Good morning, everyone. Yatin Suneja from Guggenheim. I'm one of the Biotech Analysts here. Welcome to our Emerging Outlook Biotech Summit 2026. Our next presenting company is Avalo Therapeutics, and it is my pleasure to host this fireside chat with the Chief Executive Officer, Garry Neil. Garry, why don't you make some opening comments? Obviously, a pivotal year in the sense that you're gonna have a pretty major readout coming up relatively soon. So orient our investor in terms of how you are thinking about that, what we should be focusing on. And then I have prepared a few Q&A for you, and I will go into that. Sure. Well, thanks for inviting me today, Yatin. Yeah, we're—it's an exciting year for Avalo. So we're planning to release our phase IIb data in the second quarter of this year from our LOTUS trial, which has been going really well. I'm very proud of the team and all that they've done to keep this trial on track and to execute it so expertly. It's an over 250-patient trial, looking at two doses of our lead compound, AVTX-009, which is a very high-affinity anti-IL-1 beta monoclonal antibody, and the trial is in patients with moderate to severe HS, and is placebo-controlled. So again, we expect to have those data coming out in the second quarter and move quickly as we can into phase III beyond that and bring this drug to market. Got it. Very helpful. Then, if we touch on the biology of IL-1, sort of broadly, right, alpha, beta, and then the receptor, like... So, what was the key hypothesis for you to go into this phase III development? Talk about that. And then just review for us, like, what we have learned from whether it's lutikizumab or other approaches, and then why just the beta-specific approach is the way to go. Yeah. Well, and we need to make a distinction between IL-1 alpha and beta, and I'll come back to that, which they do share some sequence homology, and they're both called IL-1. Mm. They do bind to the receptor, same receptor partially, but they have very different roles in the cell. And in any event, IL-1 beta is the principal driver of inflammation in HS, and you can measure this both at the genetic level and protein level. There's nothing else, no other inflammatory marker driver in these lesions that is found in higher concentration than IL-1 beta. Mm ... by far. And then, if you look mechanistically at what it's doing in these lesions, these lesions are abscesses. There's an initial inflammation, destruction of the hair follicle, formation of abscesses, which can be initially superficial, then much deeper, develop tunnels, and develop fistulas for draining. Many of these patients have many, many lesions. We've seen patients with over 100 of these lesions on their body, sometimes covering large areas of sensitive skin. And the driver of all of this, through the IL-1 beta mechanism, is attraction of neutrophils, release of toxic enzymes by neutrophils in response to the inflammation, things like the matrix metalloproteinase system, which is turned on, which destroys the hair follicle, produces the abscess, more infiltration of macrophages, neutrophils, and other cells, keratinocytes, producing more cytokines. Downstream from... And IL-1 beta is drawing in these cells into this abscess, which then becomes pus under pressure. It's also responsible for driving the macrophage ingress and production of TNF alpha, which is, of course, an important cytokine in its own right and a driver of inflammation in the lesion. It also turns on the Th17 system, so it's producing IL-17. And I mention those specifically because they're both validated targets with drugs on the market that address suppression of TNF and IL-17, but it's important to recognize IL-1 beta is upstream in driving that. This is why it's such an important target and why we felt very, very excited about the opportunity to use our AVTX-009 in this particular disease, because of its high affinity, getting more penetration, more neutralization of IL-1 beta than any other drug could achieve. Got it. So I think, on the pharmacological level, I think we know that alpha alone, which is bermekimab, does not really work. But is there enough biology to tease out that alpha is not doing anything? Like, what is the role of alpha in this disease? Yeah ... if there is one? So as I said, I mean, there, there's about 25% sequence homology between- Yeah ... IL-1 alpha and beta. IL-1 alpha, though, is expressed in a completely different way in different cells. It's constitutively expressed. It It functions as an alarmin- Uh-huh ... and it's expressed in every normal epithelial cell in the body, whereas IL-1 beta is a product of the inflammasome, which is only produced in situations- Got it ... of chronic inflammation. So the job of IL-1 alpha is to respond to epithelial cell injury, usually attracting in cells which will induce apoptosis and clean up the lesion. Mm-hmm ... and also responsible for regenerating epithelial cells and wound healing. It really has a very limited or no role almost in chronic inflammation. You see that on biomarkers, you don't find any increase in IL-1 alpha over normal tissue. It is there, but you don't find any increase in patients with any skin lesion really, especially HS. Also, you mentioned the bermekimab experiment that J&J did. So J&J licensed in a potent anti-IL-1 alpha drug from XBiotech, and took this drug, bermekimab, into HS patients, a very well done, well-controlled study, even had a positive control with