UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒
☐
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-3200
APTOSE BIOSCIENCES INC.
(Exact name of registrant as specified in its charter)
Canada
(State or other jurisdiction of incorporation or organization)
98-1136802
(I.R.S. Employer Identification No.)
251 Consumers Road, Suite 1105
Toronto, Ontario, Canada M2J 4R3
(Address of principal executive offices)
647-479-9828
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Shares, no par value
Trading Symbol(s)
APTO
Name of each exchange on which registered
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer ☐
Non-accelerated filer ☐
Emerging growth company ☒
Accelerated filer ☐
Smaller reporting company ☒
If an emerging growth company, 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. ☒
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b 2 of the Act). YES ☐ NO ☒
The aggregate market value of the voting stock and nonvoting common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold, or the average bid and asked prices of such common equity, as of June 30, 2019 was $143,417,295.
As of March 10, 2020, the registrant had 76,269,806 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for our 2020 Annual Meeting of Stockholders (the “Proxy Statement”), are incorporated by reference in Part III
TABLE OF CONTENTS
PART I.
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AN DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
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This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by those sections. For more information, see “Part I. Item 1. Business
— Cautionary Note Regarding Forward-Looking Statements.”
As used in this report, the terms “Aptose,” “Aptose Biosciences,” the “Company,” “we,” “us,” “our” and similar references refer to Aptose Biosciences Inc.
(formerly known as Lorus Therapeutics Inc.) and our consolidated subsidiaries, and the term “common stock” refers to our common stock, no par value.
Aptose has historically qualified as a “foreign private issuer” for purposes of reporting under the Securities Exchange Act of 1934, as amended, and filing registration
statements under the Securities Act of 1933, as amended. Effective December 31, 2018, however, Aptose ceased qualifying as a foreign private issuer and began filing reports
with the SEC as a “domestic issuer”. As a result, Aptose changed the accounting standards by which it prepares its financial statements from International Financial Reporting
Standards, or “IFRS”, to generally accepted accounting principles in the United States, or “US GAAP”. All financial statements contained in this Annual Report are
presented on the basis of U.S. GAAP. This report contains the following trademarks, trade names and service marks of ours: Aptose. This report also contains trademarks,
trade names and service marks that are owned by other persons or entities.
PART I.
ITEM 1. BUSINESS
Overview
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”), certain B-cell malignancies, high-risk myelodysplastic syndrome (“MDS”) and other hematologic malignancies. 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 Company was incorporated on
September 5, 1986, under the name RML Medical Laboratories (“RML”) pursuant to the Business Corporations Act (Ontario). Between 1986 and 2014, the Company operated
under the names of RML, IMUTEC Corporation and Lorus Therapeutics Inc. On August 28, 2014, the Company 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.
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 through simultaneous targeting of key drivers of
disease in cancer cells, while preserving quality of life in patients by minimizing the 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) and pathways that cause the patient’s tumor and hence allow for disease progression and /or 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 Programs
Aptose has two clinical-stage programs, and a third program that is discovery-stage and partnered with another company.
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CG-806, our first clinical stage program: An investigational new drug (“IND”) application was submitted February 22, 2019 to the U.S. Food and Drug Administration
(“FDA”) for CG026806 (“CG-806”), Aptose’s mutation-agnostic FMS-like tyrosine kinase 3 / Bruton’s tyrosine kinase (“FLT3/BTK”) inhibitor. CG-806 is being
currently evaluated in a Phase Ia/b dose escalation study in patients with certain B-cell malignancies, including chronic lymphocytic leukemia (“CLL”), small
lymphocytic lymphoma (“SLL”) and certain non-Hodgkin’s lymphomas (“NHL”) that are resistant/refractory/intolerant to other therapies. The CG-806 clinical program
also is planned to expand into patients with relapsed/refractory (“R/R”) acute myeloid leukemia (“R/R AML”), including the emerging populations resistant to FLT3
inhibitors.
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APTO-253, our second clinical-stage program: APTO-253 is a small molecule MYC oncogene inhibitor and we are currently enrolling patients in a Phase Ib clinical trial
for the treatment of patients with R/R blood cancers, including AML and high-risk MDS.
APL-581, our partnered program, is a dual bromodomain and extra-terminal domain motif (“BET”) protein and kinase inhibitor program which we partnered to Ohm
Oncology (“OHM”) on March 7, 2018.
Aptose is committed to the development of anticancer drugs that target aberrant oncologic signaling that underlies 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.
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As a cluster-selective kinase 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, as well as other receptor kinases and signaling cascades that drive dysregulated survival of the cancer cells.
Further, Aptose created the APTO-253 small molecule targeted drug that inhibits expression of the MYC oncogene and is under development as a novel therapy for
AML and related MDS. Dysregulation of the MYC oncogene reprograms signaling of cancer cells to allow for malignant transformation and resistance to typical
anticancer drugs. APTO-253 directly targets the MYC gene and inhibits production of MYC mRNA and protein, thereby leading to cancer cell death.
The following table sets forth various product conditions in our pipeline and their respective stages of development.
CG-806 Program
Overview
On May 7, 2018, we exercised an option by paying $2.0 million in cash to South Korean company CrystalGenomics, Inc. (“CG”), in order to purchase an exclusive license 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 (collectively, the “Rights”). 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 mutation-agnostic
FLT3/BTK inhibitor. Subsequently, on June 14, 2018, we announced that we entered into a license agreement with CG for Aptose to gain a license for Rights in China
(including the People’s Republic of China, Hong Kong and Macau) (the “China Rights”). Under the license agreement, Aptose made an upfront payment to CG of $3.0 million
for the China Rights. CG is eligible for development, regulatory and commercial-based milestones, as well as single-digit royalties on product sales in China. The total deal
value for the China Rights, including the upfront payment, is up to $125 million. Aptose now owns worldwide (excluding Korea) Rights, including an issued patent in China, to
CG-806, a first-in-class, highly potent oral small molecule being developed for AML, B-cell malignancies and other hematologic malignancies. Future possible royalties that
might be paid under these agreements are determined on a country-by-country and product-by-product basis, on net sales during the period of time beginning on the first
commercial sale of such product in such country and continuing until the later of: (i) the expiration of the last-to-expire valid claim of the CG Patents in such country covering
such product; and (ii) ten (10) years after the first commercial sale of such product in such country.
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CG-806 exhibits a picomolar half maximal inhibitory concentration (IC50) toward 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 mutation-agnostic FLT3/ BTK inhibitor. Further, CG-806 suppresses a small group of other relevant oncogenic kinases/pathways (including CSF1R,
PDGFRα, TRK, and the ERK, MYC, AKT/mTOR/S6K and AURK/H3S10 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.
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
resulted in tumor elimination (“cures”) 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 and formal Good Laboratory
Practice (“GLP”) toxicology 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, CG-806 may be a preferable treatment for patients with B cell malignancies over alternatives such as ibrutinib or other commercially
approved or development stage BTK inhibitors in certain circumstances. Overexpression of the BTK enzyme can drive oncogenic signaling of certain B cell malignancies,
including chronic lymphocytic leukemia (“CLL”) and certain NHL such as 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 1000 times more potently than ibrutinib and kills ibrutinib-resistance cancer cells, and that CG-806 more
potently killed primary malignant cells taken from the bone marrow of CLL and ALL B-cell cancer patients. Yet, CG-806 demonstrated a high degree of safety in animal
efficacy and GLP toxicology 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, RAS, ERK and MAPK 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.
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. Ibrutinib, a commercially-approved, covalent BTK
inhibitor, possesses a Michael acceptor to react with C481 in BTK and irreversibly inactivates 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.
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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 are strongly associated with clinical relapse or are negative
prognostic factors in patients. In enzymatic assays, CG-806 has demonstrated potency against the BTK C481S mutant with a half maximal IC50 of 2.5 nanomolar (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 0.8nM (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, and CG-806 has the ability
to potently suppress the CSF1R, PDGFRα, AKT/mTOR/S6K, ERK, MAPK, MYC and AURK/H3S10 pathways. 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 1a). 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.
Figure 1a. 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 (red line), 10 mg/kg (green line) or 100 mg/kg (purple line),
Ibrutinib, 12 mg/kg (black line), or Vehicle Control (light blue line) with 7-day post-treatment follow-up. Tumor volumes and body weights were measured 3 times weekly.
In a separate MV4-11 xenograft study (Figure 1b), the antitumor efficacy of CG-806 and mouse survival over 120 days were evaluated when mice were treated orally for 28
consecutive days with CG 806 at dose levels of 0 (vehicle only, red), 10 (olive), 30 (green), 100 (blue), or 300 mg/kg (magenta). In this study, the clinical formulation (CG-806
co-micronized with 2.5% sodium lauryl sulfate (SLS) and the dosing schedule (“BID”) planned for human clinical studies were utilized. CG-806 produced slower tumor growth
and extended survival at the 10 and 30mg/kg dose levels, while 100% cure rates were achieved at the 100 and 300 mg/kg dose levels (11/11 mice survived in the latter two
groups). Moreover, no signs of toxicity were noted at any dose level.
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Figure 1b. CG-806 Extends Survival in a Dose-Dependent Way in MV4-11 AML Xenograft Mouse Model Following Oral BID Dosing for 28 Consecutive Days.
Although the above murine xenograft models demonstrate potent antitumor activity with no observed toxicity, the models utilize an AML cell line rather than cells derived
from an AML patient. In a study performed at the University of Texas MD Anderson Cancer Center (“MDACC”), the efficacy of CG-806 was evaluated in a patient derived
xenograft (“PDX”) model (Figure 1c). Bone marrow cells were collected from an AML patient that had relapsed on a clinical trial. The patient entered the trial with FLT3-ITD
AML and was placed on sorafenib and azacytidine. After one cycle, the patient had a complete response but then relapsed after cycle 3. Genetic analysis demonstrated that the
AML cells had acquired a second mutation in AML, and this was the D835 mutation, making the patient dual mutant FLT3-ITD/D835. Bone marrow cells from the patient
(AML FLT3-ITD/D835) were implanted in mice to establish a PDX model. Expansion of the human AML cells in the bone marrow and peripheral blood of the mice took
approximately one month. In the vehicle (15% Transcutol HP/85% PEG-400) treated mice, the leukemic burden in the peripheral blood increased from day 31 through day 50
and beyond. However, treatment with 100 mg/kg CG-806 (orally daily for 5 consecutive days followed by 2 days off every week), resulted in significant reduction in the
leukemic burden and reductions in splenomegaly at 52 days post-implantation. These data suggest CG-806 may be used to treat patients whose disease has become resistant to
other FLT3 inhibitors.
Figure 1c. CG-806 Efficacy in PDX Model Against AML Patient Cells with FLT3-ITD+D835Y Mutations
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APTO-253 Program
Overview
APTO-253, our second clinical-stage program, is a novel small molecule therapeutic agent that inhibits expression of the 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
MYC oncogene is overexpressed in hematologic cancers, including AML. 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 MYC oncogene in AML cells and depletes
those cells of the MYC oncoprotein, leading to apoptotic cell death in AML cells. Thus APTO-253 may serve as safe and effective MYC inhibitor for AML that combines well
with other agents and does not impact the normal bone marrow.
During 2015, we were evaluating APTO-253 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. 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 underwent 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 mishap, with the intention of restoring the molecule to a state
supporting clinical development and partnering. Formal root cause analyses studies were completed to identify the reason for the drug product stability failure, and a correction
action was implemented. We then manufactured a new GMP clinical supply of drug product and performed the studies required to demonstrate the fitness of the drug product
for clinical usage, and presented the findings to the FDA in the second quarter of 2018. On June 28, 2018, the FDA notified us that it had lifted the clinical hold on APTO-253.
This was followed by resubmission of the revised clinical protocol to Institutional Review Boards (“IRB”) at multiple clinical sites.
On November 28, 2018, we announced that we dosed the first patient in the re-initiation of the Phase Ib Clinical Study of APTO-253. Since then, we have completed the first
three dose cohorts (20mg/m2, 40mg/m2 and 66mg/m2) and are currently dosing patients in the fourth dose cohort at 100mg/m2 dose level. In the patients we have dosed at the
first three dose levels, we observed meaningful reductions in MYC expression in the patient PBMC samples and noted that the drug product is well tolerated to date.
APTO-253 Studies on Solid Tumors
In January 2011, Aptose announced the first patient enrollment 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 whom 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, MDACC 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 had 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 I 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 in patients with solid tumors. 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.
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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.
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. No further studies were performed by the prior administration of Aptose following the arrival of the new administration
in late 2013.
