UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
(Check One)
[ ] Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934
or
[X] Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
Commission file number 001-32001
Aptose Biosciences Inc.
(Exact name of registrant as specified in its charter)
Canada
(Province or other jurisdiction of incorporation or
organization)
2836
(Primary Standard Industrial
Classification Code Number (if applicable))
98-1136802
(I.R.S. Employer
Identification Number (if Applicable))
5955 Airport Road, Suite #228
Mississauga, Ontario L4V 1R9
Canada
(647) 479-9829
(Address and Telephone Number of Registrant’s Principal Executive Offices)
Aptose Biosciences U.S. Inc.
12770 High Bluff Drive, Suite 120
San Diego, California 92130
(858) 926-2730
(Name, Address (Including Zip Code) and Telephone Number
(Including Area Code) of Agent For Service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Common Shares, no par value
Name of each exchange on which registered
The NASDAQ Capital Market
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
For annual reports, indicate by check mark the information filed with this Form:
[X] Annual Information Form
[X] Audited Annual Financial Statements
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 27,502,053
Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule
12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). If “Yes” is marked, indicate the file number assigned to the Registrant in connection with such
Rule.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Yes___ No X
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
Yes X No___
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ____
Emerging growth company X
Principal Documents
FORM 40-F
The following documents, filed as Exhibits 99.1, 99.2 and 99.3 to this Annual Report on Form 40-F (this “Annual Report”) of Aptose Biosciences Inc. (“we”, “us”, “our”,
“Aptose” or the “Company”), are hereby incorporated by reference into this Annual Report:
(a)
(b)
(c)
Annual Information Form for the fiscal year ended December 31, 2017;
Management’s Discussion and Analysis for the fiscal year ended December 31, 2017; and
Audited Consolidated Financial Statements for the fiscal year ended December 31, 2017. Aptose’s Audited Consolidated Financial Statements included in this
Annual Report have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.
Therefore, they are not comparable in all respects to financial statements of United States companies that are prepared in accordance with United States
generally accepted accounting principles.
40-F1
Certifications and Disclosure Regarding Controls and Procedures.
ADDITIONAL DISCLOSURE
(a)
(b)
(c)
(d)
(e)
Certifications. See Exhibits 99.4, 99.5, 99.6 and 99.7 to this Annual Report on Form 40-F.
Disclosure Controls and Procedures. As of the end of Aptose’s fiscal year ended December 31, 2017, an evaluation of the effectiveness of Aptose’s “disclosure controls
and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was
carried out by Aptose’s management, with the participation of its principal executive officer and principal financial officer. Based upon that evaluation, Aptose’s
principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, Aptose’s disclosure controls and procedures are effective
to ensure that information required to be disclosed by Aptose in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission (the “Commission”) rules and forms and (ii) accumulated and communicated to
Aptose’s management, including its principal executive officer and principal financial officers, to allow timely decisions regarding required disclosure.
It should be noted that while Aptose’s principal executive officer and principal financial officer believe that Aptose’s disclosure controls and procedures provide a
reasonable level of assurance that they are effective, they do not expect that Aptose’s disclosure controls and procedures or internal control over financial reporting will
prevent all errors or fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.
Management’s Annual Report on Internal Control Over Financial Reporting. The required disclosure is included under the heading “Evaluation of Disclosure Controls
and Internal Controls” in our Management’s Discussion and Analysis for the fiscal year ended December 31, 2017 filed as Exhibit 99.2 to this Annual Report on Form
40-F.
Attestation Report of the Registered Public Accounting Firm. We are not required to include an attestation report of Aptose’s independent registered public accounting
firm regarding internal control over financial reporting in this Annual Report because emerging growth companies are exempt from this requirement for so long as they
remain emerging growth companies. Therefore, management’s report on internal control over financial reporting is not subject to attestation by our independent
registered public accounting firm.
Changes in Internal Control Over Financial Reporting. During the fiscal year ended December 31, 2017, no changes were made in Aptose’s internal control over
financial reporting that have materially affected or are reasonably likely to materially affect Aptose’s internal control over financial reporting
40-F2
Notices Pursuant to Regulation BTR
None.
Audit Committee Financial Expert
Our board of directors has determined that Mr. Warren Whitehead, a director of Aptose and the chairman of the Audit Committee, possesses the attributes required of an “audit
committee financial expert,” and is “independent,” within the meaning of applicable NASDAQ Capital Market rules (“NASDAQ”).
Code of Ethics
We adopted a Code of Ethics that meets the definition of a “code of ethics” set forth in Form 40-F, and that applies to all of Aptose’s officers, directors, employees and
consultants.
A copy of the code of ethics is available on our website at www.aptose.com or, without charge, upon written request from our Vice President of Finance at our offices located
at 5955 Airport Road, Suite #228, Mississauga, Ontario L4V 1R9, Canada. There were been any amendments to, or waivers, including implicit waivers, granted from, any
provision of the Code of Ethics during the twelve months ended December 31, 2017.
Principal Accountant Fees and Services
The required disclosure is included under the heading “External Auditor Service Fees ” in our Annual Information Form for the fiscal year ended December 31, 2017, filed as
Exhibit 99.1 to this Annual Report.
Pre-Approval Policies and Procedures.
(a)
(b)
Aptose’s audit committee pre-approves all audit and non-services provided to Aptose by its external auditor, KPMG LLP. Also see “Audit Committee Mandate − Pre-
Approval Policies and Procedures” in our Annual Information Form for the fiscal year ended December 31, 2017, filed as Exhibit 99.1 to this Annual Report on Form
40-F.
Of the fees reported in Exhibit 99.1 to this Annual Report on Form 40-F under the heading “External Auditor Service Fees”, none of the fees billed by KPMG LLP were
approved by the chair of our audit committee pursuant to the de minimis exception provided by Section (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
40-F3
Off-Balance Sheet Arrangements
Aptose does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Tabular Disclosure of Contractual Obligations
The following table sets forth our known contractual obligations as at December 31, 2017:
Contractual Obligations
Long-Term Debt Obligations
Capital (Finance) Lease Obligations
Operating Lease Obligations
Purchase Obligations
Other Long-Term Liabilities Reflected on Aptose’s Balance
Sheet
Total
$
$
Identification of the Audit Committee.
Total
-
-
1,357
-
$
-
1,357
$
Less than 1
Year
-
-
225
-
$
-
225
$
Payments due by period
1-3 Years
3-5 Years
-
-
410 $
-
-
410 $
-
-
433 $
-
-
433 $
More than
5 years
-
-
289
-
-
289
We have a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the audit committee are
Denis R. Burger, Brad Thompson, and Warren Whitehead.
NASDAQ Statement of Governance Differences.
As a Canadian corporation listed on NASDAQ, we are not required to comply with certain NASDAQ corporate governance standards. Section 5615(a)(3) of the NASDAQ
Marketplace Rules permits NASDAQ to grant exemptions to a foreign private issuer for certain provisions of the Rule 5600 series and Rule 5250(d). We are organized under
the laws of Canada and our common shares are listed for trading on the TSX. We comply with the laws of Canada and rules and regulations of the TSX, including rules related
to corporate governance practices. A description of the significant ways in which our governance practices differ from those followed by domestic companies pursuant to the
NASDAQ Marketplace Rules is as follows:
Shareholder Meeting Quorum Requirement: The NASDAQ minimum quorum requirement for a shareholder meeting under Section 5620(c) of the NASDAQ Marketplace
Rules is one-third of the outstanding shares of common stock. In addition, a company listed on NASDAQ is required to state a quorum requirement in its bylaws. Our quorum
requirement is set forth in our corporate bylaws. A quorum for our shareholder meeting is not less than 25% of the outstanding shares of the Corporation entitled to be voted at
such meeting present or by means of a telephonic, electronic or other communication facility that permits all participants to communicate adequately with each other during the
meeting and each entitled to vote at the meeting.
40-F4
Compensation Committee Mandate: NASDAQ required compliance with the revised Rule 5605(d) for all companies following the company’s first annual meeting occurring
after January 15, 2014, or October 31, 2014, whichever is earlier. In our case, this was following our August 19, 2014 annual general and special meeting. The changes to the
rule include requiring the mandate of the compensation committee to include accountability to external advisors. Our compensation committee mandate does not currently
include such requirements.
Shareholder Approval Exemption: Rule 5635 of the NASDAQ Marketplace Rules sets forth circumstances under which shareholder approval is required prior to certain types
of security issuances. Pursuant to the NASDAQ Marketplace Rules, a company must receive prior shareholder approval for transactions involving the sale or issuance of a
company’s common stock (or securities convertible into or exercisable for its common stock): (i) at a price below the greater of book value or market value; and (ii) which
together with sales by officers, directors, or substantial stockholders, is equal to 20% or more of the company’s outstanding shares of common stock or 20% or more of the
voting power prior to issuance. We received an exemption from this 20% threshold requirement from NASDAQ on October 27, 2017 in connection with our common shares
Purchase Agreement with Aspire Capital Fund, LLC. In the event of an issuance meeting the criteria set forth above, we are not required to seek prior shareholder approval.
The foregoing is consistent with the laws, customs and practices in Canada and the rules of the TSX.
40-F5
A.
Undertaking.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
We undertake to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when
requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an
annual report on Form 40-F arises; or transactions in said securities.
B.
Consent to Service of Process.
We have concurrently filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.
Any change to the name or address of our agent for service shall be communicated promptly to the Commission by an amendment to the Form F-X referencing our file
number.
40-F6
Pursuant to the requirements of the Exchange Act, the registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 27, 2018.
Aptose Biosciences Inc.
SIGNATURES
/s/ William G. Rice
By:
Name: William G. Rice, Ph.D.
Title:
Chairman, President and Chief Executive
Officer
40-F7
Exhibit
Description
EXHIBIT INDEX
99.1
99.2
99.3
99.4
99.5
99.6
99.7
99.8
101
Annual Information Form for the fiscal year ended December 31, 2017
Management’s Discussion and Analysis for the fiscal year ended December 31, 2017
Audited Consolidated Financial Statements for the fiscal year ended December 31, 2017
Certification of Chief Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934
Certification of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
Consent of KPMG LLP
Interactive Data Files
Exhibit 99.1
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED DECEMBER 31, 2017
March 27, 2018
CONTENTS
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
XIV.
XV.
INTRODUCTION AND FORWARD-LOOKING STATEMENTS
CORPORATE STRUCTURE
THE COMPANY
RISK FACTORS AND UNCERTAINTIES
DIVIDENDS
DESCRIPTION OF CAPITAL STRUCTURE
MARKET FOR SECURITIES
DIRECTORS AND OFFICERS
AUDIT COMMITTEE
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
TRANSFER AGENT AND REGISTRAR
MATERIAL CONTRACTS
INTEREST OF EXPERTS
ADDITIONAL INFORMATION
1
3
4
18
35
35
36
37
41
43
44
44
44
44
45
I.
INTRODUCTION AND FORWARD-LOOKING STATEMENTS
The information contained in this Annual Information Form is stated as at December 31, 2017, unless otherwise indicated. If the context otherwise requires or unless otherwise
indicated, “Aptose”, the “Company”, “we”, “us” and “our” refer collectively to Aptose Biosciences Inc., 5955 Airport Road Suite #228, Mississauga, Ontario, Canada, L4V
1R9, and to its subsidiaries, Aptose Biosciences U.S. Inc., Aptose Suisse GmbH and NuChem Pharmaceuticals Inc.
Unless otherwise indicated, all dollar amounts are expressed in US dollars and references to “$” are US dollars.
Certain statements in this Annual Information Form (“AIF”) may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. When used in this AIF, such statements use such words as “anticipate”, “contemplate”, “continue”,
“believe”, “plan”, “estimate”, “expect”, “intend”, “will”, “should”, “may”, “hope” and other similar terminology. These statements reflect current expectations regarding future
events and operating performance and speak only as of the date of this AIF. Forward-looking statements include, among others:
·
·
·
·
·
·
·
·
·
·
·
·
our ability to obtain the substantial capital we require to fund research and operations;
our business strategy;
our clinical development plans;
our plans to secure and maintain strategic partnerships to assist in the further development of our product candidates and to build our pipeline;
our plans to conduct clinical trials and preclinical programs;
our ability to accrue appropriate numbers and types of patients;
our ability to file and maintain intellectual property to protect our pharmaceutical assets;
our reliance on external contract research/manufacturing organizations for certain activities;
potential exposure to legal actions and potential need to take action against other entities;
our expectations regarding the progress and the successful and timely completion of the various stages of our drug discovery, drug synthesis and formulation, preclinical
and clinical studies and the regulatory approval process;
our plans, objectives, expectations and intentions; and
other statements including words such as “anticipate”, “contemplate”, “continue”, “believe”, “plan”, “estimate”, “expect”, “intend”, “will”, “should”, “may”, and other
similar expressions.
The forward-looking statements reflect our current views with respect to future events, are subject to significant risks and uncertainties, and are based upon a number of
estimates and assumptions that, while considered reasonable by us, are inherently subject to significant business, economic, competitive, political and social uncertainties and
contingencies. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements that
may be expressed or implied by such forward-looking statements, including, among others:
1
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
our ability to obtain the substantial capital we require to fund research and operations;
our lack of product revenues and history of operating losses;
our early stage of development, particularly the inherent risks and uncertainties associated with (i) developing new drug candidates generally, (ii) demonstrating the
safety and efficacy of these drug candidates in clinical studies in humans, and (iii) obtaining regulatory approval to commercialize these drug candidates;
our drug candidates require time-consuming and costly preclinical and clinical testing and regulatory approvals before commercialization;
clinical studies and regulatory approvals of our drug candidates are subject to delays, and may not be completed or granted on expected timetables, if at all, and such
delays may increase our costs and could delay our ability to generate revenue;
the regulatory approval process;
our ability to recruit patients for clinical trials;
the progress of our clinical trials;
our ability to find and enter into agreements with potential partners;
our ability to attract and retain key personnel;
our ability to obtain and maintain patent protection;
our ability to protect our intellectual property rights and not infringe on the intellectual property rights of others;
our reliance on external contract research/manufacturing organizations for certain activities;
our ability to comply with applicable governmental regulations and standards;
development or commercialization of similar products by our competitors, many of which are more established and have or have access to greater financial resources
than us;
commercialization limitations imposed by intellectual property rights owned or controlled by third parties;
our business is subject to potential product liability and other claims;
potential exposure to legal actions and potential need to take action against other entities;
our ability to maintain adequate insurance at acceptable costs;
further equity financing may substantially dilute the interests of our shareholders;
changing market conditions; and
2
·
other risks detailed from time-to-time in our on-going quarterly filings, annual information forms, annual reports and annual filings with Canadian securities regulators
and the United States Securities and Exchange Commission (“SEC”), and those which are discussed under the heading “Risk Factors and Uncertainties” in this
document.
Should one or more of these risks or uncertainties materialize, or should the assumptions set out in the section entitled “ Risk Factors and Uncertainties” underlying those
forward-looking statements prove incorrect, actual results may vary materially from those described herein. These forward-looking statements are made as of the date of this
AIF, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by law. Such statements may not prove to be
accurate as actual results and future events could differ materially from those anticipated in such statements. Investors are cautioned that forward-looking statements are not
guarantees of future performance and accordingly investors are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainty therein. New
factors emerge from time to time, and it is not possible for management of the Company to predict all of these factors or to assess in advance the impact of each such factor on
the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statement.
II.
CORPORATE STRUCTURE
Lorus Therapeutics Inc. (“Old Lorus”) was incorporated on September 5, 1986 under the name RML Medical Laboratories Inc. pursuant to the Business Corporations Act
(Ontario). On October 28, 1991, RML Medical Laboratories Inc. amalgamated with Mint Gold Resources Ltd., resulting in Old Lorus becoming a reporting issuer (as defined
under applicable securities law) in Ontario, on such date. On August 25, 1992, Old Lorus changed its name to IMUTEC Corporation. On November 27, 1996, Old Lorus
changed its name to Imutec Pharma Inc., and on November 19, 1998, Old Lorus changed its name to Lorus Therapeutics Inc. On October 1, 2005, Old Lorus continued under
the Canada Business Corporations Act.
On July 10, 2007 (the “Arrangement Date”), Old Lorus completed a plan of arrangement and corporate reorganization with, among others, 6650309 Canada Inc. (“New
Lorus”), 6707157 Canada Inc. and Pinnacle International Lands, Inc. As a result of the plan of arrangement and reorganization, each common share of Old Lorus was
exchanged for one common share of New Lorus and the assets (excluding certain deferred tax assets) and liabilities of Old Lorus (including all of the shares of its subsidiaries)
were transferred, directly or indirectly, to New Lorus and/or its subsidiaries. New Lorus continued the business of Old Lorus after the Arrangement Date with the same officers
and employees and continued to be governed by the same board of directors as Old Lorus prior to the Arrangement Date.
On August 28, 2014, New Lorus changed its name from Lorus Therapeutics Inc. to Aptose Biosciences Inc. and on October 1, 2014 we consolidated our outstanding common
shares (the “Common Shares”) on the basis of one post-consolidation Common Share for each twelve pre-consolidation Common Shares.
The address of the Company’s head and registered office is 5955 Airport Road Suite #228, Mississauga, Ontario, Canada, L4V 1R9 and our phone number is (647) 479-9828.
Our corporate website is www.aptose.com. The contents of the website and items accessible through the website are specifically not incorporated in this AIF by reference.
Aptose has three subsidiaries: Aptose Biosciences U.S. Inc. (“Aptose USA”), a company incorporated under the laws of Delaware, USA, Aptose Suisse GmbH (“Aptose
Suisse”) a company incorporated under the laws of the canton of Zug, Switzerland and NuChem Pharmaceuticals Inc. (“NuChem”), a company incorporated under the laws of
Ontario, Canada. Aptose owns 100% of the issued and outstanding voting share capital of Aptose USA and Aptose Suisse and 80% of the issued and outstanding voting share
capital of NuChem.
3
III.
THE COMPANY
Aptose is a science-driven biotechnology company advancing highly differentiated agents to treat unmet medical needs in life-threatening cancers, such as acute myeloid
leukemia (“AML”), high-risk myelodysplastic syndromes (“MDS”) and other hematologic malignancies. Based on insights into the genetic and epigenetic profiles of certain
cancers and patient populations, Aptose is building a pipeline of novel and targeted oncology therapies directed at dysregulated processes and signaling pathways in cancer
cells, and this strategy is intended to optimize efficacy and quality of life by minimizing the cytotoxic side effects associated with conventional therapies. Our product pipeline
includes cancer drug candidates that exert potent activity as stand-alone agents and that enhance the activities of other anticancer agents without causing overlapping toxicities.
Indeed, we believe our targeted products can emerge as first-in-class or best-in-class agents that deliver single agent benefit and may serve as part of a combination therapeutic
strategy for specific populations of cancer patients.
We believe the future of cancer treatment and management lies in the prospective selection and treatment of patients having malignancies that are genetically or epigenetically
predisposed to response based on a drug’s unique mechanism of action. We are of the view that many drugs currently approved for the treatment and management of cancer are
not selective for the specific genetic alterations (targets) that cause the patient’s tumor and hence lead to significant toxicities due to off-target effects. Aptose’s strategy is to
develop agents that target underlying disease-promoting mutations or altered pathways within a patient population, and we intend to apply this strategy across several
therapeutic indications in oncology, including hematologic malignancies and solid tumor indications.
Aptose has one clinical-stage program, one late-preclinical program, and a third program that is discovery-stage and partnered with another company. CG026806 (“CG’806”),
Aptose’s pan-FLT3 / pan-Bruton’s tyrosine kinase (“BTK”) inhibitor, is currently in late preclinical development and moving toward investigational new drug (“IND”)
submission. Development of CG’806 is intended for the treatment of patients with relapsed / refractory AML and patients having certain B-cell malignancies. APTO-253 is
Aptose’s second program and at the Phase 1b clinical stage for the treatment of patients with relapsed / refractory blood cancers, including AML and high-risk MDS under an
IND allowed by the United States Food and Drug Administration (“FDA”) to evaluate APTO-253 as a therapeutic agent dosed on a weekly administration schedule for the
treatment of certain hematologic malignancies. The APTO-253 program is currently on clinical hold and awaiting a new clinical batch of drug product to be manufactured and
released.
Aptose’s leadership team comprises accomplished industry, financial and clinical research professionals who are dedicated to building a comprehensive anticancer drug
pipeline and clinical development programs focused on targeted therapeutics directed against dysregulated oncogenic processes in patients with life-threatening hematologic
malignancies.
The common shares of the Company are currently listed on the NASDAQ Capital Market (“NASDAQ”) under the symbol “APTO” and on the Toronto Stock Exchange
(“TSX”) under the symbol “APS”.
Products
As noted above, Aptose is committed to the development of anticancer drugs that target aberrant oncologic signaling that underlie a particular life-threatening malignancy. This
targeted approach is intended to impact the disease-causing events in cancer cells without affecting normal processes within cells. Such an approach requires that we first
identify critical underlying oncogenic mechanisms in cancer cells and then develop a therapeutic that selectively impacts such oncogenic mechanisms. As a multi-kinase pan-
FLT3 / BTK inhibitor, CG’806 targets multiple critical pathways that overlap to lead to the proliferation of cancer cells, including the B-cell receptor signaling pathway and
FLT3 receptor pathways that converge at various points in the signaling cascade. Further, Aptose created the APTO-253 small molecule targeted drug that inhibits expression
of the c-Myc oncogene and is under development as a novel therapy for AML and the related MDS.
4
The following table sets forth various product conditions in our pipeline and their respective stages of development.
CG’806
Overview
In June 2016, we announced a definitive agreement with South Korean company CrystalGenomics, Inc. (“CG”), granting us an exclusive option to research, develop and
commercialize CG’806 in all countries of the world except the Republic of Korea and China, for all fields of use. CG’806 is a highly potent, orally bioavailable non-covalent
small molecule being developed for AML and certain B cell malignancies because of its actions as a pan-FLT3/pan-BTK inhibitor. We paid $1.0 million to CG to acquire the
option. Should we elect to exercise the option, upon exercise, we would pay an additional $2.0 million in cash or combination of cash and common shares, and would receive
full development and commercial rights for the program in all territories outside of the Republic of Korea and China. The option fee is due on the earlier of (i) filing of an IND
application with the FDA, (ii) first dosage of a human in a clinical trial or (iii) or June 2018.
CG’806 exhibits a picomolar IC50 toward the FMS-like tyrosine kinase 3 (FLT3) with the Internal Tandem Duplication (“FLT3-ITD”), potency against the wild type FLT3 and
a host of mutant forms of FLT3, as well as single-digit nanomolar IC50’s against BTK and its C481S mutant (“BTK-C481S”). Consequently, CG’806 is characterized as a pan-
FLT3/pan-BTK inhibitor. Further, CG’806 suppresses a small group of other relevant oncogenic kinases/pathways (including CSF1R, Aurora kinases (“AURK”), TRK, and the
AKT and ERK pathways) that are operative in AML and certain B cell malignancies, but does not inhibit the TEC, EGFR and ErbB2/4 kinases that are responsible for safety
concerns with certain other kinase inhibitors.
5
As a potent inhibitor of FLT3-ITD, CG’806 may become an effective therapy in a high-risk subset of AML patients. This is because the FLT3-ITD mutation occurs in
approximately 30% of patients with AML and is associated with a poor prognosis. In murine xenograft studies of human AML (FLT3-ITD), CG’806 administered orally once
daily for 14 days resulted in tumor elimination without measurable toxicity. Importantly, CG’806 targets other oncogenic kinases which may also be operative in FLT3-ITD
AML, thereby potentially allowing the agent to become an important therapeutic option for a broader group of this difficult-to-treat AML patient population. The findings that
CG’806 targets all forms of FLT3 and several other key oncogenic pathways, and that CG’806 was well tolerated from a safety perspective during efficacy studies, suggest that
CG’806 may also have applicability in treating patients, particularly those over the age of 65, who cannot tolerate other therapies.
Separate from the AML and FLT3 story, overexpression of the BTK enzyme can drive oncogenic signaling of certain B cell malignancies, such as chronic lymphocytic
leukemia (“CLL”), mantle cell lymphoma (“MCL”), diffuse large cell B cell lymphoma (“DLBCL”) and others. Therapy of these patients with covalent, irreversible BTK
inhibitors, such as ibrutinib, that target the active site Cysteine (“Cys”) residue of BTK can be beneficial in many patients. However, therapy with covalent BTK inhibitors can
select for BTK with a C481S mutation, thereby conferring resistance to covalent BTK inhibitors. Furthermore, approximately half of CLL patients have discontinued treatment
with ibrutinib after 3.4 years of therapy. Discontinuation of ibrutinib is due to the development of drug resistance (in particular, patients have malignancies that developed the
BTK-C481S mutation), or due to refractory disease (patient tumors did not respond to ibrutinib) or intolerance (side effects led to discontinuation of ibrutinib), according to a
study performed at The Ohio State University. The C481S mutation is observed in 5-10% of the patients, while 40-45% of the patients were intolerant or refractory to ibrutinib.
As a non-covalent, reversible inhibitor of BTK, CG’806 does not rely on the Cysteine 481 residue (“C481”) for inhibition of the BTK enzyme. Indeed, recent X-ray
crystallographic studies (with wild type and C481S BTK) demonstrated that CG’806 binds productively to the BTK active site in a manner that is indifferent to the presence or
absence of mutations at the 481 residue. Moreover, in vitro studies demonstrated that CG’806 kills B cell malignancy cell lines on average approximately 1500 times more
potently than ibrutinib, and CG’806 demonstrated a high degree of safely in animal efficacy studies. Consequently, patients who are resistant, refractory or intolerant to
ibrutinib or other commercially approved or development-stage BTK inhibitors with B cell malignancies may continue to be sensitive to CG’806 therapy. This is particularly
true since CG’806 inhibits the wild type and mutant forms of BTK, as well as other kinases/pathways that drive the survival and proliferation of B cell malignancies
Role of BTK in B-cell signaling
BTK, a member of the TEC family kinase, is an essential element of B-cell receptor (“BCR”) signaling, which is required for B-cell maturation, survival and proliferation. It is
an upstream activator of multiple pro-survival / anti-apoptotic pathways, including the NF-KB, mTOR-AKT and ERK pathways. BTK is overexpressed in malignant cells from
patients with various B-cell malignancies, such as CLL, MCL, AML, and DLBCL. Disruption of BCR signaling via inhibition of BTK, has been shown to lead to clinical
remissions in these patients.
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CG’806 as a Non-covalent, Reversible Kinase Inhibitor
Binding studies of CG’806 have confirmed non-covalent, reversible inhibition of BTK, FLT3-ITD and Aurora Kinase A. Commercially-approved, covalent BTK inhibitors
possess a Michael acceptor to react with C481 in BTK and irreversibly inactivate the BTK enzyme. In contrast, CG’806 does not require reactivity with the C481 residue for
inhibition of the BTK enzyme, thereby allowing CG’806 to inhibit the wild type and C481 mutant form of the BTK enzyme.
Preclinical In Vitro Evaluation of CG’806
CG’806 is a potent inhibitor of BTK and FLT3 wild types, as well as the BTK C481S and FLT3-ITD mutants, which represent major sources of therapy relapse or are negative
prognostic signals in patients. In enzymatic assays, CG’806 has demonstrated potency against the BTK C481S mutant with an IC50 of 2.5 nM. CG’806 also has potent activity
against the FLT-ITD mutation, occurring in 30-35% of AML patients, with an IC50 against the purified enzyme of 0.8 nM (800pM). Likewise, CG’806 exerts low nM IC50
values against the FLT3 enzyme having various mutations in the tyrosine kinase domain (TKD) and the Gatekeeper region. Similarly, CG’806 demonstrated picomolar potency
against Aurora A (IC50 0.4 nM). Notably, CG’806 is a potent inhibitor of interleukin-2-inducible T-cell kinase (“ITK”), at approximately 4 nM. ITK is speculated to play a role
in suppressing activated T-cell function, hence inhibition of ITK alleviates this suppression, and provides for a potential immunomodulatory anti-tumor mechanism. Finally,
CG’806 does not exhibit any inhibition of epidermal growth factor receptor (“EGFR”), TEC or ErbB2/4 kinases. Inhibition of one or more of these kinases has been speculated
to contribute to the toxicity observed from the commercially approved BTK inhibitor.
BTK is overexpressed in the blast cells of approximately 80% of AML patients as compared to normal peripheral blood mononuclear cells (PBMCs) in healthy subjects.
Researchers have shown that BTK inhibition attenuates the proliferation and survival of FLT3-ITD primary AML blasts and AML cell lines, as well as inhibits the downstream
activation of FLT3-ITD-dependent Myc and STAT5 kinases. We believe that CG’806 is the only drug in development that inhibits both FLT3-ITD and BTK pathways reported
to synergize to drive the proliferation and survival of AML.
CG’806 Xenograft Studies
In vivo subcutaneous AML tumor models of anti-cancer efficacy revealed CG’806 induced rapid and sustained tumor eradication (Figure 1). CG’806 was administered orally
once daily, for 14 days. Moreover, CG’806 exhibited the sustained tumor elimination post therapy, while demonstrating no impact to murine body weight, no impacts to
hematology cell counts or visible organ toxicities – necropsy and clinical pathology findings did not reveal any abnormal observations. A maximum tolerated dose has not yet
been identified with murine xenograft studies, having been performed up to 450 mg/kg orally for 14 days (CG preliminary toxicity data).
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Figure 1. Efficacy of CG’806 in MV4-11 xenograft model.
MV4-11 tumor bearing mice were administered an oral suspension once daily for 14 days of CG’806 at 2 mg/kg (blue line), 10 mg/kg (green line) or 100 mg/kg (red line),
Ibrutinib, 12 mg/kg (turquoise line), or vehicle (Control; black line) with 7-day post-treatment follow-up. Tumor volumes and body weights were measured 3 times weekly.
CG’806 Intellectual Property
A Patent Cooperation Treaty (PCT) application providing composition of matter and use protection for CG’806 was filed in late 2013, with a potential expiry in 2033 before
extension opportunities, across all major geographies.
