APLT - Applied Therapeutics: Multiple Inflection Points Could Generate Substantial Value

2024-01-04 05:19:37 ET

Summary

• EMA validated and accepted the regulatory application of govorestat for the treatment of patients with galactosemia; the FDA has a 60-day review period to look at the application for validation and acceptance.
• Release of results from the phase 3 ARISE-HF study, using AT-001 for the treatment of patients with cardiomyopathy, is expected any day now in Q1 of 2024.
• Release of results from the phase 3 INSPIRE study, using AT-007 for the treatment of patients with SORD Deficiency, expected Q1 of 2024.
• The company had $37.5 million in cash as of September 30th 2023; ATM Agreement made with Leerink LLC on August 11th of 2023 and used two times already in September/October 2023.

Applied Therapeutics ( APLT ) has been able to submit regulatory applications for its drug govorestat [AT-007] for the treatment of patients with galactosemia to the FDA and EMA. The EMA has already validated it thus far and it moves to review by the CHMP. However, the FDA has 60 days to determine if the filing itself of this drug for the treatment of this patient population is in good order. Thus, I believe that if the U.S. market application is accepted for review, then this could be a major inflection point for Applied Therapeutics. Not only that, but a good thing about this biotech is that it has several other clinical candidates in place that have gone through rigorous testing.

For instance, govorestat is also being explored in the ongoing phase 3 INSPIRE trial, which is treating patients with Sorbitol Dehydrogenase [SORD] Deficiency. Results from this study are expected in Q1 of 2024. There is a different candidate being advanced in the pipeline, which is AT-001 being tested in the ongoing phase 3 ARISE-HF trial for the treatment of patients with diabetic cardiomyopathy [DbCM]. Results from this study are expected any day now, considering that the set timeline was for data to be released in Q4 of 2023. With so many inflection points, plus several drugs in or past late-stage clinical testing, I believe that this biotech offers investors good long-term prospects to look forward to.

NDA/EMA Filings For Govorestat Means Huge Inflection Points On the Regulatory Front

As I stated above, Applied Therapeutics has been able to submit regulatory applications for its drug govorestat for the treatment of patients with galactosemia to the FDA and EMA. The EMA has already validated the regulatory application, however, the FDA has roughly 60 days from now to determine if it is valid. I think that should Applied receive notice that its application has been accept for review, that this will be a major catalyst to look forward to. Galactosemia is a rare type of genetic disorder characterized by the body's inability to metabolize sugar galactose. Why is this a major issue for a patient with this disorder? That's because unmetabolized sugar galactose converts into a toxic metabolite known as galactitol. This toxic metabolite has several consequences in terms of neurological problems, such as causing improper speech or impact on cognitive function.

This is a good program for Applied Therapeutics because should it ultimately succeed in receiving approval for govorestat, it would not only boost shareholder value as a catalyst, but it would mean the first treatment option for patients with galactosemia. That's because there are no approved drugs to treat these patients. The reason why the filing was possible was because of a data package submitted that included the phase 3 registration study known as ACTION-Galactosemia Kids, whereby children ages 2 to 17 years of age were treated with govorestat. Other studies submitted as part of the data package was the phase 1/2 ACTION-Galactosemia study in adults with Galactosemia and some preclinical data.

One thing to note is that statistical significance was not met on the primary endpoint. Despite this, it was noted that systematic improvement over a certain period of time was shown for the overall primary endpoint with a p-value of p=0.1030. With all the data generated, Applied Therapeutics believed there was compelling evidence to move forward. Thus far it appears all is well, because the EMA has validated the application of govorestat for galactosemia. Plus, Applied Therapeutics had a successful pre-NDA meeting with the FDA for filing for U.S. marketing approval of this drug. Where there might be an impact is if the FDA regulatory application is not accepted for review. This could be on the basis of primary endpoint not being met, which is a major risk.

Two Data Readouts In 2024 To Add Additional Value Pending Positive Releases

Applied Therapeutics has a huge hill to climb with respect to obtaining regulatory approval of govorestat for the treatment of patients with galactosemia. There is another drug known as AT-001 or caficrestat being used to treat patients with diabetic cardiomyopathy [DbCM] in the ongoing phase 3 ARISE-HF trial. Diabetic Cardiomyopathy is as a result of diabetic patients who have a change in structure of the myocardium of the heart. Such a change occurs because of diabetes and is independent of other factors such as coronary artery disease [CAD] or hypertension being present. The global diabetes drug market size is projected to reach $118 billion by 2032. However, it is important to note that the diabetes patients being targeted are those with DbCM. It is believed through retrospective studies that roughly 30% to 40% of patients with diabetes have diabetic cardiomyopathy. Data from this study is said to be expected around Q4 of 2023, which means such data from the phase 3 ARISE-HF trial could be released any day now.

