Avalyn Pharma Inc. (AVLN) September 14, 2026 Conference Transcript

All right. Good afternoon, everyone. Welcome to this session of the Morgan Stanley Global Health Care Conference. We're very excited to have the team from Avalyn, Lynn, and Doug here with us. Before we get started, let me just read a quick disclosure. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com forward slash research disclosures. I'm Judah Fromer, one of the SMID biotech analysts. And like I said, very excited to have Avalon. You're our first fireside chat post-IPO. So before we dive in, can you give the audience a quick intro to the company, how the team came together for those who may be less familiar?

Sure, happy to. So hi, everybody. I'm Lynn Baranowski, and thanks to those of you that I know. I'm looking forward to getting to know those of you that I don't. I'm the CEO. The company was founded in 2017 with a Series A. I joined in 2022 as the CEO. We're focused entirely in pulmonary fibrosis. So this is one of the rare deadly diseases that affects an unbelievably high number of patients in the U.S. There's massive unmet need. We might get into some of that today. And we're capitalized to deliver some clinical stage catalysts. We have three different assets, either in the clinic or moving into the clinic, with data readouts from each of the three programs in the second half of next year. Did an IPO a few months ago with Morgan Stanley's help. and just really delighted to be well-capitalized and hopefully geared up to make a big difference for these patients that we're trying to serve.

All right, great. So with that, maybe let's talk a little bit more about the unmet need in pulmonary fibrosis. There are three approved drugs here and a number of programs in development. So where do you expect the opportunity to be when your drugs are potentially coming to market? Can you put some numbers around the unmet need?

Oh, for sure. It's a great question. So let me start maybe on the patient side and the clinical side and then actually maybe I'll ask Doug to comment on the commercial opportunity here, which really sits in parallel with that. So from an unmet needs perspective, we're talking about, as I said, a rare deadly disease. Life expectancy with pulmonary fibrosis is about three to five years. So it's actually worse than most forms of cancer. I'm going to say that again. Pulmonary fibrosis survival is worse than most forms of cancer. We do have the three drugs approved on the market today, but I think what is really unbelievably shocking to understand is how few patients with this deadly disease are benefiting from any of the oral drugs. So if you look a snapshot of the U.S. market on any given day, it's roughly about one-third of patients that are taking any of the oral drugs. Another third of patients have tried and failed an oral, and another third of patients haven't even bothered trying because these drugs that exist, they only slow the rate of lung function decline that patients have. And unfortunately, as oral agents, they layer on top of that already very difficult disease profile and the symptoms of the disease, they layer on top really difficult symptoms. So we're talking about GI side effects from the drugs that cause massive levels of discontinuation. Oral profanidone causes nausea and vomiting. Nintetanib as an oral drug causes really unrelenting diarrhea. And so over the course of a year, most patients that take an oral cycle off those oral drugs really pretty quickly, within a few months usually. And at the end of the year, you'll look at sales data, and it's the case that OFEV, which is the largest drug in this market, is effectively reaching less than 10% of patients in the U.S. because of how difficult it is for patients to tolerate. So it leaves most patients with this incredibly sad disease really unable to take anything for it. And we think we can do something about that, but we'll come to that. But maybe on the commercial side, Doug, can maybe walk you through the market opportunity here.

Yeah, so the current market is defined in terms of the dollarized value of branded products is north of $4 billion with OFEB being the leader. And that's, as Lynn mentioned, less than a 10% market share. Jascade is the newer entrant. That's BI's next-generation product that was approved about a year ago. And that priced at the range of around $200,000 per annual course of therapy. To give you a sense, the brands of OFEV and Esprit were around $150,000. So looking at the total addressable market, it's north of $42 billion, and that assumes every patient's on the lowest brand price of $150,000. I think with the Jascade launch, we look at that, and just as a real quick example, the profile of Jascade is similar efficacy as the two orals, being oral, profanidone, and intentative, with slightly better tolerability, still with diarrhea and other AEs. And that product, according to the IMS, for shipping data, is annualizing at over $2 billion in gross sales. So it really just speaks to the opportunity, in particular on tolerability, to improve that. It can really unlock a lot of potential in this field.

Yeah, so it's magical from my perspective, because this is an opportunity for us to do a lot of good for a lot of patients make a huge difference in their disease, and there's a massive amount of commercial value to be unlocked.