CG’806 Manufacturing and Preclinical Progress
We have invested significant time, effort and capital to create a scalable chemical synthetic route for the manufacture of CG’806 drug substance, to develop an oral formulation
for clinical development, and to study the actions of CG’806 in various preclinical biological pathway studies. Our efforts to develop the scalable chemical synthetic route have
taken longer than anticipated and thus pushed the timeline for the IND submission and initiation of the first-in-human Phase I clinical trial further into the future than we had
originally anticipated. We now have solved the synthetic route, can scale the manufacture of API, and now have manufactured and delivered a batch of API which was used for
Dose Range Finding Studies that were performed and completed in early January, 2018. Currently we are manufacturing a multi-kg batch of GLP grade API (drug substance)
for use in GLP toxicology studies. We also reported that we selected the oral formulation that we intend to take into the GLP toxicology studies and the first-in-human clinical
trials. In addition, R&D funds are being utilized to support exploratory formulation studies in an ongoing effort to craft superior formulations for CG’806. Provided we are able
to manufacture CG’806 for both the non-clinical (GLP) studies and clinical trial, complete the non-clinical studies, and receive a favorable approval from the FDA on our IND
submission and continue on the anticipated timeline, we expect to initiate a first-in-human Phase I clinical trial by late 2018. The total direct costs of such activities and to reach
the submission of the IND are currently expected to range between US$3 million and US$4.5 million. However any interruptions or additional studies in these activities could
cause a delay in the anticipated commencement of the Phase I trial. Greater granularity on the timing of the IND submission and clinical trial will be provided in the coming
months. CG’806 is being developed with the intent to deliver the agent as an oral therapeutic and to develop it in parallel for AML and for appropriate B cell malignancies
(likely CLL). As clinical trials are lengthy, complex, costly, and uncertain processes, an estimate of the future costs is not reasonable at this time.
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Developments in 2017
On January 23, 2017, we announced that we would prioritize our resources toward the development of CG’806 and temporarily delay clinical activities with APTO-253, in
order to elucidate the cause of recent manufacturing setbacks related to the intravenous formulation of APTO-253, with the intention of restoring the molecule to a state
supporting clinical development and partnering. Although we have two compelling cancer drugs, resources could support the full development activities of only one at this time.
Recent advances with CG’806 elevated this agent as having the best risk-reward profile to pursue with those resources. Such data established CG’806 as a well-differentiated
pan-FLT3 inhibitor that demonstrates tumor eradication in the absence of toxicity in AML xenograft models, and it is on track for development as a therapy for certain AML
patients. In addition, CG’806 is a potent non-covalent inhibitor of proliferation among certain BTK-driven B-cell derived cancer cells. The encouraging properties of CG’806,
including its potency against well-established targets in diseases of severe medical need, warrant expeditious advancement and prioritization of resources toward this molecule.
On May 7, 2017, we presented preclinical data for our pan-FLT3/pan-BTK inhibitor CG’806 at the 2017 American Association for Cancer Research (AACR) Conference for
Hematologic Malignancies: Translating Discoveries to Novel Therapies in Boston, MA. Two separate presentations highlighting CG’806 were presented. In one presentation,
our scientists, with researchers from the Knight Cancer Institute at Oregon Health & Science University (OHSU), presented data relating to the potency of CG’806 against
samples derived from patients with various hematologic malignancies. In a separate presentation, our scientists, with researchers from the MD Anderson Cancer Center,
presented data demonstrating CG’806’s potent activity against AML cells harboring wild type or specific mutant forms of FLT3.
In September 2017 the USPTO informed us that the patent has been awarded. The patent claims numerous compounds, including the CG’806 compound, pharmaceutical
compositions comprising the CG’806 compound, and methods of treating various diseases caused by abnormal or uncontrolled activation of protein kinases.
On December 11, 2017 at the American Society of Hematology Annual Meeting, we presented with the OHSU Knight Cancer Institute preclinical data demonstrating that
CG’806, a pan-FLT3/pan-BTK inhibitor, has broad and potent drug activity against AML, CLL and other hematologic disease subtypes. We also announced the presentation of
preclinical data from research led by The University of Texas MD Anderson Cancer Center demonstrating that CG’806 exerts a profound anti-leukemia effect in human and
murine leukemia cell lines harboring FLT-3 ITD mutations, mutations that are usually associated with very poor prognoses in leukemia patients. In addition, CG’806 induces
apoptosis, or programmed cell death, in AML patient samples by multiple mechanisms and is able to overcome resistance that is seen with other FLT3 inhibitors. The data were
highlighted in poster presentations on December 10 and 11, 2017 at the American Society of Hematology Annual Meeting.
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On December 26, 2017, we announced that the FDA has granted orphan drug designation to CG’806 for the treatment of patients with AML. Orphan drug designation is granted
by the FDA to encourage companies to develop therapies for the treatment of diseases that affect fewer than 200,000 individuals in the United States. Orphan drug status
provides research and development tax credits, an opportunity to obtain grant funding, exemption from FDA application fees and other benefits. If CG’806 is approved to treat
AML, the orphan drug designation provides Aptose with seven years of marketing exclusivity.
On March 15, 2018, we announced two abstracts related to the mechanistic properties of CG’806 in AML cells and in B cell malignancy cells have been accepted for poster
presentations at the upcoming 2018 Annual Meeting of the American Association for Cancer Research (AACR).
APTO-253
Overview
APTO-253, the Company’s second program, is a novel small molecule therapeutic agent that inhibits expression of the c-Myc oncogene, leading to cell cycle arrest and
programmed cell death (apoptosis) in human-derived solid tumor and hematologic cancer cells, without causing general myelosuppression of the healthy bone marrow. The c-
Myc oncogene is overexpressed in hematologic cancers, including AML. C-Myc is a transcription factor that regulates cell growth, proliferation, differentiation and apoptosis,
and overexpression amplifies new sets of genes to promote oncogenesis. APTO-253 dramatically down-regulates expression of the c-Myc oncogene in AML cells and depletes
those cells of the c-Myc oncoprotein, leading to apoptotic cell death in AML cells. Thus APTO-253 may serve as safe and effective c-Myc inhibitor for AML that combines
well with other agents and does not impact the normal bone marrow.
APTO-253 was being evaluated by us in a Phase Ib clinical trial in patients with relapsed / refractory hematologic malignancies, particularly AML and MDS before being placed
on clinical hold by the FDA in November 2015. If and when the APTO-253 clinical trial is re-initiated, upon completion of the dose-escalation stage of the study and
determination of the appropriate dose, the plan would be to enroll additional AML patients for a disease-specific single-agent expansion cohorts. For future development, upon
selection of a lead hematologic indication from this Phase Ib study, combination of APTO-253 with a standard therapy would be considered.
As previously disclosed, the Phase Ib trial was placed on clinical hold in order to solve a chemistry-based formulation issue, and the chemistry of the API and the formulation
had undergone minor modifications to deliver a stable and soluble drug product for return to the clinical setting. In December 2016, we announced that we had successfully
manufactured multiple non-GMP batches of a new drug product formulation for APTO-253, including a batch that had been stable and soluble for over six months. However,
the 40L batch that was the intended clinical supply encountered an unanticipated mishap during the filling process that compromised the stability of that batch of drug product.
On January 23, 2017, we announced that the root cause and corrective action studies would take longer than originally expected and that we would temporarily delay clinical
activities with APTO-253 in order to elucidate the cause of manufacturing setback, with the intention of restoring the molecule to a state supporting clinical development and
partnering. Formal root cause analyses studies have now been completed and have identified the reason for the drug product stability failure, and we have established a
corrective and prevention action plan for the manufacture of future batches of drug product. Given these findings, we have manufactured a new GMP clinical supply of drug
product and are in the process of performing studies required to demonstrate the fitness of the drug product for clinical usage, and then we plan to present the findings to the
FDA in the second quarter of 2018 with the hope of having the clinical hold removed by the end of the second quarter of 2018 and returning APTO-253 to the clinical trial soon
thereafter. The total direct costs of such activities to reach the presentation of the findings to the FDA are currently expected to range between US$1 million and US$1.5 million.
Investors are cautioned that there can be no assurance that the FDA will remove the clinical hold.
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In the event the clinical hold is removed by the FDA, based on our current estimates and the information available to us at this time, we expect to complete the clinical drug
product manufacture, initiate studies to investigate additional drug delivery methods for APTO-253 and to initiate additional non-clinical studies for solid tumor and hematologic
development. As preparing, submitting, and advancing applications for regulatory approval, developing drugs and drug product and clinical trials are sometimes complex,
costly, and time consuming processes, an estimate of the future costs is not reasonable at this time.
Solid Tumors
In January 2011, Aptose announced the first patient enrolment in a Phase I dose-escalation study for APTO-253 in patients with advanced or metastatic solid tumors who are
unresponsive to conventional therapy or for which no effective therapy is available. The study was initially being conducted at Memorial Sloan-Kettering Cancer Center in New
York. Objectives of the study included determination or characterization of the safety profile, maximum tolerated dose, and antitumor activity of APTO-253, as well as
pharmacokinetics and a recommended Phase II dose for subsequent clinical trials.
In June 2012, MD Anderson Cancer Center in Houston was added as a second site under the direction of Dr. Jennifer Wheler as the principal investigator. In addition, Aptose
announced that the study had successfully completed the accelerated drug dose escalation stage (Stage 1), with further escalation under way in the non-accelerated dose
escalation stage (Stage 2) for the purpose of determining the maximal tolerated dose level and recommended Phase II dose. The addition of a second site expanded patient
availability for enrollment.
In January 2013, Aptose announced that Phase I clinical study of APTO-253 has successfully escalated to the target dose level based on predicted and observed clinical effects
without limitation by toxicity. The success of this study allowed Aptose to initiate a biomarker clinical investigation to further explore the effects of the drug at relevant doses
determined in the clinical trial.
In April 2013, Aptose announced that studies demonstrated the antitumor activity of APTO-253 in animal models of human NSCLC with a dose-response effect in NSCLC.
In July 2013, Aptose announced the results of the Phase 1 clinical trial of APTO-253. In this first-in-man dose-escalation clinical study, APTO-253 demonstrated a favorable
safety profile, as well as encouraging signs of antitumor activity. The design of this trial consisted of APTO-253 as a single agent in patients with advanced solid tumors
resistant to multiple standard therapies. The study enrolled 27 patients, all of which had failed a median of four prior chemotherapies. Although this was primarily a dose-
escalation safety study, efficacy and pharmacokinetics were also explored.
The clinical trial enrolled patients at seven dose levels ranging from 20 to 229 mg/m2. Of the 27 patients enrolled, 17 were evaluable for efficacy. Of these 17 patients, seven
(41%) achieved stable disease by Response Evaluation Criteria In Solid Tumors (“RECIST”). This included patients with colorectal, lung, appendiceal, liver and uterine
cancers. Dose related activity was demonstrated at the higher dose levels (176 and 229 mg/m2). At these two highest dose levels, four of five evaluable patients (80%) achieved
sustained stable disease by RECIST ranging from 5.6 months to 8 months, representative of disease control. Of these, a patient with non-small cell lung cancer at the highest
dose level additionally demonstrated non-index tumor shrinkage.
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The safety assessment indicated that APTO-253 was well tolerated at all dose levels tested in this trial. The dose escalation was not limited by toxicity. The most common
adverse event was Grade 1 or 2 fatigue seen in three patients. There was one Grade 3 toxicity, asymptomatic low blood phosphate level that was reversible by supplementation
with phosphates. The pharmacokinetic profile was consistent with the predictive profile seen preclinically, and the elimination profile and half-life in patients were suggestive of
a very rapid distribution phase and prolonged retention.
Multi-Targeting Bromodomain Program
In November 2015, Aptose entered into a definitive agreement with Moffitt Cancer Center (“Moffitt”) for exclusive global rights to potent, multi-targeting, single-agent
inhibitors for the treatment of hematologic and solid tumor cancers. These small molecule agents are inhibitors of the Bromodomain and Extra-Terminal motif (“BET”) protein
family members, which simultaneously target specific kinase enzymes. The molecules developed by Moffitt exhibited potency against the BET family members and specific
oncogenic kinases which, when inhibited, are synergistic with BET inhibition. Under the agreement, Aptose would gain access to the drug candidates developed by Moffitt and
the underlying intellectual property covering the chemical modifications enabling potent bromodomain (“BRD”) inhibition on the chemical backbone of a kinase inhibitor.
In January 2017, Aptose terminated the collaboration with Moffitt for the development of the dual BRD4 / JAK2 inhibitor program.
Multi-Targeting Epigenetic Program
In November 2015, Aptose announced an exclusive drug discovery partnership with Laxai Avanti Life Sciences (“LALS”) for their expertise in next generation epigenetic-
based therapies. Under the agreement, LALS was to be responsible for developing multiple clinical candidates, including optimizing candidates that exert dual BRD4 / kinase
inhibitory activity. Based on available resources, Aptose halted further investment in the collaboration with LALS in late 2016. However, the program delivered novel
intellectual property and hit molecules for further optimization. As a consequence, Aptose may choose to out-license the program.
On March 7, 2018, we entered into an exclusive global license agreement with Ohm Oncology (“OHM”), an affiliate of LALS that was formed in 2016 to advance the clinical
development of compelling molecules derived from the LALS initiative, for the development, manufacture and commercialization of APL-581, as well as related molecules
from Aptose’s dual bromodomain and extra-terminal domain motif (BET) protein and kinase inhibitor program. Under the agreement, Aptose will retain reacquisition rights to
certain molecules, while OHM/LALS will have the rights to develop and sublicense all other molecules. Aptose will receive a nominal upfront cash payment and is eligible to
receive up to $125 million of additional payments based on the achievement of certain development, regulatory and sales milestones, as well as significant royalties on future
sales generated from the program, if any.
Clinical Indications for Aptose Programs
Acute Myeloid Leukemia
AML is a rapidly progressing cancer of the blood and bone marrow characterized by the uncontrolled proliferation of dysfunctional myeloblasts that do not mature into healthy
blood cells. It is the most common form of acute leukemia in adults. The American Cancer Society estimates [there will be] approximately 19,520 new cases of AML and
approximately 10,670 deaths from AML in the United States in 2018. [Standard induction therapy with chemotherapy is successful in many AML patients, but the majority of
these patients will relapse with treatment refractory disease. The average age of a patient with AML is 67 years. Approximately 48% patients less than age 60, and 34% of
patients greater than or equal to age 60, with residual disease after induction therapy will achieve a remission, as reported by Datamonitor Healthcare.
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Myelodysplastic Syndromes
MDS are a group of blood and bone marrow disorders. In MDS, stem cells do not mature normally, and the number of blasts (immature cells) and dysplastic (abnormally
developed) cells increases. Also, the number of healthy mature cells decreases, meaning there are fewer normal red blood cells, white blood cells, and platelets. The numbers of
blood cells are often called blood cell counts. Because of the decrease in healthy cells, people with MDS often have anemia (a lowered blood cell count), and may have
neutropenia (a low white blood cell count) and thrombocytopenia (a low platelet count). Also, the chromosomes (long strands of genes) in the bone marrow cells may be
abnormal. According to the American Cancer Society, there are approximately 13,000 new cases of MDS annually in the United States. Additionally, Datamonitor Healthcare
reports median survival in higher risk MDS patients may range between five months and two years. There are several subtypes of MDS, and some subtypes of MDS may
eventually turn into AML.
Specialized Skill and Knowledge
The business of the Company requires personnel with specialized skills and knowledge in oncology. Researchers must be able to design and implement studies to assess the
efficacy of anticancer drugs. Specialized knowledge and skills relating to chemistry and formulation process development are also needed. Such knowledge and skills are
needed to develop product specific analytical methods and formulation processes. The Company’s business also requires clinical and regulatory expertise and knowledge. The
Company has trained scientists and personnel with broad experience in these fields.
Competitive Conditions
The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and intense competition. There are numerous companies in these industries
that are focusing their efforts on activities similar to ours. Some of these are companies with established positions in the pharmaceutical industry and may have substantially
more financial and technical resources, more extensive research and development capabilities, and greater marketing, distribution, production and human resources than Aptose.
In addition, we face competition from other companies for opportunities to enter into partnerships with biotechnology and pharmaceutical companies and academic institutions.
Competition with our potential products may include chemotherapeutic agents, monoclonal antibodies, antisense therapies, small molecules, immunotherapies, vaccines and
other biologics with novel mechanisms of action. These drugs may kill cancer cells indiscriminately, or through a targeted approach, and some have the potential to be used in
non-cancer indications. We also expect that we will experience competition from established and emerging pharmaceutical and biotechnology companies that have other forms
of treatment for the cancers that we target, including drugs currently in development for the treatment of cancer that employ a number of novel approaches for attacking these
cancer targets. Cancer is a complex disease with more than 100 indications requiring drugs for treatment. The drugs in competition with our potential drugs have specific targets
for attacking the disease, targets which are not necessarily the same as ours. These competitive drugs, however, could potentially also be used together in combination therapies
with our drugs to manage the disease. Other factors that could render our potential products less competitive may include the stage of development, where competitors’
products may achieve earlier commercialization, as well as superior patent protection, better safety profiles, or a preferred cost-benefit profile.
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Components
Standard raw materials, component parts, and products required by the Company in pursuing its activities are supplied from reputable companies active in the biotechnology
industry. Pricing is predictable as there are many alternatives of such supplies that are readily available.
Intangible Properties
We believe that our issued patents and pending applications are important in establishing and maintaining a competitive position with respect to our products and technology.
As of March 27, 2018, we are the owner of record of 6 issued U.S. patents, which together provide coverage for the APTO-253 compound, it’s pharmaceutical composition and
methods of treating various cancers with APTO-253, including solid tumors and leukemia. The APTO-253 ccomposition of matter patent expires in 2028 in the United States
and 2026 in other countries. We also hold 17 international (non-U.S.) patents which together provide coverage for APTO-253, three of which are issued European patents,
validated in at least eight countries in Europe. Our patents also include several compounds that are similar to APTO-253, which provide protection from competitors seeking to
develop anticancer products that are related in chemical structure to APTO-253.
On September 12, 2017, we announced that United States Patent and Trademark Office (“USPTO”) has issued a patent (number 9,758,508) entitled “2,3-dihydro-isoindole-1-
on derivative as BTK kinase suppressant, and pharmaceutical composition including same”. The patent claims numerous compounds, including the CG’806 compound,
pharmaceutical compositions comprising the CG’806 compound, and methods of treating various diseases. The patent is expected to provide protection until December of 2033.
Environmental Protection
The Company’s research and development activities involve the controlled use of hazardous and radioactive materials and, accordingly, the Company is subject to federal,
provincial and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. To the knowledge of the
Company, compliance with such environmental laws and regulations does not and will not have any significant impact on its capital spending, profits or competitive position
within the normal course of its operating activities. There can be no assurance, however, that the Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future or that its operations, business or assets will not be materially adversely affected by current or future environmental laws or
regulations.
Employees
As at December 31, 2017, we employed 18 full-time persons and 2 part-time persons in research and drug development and administration activities. Four of our employees
hold Ph.D.’s and numerous others hold degrees and designations such as MSc, BSc, CPA (CA), CPA (California) and MBA. To encourage a focus on achieving long-term
performance, employees and members of the board of directors of the Company (the “Board”) have the ability to acquire an ownership interest in the Company through
Aptose’s share option and alternate compensation plans.
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None of our employees are unionized, and we consider our relations with our employees to be good.
Government Regulation
Overview
Our overall regulatory strategy is to work with the appropriate government departments which regulate the use and sale of therapeutic drug products. This includes Health
Canada in Canada, the FDA in the United States, the European Medicines Agency in Europe, and other local regulatory agencies with oversight of preclinical studies, clinical
trials and marketing of therapeutic products. Where possible, we intend to take advantage of opportunities for accelerated development of drugs designed to treat rare and
serious or life-threatening diseases. We also intend to pursue priority evaluation of any application for marketing approval filed in Canada, the United States or the European
Union and to file additional drug applications in other markets where commercial opportunities exist. We may not be able to pursue these opportunities successfully.
Regulation(s) by government authorities in Canada, the United States, and the European Union are significant factors in guiding our current research and drug development
activities. To clinically test, manufacture and market drug products for therapeutic use, we must be in compliance with guidance and regulations established by the regulatory
agencies in the countries in which we currently operate or intend to operate.
The laws of most of these countries require the licensing of manufacturing facilities, carefully controlled research and the extensive testing of products. Biotechnology
companies must establish the safety and efficacy of their new products in clinical trials; they must establish and comply with current GMP(s) for the manufacturing of the
product and control over marketing activities before being allowed to market a product. The safety and efficacy of a new drug must be shown through human clinical trials of
the drug carried out in accordance with the guidance and regulations established by local and federal regulatory agencies.
The process of completing clinical trials and obtaining regulatory approval for a new drug takes a number of years and requires the expenditure of substantial resources. Once a
new drug or product license application is submitted, regulatory agencies may not review the application in a timely manner and may not approve the product. Even after a New
Drug Application (“NDA”) submission has occurred and/or approval has been obtained, further studies, including post-marketing studies, may be required to provide
additional data on efficacy and safety necessary to confirm the approved indication or to gain approval for the use of the new drug as a treatment for clinical indications other
than those for which the new drug was initially tested. Also, regulatory agencies require post-marketing surveillance programs to monitor a new drug’s side effects, safety and
long term effects of the product. A serious safety or effectiveness problem involving an approved new drug may result in a regulatory agency mandating a withdrawal of the
new drug from the market and possible civil action. It is possible that we could encounter such difficulties or excessive costs in our efforts to secure necessary approvals, which
could delay or prevent us from manufacturing or marketing our products.
In addition to the regulatory product approval framework, biotechnology companies, including Aptose, are subject to regulation under local, provincial, state and federal law,
including requirements regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other present and
future local, provincial, state, federal and foreign regulation, including possible future regulation of the biotechnology industry.
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Regulation in Canada
In Canada, the manufacture and sale of new drugs are controlled by Health Canada. New drugs must pass through a number of testing stages, including pre-clinical testing and
human clinical trials. Pre-clinical testing involves testing the new drug’s chemistry, pharmacology and toxicology in vitro and in vivo. Successful results (that is, potentially
valuable pharmacological activity combined with an acceptable low level of toxicity) enable the developer of the new drug to file a clinical trial application to begin clinical
trials involving humans.
To study a drug in Canadian patients, a clinical trial application submission must be filed with Health Canada. The clinical trial application submission must contain specified
information, including the results of the pre-clinical tests completed at the time of the submission and any available information regarding use of the drug in humans. In
addition, since the method of manufacture may affect the efficacy and safety of a new drug, information on manufacturing methods and standards and the stability of the drug
substance and dosage form must be presented. Production methods and quality control procedures must be in place to ensure an acceptably pure product, essentially free of
contamination, and to ensure uniformity with respect to all quality aspects.
In addition, all federally regulated trials must be approved and monitored by an independent committee of doctors, scientists, advocates and others to ensure safety and ethical
standards. These committees are called Institutional Review Boards (“IRBs”) or Ethics Review Boards (“ERBs”). The review boards study and approve all study-related
documents before a clinical trial begins and also carefully monitor data to detect benefit or harm, and validity of results.
Provided Health Canada does not reject a clinical trial application submission and IRB or ERB approval has been obtained, clinical trials can begin. Clinical trials for product
candidates in Canada, as in the United States, are generally carried out in three phases. Phase I involves studies to evaluate toxicity and ideal dose levels in healthy humans. The
new drug is administered to human patients who have met the clinical trial entry criteria to determine pharmacokinetics, human tolerance and prevalence of any adverse side
effects. Phases II and III involve therapeutic studies. In Phase II, efficacy, dosage, side effects and safety are established in a small number of patients who have the disease or
disorder that the new drug is intended to treat. In Phase III, there are controlled clinical trials in which the new drug is administered to a large number of patients who are likely
to receive benefit from the new drug. In Phase III, the effectiveness of the new drug in patients is compared to that of standard accepted methods of treatment in order to provide
sufficient data for the statistical proof of safety and efficacy for the new drug.
If clinical studies establish that a new drug has value, the manufacturer submits a new drug submission application to Health Canada for marketing approval. The new drug
submission contains all information known about the new drug, including the results of pre-clinical testing and clinical trials. Information about a substance contained in new
drug submission includes its proper name, its chemical name, and details on its method of manufacturing and purification, and its biological, pharmacological and toxicological
properties. The new drug submission also provides information about the dosage form of the new drug, including a quantitative listing of all ingredients used in its formulation,
its method of manufacture, manufacturing facility information, packaging and labelling, the results of stability tests, and its diagnostic or therapeutic claims and side effects, as
well as details of the clinical trials to support the safety and efficacy of the new drug. Furthermore, for biological products, an on-site evaluation is completed to assess the
production process and manufacturing facility. It is required prior to the issuance of a notice of compliance. All aspects of the new drug submission are critically reviewed by
Health Canada. If a new drug submission is found satisfactory, a notice of compliance is issued permitting the new drug to be sold for the approved use. In Canada, an
establishment license must be obtained prior to marketing the product.
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Health Canada has a policy of priority evaluation of new drug submissions for all drugs intended for serious or life-threatening diseases for which no drug product has received
regulatory approval in Canada and for which there is reasonable scientific evidence to indicate that the proposed new drug is safe and may provide effective treatment.
The monitoring of a new drug does not cease once it is on the market. For example, a manufacturer of a new drug must report any new information received concerning serious
side effects, as well as the failure of the new drug to produce desired effects. If Health Canada determines it to be in the interest of public health, a notice of compliance for a
new drug may be suspended and the new drug may be removed from the market.
A post surveillance program involves clinical trials conducted after a drug is marketed (referred to as Phase IV studies in the United States) and is an important source of
information on as yet undetected adverse outcomes, especially in populations that may not have been involved in the premarketing trials (e.g., children, the elderly, pregnant
women) and the drug’s long-term morbidity and mortality profile. Regulatory authorities may require companies to conduct Phase IV studies as a condition of market approval.
Companies often conduct post-marketing studies in the absence of a regulatory mandate.
An exception to the foregoing requirements relating to the manufacture and sale of a new drug is the limited authorization that may be available in respect of the sale of new
drugs for emergency treatment. Under the special access program, Health Canada may authorize the sale of a quantity of a new drug for human use to a specific practitioner for
the emergency treatment of a patient under the practitioner’s care. Prior to authorization, the practitioner must supply Health Canada with information concerning the medical
emergency for which the new drug is required, such data as is in the possession of the practitioner with respect to the use, safety and efficacy of the new drug, the names of the
institutions at which the new drug is to be used and such other information as may be requested by Health Canada. In addition, the practitioner must agree to report to both the
drug manufacturer and Health Canada the results of the new drug’s use in the medical emergency, including information concerning adverse reactions, and must account to
Health Canada for all quantities of the new drug made available.
The Canadian regulatory approval requirements for new drugs outlined above are similar to those of other major pharmaceutical markets. While the testing carried out in
Canada is often acceptable for the purposes of regulatory submissions in other countries, individual regulatory authorities may request supplementary testing during their
assessment of any submission. Therefore, the clinical testing conducted under Health Canada authorization or the approval of regulatory authorities of other countries may not
be accepted by regulatory authorities outside Canada or other countries.
Regulation in the United States
In the United States, the FDA controls and investigates the investigation, manufacturing, and sale of new drugs. New drugs require FDA approval of a NDA prior to
commercial sale. In the case of certain biological products, a Biological License Application (“BLA”) must be obtained prior to marketing and batch releasing. As in Canada, to
obtain marketing approval, data from adequate and well-controlled human clinical trials, demonstrating to the FDA’s satisfaction a new drug’s safety and effectiveness for its
intended use, are required. Data are generated in studies conducted pursuant to an IND submission, similar to that required for a clinical trial application in Canada. Clinical
trials with human subjects are characterized as Phase I, Phase II and Phase III trials or a combination thereof. In a marketing application, the manufacturer must also
demonstrate the identity, potency, quality and purity of the active ingredients of the new drug involved, and the stability of those ingredients. Further, the manufacturing
facilities, equipment, processes and quality controls for the new drug must comply with the FDA’s current [Good Manufacturing Practice] regulations for drugs or biological
products both in a pre-licensing inspection before product licensing and in subsequent periodic inspections after licensing. An establishment license grants the sponsor
permission to fabricate, package, label, distribute, import, wholesale or test of the newly approved drug.
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Federally regulated trials must be approved and monitored by an independent committee of doctors, scientists, advocates and others to ensure safety and ethical standards.
These committees are called IRBs or ERBs. The review boards study and approve all study-related documents before a clinical trial begins and also carefully monitor data to
detect benefit or harm, and validity of results.
The above describes briefly what is necessary for a new drug to be approved for marketing in North America. The European Medicines Agency and Japanese Pharmaceuticals
and Medical Devices Agency are also important regulatory authorities in drug development. Together with the FDA, they are the three International Conference on
Harmonization parties which oversee the three largest markets for drug sales.
Financings
In October 2017, we entered into a Common Shares Purchase Agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) to sell up to US $15.5
million of common shares to Aspire Capital. Under the terms of the Purchase Agreement, Aspire Capital has made an initial purchase of 357,143 common shares at a price of
$1.40 per share, representing gross proceeds of approximately $500,000 ($324,000 net of share issue costs). Under the terms of the Purchase Agreement, Aspire Capital has
committed to purchase up to an aggregate of $15.0 million of our common shares, at our request from time to time during a 30-month period beginning on the effective date of
a registration statement related to the transaction and at prices based on the market price at the time of each sale. Under terms of the Purchase Agreement, we also issued
321,429 common shares to Aspire Capital as consideration for Aspire Capital entering into the Purchase Agreement. Subsequent to the year end, we issued an additional 3.2
million common shares under the Purchase agreement for gross proceeds of approximately $8.9 million.
We intend to use this equity arrangement as an additional option to assist us in achieving our capital objectives. The equity line provides us with the opportunity to regularly
raise capital at prevailing market prices, at our sole discretion providing us with the ability to better manage our cash resources.
IV.
