10-Q: Applied Therapeutics Q3 2025: Losses Mount, Regulatory Setbacks

Applied Therapeutics reports significant Q3 2025 net loss and ongoing liquidity concerns, alongside legal settlements and regulatory challenges for its lead drug candidates.

Summary

• Net loss for the nine months ended September 30, 2025, was $62.1 million, a decrease from $149.6 million for the same period in 2024.
• Net loss for the three months ended September 30, 2025, was $18.99 million, a decrease from $68.59 million for the same period in 2024.
• Cash and cash equivalents significantly decreased from $79.398 million as of December 31, 2024, to $11.945 million as of September 30, 2025.
• The accumulated deficit reached $636.4 million as of September 30, 2025.
• Management concluded that substantial doubt exists regarding the company's ability to continue as a going concern within one year after the financial statements' issuance date.
• Received a Complete Response Letter (CRL) from the FDA in November 2024 for the New Drug Application (NDA) of govorestat (AT-007) for Classic Galactosemia, citing deficiencies in the clinical application and failure to reach statistical significance on primary endpoints.
• The Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) for AT-007 for Classic Galactosemia was withdrawn.
• Received a Warning Letter from the FDA in November 2024 related to the Phase 2/3 ACTION-Galactosemia Kids study (AT-007-1002), citing electronic data capture issues and a dosing error.
• A securities class action lawsuit was settled in principle for a $15.0 million cash payment (expected to be covered by insurance) and the issuance of warrants to purchase 1,000,000 shares of common stock, subject to court approval.
• Entered into an exclusive license agreement with Biossil Inc. for AT-001 (caficrestat) for diabetic cardiomyopathy, receiving an upfront payment of $1.0 million and eligibility for future royalties and milestone payments totaling up to $101 million.
• The Leerink ATM Agreement was terminated, and a new Cantor ATM Agreement was entered into for the potential sale of up to $75.0 million in common stock.
• The previously reported material weakness in internal control over financial reporting was fully remediated as of June 30, 2025.
• The company's common stock was transferred from the Nasdaq Global Market to the Nasdaq Capital Market due to non-compliance with the minimum $1.00 bid price requirement, with a deadline of February 2, 2026, to regain compliance.

Sentiment

Score: 3

Explanation: The company faces severe liquidity issues, a 'going concern' warning, and significant regulatory setbacks (CRL and Warning Letter) for its lead product candidate, AT-007. While there was a reduction in net loss and a new licensing deal for AT-001, these are overshadowed by the fundamental challenges to its core business and ability to operate.

Positives

• Net loss significantly decreased to $62.1 million for the nine months ended September 30, 2025, from $149.6 million in the prior year period.
• Net loss for the three months ended September 30, 2025, decreased to $18.99 million from $68.59 million in the prior year period.
• Total revenue increased to $1.0 million for the nine months ended September 30, 2025, from $0.455 million in the prior year period, primarily due to the Biossil Agreement.
• Entered into an exclusive license agreement with Biossil Inc. for AT-001, including a $1.0 million upfront payment and potential future royalties and milestone payments totaling $101 million.
• Reached a settlement in principle for the securities class action lawsuit for $15.0 million cash (expected to be fully covered by insurance) and 1,000,000 common stock warrants, subject to court approval.
• Anticipates receiving $16.7 million in insurance recoveries for the litigation settlement and legal fees.
• The previously reported material weakness in internal control over financial reporting was fully remediated as of June 30, 2025.
• Granted a meeting with the FDA to align on a regulatory path forward for govorestat after the Complete Response Letter.
• Concluded the double-blind placebo-controlled portion of the Phase 2/3 INSPIRE trial for CMT-SORD and presented 12-month, 18-month, and 24-month clinical data.
• AT-007 has orphan drug designation and rare pediatric disease designation from the FDA for Classic Galactosemia and PMM2-CDG, and orphan drug designation for CMT-SORD.