Okay, great. That's great background. Before we jump into your individual candidates, I wanted to spend a minute just on the device you licensed from Parry and your formulation work that you've done. Can you talk a bit about the inhaler and the know-how that's gone into your candidates and the combination with that device? How does that specifically support differentiation and barriers to entry for you?

Sure, yeah. A fun question to address. So when we think about inhalers, I always start my thought process with thinking about the patients that we're trying to treat. So there are lots of different kinds of inhalers out there. For these patients, these patients are old, they're sick, they're frail. If I had one with me, they would have very limited breathing capacity, and they have a ton of issues with cough as part of the symptoms of their disease. And so those patients are going to have a hard time with certain types of inhalers. So that's one variable. We have to really think carefully about what patients can actually inhale. Part two is we want to think about the drugs. And the drugs, certain drugs require certain volume inhalers. Profenidone requires a larger volume of an inhaler to be able to dose the drug adequately. And then finally, when we work on putting a drug in an inhaler, you really want to think carefully about the particle size that you generate because you really need to be able to reach the correct part of the lung and the right tissues. That has to do with the particle size, that has to do with the flow rate. So there's a lot of particle engineering that goes into thinking about how to formulate the drug in the right way in the right device for the right patient. So you really put all those three factors together and with those three factors in mind, we chose to develop these two lead programs that we have in this handheld nebulizer that you're talking about. It's a handheld nebulizer that we've licensed from a company in Germany called Pari. And what's great about that is that that handheld nebulizer itself is patented. And so in order for us to use it, we have to have a license to the device, which we have, and we have exclusivity in the molecules. So that's really important because from a barrier-to-entry perspective, we now benefit from lots of patents on the drug. Again, it's quite nuanced. So all this formulation work generates all new patents. We then have patents on the device. And then we have exclusivity in the device that withstands even the expiration of the patents. And then finally, just if you can think about it in your mind for a minute, and I always wish I had inhalers in front of me, if you can think about one inhalation to the next, they're actually completely different from each other in terms of really that deposition pattern. And so for those reasons, FDA does not have a bioequivalence pathway for an inhaled nebulized product. So if a generic company did want to compete eventually, they would need to figure out a generic formulation. They would need to get a whole new device because of the exclusivity that we have. and then they would need to replicate the entire clinical package. There is no bioequivalence pathway. So that makes for this kind of moat of barriers, even beyond just patents, that provide this very nuanced but very important protection. If you're us and you love to specialize in this field, and I do, it allows you to build really durable products, really durable revenue streams over a long-term horizon.

So maybe double-clicking on that, There are other therapeutics being developed in PF, including reformulations of existing anti-fibrotics. So if we kind of break it down by mechanism, formulation, and device, how would you say your approach is differentiated versus maybe some of the other reformulations that we're seeing?

Yeah, I mean, I think it's all three, right? So you've got to think about the patients and what they can inhale. Some of the other companies are doing work in a device that's called, for example, a dry powder inhaler. So dry powder inhalers are a great device. That's an inhaler that's used really routinely in asthma and COPD. Makes a lot of sense in that market because asthma and COPD patients are like me and Doug. Like, they're really reasonably healthy. The vast majority of that market has an inhalation capacity. So a dry powder inhaler doesn't have any propellant. Okay, so in order to dose a dry powder inhaler, if I had one and I don't, you do this, which I can do because I've got reasonably healthy lungs. I've got mild asthma, but enough to be able to do a big inhalation like that. But for a patient with pulmonary fibrosis, they don't have that inhalation capacity. So our nebulizer doesn't require that. You just breathe normally, and we rely on time to dose. So it's about eight minutes every time you dose. But that's nice for these patients, again, because they're older, they're sicker, they're frail. They don't have the hand-eye coordination required for some of these other inhalers. So, you know, there are different solutions from a technology perspective for different segments of this market. I would posit that the segment we're trying to address in this population is going to be the largest segment.

Okay, great. And maybe just to follow up on that, a question we tend to get, that eight minutes you referenced, maybe just kind of reiterate how sick this patient population is to the point where that time out of their day for maybe multiple inhalations is not necessarily disruptive.

