Alector, Inc. Q2 FY2023 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Alector Midyear 2023 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to Katie Hogan, Senior Director of Corporate Communication and Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Earlier this afternoon we released our financial results for the second quarter of 2023. The press release is available on our website at www.alector.com, and our 10-Q was filed with the Securities and Exchange Commission this afternoon. Joining me on the call today are Dr. Arnon Rosenthal, Co-Founder and CEO; Dr. Sara Kenkare-Mitra, President and Head of Research and Development; Dr. Gary Romano, Chief Medical Officer; and Dr. Marc Grasso, Chief Financial Officer. After our formal remarks, we'll open the call for Q&A. I'd like to note that during this call, we will be making a number of forward-looking statements. Please take a moment to review our slide on the webcast, which contains our forward-looking statement disclosure. And we also encourage you to review our SEC filings for more information. I would now like to turn the call over to Arnon Rosenthal, Chief Executive Officer. Arnon?

Thank you, Katie, and good afternoon, everyone. We appreciate you joining our conference call today. I'll start by highlighting Alector's key initiatives during the first half of 2023. Next, Sara will show the progress we believe we have achieved with our immuno-neurology research. Then I'll invite Gary to discuss the late-stage clinical program. Afterwards, Marc will provide an update on our financial results and milestone outlook. Today, Alector is a late-stage clinical biotechnology company with an advanced pipeline that includes novel first-in-class clinical programs. We also have world-class partnerships in which we retain significant price as well as an innovative research and technology portfolio. Regarding our INFRONT-2 program, we'll provide more details about our INVOKE-2 Phase II clinical trial with AL002. The trial is approaching full enrollment, and nearly all eligible participants are rolling over into the long-term extension portion of the study. We're also looking forward to sharing key highlights from the 002 program we presented at the Alzheimer's Association International Conference of AAIC in July. As presented at AAIC, in a mouse model of Alzheimer's disease, our antibody AL002C was shown to reduce total tau in the serum, which is a biomarker for neural repair, as well as to increase the ratio of Abeta 42 to 40, which may aid in remodeling amyloid plaque. Further, we are encouraged that AL002 was well-tolerated in our Phase I trial in healthy volunteers. The fact that we are seeing what appears to be an incidence of ARIA in INVOKE-2 participants associated with their treatment status, we believe is interesting and suggests biological activity. With enrollment in INVOKE-2 nearly complete, we are advancing closer to potential meaningful data readout. We will also share with you the outcome of our recent productive agency interactions with the FDA and EMA on our INFRONT-3 Phase III pivotal trial, evaluating latozinemab in frontotemporal dementia. The enrollment in INFRONT-3 is also nearly complete. We will also provide a brief update on our INFRONT-2 open-label Phase II clinical trial in frontotemporal dementia with C9orf72 mutation. With that, I will turn over to Sara to highlight the progress we have achieved with our immuno-neurology research.