Negatives

• Incurred a net loss of $62.1 million for the nine months ended September 30, 2025, and an accumulated deficit of $636.4 million.
• Cash and cash equivalents decreased from $79.398 million at December 31, 2024, to $11.945 million at September 30, 2025.
• Substantial doubt exists regarding the ability to continue as a going concern within one year.
• Received a Complete Response Letter (CRL) from the FDA in November 2024 for the NDA for govorestat for Classic Galactosemia, citing deficiencies in the clinical application and failure to reach statistical significance on primary endpoints.
• Withdrew the Marketing Authorization Application (MAA) to the EMA for AT-007 for Classic Galactosemia.
• Received a Warning Letter from the FDA in November 2024 related to the Phase 2/3 ACTION-Galactosemia Kids study, citing electronic data capture issues and a dosing error.
• A clinical investigator for the AT-007-1002 study also received a Warning Letter from the FDA.
• Ongoing shareholder derivative litigation (Hassine Action and Kalantari Action) against current and former officers and directors.
• General and administrative expenses increased by $4.3 million for the nine months ended September 30, 2025, primarily due to legal and litigation settlement costs.
• Interest income decreased by $1.5 million for the nine months ended September 30, 2025, due to a decrease in cash balance.
• The company's common stock was transferred from the Nasdaq Global Market to the Nasdaq Capital Market due to failing the minimum $1.00 bid price requirement, with a deadline of February 2, 2026, to regain compliance.
• The FDA's rare pediatric disease priority review voucher (RPD-PRV) program began to sunset on December 20, 2024, potentially limiting future PRV awards.
• The company has not generated any product revenue since inception and does not expect to for the foreseeable future.

Risks

• Incurred and expects to continue incurring substantial operating losses, and ability to use net operating losses may be limited.
• The report of the independent registered public accounting firm included a going concern explanatory paragraph.
• Needs substantial additional funding to finance operations; failure to secure it may harm development programs.
• Raising additional capital may cause dilution to stockholders and restrict operations or require relinquishing rights to product candidates.
• The Warning Letter from the FDA could impede current and future clinical trials or NDA submissions.
• Success is substantially dependent on successful clinical development, regulatory approval, and commercialization of product candidates; failure to do so will adversely affect the company.
• Received a Complete Response Letter from the FDA for govorestat for Classic Galactosemia, and it is uncertain if govorestat or any product candidates will ever receive regulatory approval.
• The company or Advanz Pharma may fail to perform under partnership agreements for AT-007 commercialization, potentially leading to liabilities and unachieved benefits.
• Success in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials, and results may not be sufficient for necessary regulatory approvals.
• Clinical drug development is a lengthy and expensive process, and development of additional product candidates is risky and uncertain.
• May be unable to obtain or maintain regulatory approvals, designations, or accelerated pathways for product candidates.
• Clinical trials are expensive, time-consuming, and subject to factors outside control.
• Product candidates may cause undesirable side effects, affecting regulatory approval, commercial potential, or resulting in negative consequences post-approval.
• Interim, top-line, and preliminary data from clinical trials that have been announced or published, has changed and may continue to change as more patient data becomes available and are subject to audit and verification procedures that could result in material changes in the final data.
• Market opportunities for products may be smaller or approval may narrow the patient population.
• Faces substantial competition.
• Faces risks related to strategic collaborations to develop product candidates.
• May experience sudden changes in the regulatory standards that govern the acceptability of clinical studies to support approval.
• Even if approved, products may not achieve market acceptance necessary for commercial success.
• Insurance policies may be inadequate and potentially expose the company to unrecoverable risks.
• Subject to healthcare laws and regulations, which are subject to change and carry substantial penalties for noncompliance.
• Coverage and adequate reimbursement may not be available for product candidates.
• Healthcare reform measures may have a negative impact on business and results of operations.
• One of the clinical investigators received a Warning Letter from the FDA following a site inspection.
• Third parties may conduct preclinical studies and clinical trials in an unsatisfactory manner.
• Relies on third parties to produce supplies of product candidates.
• Subject to environmental, health, and safety laws and regulations.
• Breaches of license agreements may adversely affect the ability to continue development and commercialization.
• Insufficient patent protection could let competitors develop similar products.
• Obtaining and maintaining patent rights is expensive, complicated, and labor-intensive, and patent terms may be inadequate.
• May be subject to claims alleging violations of intellectual property rights.
• Changes in patent law could impair the ability to protect product candidates.
• May be unable to protect intellectual property rights.
• Intellectual property rights do not necessarily address all potential threats to the business.
• Faces securities-related class-action and shareholder derivative litigation that could be costly, divert resources, and damage reputation, business, or financial condition if an adverse judgment occurs.
• Recent leadership changes, including former founder and CEO's departure, may cause uncertainty.
• May experience difficulties resulting from the expansion of the organization.
• May be subject to security breaches in information technology systems.
• The market price of common stock is volatile, has fluctuated substantially, and significantly declined.
• Failure to regain compliance with the continued listing requirements of Nasdaq could result in delisting and the price of common stock could be negatively impacted.