APL-581 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 (such as APL-581). Consequently, Aptose chose to out-license the program.
On March 7, 2018, Aptose entered into an exclusive global license agreement with 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
BET protein and kinase inhibitor program. Under the agreement, Aptose retained reacquisition rights to certain molecules, while OHM/LALS has the rights to develop and
sublicense all other molecules. Aptose received a nominal upfront cash payment and is eligible to receive up to $125 million of additional payments based on the achievement of
certain developmental, regulatory and sales milestones, as well as significant royalties on future sales generated from the program, if any. We have not received any milestone
or royalty payments pursuant to this agreement. Future possible royalties that might be paid by Ohm to Aptose under these agreements are determined on a country-by-country
and product-by-product basis, on net sales during the period of time beginning on the first commercial sale of such product in such country and continuing until the later of: (i)
the expiration of the last-to-expire valid claim of the CG Patents in such country covering such product; and (ii) ten (10) years after the first commercial sale of such product in
such country.
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.
CG-806 Treatment for B Cell Malignancies
We are aware of a number of companies that have developed and are pursuing different approaches to BTK inhibition, both for the wild type and to the C481S-mutant forms.
Companies that have developed approved or are currently developing inhibitors that directly target the wild type include AbbVie (IMBRUVICA) and AstraZeneca
(CALQUENCE) and Beigene Co., Ltd. (Zanubrutinib).
Others that are developing inhibitors that target the C481S-mutant BTK include Merck (ARQ 531), Roche, Sunesis Pharmaceuticals (vecabrutinib) and Eli Lilly (LOXO-305)
among others.
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CG-806 and APTO-253 for AML
We also face intense competition in AML as there is a wide range of therapies that have been approved and are under development for the treatment of AML. Companies that
have developed approved or are currently developing non-targeted therapies include Jazz (VYXEOS), Pfizer (MYLOTARG) and AbbVie (VENCLEXTA), among others.
Others that have developed or are developing highly targeted therapies such as FLT3 include Novartis (RYDAPT), Astellas (XOSAPTA), Daiichi Sankyo (quizartinib), Arog
(crenolanib), and IDH1/2 include Agios (TIBSOVO) and Celgene/BMS (IDHIFA) among others.
Manufacturers, Suppliers and Other Third Party Contractors
Contract manufacturing organizations (“CMOs”) manufacture our product candidates for all preclinical studies and clinical trials. We rely on CMOs for manufacturing, filling,
packaging, storing and shipping of drug product in compliance with Current Good Manufacturing Practice (“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. These CMOs are reputable companies active in the biotechnology
industry. Pricing is predictable as there are many alternatives of such supplies that are readily available.
We rely and will continue to rely on third party contract research organizations (“CROs”) 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.
Intellectual Property
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.
CG-806
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
In May 2018, we paid $2.0 million in cash and licensed the rights to CG-806, for all fields of use, in all territories outside of the Republic of Korea and China, by exercising an
option we obtained through a June 2016 option-license agreement with South Korean company CrystalGenomics, Inc. (“CG”) that had granted us an exclusive option to
research, develop and commercialize (collectively, the “Rights”) CG-806.
In June 2018, we entered into a separate license agreement with CG for Aptose to gain a license for Rights to CG-806 in the People’s Republic of China, Hong Kong and Macau
(the “China Rights”). This license agreement was formally executed by Aptose through an upfront payment to CG of $3.0 million for the China Rights. CG is eligible for
payments upon the achievement of developmental, regulatory and commercial-based milestones, as well as single-digit royalties on product sales in China. Aptose now owns
worldwide Rights to CG-806, including an issued patent in China but excluding any Rights in Korea.
US Patent No. 9,758,508
On September 12, 2017, we announced that United States Patent and Trademark Office (“USPTO”) issued patent number 9,758,508 entitled “2,3-dihydro-isoindole-1-on
derivative as BTK kinase suppressant, and pharmaceutical composition including same”. 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.
European Patent No. EP2940014B1
The granted patent claims the CG-806 compound, pharmaceutical compositions comprising the CG-806 compound, and uses for treating diseases caused by abnormal or
uncontrolled activation of protein kinases, such as cancer. This European patent will be nationalized in, and cover, approximately forty European countries including the United
Kingdom, France, Germany, Italy, Netherlands and Spain. The patent is expected to provide protection until December of 2033.
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Australian Patent No. 2013371146
The granted patent clams 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.
Chinese Patent No. CN 104995184 B
The granted patent claims numerous compounds, including the CG-806 compound, pharmaceutical compositions comprising the CG-806 compound, and the use of such a
compound for the manufacture of a pharmaceutical composition for treating a disease caused by an abnormal or uncontrolled protein kinase. The patent is expected to provide
protection until December of 2033.
Japanese Patent No. 6325573
The granted patent claims numerous compounds, including the CG-806 compound, pharmaceutical compositions comprising the CG-806 compound, and the use of such a
compound for the manufacture of a pharmaceutical composition for treating a disease caused by an abnormal or uncontrolled protein kinase. The patent is expected to provide
protection until December of 2033.
Canadian Patent No. 2896711
The granted patent claims numerous compounds, including the CG-806 compound, pharmaceutical compositions comprising the CG-806 compound, and the use of such a
compound for the manufacture of a pharmaceutical composition for treating a disease caused by an abnormal or uncontrolled protein kinase. The patent is expected to provide
protection until December of 2033.
APTO-253
As of March 10, 2020, we are the owner of record of five issued U.S. patents, which together provide coverage for the APTO-253 compound, its pharmaceutical composition
and methods of treating various cancers with APTO-253, including solid tumors and leukemia. The APTO-253 composition of matter has patent protection until February, 2028
in the United States and May, 2026 in other countries. We also hold 20 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.
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 in the United States and Canada 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, 2019, we employed 31 full-time persons and two part-time persons in research and drug development and administration activities. Seven of our employees
hold Ph.Ds. and numerous others hold degrees and designations such as MD, 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. Of note, in January of 2020, Aptose hired a Chief Medical Officer holding an MD and a PhD.
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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.
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 the FDA in
the United States, Health Canada in Canada, 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 the United States, Canada, 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 cGMPs 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 the 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.
Approval of New Drugs 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.
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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.
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.
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.
Approval of New Drugs 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 cGMP regulations for drugs 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 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.
Post-Approval Regulation
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.
The foregoing description is a brief summary of the requirements 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.
Information About Our Executive Officers
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. The team includes our
Chairman and Chief Executive Officer, our Chief Financial Officer, our Chief Business Officer and our Chief Medical Officer.
Dr. William G. Rice, age 61, joined Aptose as Chairman, President 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”) from 2003 to 2013. Prior to Cylene, Dr. Rice
was the founder, President, Chief Executive Officer and Director of Achillion Pharmaceuticals, Inc. from 1998 to 2003. He also served as Senior Scientist and Head of the Drug
Mechanism Laboratory at the National Cancer Institute-Frederick Cancer Research and Development Center from 1992 to 1998, and served as a faculty member in the division
of Pediatric Hematology and Oncology at Emory University School of Medicine from 1989 to 1992. 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. since 2015.
Gregory K. Chow, age 47, joined Aptose as Senior Vice President and Chief Financial Officer in December 2013. Previously, Mr. Chow served as Managing Director, Director
of Private Placements at Wedbush Securities from 2012 to 2013, 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 from 2006 to 2011, where he led life science private
capital activities. From 2003 to 2006, 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.
Dr. Jotin Marango, age 41, joined Aptose as Senior Vice President and Chief Business Officer in June 2019. Prior to joining Aptose, from 2017 to 2019, Dr. Marango was a
managing director and senior research analyst at Roth Capital Partners covering biotechnology and therapeutics. Dr. Marango joined Roth from H.C. Wainwright & Co., where
he worked from 2015 to 2017 and covered hematology, oncology, and pulmonary therapeutics, with a focus on epigenetic and molecularly targeted therapies. Dr. Marango
began his career in equity research with Collins Stewart/Canaccord Genuity in 2010. Previously, Dr. Marango also served as Chief Operating Officer at the Samuel Waxman
Cancer Research Foundation from 2012 to 2015, where he oversaw academic collaborations in translational therapeutics, as well as venture philanthropy initiatives in drug
development. Dr. Marango studied theoretical chemistry and classical literature at Harvard University and later received his M.D. and Ph.D. degrees from the Mount Sinai
School of Medicine in New York.
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Dr. Rafael Bejar, M.D, Ph.D., age 48, joined Aptose as Senior Vice President and Chief Medical Officer in January 2020. Dr. Bejar is an internationally recognized physician
scientist with extensive research and clinical experience in the area of hematologic malignancies. Dr. Bejar joined Aptose from UC San Diego (“UCSD”) where he began
working in 2012. He continues to serve at UCSD as an Associate Professor of Clinical Medicine, caring for patients and maintaining a research laboratory focused on
translational studies of myeloid malignancies. At UCSD, he founded the MDS Center of Excellence and led the Hematology Disease Team from 2017 to 2019. There he has
directed several clinical studies and served as an advisor for numerous companies including Celgene, Takeda, AbbVie, Astex, Genoptix, Forty Seven, PersImmune, and
Daiichi-Sankyo. Outside UCSD, Dr. Bejar sits on the Scientific Advisory Board for the MDS Foundation, is a prior member of the National Comprehensive Cancer Network
Guidelines Committee, and has led projects for the International Working Group for MDS. He is frequently invited to speak at national and international meetings and has
published articles in a variety of journals including The New England Journal of Medicine, Journal of Clinical Oncology, Leukemia, Blood, and Blood Advances. Dr. Bejar has
been board certified in Hematology and Oncology since completing his fellowship at the Dana-Farber Cancer Institute. He completed his internship in Internal Medicine at the
University of Chicago followed by his residency at the Brigham and Women’s Hospital in Boston where he later served a Medical Chief Resident and an Instructor in
Hematology. He holds an MD degree and Neuroscience PhD from UCSD and a BS in Physics from MIT.
Corporate Information
Aptose is a publicly traded company incorporated pursuant to the Canada Business Corporations Act, or CBCA. Our headquarters are located at 251 Consumers Road, Suite
1105 Toronto, Ontario, Canada M2J 4R3 (telephone: 647-479-9828), and our executive offices are located at 12770 High Bluff Drive, Suite 120, San Diego, CA 92130
(telephone: 858-926-2730).
We file annual, quarterly, current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet
site that contains our public filings and other information regarding the Company, at www.sec.gov. We are also a reporting issuer under the securities laws of the Province of
Ontario in Canada. We make these reports available free of charge at our website http://www.aptose.com (under the “Investors — Financial Information” caption).