Humira in it, and that drug really showed no drug effect whatsoever on HS lesions. So I think it lays to rest the idea that IL-1 alpha is doing anything important. We noticed that, even when. Because, I mean, the comparison is drawn by the fact that AbbVie's lutikizumab, which is a bispecific antibody that addresses both IL-1 alpha and beta, is in phase III for HS. But when they talk about it themselves, they only really talk about the IL-1 beta effect. So I think it's pretty well accepted that IL-1 beta is the driver of inflammation in this disease. Got it. What about some early development, and some other recent where, you know, where we have seen IL-1 receptor-targeted drugs or even the recent Novartis, IL-1 beta and IL-18 bispecific? Yeah. So you, there's mixed results there. I mean, you have results, but most of it is strongly supportive of neutralization of IL-1 beta- Yes ... associated with improvement in the disease. You have some smaller studies with anakinra, for example, which addresses the IL-1 receptor and showed some benefit. It's not a practical drug to use, since it has to be given once a day. Probably would be more beneficial even if it was used more than once a day. Mm-hmm. And canakinumab, which is an IL-1 beta blocker like ours, but much lower affinity, has also shown some effect. But when you get into drugs like the AstraZeneca drug MEDI 9868, which is an IL-1 receptor antibody, they didn't show any activity with that drug. Yeah. And why is that? The characteristics of many drugs that don't address the ligand, which is what you really want to get after if you want efficient neutralization, which we do, that is IL-1 beta. If you block the receptor, you end up with the potential for only partial antagonism. You're only blocking unoccupied receptors. You get, actually, at certain concentrations, partial agonism or even full agonism of the receptor by cross-linking. So they're much more difficult drugs to dose adequately and to achieve a good effect. But I'm not really surprised that that drug was not effective in HS. There are a few examples of successful anti-receptor antibodies out there, but that's not one of them. So again, it's a much safer, more scientifically rigorous way to address the lesion by neutralizing the ligand. Got it, got it. Any view on the MAS825, the IL-1 beta and 18? Yeah. So this, this was an interesting experiment that Novartis did with a bispecific antibody that hit IL-18, which we don't think is again a very important target- In this ... in HS. And the other end of it, it appears, looking at the patent that they published, that they had ILARIS as the IL-1 beta neutralizer- I see ... part of that antibody. And they had a positive effect in HS, again, validating the hypothesis. We think that was all driven by IL-1 beta. But it was less effective than lutikizumab- Yeah ... or than we expect to be, and Novartis decided not to take it forward. Well, why is that? They haven't released any data on the pharmacokinetics of the molecule, but given that it's a bispecific, we'd expect it to have a much shorter half-life than canakinumab. It was dosed once monthly for most of the experiment, which I think would not be adequate dosing for an antibody like that. The canakinumab has a much lower affinity for IL-1 beta, and so you would have expected that you might have needed a higher dose to be able to... and certainly more higher dose frequency to achieve the optimal result. But despite all of those limitations, actually they did show benefit. So we take it as a positive proof of concept for the IL-1 beta mechanism, even though I think there are some obvious deficiencies of the antibody. Got it, got it. So let's now go to lutikizumab before we go into your program. I mean, obviously, AbbVie has produced data in two separate studies. In both of the studies, this drug was successful and showed some pretty encouraging results. What were your key takeaways? What is your view on the dose response there, if there was any, between the weekly and the every other week? And then we go into your study, the LOTUS study. Yeah. So we were very excited by those data when they appeared in 2024, just about the same time we were embarking on our program. And lutikizumab, again, is a bispecific that targets both IL-1 alpha and beta. The IL-1 beta portion of the molecule, which is the active portion, we believe, is at least 10-fold lower affinity than our antibody, but still very effective. And they showed remarkable results in that they had, with both doses, a superior effect over placebo. They used 300 mg. I should explain that, 300 mg either every week or every second week, and both of those doses, we believe, are on the dose-efficacy plateau. So, we wouldn't have expected there to be any significant difference between them, and indeed, there isn't, even though there's a numerical difference. Yeah. AbbVie has chosen, it appears, to go into phase III with the higher dose, 300 mg once a week, based on that. But what was really remarkable about that experiment and the results of their trial was that 100% of the patients that they treated were Humira failures- Yeah ... so TNF alpha blocker failures, and 71% of them were early stage 3, which is a much higher percentage- Yeah ... of patients with the severe end of the disease than anyone else has studied. So it was a very remarkable experiment. We again, looking at the known pharmacodynamics of monoclonal antibodies, there isn't really a U-shaped dose