Risk Factors and Uncertainties
Investing in our securities involves a high degree of risk. Before making an investment decision with respect to our Common Shares, you should carefully consider the
following risk factors. Additional risks not currently known by us or that we consider immaterial at the present time may also impair our business, financial condition,
prospects or results of operations. If any of the following risks occur, our business, financial condition, prospects or results of operations would likely be materially adversely
affected. In that case, the trading price of our Common Shares could decline and you may lose all or part of the money you paid to buy our Common Shares. The risks set out
below are not the only risks and uncertainties we currently face; other risks may arise in the future.
Risks Related to our Business
We are an early stage development company.
We are at an early stage of development. In the past five years, none of our potential products has obtained regulatory approval for commercial use and sale in any country and
as such, no significant revenues have resulted from product sales. Significant additional investment will be necessary to complete the development of any of our product
candidates. Preclinical and clinical trial work must be completed before our potential products could be ready for use within the markets that we have identified. We may fail to
develop any products, obtain regulatory approvals, enter clinical trials or commercialize any products. We do not know whether any of our potential product development
efforts will prove to be effective, meet applicable regulatory standards, obtain the requisite regulatory approvals, be capable of being manufactured at a reasonable cost or be
accepted in the marketplace. We also do not know whether sales, license fees or related royalties will allow us to recoup any investment we make in the commercialization of
our products.
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The product candidates we are currently developing are not expected to be commercially viable for at least the next several years and we may encounter unforeseen difficulties
or delays in commercializing our product candidates. In addition, our potential products may not be effective or may cause undesirable side effects.
Our product candidates require significant funding to reach regulatory approval assuming positive clinical results. For example, our product candidate APTO-253 began
enrolment in a Phase I clinical trial in patients with relapsed or refractory hematologic malignancies and was placed on clinical hold by the FDA following a voluntary
suspension of dosing by us. We are currently working with the FDA to have such hold lifted , but significant additional funding or a partnership will be necessary to complete a
restarted Phase I clinical and, if required, Phase II or Phase III clinical trials. Such funding for our product candidates may be difficult, or impossible to raise in the public or
private markets or through partnerships. If funding or partnerships are not readily attainable, the development of our product candidates may be significantly delayed or stopped
altogether. The announcement of a delay or discontinuation of development would likely have a negative impact on our share price.
We need to raise additional capital.
We have an ongoing need to raise additional capital. To obtain the necessary capital, we must rely on some or all of the following: additional share issues, debt issuances
(including promissory notes), collaboration agreements or corporate partnerships and grants and tax credits to provide full or partial funding for our activities. Additional
funding may not be available on terms that are acceptable to us or in amounts that will enable us to carry out our business plan.
Our need for capital may require us to:
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engage in equity financings that could result in significant dilution to existing investors;
delay or reduce the scope of or eliminate one or more of our development programs;
obtain funds through arrangements with collaborators or others that may require us to relinquish rights to technologies, product candidates or products that we would
otherwise seek to develop or commercialize ourselves;
license rights to technologies, product candidates or products on terms that are less favourable to us than might otherwise be available;
considerably reduce operations; or
cease our operations.
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We have a history of operating losses. We expect to incur net losses and we may never achieve or maintain profitability.
We have not been profitable since our inception in 1986. We reported net losses of $11.7 million in the fiscal year ended December 31, 2017, $14.2 million in the fiscal year
ended December 31, 2016, $11.7 million in the fiscal year ended December 31, 2015, and as of December 31, 2017, we had an accumulated deficit of $247 million.
We have not generated any significant revenue to date and it is possible that we will never have sufficient product sales revenue (if any) to achieve profitability. We expect to
continue to incur losses for at least the next several years as we or our collaborators and licensees pursue clinical trials and research and development efforts. To become
profitable, we, either alone or with our collaborators and licensees, must successfully develop, manufacture and market our current product candidates APTO-253 or CG’806 as
well as continue to identify, develop, manufacture and market new product candidates. It is possible that we will never have significant product sales revenue or receive royalties
on our licensed product candidates. If funding is insufficient at any time in the future, we may not be able to develop or commercialize our products, take advantage of business
opportunities or respond to competitive pressures.
We currently do not earn any revenues from our drug candidates and are therefore considered to be in the development stage. The continuation of our research and development
activities and the commercialization of the targeted therapeutic products are dependent upon our ability to successfully finance and complete our research and development
programs through a combination of equity financing and payments from strategic partners. We have no current sources of significant payments from strategic partners.
Clinical trials are long, expensive and uncertain processes and the FDA or Health Canada may ultimately not approve any of our product candidates. We may never
develop any commercial drugs or other products that generate revenues.
In the past five years, none of our product candidates has received regulatory approval for commercial use and sale in North America. We cannot market a pharmaceutical
product in any jurisdiction until it has completed thorough preclinical testing and clinical trials in addition to that jurisdiction’s extensive regulatory approval process. Approval
in one country does not assure approval in another country. In general, significant research and development and clinical studies are required to demonstrate the safety and
effectiveness of our product candidates before we can submit any regulatory applications.
Clinical trials are long, expensive and uncertain processes. Clinical trials may not be commenced or completed on schedule and the FDA or Health Canada or any other
regulatory body may not ultimately approve our product candidates for commercial sale. The clinical trials of any of our drug candidates could be unsuccessful, which would
prevent us from advancing, commercializing or partnering the drug.
Even if the results of our preclinical studies or clinical trials are initially positive, it is possible that we will obtain different results in the later stages of drug development or that
results seen in clinical trials will not continue with longer term treatment. Positive results in Phase I clinical trials may not be repeated in larger Phase II or Phase III clinical
trials.
Our preclinical studies and clinical trials may not generate positive results that will allow us to move towards the commercial use and sale of our product candidates.
Furthermore, negative preclinical or clinical trial results may cause our business, financial condition, or results of operations to be materially adversely affected. For example,
our Phase Ib clinical trial of APTO-253 in patients with AML was placed on clinical hold by the FDA in November 2015 and since that time the Company has encountered
manufacturing setbacks which have further delayed the return of APTO-253 to the clinic. There can be no assurance that the clinical hold will be lifted by the FDA, that the
Company will have the resources, or that we will decide, to continue the development of APTO-253. Even if the Phase Ib of APTO-253 is continued, there is a long
development path ahead that will take many years to complete and is prone to the risks of failure or delays inherent in drug development. Likewise, our CG’806 product
candidate has not yet entered clinical trials and it is expected to undergo many years of testing and regulatory examinations prior to any potential regulatory approvals.
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Preparing, submitting and advancing applications for regulatory approval is complex, expensive and time intensive and entails significant uncertainty. A commitment of
substantial resources to conduct time-consuming research, preclinical studies and clinical trials is required if we are to complete development of our products.
Clinical trials of our products require that we identify and enroll a large number of patients with the illness under investigation. We may not be able to enroll a sufficient
number of appropriate patients to complete our clinical trials in a timely manner, particularly in smaller indications and indications where there is significant competition for
patients. If we experience difficulty in enrolling a sufficient number of patients to conduct our clinical trials, we may need to delay or terminate ongoing clinical trials and will
not accomplish objectives material to our success. Delays in planned patient enrolment or lower than anticipated event rates in our current clinical trials or future clinical trials
also may result in increased costs, program delays, or both.
In addition, unacceptable toxicities or adverse side effects may occur at any time in the course of preclinical studies or human clinical trials or, if any product candidates are
successfully developed and approved for marketing, during commercial use of any approved products. The appearance of any unacceptable toxicities or adverse side effects
could interrupt, limit, delay or abort the development of any of our product candidates or, if previously approved, necessitate their withdrawal from the market. Furthermore,
disease resistance or other unforeseen factors may limit the effectiveness of our potential products.
Our failure to develop safe, commercially viable drugs would substantially impair our ability to generate revenues and sustain our operations and would materially harm our
business and adversely affect our share price.
We may not achieve our projected development goals in the time frames we announce and expect.
We set goals for, and make public statements regarding, the expected timing of the accomplishment of objectives material to our success, such as the submission of IND, the
commencement and completion of clinical trials and the expected costs to develop our product candidates. The actual timing and costs of these events can vary dramatically due
to factors within and beyond our control, such as delays or failures in our IND submissions or clinical trials, issues related to the manufacturing of drug supply, uncertainties
inherent in the regulatory approval process, market conditions and interest by partners in our product candidates among other things. We may not make regulatory submissions
or receive regulatory approvals as planned; our clinical trials may not be completed; or we may not secure partnerships for any of our product candidates. Any failure to achieve
one or more of these milestones as planned would have a material adverse effect on our business, financial condition and results of operations.
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Delays in clinical testing could result in delays in commercializing our product candidates and our business may be substantially harmed.
We cannot predict whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Our product development costs will
increase if we experience delays in clinical testing. Significant clinical trial delays could shorten any periods during which we may have the exclusive right to commercialize our
product candidates or allow our competitors to bring products to market before us, which would impair our ability to successfully commercialize our product candidates and
may harm our financial condition, results of operations and prospects. The recommencement and completion of clinical trials for our products, including the APTO-253 phase I
clinical trial and the IND submission and phase I clinical trial for CG’806, may be delayed for a number of reasons, including delays related, but not limited, to:
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failure by regulatory authorities to grant permission to proceed or placing the clinical trial on hold;
patients failing to enroll or remain in our trials at the rate we expect;
suspension or termination of clinical trials by regulators for many reasons, including concerns about patient safety or failure of our contract manufacturers to comply with
cGMP requirements;
any changes to our manufacturing process that may be necessary or desired;
delays or failure to obtain GMP-grade clinical supply from contract manufacturers of our products necessary to conduct clinical trials;
product candidates demonstrating a lack of safety or efficacy during clinical trials;
patients choosing an alternative treatment for the indications for which we are developing any of our product candidates or participating in competing clinical trials;
patients failing to complete clinical trials due to dissatisfaction with the treatment, side effects or other reasons;
reports of clinical testing on similar technologies and products raising safety and/or efficacy concerns;
competing clinical trials and scheduling conflicts with participating clinicians;
clinical investigators not performing our clinical trials on their anticipated schedule, dropping out of a trial, or employing methods not consistent with the clinical trial
protocol, regulatory requirements or other third parties not performing data collection and analysis in a timely or accurate manner;
failure of our contract research organizations, or CROs, to satisfy their contractual duties or meet expected deadlines;
inspections of clinical trial sites by regulatory authorities or IRBs, or ethics committees finding regulatory violations that require us to undertake corrective action,
resulting in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study;
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one or more IRBs or ethics committees rejecting, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or
withdrawing its approval of the trial; or
failure to reach agreement on acceptable terms with prospective clinical trial sites.
Our product development costs will increase if we experience delays in testing or approval or if we need to perform more or larger clinical trials than planned. Additionally,
changes in regulatory requirements and policies may occur, and we may need to amend study protocols to reflect these changes. Amendments may require us to resubmit our
study protocols to regulatory authorities or IRBs or ethics committees for re-examination, which may impact the cost, timing or successful completion of that trial. Delays or
increased product development costs may have a material adverse effect on our business, financial condition and prospects.
We rely on contract manufacturers over whom we have limited control. If we are subject to quality, cost or delivery issues with the preclinical and clinical grade materials
supplied by contract manufacturers, our business operations could suffer significant harm.
We rely on contract manufacturing organizations (“CMOs”), to manufacture our product candidates for some preclinical studies and clinical trials. We rely on CMOs for
manufacturing, filling, packaging, storing and shipping of drug product in compliance with cGMP regulations applicable to our products. The FDA ensures the quality of drug
products by carefully monitoring drug manufacturers’ compliance with cGMP regulations. The cGMP regulations for drugs contain minimum requirements for the methods,
facilities and controls used in manufacturing, processing and packing of a drug product.
We contracted with multiple CMOs for the manufacture of APTO-253 and CG’806 to supply drug supply and then drug product for our clinical trials. The synthesis of CG’806
drug supply is challenging from a scale-up synthetic chemistry perspective. The formulation and manufacture of APTO-253 is a complex process with many variables involved.
We pre-qualified CMOs to have the capacity, the systems and the experience to supply CG’806 and APTO-253 for our clinical trials. We have qualified the manufacturing
facilities and the FDA has also performed site audits for our selected CMOs. In spite of the efforts to prequalify CMOs, delays and errors may occur, and any such
manufacturing failures, delays or compliance issues could cause delays in the completion of our clinical trial programs.
There can be no assurances that CMOs will be able to meet our timetable and requirements. We have contracted with alternate suppliers in the event our current CMOs are
unable to scale up production, or if our current CMOs otherwise experience any other significant problems in the manufacture of CG’806 and APTO-253. However, it is
possible that all third-party manufacturing sources may experience failure or delays and may demand commercially unreasonable terms, which may lead to further delays in the
development of our product candidates. Further, contract manufacturers must operate in compliance with cGMP and failure to do so could result in, among other things, the
disruption of product supplies. Our dependence upon third parties for the manufacture of our products may adversely affect our profit margins and our ability to develop and
deliver products on a timely and competitive basis.
If we have difficulty enrolling patients in clinical trials, the completion of the trials may be delayed or cancelled.
As our product candidates advance from preclinical testing to clinical testing, and then through progressively larger and more complex clinical trials, we will need to enroll an
increasing number of patients that meet our eligibility criteria. There is significant competition for recruiting cancer patients in clinical trials, and we may be unable to enroll the
patients we need to complete clinical trials on a timely basis or at all. Certain factors that affect enrollment of patients onto our clinical trials are impacted by external forces that
may be beyond our control. Such factors include, but are not limited to, the following:
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size and nature of the patient population;
eligibility and exclusion criteria for the trial;
design of the study protocol;
competition with other companies for clinical sites or patients;
the perceived risks and benefits of the product candidate under study;
the patient referral practices of physicians; and
the number, availability, location and accessibility of clinical trial sites.
If we are unable to successfully develop companion diagnostics for our therapeutic product candidates, or experience significant delays in doing so, we may not achieve
marketing approval or realize the full commercial potential of our therapeutic product candidates.
We plan to develop companion diagnostics for our therapeutic product candidates. We expect that, at least in some cases, regulatory authorities may require the development
and regulatory approval of a companion diagnostic as a condition to approving our therapeutic product candidates. We have limited experience and capabilities in developing or
commercializing diagnostics and plan to rely in large part on third parties to perform these functions. We do not currently have any agreement in place with any third party to
develop or commercialize companion diagnostics for any of our therapeutic product candidates.
Companion diagnostics are subject to regulation by the FDA, Health Canada and comparable foreign regulatory authorities as medical devices and may require separate
regulatory approval or clearance prior to commercialization. If we, or any third parties that we engage to assist us, are unable to successfully develop companion diagnostics for
our therapeutic product candidates, or experience delays in doing so, our business may be substantially harmed.
We rely and will continue to rely on third parties to conduct and monitor many of our preclinical studies and our clinical trials, and their failure to perform as required
could cause substantial harm to our business.
We rely and will continue to rely on third parties to conduct a significant portion of our preclinical and clinical development activities. Preclinical activities include in vivo
studies providing access to specific disease models, pharmacology and toxicology studies, and assay development. Clinical development activities include trial design,
regulatory submissions, clinical patient recruitment, clinical trial monitoring, clinical data management and analysis, safety monitoring and project management, contract
manufacturing and quality assurance. If there is any dispute or disruption in our relationship with third parties, or if they are unable to provide quality services in a timely
manner and at a feasible cost, our active development programs will face delays. Further, if any of these third parties fails to perform as we expect or if their work fails to meet
regulatory requirements, our testing could be delayed, cancelled or rendered ineffective.
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We heavily rely on the capabilities and experience of our key executives and scientists and the loss of any of them could affect our ability to develop our products.
The loss of Dr. William G. Rice, our Chairman, President and Chief Executive Officer, or other key members of our staff, including Gregory Chow, our Senior Vice President
and Chief Financial Officer, could harm us. We have employment agreements with Dr. Rice and Mr. Chow, although such employment agreements do not guarantee their
retention. We also depend on our scientific and clinical collaborators and advisors, all of whom have outside commitments that may limit their availability to us. In addition, we
believe that our future success will depend in large part upon our ability to attract and retain highly skilled scientific, managerial, medical, clinical and regulatory personnel,
particularly as we expand our activities and seek regulatory approvals for clinical trials. We routinely enter into consulting agreements with our scientific and clinical
collaborators and advisors, key opinion leaders and academic partners in the ordinary course of our business. We also enter into contractual agreements with physicians and
institutions who will recruit patients into our clinical trials on our behalf in the ordinary course of our business. Notwithstanding these arrangements, we face significant
competition for these types of personnel from other companies, research and academic institutions, government entities and other organizations. We cannot predict our success
in hiring or retaining the personnel we require for continued growth. The loss of the services of any of our executive officers or other key personnel could potentially harm our
business, operating results or financial condition.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material
adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include failures to comply with FDA/Health Canada regulations, provide
accurate information to the FDA/Health Canada, comply with manufacturing standards we have established, comply with federal, state and provincial health-care fraud and
abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in
the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations
may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.
Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to
our reputation. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a substantial
impact on our business and results of operations, including the imposition of substantial fines or other sanctions.
We may expand our business through the acquisition of companies or businesses or by entering into collaborations or by in-licensing product candidates, each of which
could disrupt our business and harm our financial condition.
We may in the future seek to expand our pipeline and capabilities by acquiring one or more companies or businesses, entering into collaborations or in-licensing one or more
product candidates. For example, in June 2016, we entered into a definitive agreement with CG, granting Aptose an exclusive option to research, develop and commercialize
CG’806 in all countries of the world except Korea and China, for all fields of use.
Acquisitions, collaborations and in-licenses involve numerous risks, including, but not limited to:
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technology development risks;
potentially dilutive issuances of equity securities;
incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
difficulties in assimilating the operations of the acquired companies;
potential disputes regarding contingent consideration;
diverting our management’s attention away from other business concerns;
entering markets in which we have limited or no direct experience;
potential loss of our key employees or key employees of the acquired companies or businesses; and
failure of the in-licenses agents or technologies to deliver the desired activities or functions.
We have experience in entering collaborations and in-licensing product candidates, however, we cannot provide assurance that any acquisition, collaboration or in-license will
result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition,
our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions, collaborations and in-licenses. We cannot assure
you that we would be able to successfully combine our business with that of acquired businesses, manage a collaboration or integrate in-licensed product candidates.
Furthermore, the development or expansion of our business may require a substantial capital investment by us.
Negative results from clinical trials or studies of others and adverse safety events involving the targets of our products may have an adverse impact on our future
commercialization efforts.
From time to time, studies or clinical trials on various aspects of biopharmaceutical products are conducted by academic researchers, competitors or others. The results of these
studies or trials, when published, may have a significant effect on the market for the biopharmaceutical product that is the subject of the study. The publication of negative
results of studies or clinical trials or adverse safety events related to our product candidates, or the therapeutic areas in which our product candidates compete, could adversely
affect our share price and our ability to finance future development of our product candidates, and our business and financial results could be materially and adversely affected.
The design or our execution of clinical trials may not support regulatory approval.
The design or execution of a clinical trial can determine whether its results will support regulatory approval and flaws in the design or execution of a clinical trial may not
become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety or efficacy results between different trials of the same
product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and
other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase II, Phase III or other clinical trials that we may conduct will
demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.
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Further, the FDA, Health Canada and comparable foreign regulatory authorities have substantial discretion in the approval process and in determining when or whether
regulatory approval will be obtained for any of our product candidates. Our product candidates may not be approved even if they achieve their primary endpoints in future
Phase 3 clinical trials or registration trials. The FDA, Health Canada or other regulatory authorities may disagree with our trial design and the Company’s interpretation of data
from preclinical studies and clinical trials. In addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing
and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial that has the potential to result in FDA, Health Canada or other agencies’ approval. In
addition, any of these regulatory authorities may also approve a product candidate for fewer or more limited indications than the Company requests or may grant approval
contingent on the performance of costly post-marketing clinical trials. The FDA, Health Canada or other regulatory authorities may not approve the labeling claims that we
believe would be necessary or desirable for the successful commercialization of our product candidates.
As a result of intense competition and technological change in the biotechnical and pharmaceutical industries, the marketplace may not accept our products or product
candidates, and we may not be able to compete successfully against other companies in our industry and achieve profitability.
Many of our competitors have:
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drug products that have already been approved or are in development, and operate large, well-funded research and development programs in the biotechnical and
pharmaceutical fields;
substantially greater financial, technical and management resources, stronger intellectual property positions and greater manufacturing, marketing and sales capabilities,
areas in which we have limited or no experience; and
significantly greater experience than we do in undertaking preclinical testing and clinical trials of new or improved pharmaceutical products and obtaining required
regulatory approvals.
Consequently, our competitors may obtain FDA, Health Canada and other regulatory approvals for product candidates sooner and may be more successful in manufacturing
and marketing their products than we or our collaborators are.
Our competitors’ existing and future products, therapies and technological approaches will compete directly with the products we seek to develop. Current and prospective
competing products may be more effective than our existing and future products insofar as they may provide greater therapeutic benefits for a specific problem or may offer
easier delivery or comparable performance at a lower cost.
Any product candidate that we develop and that obtains regulatory approval must then compete for market acceptance and market share. Our products may not gain market
acceptance among physicians, patients, healthcare payers, insurers, the medical community and other stakeholders. The degree of market acceptance of our product candidates,
if approved for commercial sale, will depend on a number of factors, including:
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efficacy and potential advantages compared to alternative treatments;
the ability to offer its product candidates for sale at competitive prices;
convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support;
sufficient third party coverage or reimbursement; and
the prevalence and severity of any side effects.
Further, any products we develop may become obsolete before we recover any expenses we incurred in connection with the development of these products. As a result, we may
never achieve profitability.
Risks Related to our Intellectual Property
We may be unable to obtain patents to protect our technologies from other companies with competitive products, and patents of other companies could prevent us from
manufacturing, developing or marketing our products.
Patent protection
The patent positions of pharmaceutical and biotechnology companies are uncertain and involve complex legal and factual questions. The USPTO and many other patent offices
in the world have not established a consistent policy regarding the breadth of claims that they will allow in biotechnology patents.
Our pending patent applications may not result in issued patents and our issued patents may not be held valid and enforceable if challenged. Competitors may be able to
circumvent any such issued patents by adoption of a competitive, though non-infringing product or process. Interpretation and evaluation of pharmaceutical or biotechnology
patent claims present complex and often novel legal and factual questions. Our business could be adversely affected by increased competition in the event that any patent
granted to it is held to be invalid or unenforceable or is inadequate in scope to protect our operations.
Allowable patentable subject matter and the scope of patent protection obtainable may differ between jurisdictions. If a patent office allows broad claims, the number and cost
of patent interference proceedings in the United States, or analogous proceedings in other jurisdictions and the risk of infringement litigation may increase. If it allows narrow
claims, the risk of infringement may decrease, but the value of our rights under our patents, licenses and patent applications may also decrease.
The scope of the claims in a patent application can be significantly modified during prosecution before the patent is issued. Consequently, we cannot know whether our pending
applications will result in the issuance of patents or, if any patents are issued, whether they will provide us with significant proprietary protection or will be circumvented,
invalidated or found to be unenforceable.
Publication of discoveries in scientific or patent literature often lags behind actual discoveries. Patent applications filed in the United States generally will be published 18
months after the filing date unless the applicant certifies that the invention will not be the subject of a foreign patent application. In many other jurisdictions, such as Canada,
patent applications are published 18 months from the priority date. We may not be aware of such literature. Accordingly, we cannot be certain that the named inventors of our
products and processes were the first to invent that product or process or that we were the first to pursue patent coverage for our inventions.
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In addition, United States patent laws may change which could prevent or limit us from filing patent applications or patent claims in the United States to protect our products
and technologies or limit the exclusivity periods that are available to patent holders for United States patents. For example, the Leahy-Smith America Invents Act, (the “Leahy-
Smith Act”) was signed into law in 2011 and includes a number of significant changes to United States patent law. These include changes to transition from a “first-to-invent”
system to a “first-to-file” system and to the way issued patents are challenged. These changes may favour larger and more established companies that have more resources to
devote to patent application filing and prosecution. It is not clear what, if any, impact the Leahy-Smith Act will ultimately have on the cost of prosecuting our patent
applications in the United States, our ability to obtain patents in the United States based on our discoveries and our ability to enforce or defend our United States issued patents.
Until such time, if ever, that further patents are issued to us, we will rely upon the law of trade secrets to the extent possible given the publication requirements under
international patent treaty laws and/or requirements under foreign patent laws to protect our technology and our products incorporating the technology. In this regard, we have
adopted certain confidentiality procedures. These include: limiting access to confidential information to certain key personnel; requiring all directors, officers, employees and
consultants and others who may have access to our intellectual property to enter into confidentiality agreements which prohibit the use of or disclosure of confidential
information to third parties; and implementing physical security measures designed to restrict access to such confidential information and products. Our ability to maintain the
confidentiality of our technology is crucial to our ultimate possible commercial success. The procedures adopted by us to protect the confidentiality of our technology may not
be effective, third parties may gain access to our trade secrets or our trade secrets or those of our collaborators may be independently discovered by others. Our collaborators,
employees and consultants and other parties may not comply with the terms of their agreements with us, and we might be unable to adequately enforce our rights or obtain
adequate compensation for the damages caused by unauthorized disclosure or use of our trade secrets or know how. Further, by seeking patent protection in various countries, it
is inevitable that a substantial portion of our technology will become available to our competitors, through publication of such patent applications.
Enforcement of intellectual property rights
Protection of the rights revealed in published patent applications can be complex, costly and uncertain. Our commercial success depends in part on our ability to maintain and
enforce our proprietary rights. If third parties engage in activities that infringe our proprietary rights, our management’s focus will be diverted and we may incur significant
costs in asserting our rights. We may not be successful in asserting our proprietary rights, which could result in our patents being held invalid or a court holding that the third
party is not infringing, either of which would harm our competitive position.
Others may design around our patented technology. We may have to participate in interference proceedings declared by the United States Patent and Trademark Office,
European opposition proceedings, or other analogous proceedings in other parts of the world to determine priority of invention and the validity of patent rights granted or
applied for, which could result in substantial cost and delay, even if the eventual outcome is favourable to us. Our pending patent applications, even if issued, may not be held
valid or enforceable.
Our products and product candidates may infringe the intellectual property rights of others, or others may infringe on our intellectual property rights which could increase
our costs.
Our success also depends on avoiding infringement of the proprietary technologies of others. In particular, there may be certain issued patents and patent applications claiming
subject matter which we or our collaborators may be required to license in order to research, develop or commercialize APTO-253 or CG’806. In addition, third parties may
assert infringement or other intellectual property claims against us. An adverse outcome in these proceedings could subject us to significant liabilities to third-parties, require
disputed rights to be licensed from third-parties or require us to cease or modify our use of the technology. If we are required to license third-party technology, a license under
such patents and patent applications may not be available on acceptable terms or at all. Further, we may incur substantial costs defending ourselves in lawsuits against charges
of patent infringement or other unlawful use of another’s proprietary technology. We may also need to bring claims against others who we believe are infringing our rights in
order to become or remain competitive and successful. Any such claims can be time consuming and expensive to pursue.
29
We may incur substantial cost in defending our intellectual property.
While we believe that our products and technology do not infringe proprietary rights of others, third parties may assert infringement claims in the future and such claims could
be successful. Even if challenges are unsuccessful, we could incur substantial costs in defending ourselves against patent infringement claims brought by others or in prosecuting
suits against others. In addition, others may obtain patents that we would need to license, which may not be available to us on reasonable terms. Whether we are able to obtain a
necessary license would depend on the terms offered, the degree of risk of infringement and the need for the patent.
If product liability, clinical trial liability or environmental liability claims are brought against us or we are unable to obtain or maintain product liability, clinical trial or
environmental liability insurance, we may incur substantial liabilities that could reduce our financial resources.
The clinical testing and commercial use of pharmaceutical products involves significant exposure to product liability, clinical trial liability, environmental liability and other
risks that are inherent in the testing, manufacturing and marketing of our products. These liabilities, if realized, could have a material adverse effect on the Company’s business,
results of operations and financial condition.
We have obtained limited product liability insurance coverage for our clinical trials on humans; however, our insurance coverage may be insufficient to protect us against all
product liability damages. Regardless of merit or eventual outcome, liability claims may result in decreased demand for a future product, injury to reputation, withdrawal of
clinical trial volunteers, loss of revenue, costs of litigation, distraction of management and substantial monetary awards to plaintiffs. Additionally, if we are required to pay a
product liability claim, we may not have sufficient financial resources to complete development or commercialization of any of our product candidates and our business and
results of operations will be adversely affected. In general, insurance will not protect us against some of our own actions, such as negligence.
As the Company’s development activities progress towards the commercialization of product candidates, our liability coverage may not be adequate, and the Company may not
be able to obtain adequate product liability insurance coverage at a reasonable cost, if at all. Even if the Company obtains product liability insurance, its financial position may
be materially adversely affected by a product liability claim. A product liability claim could also significantly harm the Company’s reputation and delay market acceptance of its
product candidates. Additionally, product recalls may be issued at the direction of the FDA, other government agencies or other companies having regulatory control for
pharmaceutical sales. If a product recall occurs in the future, such a recall could adversely affect our business, financial condition or reputation.
30
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material
adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment
and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive and biological
materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate
the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any
resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous
materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may
be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and
regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other
sanctions.
We may be unable to obtain partnerships for our product candidates, which could curtail future development and negatively affect our share price. In addition, our
partners might not satisfy their contractual responsibilities or devote sufficient resources to our partnership.
Our strategy for the research, development and commercialization of our products requires entering into various arrangements with corporate collaborators, licensors, licensees
and others, and our commercial success is dependent upon these outside parties performing their respective contractual responsibilities. The amount and timing of resources that
such third parties will devote to these activities may not be within our control. These third parties may not perform their obligations as expected and our collaborators may not
devote adequate resources to our programs. In addition, we could become involved in disputes with our collaborators, which could result in a delay or termination of the related
development programs or result in litigation. We intend to seek additional collaborative arrangements to develop and commercialize some of our products. We may not be able
to negotiate collaborative arrangements on favourable terms, or at all, in the future, and our current or future collaborative arrangements may not be successful.