Prior to December 31, 2018, Aptose was a foreign private issuer, and in compliance with SEC regulations, filed its Quarterly reports on Form 6-Ks, and its Annual Reports on
either Forms F-20 or F-40. These reports were made available on our website as soon as reasonably practicable after their filing with, or furnishing to, the SEC. We are also a
reporting issuer under the securities laws of the Province of Ontario in Canada.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-
looking information” within the meaning of applicable Canadian securities law. We refer to such forward-looking statements and forward-looking information collectively as
“forward-looking statements”. These statements relate to future events or future performance and reflect our expectations and assumptions regarding our growth, results of
operations, performance and business prospects and opportunities. Such forward-looking statements reflect our current beliefs and are based on information currently available
to us. In some cases, forward-looking statements can be identified by terminology such as “may”, “would”, “could”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”,
“believe”, “estimate”, “predict”, “potential”, “continue” or the negative of these terms or other similar expressions concerning matters that are not historical facts. The forward-
looking statements in this Annual Report on Form 10-K include, among others, statements regarding our future operating results, economic performance and product
development efforts and statements in respect of:
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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 conduct clinical trials and preclinical programs;
our ability to accrue appropriate numbers and types of patients;
our reliance on external contract research/manufacturing organizations for certain activities;
our plans to secure and maintain strategic partnerships to assist in the further development of our product candidates and to build our pipeline;
our ability to file and maintain intellectual property to protect our pharmaceutical assets;
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
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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 contained in this Annual Report on Form 10-K 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 lack of product revenues and net losses and a 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 need to raise substantial additional capital in the future and that we may be unable to raise such funds when needed and on acceptable terms;
further equity financing, which may substantially dilute the interests of our existing shareholders;
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 substantially harm our business;
our reliance on external contract research/manufacturing organizations for certain activities and 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;
clinical studies are long, expensive and uncertain processes and the FDA, or other similar foreign regulatory agencies that we are required to report to, may
ultimately not approve any of our product candidates;
our ability to comply with applicable governmental regulations and standards;
our inability to achieve our projected development goals in the time frames we announce and expect;
difficulties in enrolling patients for clinical trials may lead to delays or cancellations of our clinical trials;
our reliance on third-parties to conduct and monitor our preclinical studies;
our ability to attract and retain key personnel, including key executives and scientists;
any misconduct or improper activities by our employees;
our exposure to exchange rate risk;
our ability to commercialize our business attributed to negative results from clinical trials;
the marketplace may not accept our products or product candidates due to the intense competition and technological change in the biotechnical and
pharmaceuticals, and we may not be able to compete successfully against other companies in our industries and achieve profitability;
our ability to obtain and maintain patent protection;
our ability to afford substantial costs incurred with defending our intellectual property;
our ability to protect our intellectual property rights and not infringe on the intellectual property rights of others;
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;
commercialization limitations imposed by intellectual property rights owned or controlled by third parties;
our ability to maintain adequate insurance at acceptable costs;
our ability to find and enter into agreements with potential partners;
extensive government regulation;
data security incidents and privacy breaches could result in increased costs and reputational harm;
our share price has been and is likely to continue to be volatile;
future sales of our Common Shares by us or by our existing shareholders could cause our share price to drop;
changing global market and financial conditions;
changes in an active trading market in our Common Shares;
difficulties by non-Canadian investors to obtain and enforce judgments against us because of our Canadian incorporation and presence;
potential adverse U.S. federal tax consequences for U.S. shareholders because we are a “passive foreign investment company”;
our “emerging growth company” and “smaller reporting company” status;
any failures to maintain an effective system of internal controls may result in material misstatements of our financial statements, or cause us to fail to meet our
reporting obligations or fail to prevent fraud;
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our broad discretion in how we use the proceeds of the Common Shares issued pursuant to the two confidentially marketed public offerings completed in the
year ended December 31, 2019, and from the sale of the Common Shares to Aspire Capital pursuant to the purchase agreements between us and Aspire;
our ability to expand our business through the acquisition of companies or businesses; and
other risks detailed from time-to-time in our on-going filings with the SEC and Canadian securities regulators, and those which are discussed in Item 1A. Risk
Factors in this Annual Report on Form 10-K.
Should one or more of these risks or uncertainties materialize, or should the assumptions described in the Item 1A. Risk Factors in this Annual Report on Form 10-K underlying
those forward-looking statements prove incorrect, actual results may vary materially from those described in the forward-looking statements.
More detailed information about these and other factors is included in this Annual Report on Form 10-K under Item 1A. Risk Factors. Although we have attempted to identify
factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions,
events or results not to be as anticipated, estimated or intended. Forward-looking statements are based upon our beliefs, estimates and opinions at the time they are made and we
undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or circumstances should change, except as required by applicable law.
There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such
statements. Accordingly, readers should not place undue reliance on forward-looking statements.
Forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of this Annual Report on Form 10-K.
Except as required under applicable securities legislation, we undertake no obligation to publicly update or revise forward-looking statements, whether as a result of new
information, future events or otherwise. We qualify all the forward-looking statements contained in this Annual Report on Form 10-K by the foregoing cautionary
statements.
ITEM 1A. RISK FACTORS
Risk Factors and Uncertainties
Any of the risks and uncertainties described below could significantly and negatively affect our business, prospects, financial condition, operating results, or credit ratings,
which could cause the trading price of our Common Shares to decline. Additional risks and uncertainties not presently known to us, or risks that we currently consider
immaterial, could also impair our business operations or financial condition. The following discussion of risk factors contains “forward-looking” statements, as discussed above.
Risks Related to our Business
We are an early stage development company with no significant revenues from product sales.
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.
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
enrollment in a Phase Ib clinical trial in patients with relapsed or refractory AML and high risk MDS and was placed on clinical hold by the FDA following a voluntary
suspension of dosing by us. That hold has been lifted, but significant additional funding will be necessary to complete the restarted Phase Ib clinical and, if required, Phase II or
Phase III clinical trials. Similarly, we have received FDA approval to initiate a Phase I clinical trial with our product candidate CG-806 for patients with B-cell malignancies.
Significant additional capital will be necessary to complete the Phase I clinical trial, 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.
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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 favorable to us than might otherwise be available;
considerably reduce operations; or
cease our operations.
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 $26.3 million in the fiscal year ended December 31, 2019, $28.8 million in the fiscal year
ended December 31, 2018, and $11.7 million in the fiscal year ended December 31, 2017, and as of December 31, 2019, we had an accumulated deficit of $301.9 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.
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 our executive officers could harm our operations and our ability to achieve strategic objectives. While we have employment agreements with our executive officers,
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.
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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 have no sales, marketing or distribution experience and would have to invest significant financial and management resources to establish these capabilities.
We have no sales, marketing or distribution experience. We currently expect to rely heavily on third parties to launch and market our products, if they approved. However, if we
elect to develop internal sales, distribution and marketing capabilities, we will need to invest significant financial and management resources. For products where we decide to
perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including:
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we may not be able to attract and build a significant marketing or sales force;
the cost of establishing a marketing or sales force may not be justifiable in light of the revenues generated by any particular product; and
our direct sales and marketing efforts may not be successful.
If we are unable to develop our own sales, marketing and distribution capabilities, we will not be able to successfully commercialize our products without reliance on third
parties.
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, for all fields of use.
Acquisitions, collaborations and in-licenses involve numerous risks, including, but not limited to:
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substantial cash expenditures;
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;
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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.
Fluctuations in exchange rates can cause us to incur losses.
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, and we do not currently employ a hedging strategy against exchange rate risk. As a result, changes in the exchange rate between the Canadian dollar and the U.S. dollar
could materially impact our reported results of operations and distort period to period comparisons. In particular, to the extent that foreign currency-denominated (i.e., non-U.S.
dollar) monetary assets do not equal the amount of our foreign currency denominated monetary liabilities, foreign currency gains or losses could arise and materially impact our
financial statements. As a result of such foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition,
to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of
our Common Shares could be adversely affected.
Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates
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 applications for regulatory approval.
Clinical trials are long, expensive and uncertain processes. Clinical trials may not start or be on schedule and the FDA or Health Canada or any other regulatory body may not
ultimately approve our product candidates for commercial sale in the relevant territory. 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 necessarily repeat 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 relapsed or refractory AML and high risk MDS was placed on clinical hold by the FDA in November 2015. Those short
comings of the drug product were addressed and the clinical hold was lifted. However, there can be no assurance that the Company will have the resources, or that we will
decide, to continue the development of APTO-253. There is a long development path ahead that will take many years to complete the development and is prone to the risks of
failure or delays inherent in drug development. Likewise, our CG-806 product candidate is currently being evaluated in a Phase Ia/b study for patients having B-cell
malignancies, 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 of products 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 enrollment 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 and 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 commencement and
completion of clinical trials, the submission of a drug-regulatory application, 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. Our clinical
trials may not be completed, we may not make regulatory submissions or receive regulatory approvals as planned; 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.
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, if 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
Ib clinical trial, the phase Ia/b clinical trial for CG-806 study for the treatment of patients having B-cell malignancies, and the IND acceptance of our planned Phase I study for
the development of CG-806 for the treatment of patients with relapsed/refractory acute myeloid leukemia (“R/R AML”) 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 with a clinical trial;
a regulatory decision to place 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;
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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 or boards 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;
one or more IRBs or ethics committees or boards 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 or boards for re-examination, which may impact the cost, timing or successful completion of a 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 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 and other regulatory agencies ensure 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 the active ingredient and then drug product for our clinical trials. The synthesis of
CG-806 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.
Some components of our products are manufactured by third parties outside of the United States, and our business may be harmed by legal, regulatory, economic, political
and public health risks associated with international trade and those markets.
We have third-party manufacturing partners in Germany and the United Kingdom; in addition, some materials used by our third-party manufacturers are supplied by companies
located in other countries, including China. Our reliance on suppliers and manufacturers in foreign markets creates risks inherent in doing business in foreign jurisdictions,
including: (a) the burdens of complying with a variety of foreign laws and regulations, including laws relating to the importation and taxation of goods (b) public health crises,
such as pandemics and epidemics, in the countries where our suppliers and manufacturers are located; (c) transportation interruptions or increases in transportation costs; and (d)
foreign intellectual property infringement risks. For example, the ongoing coronavirus outbreak emanating from China at the beginning of 2020 has resulted in extended
shutdown of certain businesses in the region causing reduced availability for certain pharmaceutical ingredients. This public health crisis or any further political developments
or health concerns in markets in which our products are manufactured or from which we obtain necessary pharmaceutical ingredients could adversely affect the supply of our
drug products and, in turn, our business, financial condition, and results of operations.
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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 for cancer indications on a timely basis or at all. Certain factors that affect enrollment of patients in 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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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.
Further, the FDA, Health Canada and comparable foreign regulatory authorities will have some 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 III 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 III clinical trial that has the potential to result in approval by the FDA, Health Canada or another regulatory
agency. 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;
large, well-funded research and development programs in the biotechnical and pharmaceutical fields;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.
For CG-806 and APTO-253 in AML, examples of potential competitors include Companies that have developed approved or are currently developing inhibitors that directly
target the wild type include AbbVie (IMBRUVICA) and AstraZeneca (CALQUENCE) and Beigene Co., Ltd. (Zanubrutinib).
Others that are developing inhibitors that target the C481S-mutant BTK include Arqule, Inc. (ARQ 531), Roche, Sunesis Pharmaceuticals (SNS-062) and Eli Lilly among
others.
For CG-806 and APTO-253 in AML, examples of potential competitors include companies that have developed approved or are currently developing non-targeted therapies
include Jazz (VYXEOS), Pfizer (MYLOTARG) and Roche (VENCLEXTA), among others. Others that have developed or are developing highly targeted therapies such as
FLT-3 include Novartis (RYDAPT), Astellas (XOSAPTA), Daiichi Sankyo (QUIZARTINIB), Arog (CRENOLANIB), and IDH1 include Agios (TIBSOVO) and
Celgene/BMS (IDHIFA) among others.
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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 our product candidates for sale at competitive prices;
convenience and ease of administration compared to alternative treatments;
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 or face generic entry 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.
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 favor 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.
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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 favorable 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.
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.
We have licensed important portions of our intellectual property from CG, and are subject to significant obligations under that license agreement.
The rights we hold under our license agreement with CG are critical to our business. Our CG-806 program is built around patents exclusively in-licensed from CG, which
permit us to research, develop and commercialize CG-806 worldwide except for the Republic of Korea. Under our agreement with CG, we are subject to significant obligations,
including diligence obligations with respect to development and commercialization activities, payment obligations upon achievement of certain milestones and royalties on
product sales, as well as other material obligations. CG is eligible for payments upon the achievement of developmental, regulatory and commercial-based milestones, as well
as low single-digit royalties on product sales in all territories outside of the Republic of Korea.
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If there is any conflict, dispute, disagreement or issue of non-performance between us and CG regarding our rights or obligations under the license agreements, including any
conflict, dispute or disagreement arising from our failure to satisfy diligence or payment obligations under such agreements, CG may have a right to terminate the license. The
loss of this license agreement could materially and adversely affect our ability to use intellectual property that could be critical to our drug discovery and development efforts, as
well as our ability to enter into future collaboration, licensing and/or marketing agreements for one or more affected drug candidates or development programs.
Our business depends, in part, on our ability to use technology that we have licensed or will in the future license from third parties, including CG, and, if these licenses
were terminated or if we were unable to license additional technology we may need in the future, our business will be adversely affected.
We currently hold licenses for certain technologies that are or may be critical to our current and subsequent product candidates. These include our exclusive license to research,
develop and commercialize CG-806 worldwide except for the Republic of Korea. The license from CG is subject to termination in the event of a breach by us of the license, if
we fail to cure the breach following notice and the passage of a cure period. We may need to acquire additional licenses in the future to technologies developed by others.
Furthermore, future license agreements may require us to make substantial milestone payments. We may also be obligated to make royalty payments on the sales, if any, of
products resulting from the license. The termination of a license or the inability to license future technologies on acceptable terms may adversely affect our ability to develop or
sell our products.
Legal and Regulatory Risk
Our ability to develop, produce and market our products is subject to 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 in a given jurisdiction 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 delay in
approving or refusal to approve a product candidate, interruptions of clinical trials or manufacturing, suspension or withdrawal of regulatory approval, warning letters, the
imposition of civil penalties or other monetary payments, product recall or seizure, operating restrictions, 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.
