Hello, everyone. My name is Mitchell Kapoor. I'm a senior biotech analyst at HC Wainwright. Welcome to our HC Wainwright Inflammation and Immunology Day. Today, I have the pleasure of welcoming Avalo Therapeutics and, from the company, I have joining me Garry Neil, the Chief Executive Officer. Garry, thank you so much for joining us. Thank you, Mitch. It's a pleasure to be here. Great. Just to kick us off, you know, always helpful for those who may not be familiar with Avalo to level set and give an overview of the story and where you are today. Right. Thanks very much. We are a relatively small company outside of Philadelphia. We trade on the Nasdaq under the AVTX symbol. We're developing a lead compound, AVTX-009, which is a human anti-IL-1β monoclonal antibody with the potential we feel to be best in class and even best in disease in hidradenitis suppurativa, or HS, as it's commonly known. There's a really significant unmet medical need in HS, and the market is growing. In a lot of ways, it appears to be sort of recapitulating the psoriasis market, maybe the IBD market. It's a very, very severe skin disease. We compare ourselves a little bit to AbbVie's ladakizumab, which is an IL-1α/β. The reason we do is that that drug, about a year ago, demonstrated really remarkable data that was comparable or better to market leaders in a very difficult patient population. I'll explain a little bit more about that as we get into it, but it really showed that the IL-1β mechanism appeared to be very, very effective in patients that are very severe or have very severe HS. Although that antibody is a little different than ours, it's a bispecific and is a lot less potent than ours, we still feel that there's some lessons to be learned. Our antibody is, again, a pure IL-1β, and it has very, very high potency. Again, we know that IL-1β is the key regulator in HS, so we're very, very confident about the mechanism of action. Our drug, as I alluded to, has about a 15-fold higher affinity and a longer half-life than the AbbVie molecule. Right now, we're in phase II with our Lotus trial. It's a phase II-B study, proof of concept, which we'll be reading out in mid-2026. Again, very attractive market for this. We hope to transition rapidly into phase III, and AVTX-009 has the potential to treat additional immune-mediated inflammatory diseases, a number of them, that we can get into a little bit. Importantly, we've got the cash to complete the trial. In fact, we've got an expected cash runway to last us into 2028. We don't have a lot of financial overhang on the trial right now. Great. Wonderful. Starting from the top, could you just give us kind of the current state of HS? It's evolved a lot recently with the IL-17 AF inhibitors. Can you talk about how effective are these emerging therapies that are coming to the market, and what is left to be desired with the new modalities like IL-1 beta? Yeah. Again, it's a very severe disease, a lot of pain, a lot of disability. I think we're really looking for new and better therapies. It was a bit of a medical curiosity almost to most physicians and to most patients just a few years ago, but it's really exploded as more effective therapies have become available. We're seeing that more effective targeted anti-inflammatory drugs can be much more effective than the traditional way of dealing with it, which was either topical or systemic antibiotics. The disease primarily affects women and often women of color. It goes along with several risk factors. About 30% of these patients have a family history, so there appears to be a genetic component to it. It's often associated with smoking and obesity. Those two factors also contribute to some comorbidities that these patients have that we need to pay attention to on the safety side. I'll come back to that. The newer drugs are much more effective. There's much better recognition of the disease. This is exactly what happened with psoriasis, with the proliferation of new therapies and better awareness by patients. There was almost an explosion in the use of treatment, earlier treatment, more aggressive treatment by dermatologists who are trying to prevent more severe disease. That's happening here as well. A lot of hope for patients out there, but there's still a big unmet need. Great. Could you talk about AVTX-009 and the differentiating factors of IL-1β versus other IL-1 α trategies? Yeah. When we look at this disease, there are a number of very important anti-inflammatory drivers of it. The disease starts at the hair follicle. It may be disrupted by mechanical issues and smoking. There is inflammation and ultimately destruction of the hair follicle. We know IL-1β is playing a huge role in that initial process in these patients, along with some secondary infection. As the disease progresses, the lesions become deeper. There is an abscess that is formed. In some cases, these abscesses will tunnel their way up to the surface and will be extruding pus onto the patient's skin. In some cases, they will connect under the skin, forming tunnels. The disease gets deeper, more and more debilitating, can cause severe scarification, and a lot of pain for the patient. In all of those processes, IL-1β seems to be playing the pivotal role. Levels of IL-1β in the lesion are elevated more than 