If we cannot negotiate collaboration, license or partnering agreements, we may never achieve profitability and we may not be able to continue to develop our product
candidates. Commencing Phase I Phase II and Phase III clinical trials for CG’806 and continuing Phase Ib, and commencing Phase II and Phase III clinical trials for APTO-253
would require significant amounts of funding and such funding may not be available to us.
Exchange rate risk
We may be exposed to fluctuations of the United States dollar against certain other currencies because we hold most of our cash and cash equivalents in United States dollars,
while we incur some of our expenses in foreign currencies, primarily the Canadian dollar. Fluctuations in the value of currencies could cause us to incur currency exchange
losses. We do not currently employ a hedging strategy against exchange rate risk. We cannot assert with any assurance that we will not suffer losses as a result of unfavorable
fluctuations in the exchange rates between the United States dollar, the Canadian dollar and other currencies.
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Extensive Government Regulation
Government regulation is a significant factor in the development, production and marketing of the Company’s products. Research and development, testing, manufacture,
marketing and sales of pharmaceutical products or related products are subject to extensive regulatory oversight, often in multiple jurisdictions, which may cause significant
additional costs and/or delays in bringing products to market, and in turn, may cause significant losses to investors. The regulations applicable to the Company’s product
candidates may change. Even if granted, regulatory approvals may include significant limitations on the uses for which products can be marketed or may be conditioned on the
conduct of post-marketing surveillance studies. Failure to comply with applicable regulatory requirements can, among other things, result in warning letters, the imposition of
civil penalties or other monetary payments, delay in approving or refusal to approve a product candidate, suspension or withdrawal of regulatory approval, product recall or
seizure, operating restrictions, interruptions of clinical trials or manufacturing, injunctions or criminal prosecution. In addition, regulatory agencies many not approve the
labeling claims that are necessary or desirable for the successful commercialization of the Company’s product candidates.
Requirements for regulatory approval vary widely from country to country. Whether or not approved in Canada or the United States, regulatory authorities in other countries
must approve a product prior to the commencement of marketing the product in those countries. The time required to obtain any such approval may be longer or shorter than in
Canada or the United States. Approved drugs, as well as their manufacturers, are subject to continuing and ongoing review, and discovery of problems with these products or
the failure to adhere to manufacturing or quality control requirements may result in regulatory restrictions being imposed.
Risks Related to Our Common Shares
Our share price has been and is likely to continue to be volatile and an investment in our Common Shares could suffer a decline in value.
You should consider an investment in our Common Shares as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your
investment. The market price of our Common Shares has been highly volatile and is likely to continue to be volatile. This leads to a heightened risk of securities litigation
pertaining to such volatility. Factors affecting our Common Share price include but are not limited to:
•
•
•
•
•
our ability to continue as a going concern;
our ability to raise additional capital;
the progress of our pre-clinical and clinical trials;
our ability to obtain partners and collaborators to assist with the future development of our products;
general market conditions;
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•
•
•
•
•
•
•
announcements of technological innovations or new product candidates by us, our collaborators or our competitors;
published reports by securities analysts;
developments in patent or other intellectual property rights;
the cash and investments held by us and our ability to secure future financing;
public concern as to the safety and efficacy of drugs that we and our competitors develop;
shareholder interest in our Common Shares; and
low liquidity in the daily trading volume of our Common Shares.
Future sales of our Common Shares by us or by our existing shareholders could cause our share price to fall.
The issuance of Common Shares by us could result in significant dilution in the equity interest of existing shareholders and adversely affect the market price of our Common
Shares. Sales by existing shareholders of a large number of our Common Shares in the public market and the issuance of Common Shares in connection with strategic alliances,
or the perception that such additional sales could occur, could cause the market price of our Common Shares to decline and have an undesirable impact on our ability to raise
capital.
We are susceptible to stress in the global economy and therefore, our business may be affected by the current and future global financial condition.
If the increased level of volatility and market turmoil that have marked recent years continue, our operations, business, financial condition and the trading price of our Common
Shares could be materially adversely affected. Furthermore, general economic conditions may have a great impact on us, including our ability to raise capital, our
commercialization opportunities and our ability to establish and maintain arrangements with others for research, manufacturing, product development and sales.
An active trading market in our Common Shares may not be sustained.
Our Common Shares are listed for trading on the NASDAQ and the TSX. However, an active trading market in our Common Shares on the stock exchanges may not be
sustained and we may not be able to maintain our listings.
Other Risks
It may be difficult for non-Canadian investors to obtain and enforce judgments against us because of our Canadian incorporation and presence.
We are a corporation existing under the laws of Canada. Some of our directors and officers, and many of the experts named in this AIF and the documents incorporated by
reference into this AIF, are residents of Canada, and all or a substantial portion of their assets, and a substantial portion of our assets, are located outside the United States.
Consequently, although we have appointed an agent for service of process in the United States, it may be difficult for holders of our shares who reside in the United States to
effect service within the United States upon our directors and officers and experts who are not residents of the United States. It may also be difficult for holders of our shares
who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability of our
directors, officers and experts under the United States federal securities laws. Investors should not assume that Canadian courts (i) would enforce judgments of United States
courts obtained in actions against us or our directors, officers or experts predicated upon the civil liability provisions of the United States federal securities laws or the securities
or “blue sky” laws of any state within the United States or (ii) would enforce, in original actions, liabilities against us or our directors, officers or experts predicated upon the
United States federal securities laws or any such state securities or “blue sky” laws. In addition, we have been advised by our Canadian counsel that in normal circumstances,
only civil judgments and not other rights arising from United States securities legislation are enforceable in Canada and that the protections afforded by Canadian securities laws
may not be available to investors in the United States.
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We are likely a “passive foreign investment company” which may have adverse United States federal income tax consequences for United States shareholders.
United States investors in our Common Shares should be aware that the Company believes it was classified as a passive foreign investment company (“PFIC”) during the tax
year ended December 31, 2017, and based on the nature of our business, the projected composition of our gross income and the projected composition and estimated fair
market value of our assets, the Company expects to be a PFIC for the current tax year ending December 31, 2018 and may be a PFIC in subsequent tax years. If the Company is
a PFIC for any year during a United States shareholder’s holding period, then such United States shareholder generally will be required to treat any gain realized upon a
disposition of Common Shares, or any so-called “excess distribution” received on its Common Shares, as ordinary income, and to pay an interest charge on a portion of such
gain or distributions, unless the shareholder makes a timely and effective “qualified electing fund” election (“QEF election”) or a “mark-to-market” election with respect to the
Common Shares. A United States shareholder who makes a QEF election generally must report on a current basis its share of the Company’s net capital gain and ordinary
earnings for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to its shareholders. However, United States shareholders should be
aware that we do not intend to satisfy record keeping requirements that apply to a qualified electing fund, and we do not intend to supply United States shareholders with
information that such United States shareholders require to report under the QEF election rules, in the event that we are a PFIC and a United States shareholder wishes to make a
QEF election. Thus, United States shareholders should assume that they will not be able to make a QEF election with respect to their Common Shares. A United States
shareholder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the Common Shares over the
taxpayer’s basis therein. Each United States shareholder should consult its own tax advisor regarding the United States federal, United States local, and foreign tax
consequences of the PFIC rules and the acquisition, ownership, and disposition of our Common Shares.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common
shares less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (United States), or the JOBS Act. For as long as we continue to be an
emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging
growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (United States)
(the “SOX”), reduced disclosure obligations regarding executive compensation in our periodic reports and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
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We will cease to be an emerging growth company upon the earliest of:
•
•
•
•
the last day of the fiscal year during which we have total annual gross revenues of $1,000,000,000 (as such amount is indexed for inflation every five years by the United
States Securities Exchange Commission (the “SEC”) or more;
the last day of our fiscal year following the fifth anniversary of the completion of our first sale of common equity securities pursuant to an effective registration statement
under the Securities Act (United States) which will be in September 2020;
the date on which we have, during the previous three-year period, issued more than $1,000,000,000 in non- convertible debt; or
the date on which we are deemed to be a “large accelerated filer”, as defined in Rule 12b–2 of the Exchange Act (United States) (the “Exchange Act”), which would occur
if the market value of our ordinary shares that are held by non-affiliates exceeds $700,000,000 as of the last day of our most recently-completed second fiscal quarter.
We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our Common Shares less attractive
as a result, there may be a less active trading market for our Common Shares and our share price may be more volatile.
Any failure to maintain an effective system of internal controls may result in material misstatements of our consolidated financial statements or cause us to fail to meet our
reporting obligations or fail to prevent fraud; and in that case, our shareholders could lose confidence in our financial reporting, which would harm our business and
could negatively impact the price of our common shares.
Section 404(a) of the SOX requires that our management assess and report annually on the effectiveness of our internal controls over financial reporting and identify any
material weaknesses in our internal controls over financial reporting. Although Section 404(b) of the SOX requires our independent registered public accounting firm to issue an
annual report that addresses the effectiveness of our internal controls over financial reporting, we have opted to rely on the exemptions provided to us by virtue of being a
foreign private issuer and an emerging growth company, and consequently will not be required to comply with SEC rules that implement Section 404(b) of SOX until we lose
our emerging growth company status.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we fail to maintain an effective system of internal controls, we might
not be able to report our financial results accurately or prevent fraud; and in that case, our shareholders could lose confidence in our financial reporting, which would harm our
business and could negatively impact the price of our common shares. While we believe that we have sufficient personnel and review procedures to allow us to maintain an
effective system of internal controls, we cannot assure you that we will not experience potential material weaknesses in our internal control. Even if we conclude that our
internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for
external purposes in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, because of its inherent
limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm our results of operations or cause us to fail to meet our future reporting obligations.
If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports or help prevent
fraud. Our failure to achieve and maintain effective internal control over financial reporting could prevent us from complying with our reporting obligations on a timely basis,
which could result in the loss of investor confidence in the reliability of our consolidated financial statements, harm our business and negatively impact the trading price of our
common shares.
35
As a foreign private issuer, we are not subject to certain United States securities law disclosure requirements that apply to a domestic United States issuer, which may limit
the information which would be publicly available to our shareholders.
As a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose disclosure requirements as well as procedural requirements for proxy
solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit
recovery provisions of Section 16 of the Exchange Act. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly
as a company that files as a domestic issuer whose securities are registered under the Exchange Act, nor are we generally required to comply with the SEC’s Regulation Faire
Disclosure, which restricts the selective disclosure of material non-public information. For as long as we are a “foreign private issuer” we intend to file our annual financial
statements on Form 20-F and furnish our quarterly updates on Form 6-K to the SEC for so long as we are subject to the reporting requirements of Section 13(g) or 15(d) of the
Exchange Act. However, the information we file or furnish is not the same as the information that is required in annual and quarterly reports on Form 10-K or Form 10-Q for
United States domestic issuers. Accordingly, there may be less information publicly available concerning us than there is for a company that files as a domestic issuer.
Data security incidents and privacy breaches could result in important remediation costs, increased cyber security costs, litigation and reputational harm.
Cyber security incidents can result from deliberate attacks or unintentional events. Cyber-attacks and security breaches could include unauthorized attempts to access, disable,
improperly modify or degrade the Company’s information, systems and networks, the introduction of computer viruses and other malicious codes and fraudulent “phishing”
emails that seek to misappropriate data and information or install malware onto users’ computers. Cyber-attacks in particular vary in technique and sources, are persistent,
frequently change and are increasingly more targeted and difficult to detect and prevent against. Our network security and data recovery measures and those of third parties with
which we contract, many not be adequate to protect again cyber-attacks.
Disruptions due to cyber security incidents could adversely affect Aptose’s business. In particular, a cyber security incident could result in the loss or corruption of data from
Aptose’s research and development activities, including clinical trials, which may cause significant delays to some or all of the Company’s clinical programs. Also, the
Company’s trade secrets, including unpatented know-how, technology and other proprietary information could be disclosed to competitors further to a breach, which would
harm the Company’s business and competitive position. We expect that risks and exposures related to cyber security attacks will remain high for the foreseeable future due to the
rapidly evolving nature and sophistication of these threats. While we have invested in the protection of data and information technology, there can be no assurance that our
efforts to implement adequate security measures would be sufficient to protect the Company against cyber-attacks.
36
We must successfully upgrade and maintain our information technology systems.
We rely on various information technology systems to manage our operations. There are inherent costs and risks associated with maintaining, modifying and/or changing these
systems and implementing new systems, including potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating
expenses, retention of sufficiently skilled personnel to implement and operate its systems, demands on management time and other risks and costs of delays or difficulties in
transitioning to new systems or of integrating new systems into our current systems. In addition, our information technology system implementations may not result in
productivity improvements at a level that outweighs the costs of implementation, or at all. The implementation of new information technology systems may also cause
disruptions in our business operations and have an adverse effect on our business, prospects, financial condition and operating results.
V.
DIVIDENDS
The Company has not declared or paid any dividends on its Common Shares to date. The payment of dividends in the future will be dependent on the Company’s earnings,
financial condition and such other factors as the Board considers appropriate. However, the Company’s current policy is to reinvest future earnings in order to finance its growth
and the development of its business. As a result, the Company does not intend to pay dividends in the foreseeable future.
VI.
DESCRIPTION OF CAPITAL STRUCTURE
We are authorized to issue an unlimited number of Common Shares. Our shareholders have no rights to share in our profits, are subject to no redemption or sinking fund
provisions, have no liability for further capital calls and are not subject to any discrimination due to number of Common Shares owned.
Each holder of record of Common Shares, without par value, is entitled to one vote for each share held on all matters properly submitted to the shareholders for their vote,
except matters which are required to be voted on as a particular class or series of stock. Cumulative voting for directors is not permitted.
Holders of outstanding Common Shares are entitled to those dividends declared by the board of directors out of legally available funds. By not more than 50 days nor less than
seven days in advance of a dividend, the Board may establish a record date for the determination of the persons entitled to such dividend. In the event of liquidation, dissolution
or winding up our affairs, holders of Common Shares are entitled to receive, pro rata, our net assets available after provision has been made for the preferential rights of the
holders of preferred stock, including any surplus available after such event of liquidation, dissolution or winding up of the affairs of the Company. Holders of outstanding
Common Shares have no pre-emptive, conversion or redemption rights. All of the issued and outstanding Common Shares are, and all unissued Common Shares, when offered
and sold will be, duly authorized, validly issued, fully paid and non-assessable. To the extent that additional Common Shares may be issued in the future, the relative interests
of the then existing shareholders may be diluted. There were 27,502,053 Common Shares issued and outstanding at December 31, 2017.
VII.
Market For Securities
Trading Price and Volume
The Common Shares are currently listed and posted for trading on the TSX and are traded under the symbol “APS” and NASDAQ under the symbol “APTO”.
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The following table sets forth the reported high and low trade prices in Canadian dollars, the average volume of trading, and the cumulative volume of trading of the Common
Shares as reported by the TSX for the periods indicated below:
Price Range
Total Cumulative
Volume
January 2017
February 2017
March 2017
April 2017
May 2017
June 2017
July 2017
August 2017
September 2017
October 2017
November 2017
December 2017
High ($)
1.93
1.66
1.82
1.38
1.79
2.20
2.19
2.20
2.12
2.07
2.92
3.00
Low ($)
1.23
1.27
1.35
1.05
1.16
1.36
1.63
1.69
1.69
1.64
1.95
2.17
3,213,034
1,176,580
924,968
1,264,036
1,901,623
1,009,177
1,070,017
592,046
1,250,418
595,242
1,484,171
1,048,398
The following table sets forth the reported high and low trade prices in Canadian dollars, the average volume of trading, and the cumulative volume of trading of the Common
Shares as reported by NASDAQ for the periods indicated below:
January 2017
February 2017
March 2017
April 2017
May 2017
June 2017
July 2017
August 2017
September 2017
October 2017
November 2017
December 2017
Prior Sales
Price Range
High ($)
2.07
1.29
1.37
1.05
1.32
1.70
1.75
1.75
1.75
1.61
2.30
2.58
Low ($)
0.91
0.98
1.01
0.78
0.86
1.00
1.25
1.36
1.38
1.30
1.50
1.68
The only securities of Aptose that are outstanding but not listed or quoted on a marketplace are stock options and stock-based awards.
Total Cumulative
Volume
9,878,125
7,822,362
9,984,969
4,648,218
12,405,311
10,651,964
8,193,357
5,057,911
7,204,650
6,255,650
8,801,894
15,383,437
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During the most recently completed financial year, we granted the following securities pursuant to our stock incentive plan: (i) on March 28, 2017, we granted (A) options to
purchase an aggregate of 480,000 Common Shares at a price of Cdn$1.52 per Common Share, and (B) an aggregate of 150,000 restricted stock units which fully vested on
June 28, 2017; (ii) on June 6, 2017, we granted options to purchase an aggregate of 191,250 Common Shares at a price of US$1.03 per Common Share; (iii) on June 6, 2017,
we granted options to purchase an aggregate of 56,250 Common Shares at a price of Cdn$1.38 per Common Share; (iv) on August 8, 2017, we granted options to purchase an
aggregate of 32,500 Common Shares at a price of US$1.69 per Common Share; (v) on August 8, 2017, we granted options to purchase an aggregate of 20,000 Common Shares
at a price of Cdn$2.04 per Common Share; (vi) on November 14, 2017, we granted options to purchase an aggregate of 8,000 Common Shares at a price of US$2.05 per
Common Share; and (vii) on December 4, 2017, we granted options to purchase an aggregate of 38,500 Common Shares at a price of US$2.01 per Common Share.
VIII.
Directors And Officers
Directors
As at March 27, 2018, as a group, the Company’s directors and executive officers beneficially owned, directly or indirectly, or exercised control of over an aggregate of
306,782 Common Shares representing 1% of the issued and outstanding Common Shares as at such date. The information as to the number of Common Shares beneficially
owned or over which control is exercised, not being within the knowledge of the Company, has been furnished by SEDI and confirmed with each director or executive officer,
as the case may be, individually as of March 27, 2018.
We have an Audit Committee, a Corporate Governance and Nominating Committee and a Compensation Committee, the members of each such committee are shown below.
The following table sets forth the name, province or state and country of residence of each director of the Company and states the respective positions and offices held with the
Company, their principal occupations during the last five years and the periods during which each director has served as a director of the Company. Each director holds office
until the next annual meeting of shareholders or until his successor is duly elected, unless prior thereto the director resigns or the director’s office becomes vacant by reason of
death or other cause.
Name and Municipality of Residence
Dr. Denis Burger(1)(2)
(Oregon, United States)
Position Held with the
Company
Lead Director
Principal Occupation during Past Five Years
Director Since
Chief Scientific Officer of Cytodyn Inc. (biotechnology company) (2015 to
present)
September 2007
President, Yamhill Valley Vineyards, Inc. (vineyards) (1983 to present)
Founding Chairman, Director, Trinity Biotech plc. (biotechnology company)
(1992 to 1995 Chairman, 1995 to present as Director)
39
Dr. Bradley Thompson(1)(2)(3)
(Alberta, Canada)
Director
Chief Executive Officer, Kickshaw Ventures Ltd. (venture capital)
(December 2016 to present)
June 2013
Chief Executive Officer and Chief Technology Officer, Wyvern
Pharmaceuticals Inc. (biotechnology company) (December 2016 to present)
President and Chief Executive Officer, Oncolytics Biotech Inc.
(biotechnology company) (1999 to November 2016)
Dr. Mark Vincent(3)
(Ontario, Canada)
Director
Physician; consultant medical oncologist, London Regional Cancer Program
of Cancer Care Ontario (cancer care facility) (1990 to present)
September 2007
Warren Whitehead(1)
(Ontario, Canada)
Professor of Oncology, Western University of Ontario (university) (2008 to
present)
Director
Financial Consultant (self-employed) (2015 to present)
April 2011
Serves on several Boards of Directors (2009 to present)
Chief Financial Officer, ProMIS Neurosciences (formerly Amorfix Life
Sciences) (biotechnology company) (2013 to 2015)
Dr. William G. Rice
(California, United States)
Chairman
Chairman, President and Chief Executive Officer of the Company (2013 to
present)
October 2013
Chairman, President and Chief Executive Officer, Cylene Pharmaceuticals
Inc. (biotechnology company) (2003 to 2013)
Dr. Erich Platzer(2)
Switzerland
Director
Serves on several Boards of Directors (2003 to present)
December 2014
Investment Advisor, HMB Partners AG (healthcare investment firm) (2003 to
2015)
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance and Nominating Committee
40
Biographies
Dr. Denis Burger: Dr. Burger currently is the Chief Scientific Officer and member of the board of directors of Cytodyn Inc., a biotechnology company as well as Chairman of
AMES Devices, a medical device company. Dr. Burger co-founded Trinity Biotech plc, based in Dublin, Ireland, in June 1992 and acted as Chairman from 1992 to 1995 and
now serves on the board of directors of the company. Dr. Burger was the past Chairman, Chief Executive Officer and a director of AVI Biopharma Inc., an Oregon based
biotechnology company, from 1992 to March 2007. Dr. Burger is also a partner in Sovereign Ventures, a healthcare consulting and funding firm based in Portland, Oregon.
Dr. Burger received his MSc and Ph.D. in Microbiology and Immunology from the University of Arizona.
Dr. Erich Platzer: Dr. Platzer is a board certified physician in internal medicine, hematology and medical oncology. Previously, Dr. Platzer served as the business director of
oncology, as well as the global strategic marketing and therapeutic area head of oncology at Roche, Basel. He was also the medical director in oncology and global development
project leader and was responsible for various strategic corporate partnerships. Dr. Platzer is a director of Swiss Business Angel Groups, StartAngels and BioBAC, and has
served as a pharmaceutical industry expert on the board of directors of multiple biotech companies in both the United States and Europe such as Probiodrug, AOT, Léman
Micro Devices, Credentis, and Viroblock. Dr. Platzer co-founded HBM Healthcare Investments (formerly HBM BioVentures) a global leader in healthcare investing. He has
over 12 years of experience in academic medicine and research and was a key member of the team at MSKCC that purified human G-CSF in 1983 (recombinant form:
Neupogen®). He earned his M.D. from the Medical School and the Institute of Clinical Immunology and Rheumatology of the University of Erlangen, where he also received
his “Dr. med. habil.” (M.D., Ph.D.).
Dr. William G. Rice: Dr. Rice joined Aptose as Chairman and Chief Executive Officer in October 2013. Prior to joining Aptose, Dr. Rice served as the President, Chief
Executive Officer and Chairman of the board of Cylene Pharmaceuticals, Inc., a private biotechnology company (“Cylene”). Prior to Cylene, Dr. Rice was the founder,
President, Chief Executive Officer and Director of Achillion Pharmaceuticals, Inc. He also served as Senior Scientist and Head of the Drug Mechanism Laboratory at the
National Cancer Institute-Frederick Cancer Research and Development Center, and served as a faculty member in the division of Pediatric Hematology and Oncology at Emory
University School of Medicine. Dr. Rice received his Ph.D. from Emory University Department of Biochemistry. He continues to serve as the Chairman of the board of Cylene
and is a member of the board of directors of Oncolytics Biotech Inc.
Dr. Bradley Thompson: Dr. Thompson is an experienced biotechnology professional who is Chief Executive Officer of Kickshaw Ventures Ltd. and Chief Executive Officer
and Chief Technology Officer of Wyvern Pharmaceuticals Inc. since December 2016. Prior to his role with Kickshaw and Wyvern Pharmaceuticals, Dr. Thompson was
Chairman of the Board, President and Chief Executive Officer of Oncolytics Biotech Inc. from April 1999 to November 2016 and Chief Executive Officer of Synsorb Biotech
from 1994 to 1999. He received his Ph.D. from the University of Western Ontario in the Department of Microbiology and Immunology.
Dr. Mark Vincent: Dr. Mark Vincent is a Professor of Oncology at the University of Western Ontario and a staff medical oncologist at the London Regional Cancer Program,
where he has been since 1990. Dr. Vincent is also the co-founder and Chief Executive Officer of Sarissa, Inc. since 2000.
Mr. Warren Whitehead: Mr. Whitehead is a CPA (CMA) who has held senior financial management positions in several biotechnology and pharmaceutical companies. Most
recently Mr. Whitehead was the Chief Financial Officer of ProMIS Neurosciences Inc. (formerly Amorfix Life Sciences Ltd.). Prior to this, he served as Chief Financial Officer
of ARIUS Research Inc., providing financial guidance and leadership during the acquisition of ARIUS by Roche in 2008. Prior to ARIUS, Mr. Whitehead was Chief Financial
Officer at Labopharm Inc., where he completed a series of public equity financings and a listing on NASDAQ. He is currently the Chairman of the board of directors of
PlantForm Corporation.
41
Executive Officers
The following table sets forth the name, province or state and country of residence of the other non-director executive officers:
Name and Municipality of Residence
Position held with the Company
Principal Occupation during Past Five Years
Dr. William Rice
(California, United States)
Chairman, President and Chief Executive
Officer
Gregory Chow
(California, United States)
Senior Vice President and Chief Financial
Officer
Chairman, President and Chief Executive Officer of the Company
(2013 to present)
Chairman, President and Chief Executive Officer, Cylene
Pharmaceuticals Inc. (biotechnology company) (2003 to 2013)
Chief Financial Officer of the Company
Former Managing Director, Director of Private Placements at
Wedbush Securities
Former Director in the Private Placements/Equity Capital Markets
Group at RBC Capital Markets
Former Senior Auditor at BDO Seidman, LLP
Gregory Chow: Mr. Chow joined Aptose as Chief Financial Officer in December 2013. Previously, Mr. Chow served as Managing Director, Director of Private Placements at
Wedbush Securities, where he led the private placement capital activities within the Life Sciences Investment Banking Group. Prior to joining Wedbush, he was a Director in
the Private Placements / Equity Capital Markets Group at RBC Capital Markets, where he led life science private capital activities. Previously, he led the Private Capital Group
at Wells Fargo Securities and was a Senior Auditor at BDO Seidman, LLP in their Century City, CA office. Mr. Chow is a Certified Public Accountant (inactive) in the State of
California. Mr. Chow received his MBA in Finance from The Wharton School at the University of Pennsylvania, and his BA in Business Economics with an emphasis in
Accounting from the University of California, Santa Barbara.
Shareholding, Cease Trade Orders, Bankruptcies, Penalties or Sanctions
Except as disclosed below and to the knowledge of the Company, none of the current executive officers or directors of the Company or shareholders holding a sufficient number
of securities of the Company to affect materially the control thereof is, or within 10 years before the date hereof, has been:
a.
a director, chief executive officer or chief financial officer of any corporation (including the Company) that:
(i) was subject to an order that was issued while the proposed director was acting in the capacity as director, chief executive officer or chief financial
officer, or
(ii) was subject to an order that was issued after the proposed director ceased to be a director, chief executive officer or chief financial officer and
which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer.
42
b.
c.
a director or executive officer of any corporation (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in
that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or
compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
has become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or
compromises with creditors, or had a receiver, manager or trustee appointed to hold the assets of the proposed director.
For the purposes of (a) above, “order” means a cease trade order, an order similar to a cease trade order or an order that denied the relevant Company access to any exemption
under securities legislation, in each case that was in effect for a period of more than 30 consecutive days.
Except as disclosed below and to the knowledge of the Company, none of the current executive officers or directors of the Company has been subject to:
a.
b.
any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a
securities regulatory authority; or
any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable security holder in deciding whether to vote
for a proposed director.
Conflicts of Interest
There are no existing or potential material conflicts of interest between the Company or its subsidiary and any director or officer of the Company or its subsidiary.
IX.
AUDIT COMMITTEE
The charter of our Audit Committee is attached as Schedule A. The current members of the Audit Committee are Bradley Thompson, Denis Burger and Warren Whitehead.
Mr. Warren Whitehead is the Chairman of the Audit Committee and has been considered to be the Financial Expert. Pursuant to Canadian securities laws, the Board has
determined that Messrs. Thompson, Burger and Whitehead are financially literate as all have experience in reviewing and analyzing the financial reports and ascertaining the
financial position of a corporation. Mr. Burger, in his previous position as Chairman and Chief Executive Officer of AVI Biopharma, is educated and experienced in reading and
analyzing financial statements. Mr. Burger has also served on the audit committee of three other publicly listed biotechnology companies. Dr. Thompson has experience reading
and interpreting financial statements through his former role as Chairman and CEO of a publicly listed biotechnology company as well as through his extensive experience
serving on various company boards. Mr. Whitehead is a CPA (CMA) and has served as the Chief Financial Officer of Arius Research Inc. and Labopharm Inc. Additionally,
we believe Mr. Thompson, Mr. Whitehead and Mr. Burger qualify as “independent” as that term is defined in the relevant securities laws relating to the composition of the audit
committee.
43
Audit Committee Mandate
The Audit Committee’s mandate is to assist the Board in fulfilling its oversight responsibilities. In particular, the Audit Committee:
·
·
serves as an independent and objective party to monitor the integrity of our financial reporting process and systems of internal controls regarding finance, accounting,
and legal compliance, including the review of our consolidated financial statements, MD&A and annual and interim results;
identifies and monitors the management of the principal risks that could impact our financial reporting;
· monitors the independence and performance of our independent auditors, including the pre-approval of all audit fees and all permitted non-audit services;
·
·
provides an avenue of communication among the independent auditors, management, and the Board; and
encourages continuous improvement of, and foster adherence to, our policies, procedures and practices at all levels.
The Audit Committee is also responsible for implementing and overseeing our whistle-blowing procedures.
Ethical Business Conduct
We have adopted a code of ethics which applies to all of our officers, directors, employees and consultants. A copy of the code of ethics is available on our website at
www.aptose.com or, without charge, upon written request from our Senior Vice President and chief Financial Officer at our offices located at 5955 Airport Road, Suite #228,
Mississauga, Ontario L4V 1R9, Canada.
Pre-Approval Policies and Procedures
The Audit Committee of our Board has, pursuant to the Audit Committee charter, adopted specific responsibilities and duties regarding the provision of services by our external
auditor, currently KPMG LLP. KPMG LLP is independent of the Company in accordance with the Rules of Professional Conduct of the Institute of Chartered Professional
Accountants of Ontario.
Our charter requires Audit Committee pre-approval of all permitted audit, audit-related and tax services.