Thank you, Arnon. As we look across this space, we are encouraged to see continued advancement in neurodegenerative disease drug development in 2023. The accelerated approval of a new ALS treatment and the traditional approval of an anti-amyloid beta therapy for Alzheimer's disease highlights the possibility of progress for patients, families, and caregivers affected by these devastating conditions. Moreover, they pave the way for next-generation therapeutics that have the potential to work alone or in combination with these novel treatment approaches. At Alector, we applaud this progress while we strive to advance transformative first-in-class therapies that enhance efficacy and improve the quality of life for patients. Sadly, brain disorders impact more than 1 billion people worldwide and result in the loss of 6.8 million lives each year. As these figures continue to rise, the urgency to address this immense public health challenge has never been greater. That is why we pioneered the field of immuno-neurology and are advancing a broad portfolio of potential first-in-class treatments for brain disorders guided by our insights into human genetics, immunology, and neuroscience. Like immuno-oncology, immuno-neurology seeks to harness the immune system as a broad, effective, and long-lasting therapy. Within the brain, microglia are the primary cells of the innate immune system. Our immuno-neurology therapies try to shift ineffective or damaged microglia into effective and beneficial agents. We translated immuno-neurology into a broad portfolio with transformative potential. We are developing latozinemab and AL101 in partnership with GSK. These candidates are intended to block sortilin, a degradation receptor for progranulin to boost progranulin levels and enhance microglial activity. In collaboration with AbbVie, we are also developing AL002. With AL002, we seek to increase TREM2 signaling with the intention of stimulating the functionality of microglia. We believe these candidates represent the most advanced immuno-neurology therapies in clinical development worldwide. We also continue to strategically invest in and advance our innovative research portfolio to fuel our development pipeline and to set the stage for our long-term success. While our late-stage candidates show brain penetration and target engagement, we are developing proprietary versatile blood-brain barrier technology which we may selectively deploy on next-generation programs. An additional novel first-in-class program we are excited about is ADP027, which is targeting the GPNMD gene for the treatment of both familial and sporadic Parkinson's disease. Currently, we are in the process of selecting our lead candidates and look forward to providing updates on ADP027 as we progress the program. Our collaborations with GSK and AbbVie, combined with our clinical expertise and differentiated approach allow us to advance our broad pipeline with the potential to transform the treatment landscape for brain disorders. With that, I'll turn it over to Gary to highlight recent progress with our late-stage clinical program.

