2, we're looking at a range of biomarkers that speak to the, again, the health and functioning of the microglia in this case, we're restoring progranulin back to normal levels, and you want to see that that's enhancing the activity of the lysosomal activity and the microglia and other measures. And that's also in the context of what we saw in the Phase II. And one of the things that we saw in addition to improvement in the biomarkers and slowing of disease progression is also some improvement based on brain imaging and volumetric MRI, and that will also be a component of what we're looking for in the Phase III. Timing of data is going to be towards the end of 2025, early 2026.

You just talked about the high degree of variability with at-risk versus symptomatic patients. So what drives this variability, like how does it manifest? And how is INFRONT-3 being conducted to mitigate this?

So just to add a few things. I mean, we received breakthrough therapy for this drug based on our extensive open-label Phase II studies, which show in addition to Marc mentioned, also a slowdown in cognitive decline by 48% over 12 months, which is very profound, if it sort of stays in the Phase III. So initially, the clinical trial was designed to include both symptomatic and presymptomatic patients. We did sample -- blinded sample size analysis of our Phase III trial. And we saw that the presymptomatic component of the trial shows very high variability. The variability is because it's hard to predict and the presymptomatic will convert symptomatic. We initially, based on historical data, told that people that have the genetic mutations and have high level of the neurofilament biomarkers will convert within 1 to 2 years to symptomatic. It turned out that the conversion is much less predictable. It could be 3, it could be 5 years. So the variability is really based on the inability to predict the conversion timing and rate. And if you remove the presymptomatic patients on the trial, once you go to only symptomatic patients, the progression rate is much more predictable. It's much less variable. So this enabled us to have sort of a decent-sized trial. And we are actually -- if we remove the symptomatic, we were able now to detect effect size of in the mid-20 like 25% slowdown in cognitive decline, whereas before, we were only able to detect slowdown in cognitive decline around 40%. So the trial as a design now is able to detect up to 25% slowdown in cognitive decline. It's focused on symptomatic patients. The Phase III, it's a pivotal Phase III if the data justified that. We will file a BLA. Based on this, we agreed with the FDA about both the primary and the secondary endpoints. And we will -- as Marc said, we have a cohort of presymptomatic patients, which we are still following and eventually, we would like to include presymptomatic in the label, and we'll see how we best do that.

And you mentioned that the FDA is open to evaluating plasma and CSF progranulin supportive evidence of clinical efficacy for the BLA review. Can you just walk us through some of these discussions?

So, usually with clinical trials, you have to run through to Phase III validating Phase III in order to get approval. I mean we, in a way, agreed with the FDA that one clinical trial will be sufficient. And instead of in a way running a second clinical trial, we will be able to show that progranulin, the missing protein that causes the disease is normalized without drug. So if we have one positive clinical trial, and we show that the progranulin is elevated back to normal level that should be sufficient for the BLA filing.

And can you just walk us through your current thinking on commercial launch preparation and education that's required?

Yes, absolutely. So as Arnon was mentioning, this is a form of dementia that unfortunately is underserved. There's no current therapies. And it's also often misdiagnosed and it's underdiagnosed. There's a familial component, strong familial component. So one of the things that we're active in right now is raising awareness for this disease. This form of the disease that, for example, Bruce Willis has, well, Wendy Williams has. And it's really devastating for the patients, for their families and it's very difficult for the caregivers. We spent a significant amount of time already with these families and caregivers across the world. And having now fully enrolled this pivotal Phase III study, we're, I think, in a much more advanced position as it relates to this disease and the first disease-modifying therapy for this disease to really make a substantial change. And I think a lot of that groundwork is really important. As I mentioned, we're at this conference in Amsterdam later this month. That's the frontotemporal dementia conference. There's patient advocacy groups that are part of that. There's longitudinal cohorts of patients that are part of that and there's going to be continued efforts to raise awareness for this disease over the coming months going into commercial launch.

Great. Maybe a couple of questions on your BBB platform technology. We've seen several advances in BBB delivery. Could you just talk about your proprietary platform and how it compares with the current landscape?

So, since we are completely focused on brain disorders. One of the things that we are focusing on is developing technologies that enhance drug delivery to the brain, and we spent quite a few years sort of maturing what we call our blood and barrier transport technology or Alector Brain Carrier. Alector Brain Carrier is really dependent on the Trojan horse approach. As you know, the brain is generally shielded from the serum, means blood product cannot really enter the brain. But there are receptors on the brain endothelial cells that transport specific nutrients that the brain requires, like transferring or insulin or insulin like growth factor or amino acid and you can hitchhike on this receptor and they internalize their natural ligands. You can really -- if you're bind something to the same receptors, they internalize your drug together with the natural ligands. So we are using two receptors to transport either antibodies or proteins, enzymes or eventually ASOs from the periphery to the brain. One of the technologies is the transferrin receptor that's expressed again on the brain endothelial cell transferring iron to the brain. And the second technology is an amino acid transporter called CD98, so that, again, transports amino acid from the plasma to the brain. And each of these technologies have different cons and pros. Other companies are developing similar technologies. What's unique about our technology is the versatility and ability to tailor to the specific target means the short side of this technology is that there are issues with adverse effects. Sometimes like the drug doesn't only go to the brain. It goes to peripheral tissues like reticulocytes that express high level of the target receptors such as transferrin and it leads to anemia in many cases. So you really need to tailor the technology to optimize the safety and efficacy profile. And we developed a technology that really can be optimized for each drug to maximize the safety and the efficacy. And in this way, we are much more versatile than other technologies that are currently being used.

And you talked about transferrin receptor and CD98. So to what extent are these pan-cellular versus achieving cell type specificity?

Sort of to a degree there, both pan-cellular like the transferring receptors in the brain, highly expressed in nerve cells and less expressed in supporter cells like microglia, astrocytes, oligodendrocytes. CD98 is to a degree the opposite. It's expressed at low level of neurons and at higher level on microglia. And also in the periphery, they express in different tissues, transferrin is expressed at very high levels on reticulocyte precursors. CD98 is expressed in other peripheral tissues. So again, it depends on the targets in the brain. It depends on what side affects, you try to avoid it. You can choose which of these technologies to use. So again, if you want to transport something that will focus on microglia, maybe CD98 is better. If you want something for neuron, maybe transferrin is better. But generally, mainly, they go into the brain and they will distribute pretty broadly.

Great. Maybe one last question. Can you just remind us how much cash you have in the runway?

Sure, Jeff. So as of the end of the second quarter, we had just over $0.5 billion in cash and no debt, and that's runway through 2026. So that's a full 2 years beyond the expected TREM2 data for AL002 later this year and approximately a full year after the Phase III pivotal data for latozinemab towards the end of '25, early 2026. That does not assume any milestones from our partners, including the $250 million payment from AbbVie if they choose to opt in on the AL002 program or from our partner GSK on the progranulin programs.

Great. Let's leave it there. Thanks so much for your time.

Thanks, Jeff.

Thank you.