Future Outlook

The company expects to continue incurring significant expenses and increasing operating losses for the foreseeable future, requiring substantial additional funding for ongoing operations and planned research and clinical development activities. Management is actively pursuing various long-term financing options and business development opportunities. Plans include meeting with the FDA to align on a regulatory path forward for govorestat following the Complete Response Letter and for CMT-SORD. Additional costs are anticipated for operating as a public company, and future funding requirements are dependent on clinical trial progress, regulatory outcomes, intellectual property costs, and market developments.

Management Comments

• "We are actively working to address the issues raised in the Complete Response Letter and Warning Letter and have been granted a meeting with the FDA to align on a regulatory path forward."
• "We plan to meet with the FDA to align on a regulatory path forward [for CMT-SORD]."
• "Management has enhanced its resources... and implemented several enhanced internal controls that are designed to remediate the material weakness."
• "Management believes its enhanced resources and control activities, including the cross-functional quality council, will support the functioning of the information and communication principles."
• "Management has determined that these controls operated effectively in the first two quarters of 2025 and concluded that material weakness was fully remediated as of June 30, 2025."
• "Management further determined that the enhanced control operated effectively for the three months ended September 30, 2025."
• "We intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the minimum bid price rule. These options include, but are not limited to, effecting a reverse stock split, if necessary, to attempt to regain compliance."

Industry Context

Applied Therapeutics operates in the highly competitive clinical-stage biopharmaceutical industry, focusing on rare diseases. The regulatory challenges faced, including a Complete Response Letter and Warning Letter from the FDA for its lead candidate, are significant hurdles common in drug development and can severely impact timelines and financial viability. The out-licensing of AT-001 to Biossil for diabetic cardiomyopathy is a strategic move to monetize assets and focus resources, a common practice among biotech firms. The ongoing need for capital raises through ATM agreements and other financing options is typical for clinical-stage companies without approved products and recurring revenue. The sunsetting of the FDA's rare pediatric disease priority review voucher program could reduce incentives for developing drugs for these conditions, potentially impacting the broader rare disease market.

