Fighting Laziness
It can be difficult to objectively analyze a stock after it has already made a big move. Often, we assume that “we missed it” or that the “easy money” has already been made, and these subjective feelings prevent us from doing the proper work. Rezolute, Inc. (Nasdaq: RZLT), one of the better performing micro/small cap biotech stocks this year, is a company that several investors in our universe have recommended we look at. For whatever reason, Rezolute never rose to the top of our to-do list. After the stock recently jumped off news that FDA lifted a partial clinical hold on the company’s lead asset RZ358, something investors in our universe had foreshadowed would likely happen, we found ourselves falling into that lazy “we missed it” trap. Although, it is arguably true that the “easy money” may have already been made in Rezolute’s move this year from $1 to $5, a move that required investors to take minimal clinical or regulatory risk. Yet to suggest “we missed it” when the company still has a palatable $270mm market cap, a cash balance of $127mm, a Phase 3 program ongoing with data expected within the next 12-15 months, and another Phase 3 program starting imminently, does feel a little lazy.
Mechanistically Elegant
RZ358, also known as ersodetug, is a monoclonal antibody that targets the insulin receptor to manage hyperinsulinism (HI). As the name implies, HI is the excessive production of insulin by the pancreas, leading to hypoglycemia. Instead of targeting the pancreas, RZ358 works downstream of insulin production, binding allosterically to the insulin receptor, attenuating insulin’s effect while not competing with the active binding site. It’s a rather elegant mechanism of action that could allow RZ358 to work in all forms of HI.
Data Shine Despite FDA Cloud
Rezolute’s lead indication for RZ358 is congenital HI (cHI). cHI is a rare genetic pediatric disease that is generally diagnosed during infancy. Rezolute estimates that there are approximately 3,500 cHI patients in the United States. Infants/children with cHI will present with symptoms of hypoglycemia (lethargy, irritability, seizures) and if their hypoglycemia is not properly managed, many will develop long-term neurological impairments. The current standard of care (SoC) is diazoxide, but upwards of 60-70% are unresponsive or cannot tolerate the drug. Other drugs, notably somatostatin analogs, are used off-label with marginal efficacy. Some cHI patients will have part of their pancreas removed (pancreatectomy), which inevitably leads to insulin-dependent diabetes.
In May 2022, Rezolute announced data from a Phase 2b study with RZ358 in patients ≥2 years old with cHI. The data from this 23-patient open-label study were highly encouraging; bi-weekly dosing of RZ358 demonstrated a meaningful reduction in patients’ time in hypoglycemia, measured by continuous glucose monitor (CGM), and in the number of weekly hypoglycemic events, measured by self-monitored blood glucose (SMBG), versus baseline at eight weeks. The study showed a strong dose-response, with the two highest doses of RZ358, 6mg/kg and 9mg/kg, demonstrating the most robust efficacy.
RZ358 has been under some form of FDA partial clinical hold since it was licensed from XOMA Corporation (Nasdaq: XOMA) in 2017. The most recent FDA hold limited dosing to patients ≥12 years old and at a maximum dose of 3mg/kg. Considering the age of cHI patients, these restrictions explain why only one U.S. patient was enrolled in the Phase 2b study. Nonetheless, the company was undeterred in its belief that the FDA cloud would clear and planned its Phase 3 development.
Full Steam Ahead
In December 2023, Rezolute initiated a single Phase 3 randomized placebo-controlled registration study in 48 cHI patients ≥ 1 year old who, despite being on SoC, have inadequate glycemic control. The study has three arms, RZ358 5mg/kg, RZ358 10mg/kg, and placebo, randomized at a 1:1:1 basis. The primary endpoint is the change in the average weekly occurrence of hypoglycemia events measured by SMBG after 24 weeks. A key secondary endpoint that FDA will closely analyze is the change in the average daily time spent in hypoglycemia. The study also has an open-label exploratory arm where eight cHI patients between three months and one year of age will receive RZ358 5mg/kg and can be titrated to 10mg/kg if needed.