Current and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may adversely
affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that
could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post approval activities and affect our ability to profitably sell any
products for which we obtain marketing approval.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or collectively the Affordable Care
Act, was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency
requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Additionally, the
Drug Supply Chain Security Act, enacted in 2013, imposed new obligations on manufacturers of pharmaceutical products related to product tracking and tracing.
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Members of Congress and the Trump Administration have considered legislation to fundamentally change or repeal the Affordable Care Act. While Congress has not passed
repeal legislation to date, the Tax Cuts and Jobs Act (“TCJA”) includes a provision repealing the individual insurance coverage mandate included in the Affordable Care Act,
effective January 1, 2019. Further, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to
waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states,
individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, the President signed an Executive Order
terminating the cost-sharing subsidies that reimburse insurers under the Affordable Care Act. Several state Attorneys General filed suit to stop the administration from
terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, the Centers for Medicare and
Medicaid Services has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces,
which may have the effect of relaxing the essential health benefits required under the Affordable Care Act for plans sold through such marketplaces. Congress may consider
other legislation to replace elements of the Affordable Care Act. The implications of the Affordable Care Act, its possible repeal, any legislation that may be proposed to replace
the Affordable Care Act, or the political uncertainty surrounding any repeal or replacement legislation for our business and financial condition, if any, are not yet clear.
We expect ongoing initiatives in the United States and internationally to increase pressure on drug pricing. Regulations that mandate price controls and limitations on patient
access to products or establish prices paid by government entities or programs may impact product candidates that we may successfully develop. Pharmaceutical product pricing
is subject to enhanced government and public scrutiny and calls for reform. Some U.S. states have implemented, and other U.S. states are considering, pharmaceutical price
controls or patient access constraints under the Medicaid program, and some U.S. states are considering price-control regimes that would apply to broader segments of their
populations that are not Medicaid eligible. Efforts by government officials or legislators to implement measures to regulate prices or payments for pharmaceutical products,
including legislation on drug importation, could have an adverse effect on anticipated revenues from product candidates that we may successfully develop and for which we
may obtain regulatory approval and may affect our overall financial condition and ability to develop drug candidates.
Legislative and regulatory proposals have also been made to expand post approval requirements and restrict sales and promotional activities for pharmaceutical products in the
US. Any healthcare reforms enacted in the future may, like the Affordable Care Act, be phased in over a number of years but, if enacted, could reduce our revenue, increase our
costs, or require us to revise the ways in which we conduct business or put us at risk for loss of business. We are not sure whether additional legislative changes will be enacted,
or whether the current regulations, guidance or interpretations will be changed, or what the impact of such changes on our business, if any, may be.
In Canada, the Patented Medicine Prices Review Board ("PMPRB") has jurisdiction to control prices of patented medicines that are considered excessive. Recent changes to the
regulations governing the PMPRB are intended to lower the prices of patented medicines even further. The PMPRB's jurisdiction could extend to any of our drug products that
are approved in Canada and protected under Canadian patents, with an adverse effect on the prices that we would otherwise obtain for these drugs in the relevant market.
Coverage and adequate reimbursement may not be available for our product candidates, which could make it difficult for us to sell our products profitably.
Market acceptance and sales of any drug candidates that we develop will depend in part on the extent to which reimbursement for these products and related treatments will be
available from third party payors, including government health administration authorities and private health insurers. Third party payors decide which drugs they will pay for
and establish reimbursement levels. Third party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies.
However, decisions regarding the extent of coverage and amount of reimbursement to be provided for each of our drug candidates will be made on a plan by plan basis. One
payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage, and adequate reimbursement, for the product. Additionally,
a third party payor’s decision to provide coverage for a drug does not imply that an adequate reimbursement rate will be approved. Each plan determines whether or not it will
provide coverage for a drug, what amount it will pay the manufacturer for the drug, and on what tier of its formulary the drug will be placed. The position of a drug on a
formulary generally determines the copayment that a patient will need to make to obtain the drug and can strongly influence the adoption of a drug by patients and physicians.
Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third party payors to reimburse all or part of the
associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our
products.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Third party payors have attempted to control costs by limiting coverage and the amount of
reimbursement for particular medications. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is
available, what the level of reimbursement will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any product for which we obtain
marketing approval. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize any drug
candidates that we develop.
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Additionally, there have been a number of legislative and regulatory proposals to change the healthcare system in the United States and in some foreign jurisdictions, including
Canada, that could affect our ability to sell any future drugs profitably. These legislative and regulatory changes may negatively impact the reimbursement for any future drugs,
following approval.
We are subject to U.S. and Canadian healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm,
fines, disgorgement, exclusion from participation in government healthcare programs, curtailment or restricting of our operations and diminished profits and future
earnings.
Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future
arrangements with healthcare providers, patients and third party payors could expose us to broadly applicable U.S. and Canadian laws and regulations relating to fraud abuse
and healthcare more generally that may constrain the business or financial arrangements and collaborative partners through which we market, sell and distribute any products
for which we obtain marketing approval.
Efforts to ensure that our collaborations with third parties, and our business generally, will comply with applicable U.S. and Canadian healthcare laws and regulations will
involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case
law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental
laws and regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products
from government funded healthcare programs, contractual damages, reputational harm, disgorgement, curtailment or restricting of our operations, any of which could
substantially disrupt our operations and diminish our profits and future earnings. If any of the physicians or other providers or entities with whom we expect to do business is
found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the
courts, and their provisions are open to a variety of interpretations.
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.
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.
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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 favorable 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.
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:
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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;
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;
our ability to raise additional capital;
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public concern as to the safety and efficacy of drugs that we and our competitors develop;
shareholder interest in our Common Shares;
low liquidity in the daily trading volume of our Common Shares; and
our ability to continue as a going concern;
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 conditions.
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 Capital Market 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.
Certain Canadian laws could delay or deter a change of control.
Limitations on the ability to acquire and hold our Common Shares may be imposed by the Competition Act in Canada. This legislation permits the Commissioner of Competition
of Canada to review any acquisition of a significant interest in us. This legislation grants the Commissioner jurisdiction to challenge such an acquisition before the Canadian
Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial lessening or prevention of competition in any market in Canada.
The Investment Canada Act subjects an acquisition of control of a company by a non-Canadian to government review if the value of our assets, as calculated pursuant to the
legislation, exceeds a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to result in a net benefit
to Canada. Any of the foregoing could prevent or delay a change of control and may deprive or limit strategic opportunities for our shareholders to sell their shares.
The exercise of all or any number of outstanding stock options, the award of any additional options, restricted stock units or other stock-based awards or any issuance of
shares to raise funds or acquire a business may dilute your Common Shares.
We have in the past and may in the future grant to some or all of our directors, officers and employees options to purchase our Common Shares and other stock-based awards as
non-cash incentives to those persons. The issuance of any equity securities could, and the issuance of any additional shares will, cause our existing shareholders to experience
dilution of their ownership interests.
Any additional issuance of shares or a decision to acquire other businesses through the sale of equity securities may dilute our investors’ interests, and investors may suffer
dilution in their net book value per share depending on the price at which such securities are sold. Such issuance may cause a reduction in the proportionate ownership and
voting power of all other shareholders. The dilution may result in a decline in the price of our Common Shares or a change in control.
We do not expect to pay dividends for the foreseeable future.
We have not paid any cash dividends to date and we do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest future earnings, if any, in
the development and growth of our business. Therefore, investors will not receive any funds unless they sell their Common Shares, and shareholders may be unable to sell their
shares on favorable terms or at all. We cannot assure you of a positive return on investment or that you will not lose the entire amount of your investment in our Common
Shares. Prospective investors seeking or needing dividend income or liquidity should not purchase our Common Shares.
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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 Annual Report on Form 10-K, 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.
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, 2019, 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 year ending December 31, 2020, 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.
We will cease to be an emerging growth company upon the earliest of:
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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 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 control over financial reporting and identify any
material weaknesses in our internal control 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 control over financial reporting, we have opted to rely on the exemptions provided to us by virtue of being 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 generally accepted accounting principles in the United States (“US GAAP”), 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.
Prior to December 31, 2018, we were a foreign private issuer and were therefore not subject to certain United States securities law disclosure requirements that apply to a
domestic United States issuer, which may limit the historical information publicly available to our shareholders.
As a foreign private issuer prior to December 31, 2018, we were 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 were exempt from the reporting and
“short-swing” profit recovery provisions of Section 16 of the Exchange Act. Moreover, we were 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 were we generally required to comply with
the SEC’s Regulation Fair Disclosure, which restricts the selective disclosure of material non-public information. For as long as we were a “foreign private issuer” or an eligible
Canadian issuer under the Multijurisdictional Disclosure System, we filed our annual financial statements on Form 20-F, or on Form 40-F, respectively, and furnished our
quarterly updates on Form 6-K to the SEC. However, the information we filed or furnished was not the same as the information required in annual and quarterly reports on Form
10-K or Form 10-Q for United States domestic issuers. Accordingly, there may be less historical information publicly available concerning us than there is for a company that
has filed as a domestic issuer for longer.
32
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, may 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.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease approximately 7,309 square feet of office space and 2,168 square feet of lab space in San Diego, California. The lease for the office space expires on March 31, 2023,
and can be extended for an additional 5 year period. We lease approximately 2,078 square feet of office space in Toronto, Ontario, Canada. The lease for this location expires on
June 30, 2023, with an option to renew for another five-year period. We believe that our facilities are sufficient to meet our needs and that suitable additional space will be
available as and when needed.
ITEM 3. LEGAL PROCEEDINGS
We know of no material pending legal proceedings to which our company or subsidiaries is a party or of which any of our properties, or the properties of our subsidiaries, is the
subject. However, from time to time, we may be subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our
business. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time.
ITEM 4. MINE SAFETY DISCLOSURES
None.
33
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our Common Shares are currently traded on The Nasdaq Capital Market under the symbol “APTO” and the Toronto Stock Exchange under the symbol “APS”.
As of March 10, 2020, there were approximately 33 shareholders of record of our Common Shares, which included Cede & Co., a nominee for Depository Trust Company, or
DTC, and CDS & Co., a nominee for The Canadian Depository for Securities Ltd., or CDS. Common shares that are held by financial institutions as nominees for beneficial
owners are deposited into participant accounts at either DTC or CDS, and are considered to be held of record by Cede & Co. or CDS & Co. as one shareholder.
We currently intend to retain all future earnings, if any, for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends on
our Common Shares in the foreseeable future.
Repurchases of Equity Securities
There were no repurchases of equity securities during the fourth quarter of 2019.
ITEM 6. SELECTED 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 years ended December 31, 2019 and 2018, respectively, and related notes appearing elsewhere in this Annual Report on Form 10-K (the “Financial Statements”) which
are prepared in accordance with US GAAP. You should read the selected financial data set forth below in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
Consolidated Statements of Loss and Comprehensive Loss
(amounts in US thousands except for per common share data)
REVENUE
EXPENSES
Research and development
General and administrative
Operating expenses
Interest Income
Foreign exchange gains/(loss)
Total other income
Net loss
Other comprehensive loss:
Unrealized gain on securities available-for-sale
Total comprehensive loss
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 non-current Liabilities
34
Year ended
December 31,
2019
Year ended
December 31,
2018
$
— $
—
16,835
10,022
26,857
574
6
580
(26,277)
18
(26,259)
(0.52) $
50,160
100,476 $
1,011 $
18,733
10,374
29,107
283
(44)
239
(28,868)
—
(28,868)
(0.86)
33,391
16,870
—
$
$
$
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks
and uncertainties that impact our business. In particular, we encourage you to review the risks and uncertainties described in “Risk Factors” in Part I, Item 1A in this Annual
Report on Form 10-K. These risks and uncertainties could cause actual results to differ materially from those projected or implied by our forward-looking statements contained
in this report. 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.
All amounts are expressed in United States dollars unless otherwise stated.
OVERVIEW
Aptose Biosciences Inc. (“we”, “our”, “us”, “Aptose” or the “Company”) is a science-driven biotechnology company advancing first-in-class targeted agents to treat life-
threatening cancers, such as acute myeloid leukemia (“AML”), high-risk myelodysplastic syndromes (“MDS”), chronic lymphocytic leukemia (“CLL”) 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 oncology therapies
directed at dysregulated processes and signaling pathways. Aptose is developing targeted medicines for precision treatment of these diseases to optimize efficacy and quality of
life by minimizing the side effects associated with conventional therapies. We currently have in development two molecules: CG026806 (“CG-806”) and APTO-253, both being
evaluated for safety, tolerability, pharmacokinetics and signals of efficacy in Phase I clinical trials. Each molecule is described below:
CG-806 is an orally administered, highly potent first-in-class pan-FLT3/pan-BTK inhibitor that targets defined clusters of kinases that are operative in hematologic
malignancies. This mutationally agnostic small molecule anticancer agent is currently being evaluated in a Phase Ia/b study for the treatment of patients having B-cell
malignancies including CLL, small lymphocytic lymphoma (“SLL”) and certain non-Hodgkin’s lymphomas (“NHL”) that are resistant/refractory/intolerant to other therapies.