response curve in this. So you just have to take those two doses. We've combined them because, again, they're both on that efficacy plateau- Mm ... and averaged them out, and we thought it was a great result. We thought we have a chance to do even better because the affinity of our antibody, again, is tenfold higher than theirs, and it doesn't have the disadvan-- it has a longer half-life- Yeah ... because it's not a bispecific. And in the case of lutikizumab, the binding to IL-1 alpha can be a disadvantage theoretically because you are going to be targeting with the other, the second binding domain in that antibody, all of this vast normal IL-1 alpha distribution throughout every, every cell in the body, which is going to obviously soak up a lot of your antibody that wouldn't be available to get into the lesion. Got it. Got it. Got it. Very good, helpful. Then on to the LOTUS study. Obviously, you over-enrolled the study. Yeah. Can you just touch on your trial execution? What are you doing to make sure that from an execution standpoint, you are able to get the patient population and the placebo remains in a particular range? Yeah. So again, we're studying moderate to severe- Mm-hmm ... HS patients. It's a three-arm study. We're studying two doses of AVTX-009, and we're using a pretty big loading dose in both of those doses. So one arm is 600 mg loading dose, and 300 mg every four weeks. Again, we have a longer half-life than lutikizumab. The other dose is a 300 mg loading dose with 150 mg every two weeks. So we're really comparing similar exposures, but different dose intervals, and these are against placebo. We originally powered the study to show a 25%, difference from placebo- Mm ... using a placebo. The in HiSCR75, the placebo range has been fairly tight in the 13%-18% range. Yeah ... one or two exceptions. We planned on a, initially a placebo rate of 20, so we gave ourselves a little bit of extra flexibility in doing that. We upsized the trial. We saw that we were getting a lot of patients that we were allowing into the trial who'd been both, or either a TNF alpha failure or an IL-17 failure, and so we wanted to make sure that we had enough power to be able to compare our drug in both naive patients and patients who had failed or were experienced with these drugs. And so we upsized the trial from 180 patients initially, where it was 80% power, as I mentioned, up to 222, and then we did allow over-enrollment. We had a lot of patients in screening. It was a pretty popular trial. So we ended up with something over 250 patients in the study. So we are overpowered for what our initial assumptions were. Got it, and then could you characterize the baseline for these patient populations? So you touched that maybe there are the... You might have more patients that are bio-exposed than other studies. Yeah. It's very similar to what others have studied in the field- Mm ... with the exception of that phase II study that AbbVie had undertaken in that they're all at least five active lesions- Yeah ... early stage 2, 3. And if you look at the weight, body mass index, age, duration of disease, they're all very similar to what's been reported by others. The one exception is, though, because the IL-17s, UCB with Bimzelx and MoonLake with sonelokimab- Yeah ... they did not allow 17 failures in. Yeah. So we'll have more biologically experienced patients than they did. Probably in the order of about a third of the patients in our trial will be biologic-experienced patients. Other than that, I think they'll be very comparable. I mean, does having more biologically exposed patient helps you with placebo? I mean, they should have, the placebo should not work in those patients. Yeah, it's interesting, when you do the analysis across other sponsors' trials, povorcitinib, for example, and Bimzelx, you don't see much of a difference in placebo rate or response rate to biologics. And there were some IL-17 failures in the povorcitinib studies as well. So we don't expect it's gonna make that much difference. If it does, it might slightly improve things on the placebo side. Got it. In terms of geographies, are there any areas, countries that you're not going in or avoiding? Yeah, so the bulk of our patients are coming from the United States and Canada. We also have sites in Australia and in the larger developed countries in- Mm ... in Western Europe. There are a few sites in Eastern Europe, in Slovakia, Poland, Bulgaria, but I think we've concentrated on the more medically developed parts of the world. Got it. What about safety? What are some on-target safety consideration for this mechanism? Yeah. Well, IL-1 beta is an important driver of the innate immune system, and it protects against bacterial infections. So when you block it, you do expect to see some increase in bacterial infections, which are usually fairly simple to deal with and can respond to antibiotics. The other known effect of IL-1 beta blockade is a reduction in neutrophil count. But I should point out that it's rare for the neutropenia to occur that's greater than grade 2. And in HS patients, it's even much less common because these patients have very, very high neutrophil counts to begin with. So we're not really expecting to see safety issues other than that. Okay. Okay, so let's go into a little bit around the expectation. I mean, I know what you have said in the past, and I think even our investors have a particular number in mind, which is about 20% and above. What