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

Good morning, everyone, and welcome to Morgan Stanley Global Healthcare Conference. I'm Sean Laaman, Head of SMID-Cap Biotech here at the firm. For important disclosures, please see Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have the pleasure of hosting Alector's CEO, Arnon Rosenthal. So welcome and thank you for your time today.

As you said I'm the CEO and Cofounder of Alector. Alector was created to really address the major unmet medical need of neurodegeneration. As you know, 1 of 6 people in the world have brain disorder. And this is really one of the last major unmet medical needs like there are more than 50 million people worldwide with dementia, 10 million people with Alzheimer's disease and 1 million of people with other neurodegenerative disorders and we undertook to really find disease-modifying therapies for these major disorders by really going after the underlying mechanism of this disorder.

Great. I might just start with some macro questions. We're doing this for all our companies. But with China's rise in biotech innovation, how do you think about the competitive position here and will this influence your R&D or your business development strategy?

In general, I think that competition is good for everyone. I know that it's unpleasant at times, but I think that fair competition really raises everyone to do better, so I think I want to see the best drug for patients no matter where they are coming from. I think -- yes, the fact that China is becoming in a way, more innovative and more focused on pharmaceutical and biotechnology would really force the U.S. to do even better and I really hope that the regulatory environment will become more accommodating for the pharmaceutical industry and I think that just freedom and in a way, getting out of the way of the pharmaceutical industry will really lead to competitive innovation and will enable the U.S. to continue to be the leader in this field.

Great. And are you currently leveraging AI, if you are? And how about AI's disruptive potential. How do you think about that?

Yes. So we are -- we are excited about AI. We think that it's going to be a significant tool to facilitate both our discovery efforts and our clinical and preclinical development. And also, generally, the way the company is running even in the administrative aspect, so we have a team that's composed of research and administrative people that really dedicated to incorporating aspects of AI. And we are using all the many tools that are now available, like OpenAI and multiple programs that are dedicated to different aspects of science. I don't think that AI is going to substitute thinking and science, but I think that it's going to be a tool to really facilitate science. So we are really embracing the opportunity, but we still think that old-fashioned scientific understanding and knowledge are still going to drive innovation in the foreseeable future. I don't think that AI for science still has enough information to really substitute scientists.

Wonderful one. I guess over the last period, like what's been the most impactful to Alector from the regulatory side? Would it be FDA and is probably bit too early or tariffs.

At this point, it's mainly the FDA. We have very close interactions with the FDA. We have a pivotal Phase III drug that received breakthrough therapy and orphan designation and that's going to read in the middle of Q4 this year. But if all goes well, we really try for BLA, and we'll consider commercialization. So interactions with the FDA on the statistical plan and on the approval process are what keeps us -- that's our main focus, but we are actually working internationally, like our manufacturing facilities are out of the country. We actually also work with Chinese companies, so hopefully, the tariffs are not going to hinder our operation like longer term because again, I think that innovation requires global interaction. And basically, you should do the best thing wherever it's done best. And I think that we should facilitate freedom of interactions and like free interchange of both ideas and technologies and reagents and then hopefully, the tariffs will not curtail that.

Wonderful. Wonderful. And we get to Alector specific AL001, the company's programming on program for FTD-GRN. Can you give us a high-level overview of the program and what you and GSK hope the AL001 program can achieve?