Thank you, Sara. I'll begin with our AL002 program, the most advanced TREM2 program in clinical development for Alzheimer's disease worldwide. AL002 is a novel investigational humanized monoclonal antibody that binds to and activates the triggering receptor expressed in amyloid cells or TREM2. TREM2 is a phospholipid receptor on the microglial membrane that senses pathological changes in the brain. Binding of TREM2 to its biological substrates, which include APOE, lipids, Abeta, and other cellular debris, triggers microglial signaling pathways that allow the microglia to adopt a defensive response to disease by clearing pathology and protecting neuronal health. Loss-of-function variants in TREM2 are known to be deleterious. Heterozygous mutations in the TREM2 gene reduce the functionality of microglia and increase the risk of Alzheimer's disease. For example, the R47H loss-of-function variant increases Alzheimer's disease risk by threefold. AL002 binds to TREM2 receptors, resulting in clustering of TREM2 in the microglial membrane and activation of TREM2 signaling pathways, which support microglial survival, proliferation, and function. Microglia are the primary innate immune cells of the central nervous system, and they play a number of important roles in maintaining brain health and function, including clearing of misfolded proteins such as amyloid and other cellular debris and also maintaining healthy synapses, astrocytes, oligodendrocytes, maintenance of the blood-brain barrier and vasculature, and immune tolerance. Our hypothesis is that boosting microglial function may improve the brain's defenses against age-related neurodegenerative diseases. We completed our Phase I trial of AL002 in healthy volunteers, which demonstrated both dose-dependent target engagement and activation of microglia. INVOKE-2 is Alector's Phase IIb study of AL002, which is now ongoing in patients with early Alzheimer's disease. INVOKE-2 is a randomized, double-blind, placebo-controlled, common-close design study of up to 96 weeks of treatment with AL002 and approximately 328 participants with early Alzheimer's disease. It includes three doses of AL002 that were demonstrated in Phase I to activate microglia. Participants received AL002 or placebo as monthly infusions. INVOKE-2 was designed by Alector and AbbVie to be a biomarker-rich proof-of-concept study. The primary endpoint is the CDR Sum Boxes, and we're also collecting other secondary clinical and functional outcome assessments. Biomarkers include CSF and plasma biomarkers of microglial activation and of Alzheimer's pathophysiology. Their imaging biomarkers include amyloid and tau PET and volumetric MRI. To date, we have enrolled more than 300 participants, and the trial is nearly fully enrolled. We expect to complete enrollment in the third quarter of this year with the study reading out in the fourth quarter of 2024. At the Alzheimer's Association annual conference, or AAIC, in July, we presented an update on INVOKE-2, which highlighted that early in the trial, three participants had treatment-emergent neurological signs and symptoms and associated MRI findings consisting of focal vasogenic edema, surface effusions, microhemorrhages, and superficial siderosis. These MRI findings resemble the areas that have been reported following treatment with anti-amyloid antibodies regarding their MRI features, incidence, timing of onset, and relation to the number of treatment cycles as well as the frequency and spectrum of clinical manifestations. We believe AL002 has the potential to work alone or in combination with anti-amyloid beta therapies by harnessing the broader but beneficial effects of microglia. We expect to report INVOKE-2 data in the fourth quarter of 2024. At AAIC in July, we also presented a poster on mouse model data demonstrating that TREM2 activation improved Alzheimer's disease biomarkers, including amyloid and tau. I'll now turn to latozinemab, our novel first-in-class candidate and the most advanced therapeutic candidate worldwide in clinical development for the treatment of frontotemporal dementia (FTD). Previously, we disclosed that based on emerging data on the variability of FTD progression from the GENFI and ALLFTD cohorts, we plan to meet with regulatory authorities to discuss modifications to the statistical analysis approach for our INFRONT-3 Phase III clinical trial of latozinemab in participants with FTD caused by GRN mutations. This is driven by both our and the scientific communities' evolving understanding of the variability of GRN-related FTD disease progression. Additionally, as a part of routine monitoring, we, in partnership with GSK, conducted a blinded sample size reestimation of the INFRONT-3 trial, which demonstrated that the variability of disease progression is considerably less than our initial estimates, which were based on limited data at the start of the trial. Importantly, this supports a significant reduction in the number of symptomatic participants required for our primary efficacy analysis in INFRONT-3. Our recent interactions with FDA and EMA were productive, and based on agency feedback, we plan to conduct the primary analysis on symptomatic participants in INFRONT-3. The agencies also agreed with our proposed sample size reestimation which is anticipated to support a more focused enrollment of approximately 90 to 100 symptomatic FTD GRN participants for a treatment duration of 96 weeks. As a result, we plan to complete enrollment in INFRONT-3 in the fourth quarter of 2023. Regarding the FTD C9orf72 cohort of our INFRONT-2 open-label Phase II trial, we confirmed again a two to threefold elevation in progranulin levels in CSF and plasma. We have conducted a preliminary analysis of disease progression rates for 14 participants who were treated with latozinemab compared with baseline-matched controls from the ALLFTD registry. A high degree of variability in disease progression rates in both groups rendered the analysis uninformative regarding treatment effect. Turning to AL101, our second product candidate in our progranulin portfolio that we are developing in partnership with GSK. AL101 is designed to elevate progranulin levels in a manner similar to latozinemab. Its different pharmacokinetic and pharmacodynamic properties potentially enable dosing regimens for use in the treatment of larger indications, including Alzheimer's disease. Our Phase I study in healthy volunteers demonstrated that AL101 was well-tolerated and increased progranulin levels in plasma and CSF in a dose-dependent manner. We, in partnership with GSK, plan to initiate a global Phase II clinical trial in early Alzheimer's disease. With that overview, I'll now turn the call over to Marc to provide an update on our financial results and milestones. Marc?