No, that's right. Yeah, so again, this is not a patient like me who's trying to get to work. You know, this is largely your grandparents, right? So think about your grandparents. You know, generally what we hear is someone will wake up in the morning and drink their coffee, sitting on the couch watching the Today Show. And so actually putting in your mouth an inhaler and breathing in and out normally for eight minutes while you're watching the Today Show doesn't seem to be a barrier. Same thing on the other side of the clock. So whether it's Jeopardy or whether it's whatever nightly news show, you know, that seems to be really not a barrier. we're not seeing issues with dropouts related to the duration of the inhalation. Again, I think this is not asthma COPD where they're less symptomatic. This is a very symptomatic, deadly disease. So I think these patients are, you know, they're energized to want to be on therapy because they want to stay healthier longer and they want to be able to spend more quality time with their families and loved ones, and we want the same thing for them. So it's not an issue for us so far.

And maybe just a point of clarification on that license with PARI. Correct me if I'm wrong, but I think AP01, you have the exclusive license. For AP02, which is your second candidate, you have an option two license. Maybe just kind of describe that option and, you know, where that license could go in the future for O2.

Yeah, it's an option to license the same device for the Nintetnib as well as the combos. So it's something that we're working on now in terms of getting that in place for the next steps, but it's already, the option's already in place. So straightforward, I think.

Okay, so now kind of moving into your lead candidate, AP01, which is currently in the Phase 2B MIST study. Before we talk about that study, can you talk a bit about the data generated thus far? How is O1's profile shaping up versus oral prophenidone?

Sure, yeah. And so maybe I'll start by saying when I took this job and joined the company, I did some market research with doctors and was actually pretty surprised myself to understand how important solving the tolerability barrier is. So it became very clear in that market research that if you just can formulate these same drugs in a more tolerated version with equivalent efficacy to the orals, that is a massive opportunity commercially. We certainly think we can do that. We have tolerability data that says that. But our clinical data suggests that we can do that, better tolerability, but that we can also improve on efficacy. The reason is that even though we're dropping the dose considerably as compared to the oral version, we actually have better lung exposure. We can measure that in this disease. We can do a bronchoalveolar lavage. We can collect and analyze an inhaled versus an oral and look at epithelial lining fluid through that model. And we think the better exposure that we can measure and see is likely driving what we see in the clinic, which is better efficacy with this approach. If our ongoing missed study, which we can talk about, generates both better tolerability and better efficacy, that's like a game changer in this field from my perspective. But to be clear with you, our base case, our reason to believe is really just around better tolerability, though we have built and powered the study for better efficacy as well.

Okay, great. So ATLAS was open label, but maybe just elaborate a bit more on what you've observed that makes you confident in that lung function benefit. I think there's some HRCT imaging data that was particularly interesting.

So when I think about the historic data that we have in the program, there's not just one data set that points me in the direction that I just There's multiple. So let me tell you what I mean. In ATLAS, we measured IPF patients over one year. We saw stabilization of lung function. We measured two different cohorts of patients in an open-label context, a second group with IPS and a third group with the non-idiopathic form of the disease, which is called PPS, and we see the same stabilization of lung function on average in all three cohorts over one year studied separately. We also rolled patients over into an open-label extension. Last I checked, we still had 23 patients in our open-label extension years later, and they're still stable on average as well in their lung function, which is remarkable. There's a responder bias there, right? So we don't want to pretend there's not. But the fact that we have any patients to study five, six years into the course of the trial is remarkable. Given what I told you earlier, survival in this disease is three to five years. And these patients were on average diagnosed two years before they came into the study. So if we have them to study for five or six years, they're actually diagnosed for seven to eight years. And, again, they're still stable. They're way outside the survival curve. So really exciting because it speaks to, I think, what we can do for this disease, which is not only change someone's lung function over a year, but hopefully keep them on therapy, keep them stable over their long term. And then finally, Judy, you asked about imaging. So we do have imaging data. I think this is a really interesting area of our field. We're able to actually take high-res chest CT scans. Those are done routinely for diagnosis in the field. And we can look at them, the change in the level of fibrosis in the patient's lung over the study. So we did that in ATLAS, the study you mentioned, and we see a really remarkable finding, which is 70% of patients on the high dose from that ATLAS study were either stable or they actually reversed in their fibrosis and their lungs on imaging. We can see the anatomical change, and we can quantify that, which we have, and it correlates with lung function. So, again, something that we're not used to seeing in this field because lung function is our primary endpoint typically, but we've never really had this correlation exist. And so in this study and in the data set, we do see the correlation between FVC, which is a lung function, and QLF, which is the imaging. So really exciting. I think it speaks to hopefully the potential for imaging in the future to become a more important endpoint for us. Lots of AI and imaging as well, which is cool.

