8-K: Allakos Halts Lirentelimab Development, Focuses on AK006 After Phase 2 Trial Failures

Allakos Inc. is restructuring to focus on its AK006 program after Phase 2 trials for lirentelimab failed to meet primary endpoints, resulting in a 50% workforce reduction and a shift in strategic direction.

Summary

• Allakos Inc. announced a corporate restructuring to prioritize the development of AK006 and halt all activities related to lirentelimab.
• This decision follows the failure of Phase 2 clinical trials for subcutaneous lirentelimab in atopic dermatitis and chronic spontaneous urticaria to achieve statistical significance on their primary endpoints.
• The company will reduce its workforce by approximately 50% as part of the restructuring.
• The total cost of halting lirentelimab activities and the workforce reduction is estimated to be around $30 million, with the majority expected to be paid in the first half of 2024.
• Approximately $24 million of the restructuring costs are related to halting lirentelimab activities, and $6 million is related to the workforce reduction.
• Allakos ended 2023 with approximately $171 million in cash, cash equivalents, and investments.
• The company estimates net cash used in operating activities for 2024 to be between $85 and $90 million, or $55 to $60 million excluding restructuring costs.
• The company expects its cash runway to extend into mid-2026 due to the restructuring.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the failure of the lirentelimab trials, the significant restructuring, and the workforce reduction. However, the focus on AK006 and the extended cash runway provide a glimmer of hope.

Positives

• The company is focusing on the AK006 program, which targets Siglec-6, an inhibitory receptor on mast cells.
• The restructuring is expected to extend the company's cash runway into mid-2026.
• The company has a clear plan for the clinical development of AK006, with several milestones anticipated in 2024.
• Preclinical studies suggest AK006 provides deep mast cell inhibition and reduces mast cell numbers.

Negatives

• The failure of the Phase 2 trials for lirentelimab is a significant setback for the company.
• The company is incurring approximately $30 million in restructuring costs.
• The company is reducing its workforce by approximately 50%, which may impact morale and productivity.
• The company is halting all lirentelimab-related activities, which represents a loss of investment and potential revenue.

Risks

• The company may incur additional costs related to the restructuring that are not currently anticipated.
• The company's ability to successfully develop and commercialize AK006 is subject to clinical trial risks and regulatory approvals.
• The company's financial performance is dependent on its ability to manage its cash burn and secure additional funding if needed.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.

Future Outlook

The company expects its cash runway to extend into mid-2026 due to the restructuring and is focusing on the clinical development of AK006, with several milestones anticipated in 2024.

Management Comments

• Craig Paterson, M.D., Chief Medical Officer of Allakos, stated that the company decided not to pursue further clinical development of lirentelimab given that neither trial met its primary endpoint.
• Management is hosting a conference call and webcast to discuss the restructuring and clinical trial results.

Industry Context

The failure of lirentelimab trials highlights the challenges in developing effective treatments for atopic dermatitis and chronic spontaneous urticaria, which are areas of unmet medical need. The shift to AK006 reflects a strategic pivot towards a different therapeutic target and approach.

Comparison to Industry Standards

• The failure of lirentelimab in Phase 2 trials is not uncommon in the biotech industry, where drug development has a high failure rate.
• Companies like Regeneron and Sanofi have had success with Dupixent for atopic dermatitis, setting a high bar for new treatments.
• Other companies like Novartis and Genentech are also developing treatments for chronic spontaneous urticaria, creating a competitive landscape.
• Allakos's focus on Siglec-6 and mast cell inhibition is a novel approach, but its success remains to be seen.

Stakeholder Impact

• Shareholders will likely experience a negative impact due to the failure of the lirentelimab trials and the restructuring.
• Employees will be significantly impacted by the 50% workforce reduction.
• Patients with atopic dermatitis and chronic spontaneous urticaria will not have lirentelimab as a potential treatment option.
• Suppliers and other business partners may be affected by the restructuring and changes in the company's operations.

Next Steps

• Complete dosing in the single and multiple ascending dose cohorts of the Phase 1 trial of IV AK006 in healthy volunteers in Q1 2024.
• Initiate the randomized, double-blind, placebo-controlled subcutaneous (SC) AK006 cohort in healthy volunteers in Q1 2024.
• Report SAD and MAD safety, pharmacokinetics (PK), and pharmacodynamic (PD) results from the Phase 1 IV AK006 trial in healthy volunteers in Q2 2024.
• Initiate the randomized, double-blind, placebo-controlled Phase 1 trial of IV AK006 in patients with chronic spontaneous urticaria (CSU) in Q2 2024.
• Report subcutaneous (SC) AK006 safety, PK, and PD results from the Phase 1 trial in healthy volunteers in Q3 2024.
• Report topline data from the Phase 1 trial of IV AK006 in patients with CSU by Year End 2024.

Key Dates

Keywords

Allakos, AK006, Lirentelimab, Restructuring, Clinical Trials, Biotechnology, Mast Cells, Atopic Dermatitis, Chronic Spontaneous Urticaria, Siglec-6, Cash Runway