Enrolment (all ex-U.S.) was expected to be completed by the end of this year, and top-line data available in mid-2025. However, FDA removed the partial clinical hold on RZ358 earlier this month, allowing U.S. sites to enroll patients. Rezolute has guided that it plans to enroll U.S. patients starting in early 2025. With a 24-week primary endpoint that pushes data well into 2H2025. Given the importance of adding U.S. patients, we wouldn’t be surprised to see Rezolute enroll a few extra patients, and there is a possibility that top-line data could slip into early 2026.
Early Access & Hints of Efficacy
The second indication being pursued by Rezolute for RZ358 is tumor HI (THI). As the name implies, tHI isn’t a specific tumor type; rather, it refers to a group of tumor types that cause HI/hypoglycemia. These tumor types fall into two baskets: islet cell tumors (also known as insulinomas) and non-islet cell tumors. Islet cell tumors produce excessive insulin like cHI and have similar SoC medicines (diazoxide, somatostatin analogs). Non-islet cell tumors, the most common of which is hepatocellular carcinoma, often don’t produce excessive insulin. Instead, they produce other hormones, such as insulin-like growth factor 2 (IGF-2). Drugs that target insulin production, such as diazoxide and somatostatin analogs, are therefore ineffective for non-islet cell tumors. RZ358, because it targets the insulin receptor, where both insulin and IGF-2 bind, is believed to have potential across all tHI types.
tHI is also a rare indication, even smaller than cHI, with an addressable market of approximately 1,500 patients in the U.S., according to Rezolute. It is important to emphasize that surgery is first-line treatment for most of these patients, and for many patients, this will solve their HI. RZ358 is earmarked predominantly for refractory tHI, patients who have persistent HI after surgery where often their hypoglycemia is so severe it prevents them from receiving their ongoing oncology treatment.
Unlike cHI, where Rezolute has completed studies to support RZ358’s efficacy, there have been no clinical studies in tHI with RZ358 (yet). However, there have been five expanded access cases where FDA has allowed RZ358 to be used in challenging tHI patients. The first case was published in a 2023 Letter to the Editor in the New England Journal of Medicine, where the author describes a 55-year-old patient who was treated with RZ358 after they developed severe, refractory hypoglycemia following radiation therapy to treat a metastatic insulinoma. The author concluded, “The patient has remained free of severe hypoglycemia after 9 months of RZ358 therapy, currently administered at monthly intervals, with no evidence of adverse effects.” Two other successful tHI expanded access case reports were presented in June at the ENDO 2024 meeting. An endocrinology fellow from Stanford University describes one of the cases in the YouTube video below.
Last month, Rezolute received IND clearance for RZ358 in tHI. The company plans to initiate a single registration Phase 3 study in 1H2025. The double-blind, randomized study will enroll 24 adults with tHI on SoC, who have uncontrolled hypoglycemia, into two arms, 9mg/kg/weekly RZ358, and placebo. The study’s primary endpoint is the change in the average number of weekly moderate and severe hypoglycemic events at six weeks as measured by SMBG. There will also be a 24-patient open-label arm, focused initially on enrolling non-islet cell tumor patients and patients managed by IV glucose in a hospital setting. Top-line data are expected in 2H2026.
Reasons For Optimism
RZ358 looks very promising. The clinical data (cHI) and real-world data (tHI) for RZ358 suggest the drug is active, efficacious, and safe. The Phase 2b cHI data showed a 50-70% reduction in weekly hypoglycemic events with the 6mg/kg and 9mg/kg doses (versus baseline). The Phase 3 study, with double the sample size of the Phase 2b, is powered to detect a 35% reduction in weekly hypoglycemic events. There are some notable differences in the Phase 2b and Phase 3 study designs, including dosing (very minor but 6mg/kg and 9mg/kg vs. 5mg/kg and 10mg/kg, respectively), duration of treatment (8 weeks vs 24 weeks), and most notably uncontrolled vs controlled. Nonetheless, we think RZ358 has an above chance of success in Phase 3.
