In my prior coverage I recommended APLT as a “Buy” on the prospects of positive interactions with the FDA and NDA submission of AT-007 for the treatment of galactosemia. On that front everything is going as planned so far, with both NDA (USA) and MAA ((Europe)) submissions announced 2 days ago. Therefore, galactosemia thesis remains intact. Additionally, a readout from a trial in Sorbitol Dehydrogenase Deficiency (SORD) is expected in Q1 2024. However, APLT yesterday announced that AT-001 failed to meet the primary endpoint in a phase 3 trial in diabetic cardiomyopathy (DCM). Based on the results announced I believe the commercial potential for AT-001 in DCM is considerably reduced and a new lengthy and costly trial will be necessary.
While I believe APLT remains undervalued, I am downgrading to a “Hold” based on increased short/medium-term risk, considering; (1) recent run-up in the stock price, (2) failure of AT-001 in DCM phase 3, (3) several uncertainties (timing of approval and commercialization of AT-007 in galactosemia, 12-month readout in SORD) and (4) short cash runway. Personally, I’ve been locking-in the profits during the recent run-up, closing almost all my position after announcement of NDA submission and (luckily) before announcement of DCM topline results. After a 40% dip it is tempting to re-invest but the short-term risks suggest a potentially cheaper and safer re-entry.
Quick update on galactosemia indication
As anticipated in my prior coverage, APLT announced a positive interaction with the FDA, although in the relevant SEC filling it was clarified that timing of NDA submission was dependent on “the FDA granting certain necessary waivers, including a carcinogenicity waiver and a QT study waiver”. I assume this is not an issue anymore as an NDA was submitted in December 2023. FDA now has to decide within 60 days whether the submission will be accepted. Furthermore, considering Rare Pediatric Disease Designation, there is theoretical potential for priority review (PDUFA within 6 months of NDA submission) and a priority review voucher (on average worth $100M). For reasons unclear to me this potential is not discussed in the company’s presentation or projected cash runway, so I wouldn’t count on it. Nevertheless, it is mentioned in Annual and Quarterly reports, and It would be a nice positive surprise.
An MAA ((Europe)) has also been submitted in December, and has been accepted for review.
Overview of topline results from ARISE-HF
APLT just announced topline results from the phase 3 study (“ARISE-HF”) of AT-001 in DCM. Unfortunately, despite a trend for benefit in the primary outcome (cardiac functional capacity as measured by Peak VO2) there was no statistically significant (p=0.21) difference at 15 months compared to placebo (Table below). Nevertheless, in the pre-specified subgroup of patients that were not on SGLT-2 or GLP-1 (68% of the total study population) there was a statistically significant (p=0.04) benefit in both the primary outcome (Table below) as well as the secondary outcome of the proportion of patients experiencing a clinically significant worsening in cardiac functional capacity of 6% or more (32.7% vs 46%, p=0.035). On the contrary, in the complementary subgroup (patients on SGLT-2/GLP-1) AT-001 did worse than placebo in the primary outcome (see table below). I am not implying that AT-001 is worse than placebo in these patients. I am just making a point that subgroup analyses (even if pre-specified) has limitations.
Table; Comparison of the primary outcome in the total population and the two complementary subgroups (taking vs not taking SGLT-2/GLP-1)
|Change from baseline in Peak VO2
|Difference (AT-001 minus placebo)
|Subgroup on SGLT-2/GLP-1*
|Subgroup not receiving SGLT-2/GLP-1
* Vast majority on SGLT-2 rather than GLP-1. ** Of note, considering a baseline of 15.7 mg/kg/min the difference between AT-001 and placebo corresponds to a 1.9% difference (i.e. below the clinically significant cut-off of 6%)
Although APLT claims the results to be promising and plans to advance AT-001 through partnering, I find the results disappointing. To be fair, the benefit in the pre-specified subgroup of patients not taking SGLT-2/GLP-1 is a positive outcome, showing that AT-001 may indeed have a benefit in these patients. However, in my opinion, the commercial potential is significantly reduced considering lack of benefit when AT-001 is used as add-on to SGLT-2/GLP-1. Notably, SGLT-2 has become the standard-of-care for patients with heart failure (both for patients with preserved ejection fraction and for patients with reduced ejection fraction). ARISE-HF enrolled Stage B HF patients, i.e. not patients with overt heart failure (that based on current guidelines should take SGLT-2). So there may still be some promise. However, if an indication was to be pursued for patients with early-stage DCM not on SGLT-2/GLP-1 this would require a new clinical trial which would take years. By that time, SGLT-2 treatment is likely to be standard-of-care even for these earlier stage patients (relevant references; 1, 2).