Aptose also is planning for a Phase I study for the development of CG-806 for the treatment of patients with relapsed/refractory acute myeloid leukemia (“R/R AML”),
including the emerging populations resistant to FMS-like tyrosine kinase 3 (“FLT3”) inhibitors.
APTO-253 is our Phase I/b-stage small molecule therapeutic agent that inhibits expression of the MYC oncogene without causing, to date, general myelosuppression of the
bone marrow. The MYC oncogene is overexpressed in hematologic cancers, including AML and certain B cell malignancies. MYC is a transcription factor that regulates cell
growth, proliferation, differentiation and apoptosis, and overexpression of MYC amplifies new sets of genes to promote survival of cancer cells. APTO-253 suppresses
expression of the MYC oncogene in AML cells and depletes those cells of the MYC oncoprotein, leading to apoptotic cell death. Indeed, the first AML patient administered the
lowest dose level (20 mg/m2) of APTO-253 experienced a significant reduction in the expression of MYC in blood cells (“PBMCs”) during the 28-day cycle of therapy, and no
drug-related adverse events were noted. Likewise, the second patient administered APTO-253, this time an MDS patient administered the second dose level (40 mg/m2), also
showed a significant reduction in the expression of MYC in PBMCs during the 28-day cycle of therapy, and no drug-related adverse events were noted. Similarly, MYC
inhibition was observed in patients in the 66 mg/m2 dose level. Aptose now is dosing and enrolling patients with the fourth dose level (100 mg/m2). Thus, APTO-253 may
serve as a safe and effective MYC inhibitor for AML/MDS patients that combines well with other agents and does not significantly impact the normal bone marrow.
35
PROGRAM UPDATES
CG-806
Indication and Clinical Trials:
CG-806 is being developed with the intent to deliver the agent as an oral therapeutic and to develop it for relapsed and refractory (R/R) AML and for appropriate B cell
malignancies (including but not limited to CLL, SLL and NHL).
On March 25, 2019, we announced that the U.S Food and Drug Administration (“FDA”) granted Aptose Investigational New Drug (“IND”) allowance to initiate its Phase I
clinical trial for CG-806. The Phase I clinical trial is a multicenter, open label, dose-escalation study with expansions to assess the safety, tolerability, PK, and preliminary
efficacy of CG-806 in patients with CLL, SLL or NHL. The initial goal of the trial is to evaluate safety, tolerability, pharmacokinetics and pharmacodynamic effects of CG-806
in these patient populations and to observe for signals of efficacy. In this study, CG-806 is administered in gelatin capsules twice daily (“BID”) during a 28-day cycle.
As of the date of this report, we have initiated eighteen clinical sites for the Phase Ia/b trial in patients with CLL/SLL or NHL and have completed enrollment of patients on the
first, second, and third dose cohorts. Under an FDA-approved accelerated titration protocol, only one patient was required at each of the first two dose levels. The first CLL
patient at the first dose level received 150mg BID during a 28-day cycle and is continuing on study in their ninth cycle. A second CLL patient was enrolled at the second dose
level (300mg BID) during a 28-day cycle, and this patient completed four cycles before discontinuing during the fifth cycle. In this CLL patient, we observed pharmacologic
inhibition of phospho-BTK (100% inhibition 4hrs following administration of the first dose), an increase in peripheral blood lymphocytes (or lymphocytosis) classically
ascribed as a response to inhibition of BTK, and no treatment related adverse events. Aptose is now dosing three patients enrolled at the third dose cohort (450mg BID). Our
Clinical Safety Review Committee reviews relevant data following completion of each cohort, and following completion of the third dose level the committee may approve
escalation to the fourth dose level (600mg BID) as appropriate.
Aptose also plans to seek allowance from the FDA to move CG-806 into the AML patient population in a separate Phase I trial. Currently, we are finalizing our efforts to
advance into a study in patients with AML. 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 us with seven years of marketing exclusivity.
Manufacturing:
We created a scalable chemical synthetic route for the manufacture of CG-806 drug substance and have scaled the manufacture of API (active pharmaceutical ingredient, or
drug substance) to multi-kg levels. We manufactured and delivered a batch of API which was used for Dose Range Finding Studies that were performed and completed in early
January 2018. We completed in March 2018 the manufacture of a multi-kg batch of Good Laboratory Practice (“GLP”) grade API and then formulated that API into a drug
product for use in IND-enabling GLP toxicology studies. We also completed the manufacture of a multi-kg batch of API under Good Manufacturing Product (“GMP”)
conditions as our API supply for our first-in-human clinical trials, and we manufactured under GMP conditions two dosage strengths of capsules to serve as our clinical supply
in those human studies. Since then, we have completed successful manufacture of multiple batches of API and drug product, and have planned numerous GMP production
campaigns to supply the ongoing trial and planned trials into the future. Although we have been able to manufacture API and capsules to support clinical supplies under GMP
conditions, research and development funds are being utilized to support further exploratory formulation studies in an ongoing effort to craft a superior formulation for CG-806.
36
Preclinical Program Updates:
We have completed several non-clinical studies that demonstrate the highly differentiated profile of CG-806. Key studies that have been presented at scientific forums are as
follows:
·
On April 15, 2018, at the 2018 Annual Meeting of the American Association for Cancer Research (“AACR”), we presented with the OHSU Knight Cancer Institute
preclinical data demonstrating that CG-806, a pan-FLT3/pan-BTK inhibitor, demonstrates broader activity and superior potency to other FLT3 and BTK inhibitors
against primary bone marrow samples from patients with hematologic malignancies. We also presented preclinical data demonstrating CG-806 targets multiple
pathways to kill diverse subtypes of AML and B-cell malignancies in vitro.
·
·
·
·
·
On June 15, 2018, at the 23rd Congress of the European Hematology Association (“EHA”), we presented, during a poster presentation, preclinical data demonstrating a
unique binding mode of CG-806 to wild type and C481S mutant BTK. Further, we presented that CG-806 suppresses the BCR, AKT/PI3K, ERK and NFkB signaling
pathways and exerts broader and far greater potency of direct cancer cell killing that ibrutinib against malignant bone marrow cells from patients with CLL, ALL and a
host of other hematologic malignancies.
On December 3, 2018, we announced two separate poster presentations at the American Society of Hematology (ASH) Annual Meeting being held on December 1-4,
2018. The OHSU Knight Cancer Institute and Aptose presented data in one poster and the team at The University of Texas MD Anderson Cancer Center (“MDACC”)
presented data in a separate poster. These presentations highlighted several key findings. First, in collaboration with the MDACC, orally administered CG-806
demonstrated efficacy in a patient derived xenograft (“PDX”) study in which the bone marrow cells from a patient with AML having dual ITD and D835 mutations in
FLT3 were implanted into a mouse. The dual FLT3 mutant form of AML represents a very difficult-to-treat population that has shown resistance to other FLT3
inhibitors, and data from the PDX model suggest that CG-806 may be useful in treating such patients. Secondly, Aptose presented high level data from preclinical GLP
toxicology studies that demonstrate orally administered CG-806 is a well-tolerated targeted molecule. Finally, in collaboration with the OHSU Knight Cancer Center,
studies of CG-806 on 124 samples of freshly isolated bone marrow from CLL patients demonstrated both broader and greater cell killing potency for CG-806 than
Ibrutinib.
On April 1, 2019, at the 2019 Annual Meeting of the AACR, Aptose, along with our collaborators at OHSU Knight Cancer Institute, presented data highlighting CG-
806 was more potent in killing AML patient-derived samples than other FLT3 inhibitors including midostaurin, sorafenib, sunitinib, dovitinib, quizartinib, crenolanib
and gilteritinib. CG-806 was equally potent against cells from patients in the adverse, intermediate and favorable risk groups (2017 ELN risk stratification), and cells
from patients with relapsed or transformed AML (World Health Organization classification) were as sensitive as those from patients with de novo AML. The data
demonstrated potency on primary AML patient samples across all AML subgroups including relapsed/refractory/transformed AML and those with genetic abnormalities
related to poor prognosis. While patient samples with FLT3-ITD mutations were expected to have greater sensitivity to CG-806, the most surprising correlation was the
sensitivity of patient samples with IDH1 R132 mutations. The enhanced sensitivity of IDH-1 mutant AML to CG-806 warrants investigation in the clinical setting.
Moreover, in studies of CG-806 on AML patient bone marrow samples, we demonstrated that mutations in p53, ASXL1 and NPM1 do not hinder the potency of CG-
806.
On June 14, 2019, we presented new preclinical data for CG-806 in a poster presentation at the 24th Congress of the EHA in Amsterdam, the Netherlands. The poster,
CG-806, preclinical in vivo efficacy and safety profile as a pan-FLT3 / pan-BTK inhibitor, highlights the in vivo anti-leukemic efficacy of CG-806 and its GLP
toxicology and toxicokinetic profile. In a preclinical MV4-11 FLT3-ITD AML xenograft mouse model, CG-806 suppressed leukemia growth at all doses tested
throughout the 28-day period of dosing. In the mice treated with 100 mg/kg, 5 of 11 (45%) were cured through day 120, and in the 300 mg/kg group, 10 of 11 (91%) of
the mice were cured. Retreating the “uncured’ mice in these two dose groups for an additional 28 days beginning on day 88 led to rapid and robust antitumor response in
all retreated mice through day 120. In the “re-treated” mice, no drug resistance and no toxicities were observed. GLP 28-day toxicology and TK studies mice and dogs
showed no adverse CG-806-related effects on body weight, ophthalmic, respiratory or neurological examinations, clinical pathology (coagulation, clinical chemistry, or
urinalysis), organ weight or macroscopic evaluations. No CG-806-related cardiovascular effects were noted in the 28-day GLP toxicology study or in a separate
preclinical cardiovascular safety study.
On October 24, 2019, we presented preclinical data in a poster presentation at the 5th International Conference on Acute Myeloid Leukemia “Molecular and
Translational” Advances in Biology and Treatment in Estoril, Portugal. The poster, CG-806 Pan-FLT3/Pan-BTK Inhibitor Simultaneously Suppresses Multiple
Oncogenic Signaling Pathways to Treat AML, highlighted that CG-806 acts on large xenograft tumors with no evidence of drug resistance and with no observed toxicity,
enhances killing of patient-derived AML and B-cell cancer cells when combined with venetoclax, and retains activity in patient-derived AML cells even when cells
harbor mutations of FLT3, IDH-1, NPM1, ASXL1 or p53.
37
·
·
On December 8 and 9, 2019, we presented new preclinical data in two separate poster presentations at the 61st Annual American Society of Hematology (“ASH”). On
December 8, 2019, the poster CG-806, a First-in-Class Pan-FLT3/Pan-BTK Inhibitor, Exhibits Broad Signaling Inhibition in Chronic Lymphocytic Leukemia Cells
compared CG-806 and ibrutinib, the standard of care, on primary patient cells of CLL highlighting that CG-806 broadly inhibits B-cell receptor signaling in CLL cells,
resulting in CLL cell apoptosis and reduced proliferation, CG-806 is more potent than ibrutinib in inducing apoptosis of MEC1 CLL cells and, finally, CG-806 targets
elements of the CLL microenvironment, and thereby potentially targets pro-survival signals from the microenvironment. The poster presented on December 9, 2019
titled Synergistic Targeting of BTK and E-Selectin/CXCR4 in the Microenvironment of Mantle Cell Lymphomas, explored the effects of CG-806 on cells of MCL, a rare
subtype of aggressive B cell non Hodgkin lymphoma that is incurable with standard therapy, and investigated the molecular mechanisms of acquired resistance to
treatment, highlighted that CG-806 demonstrated superior anti-lymphoma effects compared with ibrutinib, exerting potent cell growth inhibitory effects on ibrutinib-
resistant MCL cells, CG-806 suppresses phospho-BTK, -Stat3, -AKT, -ERK, -Src, NF-kB, and the anti-apoptotic protein Mcl1, while upregulating p53, CG-806
increased autophagy in MCL cells, which may be associated with resistance to CG-806-mediated apoptosis. Inhibition of autophagy re-sensitizes MCL cells to CG-806-
induced apoptosis, CG-806 treatment upregulates CXCR4/E-selectin levels in MCL cells and finally, combination of CXCR4/E-selectin antagonists with CG-806
enhances CG-806-induced apoptotic killing of MCL cells in the presence of the tumor microenvironment.