100-fold, for example. That is higher than other cytokines that we see in the inflammatory lesions themselves. We do know that IL-17 is important, IL-17, as well as TNF. There are, of course, approved drugs against both of those cytokines. Interestingly, IL-1β is an important upstream driver of both TNFα as well as IL-17. It is playing a role there as well. IL-1β also directly turns on the matrix metalloproteinase system as part of its innate immune response. That actually destroys it. It causes destruction of collagen matrix and breakdown of skin and further exacerbates the destruction of the hair follicle, the abscesses, and the tunnel formation. That makes IL-1β a particularly attractive target as the disease progresses, as well as in the early stages of the disease. We think we can have a more comprehensive therapeutic program for patients by targeting IL-1β. Great. Okay. In terms of the data we've seen both with AVTX-009, but also contextually in the landscape with brimekizumab and ladakizumab, could you help frame what is risk mitigating about IL-1β and how it's driving disease? Yeah. I'm glad you brought up brimekizumab because we often get asked the question, "Are you leaving efficacy on the table because you have a pure IL-1β blocking monoclonal antibody and you're not addressing IL-1α?" We don't think that at all. We think it's a real advantage to be targeting specifically IL-1β. I bring this up in the context of brimekizumab because for those that aren't familiar with that story, brimekizumab is a pure anti-IL-1α monoclonal antibody that Johnson & Johnson licensed and tested in HS and basically abandoned for futility since they had no efficacy in their trial. Getting back to the story, IL-1α and β are sister cytokines. They both bind to the IL-1 receptor. IL-1α has a very unique profile. It's expressed in every epithelial cell in the body, that's skin, lung, and gut. It has enormous distribution. The levels really are not elevated in HS or other inflammatory conditions. It exists as kind of an alarmin, which signals to the body that an epithelial cell has been injured. One of its main roles after that happens is to turn on the NLRP3 system, which releases IL-1β. IL-1β then becomes the driver of chronic inflammation. IL-1β levels are not elevated all over the body. They rise in the context of inflammation and injury. They are more pertinent to therapy because you're only going to find elevated levels of IL-1β at the site of the inflammation. I think that's why brimekizumab ultimately did not work because IL-1α is not playing a role in the chronic inflammation. Not only that, I think the thing I worry about if you target IL-1α is you're going to be drawing your therapeutic into normal tissue throughout the body and really away from the inflammatory site. In a way, you're going to be diluting your effort. Now, the ladakizumab is a bispecific IL-1α, IL-1β. For the same reasons I've just said, we don't think the IL-1α component of it is contributing anything to the efficacy. It may be a little bit detrimental by drawing antibody away from the site of inflammation. We think the IL-1β, and that's the way we hear AbbVie talking about it as well, the IL-1β binding capacity of ladakizumab is really what's getting the job done for them. In our case, because we are a pure IL-1β play and because we have so much higher affinity for the target, we're going to get better penetration into the lesion. We're going to get much more neutralization on a molar basis. We also have a much longer half-life and higher bioavailability. With a longer half-life, we're going to get more sustained effect, better dosing regimen for patients, and just a better overall result, we believe. Yeah. We find that very helpful because that's something we highlight to investors is that brimekizumab didn't really work, but ladakizumab, IL-17 alpha and beta, had good efficacy. That's risk mitigating because it suggests that IL-1β is driving efficacy and ahead of your data. That's something that investors can kind of concentrate on. Completely agree. We appreciate that. Yeah. Thinking about looking forward, the phase two trial design, could you just talk a bit about that and then compare it to, for instance, like sonelokimab's trial design, just to show how we can compare data across different trials with the endpoints, HiSCR-75, but also 90 and 100? What measurements are we going to see out of that? Yeah. Our trial is actually pretty close to the Moonlake sonelokimab phase two trial, as you point out. We have two doses of active drug versus placebo. We're studying now. We've modified the protocol a little bit recently to relax the enrollment criteria. Like Moonlake, we're taking in all comers irrespective of whether they had prior biologic experience. We're expecting to end up somewhere in the one-third biologic experienced range when all is said and done. It is moderate to severe patients and very similar entry criteria to what Moonlake has. They should be very comparable, 16-week trial duration with a six-week safety follow-up afterwards. The two doses we're testing, we're looking at, we are using a loading dose, which is different. We have a 600 mg loading dose followed by a 300 mg once-monthly dose for the 16 weeks. The second arm is a 300-milligram loading dose, 150 milligrams every two weeks, again, over the 16 weeks. You end up with similar exposures, but just a different dosing intensity that we're testing in the trial. We are using HiSCR-75 as the primary endpoint, something else that Moonlake did. We see the whole market shifting in that direction because it's a much more clinically relevant endpoint for patients and for physicians, and then all the standard secondary endpoints. Great. Okay. For the data readout in 2026, can you help us frame expectations in terms of what we'll see from the dataset, how many patients, and what would be considered a positive for Avalo? Yeah. So again, we powered the study. It's powered at around 90% to show a placebo-subtracted efficacy rate of 25% or even 30%. 