And then just kind of getting back to, you touched on it, but the safety and tolerability profile, maybe talk a bit about the AE profile and discontinuations in ATLAS, you know, this tends to be a concern across some programs in the space. So what do those look like in ATLAS? And, you know, you mentioned the patients that are still on drug, but relative to other programs.

Yeah, so you see the same AEs with the inhaled profenidone that you do with the oral, but it's at much lower rates. So nausea, typically you're going to see 30, 40% nausea. In ours, it's more like 10, thereabouts. And the grades of the AEs are much lower as well. So much more moderate or much more mild, really, AEs rather than something more moderate or severe. So a vastly improved tolerability profile. Notable especially because patients in ATLAS were actually sicker than patients that had been in those oral pivotal studies. So longer since diagnosis, lower lung function on enrollment, et cetera. So notable to see that kind of tolerability benefit. And then, as I said, the fact that we're able to keep them in an open-label extension really, I think, speaks to the durable profile. Right.

Okay, so maybe moving into the 2B program, MIST, which you announced that you completed enrollment in a few months ago. So maybe we just start with the study design and we'll dive in after that.

Yep. So we're doing a large global phase 2B study now called MIST, really designed as the first pivotal. And it's a 52-week study. We needed to do dose ranging to satisfy the agency. So we're looking at two doses versus placebo over the 52 weeks. And it is quite traditionally designed very similar to neuroendomalast in terms of the endpoints. I think the primary difference versus neuroendomalast, which is the newly approved agent from BI, is that we're allowing patients to come into that study on background therapy, but otherwise very similar. Important to say that we're studying here PPF. So PPF is a non-idiopathic form of the disease. It's called progressive pulmonary fibrosis. And we've learned to study it correctly in the clinic. And what I mean by that, and thanks to our friends and colleagues at Borenger-Engelheim, PPS by nature is more heterogeneous in terms of its rate of downward decline in lung function typically. So BI learned to control for that by establishing a set of inclusion criteria in the PPS studies. So what that means is when we enroll someone in one of our PPS studies, we look at their historic rate of lung function decline, and we want to pick patients who are declining historically, analogous to how IPF patients decline. As long as we do that, you really see that the data between IPF and PPS in these studies is superimposable. So we're doing that. We're using those same criteria that BI did with Neurondomolast and with Nintetnib to pick the right patients to study in this PPS trial.

And then, you know, kind of the natural follow-up to that tends to be oral profanidone is not approved in PPS. So just because, you know, connecting, you know, your trial design to confidence that profanidone will show a benefit in PPF.

Oh, sure. So we do have clinical data in PPF, I mentioned earlier, one-year data on drug in an open label, as well as long-term data over years. But important to say, profanidone is an interesting situation because for those of you that have a few gray hairs like me, you might remember, profanidone was actually originally developed by Intermune and Solder-Roche. So when Roche bought the molecule, they just didn't do any life cycle management. I think they didn't have a ton of time left on the patent. And so they didn't study it in PPS. But three academic centers did look at oral profenadone in PPS. And hopefully when I say there were academic studies, you know what that means, Judah. So you know that means that they were designed unusually and so often had primary endpoints that are not the ones that we in industry would use. So an example of this, there's one study done that used home spirometry, home lung function, as a primary endpoint. Well, homospirometry doesn't work. So the study failed on the primary. But in that paper, as well as the other two, all three academic labs did collect the office-based FVC, which is what we would have as a primary endpoint. And in all three cases, you see that the drug treatment arm is affected pretty dramatically when you dose someone with oral procentedone as compared to placebo. So strong efficacy data from that situation as well. And then finally, I'll say, we've noticed something in our imaging work, we talked about imaging, where it appears profanidone, when we look at the images, we see profanidone playing a particularly strong role in a part of the fibrotic pathway that's called ground glass. That's the earliest part of fibrosis, where active inflammation is becoming fine fibrosis. And profanidone, from a non-clinical perspective, appears to be both an antifibrotic and an anti-inflammatory. So interesting that it's playing a strong role in this part of the pathway that is really relevant to PPF. So patients with PPF come to the disease because many of them have either some serious environmental exposure or most of them have an underlying autoimmune disease. So, I mean, this is hypothesis now, but I think what's going on there is you've got someone with RA, for example, where the RA drugs that they're on systemically are probably not adequately covering the disease in the lung. So they start to develop an expression of the disease in the lung that manifests into what's called RA-ILD, so RA-derived interstitial lung disease. You start to see the antigen being expressed. You see a lot of inflammation, and that inflammation in about 40% of those RA-ILD patients becomes fibrosis. So a really interesting finding, because profanidone may well play a really strong role in PPS, maybe even over and above what it does in IPF because of the role of inflammation in the PPF lung, which is a little bit different from IPF.