do you need from a commercial standpoint? Because it's a completely novel mechanism, like, do you need to really beat any of the other drugs that are already approved? Yeah. Yeah, novel mechanism, and we're thinking we're going to have a more patient-friendly dosing interval as well, if we can get up to four-week dosing, which is what we are testing. But it's interesting when... The market's been conditioned kind of to this 20% beyond placebo- Yeah ... response rate for a number of reasons. I think it's a little bit arbitrary. If you look at... Clearly, if you hit that, it would be a clear win for us- Yeah ... no doubt. I mean, if we can get higher than that, up to, say, 25, it would be a home run- For sure ... for us, absolutely. But when you actually look at the market, it's kind of interesting because you see Cosentyx, which just recently announced that they've gone over $1 billion in sales in HS. They have a 10% placebo-subtracted rate, and yet they're still doing pretty well. And you're looking at Bimzelx, which is in the 17%-18% range, and they've had an amazing launch in HS. So it's obvious that there clearly is opportunity less than that. But we think coming in with our mechanism, with our drug, a 20% would be a clear win for us. Got it. And then is the LOTUS Study a pivotal like quality study, or it still is a phase II? It's a phase IIb study. Mm. So it's not really a pivotal trial. We plan to do two pivotal trials, phase III, after we get our data and talk to the FDA about it. But certainly, it, it's large enough and well conducted, well controlled. It would serve as supportive for any application for a BLA. Got it. I mean, if we see the development for lutikizumab, I mean, AbbVie is really going into many areas. I think the program- Yeah ... both phase II and phase III, is very broad. How are you thinking about the next steps, next other indication? Obviously, that will be after this, the LOTUS Study, but how conceptually you are thinking? We're really excited about this because we have, again, such a potent molecule against IL-1 beta, which is important in a number of different diseases. We've done a number of biomarker studies on our own to sort of document and pinpoint those. But you have big opportunities in dermatology across the spectrum, in rheumatology, and in GI. AbbVie are studying both rheumatoid arthritis and Crohn's disease, with readouts coming later this year, combination therapy. We're very interested in that, and again, we feel with a higher potency antibody and longer half-life, we may have some advantages, so we're gonna look at that. We're also looking at our own rheumatology program and looking at other opportunities in the adjacent dermatology space, and we'll have more to say about that when we release our data. Got it. Outside of HiSCR data, I think the quality of life, pain, and other biomarkers do matter, and I think that's a big quality of life issue for some of these patients. What is your view on the benefit of IL-1 beta on some of these other endpoints? Right. So one of the thing that bothers patients the most, other than the cosmetic and social issues that they face, is pain. So this comes up over and over again, and we feel with a potent anti-inflammatory, I mean, and one of the cardinal signs of inflammation is pain, that our drug's going to be effective, and we're certainly measuring skin pain as well as quality of life. It's worth noting that there are direct IL-1 beta receptors on neurons in these lesions, and even on the dorsal root ganglia, and there's lots of experimental evidence in rodents and other animal models showing that IL-1 beta blockade can relieve pain. So we're gonna look carefully at that because that would be a big advantage for the patient. We're also looking at time to achieve improvement for these patients. We think with the loading dose and the rapid onset of action of an IL-1 beta blocker, we might be able to do something there as well from a differentiation point of view. Got it. All of that will impact quality of life. Got it. In terms of the data guidance, what is the official guidance? I think it's the second quarter, right? Yes. But I think the study completed enrollment. I think it was October 29- Yes ... so Yes, yes. Got it. At the end of October, we completed enrollment. It's a 16-week study, so if you do the math, you'll see that the last patients will finish that or hit the 16-week last visit for efficacy in sometime in mid this month. So we're nearly there, and there's a six-week safety follow-up, so the last- Ah ... patients will be out at the end of March. And then you need... The benchmark is anywhere from 4-8 weeks to complete- I see, I see. ... complete the- So there is that six-week follow-up. So when you announce the data, will you just give us the 16 weeks, or would you give us another six weeks so that we can see- We're hoping to have the complete data set- The complete data. ... including the six-week safety follow-up, so. Ah, that's good. So we'll have a little bit more. Right. Is there an OLE for this study? Sorry? Open-label extension for this study? No, there's no, there's no OLE. Okay. Okay, how is the cash position? We reported we had $100 million in cash at the end of the year, and, our burn rate last year was about $50 million, so we have cash to get us through the data point. Obviously, we would plan, to raise additional capital- Sure ... to do phase III. Well, very good, Garry. Thank you so much. Thank you.