Management Changes

Corporate Governance

Legal Proceedings

• **Securities Class Action Litigation (In re Applied Therapeutics Securities Litigation, No. 1:24-cv-9715):** Filed December 17, 2024, and December 27, 2024, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 for false/misleading statements between January 3, 2024, to December 2, 2024, regarding the NDA for govorestat for Classic Galactosemia. Consolidated on March 11, 2025. A settlement in principle was reached on August 22, 2025, contemplating a $15.0 million cash payment (expected to be covered by insurance) and issuance of warrants to purchase 1,000,000 shares of common stock (fair value $0.4 million), subject to court approval. A motion for preliminary approval was filed on November 4, 2025.
• **Shareholder Derivative Litigation (Hassine v. Shendelman, et al., No. 1:25-cv-00935 and Kalantari, et al. v. Shendelman, et al., No. 0655600/2025):** Filed January 31, 2025, and September 19, 2025, respectively, asserting derivative claims against current and former officers and directors for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and Exchange Act violations. These actions are based on substantially the same facts as the securities class action. The Hassine Action was temporarily stayed on March 5, 2025. An agreement in principle on material terms of a settlement for the Hassine Action was reached on August 28, 2025, involving corporate governance reforms, subject to court approval. As of October 21, 2025, parties in both derivative actions were negotiating a global settlement. The company does not believe any potential exposure from these lawsuits will be material to its operations as of September 30, 2025.

Related Party Transactions

• Payments made to Alexandria LaunchLabs (a subsidiary of Alexandria Real Estate Equities, Inc., where a shareholder and former board member is founder/executive chairman) for premises use: $0 for the three months ended September 30, 2025, and $17,000 for the nine months ended September 30, 2025. The LaunchLabs Agreement was terminated as of January 31, 2025.

Stakeholder Impact

• **Shareholders:** Face significant dilution risk from future capital raises, potential for further stock price volatility due to regulatory setbacks, going concern doubt, and Nasdaq delisting risk. Impact from legal proceedings, though the class action settlement is largely covered by insurance.
• **Employees:** Experienced changes in management, including CEO and CMO departures. Personnel expenses increased due to salary increases, retention bonuses, and severance payments, indicating potential instability but also efforts to retain talent.
• **Customers/Patients:** Delays in potential drug approvals (govorestat for Classic Galactosemia) directly impact the availability of treatments for rare diseases, potentially prolonging suffering or limiting options for patients.
• **Creditors:** The 'going concern' doubt raises significant concerns about the company's ability to meet its financial obligations, potentially affecting credit terms and future financing opportunities.
• **Suppliers/Partners:** Potential for disruptions if the company's financial condition deteriorates or if regulatory issues impact product development and manufacturing, which could strain existing partnerships like the Advanz Agreement.

Next Steps

• Actively working to address issues raised in the FDA's Complete Response Letter and Warning Letter.
• Meeting with the FDA to align on a regulatory path forward for govorestat.
• Meeting with the FDA to align on a regulatory path forward for CMT-SORD.
• Continuing to pursue additional long-term financing options (equity, debt, convertible debt, synthetic royalty financing).
• Continuing active dialogue with potential partners regarding business development opportunities.
• Monitoring common stock bid price and considering options like a reverse stock split to regain Nasdaq compliance.
• Finalizing documentation and seeking court approval for the securities class action settlement.
• Negotiating a global settlement for the shareholder derivative actions.
• Continuing efforts to improve control processes to avoid future material weaknesses.

Key Dates

Recommendation

The company faces critical challenges, including a 'going concern' warning, a Complete Response Letter from the FDA for its lead candidate (govorestat for Classic Galactosemia), and a Warning Letter related to clinical trial conduct. Cash reserves are critically low ($11.9 million), necessitating substantial additional funding in a volatile market. While a licensing deal for AT-001 provides some upfront cash and potential milestones, and litigation settlements are largely covered by insurance, these positives are heavily outweighed by the fundamental operational and financial risks. The Nasdaq delisting risk further compounds investor uncertainty. The path to profitability is highly uncertain and fraught with significant development and regulatory hurdles.

Keywords

Biopharmaceutical, Clinical-stage, Rare diseases, Galactosemia, SORD deficiency, Diabetic cardiomyopathy, Aldose Reductase Inhibitor, AT-007, govorestat, AT-001, caficrestat, PMM2-CDG, FDA Complete Response Letter, FDA Warning Letter, SEC filing, 10-Q, Liquidity, Going concern, Securities litigation, Biossil, Advanz Pharma, Nasdaq delisting risk