Subject to the charter, the Audit Committee may establish fee thresholds for a group of pre-approved services. The Audit Committee then recommends to the Board approval of
the fees and other significant compensation to be paid to the independent auditors.
External Auditor Service Fees
The following table summarizes the Audit, Audit Related, Tax Related and Other Fees (excluding expenses and taxes) billed by the Company’s auditor, KPMG LLP to the
Company and its subsidiaries for the two most recently completed fiscal years.
44
Fees
Audit Fees (1)
Audit Related Fees (2)
Tax Fees (3)
All Other Fees (4)
Total Fees
December 31, 2017
CA$ 125,000
CA$ 200,400
$-
$-
CA$ 338,400
December 31, 2016
CA$ 116,000
CA$ 211,400
CA$ 62,150
$-
CA$ 399,310
(1) Audit Fees consist of the aggregate fees billed by the external auditor of the Company for audit services.
(2) Audited Related Fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the issuer’s
financial statements and are not reported under “Audit Fees” above and include the provision of comfort letters and consents, the consultation concerning financial
accounting and reporting of specific issues and the review of documents filed with regulatory authorities.
(3) Tax Fees include fees billed for tax compliance, tax advice and tax planning services, including the preparation of original tax returns and claims for refund; tax consultations,
such as assistance and representation in connection with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice
from taxing authorities; tax planning services; and consultation and planning services.
(4) All Other Fees include the aggregate fees billed for products and services provided by the auditors, other than the services reported above.
X.
Legal Proceedings and Regulatory Actions
The Company is not a party to any legal proceeding, and its property is not and was not the subject of any material legal proceeding, during the year ended December 31, 2017.
The Company is not aware of any legal proceeding outstanding, threatened or pending as of the date hereof by or against the Company.
The Company is not and was not subject to, during the year ended December 31, 2017: (i) penalties or sanctions imposed by a court relating to Canadian securities legislation or
by a Canadian securities legislation or by a Canadian securities regulatory authority; (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely
be considered important to a reasonable investor in making an investment decision; and (iii) settlement agreements entered into with a court relating to Canadian securities
legislation or with a Canadian securities regulatory authority.
XI.
Interest of Management and Others in Material Transactions
There are no material interests, direct or indirect, of directors, executive officers, any shareholder who beneficially owns, directly or indirectly, more than 10% of the
outstanding Common Shares, or any known associates or affiliates of such persons, in any transaction within the last three years or in any proposed transaction which has
materially affected or would materially affect the Company.
XII.
Transfer Agent and Registrar
The registrar and transfer agent for the Common Shares is Computershare Investor Services Inc. at its principal office in the City of Toronto.
45
XIII. Material Contracts
The following are the material contracts, other than contracts entered into in the ordinary course of business, that the Company has entered into since January 1, 2017 or prior
thereto but which are still in effect:
(i)
(ii)
(iii)
(iv)
exclusive global license agreement with OHM that provides OHM with the rights for the development, manufacture and commercialization of APL-581, as well as
related molecules from Aptose’s dual bromodomain and extra-terminal domain motif (BET) protein and kinase inhibitor program;
Purchase Agreement with Aspire Capital Fund, LLC which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital is
committed to purchase up to an aggregate of $15,500,000 of Common Shares;
a registration rights agreement entered into among the Company and Aspire Capital dated as of October 27, 2017 pursuant to which the Company provides certain
registration rights under the Securities Act of 1933 (United States), as amended, and the rules and regulations thereunder; and
a definitive agreement entered into among the Company and CG, dated June 1, 2016, granting Aptose an exclusive option to research, develop and commercialize
CG’806 in all countries of the world except Korea and China, for all fields of use.
A copy of these contracts can be found under the profile of the Company on SEDAR at www.sedar.com.
XIV.
Interest of Experts
KPMG LLP, the auditor of the Company, is the only person, company or partnership which is named as having prepared or certified a statement, report or valuation described,
included or referred to in a filing made by the Company during or relating to the Company’s most recently completed financial year and whose profession or business gives
authority to a statement, report or valuation made. The partners and associates of KPMG LLP do not hold any of the issued and outstanding Common Shares.
XV.
Additional Information
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities, options and to purchase securities and interests of
insiders in material transactions, if any, is contained in the Management Information Circular of the Company dated April 18, 2017 prepared in connection with the Company’s
most recent annual shareholders’ meeting and is available on SEDAR at www.sedar.com. Additional financial information, including the Company’s audited financial
statements and management’s discussion and analysis of financial condition and results of operations, is available on SEDAR at www.sedar.com.
All requests for the above-mentioned documents must be addressed to the Senior Vice President and Chief Financial Officer of Aptose Biosciences Inc., #5955 Airport Road,
Suite #228, Mississauga, Ontario L4V 1R9, or by fax at (905) 234-2120.
46
SCHEDULE A
MANDATE OF THE AUDIT COMMITTEE[1]
1.
Purpose
The primary purposes of the Audit Committee (the “Committee”) of the Board shall be to act on behalf of the Board, in fulfilling the Board’s oversight responsibilities with
respect to the Company’s corporate accounting and financial reporting processes, the systems of internal control over financial reporting, and audits of financial statements, as
well as the quality and integrity of the Company’s financial statements and reports and the qualifications, independence and performance of the registered public accounting
firm or firms engaged as the Company’s independent outside auditors for the purpose of preparing or issuing an audit report or performing other audit, review or attest services
(the “Auditors”). The Committee shall also provide oversight assistance in connection with the Company’s legal, regulatory and ethical compliance programs as established by
management and the Board. The operation of the Committee shall be subject to the constating documents of the Company as in effect from time to time and applicable law.
The policy of the Committee, in discharging these obligations, shall be to maintain and foster an open avenue of communication among the Committee, the Auditors and the
Company’s financial management.
The members of the Committee are not full-time employees of the Company and may or may not be accountants or auditors by profession or experts in the fields of accounting
or auditing and, in any event, do not serve in such capacity. Consequently, it is not the duty of the Committee to conduct audits or to determine that the Company’s financial
statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the
responsibilities of management and the external auditors.
2.
Composition
The Committee shall be comprised of a minimum three directors as determined by the Board. Each of the members of the Committee shall satisfy the independence and
financial literacy requirements of any applicable securities laws, securities regulatory authorities and stock exchanges, including without limitation, requirements set out in, or
by, National Instrument 52-110 Audit Committee, the Nasdaq Stock Market (“Nasdaq”), the Toronto Stock Exchange (the “TSX”) and the United Stated Securities and
Exchange Commission, as in effect from time to time. At least one member shall satisfy the applicable Nasdaq financial sophistication requirements as in effect from time to
time.
Committee members shall be appointed by the Board. Members of the Committee shall serve until their resignation or removal. The Board may fill vacancies on the Committee
by a majority vote of the authorized numbers of Directors, but may remove Committee members only with the approval of a majority of the independent Directors then serving
on the full Board. The Board shall designate a Committee member as the Chair of the Committee on an annual basis, or if the Board does not do so, the Committee members
shall appoint a Committee member as Chair by a majority vote of the authorized number of Committee members.
_______________________
[1] As revised and adopted by the Board on March 3, 2015.
3.
Meetings, Reports and Resources of the Committee
(a) Meetings. In discharging its responsibilities, the Committee shall meet as often as it determines necessary or advisable, but not less frequently than
quarterly. The Committee may also hold special meetings or act by unanimous written consent as the Committee may decide. The meetings may be in person or telephone. The
Chair shall prepare and/or approve an agenda in advance of each meeting. The Committee shall appoint a secretary to be the secretary of each meeting of the Committee to keep
written minutes of the meeting and deliberations and will ensure that such minutes are included in the Company’s minute book. The Chair of the Committee shall report at the
next regularly scheduled Board meeting following the applicable Committee meeting.
(b) Critical Reporting. The Committee shall report to the Board with respect to material issues that arise regarding the quality or integrity of the Company’s
financial statements, the Company’s compliance with legal or regulatory requirements, the performance or independence of the Auditors or such other matters as the Committee
deems appropriate from time to time or whenever it shall be called upon to do so. The Committee may invite any person to attend part or all of a meeting of the Committee.
(c) Procedures. The Committee may establish its own procedures, including the formation and delegation of authority to subcommittees, in a manner not
inconsistent with this charter, the articles or applicable laws or regulations. The Chair or a majority of the Committee members may call meetings of the Committee. A majority
of the members of the Committee constitute a quorum for the transaction of Committee business, and the vote of a majority of the Committee members present at the meeting at
which a quorum is present shall be the act of the Committee. The Committee shall review, discuss and assess its own performance at least annually. The Committee shall also
periodically review (at least annually) and assess the adequacy of this charter, including the Committee’s role and responsibilities as outlined in this charter, and shall
recommend any proposed changes to the Board of its consideration. The Committee may meet in separate sessions with the Auditors, as appropriate, and management and other
directors to discuss any matters that the Committee, the Auditors or management believe should be discussed privately with the Committee.
(d) Reports. The Committee shall prepare the report required by the rules of the Securities and Exchange Commission (the “SEC”) to be included in the
Company’s annual proxy statement (if the Company is required to file an annual proxy statement pursuant to SEC rules), as well as any other report required of the Committee
under applicable laws.
(e) Committee Access and Resources. The Committee shall have authority to appoint, determine compensation for, and at the Company’s expense, retain and
oversee the Auditors subject to applicable law and regulations including Section 10A(m)(2) of the United States Securities Exchange Act of 1934, as amended, and the rules
thereunder and otherwise to fulfill its responsibilities under this charter. The Committee is at all times authorized to have direct, independent and confidential access to the
Company’s other directors, management and personnel to carry out the Committee’s purposes. The Committee is also authorized to retain and terminate at the Company’s
expense, independent counsel or other advisers selected by the Committee for matters related to the Committee’s purposes.
4.
Authority and Responsibilities
The Committee shall oversee the Company’s financial reporting process on behalf of the Board, and shall have direct responsibility for the oversight of the work of the Auditors
and any other registered public accounting firm engaged for the purpose of performing other review or attest services for the Company. The Auditors and each such other
registered public accounting firm shall report directly and be accountable to the Committee. The Committee’s functions and procedures should remain flexible to address most
effectively changing circumstances. To implement the Committee’s purpose and policy, the Committee shall be charged with the following functions and processes with the
understanding, however, that the Committee may supplement or (except as otherwise required by applicable laws or rules) deviate from these activities as appropriate under the
circumstances:
2
(a) Evaluation and Retention of Auditors. To evaluate the performance of the Auditors, including the lead partner, to assess their qualifications (including
their internal quality-control procedures and any material issues raised by that firm’s most recent internal quality-control review or any investigations by regulatory authorities)
and to determine whether to recommend to the Board the retention or to termination of the engagement of the existing Auditors or the appointment or engagement of a different
independent registered public accounting firm.
(b) Communication Prior to Engagement. Prior to engagement of any prospective Auditors, to review a written disclosure by the prospective Auditors of all
relationships between the prospective Auditors, or their affiliates, and the Company, or persons in financial oversight roles at the Company, that may reasonably be thought to
bear on independence, and to discuss with the prospective Auditors the potential effects of such relationships on the independence of the prospective Auditors, consistent with
applicable laws, regulations and accounting rules.
(c)
Approval of Audit Engagements. To determine and recommend to the Board the engagement of the Auditors, prior to commencement of such
engagement, to perform all proposed audit, review and attest services, including the scope of and plans for the audit, the adequacy of staffing, to determine and recommend to
the Board the compensation to be paid, at the Company’s expense, to the Auditors and the negotiation and execution, on behalf of the Company, of the Auditors’ engagement
letters.
(d) Approval of Non-Audit Services. To determine and approve engagements of the Auditors, prior to commencement of such engagements (unless in
compliance with exceptions available under applicable laws and rules related to immaterial aggregate amounts of services), to perform any proposed permissible non-audit
services, including the scope of the service and the compensation to be paid therefor, at the Company’s expense, which approval may be pursuant to preapproval policies and
procedures established by the Committee consistent with applicable laws and rules, including the delegation of preapproval authority to one or more Committee members so
long as any such preapproval decisions are presented to the full Committee at the next scheduled meeting.
(e) Audit Partner Rotation. To monitor the rotation of the partners of the Auditors on the Company’s audit engagement team as required by applicable laws
and rules and to consider periodically and, if deemed appropriate, adopt a policy regarding rotation of auditing firms.
(f) Auditor Independence. At least annually, consistent with applicable rules and regulations, to receive and review written disclosures from the Auditors
delineating all relationships between the Auditors, or their affiliates, and the Company, or persons in financial oversight roles at the Company, that may reasonably be thought
to bear on independence and a letter from the Auditors affirming their independence, to consider and discuss with the Auditors any potential effects of any such relationships on
the independence of the Auditors as well as any compensation or services that could affect the Auditors’ objectivity and independence, and to assess and otherwise take
appropriate action to oversee the independence of the Auditors.
(g)
Former Employees of Auditor. To consider and, if deemed appropriate, adopt clear policies regarding Committee preapproval of employment by the
Company of individuals employed or formerly employed by the Auditors and engaged on the Company’s account.
3
(h) Audited Financial Statement Review. To review, upon completion of the audit, the financial statements proposed to be included in the Company’s public
disclosure documents, including financial news releases, management’s discussion and analysis, registration statements, annual reports, including on Form 10-K or Form 20-F,
as applicable, to be filed on SEDAR and/or with the SEC, management’s discussion and analysis and to recommend whether or not such financial statements and other materials
should be approved by the Board for disclosure.
(i) Annual Audit Results. To review with management and the Auditors, the results of the annual audit, including the Auditors’ assessment of the quality, not
just acceptability, of the Company’s accounting principles and practices, the Auditors’ views about qualitative aspects of the Company’s significant accounting practices, the
reasonableness of significant judgments and estimates (including material changes in estimates), all known and likely misstatements identified during the audit (other than those
the Auditors believe to be trivial), the adequacy of the disclosures in the financial statements and any other matters required to be communicated to the Committee by the
Auditors under the standards of the applicable accounting rules.
(j)
Auditor Communications. At least annually, to discuss with the Auditors the matters required to be discussed by applicable law, regulations and
accounting rules.
(k) Quarterly Results. To review and discuss with management and the Auditors, as appropriate, the results of the Auditors’ review of the Company’s
quarterly financial statements and approve such quarterly financial statements, prior to public disclosure of quarterly financial information or filing of any required disclosure
with any securities regulatory authority, including the filing with the SEC of the Company’s Quarterly Report on Form 10-Q (if required by SEC rules), and to discuss with the
Auditors any other matters required to be communicated to the Committee by the Auditors under generally accepted auditing standards, as appropriate.
(l) Management’s Discussion and Analysis. To review and discuss with management and the Auditors, as appropriate, the Company’s disclosures contained
under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its periodic reports to be filed with the SEC and the disclosure
in the “Management’s Discussion and Analysis” to be filed with applicable securities regulatory authorities in Canada.
(m)
Press Releases. To review and discuss with management and the Auditors, as appropriate, earnings press releases, and press releases containing
information relating to material developments as well as the substance of financial information, information relating to material developments and earnings guidance provided to
analysts and ratings agencies, which discussions may be general discussions of the type of information to be disclosed or the type of presentation to be made.
(n) Accounting Principles and Policies. To review with management and the Auditors, as appropriate, significant issues that arise regarding accounting
principles and financial statement presentation, including critical accounting policies and practices, alternative accounting policies available under international financial
reporting standards, in Canada, and generally accepted accounting principles, in the United States, related to material items discussed with management, the potential impact on
the Company’s financial statements of off-balance sheet structures and any other significant reporting issues and judgments, significant regulatory, legal and accounting
initiatives or developments that may have a material impact on the Company’s financial statements, compliance programs and policies if, in the judgment of the Committee,
such review is necessary or appropriate. To approve, if appropriate, major changes to the Company’s accounting principles and practices as suggested by the independent
auditors or management and assure that the reasoning is described in determining the appropriateness of changes in accounting principles and disclosures.
4
(o) Risk Assessment and Management. To review and discuss with management and, as appropriate, the Auditors the Company’s guidelines and policies with
respect to risk assessment and risk management, including the Company’s major financial risk exposures and the steps taken by management to monitor and control these
exposures; and to review and discuss with management insurance programs, including director and officer insurance, product liability insurance and general liability insurance
(but excluding compensation and benefits-related insurance).
(p) Management Cooperation with Audit. To evaluate the cooperation received by the Auditors during their audit examination, including a review with the
Auditors of any significant difficulties encountered during the audit or any restrictions on the scope of their activities or access to required records, data and information and,
whether or not resolved, significant disagreements with management and management’s response, if any.
(q) Management Letters. To review and discuss with the Auditors and, if appropriate, management, any management or internal control letter issued or, to the
extent practicable, proposed to be issued by the Auditors and management’s response, if any, to such letter, as well as any additional material written communications between
the Auditors and management.
(r) National Office Communications. To review and discuss with the Auditors, as appropriate, communications between the audit team and the Auditors’
national office with respect to accounting or auditing issues presented by the engagement.
(s)
Disagreements Between Auditors and Management. To review with management and the Auditors, or any other registered public accounting firm
engaged to perform review or attest services, any conflicts or disagreements between management and the Auditors, or such other accounting firm, whether or not resolved,
regarding financial reporting, accounting practices or policies or other matters, that individually or in the aggregate could be significant to the Company’s financial statements
or the Auditors’ report, and to resolve any conflicts or disagreements regarding financial reporting.
(t) Internal Control Over Financial Reporting. To confer with management and the Auditors, as appropriate, regarding the scope, adequacy and effectiveness
of internal control over financial reporting including significant deficiencies or material weaknesses identified by the Company’s Auditors. To review with the management and
the Auditors any fraud, whether or not material, that includes management or other employees who have any significant role in the Company’s internal control over financial
reporting and any significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions in regard to significant
deficiencies or material weaknesses.
(u) Correspondence with Regulators. To consider and review with management, the Auditors, outside counsel, as appropriate, and any special counsel,
separate accounting firm or other consultants and advisors as the Committee deems appropriate, any correspondence with regulators or governmental agencies and any
published reports that raise material issues regarding the Company’s financial statements or accounting policies.
(v) Complaint Procedures. To establish procedures, when and as required by applicable laws and rules, for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns
regarding questionable accounting or auditing matters, and to establish such procedures as the Committee may deem appropriate for the receipt, retention and treatment of
complaints received by the Company with respect to any other matters that may be directed to the Committee for review and assessment.
5
(w) Ethical Compliance; Compliance with Legal and Regulatory Requirements. To review the results of management’s efforts to monitor compliance with the
Company’s programs and policies designed to ensure adherence to applicable laws and rules, as well as to its Code of Business Conduct and Ethics, as amended from time to
time, and regarding legal matters and compliance with legal and regulatory requirements that may have a material effect on the Company’s business, financial statements or
compliance policies, including any material reports or inquiries from regulatory or governmental agencies. To review with the Company’s counsel, on at least an annual basis,
any legal matters that could have a significant impact on the organization’s financial statements and the Company’s compliance with applicable laws and regulations.
(x) Related-Party Transactions. To review and provide oversight of related-party transactions, as required by applicable securities laws and the rules and
regulations of applicable securities regulatory authorities and stock exchanges, in accordance with the Company’s Disclosure and Insider Trading Policy and Code of Business
Conduct and Ethics.
(y) Engagement of Registered Public Accounting Firms. To determine and recommend to the Board for approval the engagement of any registered public
accounting firm (in addition to the Auditors), prior to commencement of such engagement, to perform any other review or attest service, including the recommendation to the
Board of the compensation to be paid, at the Company’s expense, to such firm and the negotiation and execution, on behalf of the Company, of such firm’s engagement letter.
To discharge such Auditors when circumstances warrant.
(z)
Investment Policy. To review, on a periodic basis, as appropriate, the Company’s investment policy and recommend to the Board any changes to the
investment policy.
(aa) Investigations. To investigate any matter brought to the attention of the Committee within the scope of its duties if, in the judgment of the Committee, such
investigation is necessary or appropriate.
(bb) Hiring Policies of Auditors. To review and approve the Company’s hiring policies with respect to partners, employees and former partners and employees
of the current and former Auditors of the Company.
(cc) Disclosure. To describe in the Company’s annual information form the Committee’s composition and responsibilities and how they were discharged.
The approval of this Audit Committee Charter shall be construed as delegation of authority to the Audit Committee with respect to the responsibilities set forth herein.
5
Exhibit 99.2
MANAGEMENT DISCUSSION AND ANALYSIS
DECEMBER 31, 2017
MANAGEMENT’S DISCUSSION AND ANALYSIS
March 27, 2018
This management’s discussion and analysis of Aptose Biosciences Inc. (“Aptose”, the “Company”, “we”, “our”, “us” and similar expressions) should be read in
conjunction with the Company’s annual audited financial statements for the year ended December 31, 2017 and the annual information form of the Company for the year ended
December 31, 2017 which can be found on SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar.shtml.
All amounts are expressed in United States dollars unless otherwise stated.
CHANGE IN FUNCTIONAL AND REPORTING CURRENCY
Effective January 1, 2017, the Company changed its functional currency to US dollars given the prevalence of US dollar denominated activities over time. Since the
Company’s inception in 1986 to fiscal 2014 all operations of the entity were conducted in Canada and the Canadian dollar was determined to be the functional currency. During
fiscal years 2015 and 2016, the Company gradually transitioned most of its research and development activities, including both headcount and studies, to the US, and completed
this transition in January 2017. The change in functional currency from Canadian dollars to US dollars is accounted for prospectively from January 1, 2017. Foreign currency
transactions are translated into US dollars at rates prevailing on the transaction dates. At the end of each reporting period, monetary assets and liabilities denominated in foreign
currencies are translated into US dollars at the rates in effect at that date. Foreign exchange gains and losses are recorded in the consolidated statement of loss.
Effective December 31, 2017, we changed our presentation currency to US dollars from Canadian dollars. All amounts included in this document are in US dollars unless
disclosed otherwise. The change in reporting currency was accounted for on a retrospective basis as if the US dollar had always been the Company’s presentation currency.
Accordingly, the financial statements for all the periods presented have been translated to the US dollar. Comparative balances of earnings and cash flows have been translated
into US dollars using average exchange rates for the reporting periods. For comparative balances, assets and liabilities have been translated into the presentation currency at the
rate of exchange prevailing at the reporting date. Components of equity were translated at the exchange rates prevailing at the dates of the relevant transactions.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This management’s discussion and analysis may contain forward-looking statements within the meaning of securities laws. Such statements include, but are not limited
to, statements relating to:
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our ability to obtain the substantial capital we require to fund research and operations;
our business strategy;
our clinical development plans;
our plans to secure and maintain strategic partnerships to assist in the further development of our product candidates and to build our pipeline;
our plans to conduct clinical trials and preclinical programs;
our ability to accrue appropriate numbers and types of patients;
our ability to file and maintain intellectual property to protect our pharmaceutical assets;
our reliance on external contract research/manufacturing organizations for certain activities;
potential exposure to legal actions and potential need to take action against other entities;
our expectations regarding the progress and the successful and timely completion of the various stages of our drug discovery, drug synthesis and
formulation, preclinical and clinical studies and the regulatory approval process;
our plans, objectives, expectations and intentions; and
other statements including words such as “anticipate”, “contemplate”, “continue”, “believe”, “plan”, “estimate”, “expect”, “intend”, “will”, “should”,
“may”, and other similar expressions.
The forward-looking statements reflect our current views with respect to future events, are subject to significant risks and uncertainties, and are based upon a number
of estimates and assumptions that, while considered reasonable by us, are inherently subject to significant business, economic, competitive, political and social uncertainties
and contingencies. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements
that may be expressed or implied by such forward-looking statements, including, among others:
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our early stage of development, particularly the inherent risks and uncertainties associated with (i) developing new drug candidates generally, (ii)
demonstrating the safety and efficacy of these drug candidates in clinical studies in humans, and (iii) obtaining regulatory approval to commercialize
these drug candidates;
our ability to obtain the substantial capital we require to fund research and operations;
our lack of product revenues and history of operating losses;
our drug candidates require time-consuming and costly synthesis and formulation, preclinical and clinical testing and regulatory approvals before
commercialization;
2
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clinical studies and regulatory approvals of our drug candidates are subject to delays, and may not be completed or granted on expected timetables, if at
all, and such delays may increase our costs and could delay our ability to generate revenue;
our reliance on external contract research/manufacturing organizations for certain activities;
our ability to recruit patients for clinical trials;
our ability to develop successfully companion diagnostics for our therapeutic product candidates;
our reliance on third parties to conduct and monitor our preclinical studies and our clinical trials;
our ability to attract and retain key personnel;
the proper conduct of our employees;
our ability to expand our business and to find and enter into agreements with potential partners;
results from our clinical trials or studies;
the regulatory approval process;
the progress of our clinical trials;
potential exposure to legal actions and potential need to take action against other entities;
our ability to obtain and maintain patent protection;
our ability to protect our intellectual property rights and not infringe on the intellectual property rights of others;
our ability to comply with applicable governmental regulations and standards;
development or commercialization of similar products by our competitors, many of which are more established and have or have access to greater
financial resources than us;
commercialization limitations imposed by intellectual property rights owned or controlled by third parties;
potential product liability and other claims;
our ability to maintain adequate insurance at acceptable costs;
further equity financing, which may substantially dilute the interests of our existing shareholders;
exposure to fluctuations of foreign currencies;
changing market conditions; and
other risks detailed from time-to-time in our on-going quarterly filings, annual information forms, annual reports and annual filings with Canadian
securities regulators and the United States Securities and Exchange Commission, and those which are discussed under the heading “Risk Factors” in our
most recent annual information form.
Should one or more of these risks or uncertainties materialize, or should the assumptions set out in the section entitled “Risk Factors” in our most recent annual
information form underlying those forward-looking statements prove incorrect, actual results may vary materially from those described herein. These forward-
looking statements are made as of the date of this management’s discussion and analysis, and we do not intend, and do not assume any obligation, to update these
forward-looking statements, except as required by law. We cannot assure you that such statements will prove to be accurate as actual results and future events could
differ materially from those anticipated in such statements. Investors are cautioned that forward-looking statements are not guarantees of future performance and
accordingly investors are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainty therein.
CORPORATE UPDATE
The following items highlight our corporate activities during the year ended December 31, 2017 and any subsequent development up until the date hereof.
PROGRAM UPDATES
CG’806
In June 2016, we announced a definitive agreement with South Korean company CrystalGenomics, Inc. (“CG”), granting us an exclusive option to research, develop and
commercialize CG026806 (“CG’806”) in all countries of the world except the Republic of Korea and China, for all fields of use. CG’806 is a highly potent, orally bioavailable
non-covalent small molecule being developed for acute myeloid leukemia (AML) and certain B cell malignancies because of its actions as a pan-FLT3/pan-BTK inhibitor. We
paid US$1.0 million to CG to acquire the option. Should we elect to exercise the option, upon exercise, we would pay an additional US$2.0 million in cash or combination of
cash and common shares, and would receive full development and commercial rights for the program in all territories outside of the Republic of Korea and China. The option
fee is due on the earlier of (i) filing of an Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”), (ii) first dosage of a human in a
clinical trial or (iii) or early June 2018.
CG’806 exhibits a picomolar IC50 toward the FMS-like tyrosine kinase 3 (FLT3) with the Internal Tandem Duplication (“FLT3-ITD”), potency against the wild type FLT3 and
a host of mutant forms of FLT3, as well as single-digit nanomolar IC50’s against Bruton’s tyrosine kinase (“BTK”) and its C481S mutant (“BTK-C481S”). Consequently,
CG’806 is characterized as a pan-FLT3/pan-BTK inhibitor. Further, CG’806 impacts a small group of other relevant oncogenic kinases/pathways (including CSF1R, Aurora
kinases (“AURK”), TRK, and the AKT and ERK pathways) that are operative in AML and certain B cell malignancies, but not the TEC, EGFR and ErbB2/4 kinases that are
responsible for safety concerns with certain other kinase inhibitors.
As a potent inhibitor of FLT3-ITD, CG’806 may become an effective therapy in a high-risk subset of AML patients. This is because the FLT3-ITD mutation occurs in
approximately 30% of patients with AML and is associated with a poor prognosis. In murine xenograft studies of human AML (FLT3-ITD), CG’806 administered orally once
daily for 14 days resulted in tumor elimination without measurable toxicity. Importantly, CG’806 targets other oncogenic kinases which may also be operative in FLT3-ITD
AML, thereby potentially allowing the agent to become an important therapeutic option for a broader group of this difficult-to-treat AML patient population. The findings that
CG’806 targets all forms of FLT3 and other oncogenic pathways, and that CG’806 was well tolerated from a safety perspective during efficacy studies, suggest that CG’806
may also have applicability in treating patients, particularly those over the age of 65, who cannot tolerate other therapies.
3
Separate from the AML and FLT3 story, overexpression of the BTK enzyme can drive oncogenic signaling of certain B cell malignancies, such as chronic lymphocytic
leukemia (CLL), mantle cell lymphoma (MCL), diffuse large cell B cell lymphoma (DLBCL) and others. Therapy of these patients with covalent, irreversible BTK inhibitors,
such as ibrutinib, that target the active site Cysteine (“Cys”) residue of BTK can be beneficial in many patients. However, therapy with covalent BTK inhibitors can select for
BTK with a C481S mutation, thereby conferring resistance to covalent BTK inhibitors. Furthermore, approximately half of CLL patients have discontinued treatment with
ibrutinib after 3.4 years of therapy. Discontinuation of ibrutinib is due to the development of drug resistance (in particular, patients have malignancies that developed the BTK-
C481S mutation), or due to refractory disease (patient tumors did not respond to ibrutinib) or intolerance (side effects led to discontinuation of ibrutinib), according to a study
performed at The Ohio State University. The C481S mutation is observed in 5-10% of the patients, while 40-45% of the patients were intolerant or refractory to ibrutinib. As a
non-covalent, reversible inhibitor of BTK, CG’806 does not rely on the Cysteine 481 residue (C481) for inhibition of the BTK enzyme. Indeed, recent X-ray crystallographic
studies (with wild type and C481S BTK) demonstrated that CG’806 binds productively to the BTK active site in a position that is indifferent to the presence or absence of
mutations at the 481 residue. Moreover, in vitro studies demonstrated that CG’806 kills B cell malignancy cell lines on average approximately 1500 times more potently than
ibrutinib, and CG’806 demonstrated a high degree of safely in animal efficacy studies. Consequently, patients who are resistant, refractory or intolerant to ibrutinib or other
commercially approved or development-stage BTK inhibitors with B cell malignancies may continue to be sensitive to CG’806 therapy. This is particularly true since CG’806
inhibits the wild type and mutant forms of BTK, as well as other kinases/pathways that drive the survival and proliferation of B cell malignancies.