Thank you, Gary. We summarized our second quarter 2023 financial results in the press release that we made available after the market closed today. First, I'll highlight that we remain well-funded to execute our strategic objectives. We ended the second quarter of 2023 with a strong cash position of $630 million, and our runway extends through 2025. Collaboration revenue for the second quarter of 2023 was $56.2 million compared to $79.9 million for the same period in 2022. Total research and development expenses for the second quarter of 2023 were $46.2 million compared to $54.5 million for the same period in 2022. Total general and administrative expenses for the second quarter of 2023 were $13.6 million compared to $15.8 million for the same period in 2022. For the quarter ended June 30, 2023, we reported a net income of $1.4 million or $0.02 per share compared to a net income of $9.9 million or $0.12 per share for the same period in 2022. Turning now to 2023 financial guidance. We are increasing our collaboration revenue estimate to be between $90 million and $100 million. Our anticipated total research and development expenses are reduced to now be between $210 million and $220 million. The total anticipated general and administrative expenses were tightened to now be between $60 million and $65 million. In May 2023, Alector and GSK formally decided to have GSK conduct an initial Phase II trial for AL101 in Alzheimer's disease, resulting in a contract modification to the GSK agreement. Our guidance updates to revenue and research and development expenses are reflective of this change. Looking ahead, we expect to achieve several important milestones. Namely, we plan to complete enrollment in our two late-stage trials. We are on track to complete enrollment in INVOKE-2, our Phase II clinical trial for AL002 in Alzheimer's disease in the third quarter of 2023. We also anticipate we will complete enrollment in INFRONT-3, our pivotal Phase III clinical trial for latozinemab in FTD-GRN in the fourth quarter of 2023. We are well-capitalized with a robust cash position and remain focused on advancing our late-stage clinical programs. We look forward to providing additional updates as we advance our work. That concludes our prepared comments for today's call. Operator, you may now open the line for questions.

The first question comes from Greg Harrison with Bank of America.

This is Marie Kate on for Greg. We were wondering about the research program that you mentioned. Could you add additional color behind your GPNMD research program in Parkinson’s disease? And maybe as a follow-up, could this target be used in other neurodegenerative diseases? Or is it Parkinson’s specific?

Yes. Thank you for the question. I’m going to start and then I’ll turn over to Arnon to add more color to this. So of course, we are excited about our program ADP027, which is a product candidate targeting GPNMD for the treatment of Parkinson’s disease. GPNMD is a risk gene for Parkinson’s disease. It encodes the transmembrane protein GPNMD, which is selectively expressed in microglia and oligodendrocytes and regulates lysosomal function. Our hypothesis is that the pathological genetic variant of GPNMD disrupts the function of multiple lysosomal proteins like LRRK2 and GBA1, which leads to an inflammatory stress response and accumulation of alpha-synuclein in Parkinson’s disease. So we are developing ADP027, which is a human monoclonal antibody that modulates GPNMD to mimic the protective genetic variant for both familial and sporadic forms of Parkinson’s disease. Currently, we are in the process of selecting our lead candidates and look forward to providing updates on ADP027 as we progress the program.

The next question comes from Yaron Werber with TD Cowen.

This is Joyce on for Yaron. Maybe just one from us on AL001. Just double-checking timing to data readout for that. I think previously you said early ‘25. But with this reestimated primary analysis amplifies and enrollment completing in Q4, I just wanted to double-check if there are any latest updates on timing to data.

Yes, happy to take that. This is Marc. So as we have noted in the press release today, we had a good engagement with the agencies around our pivotal, and Gary can give some more color on that. I’ll just start by acknowledging specifically as it relates to timelines, we anticipate that we’re going to complete enrollment for that pivotal study in the fourth quarter of this year. As the study is designed, it’s a 96-week treatment period. And yes, Gary, do you want to add a little bit more to that?

Sure, Marc. Yes. So just to add to the very end there, we're going to finish enrollment in the fourth quarter of this year, 96 weeks later, which would be approximately the third quarter of '25 when we will have the last patient out and data shortly thereafter. As I mentioned during the call, we had a very productive regulatory interaction that provided us with guidance to help move this trial forward. We've talked a little bit about FDA feedback in the past. We've recently received scientific advice from EMA which is generally consistent with FDA. So based on this positive feedback from regulatory agencies in partnership with GSK, we plan to conduct the primary analysis on the symptomatic participants in INFRONT-3. That's a narrowing of the scope. The agency has also concurred with our proposed sample-size estimation that supports a more focused enrollment on the symptomatic participants, 90 to 100 symptomatic participants for a treatment duration of 96 weeks.