On December 7, 2019 at the 61st ASH Annual Meeting and Exposition in Orlando, FL Aptose hosted a corporate event and clinical update, where the company’s
management and invited Key Opinion Leaders highlighted some early clinical observations on safety, tolerability, pharmacokinetics, and activity, including. The
discussion focused on key findings from dose levels one and two of CG-806 in heavily pretreated R/R CLL patients, including: the clean safety profile to date, with no
myelosuppression, drug-related adverse events or dose-limiting toxicity observed; meaningful oral absorption and predictable pharmacokinetic (PK) profile; evidence of
target engagement manifesting as inhibition of Phospho-BTK, Phospho-SYK and Phospho-ERK in a plasma inhibitory assay (PIA) using plasma from the CLL patient
on dose level two, and early evidence of clinical activity in the same patient manifesting as increase in peripheral blood lymphocytes (lymphocytosis), typically
associated with BTK inhibition.
APTO-253
Phase Ib Trial
APTO-253, a small molecule inhibitor of MYC gene expression, is being evaluated in a Phase Ib clinical trial in patients with R/R hematologic malignancies, particularly R/R-
AML and high-risk MDS. The Phase Ib, multicenter, open-label, dose-escalation clinical trial of APTO-253 is designed to assess the safety, tolerability, pharmacokinetics and
pharmacodynamic responses and efficacy of APTO-253 as a single agent and determine the recommended Phase II dose. APTO-253 is being administered once weekly, over a
28-day cycle. The dose escalation stage of the study could potentially enroll up to 20 patients with R/R-AML or high-risk MDS. The study is designed to then transition, as
appropriate, to single-agent expansion cohorts in R/R-AML and/or high-risk MDS.
38
As of the date of this report, we have eight active sites recruiting patients in the dose escalation stage of the trial. The first patient, having AML, was dosed with 20mg/m2 and
successfully completed the 28-day cycle. As only one patient was required at the first dose level, we then placed an MDS patient on the second dose level of 40mg/m2, and that
patient successfully completed the 28-day cycle. We then successfully fulfilled the third cohort with three patients completing the 28-day cycle at a dose level of 66mg/m 2.
Following review of relevant data and approval by our Clinical Safety Review Committee, we began enrolling patients into the fourth cohort at a dose level of 100mg/m2. At the
first three dose levels, we observed meaningful reductions in MYC expression in peripheral blood mononuclear cells (PBMCs) from patients with the new formulation of
APTO-253.
We are continuing to manufacture additional drug substance and drug product for use in the ongoing trial. We completed manufacture of a second 2kg GMP batch of drug
substance and recently used that drug substance to complete the manufacture of a batch of GMP drug product.
We are exploring additional drug delivery methods for APTO-253 and plan to initiate additional non-clinical studies for solid tumor and hematologic cancer 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.
As reported previously, APTO-253 was placed on clinical hold by the FDA in November 2015 due to deficiencies in the drug product that was manufactured prior to 2013.
Those shortcomings of the drug product were addressed and the clinical hold was lifted. More specifically, the Phase Ib trial of APTO-253 was placed on clinical hold as a
consequence of an event that occurred at a clinical site with during an infusion procedure that involved precipitation of the drug substance from the pre-2013 drug product.
Importantly, Aptose acted to withhold infusion of that batch of APTO-253 drug product and no patients were put at risk. Ultimately, a root cause investigation determined that
the event resulted from chemistry and manufacturing based issues. Consequently, Aptose manufactured a modified batch of API and formulated drug product, the details of
which were incorporated into a Chemistry, Manufacturing and Control amendment to the IND application.
Immediately upon occurrence of the infusion event, 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 had
successfully manufactured multiple non-GMP batches of a new drug product formulation for APTO-253; however, a 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. We conducted formal root cause analyses studies, identified the
reason for the drug product stability failure, and established a corrective and prevention action plan for the manufacture of future batches of drug product. During the first
quarter of 2018, we manufactured a new GMP clinical supply of drug product and performed studies required to demonstrate the fitness of the drug product for clinical usage.
The release specifications for the new clinical supply were met, and we presented the findings to the FDA in the second quarter of 2018.
On June 28, 2018, the FDA notified us that it had lifted the clinical hold on APTO-253 and the clinical trial was re-initiated on June 29, 2018.
We then completed all tasks required to return APTO-253 to the Phase Ib clinical trial.
Preclinical data presented at scientific forums are as follows:
·
·
·
On April 17, 2018, at the 2018 Annual Meeting of the AACR, we presented preclinical data demonstrating that APTO-253 is a new addition to the repertoire of drugs
that can exploit DNA BRCA1/2 deficiency, broadening the potential applicability of APTO-253 towards solid cancer indications.
On June 4, 2018, we announced that preclinical data elucidating the mechanism of action of APTO-253 were published in two separate articles in the June 2018 issue
(Volume 17, Number 6) of Molecular Cancer Therapeutics, a peer-reviewed journal of the AACR. The most important finding disclosed in the published articles is the
ability of the APTO-253 small molecule to bind to and stabilize a G-quadruplex DNA motif found in the promoter regulatory region of the MYC oncogene and to inhibit
expression of the MYC gene, thereby depleting the cells of the MYC oncoprotein and leading to cancer cell death. These findings make APTO-253 the only clinical
stage molecule that can directly target the MYC gene and inhibit its expression.
On April 1, 2019, at the 2019 Annual Meeting of the AACR, we presented in vitro studies that further define the mechanism of action of APTO-253. Researchers found
that APTO-253 targets a G-quadruplex motif in the P1/P2 promoter region of the MYC gene and inhibits MYC gene expression to induce apoptosis, resulting in its
ability to potently kill hematologic malignant cell lines and primary samples from AML and CLL patients. In this study, researchers performed long-term in vitro studies
to determine if and how cells might develop resistance to APTO-253. MYC driven Raji cells required three years in increasing concentrations of APTO-253 in order to
adopt multiple modifications and develop high level resistance to APTO-253. These modifications include up-regulation of the ABCG2 transporter, acquisition of a
more stable MYC protein lacking the conserved core sequence of MYC Box III generated by deletion of an internal region of the MYC gene exon 2, and utilization of
alternate P3 promoter not inhibited by G4 binding and stabilization. Importantly, these studies confirmed the MYC gene as a target of APTO-253.
39
LIQUIDITY AND CAPITAL RESOURCES
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.
Sources of liquidity:
The following table presents our cash and cash equivalents, investments and working capital as at December 31, 2019 and 2018.
(in thousands)
Cash and cash equivalents
Investments
Total
Working capital
Balances at
December 31, 2019
Balances at
December 31, 2018
$
$
$
79,842 $
17,758
97,600 $
93,227 $
15,299
440
15,739
13,697
Working capital represents primarily cash, cash equivalents, investments and other current assets less current liabilities. Current liabilities of approximately $5.5 million as at
December 31, 2019 included approximately $521 thousand related to the current portion of the Company’s lease liability. There was no comparable amount in current liabilities
of approximately $2.79 million as at December 31, 2018. See “Critical Accounting Policies” below.
We believe that our cash, cash equivalents and investments on hand at December 31, 2019 will be sufficient to finance our operations for at least 12 months from the issuance
date of these financial statements. Our cash needs for the next twelve months include estimates of the number of patients and rate of enrollment of our clinical trials, the amount
of drug product that we will require to support our clinical trials, and our general corporate overhead costs to support our operations,and our reliance on our manufacturers. We
have based these estimates on assumptions and plans which may change and which could impact the magnitude and/or timing of operating expenses and our cash runway. 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 expect that we will need to raise additional capital or incur indebtedness to continue to fund our operations in the future.
Our ability to raise additional funds could be affected by adverse market conditions, the status of our product pipeline and various other factors and we may be unable to raise
capital when needed, or on terms favorable to us. If necessary funds are not available, we may have to delay, reduce the scope of, or eliminate some of our development
programs, potentially delaying the time to market for any of our product candidates.
40
Cash flows:
The following table presents a summary of our cash flows for the years ended December 31, 2019 and 2018:
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rates changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash used in operating activities:
For the Years Ended,
December 31, 2019
December 31, 2018
$
$
(21,558) $
(17,370)
103,448
23
64,543 $
(23,207)
12
27,871
(8)
4,668
Our cash used from operating activities for the years ended December 31, 2019 and 2018 was approximately $21.6 million and $23.2 million, respectively. Our uses of cash for
operating activities for both years primarily consisted of salaries and wages for our employees, facility and facility-related costs for our offices and laboratories, fees paid in
connection with preclinical and clinical studies, drug manufacturing costs, laboratory supplies and materials, and professional fees. In the year ended December 31, 2018, our
use of cash from operating activities also included $5.0 million in license fees to CG for development and commercialization rights to CG-806 for all territories outside of South
Korea.
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, and potential milestone payment to our
collaborators. 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.
Cash flow from investing activities:
Our cash used by investing activities for the year ended December 31, 2019 was $17.4 million, and consisted of net purchases of investments of $17.3 million and purchases of
property and equipment of $102 thousand. Our cash provided by investing activities in the year ended December 31, 2018 was $12 thousand, and consisted of maturities of
investments of $341 thousand and offset by purchases of property and equipment of $329 thousand. The composition and mix of cash, cash equivalents and investments is based
on our evaluation of conditions in financial markets and our near-term liquidity needs. We have exposure to credit risk, liquidity risk and market risk related to our investments.
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. The
Company invests only in highly rated 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.
41
Cash flow from financing activities:
Our cash flow from financing activities for the years ended December 31, 2019 and 2018 was approximately $103.4 million and $27.9 million, respectively. During the year
ended December 31, 2019, we raised net proceeds of approximately $88.2 million from two confidentially marketed public offerings, approximately $14.4 million from the
issuance of Common Shares pursuant to the 2018 and 2019 Purchase Agreements (as defined below), $178 thousand from the issuance of Common Shares pursuant to the 2019
ATM Facility (as defined below) and $718 thousand from the issuance of Common Shares pursuant to exercise of employee stock options. During the year ended December 31,
2018, we raised net proceeds of approximately $16.9 million from the issuance of Common Shares pursuant to the 2017 and 2018 Purchase Agreements (as defined below),
$10.7 million from the issuance of Common Shares pursuant to the 2018 ATM Facility (as defined below) and $240 thousand from the issuance of Common Shares pursuant to
exercise of employee stock options.
On June 3, 2019, we completed a confidentially marketed public offering through the issuance of 11,500,000 Common Shares at a price of $1.85 per Common Share, which
included the exercise in full by the underwriters of their option to purchase 1,500,000 additional Common Shares. The gross proceeds from the offering were approximately
$21.3 million ($19.6 million net of share-issue costs).
On December 19, 2019, we completed a confidentially marketed public offering through the issuance of 18,543,750 Common Shares at a price of $4.00 per Common Share,
which included the exercise in full by the underwriters of their option to purchase 2,418,750 additional Common Shares. The gross proceeds from the offering were
approximately $74.2 million. ($68.6 million net of share-issue costs).
On October 27, 2017, we entered into a Common Share Purchase Agreement (the “2017 Purchase Agreement”) with Aspire Capital Fund, LLC (“Aspire Capital”) to sell up to
$15.5 million of Common Shares to Aspire Capital. We issued 321,429 Common Shares at a value of $1.40 per share to Aspire Capital as consideration for Aspire Capital
entering into the 2017 Purchase Agreement. Under the terms of the 2017 Purchase Agreement, in October 2017, Aspire Capital made an initial purchase of 357,143 Common
Shares at a price of $1.40 per share, representing gross proceeds of approximately $500.0 thousand ($324.0 thousand net of share issue costs). During the year ended December
31, 2018, we issued 5,231,953 Common Shares under the 2017 Purchase Agreement at an average price of $2.87 for gross and net proceeds of approximately $15 million. On a
cumulative basis, we raised a total of $15.5 million in gross proceeds under the 2017 Purchase Agreement, the maximum amount that was available under the 2017 Purchase
Agreement.