On May 7, 2017, we presented preclinical data for our pan-FLT3/pan-BTK inhibitor CG’806 at the 2017 American Association for Cancer Research (AACR) Conference for
Hematologic Malignancies: Translating Discoveries to Novel Therapies in Boston, MA. Two separate presentations highlighting CG’806 were presented. In one presentation,
our scientists, with researchers from the Knight Cancer Institute at Oregon Health & Science University (OHSU), presented data relating to the potency of CG’806 against
samples derived from patients with various hematologic malignancies. In a separate presentation, our scientists, with researchers from the MD Anderson Cancer Center,
presented data demonstrating CG’806’s potent activity against AML cells harboring wild type or specific mutant forms of FLT3.
On August 4, 2017 we received a notice from the USPTO stating that our U.S. Patent Application is allowed for issuance as a patent. The allowed application claims numerous
compounds, including the CG’806 compound, pharmaceutical compositions comprising the CG’806 compound, and methods of treating various diseases caused by abnormal or
uncontrolled activation of protein kinases. The notice of allowance is not a grant of patent rights and although it is uncommon, the USPTO can withdraw the allowed
application from issuance.
On December 11, 2017 at the American Society of Hematology Annual Meeting, we presented with the OHSU Knight Cancer Institute preclinical data demonstrating that
CG’806, a pan-FLT3/pan-BTK inhibitor, has broad and potent drug activity against AML, CLL and other hematologic disease subtypes. We also announced the presentation of
preclinical data from research led by The University of Texas MD Anderson Cancer Center demonstrating that CG’806 exerts a profound anti-leukemia effect in human and
murine leukemia cell lines harboring FLT-3 ITD mutations, mutations that are usually associated with very poor prognoses in leukemia patients. In addition, CG’806 induces
apoptosis, or programmed cell death, in AML patient samples by multiple mechanisms and is able to overcome resistance that is seen with other FLT3 inhibitors. The data were
highlighted in poster presentations on December 10 and 11, 2017 at the American Society of Hematology Annual Meeting.
On December 26, 2017, we announced that the FDA has granted orphan drug designation to CG’806 for the treatment of patients with AML. Orphan drug designation is granted
by the FDA to encourage companies to develop therapies for the treatment of diseases that affect fewer than 200,000 individuals in the United States. Orphan drug status
provides research and development tax credits, an opportunity to obtain grant funding, exemption from FDA application fees and other benefits. If CG’806 is approved to treat
AML, the orphan drug designation provides Aptose with seven years of marketing exclusivity.
On March 15, 2018, we announced two abstracts related to the mechanistic properties of CG’806 in AML cells and in B cell malignancy cells have been accepted for poster
presentations at the upcoming 2018 Annual Meeting of the American Association for Cancer Research (AACR).
We have invested significant time, effort and capital to create a scalable chemical synthetic route for the manufacture of CG’806 drug substance, to develop an oral formulation
for clinical development, and to study the actions of CG’806 in various preclinical biological pathway studies. Our efforts to develop the scalable chemical synthetic route have
taken longer than anticipated and thus pushed the timeline for the IND submission and initiation of the first-in-human Phase I clinical trial further into the future than we had
originally anticipated. We now have solved the synthetic route, can scale the manufacture of API, and now have manufactured and delivered a batch of API which was used for
Dose Range Finding Studies that were performed and completed in early January 2018. Currently we are manufacturing a multi-kg batch of GLP grade API (drug substance) for
use in GLP toxicology studies. We also reported that we selected the oral formulation that we intend to take into the GLP toxicology studies and the first-in-human clinical
trials. In addition, R&D funds are being utilized to support exploratory formulation studies in an ongoing effort to craft superior formulations for CG’806. Provided we are able
to manufacture CG’806 for both the non-clinical (GLP) studies and clinical trial, complete the non-clinical studies, and receive a favorable approval from the FDA on our IND
submission and continue on the anticipated timeline, we expect to initiate a first-in-human Phase I clinical trial by late 2018. The total direct costs of such activities and to reach
the submission of the IND are currently expected to range between US$3 million and US$4.5 million. However any interruptions or additional studies in these activities could
cause a delay in the anticipated commencement of the Phase I trial. Greater granularity on the timing of the IND submission and clinical trial will be provided in the coming
months. CG’806 is being developed with the intent to deliver the agent as an oral therapeutic and to develop it in parallel for AML and for appropriate B cell malignancies
(likely CLL). As clinical trials are lengthy, complex, costly, and uncertain processes, an estimate of the future costs is not reasonable at this time.
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APTO-253
Phase Ib Trial
APTO-253, a small molecule c-Myc inhibitor, was being evaluated by us in a Phase Ib clinical trial in patients with relapsed / refractory hematologic malignancies, particularly
AML and high-risk myelodysplastic syndromes (“MDS”) before being placed on clinical hold by the FDA in November 2015. If and when the APTO-253 clinical trial is re-
initiated, upon completion of the dose-escalation stage of the study and determination of the appropriate dose, the plan would be to enroll additional AML patients for disease-
specific single-agent expansion cohorts. For future development, upon selection of a lead hematologic indication from this Phase Ib study, combination of APTO-253 with a
standard therapy would be considered.
Clinical Hold and Current Status
As previously disclosed, the Phase Ib trial was placed on clinical hold in order to solve a chemistry-based formulation issue, and the chemistry of the API and the formulation
had undergone minor modifications to deliver a stable and soluble drug product for return to the clinical setting. In December 2016, we announced that we had successfully
manufactured multiple non-GMP batches of a new drug product formulation for APTO-253, including a batch that had been stable and soluble for over six months. However,
the 40L batch that was the intended clinical supply encountered an unanticipated mishap during the filling process that compromised the stability of that batch of drug product.
On January 23, 2017, we announced that the root cause and corrective action studies would take longer than originally expected and that we would temporarily delay clinical
activities with APTO-253 in order to elucidate the cause of the manufacturing setback, with the intention of restoring the molecule to a state supporting clinical development and
partnering. Formal root cause analyses studies have now been completed and have identified the reason for the drug product stability failure, and we have established a
corrective and prevention action plan for the manufacture of future batches of drug product. Given these findings, in February, 2018, we manufactured a new GMP clinical
supply of drug product and are in the process of performing studies required to demonstrate the fitness of the drug product for clinical usage, and then we plan to present the
findings to the FDA in the second quarter of 2018 with the hope of having the clinical hold removed by the end of the second quarter of 2018 and returning APTO-253 to the
clinical trial soon thereafter. The total direct costs of such activities to reach the presentation of the findings to the FDA are currently expected to range between US$1 million
and US$1.5 million. Investors are cautioned that there can be no assurance that the FDA will remove the clinical hold.
In the event the clinical hold is removed by the FDA, based on our current estimates and the information available to us at this time, we expect to complete the clinical drug
product manufacture, initiate studies to investigate additional drug delivery methods for APTO-253 and to initiate additional non-clinical studies for solid tumor and hematologic
development. As preparing, submitting, and advancing applications for regulatory approval, developing drugs and drug product and clinical trials are sometimes complex,
costly, and time consuming processes, an estimate of the future costs is not reasonable at this time
Two abstracts related to the mechanistic properties of APTO-253 were submitted to the 2017 Meeting of the American Society of Hematology (“ASH”) and these abstracts were
published on the ASH website. An additional abstract has been submitted to the 2018 Annual Meeting of the American Association of Cancer Research (AACR) for
presentation in April 2018. Finally, two manuscripts related to the mechanism of action of APTO-253 have been accepted for publication and are expected to be published
during the second quarter of 2018.
Finally, on March 15, 2018, we announced that one abstract related to the mechanistic properties of APTO-253 was accepted for presentation at the 2018 Annual Meeting of the
American Association for Cancer Research.
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Multi-Targeting Epigenetic Program
In November 2015, we announced an exclusive drug discovery partnership with Laxai Avanti Life Sciences (“LALS”) for the development of next generation epigenetic-based
therapies. Under the agreement, LALS was responsible for optimizing candidates derived from our collaboration with the Moffitt Cancer Center (“Moffitt”), terminated in
January 2017, for the development of dual-targeting single agent inhibitors for the treatment of hematologic and solid tumor cancers and we would own global rights to all
newly discovered candidates characterized and optimized under the collaboration, including all generated intellectual property. As of November 2016, LALS and we had
generated novel compounds that inhibit both the bromodomain proteins and oncogenic kinases, while improving pharmaceutical properties that could serve as a basis for further
optimization towards a lead preclinical candidate. However, due to a prioritization of development efforts, LALS and Aptose suspended work on the program in January 2017,
and the collaboration with LALS was terminated. However, the program delivered novel intellectual property and compelling hit molecules for further optimization.
On March 7, 2018, we entered into an exclusive global license agreement with Ohm Oncology (OHM), an affiliate of LALS that was formed in 2016 to advance the clinical
development of compelling molecules derived from the LALS initiative, for the development, manufacture and commercialization of APL-581, as well as related molecules
from Aptose’s dual bromodomain and extra-terminal domain motif (BET) protein and kinase inhibitor program. Under the agreement, Aptose will retain reacquisition rights to
certain molecules, while OHM/LALS will have the rights to develop and sublicense all other molecules. Aptose will receive a nominal upfront cash payment and is eligible to
receive up to $125 million of additional payments based on the achievement of certain development, regulatory and sales milestones, as well as significant royalties on future
sales generated from the program, if any.
FINANCING ACTIVITIES
Common Shares Purchase Agreement
In October 2017, we entered into a Common Shares Purchase Agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) to sell up to US $15.5
million of common shares to Aspire Capital. Under the terms of the Purchase Agreement, Aspire Capital has made an initial purchase of 357,143 common shares at a price of
$1.40 per share, representing gross proceeds of approximately $500,000 ($324,000 net of share issue costs). Under the terms of the Purchase Agreement, Aspire Capital has
committed to purchase up to an aggregate of $15.0 million of our common shares, at our request from time to time during a 30-month period beginning on the effective date of
a registration statement related to the transaction and at prices based on the market price at the time of each sale. Under terms of the Purchase Agreement, we also issued
321,429 common shares to Aspire Capital as consideration for Aspire Capital entering into the Purchase Agreement. Subsequent to the year end, we issued an additional 3.2
million common shares under the Purchase agreement for gross proceeds of approximately $8.9 million.
We intend to use this equity arrangement as an additional option to assist us in achieving our capital objectives. The equity line provides us with the opportunity to regularly
raise capital at prevailing market prices, at our sole discretion providing us with the ability to better manage our cash resources.
At-The-Market (“ATM”) Facility
On April 2, 2015, we entered into an at-the-market equity facility (“ATM Facility”) with Cowen and Company, LLC, acting as sole agent. During the year ended December 31,
2017, we issued and sold 10,952,093 common shares through the ATM Facility, raising net proceeds of approximately $13.4 million. Costs associated with the sale of shares
under the ATM Facility included a 3% cash commission as well as legal and accounting fees. The ATM Facility expired on December 29, 2017 and, as at that date, the
Company had issued a cumulative $20 million of common shares pursuant to the ATM Facility.
April 2014
In April 2014, we completed a public offering of common shares. Aptose issued 4,708,334 common shares at a purchase price of CA$6.00 (CA$0.50 pre-consolidation) per
common share, including 541,667 common shares pursuant to the partial exercise of an over-allotment option, for aggregate gross proceeds of $28.3 million. The total costs
associated with the transaction were approximately $2.7 million which includes a cash commission of $2.0 million based on 7% of the gross proceeds received as part of the
offering.
December 2013
In December 2013, Aptose completed a public offering of common shares. Aptose issued 1,060,833 common shares at a price of CA$6.60 per common share and an additional
159,125 common shares upon the exercise of the overallotment option for aggregate gross proceeds of $8.1 million.
The total costs associated with the transaction were approximately CA$1.1 million which include a cash commission of CA$483 thousand based on 6% of the gross proceeds
received as part of the offering, and the issuance of 73,198 broker warrants with an estimated fair value of CA$350 thousand. The fair value of these warrants was determined
using the Black Scholes model with a 24 month time to maturity, an assumed volatility of 130% and a risk free interest rate of 1.5%. Each broker warrant was exercisable into
one common share of the Company at a price of CA$6.60 for a period of twenty four months following closing of the offering.
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WARRANT EXERCISES
During the year ended December 31, 2015, 81,000 Common Share purchase warrants were exercised for proceeds of $279,000. During the year ended December 31, 2016 the
remaining warrants from a 2011 financing expired. As at December 31, 2017 there are no outstanding warrants.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations and technology acquisitions primarily from equity financing, proceeds from the exercise of warrants and stock options,
and interest income on funds held for future investment.
We are an early stage development company and we currently do not earn any revenues from our drug candidates. The continuation of our research and development activities
and the commercialization of the targeted therapeutic products are dependent upon our ability to successfully finance and complete our research and development programs
through a combination of equity financing and payments from strategic partners. We have no current sources of significant payments from strategic partners.
In managing our liquidity risk, we have considered our available cash and cash equivalents as at December 31, 2017 and our ability to raise further capital through the use of
the Purchase Agreement with Aspire Capital in assessing whether we will have sufficient resources to fund research and development operations through to at least the twelve
month period ending December 31, 2018. As at December 31, 2017 we had $11.4 million of cash and cash equivalents and investments. Subsequent to year end and to the date
of this report, we issued 3.2 million common shares to Aspire Capital under the Purchase Agreement for gross proceeds of approximately $8.9 million. We have a further 2.2
million available common shares and $6.1 million available under the Purchase Agreement.
CASH POSITION
The following table presents our cash and cash equivalent, investments and working capital as at December 31, 2017, December 31, 2016, and December 2015. (the amounts
reported in the table below for the years ended December 31, 2016 and 2015, have been recast to US dollars).
(in thousands)
Cash and cash equivalents
Investments
Total
Working capital
Balances at
December 31, 2017
Balances at
December 31, 2016
$
$
$
10,631 $
798
11,429 $
10,060 $
7,940 $
-
7,940 $
7,115 $
Balances at
December 31, 2015
8,311
5,957
14,268
13,338
We generally invest our cash in excess of current operational requirements in highly rated and liquid instruments. Investment decisions are made in accordance with an
established investment policy administered by senior management and overseen by our Audit Committee and Board of Directors.
Working capital represents primarily cash, cash equivalents, investments and other current assets less current liabilities.
We do not expect to generate positive cash flow from operations for the foreseeable future due to additional research and development costs, including costs related to drug
discovery, preclinical testing, clinical trials, and manufacturing, as well as operating expenses associated with supporting these activities. It is expected that negative cash flow
will continue until such time, if ever, that we receive regulatory approval to commercialize any of our products under development and/or royalty or milestone revenue from
any such products exceeds expenses.
7
SELECTED ANNUAL FINANCIAL DATA
The following selected consolidated financial data have been derived from, and should be read in conjunction with, the accompanying audited consolidated financial statements
for the year ended December 31, 2017 (the “Financial Statements”) which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board.
Consolidated Statements of Loss and Comprehensive Loss(1)
(amounts in US thousands except for per common share data)
REVENUE
EXPENSES
Research and development
General and administrative
Operating expenses
Finance expense
Finance income
Net finance expense (income)
Net loss and total comprehensive loss for the period
Basic and diluted loss per common share
Weighted average number of common shares
outstanding used in the calculation of:
Basic and diluted loss per share
Total Assets
Total Long-term Liabilities
Year ended
December 31,
2017
Year ended
December 31,
2016
$
— $
— $
Year ended
December 31,
2015
—
6,274
5,552
11,826
-
(165)
(165)
(11,661)
(0.52) $
22,313
11,967 $
— $
7,834
6,439
14,273
46
(79)
(33)
(14,240)
(1.12) $
12,743
8,646 $
- $
4,865
7,992
12,857
34
(1,180)
(1,146)
(11,711)
(0.98)
11,906
15,353
-
$
$
$
(1)
The amounts reported in the table above for the years ended December 31, 2016 and 2015, have been recast to US dollars.
RESULTS OF OPERATIONS
The decrease in the net loss during the year ended December 31, 2017 compared with the year ended December 31, 2016 results mostly from our decision in January 2017 to
refocus our resources on our CG’806 development program and towards determining the root cause of the manufacturing issue with the APTO-253 program. Expenses were
lower due to the cancellation of the LALS/Moffitt collaboration, lower costs associated with the APTO-253 program, and offset by increased development activities related to
the CG’806 development program which were nominal in comparable periods, other than the license fee that was paid in June 2016 to acquire an option on the technology.
Research and Development
Components of research and development expenses
The research and development expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:
(in thousands)
CrystalGenomics Option Fee
Program costs – CG ‘806
Program costs – APTO-253
Program costs – LALS/Moffitt
Salaries
Stock-based compensation
Depreciation of equipment
$
$
2017
-
2,245
2,328
-
1,451
214
36
6,274
$
$
(1)
The amounts reported in the table below for the years ended December 31, 2016 and 2015, have been recast to US dollars:
2016(1)
2015(1)
1,000 $
394
3,340
1,126
1,691
247
36
7,834 $
-
-
2,928
203
1,528
183
23
4,865
8
The CG’806 program was licensed into the Company in June of 2016. Including the license fee, total program costs from inception to December 31, 2017 are approximately
$3.6 million.
From June 1, 2014, being the beginning of the fiscal year when APTO-253 was redirected from solid tumor indications to hematologic malignancies to December 31, 2017,
direct program costs relating to the research and development of APTO-253 represented approximately $9.8 million.
The changes in research and development expenses in the year ended December 31, 2017 as compared to the year ended December 31, 2016 result from the following:
·
·
·
·
In the comparative period, we paid $1.0 million to CG for an option fee related to the CG’806 technology and in that period began research and development activities
for this program.
An increase in research and development activities related to our CG’806 development program. Activities in the current year ended December 31, 2017 included
formulation studies and PK studies and the manufacturing of a first batch of the drug substance to be used in dose range finding studies, the initiation of the dose range
finding studies, and the initiation of the manufacturing of a GLP batch of drug substance to be used in the toxicity studies. CG’806 program expenses were nominal in
the comparative period as the technology was licensed to us in June 2016;
Reduced expenditures on the APTO-253 program. In the year ended December 31, 2017, we completed the root cause analysis and determined the cause of the
manufacturing issue, established a Corrective and Prevention Action (CAPA) plan to ensure the clinical supply can be manufactured in a reliable manner, and the
initiation of manufacturing of a new clinical supply. In the comparative period, we were actively manufacturing a clinical batch and preparing to return APTO-253 to the
clinic; and
Savings from cancellation of the LALS/Moffitt collaboration which was active in the year ended December 31, 2016. There are no costs related to this program in the
year ended December 31, 2017.
Expenditures for the year ended December 31, 2016 increased significantly over the year ended December 31, 2015 due to the following reasons:
·
·
·
·
·
Research and development activities in support of the CG’806 program, including the $1 million option fee paid;
Costs associated with the LALS/Moffitt collaboration developing epigenetic single molecule inhibitors of multiple targets, including the BET proteins, and other kinases
for which no comparable expenses existed in the prior year periods;
Increased research and clinical operations headcount and related costs;
Formulation and manufacturing costs associated with APTO-253 and the root cause analysis of the filter clogging identified in November 2015; and
Increased Contract Research Organization costs related to consultants and advisors as we work towards returning APTO-253 to the clinic.
General and Administrative
Components of general and administrative expenses
The general and administrative expenses for the years ended December 31, 2017, 2016 and 2015 are as follows:
(in thousands)
General and administrative excluding salaries
Salaries
Stock-based compensation
Depreciation of equipment
Year ended
December 31,
2017
2,610
2,290
602
50
5,552
$
$
2016(1)
2015(1)
2,566 $
2,334
1,459
80
6,439 $
3,377
2,246
2,317
52
1,932
$
$
(1)
The amounts reported in the table above for the years ended December 31, 2016 and 2015, have been recast to US dollars.
The changes in general and administrative expenses in the year ended December 31, 2017 as compared to the year ended December 31, 2016 result from the following:
· General and administrative expenses excluding salaries, decreased slightly in the year ended December 31, 2017, compared with the year ended December 31, 2016. The
decrease is mostly the result of lower travel costs, consulting and rent costs in the first six months of the fiscal year related to cost containment initiatives taken in the prior
fiscal year and offset by higher investor relations, professional fees and travel costs in the three months ended December 31, 2017.
9
·
·
Salaries expenses in the year ended December 31, 2017, were slightly lower in comparison with year ended December 31, 2016. Savings from reduced headcount were
offset by a higher bonus recognized in the current period.
Stock-based compensation decreased in the year ended December 31, 2017, compared with the year ended December 31, 2016, due to large forfeitures in the three months
ended March 31, 2017 and also due to grants in the prior periods having a greater fair value than the grants issued in the year ended December 31, 2017, and therefore
contributing to higher stock-based compensation in the year ended December 31, 2016.
The changes in general and administrative expenses in the year ended December 31, 2016 as compared to the year ended December 31, 2015 result from the following:
·
· General and administrative expenses excluding salaries, decreased in the year ended December 31, 2016 compared with the year ended December 31, 2015. The decrease
is the result of lower travel, consulting and legal costs in the current year related to transactions completed in the prior year as well as lower press release and filing costs
associated with a lower cost service provider in the year ended December 31, 2016.
Salary charges in the year ended December 31, 2016 increased in comparison with the year ended December 31, 2015 due to additional headcount in the first half of 2016
compared with the first half of 2015.
Stock-based compensation decreased in the year ended December 31, 2016 compared with the year ended December 31, 2015 due to large option grants in April, June and
July 2014 which vested 50% during the first year and therefore contribute to higher stock-based compensation expense during the first twelve month period captured in the
prior year period.
·
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The selected financial information provided below is derived from our unaudited quarterly financial statements for each of the last eight quarters except that the amounts
reported in the table above for the quarters ending March 31, 2016 through to September 30, 2017 have been recast to US dollars.
(Amounts in 000’s except for per
common share data)
Revenue
Research and development expense
General and administrative expense
Net loss
Basic and diluted net loss per share
Cash (used in) operating activities
Q4
Q3
Q2
Q1
Dec 31,
Sept 30,
June 30,
Mar 31,
2017
― $
2,061
1,250
(3,288)
0.12) ($
(2,905) $
2017
― $
1,390
1,319
(2,640)
0.11) ($
(2,092) $
2017
― $
1,088
1,393
(2,441)
0.11) ($
(2,641) $
2017
― $
1,735
1,590
(3,292)
0.19) ($
(2,653) $
Q4
Dec 31,
2016
― $
1,917
1,115
(2,969)
0.23) ($
(2,510) $
Q3
Q2
Sept 30,
June 30,
2016
― $
1,663
1,502
(3,105)
0.24) ($
(3,277) $
2016
― $
2,563
1,864
(4,408)
0.36) ($
(3,607) $
Q1
Mar 31,
2016
―
1,691
1,958
(3,758)
0.31)
(3,299)
$
($
$
Changes in research and development expenses follow the activities and stages of development of our programs. Specific activities or events that had significant impacts on the
costs incurred for individual periods are as follows: In the three months ended June 30, 2016, there is an increase in expenses due to the $1.0 million option fee paid to CG as
previously described herein. A decrease in research and development expenses in the first three quarters of 2017 reflect our decision to refocus our resources towards CG’806.
R&D expenses increased in the last quarter of this year related to higher costs of the CG’806 program as well as manufacturing costs for GMP batch of APTO-253 as we prepare
for the possibility of returning APTO-253 to the clinic.
Changes in general and administrative costs over time result mostly from changes in headcount, the granting of stock options and decisions by us to engage in certain corporate
projects. Specific activities that had significant impacts on the expenses incurred for individual periods are as follows: The decrease in administrative costs in the three months
ended December 31, 2016, was mainly due to the reversal of previously recognized bonus accruals. The expenses for the three months ended March 31, 2017, are comparable
with the expenses recorded in the three months ended September 30, 2016. Higher salaries expense related to severance and separation payments made in the period are offset
by lower stock option compensation. Lower expenses in the quarters ended June 30 and September 30, 2017 and December 31, 2017 reflect mostly lower stock option
compensation.
Cash used in operating activities fluctuates primarily as a result of changes in amounts of expenses incurred and the timing of payments.
10
THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016 (UNAUDITED)
(in thousands)
Revenues
Research and development expenses
General and administrative expenses
Net finance income (loss)
Net loss for the period
Basic and diluted loss per common share
(1)
The amounts reported in the table above for the three months ended December 31, 2016, have been recast to US dollars.
The research and development expenses for the three months ended December 31, 2017 and 2016 are as follows:
(in thousands)
CrystalGenomics Option Fee
Program costs – CG ‘806
Program costs – APTO-253
Program costs – LALS/Moffitt
Salaries
Stock-based compensation
Depreciation of equipment
Three months ended
December 31,
2017
- $
2,061
1,250
(23)
(3,288)
(0.12) $
Three months ended
December 31,
2017
- $
843
774
-
387
48
9
2,061 $
2016(1)
-
1,917
1,115
(63)
(2,969)
(0.23)
2016(1)
-
315
1,073
147
325
48
9
1,917
$
$
$
$
(1)
The amounts reported in the table above for the three months ended December 31, 2016, have been recast to US dollars
The changes in research and development expenses in the three months ended December 31, 2017 as compared to the three months ended December 31, 2016 result from the
following:
·
·
·
·
An increase in R&D activities on our CG’806 program as described above;
A decrease in R&D activities on our APTO-253 program as described above;
Savings from cancellation of the LALS/Moffitt collaboration as described above;
Higher salaries expense mostly related to additional clinical research staff hired at the end of the year to prepare for returning APTO-253 to the clinic.
The general and administrative expenses for the three months ended December 31, 2017 and 2016 are as follows:
(in thousands)
General and administrative excluding salaries
Salaries
Stock-based compensation
Depreciation of equipment
Three months ended
December 31,
2017
$
$
630 $
506
104
10
1,250 $
2016(1)
542
329
211
33
1,115
(1)
The amounts reported in the table above for the three months ended December 31, 2016, have been recast to US dollars
The changes in general and administrative expenses in the three months ended December 31, 2017 as compared to the three months ended December 31, 2016 result from the
following:
·
·
·
higher investor relations, professional fees and travel costs in the three months ended December 31, 2017
higher salaries related mostly to a bonus adjustment in the comparative period
stock option grants issued in the current year with a lower grant date fair value than the comparative period.
11
RELATED PARTY TRANSACTIONS
In March 2015, we entered into an agreement with the Moores Cancer Center at the University of California San Diego (UCSD) to provide us with pharmacology lab services.
Dr. Stephen Howell serves as our Acting Chief Medical Officer and holds a faculty position as a Distinguished Professor of Medicine at UCSD and oversees the laboratory
work. The research services were provided for an annual fee of $154,456 to be paid to UCSD in monthly installments. This research services agreement was approved by our
Board of Directors on February 23, 2016, for an additional 12 month period beginning April 1, 2016 and for an annual fee of up to $200,000. In May 2017, we entered into
another agreement with UCSD for an additional twelve month period for an annual fee of $300,000. In March 2018, the Board approved and extension of this agreement for a
further twelve months for the same annual fee of $300,000. These transactions are in the normal course of business and are measured at the amount of consideration established
and agreed to by the related parties.
See note 14 to the audited financial statements for disclosures of key management personnel compensation and directors’ compensation.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET FINANCING
At December 31, 2017, we had contractual obligations requiring annual payments as follows:
Operating leases
$
225 $
410 $
433 $
289 $
1,357
Less than 1
year
1 – 3 years
3 – 5 years
Greater than
5 years
Total
We have entered into various contracts with service providers with respect to the clinical development of APTO-253 and for our CG’806 development program. These contracts
will result in future payments commitments of up to $4 million.
As at December 31, 2017, we have not entered into any off-balance sheet arrangements other than the operating leases for our offices and labs and certain office equipment.
Under the license agreement with CrystalGenomics, the Company has an option to pay $2.0 million in cash or combination of cash and common shares, for the full development
and commercial rights for the program in all territories outside of the Republic of Korea and China. The option fee is due on the earlier of (i) filing of an Investigational New
Drug (“IND”) application with the Food and Drug Administration (“FDA”), (ii) first dosage of a human in a clinical trial or (iii) or early June 2018. In addition, under the terms
of the license agreement, there are development milestones on the initiation of Phase 2 and pivotal clinical trial of $16 million, and regulatory milestones totaling $44 million.
The Company also has an obligation to pay royalty payments on sales of commercialized product. Milestone and royalty payments that may become due are dependent on,
among other factors, clinical trials, regulatory approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain.
FINANCIAL INSTRUMENTS
(a) Financial instruments
(in thousands)
As at December 31,
2017
2016(1)
Financial assets
Cash and cash equivalents, consisting of high interest savings accounts and short term deposits
Investments, consisting of fixed income securities
Financial liabilities
Accounts payable and accrued liabilities
$
10,631 $
798
1,765
(1)
The amounts reported in the table above for the year ended December 31, 2016, have been recast to US dollars
7,940
2,246
1,318
12
At December 31, 2017, there are no significant differences between the carrying values of these amounts and their estimated market values due to their short-term
nature.
(b) Financial risk management
We have exposure to credit risk, liquidity risk and market risk. Our Board of Directors has the overall responsibility for the oversight of these risks and reviews our
policies on an ongoing basis to ensure that these risks are appropriately managed. The Company manages credit risk associated with its cash and cash equivalents and
investments by maintaining minimum standards of R1-low or A-low investments and the Company invests only in highly rated Canadian corporations which are capable
of prompt liquidation. The Company manages its liquidity risk by continuously monitoring forecasts and actual cash flows. The Company is subject to interest rate risk
on its cash and cash equivalents and investments. The Company does not believe that the results of operations or cash flows would be affected to any significant degree
by a sudden change in market interest rates relative to interest rates on the investments, owing to the relative short-term nature of the investments. We are exposed to
currency risk from employee costs as well as the purchase of goods and services for activities in Canada and the cash balances held in foreign currencies. Fluctuations in
the Canadian dollar exchange rate could potentially have an impact on the Company’s results. The Company does not have any forward exchange contracts to hedge this
risk.