AT-007 or govorestat is also being advanced for another indication in the company's pipeline, which is Sorbitol Dehydrogenase [SORD] Deficiency. The use of this drug for the treatment of this patient population is being explored in the ongoing phase 3 INSPIRE trial. SORD Deficiency is a rare disorder whereby a patient is unable to metabolize a sugar alcohol, known as sorbitol. This type of sugar is found in fruits and other foods, but the problem is that when patients are unable to break down sugar from these substances, it leads to a range of neurological issues. Such problems that can arise are: Intellectual disability, seizures and muscle weakness. There is a catalyst opportunity as it relates to this program as well that investors can focus in on. It is expected that results from the phase 3 INSPIRE trial, using AT-007 for the treatment of patients with SORD Deficiency, will be released in Q1 of 2024.

Financials

According to the 10-Q SEC Filing , Applied Therapeutics had cash and cash equivalents and short-term investments of $37.5 million as of September 30th of 2023. The reason for the cash on hand is because back in April of 2023 it enacted a private placement agreement and raised approximately $27.5 million in proceeds after expenses. The thing is that there is a need for this biotech to dilute on occasion and this should be monitored closely. For instance, on August 11th of 2023 the biotech entered into an ATM Agreement with Leerink Partners LLC , whereby it could offer and sell, from time to time, shares of its common stock. This ATM was generated in such a way where it could offer up to $75 million shares to sell. It has already used this financial instrument twice thus far. Once was back in September of 2023 whereby it sold 4.28 million shares of its common stock at a price of $1.75 per share, raising gross proceeds of $7 million.

A second time it had used this was in October of 2023, whereby it completed the sale of an additional 5.7 million shares of its common stock at a price of $2.28 per share. This resulted in total net proceeds of $12.7 million. Being that it still has additional shares it could sell under this ATM Agreement with Leerink, then this is a continued option going forward which could further dilute shareholders. That's because in its 10-Q SEC Filing, it stated that its cash on hand will be enough to fund its operations into mid-2024. Thus, I believe that additional funds will need to be raised in the coming months. Where it could enact a raise is if it somehow can obtain positive results from one of the two data readouts from the ongoing phase 3 studies, which are expected to be released in 2024.

Risks To Business

There are several risks that investors should be aware of before investing in Applied Therapeutics. The first risk to consider would be with respect to the FDA and EMA regulatory filings of govorestat for the treatment of patients with galactosemia. Even though the EMA validated the regulatory application for govorestat for the treatment of this patient population, there is no assurance that the FDA will do so. A second risk to consider would be in terms of review of the regulatory applications for both FDA and EMA. As I highlighted above, the primary endpoint alone was not met with statistical significance in the phase 3 ACTION-Galactosemia Kids study, whereby children ages 2 to 17 years of age were treated with govorestat.

This is a major risk because it is not only possible that the regulatory application sent to the FDA may not be accepted, but also that an entirely new study may ultimately end up being needed. A third risk to consider would be with respect to both upcoming data readouts from the phase 3 studies, known as ARISE and INSPIRE, treating patients with diabetic cardiomyopathy and SORD Deficiency respectively. There is no guarantee that the primary endpoint will be met in one or both of these late-stage studies. Nor that Applied Therapeutics will be able to ultimately file for regulatory approval of either govorestat for SORD Deficiency or AT-001 for diabetic cardiomyopathy.

The fourth and final risk to consider would be with respect to the financial position that this biotech is in. That's because as I stated above, it believes that it only has enough cash to fund its operations until mid-2024. It already needed to enact two cash raises using an ATM Agreement made with Leerink Partners LLC. Cash raises through the use of this ATM Agreement was done in September and October of 2023 respectively. It is my belief that it will need to raise additional cash using this method in the coming months again.

Conclusion

Applied Therapeutics has done well to advance its main candidate in its pipeline, which govorestat for the treatment of patients with galactosemia. It already had its EMA regulatory application validated, thus the CHMP is expected to take review of this drug for this patient population. On the other hand, the FDA regulatory application filing remains up in the air at the moment. That's because the FDA has about 60 days to validate and accept the U.S. marketing application of govorestat for review. Besides this acting as a catalyst to look forward to, there are two other catalysts rapidly approaching. One would be the release of results from the phase 3 ARISE-HF study using AT-001 for the treatment of patients with diabetic cardiomyopathy and the second would be data from the phase 3 INSPIRE study using govorestat for the treatment of patients with SORD Deficiency. Data from both studies, if positive, could provide additional shareholder value creation. The best thing of all, in my opinion, would be that Applied is going after indications with better market potential. How so? That's because there are no approved treatments for galactosemia, SORD Deficiency or diabetic cardiomyopathy.

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