On May 30, 2018, we entered into a second Common Share Purchase Agreement (the “2018 Purchase Agreement”) with Aspire Capital to sell up to $20.0 million of Common
Shares to Aspire Capital. Under the terms of the 2018 Purchase Agreement, we issued 170,261 Common Shares at a value of $3.524 per share to Aspire Capital as consideration
for Aspire Capital entering into the 2018 Purchase Agreement and, during the year ended December 31, 2018, we issued 907,547 Common Shares at an average price of $2.12
per share for gross and net proceeds of approximately $1.9 million. During the year ended December 31, 2019, the Company issued 5,502,433 additional Common Shares
under the 2018 Purchase Agreement at an average price of $1.82 per share for gross and net proceeds of $10 million. On a cumulative basis to May 24, 2019, we raised a total
of approximately $11.9 million gross proceeds and issued 6,409,980 Common Shares, the maximum number of shares issuable under this facility without shareholder approval.
On May 7, 2019, we entered into a third Common Share Purchase Agreement (the “2019 Purchase Agreement”) with Aspire Capital to sell up to $20.0 million of Common
Shares to Aspire Capital. Under the terms of the 2019 Purchase Agreement, Aspire Capital has committed to purchase up to an aggregate of $20.0 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 the terms of the 2019 Purchase Agreement, we issued 171,428 Common Shares at a value of $2.10 per share to Aspire Capital as
consideration for Aspire Capital entering into the 2019 Purchase Agreement, and during the year ended December 31, 2019, we issued 1,800,000 Common Shares at an average
price of $2.43 per share for gross and net proceeds of approximately $4.37 million. The 2019 Purchase Agreement was terminated on December 16, 2019.
On March 27, 2018, we entered into an at-the-market equity facility (the “2018 ATM Facility”) with Cantor Fitzgerald & Co (“Cantor Fitzgerald”), acting as sole agent. Under
the terms of this facility, we could, from time to time, sell Common Shares having an aggregate offering value of up to $30 million through Cantor Fitzgerald. We determined,
at our sole discretion, the timing and number of shares to be sold under the 2018 ATM Facility. During the year ended December 31, 2018, we issued 4,085,615 Common
Shares under the 2018 ATM Facility at an average price of $2.71 per share for gross proceeds of approximately $11 million ($10.7 million net of share issue costs). During the
period from January 1, 2019 to May 24, 2019, the date the 2018 ATM Facility was terminated, the Company issued 77,349 shares under the 2018 ATM Facility at an average
price of $2.37 per share for gross proceeds of $183 thousand ($178 thousand net of share issue costs). Costs associated with the proceeds consisted of a 3% cash commission.
On a cumulative basis to May 24, 2019, the Company raised a total of $11.2 million gross proceeds ($10.9 million net of share issue costs) under the 2018 ATM Facility.
On May 24, 2019, we entered into an at-the-market equity facility (the “2019 ATM Facility”) with Piper Jaffray & Co. (now Piper Sandler Companies) and Canaccord Genuity
LLC, acting as co-agents. The 2019 ATM Facility replaced the 2018 ATM Facility that we had entered into with Cantor Fitzgerald. The 2019 ATM Facility allowed us to
instruct our co-agents to offer up to approximately 20.2 million Common Shares, having an aggregate offering value of up to $40.0 million, at the prevailing market price from
time to time. The Company did not issue any shares under the 2019 ATM Facility, and on December 16, 2019, the Company terminated the 2019 ATM Facility.
42
Contractual Obligations and Off Balance Sheet Financing
At December 31, 2019, we had contractual obligations requiring annual payments as follows:
Operating leases (1)
Less than 1 year
1 – 3 years
3 – 5 years
Greater than 5 years
Total
$
534
$
1,008 $
119 $
— $
1,661
(1) Consists primarily of lease obligations for our executive offices in San Diego, California, our Headquarters in Toronto, Ontario, and a research facility located in San Diego,
California.
The table above does not include certain general and administrative and development support services under agreements we can cancel without significant penalty.
As at December 31, 2019, we have not entered into any off-balance sheet arrangements. 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 CG, the Company has obligations for development milestones of $16 million related to the initiation of Phase II and pivotal clinical trials, and
regulatory milestones totaling $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.
On June 13, 2018, we entered into a license agreement with CG to gain an exclusive license to CG-806 in China (including the People’s Republic of China, Hong Kong and
Macau). The Company has future obligations of development milestones of $6 million related to approval of an IND and to the initiation of Phase II and pivotal clinical trials,
and regulatory milestones totaling $20 million. The Company also has an obligation to pay sales milestones and royalty payments on sales of commercialized product. The
timing of any milestone or royalty payments that may become due is not yet determinable.
RESULTS OF OPERATIONS
A summary of the results of operations for the years ended December 31, 2019 and 2018 is presented below:
(in thousands except per common share data)
Revenues
Research and development expenses
General and administrative expenses
Net finance income
Net loss
Unrealized gain on securities available-for-sale
Total comprehensive loss
Basic and diluted loss per common share
Year ended December 31,
2019
2018
— $
16,835
10,022
580
(26,277) $
18
(26,259) $
(0.52) $
—
18,733
10,374
239
(28,868)
—
(28,868)
(0.86)
$
$
$
$
Net loss of $26.3 million for the year ended December 31, 2019 decreased by approximately $2.6 million as compared with $28.9 million for the year ended December 31,
2018, primarily as a result of a decline in research and development expenses of $5.0 million in license fees paid to CG for development and commercial rights of CG-806 in
fiscal 2018 and a decrease in stock option compensation expense of approximately $2.0 million, offset by increased expenditures of approximately $3.7 million on our CG-806
and 253 development programs, reflecting program costs and related labor and higher cash-based general and administrative expenses of $1 million in the year ended December
31, 2019. The net loss was also lower in 2019 due to higher net finance income, which increased by $341 thousand compared to 2018, mostly as a result of higher interest earned
on larger balances of cash equivalents and investments held during the year ended December 31, 2019.
43
Research and Development Expenses
The research and development expenses for the years ended December 31, 2019 and 2018 were as follows:
(in thousands)
License fees – CG-806
Program costs – CG-806
Program costs – APTO-253
Personnel expenses
Stock-based compensation
Depreciation of equipment
Year ended December 31,
2019
2018
$
$
— $
8,475
4,177
3,679
474
30
16,835 $
5,000
6,119
4,490
2,063
1,026
35
18,733
Research and development expenses of $16.8 million for the year ended December 31, 2019, decreased by approximately $1.9 million compared with $18.7 million for the
prior year, primarily as a result of the following events:
·
·
·
·
·
License fees paid in the year ended December 31, 2018 to CG of $2.0 million for development and commercial rights of CG-806 in all territories outside of
Korea and China, and a further $3.0 million paid for development and commercial rights of CG-806 in China. CG is eligible for development, regulatory and
commercial-based milestones as well as royalties on future product sales. There were no license fees paid to CG or other collaborators in the year ended
December 31, 2019.
An increase in research and development activities related to our CG-806 development program of approximately $2.4 million, mostly as a result of increases
to our clinical trial operating costs for our CG-806 BCM phase Ib clinical trial and planned CG-806 AML phase I clinical trial. For the year ended December
31, 2019, program costs consisted mostly of manufacturing costs to supply our clinical trials, operating costs to conduct our CG-806 BCM phase Ib clinical
trial, which was approved by the FDA in March 2019, as well as preparation costs for our planned CG-806 AML clinical trial. For the year ended December 31,
2018, program costs consisted mostly of manufacturing costs to supply our clinical trials, for preclinical studies to support the IND application we filed in
February of 2019 to test CG-806 in patients with BCM, and for consultant and CRO costs to prepare for the CG-806 BCM trial.
A decrease in research and development activities related to our APTO-253 development program of approximately $313 thousand related to lower
manufacturing costs to supply the trial, and offset by an increase in costs associated with conducted the phase Ia/b clinical trial for APTO-253. For both the
fiscal years ended December 31, 2018 and 2019, program costs consisted of costs for manufacturing APTO-253 to supply the trial, and for operating costs to
conduct the ongoing phase Ib clinical trial. The APTO-253 clinical trial, which had been on a clinical hold since November 2015 was taken off clinical hold in
June 2018.
An increase in personnel expenses of $1.6 million in the year ended December 31, 2019, as compared with prior year mostly related to additional clinical
research staff to support two Phase I clinical trials. At December 31, 2019, we had 23 employees in research and development, including clinical operations as
compared to 16 employees as at December 31, 2018.
A decrease in stock option compensation of approximately $552 in the year ended December 31, 2019, related mostly to higher forfeitures in the year ended
December 31, 2019, as well faster vesting of certain stock options granted in the period ended December 31, 2018. In the three-month period ended March 31,
2018, 100,000 stock options with a grant date fair value of $2.03 vested immediately, contributing to higher expenses in that period.
General and Administrative Expenses
The general and administrative expenses for the years ended December 31, 2019 and 2018 are as follows:
44
(in thousands)
General and administrative, excluding items below:
Stock-based compensation
Depreciation of equipment
Year ended December 31,
2019
2018
$
$
8,078 $
1,822
122
10,022 $
7,071
3,250
53
10,374
General and administrative expenses of $10.0 million for the year ended December 31, 2019, decreased by approximately $352 thousand as compared with $10.4 million for the
prior year. Changes to the components of our general and administrative expenses presented in the table above are primarily as a result of the following:
·
·
General and administrative expenses, other than stock-based compensation and depreciation of equipment increased by approximately $1.0 million to $8.1 million for the
year ended December 31, 2019, primarily as a result of higher compensation costs, increased travel, rent, consulting and office administrative costs associated with
additional employees to support increased operations of the Company, and offset by lower professional and regulatory costs.
Stock-based compensation decreased for the year ended December 31, 2019, by approximately $1.4 million compared with the year ended December 31, 2018, mostly
related to faster vesting of certain stock options granted in 2018 when 850,000 of the approximately 1.7 million stock options granted had immediate vesting.
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.
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 contingent liabilities, the valuation of tax accounts, and the assumptions used in
determining the valuation of share-based compensation.
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.
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.
45
Valuation of share based compensation
Management measures the costs for share based payments 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. 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. 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.
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 periods ended
December 31, 2019 and 2018, respectively, are presented in Note 11 to the consolidated financial statements.
Leases
Effective January 1, 2019, the Company adopted Financial Accounting Standards Board, or FASB, standard ASU No. 2016-02, “Leases (Topic 842)”. The Company’s
operating leases of tangible property with terms greater than twelve months are recognized as right of use assets, which represents the lessee’s right to use, or control the use of,
a specified asset for the lease term, and a corresponding lease liability, which represents the lessee’s obligation to make lease payments under a lease, measured on a discounted
basis. The Company adopted the new standard using the alternative transition method, which permits a company to use its effective date as the date of initial application without
restating comparative period financial statements. Landlord inducements in the form of free rent periods are netted against lease payments to the landlord in measuring right-of-
use assets and lease liabilities.
Impact of adoption:
As a result of adopting Topic 842, we recorded as of January 1, 2019, a right of use asset of approximately $1.570 million, and a lease liability of approximately $1.647 million.
Upon adoption, landlord inducements of approximately $78 thousand were de-recognized, and a corresponding adjustment was made to right-of-use assets.
Updated share information
As at March 10, 2020, we had 76,269,806 Common Shares issued and outstanding. In addition, there were 11,597,968 Common Shares issuable upon the exercise of
11,557,968 outstanding stock options and upon the vesting of 40,000 outstanding restricted share units.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Under SEC rules and regulations, as a smaller reporting company, we are not required to provide this information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are included in the Exhibits to this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
46
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of our fiscal year ended December 31, 2019, an evaluation of the effectiveness of our “disclosure controls and procedures” (as such term is defined in Rules 13a-
15(e) and 15d-15(e) under the United States Securities Exchange Act of 1934) was carried out by our management, with the participation of our principal executive officer and
principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, our
disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) accumulated and
communicated to our management, including our principal executive officer and principal financial officers, to allow timely decisions regarding required disclosure.
It should be noted that while our principal executive officer and principal financial officer believe that our disclosure controls and procedures provide a reasonable level of
assurance that they are effective, they do not expect that our 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.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f).
Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive and
financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
As of December 31, 2019, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of
December 31, 2019, our internal control over financial reporting was effective based on those criteria. We are an “emerging growth company,” as defined in 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.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the 1934 Act) during our fiscal quarter ended December 31, 2019, that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III.