What RZ358 for tHI lacks in clinical data is more than made up for in real-world data. The five patients successfully treated with RZ358 on an expanded access basis are highly encouraging. Although it’s a notably smaller indication than cHI, we think the probability of success in this indication is even higher.
cHI is an attractive rare disease market. RZ358, if approved, should command a premium price, likely >$300,000/annually, in line with other rare disease drugs. We have seen reports that estimate peak global sales potential for RX358 in cHI annually between $500mm-$1bn. The tHI market is more modest, likely around 10-20% of the size of cHI. It is also worth noting that if RZ358 were approved for cHI, Rezolute should receive a pediatric priority review voucher (PRV). A PRV can be lucrative, fetching anywhere from $100-$150mm, assuming Congress extends the program.
Reasons For Caution
We just finished sharing our optimism around Rezolute’s probability of clinical success, but investors will likely have to wait a year or more to see those results. After the recent FDA lifting of the clinical hold, there aren’t any imminent catalysts investors can look towards before top-line cHI data, which we estimate to be 12-15 months away. In 1H2025, investors should see news on the completion of enrolment in the pivotal cHI study and the initiation of enrolment in the pivotal tHI study, both incrementally positive but unlikely to elicit a big response from the market. Rezolute will likely apply for FDA’s Breakthrough Therapy Designation in the near term and, if granted, would also be incrementally positive, but again, in this current biotech tape, it is unlikely to elicit a significant response from the market.
We would also highlight the balance sheet as another reason for caution. Rezolute has a strong treasury, with $127mm as of June 30th, but they have one global study ongoing and a second about to start. Their current cash runway is guided to last until 2Q2026. With top-line cHI results likely coming later in 2H2025, Rezolute will probably want to raise additional capital before those data. Fortunately, Rezolute hasn’t struggled to access capital when needed and has several substantial shareholders, such as Federated, Nantahala, and Adar1, at the top of their cap table.
One other possible solution to address the balance sheet is business development. We haven’t spent time on Rezolute’s second asset, RZ402, an oral kallikrein inhibitor for diabetic macular edema (DME). In May, the company reported Phase 2 proof-of-concept data with some encouraging signs of efficacy. Rezolute isn’t planning on developing RZ402 any further and is actively looking for partners to advance the asset.
There is also potential for impending competition in cHI. Zealand Pharma (Nasdaq: ZEAL) has an October 8th PDUFA date for their glucagon analog, dasiglucagon delivered via a pump, for the treatment of cHI. For the upcoming PDUFA, Zeland is only seeking approval for a short course of dasiglucagon therapy, which will be three weeks. Zealand plans to submit for FDA approval for longer use of dasiglucagon later this year. The data for dasiglucagon are mixed. Zealand reported in 2020 that dasiglucagon missed the primary endpoint of reduction of weekly hypoglycemic events measured by SMBG, but hit on measures using CGM. Regardless if dasiglucagon is approved, the short duration of use and mixed efficacy, shouldn’t pose a serious threat to Rezolute if their Phase 3 is successful.
Final Thoughts
We missed Rezolute’s big move this year. Yet, at a $270mm market cap, it still seems affordable. Given the lack of a near-term catalyst, our instincts suggest that the stock may be range-bound for the rest of the year. However, when the calendar turns to 2025, the company can point toward a pivotal data readout within the year, which should motivate investors. Owning Rezolute in 2025 for the cHI readout will not be “easy money”. It will come with clinical risk. However, it does have an appealing asymmetric setup, where Phase 3 success could see Rezolute trade at a multiple of its current valuation, potentially repeating its stellar 2024 performance of >300%. We regret “missing it” in 2024; we don’t want to repeat that in 2025.