See note 8 to the audited financial statements for expanded disclosure of each risk and the Company’s management of same.
(c) Capital management
Our primary objective when managing capital is to ensure that we have sufficient cash resources to fund our development activities and to maintain our ongoing
operations. To secure the additional capital necessary to pursue these plans, we may attempt to raise additional funds through the issuance of equity or by securing
strategic partners.
In March 2018, Aptose filed a short form base shelf prospectus (the “Base Shelf”) that qualifies for the distribution of up to $100,000,000 of common shares, warrants,
or units comprising any combination of common shares and warrants (“Securities”). The distribution of Securities may be effected from time to time in one or more
transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, or at prices related to such prevailing market prices to be
negotiated with purchasers and as set forth in an accompanying prospectus supplement, including transactions that are deemed to be “at-the-market” distributions. The
Base Shelf provides the Company with additional flexibility when managing cash resources as, under certain circumstances, it shortens the time period required to close
a financing and is expected to increase the number of potential investors that may be prepared to invest in our Company. Funds received from a Prospectus Supplement
will be used in line with our Board approved budget and multi-year plan.
We include cash and cash equivalents and investments in the definition of capital.
We are not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the three
months ended December 31, 2017.
CRITICAL ACCOUNTING POLICIES
Critical Accounting Policies and Estimates
We periodically review our financial reporting and disclosure practices and accounting policies to ensure that they provide accurate and transparent information relative to the
current economic and business environment. As part of this process, we have reviewed our selection, application and communication of critical accounting policies and
financial disclosures. Management has discussed the development and selection of the critical accounting policies with the Audit Committee of the Board of Directors and the
Audit Committee has reviewed the disclosure relating to critical accounting policies in this MD&A.
Change in Functional and Reporting Currency
Effective January 1, 2017, we changed our functional currency to US dollars given the prevalence of US dollar denominated activities over time. Since our inception in 1988 to
fiscal 2014, all operations of the entity were conducted in Canada and the Canadian dollar was determined to be the functional currency. During fiscal years 2015 and 2016, we
gradually transitioned most of our research and development activities, including both headcount and studies, to the US and completed this transition in January 2017. The
change in functional currency from Canadian dollars to US dollars is accounted for prospectively from January 1, 2017. Foreign currency transactions are translated into US
dollars at rates prevailing on the transaction dates. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated into US
dollars at the rates in effect at that date. Foreign exchange gains and losses are recorded in the consolidated statement of loss.
13
Historically, our sources of financing, with the exception of the recent ATM Facility and Purchase Agreement, have been in Canadian dollars and we have had a majority of our
shareholders in Canada. Therefore, we chose to keep our presentation currency in Canadian dollars at the time of changing our functional currency.
Effective December 31, 2017 we changed our reporting currency to US dollars to align our reporting currency with the functional currency. At the date of this report, most of
the Company’s shareholders are now in the US and most of the trading of the Company’s shares are traded on the Nasdaq Capital Market. The Company applied the change
retrospectively as if the US dollar had always been the Company’s presentation currency. Accordingly, the financial statements for all the periods presented have been
translated to the US dollar. Comparative balances of earnings and cash flows have been translated into US dollars using average exchange rates for the reporting periods. For
comparative balances, assets and liabilities have been translated into the presentation currency at the rate of exchange prevailing at the reporting date. Components of equity
were translated at the exchange rates prevailing at the dates of the relevant transactions. The cumulative impact of the change in reporting currency was a loss of $4,298 in
accumulated other comprehensive income as at December 31, 2016.
Significant accounting judgments and estimates
Management’s assessment of our ability to continue as a going concern involves making a judgment, at a particular point in time, about inherently uncertain future outcomes
and events or conditions. Please see the “Liquidity and Capital Resources” section in this document for a discussion of the factors considered by management in arriving at its
assessment.
Other important accounting policies and estimates made by management are the valuation of tax accounts, the valuation of contingent liabilities, and the assumptions used in
determining the valuation of share-based compensation. These are described in note 3 of the audited financial statements for the year ended December 31, 2017.
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
IFRS 9, Financial Instruments (“IFRS 9”):
IFRS 9 (2014) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified and measured based
on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities
and also amends the impairment model by introducing a new ‘expected credit loss’ model for calculating impairment. IFRS 9 (2014) also includes a new general hedge
accounting standard which aligns hedge accounting more closely with risk management. The Company intends to adopt IFRS 9 (2014) in its consolidated financial statements
for the annual period beginning on January 1, 2018. The Company expects that the adoption of this policy will not have a material impact on its financial results as most of its
financial assets are cash and cash equivalents and highly liquid investments. The Company does not enter into any hedging activities.
IFRS 16, Leases (“IFRS 16”)
On January 13, 2016, the IASB issued IFRS 16. The new standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted for
entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial adoption of IFRS 16. IFRS 16 will replace IAS 17 Leases. This standard
introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset
is of low value. The extent of the impact of adoption of the standard has not yet been determined.
EXPECTED CHANGE IN ISSUER’S GAAP
The Company expects that effective December 31, 2018 it will become an SEC foreign issuer, and no longer a foreign private issuer, and as a result will have to prepare its
December 31, 2018 annual financial statements in accordance with US GAAP, with such change being applied retrospectively. The extent of the impact of adoption of the
standard has not yet been determined. The Company will report its first, second and third quarterly for 2018 results under IFRS as issued by the International Accounting
Standards Board, and will provide further guidance over the year on the impacts of converting to US GAAP.
Accordingly, should the Company become an SEC foreign issuer, the Company will adopt the FASB guidance for lease accounting and not IFRS guidance.
OUTLOOK
Until one of our drug candidates receives regulatory approval and is successfully commercialized, we will continue to incur operating losses. The magnitude of these operating
losses will be largely affected by the timing and scope of future research and development, clinical trials and our ability to raise additional and ongoing working capital and/or
establish effective partnerships to share the costs of development and clinical trials.
14
RISK FACTORS
Investing in our securities involves a high degree of risk. Before making an investment decision with respect to our common shares, you should carefully consider the risk
factors in the our most recently filed annual information form, in addition to the other information included or incorporated by reference into the most recently filed annual
information form, as well as our historical consolidated financial statements and related notes.
EVALUATION OF DISCLOSURE CONTROLS AND INTERNAL CONTROLS
The Company has implemented a system of internal controls that it believes adequately protects the assets of the Company and is appropriate for the nature of its business and
the size of its operations. Our internal control system was designed to provide reasonable assurance that all transactions are accurately recorded, that transactions are recorded as
necessary to permit preparation of financial statements in accordance with IFRS as issued by the IASB, and that our assets are safeguarded. These internal controls include
disclosure controls and procedures designed to ensure that information required to be disclosed by the Company is accumulated and communicated as appropriate to allow
timely decisions regarding required disclosure.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting means a process designed
by or under the supervision of the Chief Executive Officer and the Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. The internal controls are not expected to prevent and detect all
misstatements due to error or fraud.
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2017 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting
As of December 31, 2017, the Company’s management has assessed the effectiveness of our internal control over financial reporting and disclosure controls and procedures
using the Committee of Sponsoring Organizations of the Treadway Commission’s 2013 framework. Based on their evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that these controls and procedures are effective.
UPDATED SHARE INFORMATION
As at March 27, 2018, we had 30,7 02,053 common shares issued and outstanding. In addition there were 4,401,840 common shares issuable upon the exercise of outstanding
stock options.
ADDITIONAL INFORMATION
Additional information relating to us, including our December 31, 2017 annual information form and other disclosure documents, are available on EDGAR at
www.sec.gov/edgar.shtml and on SEDAR at www.sedar.com.
15
Exhibit 99.3
Consolidated Financial Statements of
APTOSE BIOSCIENCES INC.
Years ended December 31, 2017, 2016 and 2015
KPMG LLP
100 New Park Place, Suite 1400
Vaughan, ON L4K 0J3
Tel 905-265 5900
Fax 905-265 6390
www.kpmg.ca
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Aptose Biosciences Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Aptose Biosciences Inc. (the "Company") as of December 31, 2017 and
December 31, 2016, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the years then ended,
and the related notes (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31,
2016, and its financial performance and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
Change in Accounting Principle
Without qualifying our opinion on the financial statements, we draw attention to Note 2b to the financial statements, which indicates that the Company has
changed its functional and presentation currency from Canadian dollar to US dollar. The change in functional currency is as of January 1, 2017. The change in
presentation currency is as of December 31, 2017, and this change has been retrospectively applied in the financial statements.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB and in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purposes of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
We have served as the Company's auditor since 2003.
Chartered Professional Accountants, Licensed Public Accountants
Vaughan, Canada
March 27, 2018
APTOSE BIOSCIENCES INC.
Consolidated Statements of Financial Position
(Expressed in thousands of US dollars)
Assets
Current assets:
Cash and cash equivalents (note 4(a))
Investments (note 4(b))
Prepaid expenses and other assets
Total current assets
Non-current assets:
Property and equipment (note 5)
Total non-current assets
Total assets
Liabilities and Shareholder’s Equity
Current liabilities:
Accounts payable and accrued liabilities
Total current liabilities
Shareholders’ equity:
Share capital (note 9):
Common shares
Stock options (note 10)
Contributed surplus (note 9(d))
Warrants (note 9(c))
Accumulated other comprehensive loss
Deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
Commitments, contingencies and guarantees (note 15)
Subsequent events (note 18)
On behalf of the Board:
/s/ Warren Whitehead
/s/ William G. Rice
Director
Director
1
December 31,
2017
December 31,
2016
(as recast–note
3(b))
January 1,
2016
(as recast–note
3(b))
$
$
10,631
798
396
11,825
142
142
7,940 $
-
493
8,433
213
213
8,311
5,957
771
15,039
314
314
$
11,967
$
8,646 $
15,353
$
$
1,765
1,765
1,318 $
1,318
1,702
1,702
231,923
6,456
22,909
-
(4,298)
(246,788)
10,202
218,034
7,306
21,413
-
(4,298)
(235,127)
7,328
212,308
5,740
21,188
85
(4,783)
(220,887)
13,651
$
11,967
$
8,646 $
15,353
APTOSE BIOSCIENCES INC.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in thousands of US dollars, except for per common share data)
Revenue
Expenses:
Research and development (notes 11)
General and administrative (note 12)
Operating Expenses
Finance expense (note 13)
Finance income (note 13)
Net finance income
Net loss for the year
Other comprehensive loss
Year ended
December 31,
2017
Year ended
December 31,
2016
(as recast –
note 3(b))
Year ended
December 31,
2015
(as recast –
note 3(b))
$
- $
- $
-
6,274
5,552
11,826
-
(165)
(165)
7,834
6,439
14,273
46
(79)
(33)
4,865
7,992
12,857
34
(1,180)
(1,146)
(11,661)
(14,240)
(11,711)
Foreign currency translation gain (loss) (note 3(b))
Comprehensive loss for the year
Basic and diluted loss per common share
$
$
-
(11,661) $
(0.52) $
485
(13,755) $
(1.12) $
(3,519)
(15,230)
(0.98)
Weighted average number of common shares outstanding used in the calculation of (in thousands) (note
9(e)):
Basic and diluted loss per common share
See accompanying notes to consolidated financial statements.
22,313
12,743
11,906
2
APTOSE BIOSCIENCES INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of US dollars)
Years ended December 31, 2017, 2016 and 2015
Warrants
Contributed
surplus
Equity
portion
of debt
Share
Capital
(note 9)
Stock
options
(note 10)
218,034 $
7,306 $
13,394
324
171
-
-
231,923 $
-
-
(171)
817
(1,496)
-
6,456 $
- $
-
-
-
-
-
- $
21,413 $
-
-
-
-
1,496
-
22,909 $
212,308 $
5,740 $
85 $
21,188 $
5,726
-
-
-
-
-
218,034 $
-
-
1,706
-
(140)
-
7,306 $
-
(85)
-
-
-
- $
-
85
-
-
140
-
21,413 $
Accumulated
other
comprehensive
loss
Deficit
Total
(4,298) $
(235,127) $
7,328
-
-
-
-
-
13,394
-
-
-
324
-
817
-
(4,298) $
(11,661)
(246,788) $
(11,661)
10,202
(4,783) $
(220,887) $
13,651
-
-
-
485
-
(4,298) $
-
-
-
-
-
(14,240)
(235,127) $
5,726
-
1,706
485
-
(14,240)
7,328
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
-
- $
Balance, December 31, 2016 $
Common shares issued under
the ATM (note 9(b)(ii))
Common shares issued
pursuant to purchase
agreement (note 9(b)(i))
Shares issued on redemption
of restricted share units
Stock-based compensation
Expiry of stock options
Net loss for the year
Balance, December 31, 2017 $
$
Balance, December 31, 2015
(as recast –(note 3(b))
Common shares issued under
the ATM (note 9(b)(ii))
Expiry of Warrants
Stock-based compensation
Translation adjustment
Expiry of stock options
Net loss for the year
Balance, December 31, 2016 $
See accompanying notes to consolidated financial statements
3
APTOSE BIOSCIENCES INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of US dollars)
Years ended December 31, 2017, 2016 and 2015
Share
Capital
(note 9)
Stock
options
(note 10)
Warrants
Contributed
surplus
Equity
portion
of debt
Accumulated
other
comprehensive
income
Deficit
Total
Balance, December 31, 2014
(as recast – note 3(b))
$
Exercise of warrants (note 9(c))
Exercise of stock options
Conversion of promissory
notes(note 7)
Common shares issued under
the ATM (note 9(b)(i))
Expiry of warrants
Stock-based compensation
Expiry of stock options
Translation adjustment
Net loss for the year
Balance, December 31, 2015
$
210,454 $
429
1,075
342
8
-
-
-
-
-
212,308 $
3,861 $
-
(556)
-
-
2,500
(65)
-
-
5,740 $
See accompanying notes to consolidated financial statements.
485 $
(150)
-
20,820 $
-
-
53
-
-
(1,264) $
-
-
(209,176) $
-
-
25,233
279
519
-
53
(53)
-
-
342
-
(250)
-
-
-
-
85 $
-
250
-
65
-
-
21,188 $
-
-
-
-
-
-
- $
-
-
-
-
(3,519)
(4,783) $
-
-
-
-
-
(11,711)
(220,887) $
8
-
2,500
-
(3.519)
(11,711)
13,651
4
APTOSE BIOSCIENCES INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of US dollars)
Cash flows from operating activities:
Net loss for the year
Items not involving cash:
Stock-based compensation
Depreciation and amortization
Interest income
Unrealized foreign exchange loss
Interest and accretion expense
Change in non-cash operating
working capital (note 6)
Cash used in operating activities
Cash flows from financing activities:
Issuance of common shares under the
ATM, net of issuance costs (note 9(b)(ii))
Issuance of common shares under share
purchase agreement, net of issuance costs
(note 9(b)(i))
Exercise of warrants, options and DSU’s (note 9)
Interest paid on notes and loans
Cash provided by financing activities
Cash flows from (used in) investing activities:
Maturity (acquisition) of investments
Purchase of equipment
Interest received
Cash provided by (used in) investing activities
Effect of exchange rate fluctuations on cash and cash equivalents held
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information (note 6)
See accompanying notes to consolidated financial statements.
$
5
Year ended
December 31,
Year ended
December 31,
2017
2016
(as recast – note
3(b))
Year ended
December 31,
2015
(as recast – note
3(b))
$
(11,661) $
(14,240) $
(11,711)
817
84
(68)
(7)
-
1,706
116
(79)
233
-
544
(10,291)
(126)
(12,390)
13,394
5,726
324
-
-
13,718
(798)
(13)
68
(743)
7
2,691
7,940
10,631 $
-
-
-
5,726
6,401
(3)
79
6,477
(184)
(371)
8,311
7,940 $
2,500
75
(226)
(726)
34
163
(9,891)
8
-
798
(21)
785
6,205
(258)
226
6,173
(1,139)
(4,072)
12,383
8,311
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
1.
Reporting entity:
Aptose Biosciences Inc. (“Aptose” or the “Company”) is a clinical-stage biotechnology company committed to discovering and developing personalized therapies
addressing unmet medical needs in oncology. Aptose is a publicly listed company incorporated under the laws of Canada. The Company’s shares are listed on the
Nasdaq Capital Markets and the Toronto Stock Exchange. The head office, principal address and records of the Company are located at 5955 Airport Road,
Mississauga, Ontario, Canada, L4V 1R9.
2.
Basis of presentation:
(a) Statement of compliance:
These consolidated financial statements of the Company and its subsidiaries are prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements of the Company were approved and authorized for
issue by the Board of Directors on March 27, 2018.
(b) Functional and presentation currency:
The functional and presentation currency of the Company is the US dollar.
Effective January 1, 2017, the Company changed its functional currency to US dollars given the prevalence of US dollar denominated activities over time. Since
the Company’s inception in 1986 to fiscal 2014 all operations of the entity were conducted in Canada and the Canadian dollar was determined to be the functional
currency. During fiscal years 2015 and 2016, the Company gradually transitioned most of its research and development activities, including both headcount and
studies, to the US, and completed this transition in January 2017. See note 3(b) for a description of the change of the accounting policy.
Effective December 31, 2017, the Company changed its presentation currency to the US dollar to match the volume of trading of its common shares, which is
mostly on the Nasdaq Capital Market. See note 3(b) for a description of the change of the accounting policy.
(c) Significant accounting judgments, estimates and assumptions:
The preparation of these consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and reported amounts of assets and liabilities at the date of the consolidated financial statements and reported
amounts of revenue and expenses during the reporting period. Actual outcomes could differ from those estimates. The consolidated financial statements include
estimates, which, by their nature, are uncertain.
6
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements (continued)
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
2.
Basis of presentation (continued):
Management’s assessment of the Company’s ability to continue as a going concern involves making a judgment, at a particular point in time, about inherently
uncertain future outcomes and events or conditions. Please see note 8 (b) (ii) for a discussion of the factors considered by management in arriving at its
assessment.
The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future
occurrences.
The estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognized in the period in which the estimate is
revised and in any future periods affected.
The key assumptions concerning the future and other key sources of estimation uncertainty as of the date of the statement of financial position that have a
significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next fiscal year include:
(i) Valuation of contingent liabilities:
The Company utilizes considerable judgment in the measurement and recognition of provisions and the Company’s exposure to contingent liabilities.
Judgment is required to assess and determine the likelihood that any potential or pending litigation or any and all potential claims against the Company may
be successful. The Company must estimate if an obligation is probable as well as quantify the possible economic cost of any claim or contingent liability.
Such judgments and assumptions are inherently uncertain. The increase or decrease of one of these assumptions could materially increase or decrease the fair
value of the liability and the associated expense.
(ii) Valuation of tax accounts:
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Currently, the Company
has deductible temporary differences which would create a deferred tax asset. Deferred tax assets are recognized for all deductible temporary differences to
the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Management
judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits
together with future tax planning strategies. To date, the Company has determined that none of its deferred tax assets should be recognized. The Company’s
deferred tax assets are mainly comprised of its net operating losses from prior years and prior year research and development expenses not yet deducted for
income tax purposes. These tax pools relate to entities that have a history of losses, have varying expiry dates, and may not be used to offset taxable income.
As well, there are no taxable temporary differences or any tax planning opportunities available that could partly support the recognition of these losses as
deferred tax assets. The generation of future taxable income could result in the recognition of some portion or all of the remaining benefits, which could result
in an improvement in the Company’s results of operations through the recovery of future income taxes.
7
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements (continued)
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
2.
Basis of presentation (continued):
(iii) Valuation of share-based compensation and share purchase warrants:
Management measures the costs for share-based payments and share purchase warrants using market-based option valuation techniques. Assumptions are
made and judgment is used in applying valuation techniques. These assumptions and judgments include estimating the future volatility of the share price,
expected dividend yield, and expected life of the options. Such judgments and assumptions are inherently uncertain. The increase or decrease of one of these
assumptions could materially increase or decrease the fair value of share-based payments and share purchase warrants issued and the associated expense.
3.
Significant accounting policies
(a) Basis of consolidation:
The consolidated financial statements include the accounts of the Company its 80% owned subsidiary, NuChem Pharmaceuticals Inc. (“NuChem”), its 100%
owned subsidiaries Aptose Biosciences Inc. USA (“Aptose USA”) and Aptose Suisse GmbH (“Aptose Suisse”). A subsidiary is an entity over which the
Company has control, being the power to govern the financial and operating policies of the investee entity so as to obtain benefits from its activities. Accounting
policies of the subsidiaries are consistent with the Company’s accounting policies. All intra group transactions, balances, revenue and expenses are eliminated on
consolidation.
(b) Presentation and functional currency:
Effective January 1, 2017, the Company changed its functional currency to US dollars. The change in functional currency from Canadian dollars to US dollars is
accounted for prospectively from January 1, 2017. Foreign currency transactions are translated into US dollars at rates prevailing on the transaction dates. At the
end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the rates in effect at that date.
Foreign exchange gains and losses are recorded in the consolidated statement of loss.
8
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements (continued)
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
3.
Significant accounting policies (continued):
Effective December 31, 2017, the Company changed is reporting currency to US dollars. The Company followed the guidance in IAS 21, The Effects of Changes
in foreign Exchange Rates (“IAS 21”) and has applied the change retrospectively as if the US dollar had always been the Company’s presentation currency.
Accordingly, the financial statements for all the periods presented have been translated to the US dollar. Comparative balances of earnings and cash flows have
been translated into US dollars using average exchange rates for the reporting periods. For comparative balances, assets and liabilities have been translated into the
presentation currency at the rate of exchange prevailing at the reporting date. Components of equity have been translated at the exchange rates prevailing at the
dates of the relevant transactions. The exchange rate differences arising on translation are taken to accumulated other comprehensive income. The cumulative
impact of the change in reporting currency was a loss of $4,298 in accumulated other comprehensive income as at December 31, 2016.
9
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements (continued)
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
3.
Significant accounting policies (continued):
The following table presents the recasting of the statements of financial position from Canadian dollars to US dollars.
Consolidated Statements of Financial Position
Assets
Current assets:
Cash and cash equivalents
Investments
Prepaid expenses and other assets
Total current assets
Non-current assets:
Equipment and intangibles
Total non-current assets
Total assets
Liabilities and Shareholder’s Equity
Current liabilities:
Accounts payable and accrued liabilities
Total current liabilities
Shareholders’ equity:
Share capital :
Common shares
Stock options
Contributed surplus
Warrants
Accumulated other comprehensive income
Deficit
Total shareholders’ equity
$
$
$
December 31, 2016
January 1, 2016
Canadian
dollars
US
dollars
Canadian
dollars
$
10,662
-
663
11,325
285
285
11,610
7,940 $
-
493
8,433
213
8,646 $
11,503 $
8,245
1,067
20,815
434
434
21,249 $
US
dollars
8,311
5,957
771
15,039
314
314
15,353
$
1,770
1,770
1,318 $
1,318
2,356 $
2,356
1,702
1,702
230,976
8,133
22,267
-
-
(251,536)
9,840
218,034
7,306
21,413
-
(4,298)
(235,127)
7,328
223,425
6,256
22,037
84
-
(232,909)
18,893
212,308
5,740
21,188
85
(4,783)
(220,887)
13,651
Total liabilities and shareholders’ equity
$
11,610
$
8,646 $
21,249 $
15,353
10
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements (continued)
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
3.
Significant accounting policies (continued):
The following table presents the recasting of the consolidated statements of loss and comprehensive loss from Canadian dollars to US dollars for the years ended
December 31, 2016 and 2015:
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in thousands of US dollars, except for per common share data)
Revenue
Expenses:
Research and development
General and administrative
Finance expense
Finance income
Net finance (income) expense
Net loss for the year
Other comprehensive loss
Items that may subsequently be reclassified to earnings
Foreign currency translation gain (loss)
Comprehensive loss for the year
Basic and diluted loss per common share
(c) Derecognition of financial assets and liabilities:
Year ended
December 31, 2016
Year ended
December 31, 2015
Canadian
dollars
US
dollars
Canadian
dollars
US
dollars
$
-
$
-
- $
-
10,322
8,344
18,666
66
(105)
(39)
(18,627)
7,834
6,439
14,273
46
(79)
(33)
(14,240)
6,254
9,845
16,099
43
(1,516)
(1,473)
(14,626) $
4,865
7,992
12,857
34
(1,180)
(1,146)
(11,711)
-
(18,627) $
485
(13,755)
-
(14,626) $
(3,519)
(15,230)
(1.46)
(1.12)
(1.23) $
(0.98)
$
$
$
A financial asset is derecognized when the right to receive cash flows from the asset have expired or when the Company has transferred its rights to receive cash
flows from the asset.
11
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
3.
Significant accounting policies (continued):
A financial liability is derecognized when its contractual obligations are discharged, cancelled or expire.
(d) Financial assets and liabilities:
Financial assets within the scope of IAS 39, Financial Instruments - Recognition and Measurement (“IAS 39”), are classified as either financial assets at fair value
through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. When financial assets are
recognized initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction
costs. The Company determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates this designation at
each financial year end.
The Company’s financial instruments are comprised of the following:
Financial Assets
Classification
Measurement
Cash and cash equivalents
Investments
Loans and receivables
Loans and receivables
Financial Liabilities
Classification
Accounts payable, accrued liabilities
Other liabilities
Amortized cost
Amortized cost
Measurement
Amortized cost
The Company considers unrestricted cash on hand and guaranteed investment certificates held by Canadian Schedule A banks with original maturities of three months
or less as cash and cash equivalents.
Fair value:
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value.
·
·
Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that
are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data or other means; and
12
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
3.
Significant accounting policies (continued):
·
Level 3 - inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest
priority to Level 3 inputs.
(e) Property and equipment:
Property and equipment is measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly
attributable to the acquisition of the asset. The Company records depreciation at rates that charge operations with the cost of the assets over their estimated useful
lives on a straight-line basis as follows:
Office furniture (years)
Laboratory equipment (years)
Computer hardware (years)
Computer software
Leasehold improvements
3
5
3
Estimated
useful life
Life of lease
The assets’ residual value, useful life and methods of depreciation are reviewed at each reporting period and adjusted prospectively if appropriate.
(f) Research and development:
Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or
loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products or processes. Development expenditures are
capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are
probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. The expenditures capitalized would
include the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on
qualifying assets. Other development expenditures which do not meet the criteria for capitalization are recognized in profit or loss as incurred.
Capitalized development costs are recognized at cost less accumulated amortization and accumulated impairment losses.
The Company has not capitalized any development costs to date.
13
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
3.
Significant accounting policies (continued):
(g) Employee benefits:
(i) Short-term employee benefits:
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid in short-term cash bonuses if the Company expects to pay these amounts as approved by the
Board of Directors as a result of past services provided by the employee and the obligation can be estimated reliably.
(ii) Stock-based compensation:
The Company has a stock-based compensation plan (the “Plan”) available to officers, directors, employees and consultants with grants under the Plan
approved by the Company’s Board of Directors. Under the Plan, the exercise price of each option equals the closing trading price of the Company’s stock on
the day prior to the grant if the grant is made during the trading day or the closing trading price on the day of grant if the grant is issued after markets have
closed. Vesting is provided for at the discretion of the Board of Directors and the expiration of options is to be no greater than 10 years from the date of grant.
The Company uses the fair value based method of accounting for employee awards granted under the Plan. The Company calculates the fair value of each
stock option grant using the Black-Scholes option pricing model at the grant date. The stock-based compensation cost of the options is recognized as stock-
based compensation expense over the relevant vesting period of the stock options using an estimate of the number of options that will eventually vest.
Stock options awarded to non-employees are accounted for at the fair value of the goods received or the services rendered. The fair value is measured at the
date the Company obtains the goods or the date the counterparty renders the service. If the fair value of the goods or services cannot be reliably measured, the
fair value of the options granted will be used.
The Company has a stock incentive plan pursuant to which the Board may grant stock-based awards comprised of restricted stock units or dividend
equivalents to employees, officers, consultants, independent contractors, advisors and non-employee directors of the Company. Compensation expense for
restricted share units is measured at fair value at the date of grant, which is the market price of the underlying security, and is expensed over the award’s
vesting period on a straight-line basis.
14
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
3.
Significant accounting policies (continued):
(h) Loss per share:
Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during the year.
Diluted loss per share is computed similarly to basic loss per share except that the weighted average shares outstanding is increased to include additional shares for
the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and
warrants were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the year. The inclusion
of the Company’s stock options and warrants in the computation of diluted loss per share has an anti-dilutive effect on the loss per share and, therefore, they have
been excluded from the calculation of diluted loss per share.
(i)
Income taxes:
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted by the reporting date. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent
that it is probable that future taxable profits will be available against which they can be utilized.
(j) Provisions:
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable
that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a
finance cost.
(k) Finance income and finance costs:
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or loss using the effective interest method.
Finance costs comprise interest expense on borrowings and are recognized in profit or loss using the effective interest method.
15
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
3.
Significant accounting policies (continued):
(l) New amendments adopted during 2017:
Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)
On January 19, 2016 the IASB issued Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12). The amendments apply retrospectively
for annual periods beginning on or after January 1, 2017. This amendment did not have an impact on the recognition of deferred tax assets and unrealized losses.
(m) Recent accounting pronouncements:
(i)
IFRS 9, Financial Instruments (“IFRS 9”):
IFRS 9 (2014) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified
and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional
changes relating to financial liabilities and also amends the impairment model by introducing a new ‘expected credit loss’ model for calculating impairment.
IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge accounting more closely with risk management. The Company
intends to adopt IFRS 9 (2014) in its consolidated financial statements for the annual period beginning on January 1, 2018. The Company has evaluated the
new requirements of IFRS 9 and determined that it will not have a material effect on the classification or measurement of the Company’s financial assets.