Sure. So our most advanced drug, which is in pivotal Phase III and is going to lead in the middle of Q4 this year is targeting a disease called FTD, frontotemporal dementia. This is the largest type of dementia for people under the age of 60. It's 2 to 3x faster and more aggressive than Alzheimer's disease and it constitutes a major burden both for the patients and the caregivers because it is associated with this inhibition with regard to behavioral or with speech inability and motor disabilities and some form of cognitive disability and it's a lethal disease, people are diagnosed before the age of 58, and they die within 7 to 9 years. So it's a very aggressive type of neurodegeneration. And currently, there are no approved therapies for this disease. And one of the underpinnings of the disease is a genetic mutation in a secreted immune-regulatory protein progranulin. People that have one good and one bad copy of this progranulin gene produced 50% of the normal level of the protein and they invariably develop frontotemporal dementia. And we developed a drug called latozinemab or 001 that elevates the level of progranulin back to normal level in these patients. And the way the drug does it is by blocking the gradation cascade of this secreted protein. So what happens in patients, they produce half of the normal amount, but the amount that -- but the protein that's produced stays now in the brain 2x to 3x longer because it's not being degraded. And as a result, the reduced production is being compensated by increased half-life. And conceptually, it's very similar to what all the SSRIs are doing like Prozac. Prozac prevent reuptake and degradation of neurotransmitters like serotonin and norepinephrine. And by that, it increases the level of these neurotransmitters in the brain leading to the antidepressive effect. We are doing the exact same thing. We increased the level of the protein in the residence time of the progranulin protein in the brain to 2 to 3x longer, and that's how we see the therapeutic benefit.

Wonderful. And how does frontotemporal differ from normal age onset dementia.

Yes. So frontotemporal dementia is different than Alzheimer's disease in the way that it's not really mainly shorter memory loss, it's more associated with behavioral abnormality, disinhibition, inability to control like behavior and also inability to articulate yourself to speak and eventually these people are unable to communicate, unable to control their behavior. They have extravagant behavior, they can go to people in the street and hug them and harass them, so it's more behavioral and speech abnormalities as well as motor deficiencies, which is different than Alzheimer's disease that's mainly like total memory deficit.

Got it. Just moving to the Phase III INFRONT-3 top line data, the readout is expected in Q4. So give us an overview of the trial design and what you expect to report in the top line results.

Sure. so as I mentioned, we are at the end of a Phase III study with this drug. It's placebo-controlled, double-blinded pivotal study with 106 symptomatic patients and 16 genetic mutation carriers that are still presymptomatic. And it's going to be a significant package of clinical and nonclinical readouts. We have the primary -- the co-primary readouts of elevating progranulin back to normal level or statistically significant elevation in the plasma. And the second co-primary is the CDR Sum of Boxes for FTD, this is a clinical readout that contains eight different domains of cognition, activity of daily living, behavioral and speech that we agreed with the FDA would represent the clinical readout. So we have two co-primaries, progranulin elevation in the plasma and the clinical readouts. In addition, we are measuring multiple biomarkers, including neurofilament, GFAP and we are looking at change in brain, tissue loss in the brain with volumetric MRI. So at the end of this year, we'll have fairly extensive package that will tell us conclusively whether we have a drug and we agreed with the FDA that this single trial together with the biomarker will be enough to get approval.

And just to really double down on that, just to make -- talk about your alignment with the FDA on the endpoints and what gives you that confidence that the answer will be the answer.

Yes. So we -- again, because we received breakthrough therapy and orphan designations, we have very close interactions with the FDA. And recently, we agreed with the FDA that we will have, again, two co-primary elevation -- statistically significant elevation of progranulin, which is the disease-causing missing protein in the plasma and based on our open-label Phase II study, we think that there is more than 99% chance that we will reach this co-primary and we agreed with the FDA that the CDR Sum of Boxes, which is, again, tailored for FTD will be the clinical co-primary. So there is alignment that these two co-primaries will really drive the approval of the drug. And again, based on our Phase II study, we did show two to three-fold elevation of progranulin throughout the disease, throughout the treatment period, and we now have patients that have been treated for over 2 years. And as long as the drug is applied to these patients, the progranulin level is restored back to normal level and indistinguishable from what you see in healthy individuals and with regard to the clinical readout in the open-label study, we were able to show a 48% slowdown in cognitive decline over 12 months with 12 patients. Our Phase III is 10x longer with like 106 patients, and it's twice as long with 2 years versus 1 year seen in the Phase II. So we think that we have significant room for variability and -- even though in the Phase II, we showed 48% slowdown in cognitive decline, we've seen that even if we show 25% slowdown in cognitive decline in the Phase III, it will still be statistically significant, clinically meaningful and in our view, approvable.