25% would put us right in the range that AbbVie had in their study. But our population, as I've just outlined, is not as severe as the AbbVie population that they studied in phase two. It's similar to what AbbVie is now studying in phase three, by the way. But AbbVie looked at patients that were 100% TNFα failures. And about 71% of those patients were early stage three. So a much higher proportion of severe patients. Those are both really headwinds in the study. But despite that, they got 25% Placebo-Subtracted efficacy if you average the two active doses. And so we powered our study there. It is also powered on the downside in case, just as a safety measure for us, if you like. It is powered at 80% to show a difference as low as 20% in the study. We think it is nicely powered. Great. Okay. In terms of, well, placebo, we've had questions on placebo performance in HS trials. Could you just walk us through how you would expect placebo to perform and what might cause that to differ from what we've maybe seen across other trials? Yeah. This has been fairly extensively studied, and there's a fairly tight range of placebo responses in the HiSCR-75 group of patients ranging anywhere from 13% up to 18%. In our powering assumptions, we've gone as high as 20%. There have been a couple of outliers in there, but it's a fairly tight band. We expect we'll be in the same range with similar patient demographics. We are studying patients in the U.S., Canada, Australia, and Europe. We haven't gone anywhere exotic. Again, we're looking closely at the demographics. We think that we're going to be fairly close to what's been seen in phase two and phase three studies that have been done to date. I'm not really expecting that we're going to see anything really outside the expected range within placebo. We are expecting to have a robust treatment effect, though, as I said before. Okay. Assuming everything is positive and the phase II advancing to pivotal trials, could you talk about what that might look like, how many patients, number of trials, what would be a comparator? Would you have a placebo crossover? I guess, would you follow kind of what Moonlake is doing there as well? What are your thoughts on that? Yeah. There's a fairly well-established pathway now going forward. Of course, we'll have to discuss all of this with FDA. We expect to have enrollments going really well in our trial right now. We're right on time, right on track to be able to deliver data, top-line data in mid-2026. Once we have those data, we'll be done talking to the FDA and hoping to get our phase III trials going in 2027. Most companies have taken a couple of years to complete their phase II. I think we should be in line with what others have done, if not a little better. We should be in a position to file our BLA then in about 2029 if we get started in 2027. That's kind of what we're thinking right now. Okay. Can you just discuss the market opportunity for another modality in HS? Do you need to be comparable to IL-17, first of all? Even at just being comparable to IL-17, would you expect that this would allow for another tool in a physician's tool belt given the broad market opportunity? Yeah, absolutely. Right now, there are two major classes of drugs that are approved, TNF alpha with Humira, and then the 17s. You have Cosentyx, which is a 17A, and now you have Bimekizumab, which is a 17AF, and Moonlake coming up fast behind, also in the 17AF category. Physicians are looking for more choices. There's been a tendency for them to move a little bit away from TNF alpha. There's some concerns about the side effect profile and the durability of the response. Cosentyx is a drug that they have a lot of familiarity with, and they're comfortable using that first line. They're still looking for something a little bit better, even though it does appear to those patients that do respond appear to be durable, but it's less than 50% of the patients in total. When you look at the data from Bimekizumab, they're having a fantastic launch. The efficacy appears to be a little bit better, again, a durable response. This comes at a bit of a price. There are some complications that occur with the use of the 17s. We're well familiar with them. A lot of these patients develop a rash. Some of them can have reactivation or new-onset IBD, but there is a higher incidence of that in this disease. Some of them can get candida esophagitis. On the safety side, they're looking for something a little bit different to manage these patients, but they're also looking for more efficacy. Among the