That's great background. And then you mentioned allowing for background treatment in MIST. So maybe just remind us which background treatments would be allowed, and does that introduce any risk to the study in your mind?

Sure. So in MIST, which is our inhaled profenidone phase 2B study, we're allowing patients to come in on background nintetinib, oral nintetinib, or background oral neurondomalast. And, no, we don't think it introduces any risk, actually. So this is maybe inside baseball, but I'm happy to get into it with you, Judah, in the audience. If you look at the neuroendomalase data, it appears that patients who are coming into these studies now who are on background are actually sicker than patients not on background. So in that neuroendomalase data set, you'll see the placebo rates of decline when patients are on background is actually more profound, larger than the non-background. And the drug really works equally across the population. So said differently, we actually think that allowing patients to come into the studies on background is actually enriching the studies for lung function decline because these are now the older, sicker patients that need more therapies. So, you know, we do have a cap on background, a 50% cap on oral nitetinib and oral neuroendomalase, but I don't think that's a barrier either. In the neuroendomalase program, they had 42% of patients on background.

Okay, perfect. And then you mentioned kind of the dose ranging being done here. So high-dose, 100 mg BID was evaluated in the Atlas program in Phase I. The low-dose is 50 mg. I believe that's double the exposure of the low-dose in Atlas. Only 20% of patients in MIST are being randomized to that low-dose. Can you talk about the role of the low-dose in your mind and what you're hoping to learn from it?

Yeah, sure. So we actually included the low-dose at FDA's request. So as I said earlier, the study that had been done before I joined the company didn't have a placebo control, and the company did look at two doses. The FDA in this division always wants you to do lots of dose ranging, and so they asked us to do more dose ranging, and therefore we added in another dose. So it's a 50 BID dose to just satisfy FDA. But the study is powered around the high dose. That's the one that worked great in Atlas and that we think is likely the right dose, but the clinical data will give us that final data set.

Okay, great. And with enrollment completed, is there anything you can say on baseline characteristics, maybe how they came out versus expectations, or should we kind of wait to...

Yeah, we'll wait to release that publicly. So we're actually submitting that information in abstract in the next month or so for a conference next year. So we'll release it at a medical meeting next year. But I would say generally our clinical team at our company is led by folks that led the clinical development at Boringa Ringelheim for both nintetnib and neuroendomalast. And so we're using a lot of the same sites and countries. I would expect our patients are going to be similar to the kinds of patients that BI studied in both its nintetinib and neuroendomalase program.

That's my expectation. And you kind of touched on the overall profile that you'd be targeting, but with top-line data expected kind of back half of next year, what kind of range of efficacy would support a commercially differentiated profile? Is it just on the efficacy side of things? you know, I guess that tolerability versus efficacy profile and what you're thinking of it.

Yeah, I'll ask Doug to wait.

I'm happy to take that. So our base case, and we've done extensive market research to really look at tolerability versus efficacy, what really unlocks the value of these products is the ability to stay on the medicine from a tolerability standpoint. So our base case is actually comparable efficacy is the orals, but significantly improved tolerability. And that, of course, extends life, allows patients to benefit from that efficacy. Now, if we see what we saw in our ATLAS Phase 1B data with that stabilization, that's what we would call a grand slam in terms of the upside potential, which were opportunistic, but really what's going to unlock the value. And that's being played out to some extent with the Jascade uptake, is that similar efficacy is the two other orals, but marginally better tolerability and you're seeing that run rate. So I think that's where we get really excited in terms of expanding the market.

