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

Good morning, everyone. I'm Sean Laaman, Head of U.S. SMID-CAP Biotech Equity Research here at Morgan Stanley, and welcome to a Morgan Stanley Global Healthcare Conference. Before we commence, just to make you aware of some important disclosures, for those disclosures, please go to the Morgan Stanley Research Disclosure website at www.morganstanley.com. MorganStanley.com forward slash research disclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have the pleasure to host Alector with their CEO, Arnon Rosenthal, CBO and CFO, Neil Berkley, and Eric Brown, Senior Director, Antibody Discovery and Protein Engineering. Welcome, welcome, gentlemen. Maybe just some macro considerations to begin with before you dig into Alector. So, how are you thinking about the rise in China-originated innovation, and is it changing your competitive positioning on your R&D and BD playbook?

So, people are still suffering from cancer, from neurodegenerative diseases, from metabolic disorders. So, in my view, innovation in medicine is helpful and essential regardless of where it is coming from. So, I hope to see continuous innovation from the U.S. and from anywhere else in the world. And I think that innovation sort of promotes even more innovations. I do see positively for us specifically, so far, the main competition or the main innovation from China is coming from immunology and cancer. Now, neurodegeneration is a more complex field with less clear pathways of like how to get approval, less sort of obvious drug targets and drugs. So, at this point, we don't see as much competition. And based on the inbound interest that we have from large pharma, we are still sort of in innovative medicine for neurodegeneration. And we are actually trying to use the innovation in China instead of, what, like, theory. So, we work extensively with Chinese companies on the research stage level. We are looking at conducting possibly even clinical trials in China. I mean, we are focusing on Alzheimer's disease and Parkinson's disease, and the available population in China is significantly larger. And they are just starting now to get updated with regard to clinical trials. So, we are exploring clinical trials in China, and we are absolutely working with Chinese companies to advance our own programs.

Amazing, thank you. And second question on the macro, are you implementing AI across your business, and if so, can you give an example where you've seen a benefit on cost, a benefit of function, maybe even a benefit on POS assumptions?

Yes, we are implementing AI in every aspect of the company. And at this point, the main advantage or benefit is efficiency. We think we can achieve more with lower costs and fewer people. So, we are using AI to file our regulatory sort of applications. We are using AI to review business contracts. We are using AI to help design clinical trials, and so every aspect of the company is assisted by AI. At this point, I think it's fair to say that actual drug discovery, like actual innovation, is not a problem, is still not there for AI. Like, I don't think there are enough data to really predict. And new drug targets means you can get help with analyzing a lot of genetic data and clinical data, but I still think you need the human mind to actually develop novel therapeutics. So, at this point, we see AI as assisting us with efficiency, but not really as much with actual innovation.

So, thank you, Arnon. And last question on the macro before we dig into the heart of Alector, but even thinking generally, or maybe specific to Alector, which policy variable do you consider the most important at the moment? Is it like the FDA? Is it Medicare negotiations, MFN, tariffs, global pricing? It's a lot to think about, but how do you generally think about those elements and what's the most important?

As a company that's sort of reentering the clinic in a few months, the most relevant for us is interactions with the FDA, and the FDA innovation or changes that we are really relying on are the modernization acts that reduce the amount of animal usage. Basically, the costs in entering the clinic is non-human primate studies, and the FDA is proposing alternatives to non-human primates and maybe shorter toxicity studies, and we are sort of relying heavily on that. I mean, the second main thing, big thing, is the surrogate biomarkers for clinical approval. I mean, so I think we are spending a significant amount of time developing and trying to validate biomarkers to both facilitate the sort of clinical development and ultimately clinical approval. I think the FDA is relying more and more on biomarkers. The three anti-A-beta drugs that were approved were initially approved based on surrogate biomarkers, the beta amyloid imaging. I think more therapeutics are being approved based on cell-based biomarkers, so that's something we are looking at. And the third thing is the increased frequency of interactions with the FDA. The FDA has advanced multiple tools like Interact and pre-IND meetings that enable us to elicit feedback before we design our clinical trials. So, we are using this extensively, meaning asking the FDA what the expectations are, what would be accepted on them both with regard to clinical design, with starting doses, with toxicity studies, with how many species we need for our pre-IND programs. So, we are interacting very sort of constantly with the FDA to elicit information.

Wonderful, thank you, thank you, Arnon. So, maybe some level setting questions here to begin. So, talk about the strategic shift to ABC. So, a year ago, Alector had a Phase 3 program in FTD-GRN and a Phase 2 program in Alzheimer's. Today, neither remains. The GSK collaboration is winding down. The next clinical start is expected in '27. So, how would you define to investors what Alector is today?

Alector has not really changed conceptually and philosophically. I mean, we were started as a company that is dedicated to cure neurodegenerative disorders, to eradicate Alzheimer's disease and Parkinson's disease and Lewy body dementia and frontotemporal dementia. And our commitment to this mission remains. We took six drugs to the clinic under a certain hypothesis that brain-specific immune checkpoints could provide effective therapeutics for Alzheimer's disease and other neurodegenerative diseases. This specific hypothesis didn't pan out so far, but we are continuing. Now, we are advancing enzyme replacement therapies for neurodegeneration, blocking misfolded proteins for neurodegeneration. So, we are continuing to explore hypotheses for neurodegeneration with multiple different targets. We are advancing technology that enables delivery of enzymes, RNA, siRNA, and RNA-based RNA and antibodies to the brain. So, yes, we are, means we were a Phase 3 company. We are a preclinical company now, but we expect to be in the clinic by early next year. So, we will again become a clinical company. And our mission has not changed, just the type of drug targets that we are advancing has evolved. Okay. Can I just add one thing? You know, also, the team has been working on the Alector Brain Carrier for seven years. You know, this is not...