Wonderful. And could you remind us of a bit the time lines, how long the patients have been on therapy in the clinical trials and the time frames around measuring those endpoints.

So the trial is a 2-year long trial like 96 weeks. We decided to really follow these patients for almost 2 years to make sure that we can capture the disease progression and both the biomarkers and the imaging readout, we are measuring -- in the plasma, we are taking samples monthly. Like every time the patient is coming for treatment, we also taking samples of plasma, the clinical readout is every 6 months and imaging is also every 6 months.

Wonderful. And you presented INFRONT-3 baseline characteristics, the international study for FTD in September last year. Looking at those baseline data, how would you describe the FTD-GRN population involved in terms of at risk versus symptomatic and other clinical distinctions.

So in general, like the features of the patients that we recruited to the Phase III trial represents the general population based on what was reported in the major FTD consortia, both the European consortia and the U.S. consortia, so the general features of the symptoms, the stage of severity, level of biomarkers. So what we recruited, so the patient is really representing like real-life patient population and in the trial, we recruited two types of severity of disease severity, 70% of the population that recruited early-stage disease like CDR global score of between 0.5 and 1 out of a 3-point scale and about 30% is scale between 1 and 2. So we have really very early patients and early medium patients, so we want to see the drug could work at these stages. And as I mentioned, we also have 16 patients that are still presymptomatic. And in this case, we want to see if we can prevent conversion from presymptomatic patients to symptomatic patients. And so far, the drug appears to be very well tolerated. It seems to be a really safe drug. So our ultimate goal is to really do prevention, to really capture patients before they become symptomatic and prevent the conversion to symptoms.

Understood. And I believe INFRONT-3 is powered to show 40% slowing of disease progression and KOL feedback suggests about a 25% slowing of CDR-SB would be clinically meaningful. Given that, what would be your expectations that the 96-week time point on CDR.

So again, our -- based on our Phase II, we did show 48% slowdown in cognitive decline over 12 months. So it means hopefully, the Phase III will produce this. But as you said, even 20% to 25% slowdown in cognitive decline according to the KOLs that we talked with will be clinically meaningful. This is a lethal disease. There's really no approved -- there are no approved drugs for this disease. It hits people at prime of their life, like when they are between 30 and 60. It's a major burden on the family because of the behavioral disinhibition. So we think that any even modest clinical benefit will be meaningful for this patient.

Wonderful. Maybe getting down to the nuts and bolts of building out a market model. So if you could talk about what the patient opportunity is here. And if the drug does prove successful, the touch points of how you go through the launch process, just to start.

Yes. So there an estimated 50,000 to 60,000 FTD patients in the U.S. and about 110,000 FTD patients in the EU, up to 10% of these patients carried the progranulin mutation. So I think -- so in the U.S. and EU, there could be like 15,000 to 17,000 symptomatic patients and -- but again, because the disease like symptoms occurs at the age of 50 to 60, there may be 5x more presymptomatic mutation carriers. So we think that it's very meaningful market opportunity. It's a rare disease. And again, lethal and complete unmet medical need. So we think that there is a very meaningful market for us.

What about accessing the physician network, maybe talk about the types of physicians [indiscernible] in academic centers. How do you see that unfolding?

Yes. So we are already spending a lot of time educating the scientific community, the clinical community, and it's going to be both psychiatrists and neurology, means we are working with advocacy groups. And yes, we have KOLs in all the major clinical centers. Our clinical trials are already done in like dozens of clinical centers, both in the U.S. and EU, where we have close interactions with the KOLs, but it will require educating the clinical community because not everyone knows how to diagnose FTD and what to deal -- how to deal with it. So we are going to introduce genetic screening as part of the drug, the genetic screening is conclusive and relatively simple, and we are engaged in very extensive education and then through scientific meetings and through direct interactions with KOLs. And we think that once the community knows that there is a drug, I think the level of interest and awareness would grow significantly.

It seems like you've got enough runway in symptomatic patients, but on the genetic screening part, how do you ensure that you get proliferation of that screen to access the patients that aren't symptomatic.