I mean, that readout is positive. You know, what could pivotal development look like? You know, how good of a sense do you have on whether a single phase three might be enough here given the unmet need? You know, what kind of direction have you been given or have you gleaned on that front?

Yeah, and so I think I mentioned earlier and I'll say it again because it's important to say MIST is our global phase 2B study, but we did design it as a pivotal study. We powered it as such as well. So my expectation is that, assuming that we have another pivotal to do for approval, that it would be probably very similar to MIST, the ongoing study in terms of design and duration, size. Hopefully, though, as we discussed, we will pick the right dose from MIST and just do single dose versus placebo rather than two doses. That's the only notable difference. Otherwise, design should be very similar. But I would say also, you know, important to mention to everyone, I'm sure you're reading missives from the FDA as we are, and so they are talking these days about single pivotals for approval. I think, you know, our base case plan is a more conservative plan, which assumes that we have another pivotal to do after missed reads out. But, you know, we're happy to go have a conversation with FDA about whether or not there might be an upside to that plan with data in hand, assuming the data supports that conversation, of course. But I think our base case and your base case should be that we'll have another pivotal to do similar to MIST to get an approval for APO1. And then I would say something very similar for APO2. So profenadone and nintetinib as oral drugs are almost identical in terms of their efficacy profile. Also very similar tolerability. One's worse on upper GI, the other lower. But when you test the two agents with market research and docs, they literally test identically in market research. because the profile is incredibly similar. So that leads us to assume that, you know, MIST is pivotal, we think, for APO1, probably something very similar for APO2. So that's our really planning assumption. But if we get the data, we'll certainly refine that, the analysis of the numbers. Okay, great.

So maybe for APO2, since you mentioned it, maybe just recap quickly what we've seen clinically. What are the key takeaways on safety? And maybe specifically PK there is an area investors.

Oh, it's like one of my favorite topics. And so I think I mentioned earlier, and I'll say it again, in this space, pulmonary fibrosis, this is a lung disease. I think a lot of investors get confused or don't know that pulmonary hypertension is not a lung disease. Pulmonary hypertension is a disease of the pulmonary vasculature. This is not that. This is a lung disease. The target tissue in the disease is the alveoli. We actually can look at and measure lung exposure in this disease by doing, as I said, a bronchoalveolar lavage. In that model, we dose healthy patients with an inhaled or an oral, and then we take epithelial lining fluid from patients. With the APO2 program, we've done it at three different time points so that we have a human curve on lung exposure for the inhaled versus the oral. And we can see in that work that with inhaled delivery of APO2, that's inhaled nintatinib, at 4 milligrams as compared to 150 oral, were 27 times better in lung exposure from a CMAX and an AUC basis. So, I mean, honestly, Judah, when we got that data, I cried a little because, like, if you're us and this is what you wake up and do every day and you care a lot about doing something for patients, this is the kind of data that gets you out of bed in the morning. So 27 times better on lung exposure at a fraction of the dose. And from a tolerability perspective, between about 20 to 26 times lower on systemic exposure than the oral. And so we think that plasma exposure difference is what drives what we saw in the clinic in terms of tolerability, which is to say in phase one, we didn't see, at that dose, we didn't see any diarrhea, we didn't see any cough, we didn't see any bronchospasm. I'm going to say it one more time. No diarrhea. Diarrhea is the AE that is synonymous with oral nintetanib. So to have a phase one data set with no diarrhea with nintetanib is really exciting for us. And so we're moving that dose forward as well as a two-big dose by inhalation into phase two. That phase two is underway now, another phase two global study.

Okay, great. And that phase two is in IPF. Are the objectives, you know, fairly similar, you know, versus the profanidone?

You know, this one is a little bit of a different design just because we started at a different point with the molecule when I joined the company. So this one is a phase 2A proof of concept design, 12-week study. But we think 12 weeks is enough. It's important to say we went back and looked at the history with oral nintetinib. With oral nintetinib in their phase 2 and phase 3 programs, you actually see separation of the doses at between 4 and 6 weeks. By 12 weeks, it is clear. And so our view is that 12 weeks is enough to pick the right dose and be able then to get into a single phase 3 to follow. So that's the plan. So this is a 12-week Phase II where we're doing dose ranging of two doses versus placebo. We'll pick the right dose in this Phase IIa, and then we'll move that straight into a single pivotal that will follow.

