APLT - Applied Therapeutics: No Money And No Good Data

2023-08-07 03:55:11 ET

Summary

• Applied Therapeutics has experienced regular positive trial updates, frequent delays in NDA submission, and multiple dilutive stock offerings.
• The company's lead candidate, AT-007, showed a strong reduction in plasma galactitol but did not meet the FDA's requirement for a clinical outcomes study.
• APLT has a poor financial condition with a cash runway of only one quarter, and the lack of solid data and funding poses significant risks.

I covered Applied Therapeutics ( APLT ) two and a half years ago, when they had already completed a phase 3 adult study, and were expecting an NDA for lead candidate AT-007 in Galactosemia “no later than Q3 2021.” Fast forward 30 months, and they have now completed a pediatric phase 3 outcomes study, and now they say “NDA expected 2H 2023.” So, what happened in 2021 to delay the NDA submission?

I see three things happening over at APLT over the last 30 months - one, there are regular positive trial updates, two, there are equally regular announcements of delay in NDA submission, and third, there are a number of dilutive stock offerings. These three types of situations are what created the “environment” for the stock.

In September that year, the company announced that they would delay NDA submission to gather additional data for dosing based on weight instead of on age. AT-007 has consistently done well in clinical trials, showing a strong reduction in plasma galactitol of ~35% after 30 days of treatment compared to placebo. The company, however, stated that dosing could be further optimized if adjusted for weight rather than for age. Thus, as the company said at the time:

• As a result, weight-based dosing brackets have been implemented for the remainder of the study. Additional biomarker data based on these new drug levels is expected following an analysis at day 30.

In October, the company announced positive data in children:

• The company said AT-007 substantially reduced plasma galactitol by ~40%, which was statistically significant compared to placebo.

• Reduction in plasma galactitol was rapid and sustained, with no impact on levels of galactose or Gal-1p, and was similar across dose groups.

• AT-007 was safe and well tolerated in children of all ages (2-17).

In January, not having filed an NDA, the company stated that the FDA said they would need a clinical outcomes study - and not accelerated approval based on reduction in galactitol as earlier stated. Management said they were disappointed in this “change in direction by the FDA,” but would have to wait to file until outcomes data from the phase 3 ACTION-Galactosemia Kids trial is completed, sometime in Q1 2022.

Nothing major happened for a few months, until in October when the company announced that the trial “did not yet reach statistical significance at 12 months of treatment; however, AT-007 (gavorostat) demonstrated a trend in clinical benefit vs. placebo.” The study would continue for another 6 months, while the company would approach the EMA for conditional approval based on existing data.

In April, the company announced the final, 18-month data, and you have to read through two-thirds of the press release before they tell you that the trial failed . The trial did not meet the primary endpoint with statistical significance, which was the Global Statistical Test, a composite sum of change comprised of four endpoints: OWLS-2 Oral Expression (OE), OWLS-2 Listening Comprehension ((LC)), BASC-3 Behavior Symptoms Index (BSI') and the BASC-3 Activities of Daily Living ((ADL)).

APLT's technology focuses on Aldose Reductase or AR. The AR enzyme produces excess plasma galactose, which these oral molecules inhibit. There have been other ARs. notably Pfizer's zopolestat and Warner-Lambert's zenarestat, which went through trials but were not successful. About the disease being targeted, here's what I wrote before, which is still valid :

GALT/ GALK are two enzymes required for galactose metabolism. Galactosemia is a rare genetic disorder which causes GALT/GALK deficiency, resulting in formation of galactitol, an aberrant metabolite of galactose. Galactitol toxicity results in CNS complications like cognitive, motor, seizures and tremor problems, and cataracts. This is a rare disease with just 2,900 patients in the US, and 7,000 worldwide. The total addressable market in the US should be somewhere in the region of $500mn to $1.5bn. 90% of patients are seen by around 20 specialists worldwide, so commercialisation burden is low. There are no approved therapies; and standard of care is limited to dietary restrictions, which prevents fatalities, but does not prevent long term effects of the disease.

Going back to the trial whose data we were discussing, the company went on to say how the trial showed clinical benefit, a trend towards benefit, and so on. And I don’t doubt those. But I discussed earlier how there was a sustained short attack on the company 3 years ago, based on such reasons as “the clinical hold, the alleged changes made to the Investor Deck and the $1.4mn stock sale by the CEO in the middle of a crisis,” and I must say that the company would have been in a much more comfortable position had the trial been able to meet its primary endpoint.

Thus, the bottomline is that AT-007 did well with the biomarker data, which did not satisfy the FDA, so they asked for a clinical outcomes study, which the molecule failed. If they are going to the FDA with this data, they are leaving themselves at the mercy, so to say, of the regulator. They are not armed with strong and unquestionable data.

We don’t need to look further for reasons for the poor show of the stock over the last few years.

On top of all that, the company has diluted or otherwise raised funds a number of times. In February 2021, right after the partial clinical hold was lifted, they raised $69mn. In June 2022, they raised another $30mn from the market, making the stock sink. In April this year, they raised another $30mn, and then in May, they did a $300mn shelf offering. The stock was simply not strong enough to put up with all this fundraising when the data wasn’t adequate.

Meanwhile, AT-007 has produced positive data from a phase 3 trial in Sorbitol Dehydrogenase (SORD) Deficiency. This is from earlier this year.

Financials

APLT has a market cap of $104mn and a cash balance of $23mn. The Company raised an additional $30 million of gross proceeds, before deducting placement agent commissions and other offering expenses, through a private placement in April 2023.

Research and development expenses for the three months ended March 31, 2023 were $15.9 million, while general and administrative expenses were $5.6 million. Thus they have a cash runway of just one quarter. This company is in very poor financial condition right now.

Most of APLT stock is held by institutions and PE/VC firms. The retail ownership totals about 10%. Key holders are the CEO Shoshana Shendelman, Alexandria Real Estate Equities, and Franklin Resources.

Risks

The risks here are obvious - they don’t have money and they don’t have solid data. What they have is intriguing trends data and positive biomarker data, and a market with very few options for the children suffering from Galactosemia. I doubt that an unmet medical need that has not adequately been met will be enough to convince regulators.

Bottomline

Not much to see here. This can be a volatile stock, so if something turns positive, I am sure holders will make money and blame naysayers. But my investing principle is to avoid uncertain gambles, and this seems to be just such a gamble. I will avoid.

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