Yes, even from the symptomatic patients, we want to have genetic screening because you want to make sure that the frontotemporal dementia is caused by the progranulin mutation. So again, it will be a lot of education that genetic screenings are available, easy to -- basically, it's a blood sample so the genetic screen will be easily available, and we'll have to educate the KOLs, the treating physicians and the scientific community in general that genetic screen is the way to conclusively diagnose this disease.

So could make it part of a bigger screening panel at some point?

Yes, it is -- I mean there is neurodegeneration panel, yes, that could be used here.

Moving on to 101. Can you describe the changes in PK/PD relative to aducanumab? And which make you feel 101 is more amenable for a broader population like AD.

So the unique feature of progranulin is that it appears to be a universal risk gene for neurodegeneration, whereas many risk genes are disease specific like SOD specific for ALS, alpha-Synuclein specific for Parkinson's disease, presenilin is specific for Alzheimer's disease. But in contrast progranulin, reduction in the level of progranulin appear to be associated with practically every neurodegenerative disease being tested. So 50% loss of function in progranulin leads to frontotemporal dementia, but 10% to 15% decrease in the level of progranulin are associated with Alzheimer's disease, with Parkinson's disease, with ALS, with LATE, which is another prevalent form of dementia that's typified by TDP-43. So we think, based on this, that's elevating progranulin, either back to normal level or even super physiological level could have therapeutic benefit in many neurodegenerative diseases. And because of this hypothesis, we initiated a second clinical trial with a progranulin elevating drug, which is a drug called AL101, and this is in Alzheimer's disease, so we've just completed in April, we completed recruitment in an Alzheimer's drug. Again, it's a placebo controlled, double-blinded Phase II with over 360 patients with our second progranulin-elevating drug and the clinical trial for the Alzheimer's study will be completed in 2026, and we have selected the second drug, this AL101 because it has a different pharmacokinetic feature. It has a half-life that's 2 to 3x longer than the 001 or latozinemab and this will enable us to either reduce dosing frequency or reducing the dose level and maybe make it more amenable to subcutaneous delivery. And we think that for the prevalent diseases like Alzheimer or Parkinson's, subcutaneous delivery could be a lot more convenient and will enable a much better patient access.

Sure maybe you should talk to Halozyme.

Yes. We have.

Unlike frontotemporal, AD patients, I believe, have relatively normal PGRN. Given that, what's the rationale supporting AL101 and increasing PGRN for having a clinical benefit in AD?

Yes. That's a great question. So the scientific rationale is twofold. Genetically, progranulin was shown to be a risk gene for Alzheimer's disease. So if you look at the 70 or 80 genes that have been identified for Alzheimer's disease, progranulin is one of them. And the risk gene is associated with 10% to 15% slowdown and decrease in the level of progranulin. So it's hard to measure like this modest reduction, but even modest reduction in progranulin leads to increased genetic risk. And -- so there is a genetic rationale for elevating progranulin in Alzheimer's disease. The second rationale is animal model based. There are multiple studies showing that elevating progranulin to supraphysiological levels in disease models of Alzheimer's leads to therapeutic benefit. So our hypothesis that in Alzheimer's disease and eventually Parkinson's disease and ALS, elevating progranulin to a super physiological level, like two to threefold above normal level will be therapeutically beneficial.

Wonderful. Maybe you've touched on this already, but maybe just remind us of the overview of the study design in PROGRESS-AD Phase II trial. And I believe enrolments just completed? And when can we expect first data?

Yes, enrollment was completed in April of this year. It's a study with 300 patients, it's a placebo-controlled, so there is a placebo arm, and there are two doses -- two dose drug arms. It's an 18-month long study and the readout will be the CDR Sum of Box as well as like four additional clinical readouts for activity of daily living and other cognitive measures. We are also measuring level of A-beta and tau by PET imaging, we are measuring multiple biomarkers again, A-beta 40, A-beta 42, multiple types of phospho-tau in the plasma and CSF, so it will be a fairly extensive data package that will tell us whether the drug is working and then it makes sense to continue to Phase III. The drug will be completed -- the trial will be completed in 2026. And so if you calculate from April, like 76 weeks, it will be the end of 2026, and we expect the data shortly after that.