Theoretically, AT-001 could still be useful for patients that cannot take SGLT-2 e.g. patients with type-I diabetes (note that ARISE-HF enrolled only patients with type-2 diabetes), patients that cannot take SGLT-2 due to adverse events and maybe for patients with advanced kidney disease. Notably, a discontinuation rate as high as >50% has been reported for SGLT-2/GLP-1 in real-life studies, although a quarter of those patients re-initiated treatment within a year. With increasing awareness of cardiovascular and renoprotective benefits (which also means increasing use in patients with chronic kidney disease), I believe the rate of discontinuation will be lower in the future (of note discontinuation rate was much lower in clinical trials of SGLT-2s, e.g. 4.7–14.2%, and similar to placebo). Furthermore, patients that will be on neither SGLT-2 or GLP-1 will be even fewer. So although there is likely still a market for AT-001, it will be considerably lower than originally estimated. APLT in the company presentation estimate a target population of 6M in US and 5M in Europe. Based on the above, I estimate the actual market to be 10-20% of that, which corresponds to 0.6-1.2M in US and 0.5-1M in Europe.
However, if an indication is to be pursued in patients that are not on SGLT-2/GLP-1 a new trial would be required. Despite hopes by APLT for approval based on the surrogate marker of peak VO2, I think this is unlikely. In other words, I expect that FDA will need evidence for benefit in clinical outcomes (as SGLT-2 and GLP-1 have achieved). This would mean conducting a new, large, lengthy, costly and risky trial. For perspective, DELIVER trial (SGLT-2 inhibitor dapaglifozin in heart failure with ejection fraction >40%) enrolled n=6263 patients which were followed for a median of 2.3 years.
Of note, results of the diabetic peripheral neuropathy sub-study are still being analyzed. APLT will present these results in an upcoming conference.
Considering premium pricing due to orphan designation there is considerable revenue potential for SORD indication, similar to galactosemia indication (see prior coverage on this). Neuropathy in SORD deficiency is associated with accumulation of sorbitol. AT-007 has been shown to considerably decrease (by 52% within 3 months) sorbitol levels in the ongoing Phase 3 INSPIRE trial. Therefore, at least pathophysiologically, there is good probability of success. APLT plans to report first clinical outcome results following 12 months of treatment. The readout is expected in Q1 2024. If insufficiently convincing, the study would have to continue for another 12 months. However, without prior clinical efficacy data, there are numerous uncertainties; (1) Is the 52% reduction (which is still considerably higher than normal) sufficient?, (2) Are 12 months of treatment sufficient to show a statistically significant and clinically meaningful benefit?, (3) Is the study sufficiently powered? (about 50 SORD patients, randomized 2:1 to AT-007 or placebo). A negative result, or a result necessitating continuation of the study would put further pressure on the stock price.
APLT reported cash and cash equivalents of $37.5M as of September 31, 2023. Subsequently, $12.7M were raised through an ATM in October 2023, raising the cash balance to $50.2M. Operating expenses in Q3 2023 were $15.5M (R&D $10.8M and G&A $4.7M). At this rate of cash burn APLT should have close to 10 months of cash runway, which matches APLT’s guidance (“through mid-year 2024”). Notably, considering failure of AT-001 in DMC, I am assuming the trial won’t continue for the full planned duration, which could result in lower cash burn for R&D. Furthermore, there is potential for clinical (completion of SORD trial) and regulatory (approval in Europe) milestone payments from Advanz Pharma licensing agreement, in addition to commercial milestones following approval (total potential of $142.2M). Finally, it is not known yet whether APLT has already used again the ATM facility subsequently to the latest Quarterly report.
Considering the above, cash runway is sufficient for major catalysts (readout from SORD trial, and FDA’s decision on NDA acceptance). Nevertheless, APLT will eventually have to raise cash in 2024, which would likely be dilutive.
- The most important short-term risk now is regulatory delays. FDA may not accept the NDA. Even if the NDA is accepted there is still the risk of a CRL.
- Readout at 12 months from the SORD trial may be underwhelming, which would have 2 implications; (1) further drop in the stock’s price and potential need to raise cash from a lower market cap, (2) need to continue the trial to the full 24 months (= more R&D expenses).
- Considering above discussed cash runway a cash raise should be expected in 2024
While APLT remains undervalued based on the galactosemia thesis, the risk of investing in APLT has increased since my last coverage considering the following; (1) Recent run-up of the stock price, (2) Risk for regulatory delays, (3) Uncertainty about the future of AT-001 in DCM, (4) Uncertainty regarding the anticipated readout in SORD, (5) Need for cash. On the other hand, a positive SORD readout and/or positive results in the diabetic neuropathy sub-study could significantly boost APLT’s stock price.
Based on the above there are two potential approaches to investing in APLT depending on your risk tolerance; (1) Buy the dip now and add on further dips. APLT is undervalued based on just the galactosemia thesis. Using this strategy you won’t miss the upside in case of positive news (e.g. positive SORD readout). Even with short-term bad news (negative SORD readout, dilution, regulatory delays) there is a decent chance for upside long-term based on galactosemia thesis. (2) Wait for further news (NDA acceptance by FDA, SORD readout, cash raise) before investing. Using this strategy you may miss some upside in case of positive news. On the other hand you will have a less risky entry, and possibly at a better price. For the reasons described in the article I prefer the latter strategy.
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