And then I guess just, you know, with that 12-week time point in mind, are there any bars on safety or efficacy that you'd point to? It seems like tolerability profiles should be clean ideally.

Tolerability, tolerability, tolerability, tolerability. Yeah, that makes sense. And, of course, with the better exposure, it's possible that we'll have better efficacy as well, but tolerability.

Okay, perfect. And I want to make sure you mentioned you have three assets. I want to make sure we touch on APO3, which is that combination of profanidone and intetanib. So I think this is moving into phase one by the end of the year. Maybe just talk a little bit about the rationale for this combination and how your work on APO1 and APO2 support the development for O3.

Yeah, thank you. So APO3 is our combination program of those two assets. So it's a bit of a big idea in this field, but I'm just so excited and so proud that we're the company delivering this. So the big idea here is that every other lung disease, in fact most diseases, we treat using multiple different drugs, multiple different mechanisms. That's true in asthma and COPD where we're routinely using three different drugs in combo as background standard of care. True in pulmonary hypertension, patients are on three, now sometimes four, different drugs as background standard of care. In pulmonary fibrosis, we've only ever been able to use one drug at a time because the orals are also impossible to tolerate. You can't combine two impossible-to-tolerate drugs. There's actually a clinical study that BI did looking at the two together orally over 12 weeks, stunning efficacy potential, totally not tolerable. So the big idea here at Avalon is that if we can solve the tolerability issue, which limits combos with inhaled delivery, which we think we can. We can step patients up to now using multiple mechanisms in their disease. That should do more for them in terms of prolonging survival, in terms of extending their life, in terms of improving their lung function over time than any individual agent can alone. So really exciting. Important to say, too, you know, all the companies are doing, there's other companies out there doing work in IPF and PPS with novel mechanisms. We're delighted for them. We hope some of them succeed because these patients need more. They're all studying their drugs on top of background standard of care, which is profanadone and intetanib. That's what we're working on. So, you know, we can be friends to all and really improve patients' ability to be on background standard of care and then hopefully step up to combos, whether it's fixed combos, whether it's a loose combo of one inhaled and one oral. You know, we're just going to make the future a lot brighter for these patients and these clinicians who need better options.

Awesome. Maybe in the last minute I'm going to take off a mini-survey. We're kind of asking all of our management teams here. So the first is just on China's rise in biotech innovation. How are you thinking about competitive position? Could it influence R&D or business development for you?

I would say from an R&D perspective, great for us to keep our eye on the rise of innovation there for sure. Keep in mind the stuff I mentioned earlier about the IP and the barriers to entry will be very difficult for someone else to compete with us because they would have to replicate literally the entire package, so good luck to them. But when I think about China, I actually get much more excited myself about the commercial opportunity there for us. So if you think about the extent of we have air pollution in China, that air pollution is an environmental exposure. Guess what that turns into, Judah? That becomes pulmonary fibrosis. So I would expect here with smoke inhalation in the west coast of the U.S., with air pollution in different parts of the world, with climate change, unfortunately, we're going to see more fibrosis, not less.

Okay, great. And you touched on, you know, AI and its utilization in imaging. I guess anywhere else within the business that you could see some disruption from AI?

I mean, again, I get real excited about AI as it applies to our business because of imaging. So AI, we're able to not only now image the fibrosis, which I talked about earlier, but there are companies that now are starting to be able to image airway volume and the vasculature. And so, you know, as we understand PF better, we start to see the different components of the disease start to play a role. We can really now start to hopefully pick the right patients to study and study the right patients from the get-go to make a difference for them. So exciting, I think.

And last one, just on regulatory, whether it's, you know, FDA, which seems like it's been pretty stable in terms of interactions there, MFN pricing, anything on the regulatory front that kind of keeps you up at night?

Not keeps me up at night. I mean, regulatory, we're at a clinical stage company, so FDA certainly is something that we think a lot about and spend a lot of time working with. But, you know, we consider them a partner, and we try to do right by them and by the patients that we're trying to help.

Well, thanks for being here, guys.

Thank you for having us. Thanks, everybody, for coming.