The next question comes from Graig Suvannavejh with Mizuho Securities.

It's Graig Suvannavejh. I had one, just regarding your discussions with the FDA and the European regulatory authorities and kind of the changes that you're announcing with the Phase III trial. I'm just curious as to whether the topic of looking at biomarkers was specifically discussed in the agency's view around whether you could look at biomarkers as perhaps a surrogate endpoint to maybe also take a look at efficacy? Just wanted to see, at least in this particular disease, how that discussion went.

Yes, we talked with the FDA and also engaged with EMA about the entire trial. This study is rich in biomarkers, and we will include several of them. I want to stress that our primary analysis focuses on the clinical treatment effect using the CDR FTDL NACC Sum of Boxes. We are very confident in our potential to achieve full or traditional approval based on the clinical outcome measure supported by the biomarker data. However, if the primary clinical outcome measure does not meet our expectations, we will have an extensive biomarker study to help determine if we have enough data for an accelerated approval approach.

Okay. And then maybe just a follow-up question. If you could just share more details just on the blood-brain barrier technology that you're advancing. And maybe with a lens on how your approach might differ versus others, including neighbors in your backyard and others on the East Coast. Just if you could help us understand that.

Yes. This is Arnon. Thank you, Graig. Yes, we have developed a versatile blood-brain barrier technology that can be specifically tailored to which cargo that can be used with different types of antibodies which are, we have active FC and inactive FC; this can be used for protein and enzyme replacement. The uniqueness of our technology is the versatility and ability to really tailor the technology to each specific cargo. We will disclose more about this technology in the near future.

Our next question comes from Paul Matteis with Stifel.

This is James on for Paul. So I believe the original study with FTD was powered around a 40% slowing of disease effect size. What is the effect size of studies powered around now with 100 patients? Curious if there's any color you can provide there? And if there's anything in the kind of blended analysis you did that kind of reinforces your confidence in that powering.

Yes. Sure. Thanks. This is Gary. So our clinical trial design remains unchanged. That's the clinical endpoint, biomarkers, the duration of treatment, et cetera. This meeting we had with FDA about our statistical analysis approach was typical and a necessary step before eventually finalizing our statistical analysis plan next year. This analysis that we're focusing on is still going to provide sufficient power to detect a 40% treatment effect. The specifics around that will be finalized, of course, in our statistical analysis plan later next year. In terms of your question about why that is, the real advantage here of focusing the analysis on the symptomatic subjects is that the variance of their disease progression is considerably less than the at-risk subjects that we originally planned to include in the primary analysis. So by focusing on the symptomatic subjects, which by the way we've also had a somewhat easier time enrolling and nearly complete, we will still have adequate power to detect the 40% treatment effect.

Okay. Just to clarify, is there anything different about the statistical plan or analysis that confirms it is still able to detect a 40% effect size with significantly fewer patients, aside from the reduced variance? Or is it mainly that the variance is lower, allowing the statistics to remain powered for a 40% effect with a much smaller sample size?

Yes. The main factor influencing this is that we previously disclosed our intention to consult with regulatory authorities regarding our statistical analysis approach, based on new insights into disease variability from both the GENFI and ALLFTD groups. The key point is that the variance turned out to be significantly lower than our initial estimates, which were formulated almost three years ago with very limited data at that time. This is the primary reason for the change.

The next question comes from Tom Shrader with BTIG.

You guys seem cautious about calling your effects for TREM2 REA. Is it somehow different? Or are you just being cautious because it's new? And also, are you taking beta scans in this trial? I think you said you were going to. Is that something we will see? Did you take baseline scans? And I have a follow-up.