mechanisms that we've talked to dermatologists about, the one that seems to intrigue them the most is the IL-1β. They base that on what they've seen from the AbbVie data and also the fact that you have mechanistically the possibility that we're going to show even better and more profound healing and deeper lesions with an IL-1β, as well as higher efficacy overall in these patients and a more convenient dosing regimen, but a very different side effect profile as well that we think would also be more benign and more attractive to patients and to physicians. We think we'll get a good share of that market. Okay. Great. Another thing investors are interested in for the HS development is carving out a commercial niche in a rapidly growing market. Two components to that. One, I guess, could you talk about how you see a new modality fitting in from a commercial perspective, how that could come to market, and also timing behind these IL-17 ANF Inhibitors that are breaking new ground? Could you talk about your timing expectations to get to market on a base case scenario if enrollment goes well, and then on a bull case scenario if enrollment is exceedingly fast? Yeah. Again, I'd stick with the established timelines for doing two phase III trials. I think that we'd be pretty confident about that. We might be able to shave a little bit off the time. Introduction, again, I think AbbVie will help us by coming out first with their product and establishing the market for IL-1β. They're a very good company to do that. Patients, if you're still only successfully treating 50% or less of the market, which is what's happened in other diseases and with other drug categories, physicians are going to be looking for new mechanisms for those patients. If you've already started a patient on, and we're seeing this trend of them moving more towards 17s as first-line therapy right now, not to say that IL-1β won't become first-line therapy as well. I think it will. If you're using a 17A and you have other choices, are you going to move from a 17A to a 17AF, or are you going to move from a 17A to an IL-1β or a drug in another category? We think for many patients and physicians, they're going to want to look for something that's new and different than what they've already used if that patient isn't getting an adequate response. When you look at the totality of, depending on the data that are ultimately derived from these studies, if you have a superior or at least a perceived superior efficacy standard and also a differentiated side effect profile, that can really accelerate use in the market, even in a market that's well-established with the 17s. I think we're going to do just fine. Our conservative market analysis had the market growing to $10 billion by 2035, but we're seeing some numbers now that I think would tend to support the fact that it could be even greater than that. Great. Yeah. That makes a lot of sense. Okay. If you're successful here in HS, you mentioned there's potential for other indications. Could you talk about where else might make sense for IL-1β in INI? Sure. I mean, if you just look at what AbbVie is doing, and they've made a very concerted investment in ladakizumab. They are studying six indications: Crohn's disease, ulcerative colitis. One of those studies is in combination with Skyrizi. They are looking at psoriatic arthritis, rheumatoid arthritis, and atopic dermatitis. Those are all excellent potential indications for an IL-1β. Beyond that, there are a lot of other diseases too. One of the ones that we like is crystal arthropathy, where conditions like CPPD, calcium pyrophosphate deposition disease, is known to be driven directly by IL-1β. It affects a substantial number of, especially older Americans, with severe and debilitating arthritis. We think that that might be an interesting play where there are no established therapies. In fact, there are no approved therapies at all, let alone a targeted therapy. Having the advantages of an IL-1β with its side effect profile, particularly in an older patient population, I think would be very attractive. Many people may not be familiar with the CANTOS trial, for example, which was a study with another IL-1β drug that Novartis had that they really have restricted to orphan drug use. In a larger study they did in adults with heart disease, they showed that the 10,000-patient study over three years, they reduced new major cardiovascular events on drug by about 20%. They reduced the need for joint replacement by about 50%. Very interestingly, there was a reduction in cancer by about 50% and a 75% reduction in lung cancer, showing the importance of inflammation in IL-1β in a lot of those different diseases. Now, we're not thinking about going after a cancer prevention claim, but just that kind of a safety profile in itself is attractive as you think about a lot of these other indications from a risk-benefit point of view. Absolutely. We agree wholeheartedly there too. Garry, thank you so much for taking the time to walk through the entire Avalo story today. Really helpful. I want to extend a special thank you to all the investors that dialed in as well. Great. Yeah. We are really excited about the program, and thanks for giving us the opportunity to talk about it. Anytime. Thank you. All right. Bye-bye. Bye-bye.