You know, something that we started, you know, last year. This is something that's got a really deep foundation and very good science. And so, we've been at the forefront of the blood-brain delivery space as well for many years now.

Yes, sure, it's a very important point, thank you. Maybe the core value driver today seems to us the ABC platform. Can you give us a bit of detail on the ABC platform, and you mentioned first patient dosing, can you be a bit more precise on when that might occur?

I mean, I think just to give a brief overview of the platform, as Neil said, we started working on this well over seven years ago as a way to deliver our highly novel antibody targets into the brain. And as we've worked on it over the years, we've realized that it actually enables the delivery of so much more than just antibodies, which is how we built out our GCase program, which simply wouldn't work without blood-brain barrier technology. And recently, we've pivoted towards siRNAs where really pairing siRNA and blood-brain barrier really gives you amazing therapeutic potential. Like, we've seen knockdown of up to 90% in certain targets in the brain. And then to get back to the last part of your question, we are looking to dose very early in Q2 2027. I believe Arnon might know a little bit more on the specifics, but the platform is much more than just the A-beta drug.

Sure.

Yes, so we have, means we have five drugs that we are advancing to the clinic now. The most advanced one is anti-A-beta antibody, which is brain-enabled. It's expected to be in the clinic by April next year. We have tau siRNA, which is brain-enabled, and there is sort of some supportive data from the Biogen Ionis clinical trial. We have Tau siRNA, which is brain-enabled. Again, that's alpha-synuclein siRNA, which is brain-enabled. Alpha-synuclein is the hallmark misfolded protein in Parkinson's disease. And we have enzyme expression therapy for Parkinson's disease and Lewy body dementia. This is a GCase, which is a lysosomal enzyme that's mutated in a large percentage of Parkinson's patients and Lewy body dementia patients.

Sure, maybe just on the resourcing of the platform. So, you reduced workforce significantly. So, what capabilities sort of remain in-house, and do you have the team in-house to move AL137?

Yeah, we absolutely have the capabilities. We do, we did reduce the team, but that was actually an opportunity for us to implement a lot of AI tools to really compensate for the reduction in headcount. We retain all our basic R&D capabilities, like in drug discovery, antibody and protein engineering, preclinical, non-clinical studies. We have a clinical team that's advancing AL137, so we are a more nimble team, but we didn't really lose any core capabilities, and because of our smaller size, we are really implementing more AI to substitute for headcount. A lot of things that were done manually are now done through sort of computerized systems. For example, we had a very large clinical operation team. We are sort of supplementing it with AI, and we are using a lot of outsourcing, including from China, to really substitute for smaller size. So, we think that with regard to capabilities, we will find alternatives to the larger headcount.

Sure, thank you. And with AL137, so first patient dose is early next year. How would you phrase the data map and milestones looking forward over the next few years? What would it look like?

So, we are going to start with healthy, like again, this is an anti-A-beta amyloid antibody that's brain-enabled. It recognizes the so-called pyroglutamate epitope on the beta amyloid peptide, which we think is the most toxic, aggregating sort of stimulator version of A-beta. We have a very potent blood-brain barrier shuttle that brings a lot of drug to the brain at very low dose. Our brain shuttle, because of the unique site that it binds the transferrin receptor, reduces the anemia risk. This enables us to use what's called the full effector function, full ability to recruit immune cells to remove beta amyloid plaque. So, we are targeting a best-in-class drug that's going to be delivered subcutaneously once a month, and we are going to start seeing data in healthy volunteers by sort of Q2 next year, and the healthy volunteers data here will show us pharmacokinetics, means we can, we'll have exposure data in the CSF, which in our case, based on non-human primate data, reflects very well on brain exposure, and we will show multiple safety features like anemia is a major risk factor for the brain shuttle that everyone is using. We are going to look at anemia, we are going to look at infusion reactions that competitors like Trastuzumab are suffering from. We are going to show that subcutaneous delivery does lead to efficient exposure. So, we'll have, by mid-year, next year, we will have a really good package of pharmacokinetics and safety. And right after that, we are going to move to patients. And with brain shuttle, as was shown by again, Roche's antibody, within three months, you start seeing significant impact on the Alzheimer's pathology, so by PET imaging, you should see reduction in beta plaques. By serum and CSF biomarkers, you should see reduction in, for example, P-tau 217, which is a reflection of A-beta pathology. We will be able to show minimized sort of effect on ARIA and other safety features. So, by the end of 2027, early 2028, we will have a good package of clinical benefit based on biomarkers and safety.

Thank you. And just maybe pinpoint to investors, what's the strongest translational evidence that you have that you can deliver meaningful brain exposure in a safe manner?

It means that the main means we have conducted IND-enabling toxicity studies and pharmacokinetic studies in non-human primates. We see with subcutaneous delivery at low dose, single-digit dose, we see brain exposure that significantly exceeds what we have seen in our calculation was reported by any other either naked antibody or antibody with brain shuttle. So, we see several-fold higher brain exposure, we see very manageable hematologic effects, and we don't see adverse effects associated with anemia. And again, our data suggests that a monthly subcutaneous delivery will be more than sufficient to get maximal brain exposure.

And just to chime in a little bit, on the platform side, beyond the A-beta antibody, if we look at our enzyme or our siRNA program, because we're able to utilize an effective because it's not part of the mechanism. We've dosed at very high levels in non-human primates, up to 250 mg per kg, and we've seen no effect on hematological parameters. So, there's an additional like layer of safety on the platform.

Sure, that's very important. I guess thinking about the platform more broadly and your competitors. So, Denali's approval validates TfR-mediated transport, but also sets a pretty high competitive bar in our view. What does ABC do differently? Is it transport efficiency, brain distribution, dosing, manufacturability, or what we just discussed, the hematology safety?