Yes, thank you for the question. We're being careful because this involves a different mechanism. Although the MRI features and the clinical aspects we are observing are quite similar, we've gathered insights from several thought leaders after sharing the data with them. Since this is a different mechanism, we prefer not to assume it is directly related to amyloid clearance. However, it's worth noting that clearing misfolded proteins, including amyloid, is a function of microglia, and enhancing microglial function might contribute to that process. We expect to gather a comprehensive data set, including extensive amyloid PET information, allowing us to gain a deeper understanding of this mechanism when we analyze the study next year.

And then housekeeping for the 001 trial, how many asymptomatic patients did you get? Are you just going to continue to treat those? And what do you do with patients that progress while on treatment? Are they counted in the bucket of symptomatic?

Yes. We have a much smaller number of at-risk subjects compared to symptomatic subjects. These at-risk subjects are not progressing very much, so that hasn't really been an issue. I think the second part of your question was about how many symptomatic patients have been enrolled.

So how many other became symptomatic, but it sounds like it might be known.

Yes, from what we can tell by sample size reestimation, it doesn't look like we're seeing progression in those patients yet.

The next question comes from Myles Minter with William Blair.

Just on the INFRONT-3 analysis here, just on a blinded basis, are you seeing the same variability on a symptomatic patient population as what you saw or what they saw in GENFI2, specifically looking at the analysis that you did with the INFRONT-2 patient population versus the 10 patients you picked from GENFI2? Like is it that sort of level of variability that we should be looking at that you're seeing on a blinded basis in INFRONT-3?

Thank you for the question, Myles. When we discuss the variance in relation to the changes in the statistical analysis plan for the Phase III study, we are referring to the variance in that study, where we are enrolling between 90 and 100 patients and are nearing completion. We are considering sample size reestimations based on that data. Regarding the datasets from the Phase II study you mentioned, these are very small cohorts, with 10 to 14 patients in the C9 cohort, which is too small to draw any meaningful conclusions about disease progression. That study was primarily designed as a biomarker proof-of-concept study and is not powered to determine treatment effects, so we cannot make significant statements regarding overall variance based on those very small cohorts.

So you'd caution against extrapolating that and saying that in the placebo arm, patients are going to decline like 12 points on CDR on placebo over 2 years.

No. No. I would say we've carefully examined the GENFI and ALLFTD data and have met with the researchers conducting those studies. The reason we considered this initially was due to a recent paper published last fall by Adam Staffaroni, who was one of the authors. In that paper, he mentioned that future trials in FTD might be significantly smaller than our original study design. Upon reviewing the variance, they shared their data with us, which indicated it was considerably less than what we initially estimated for our own trial. This prompted us to investigate and we discovered, through our sample-size reestimation, that our variance was indeed much lower than we had originally conservatively anticipated based on the earlier available data from three years ago.

Myles, I'd like to also maybe qualify a little bit. I think you are asking about the variability in the Phase II study, but that's in the C9 population and not the granulin population.

The variability in the granulin population in the Phase II study is comparable to that in the Phase III study. When focusing on symptomatic cases, the variability is significantly greater, and the conversion rate is less predictable. Therefore, the variability in the Phase III symptomatic cases can be much smaller than that when combining both symptomatic and presymptomatic cases. The symptomatic results in Phase III align closely with those in Phase II.

Okay. A quick one on INVOKE-2. Were there any patients that were positive or potentially positive for cerebral amyloid angiopathy that may have implanted those infrequency signals?

Not that we know of. No.

I show no further questions in the queue. I would now like to turn the call back to Marc for closing remarks.

Thank you, operator. Before we end the conference call, I'd just like to share that Alector will be participating in a number of upcoming conferences, including BTIG's Virtual Biotechnology Conference on August 7, Citi's 18th Annual Biopharma Conference on September 7 in Boston, Morgan Stanley's Global Healthcare Conference on September 11 in New York; and H.C. Wainwright's Global Investment Conference on September 12, also in New York. Thank you again for your time and attention today.

This concludes today's conference call. Thank you for participating. You may now disconnect.