Wonderful. Wonderful. That's on 101, but maybe to talk about the blood-brain barrier platform. We've seen several advances in the field, and could you briefly touch on Alector's proprietary BBB platform and how it's positioned within the current landscape?

Yes, absolutely. So as you know, a large molecules like proteins, enzymes and nucleic acids do not penetrate the brain well. And if you can have a shuttle that can improve brain penetration, you could have more effective drugs. So we, as several other companies have developed brain shuttle that use hitchhike on a receptor that's present in the blood-brain barrier that usually transport iron to the brain. This is the transferrin receptor. So basically, you can use the transferrin receptor as a Trojan horse to bring large molecules to the brain. And we are using this technology to transport antibodies to the brain, to transport enzymes to the brain, and to transport nucleic acids to the brain. And we have -- with each of these drug modalities, we have a specific drug that we are advancing, in the antibody, we are developing an anti-A-beta drug, antibody drug with our blood-brain barrier shuttle that we expect, again, to reduce the side effects -- the ARIA side effects, and to increase efficacy, and we think that our unique blood-brain barrier technology will also reduce anemia compared to other technology, which is side effects associated with this technology. For the enzymes, we are developing an engineered GCase. GCase is a lysosomal enzyme that's mutated in up to 10% of Parkinson's patients and up to 30% of Lewy body dementia patients. So there are hundreds of thousands neurodegeneration cases that are caused by loss of function mutations in this lysosomal enzyme. And again, we developed an enzyme that's a lot more stable, a lot more active than the natural enzyme and linked to the blood-brain barrier technology. So we are able to restore enzyme deficiency in the brain of Parkinson's and eventually Lewy body dementia patients. And finally, we are also developing siRNA in conjunction with blood-brain barrier technology. And here, we are focusing on tau siRNA and alpha-synuclein siRNA. Both of these proteins are hallmarks of Alzheimer's disease and Parkinson's disease, respectively. And because a lot of the pathologies caused intracellularly, antibodies are not -- do not seem to be very effective in counteracting the misfolded protein.

And these technologies, thinking about ability to maximize penetrant, is there a trade-off between efficacy and concentration? Like how do you think about that.

Yes, this technology in general, you really have to thread the needle. It's not plug and play, means you have to really find the right configuration of the transferrin binding domain that's really optimized brain penetration but minimize adverse effects like anemia, the blood and barrier, the transferrin receptor expressed -- are expressed on the blood-brain barrier but also expressed at very high level of red blood cells. And if you bring too much of your drug to red blood cells, you can damage them. So you have to really play with the binding domain to the transferrin receptors with the affinity of the binding with the configuration of the rest of the drug to really optimize again, the safety to efficacy [indiscernible].

Just -- got a couple of minutes left, so I'll jump forward to this question, but you've recently updated guidance. Can you touch on some of the updates and remind us how much cash you have and how far that will get you.

Yes, we have over $300 million in cash. We announced that this will be sufficient to get us through the second half of 2027. And this will enable us, again, to complete our pivotal Phase III study to get readout of our Phase II study in Alzheimer's disease and to take at least two of our blood-brain barrier linked technology drugs, the anti-beta drug and the GCase drug to the clinic. So we are expected to have at least four short-term goals within our runway.

Wonderful. And with that said, is there anything that I didn't ask that you'd like to highlight or that's of particular importance.

I just want to highlight again that we have a really good mixture of late-stage program, a Phase III program for frontotemporal dementia, Phase II program for Alzheimer's disease as well as portfolio of preclinical programs that will get into the clinic in 2026 that are linked to our proprietary blood-brain barrier technology. So we are addressing both rare and major neurodegenerative diseases, frontotemporal dementia, Alzheimer's disease, Parkinson's disease, and we are going to expand to also ALS and sporadic types of frontotemporal dementia.

Wonderful. Well, we're just perfectly on time, but thank you for your time today and thank you for coming to our conference. We really appreciate it.

Thank you. Thank you for the great questions.