(ii) IFRS 16, Leases (“IFRS 16”)
On January 13, 2016, the IASB issued IFRS 16. The new standard is effective for annual periods beginning on or after January 1, 2019. Earlier application is
permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial adoption of IFRS 16. IFRS 16 will replace
IAS 17 Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of
more than 12 months, unless the underlying asset is of low value. The extent of the impact of adoption of the standard has not yet been determined.
4.
Capital disclosures:
Our primary objective when managing capital is to ensure that we have sufficient cash resources to fund our development activities and to maintain our ongoing
operations. To secure the additional capital necessary to pursue these plans, we may attempt to raise additional funds through the issuance of equity or by securing
strategic partners.
16
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
4.
Capital disclosures (continued):
We include cash and cash equivalents and investments in the definition of capital.
We are not subject to externally imposed capital requirements and there has been no change with respect to the overall capital risk management strategy during the year
ended December 31, 2017.
In December 2014, Aptose filed a short form base shelf prospectus (the “Base Shelf”) that qualified for the distribution of up to $100,000,000 of common shares,
warrants, or units comprising any combination of common shares and warrants (“Securities”). The Base Shelf allowed the Company to enter into an “At-The-Market”
Facility (“ATM”) equity distribution agreement (see Note 9). The ATM provided the Company with the opportunity to regularly raise capital on the Nasdaq Capital
Market, at prevailing market prices, at its sole discretion providing the ability to better manage cash resources. The Base Shelf expired in December, 2017.
In October 2017, the Company entered into a Common Shares Purchase Agreement (the “Agreement”) of up to $15.5 Million with Aspire Capital Fund, LLC (“Aspire
Capital”). (Note 9). Under the terms of the Agreement, Aspire Capital has committed to purchase up to $15.5 million of common shares of Aptose, at Aptose’s request
from time to time during a 30 month period beginning on the effective date of a registration statement related to the transaction and at prices based on the market price
at the time of each sale. The Company intends to use this equity arrangement as an additional option to assist us in achieving its capital objectives. The equity line
provides the Company with the opportunity to regularly raise capital at prevailing market prices, at its sole discretion providing the ability to better manage cash
resources.
In March 2018, Aptose filed a short form base shelf prospectus (the “2018 Base Shelf”) that qualifies for the distribution of up to $100,000,000 of common shares,
warrants, or units comprising any combination of common shares and warrants (“Securities”). The distribution of Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, or at prices related to such prevailing market
prices to be negotiated with purchasers and as set forth in an accompanying prospectus supplement, including transactions that are deemed to be “at-the-market”
distributions. The 2018 Base Shelf provides the Company with additional flexibility when managing cash resources as, under certain circumstances, it shortens the time
period required to close a financing and is expected to increase the number of potential investors that may be prepared to invest in our Company. Funds received from
a Prospectus Supplement will be used in line with our Board approved budget and multi-year plan.
17
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
4.
Capital disclosures (continued):
(a) Cash and cash equivalents:
Cash and cash equivalents consists of cash of $3.225 million (December 31, 2016 - $2.942 million), deposits in high interest savings accounts and other term
deposits with maturities less than 90 days totaling $7.406 million (December 31, 2016 - $4.998 million).
(b)
Investments:
As at December 31, 2017, investments consisted of a guaranteed investment certificate with maturity date of October 10, 2018, bearing an interest rate 1.45%. As
at December 31, 2016, there were no investments outstanding.
5.
Property and equipment:
December 31, 2017
Laboratory equipment
Computer hardware
Computer software
Office furniture
Leasehold improvements
December 31, 2016
Laboratory equipment
Computer hardware
Computer software
Office furniture
Leasehold improvements
Accumulated
Cost
depreciation
Net book
value
173 $
47
80
35
69
404 $
94 $
31
79
19
39
262 $
79
16
1
16
30
142
Cost
(as recast –
note 3 (b))
Accumulated
depreciation
(as recast –
note 3 (b))
Net book
value
(as recast –
note 3 (b))
173 $
34
80
35
69
391 $
60 $
25
55
12
26
178 $
113
9
25
23
43
213
$
$
$
$
18
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
6.
Additional cash flow disclosures:
Net change in non-cash operating working capital is summarized as follows:
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Balance, end of year
Year
ended
Dec 31, 2017
Year
ended
Dec 31, 2016
(as recast –
note 3 (b))
Year
ended
Dec 31, 2015
(as recast –
note 3 (b))
$
$
97
447
544
318 $
(444)
(126) $
(153)
316
163
The Company did not incur any interest expense in the years ended December 31, 2017 and 2016.
During the year ended December 31, 2015, the Company incurred and paid interest on the convertible promissory notes described in note 7 of $21 thousand. In
addition the Company recorded accretion expense of $13 thousand as described in note 7. The notes were all converted by September 30, 2015.
7.
Convertible promissory notes payable:
In September 2013, the Company completed a private placement of convertible promissory notes for aggregate gross proceeds of approximately $583 thousand
(CA$600 thousand). Each convertible promissory note consisted of a CA$1 thousand principal amount of unsecured promissory note convertible into common shares
of the Company at a price per share of CA$3.60. The promissory notes bore interest at a rate of 10% per annum, payable quarterly and were due September 26, 2015.
The promissory notes were a compound financial instrument containing a liability component and an equity component represented by the conversion feature. The fair
value of the liability component upon issuance was estimated by discounting the future cash flows associated with the debt at a discounted rate of approximately 19%
which represented the estimated borrowing cost to the Company for similar promissory notes with no conversion feature. The residual value of CA$88 thousand was
allocated to the conversion feature.
Subsequent to initial recognition, the promissory notes were accounted for at amortized cost using the effective interest rate method. The Company incurred costs
associated with the financing of approximately $16 thousand (CA$17 thousand). These costs along with the adjustment for the conversion feature were accreted using
the effective interest method over the 24 month life of the notes.
During the year ended December 31, 2015, all of the outstanding promissory notes were converted into common shares of the Company.
19
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
8.
Financial instruments:
(a) Financial instruments:
The Company has classified its financial instruments as follows:
Financial assets:
Cash and cash equivalents, consisting of high interest savings account, measured at amortized cost
Investments, consisting of guaranteed investment certificates, measured at amortized cost
$
10,631 $
798
December 31,
2017
2016
7,940
-
Financial liabilities:
Accounts payable and accrued liabilities, measured at amortized cost
1,765
1,318
At December 31, 2017 and 2016 there were no significant differences between the carrying values of these amounts and their estimated market values due to their
short-term nature.
(b) Financial risk management:
The Company has exposure to credit risk, liquidity risk, foreign currency risk and market risk. The Company’s Board of Directors has the overall responsibility for
the oversight of these risks and reviews the Company’s policies on an ongoing basis to ensure that these risks are appropriately managed.
(i) Credit risk:
Credit risk is the risk of financial loss to the Company if a customer, partner or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Company’s cash and cash equivalents and investments. The carrying amount of the financial assets represents the maximum
credit exposure.
The Company manages credit risk associated with its cash and cash equivalents and investments by maintaining minimum standards of R1-low or A-low
investments and the Company invests only in highly rated Canadian corporations which are capable of prompt liquidation.
(ii) Liquidity risk:
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. To the extent that the Company does not
believe it has sufficient liquidity to meet its current obligations, management and the Board consider securing additional funds through equity, debt or
partnering transactions. The Company manages its liquidity risk by continuously monitoring forecasts and actual cash flows. All of the Company's financial
liabilities are due within the current operating period.
20
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
8.
Financial instruments (continued):
In managing its liquidity risk, the Company has considered its available cash and cash equivalents and investments as at December 31, 2017. The Company
has also considered additional cash raised through its share purchase agreement with Aspire Capital of $US 8.9M since December 31, 2017 (see note 18) and
its ability to continue to raise funds under this agreement in 2018 in assessing whether it will have sufficient resources to fund research and development
operations through to at least the year ending December 31, 2018.
After considering the above factors, management have concluded that there are no material uncertainties related to events or conditions that may cast
substantial doubt upon the Company’s ability to continue as a going concern. However, the estimates made by management in reaching this conclusion are
based on information available as of the date these financial statements were authorized for issuance. Accordingly, actual experience will differ from those
estimates and the variation may be material.
(iii) Market risk:
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity prices will affect the Company’s income or the
value of its financial instruments.
(iv) Interest rate risk:
The Company is subject to interest rate risk on its cash and cash equivalents and investments. The Company does not believe that the results of operations or
cash flows would be affected to any significant degree by a sudden change in market interest rates relative to interest rates on the investments, owing to the
relative short-term nature of the investments. The Company does not have any interest bearing liabilities subject to interest rate fluctuations.
(v) Currency risk:
Currency risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. We are exposed to
currency risk from employee costs as well as the purchase of goods and services for activities in Canada and the cash balances held in foreign currencies.
Fluctuations in the Canadian dollar exchange rate could potentially have a significant impact on the Company’s results. Assuming all other variables remain
constant, a 10% depreciation or appreciation of the US dollar against the Canadian dollar would result in an increase or decrease in loss for the year of $51
thousand. Balances in foreign currencies are as follows:
21
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
8.
Financial instruments (continued):
Cash and cash equivalents
Investments
Accounts payable and accrued liabilities
Balance, end of year
December 31,
CAD$ Balances
December 31,
2017
2016
December 31,
2015
$
$
83 $
1,000
(384)
699 $
2,867 $
-
(275)
2,592 $
4,579
8,245
(979)
11,845
The Company does not have any forward exchange contracts to hedge this risk.
9.
Share capital:
The company has authorized share capital of an unlimited number of common voting shares.
(a) Continuity of common shares and warrants:
Balance, December 31, 2014
Warrant exercises
Warrant expiry
Option exercises
Common shares issued under ATM (b)(ii)
Promissory note conversion
Balance, December 31, 2015
Common shares under the ATM (b)(ii)
Warrant expiry (c)(i)
Balance, December 31, 2016
Balance, December 31, 2016
Common shares under the ATM (b)(ii)
Common shares issued under share purchase agreement
(b(i))
Common shares issued under redemption of restricted share
units
Balance, December 31, 2017
Common shares
Number
Warrants
Number
(in thousands)
Amount
(in thousands)
(as recast –
note 3 (b))
210,454
429
-
1,075
8
342
212,308
5,726
-
218,034
11,700
81
-
143
2
122
12,048
3,674
-
15,722
209 $
(81)
(55)
-
-
73 $
-
(73)
- $
Common shares
Number
(in thousands)
15,722
10,952
Amount
218,034
13,394
678
324
150
27,502
171
231,923
Warrants
Number
(in thousands)
- $
-
-
-
- $
Amount
(as recast –
note 3 (b))
485
(150)
(250)
-
-
85
(85)
-
Amount
-
-
-
-
-
22
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
9.
Share capital (continued):
(b) Equity issuances:
(i) Share purchase agreement
On October 27, 2017, we entered into the Aspire Purchase Agreement, which provides that, upon the terms and subject to the conditions and limitations set
forth therein, Aspire Capital is committed to purchase up to an aggregate of $15,500,000 of Common Shares over approximately 30 months. Pursuant to the
terms of this agreement, on October 31, 2017, Aspire Capital purchased 357,143 Common Shares for gross proceeds of $500 thousand ($324 thousand net of
cash share issue costs). We also issued 321,429 Common Shares to Aspire Capital in consideration for entering into the Aspire Purchase Agreement.
(ii) At-The-Market (“ATM”) Facility
On April 2, 2015, Aptose entered into an at-the-market (“ATM”) equity facility with Cowen and Company, LLC, acting as sole agent. Under the terms of the
ATM, Aptose was permitted to sell Common Shares having an aggregate offering value of US$20,000,000 on NASDAQ. The ATM expired on December
29, 2017 and as at that date the Company had issued a cumulative $20,000,000 of Common Shares pursuant to this facility.
During the year ended December 31, 2017, the Company issued 10,952,093 common shares under the ATM at an average price of $1.27 per share for gross
proceeds of $13.9 million ($13.4 million net of share issue costs). Costs associated with the proceeds included a 3% cash commission as well as legal and
accounting fees
During the year ended December 31, 2016, the Company issued 3,673,933 common shares under the ATM at an average price of $1.65 per share for gross
proceeds of $6.05 million ($5.7 million net of share issue costs). Costs associated with the proceeds included a 3% cash commission as well as legal and
accounting fees.
(c) Warrants:
During the year ended December 31, 2016, 73 thousand warrants with an original fair value of $85 thousand expired unexercised. The original fair value amount
was transferred from warrants to contributed surplus.
23
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
9.
Share capital (continued):
Warrants exercised during the year ended December 31, 2015:
(in thousands)
August 2011 warrants (i)
June 2013 private placement warrants (ii)
December 2013 broker warrants (iii)
Total
Number
16 $
47
18
81 $
Proceeds
68
115
96
279
In addition to the cash proceeds received, the original fair value related to these warrants of $150 thousand was transferred from warrants to share capital. This
resulted in a total amount of $429 thousand credited to share capital.
(i) August 2011 warrants were exercisable into common shares of Aptose at a price per share of CA$5.40 and expired in August 2016.
(ii) June 2013 private placement warrants were exercisable into common shares of Aptose at a price per share of CA$3.00 and expired in June 2015.
(iii) December 2013 broker warrants were exercisable into common shares of Aptose at a price per share of CA$6.60 and expired in December 2015.
(d) Continuity of contributed surplus:
Contributed surplus is comprised of the cumulative grant date fair value of expired share purchase warrants and expired stock options as well as the cumulative
amount of previously expensed and unexercised equity settled share-based payment transactions.
(e) Loss per share:
Loss per common share is calculated using the weighted average number of common shares outstanding and is presented in the table below:
(in thousands)
Issued common shares, beginning of year
Effect of ATM issuances
Effect of shares issued pursuant to share purchase agreement
Effect of RSU redemptions
Effect of warrant exercises
Effect of option and DSU exercises
Effect of promissory note conversions
Balance, end of year
Year ended
Dec 31, 2017
Year ended
Dec 31, 2016
Year ended
Dec 31, 2015
15,722
6,402
113
76
-
-
22,313
12,048
695
-
-
-
-
-
12,743
11,700
-
-
49
103
54
11,906
The effect of any potential exercise of the Company’s stock options and warrants outstanding during the year has been excluded from the calculation of diluted
loss per common share as it would be anti-dilutive.
24
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
10.
Stock-based compensation:
(a) Stock options
Under the Company’s stock option plan, options, rights and other entitlements may be granted to directors, officers, employees and consultants of the Company to
purchase up to a maximum of 17.5% of the total number of outstanding common shares, estimated at 4,812,000 options, rights and other entitlements as at
December 31, 2017. Options are granted at the fair market value of the common shares on the closing trading price of the Company’s stock on the day prior to the
grant if the grant is made during the trading day or the closing trading price on the day of grant if the grant is issued after markets have closed. Options vest at various
rates (immediate to four years) and have a term of 10 years.
Stock option transactions for the years ended December 31, 2017, 2016, and 2015 are summarized as follows:
Option numbers are in (000’s)
Outstanding, beginning of year
Granted
Expired
Forfeited
Outstanding, end of the year
Option numbers are in (000’s)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Year ended
December 31, 2017
Weighted average
exercise price
Options
2,005 $
826
(323)
(164)
2,344
4.31
1.19
4.58
3.35
3.46
Year ended
December 31, 2016
Weighted average
exercise price
as recast (note 3(b))
Year ended
December 31, 2015
Weighted average
exercise price
as recast (note 3(b))
Options
Options
4.54
2.94
-
5.62
4.31
1,374 $
478
(143)
(20)
1,689 $
5.13
5.67
3.57
7.56
4.54
1,689
382
-
(66)
2,005
25
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
10.
Stock-based compensation (continued):
The following table summarizes information about stock options outstanding at December 31, 2017:
Option numbers are in (000’s)
Range of exercise prices
Options
$1.03-$1.15
$1.16-$1.86
$1.87-$4.37
$4.38-$5.08
$5.09-$34.37
Options outstanding
Options exercisable
Weighted
average
remaining
contractual
life (years)
Weighted
average
exercise price
Options
Weighted
average
exercise price
241
527
444
614
518
2,344
9.4
9.2
7.8
6.4
6.9
7.7
1.05
1.26
3.11
4.61
5.79
3.46
- $
7
263
614
409
1,293
-
1.70
3.30
4.60
5.90
4.70
The following table presents the weighted average assumptions that were used in the Black-Scholes option pricing model to determine the fair value of stock options
granted during the period, and the resultant weighted average fair values:
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected life of options (years)
Grant date fair value
(2016 and 2015 values have been recast to US dollars -note 3(b))
Year ended
December 31,
2017
Year ended
December 31,
2016
Year ended
December 31,
2015
1.32%
-
98%
5
0.68%
-
110%
5
$
0.87
$
2.30
$
1.17%
-
106%
5
4.36
The Company uses historical data to estimate the expected dividend yield and expected volatility of its common shares in determining the fair value of stock options.
The expected life of the options represents the estimated length of time the options are expected to remain outstanding.
Stock options granted by the Company during the year ended December 31, 2017 consist of 641,500 options that vest 50% after one year and 16.67% on each of the
next three anniversaries, and 185,000 options that vest 50% after one year and 25% on each of the next two anniversaries.
Stock options granted by the Company during the year ended December 31, 2016, consist of 381,900 options that vest 50% after one year and 16.67% on each of the
next three anniversaries.
Stock options granted by the Company during the year ended December 31, 2015, consist of 128,000 options that vest 50%, 25% and 25% on each of the next three
anniversaries and 350,000 options that vest 50% on the first anniversary and 16.67% on each of the next three anniversaries (total four year vesting).
26
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
10.
Stock-based compensation (continued):
The Company recorded share-based payment expense of $646 thousand (2016 - $1,706 thousand, 2015 - $2,500 thousand) related to issued stock options. Refer to
note 11 and 12 for a breakdown of stock option expense by function.
(b) Restricted share units
The Company has a stock incentive plan (SIP) pursuant to which the Board may grant stock-based awards comprised of restricted stock units or dividend equivalents
to employees, officers, consultants, independent contractors, advisors and non-employee directors of the Company. Each restricted unit is automatically redeemed for
one common share of the Company upon vesting. The following table presents the activity under the SIP plan for the year ended December 31, 2017 and the units
outstanding.
Outstanding, beginning of year
Granted
Redeemed
Outstanding, end of year
Number
Weighted average grant
date fair value
-
1.14
1.14
-
- $
150
(150)
- $
On March 28, 2017 the Company granted 150,000 restricted share units with a vesting term of three months, and accordingly, on June 28, 2017 all of these restricted
share units vested and were redeemed for 150,000 common shares. During the year ending December 31, 2017, the Company recorded share-based payment expense
of $171 thousand (2016 – nil, 2015- nil) related to the issued RSUs.
The grant date fair value was determined as the closing value of the common shares of the Company on the Toronto Stock Exchange on the date prior to the date of
grant.
27
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
11.
Research and Development:
Components of research and development expenses are as follows:
Research and Development excluding salaries
CrystalGenomics Option Fee (a)
Salaries
Stock-based compensation
Depreciation of equipment
Year ended
December 31,
Year ended
December 31,
2017
2016
As recast
(note 3(b))
Year ended
December 31,
2015
As recast
(note 3(b))
$
$
4,573 $
-
1,451
214
36
6,274 $
4,860 $
1,000
1,691
247
36
7,834 $
3,131
-
1,528
183
23
4,865
During the year ended December 31, 2016, the Company paid $1.0 million to CrystalGenomics for an option fee related to the CG’806 technology.
12.
General and Administrative:
Components of general and administrative expenses:
General and administrative excluding salaries
Salaries
Stock-based compensation
Depreciation of equipment and amortization
13.
Finance income and expense:
Components of finance income:
Interest income
Foreign exchange gain on cash and cash equivalents
Year ended
December 31,
Year ended
December 31,
2017
2016
As recast
(note 3(b))
Year ended
December 31,
2015
As recast
(note 3(b))
$
$
2,610 $
2,290
602
50
5,552 $
2,566 $
2,334
1,459
80
6,439 $
3,377
2,246
2,317
52
7,992
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
2015
(as recast –
note 3 (b))
2016
(as recast –
note 3 (b))
79 $
-
79 $
226
954
1,180
2017
68 $
97
165 $
$
$
28
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
13.
Finance income and expense (continued):
Components of finance expense:
Interest expense
Accretion expense
Foreign exchange loss on cash and cash equivalents
14.
Related party transactions:
Year ended
December 31,
Year ended
December 31,
2017
2016
(as recast –
note 3 (b))
Year ended
December 31,
2015
(as recast –
note 3 (b))
$
$
- $
-
-
- $
- $
-
46
46 $
21
13
-
34
In March 2015, the Company entered into an agreement with the Moores Cancer Center at the University of California San Diego (UCSD) to provide pharmacology
lab services to the Company. Dr. Stephen Howell is the Acting Chief Medical Officer of Aptose and is also a Professor of Medicine at UCSD and will be overseeing
the laboratory work. The research services will be provided from April 1, 2015 to March 31, 2017 and will be billed monthly for services rendered.
The total amount for services provided under the agreement is not to exceed $200 thousand. In May, 2017, the Company entered into another agreement with UCSD for
an additional twelve month period for services up to $300,000. These transactions are in the normal course of business and are measured at the amount of consideration
established and agreed to by the related parties.
During year ended December 31, 2017, the Company recorded $240 thousand (2016 – $168 thousand) in research and development expenses related to the agreement.
Compensation of key management personnel:
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the Company’s activities as a whole. The
Company has determined that key management personnel consist of the members of the Board of Directors along with the officers of the Company. For the years
ended December 31, 2017, 2016 and 2015, the officers were the Chairman, President and Chief Executive Officer, the Senior Vice President and Chief Financial
Officer as well as the Senior Vice President and the former Chief Business Officer.
29
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
14.
Related party transactions (continued):
Officer compensation:
Salaries and short-term employee benefits
Stock-based compensation
Director compensation:
Directors’ fees
Stock-based compensation
Year ended
December 31,
Year ended
December 31,
2017
2016
As recast
(note 3(b))
Year ended
December 31,
2015
As recast
(note 3(b))
$
$
1,605 $
371
1,543 $
1,191
1,976 $
2,734 $
1,457
1,871
3,328
Year ended
December 31,
Year ended
December 31,
2017
2016
As recast
(note 3(b))
Year ended
December 31,
2015
As recast
(note 3(b))
$
$
240 $
128
368 $
240 $
157
397 $
239
273
512
The amounts disclosed in the table above have been recognized as an expense during the reporting period related to key management personnel. Included in accounts
payable and accrued liabilities, is $484 thousand (2016 - $261 thousand, 2015 – $9 thousand) owing to directors and officers of the Company relating to unpaid
compensation and directors’ fee.
15.
Commitments, contingencies and guarantees:
(a) Operating lease commitments:
The Company has entered into operating leases for premises and equipment under which it is obligated to make minimum annual payments as described below:
Operating leases
$
225 $
410 $
433 $
289 $
1,357
Less than 1
year
1 – 3 years
3 – 5 years
Greater than
5 years
Total
(b) Other contractual commitments:
The Company has entered into various contracts with service providers with respect to the clinical development of APTO-253 and for its research program for its
new program CG’806. These contracts will result in future payments commitments of approximately $4 million.
30
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
15.
Commitments, contingencies and guarantees (continued):
The Company enters into research, development and license agreements in the ordinary course of business where the Company receives research services and
rights to proprietary technologies. Milestone and royalty payments that may become due under various agreements are dependent on, among other factors, clinical
trials, regulatory approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain.
Under the license agreement with CrystalGenomics, the Company has an option to pay $2.0 million in cash or combination of cash and common shares, for the full
development and commercial rights for the program in all territories outside of the Republic of Korea and China. The option fee is due on the earlier of (i) filing of
an Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”), (ii) first dosage of a human in a clinical trial or (iii) or early
June 2018. In addition, under the terms of the license agreement, there are development milestones on the initiation of Phase 2 and pivotal clinical trial of $16
million, and regulatory milestones totalling $44 million. The Company also has an obligation to pay royalty payments on sales of commercialized product. The
timing of any milestone or royalty payments that may become due is not yet determinable.
(c) Guarantees:
The Company entered into various contracts, whereby contractors perform certain services for the Company. The Company indemnifies the contractors against
costs, charges and expenses in respect of legal actions or proceedings against the contractors in their capacity of servicing the Company. The maximum amounts
payable from these guarantees cannot be reasonably estimated. Historically, the Company has not made significant payments related to these guarantees.
The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance of their service to the Company to
the extent permitted by law. The Company has acquired and maintains liability insurance for its directors and officers. The fair value of this indemnification is not
determinable.
31
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
16.
Income taxes:
Deferred tax assets have not been recognized in respect of the following items:
Net operating losses carried forward
Research and development expenditures
Equipment book over tax depreciation
Intangible asset
Undeducted financing costs
Ontario Research and Development Tax Credit
Cumulative eligible capital
Unrecognized deferred tax asset
December 31,
December 31,
2017
2016
As recast
(note 3(b))
December 31,
2015
As recast
(note 3(b))
$
$
15,645 $
5,450
410
2,464
273
427
284
24,953 $
11,743 $
5,098
368
2,307
270
398
267
20,451 $
8,099
4,946
354
2,238
281
388
288
16,594
The Company has undeducted research and development expenditures, totaling $20.5 million that can be carried forward indefinitely. The Company also has non-
refundable federal investment tax credits of approximately $4.3 million which are available to reduce future federal taxes payable and begin to expire in 2018, as well
as non-refundable Ontario research and development tax credits of approximately $425 thousand which are available to reduce future Ontario taxes payable and begin
to expire in 2028.
In addition, the Company has non-capital loss carryforwards of $59 million. To the extent that the non-capital loss carryforwards are not used, they expire as follows:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
$
$
6
3,460
2,978
522
2,313
2,053
2,767
5,977
4,558
8,988
13,520
11,859
59,001
32
APTOSE BIOSCIENCES INC.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands of United States dollars, except per share amounts)
Years ended December 31, 2017, 2016 and 2015
16.
Income taxes (continued):
Provision for income taxes:
Major items causing the Company’s income tax rate to differ from the statutory rate of approximately 26.5% (December 31, 2015 – 26.5%, December 31, 2014 -
26.5%) are as follows:
Loss before income taxes
Statutory Canadian corporate tax rate
Anticipated tax recovery
Non-deductible permanent differences
Change in deferred tax benefits deemed not probable to be recovered
Change in substantively enacted rates
Foreign exchange differences
Other
17.
Comparative figures:
Year ended
December 31,
2017
Year ended
December 31,
2016
As recast
(note 3(b))
Year ended
December 31,
2015
As recast
(note 3(b))
$
$
$
(11,661) $
26.5%
(14,240) $
26.5%
(11,711)
26.5%
(3,090) $
220
4,502
51
(1,391)
(292)
$
-
(3,773) $
412
3,434
(3,103)
604
2,606
(73)
$
-
(107)
-
Certain comparative figures in the years ended December 31, 2016 and December 31, 2015 have been reclassified in order to conform to the presentation in the current
year. Account payables and accrued liabilities in the year ended December 31, 2015 were presented separately on the statements of financial position.
18.
Subsequent events
(a) Subsequent to the quarter end, the Company issued 3,200,000 common shares under the Common Shares Purchase Agreement with Aspire Capital for gross
proceeds of approximately $8.9 million. This transaction will be accounted for in the three months ended March 31, 2018.
(b)
In March 2018, the Board approved an extension of its agreement with the Moores Cancer Center at the University of California San Diego (UCSD) to provide
pharmacology lab services to the Company for a further twelve months for services up to $300,000. Dr. Stephen Howell is the Acting Chief Medical Officer of
Aptose and is also a Professor of Medicine at UCSD and will be overseeing the laboratory work.
33
CERTIFICATION REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 99.4
I, William G. Rice, certify that:
1.
I have reviewed this annual report on Form 40-F of Aptose Biosciences Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation;
Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting;
5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the
audit committee of the issuer’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the issuer’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.
Date: March 27, 2018
/s/ William G. Rice
Name: William G. Rice, Ph.D.
Title:
Chairman, President and Chief
Executive Officer
CERTIFICATION REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 99.5
I, Gregory Chow, certify that:
1.
I have reviewed this annual report on Form 40-F of Aptose Biosciences Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation;
Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has
materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting;
5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the
audit committee of the issuer’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the issuer’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.
Date: March 27, 2018
/s/ Gregory Chow
Name: Gregory Chow
Title:
Senior Vice President, Chief Financial
Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 99.6
In connection with the Annual Report of Aptose Biosciences Inc. (the “Company”) on Form 40-F for the year ended December 31, 2017, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, William G. Rice, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly represents, in all material respects, the financial condition and results of the operations of the Company.
Date: March 27, 2018
/s/ William G. Rice
William G. Rice, Ph.D.
Chairman, President and Chief Executive
Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 99.7
In connection with the Annual Report of Aptose Biosciences Inc. (the “Company”) on Form 40-F for the year ended December 31, 2017, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Gregory Chow, Senior Vice Presdient, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly represents, in all material respects, the financial condition and results of the operations of the Company.
Date: March 27, 2018
/s/ Gregory Chow
Gregory Chow
Senior Vice President, Chief Financial Officer
Exhibit 99.8
KPMG LLP
100 New Park Place, Suite 1400
Vaughan, ON L4K 0J3
Tel 905-265 5900
Fax 905-265 6390
www.kpmg.ca
The Board of Directors
Aptose Biosciences Inc.
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (No. 333-222909) on Form F-10 of Aptose Biosciences Inc. of our report dated March 27, 2018, on
the financial statements which comprise the consolidated statements of financial position as at December 31, 2017 and December 31, 2016, the consolidated statements of loss
and comprehensive loss, changes in equity and cash flows for each of the years in the two-year period ended December 31, 2017, and notes, comprising a summary of
significant accounting policies and other explanatory information, which report is included in Form 40-F of Aptose Biosciences Inc. for the fiscal year ended December 31,
2017, and further consent to the use of such report in Form 40-F.
Yours truly,
Chartered Professional Accountants, Licensed Public Accountants
March 27, 2018
Toronto, Canada
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.