Certain information required by Part III of this Annual Report on Form 10-K is omitted from this report because we are incorporating by reference to the definitive Proxy
Statement for our 2020 Annual Meeting of Shareholders, referred to as the Proxy Statement, which will be filed with the SEC within 120 days of the 2019 fiscal year-end.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled “Election of Directors,”
“Nomination of Directors,” and “Corporate Governance – Board Committees” and except for the information required with respect to our executive officers, which has been
included under the heading “Executive Officers” in Item 1, Part I of this Form 10-K, and is incorporated herein by reference, and except for information on our code of ethics:
We have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees,
known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http://www.aptose.com under the Corporate
Governance section of our Investor Relations page. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal
executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an
implicit waiver, from a provision of the policy that is granted to one of these specified individuals that is required to be disclosed pursuant to SEC rules and regulations, the
name of such person who is granted the waiver and the date of the waiver.
47
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled “Executive Compensation,”
and “Director Compensation.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled “Share Ownership of Certain
Beneficial Owners, Management and Directors” and “Equity Compensation Plan Information.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AN DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the sections entitled “Corporate Governance -
Independence of the Board” and “Interest of Related Persons in Transactions.”
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated herein by reference to the information from the Proxy Statement under the section entitled “Audit, Audit-Related, Tax and
Other Fees” and “Pre-Approval Policies and Procedures.”
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report.
1. Financial Statements. We have filed the following documents as part of this Annual Report:
PART IV.
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations and Comprehensive Loss
Statements of Shareholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
2. Financial Statement Schedules.
Page
F-1
F-2
F-3
F-4
F-5
F-6
All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or notes thereto.
(b) Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this report:
Exhibit
Number
3.1
3.2
4.1*
Articles of Incorporation, Arrangement and Amendment (incorporated herein by reference to Exhibit 99.3 to the Company’s Current Report on Form 6-K filed
with the SEC on June 12, 2015)
By-law #2 of the Company (incorporated herein by reference to Exhibit 99.2 to the Company’s Current Report on Form 6-K filed with the SEC on June 12,
2015)
Description of Document
Description of Securities
48
Exhibit
Number
Description of Document
10.1
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+*
10.8^^
10.9^
10.10
10.11
10.12
10.13
10.14^
21.1*
23.1*
24.1*
31.1*
31.2*
32.1*
32.2*
101**
Indemnification Agreement dated July 10, 2007 between Lorus Therapeutics Inc. and the Company (incorporated herein by reference to Exhibit 99.1 to the
Company’s Current Report on Form 6-K filed with the SEC on September 4, 2007)
Amended and Restated Executive Employment Agreement between the Company and Dr. William G. Rice dated August 19, 2014 (incorporated herein by
reference to Exhibit 4.9A to the Company’s Annual Report on Form 20-F filed with the SEC on March 4, 2015)
Executive Employment Agreement between the Company and Gregory K. Chow dated November 29, 2013 (incorporated herein by reference to Exhibit 4.9.1
to the Company’s Annual Report on Form 20-F filed with the SEC on May 16, 2014)
Share Option Plan as amended May 5, 2015 (incorporated herein by reference to Exhibit 99.2 to the Company’s Current Report on Form 6-K filed with the
SEC on June 12, 2015)
Stock Incentive Plan as adopted May 5, 2015 (incorporated herein by reference to Exhibit 99.1 to the Company’s Current Report on Form 6-K filed with the
SEC on June 12, 2015)
Form of Executive Employment Agreement, dated June 3, 2019, between the Company and Dr. Jotin Marango (incorporated herein by reference to Exhibit
10.4 to the Company’s Quarterly Report filed on Form 10-Q on August 6, 2019)
Form of Executive Employment Agreement, dated December 4, 2019, between the Company and Dr. Rafael Bejar
License agreement dated June 13, 2018 by and between the Company and CrystalGenomics, Inc. (incorporated herein by reference to Exhibit 1.1 to the
Company’s Current Report on Form 6-K filed with the SEC filed on June 22, 2018)
Option and License Agreement between the Company and CrystalGenomics, Inc. dated March 21, 2016 (incorporated herein by reference on Form 10-KA/3
filed with the SEC on April 22, 2019)
Amendment to Option and License Agreement between the Company and CrystalGenomics, Inc., dated April 26, 2016 (incorporated herein by reference to
Exhibit 99.2 to the Company’s Current Report on Form 6-K filed with the SEC on June 8, 2016)
Second Amendment to Option and License Agreement between the Company and CrystalGenomics, Inc., dated May 13, 2016 (incorporated herein by
reference to Exhibit 99.3 to the Company’s Current Report on Form 6-K filed with the SEC on June 8, 2016)
Third Amendment to Option and License Agreement between the Company and CrystalGenomics, Inc., dated May 19, 2016 (incorporated herein by reference
to Exhibit 99.4 to the Company’s Current Report on Form 6-K filed with the SEC on June 8, 2016)
Fourth Amendment to Option and License Agreement between the Company and CrystalGenomics, Inc., dated June 1, 2016 (incorporated herein by reference
to Exhibit 99.5 to the Company’s Current Report on Form 6-K filed with the SEC on June 8, 2016)
License Agreement dated as of March 6, 2018 between the Company and Ohm Oncology Inc. (incorporated herein by reference on Form 10-KA/3 filed with
the SEC on April 22, 2019)
List of Subsidiaries
Consent of Independent Registered Public Accounting Firm (KPMG)
Powers of Attorney (included on signature page)
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following consolidated financial statements from the Aptose Biosciences Inc. Annual Report on Form 10-K for the year ended December 31, 2019,
formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) statements of operations and comprehensive loss, (ii) balance sheets, (iii)
statements of changes of shareholders’ equity, (iv) statements of cash flows, and (v) the notes to the financial statements.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+
*
^
^^
**
Indicates management contract or compensatory plan.
Filed herewith.
Portions of this exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K.
Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and
Exchange Commission.
In accordance with Rule 406T of Regulation S-T, the Inline XBRL related information in Exhibit 101 to this Annual Report on Form 10-K is deemed not filed
or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the
Exchange Act, and otherwise is not subject to liability under these sections.
49
ITEM 16. FORM 10-K SUMMARY
None.
50
Pursuant to the requirements of the Securities Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of San Diego, State of California, on the 10th day of March, 2020.
Aptose Biosciences Inc.
/s/ William G. Rice
SIGNATURES
By:
William G. Rice, Ph.D.
President, Chief Executive Officer and Chairman of the Board of Directors
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dr. William G. Rice and Mr. Gregory K. Chow,
and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature
Title
/s/ William G. Rice
William G. Rice, Ph.D.
/s/ Gregory K. Chow
Gregory K. Chow
/s/ Denis R. Burger
Denis R. Burger, Ph.D.
/s/ Carol G. Ashe
Carol G. Ashe
/s/ Caroline Loewy
Caroline Loewy
/s/ Erich M. Platzer
Erich M. Platzer, M.D., Ph.D.
/s/ Mark D. Vincent
Mark D.Vincent, M.D.
/s/ Warren Whitehead
Warren Whitehead
President, Chief Executive Officer and Chairman of the Board of Directors (Principal
Executive Officer)
Senior Vice President and Chief Financial Officer (Principal Financial Officer and
Accounting Officer)
Director, Lead Independent
Director
Director
Director
Director
Director
51
Consolidated Financial Statements
APTOSE BIOSCIENCES INC.
Years ended December 31, 2019 and 2018
KPMG LLP
100 New Park Place, Suite 1400 Vaughan, ON L4K 0J3
Tel 905-265 5900
Fax 905-265 6390
www.kpmg.ca
To the Stockholders and Board of Directors Aptose Biosciences Inc.
Opinion on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated statements of financial position of Aptose Biosciences Inc. (the “Company”) as of December 31, 2019 and 2018, the related
consolidated statements of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019,
and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended
December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases on January 1, 2019, due to the adoption of
Financial Accounting Standards Board, ASU No. 2016-02, Leases (Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated 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 purpose 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 consolidated 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 consolidated 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 consolidated 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 10, 2020
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.
F-1
APTOSE BIOSCIENCES INC.
Consolidated Statements of Financial Position
(Expressed in thousands of US dollars)
Assets
Current assets:
Cash and cash equivalents
Investments
Prepaid expenses
Other current assets
Total current assets
Non-current assets:
Property and equipment
Right-of-use assets, operating leases
Total non-current assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of lease liability, operating leases
Total current liabilities
Non-current liabilities:
Lease liability, operating leases
Total liabilities
Shareholders’ equity:
Share capital:
Common shares, no par value, unlimited authorized shares, 76,108,031 and 38,161,808 shares issued and outstanding
at December 31, 2019 and December 31, 2018
Additional paid-in capital
Accumulated other comprehensive loss
Deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements
Subsequent events (note 16)
F-2
$
$
$
December 31,
December 31,
2019
2018
79,842 $
17,758
1,025
141
98,766
334
1,376
1,710
15,299
440
646
101
16,486
384
-
384
100,476 $
16,870
1,960 $
3,058
521
5,539
1,011
6,550
1,315
1,474
-
2,789
-
2,789
365,490
34,649
(4,298)
(301,915)
93,926
261,072
32,963
(4,316)
(275,638)
14,081
$
100,476 $
16,870
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
General and administrative
Operating expenses
Other income (expense):
Interest income
Foreign exchange gain/(loss)
Total other income
Net loss
Other comprehensive loss:
Unrealized gain on securities available-for-sale
Total comprehensive loss
Basic and diluted loss per common share
Year ended
December 31, 2019
$
- $
Year ended
December 31, 2018
-
16,835
10,022
26,857
574
6
580
18,733
10,374
29,107
283
(44)
239
(26,277)
(28,868)
$
$
18
(26,259) $
(0.52) $
-
(28,868)
(0.86)
Weighted average number of common shares outstanding used in the calculation of (in thousands)
Basic and diluted loss per common share
50,160
33,391
See accompanying notes to consolidated financial statements.
F-3
APTOSE BIOSCIENCES INC.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of US dollars)
Balance, December 31, 2018
Common shares issued pursuant to the
December 2019 public offering
Common shares issued pursuant to the
June 2019 public offering
Common shares issued pursuant to
2019 share purchase agreement
Common shares issued under the 2018
ATM
Common shares issued pursuant to
2018 share purchase agreement
Common shares issued upon exercise
of stock options
Common shares issued on redemption
of restricted share units
Stock-based compensation
Other comprehensive gain
Net loss
Balance, December 30, 2019
Balance, December 31, 2017
Common shares issued under the 2018
ATM
Common shares issued pursuant to
2017 share purchase agreement
Common shares issued pursuant to
2018 purchase agreement
Shares issued on redemption of
restricted share units
Common shares issued upon exercise
of stock options
Stock-based compensation
Net loss
Balance, December 31, 2018
Common Shares
Shares
(thousands)
38,162
$
18,544
11,500
1,971
77
5,502
312
40
-
-
-
76,108
27,502
4,086
5,232
1,078
150
$
$
114
-
-
38,162
$
See accompanying notes to consolidated financial statements.
Amount
261,072 $
68,588
19,594
4,730
178
10,000
1,248
80
-
-
-
365,490 $
231,923 $
10,710
14,995
2,526
503
415
-
-
261,072 $
F-4
Additional
paid-in
capital
32,963 $
Accumulated
other
Deficit
Total
comprehensive
loss
(4,316) $
(275,638) $
14,081
-
-
-
-
-
(530)
(80)
2,296
-
-
34,649 $
29,365 $
-
-
-
(503)
(175)
4,276
-
32,963 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
-
(4,298) $
(4,316) $
-
-
-
(26,277)
(301,915) $
(246,770) $
-
-
-
-
-
-
-
-
-
-
-
(4,316) $
-
-
(28,868)
(275,638) $
68,588
19,594
4,730
178
10,000
718
-
2,296
18
(26,277)
93,926
10,202
10,710
14,995
2,526
-
240
4,276
(28,868)
14,081
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
Shares issued to Aspire Capital as commitment fees
Depreciation and amortization
Amortization of right-of-use assets
Interest on lease liabilities
Unrealized foreign exchange gain/(loss)
Accrued interest on investments
Change in operating working capital:
Prepaid expenses
Operating lease payments
Other assets
Accounts payable
Accrued liabilities
Cash used in operating activities
Cash flows from financing activities:
Issuance of common shares pursuant to December 2019 Public Offering, net of broker commission and agent legal fees
Issuance of common shares pursuant to June 2019 Public Offering, net of broker commission and agent legal fees
Issuance of common shares under the 2018 ATM, net of broker commission
Issuance of common shares under 2019 share purchase agreement
Issuance of common shares under 2018 share purchase agreement
Issuance of common shares under 2017 share purchase agreement
Offering costs paid
Issuance of common shares pursuant to exercise of stock options
Cash provided by financing activities
Cash flows from (used in) investing activities:
Maturity (acquisition) of investments, net
Purchase of property and equipment
Cash provided by (used in) investing activities
Effect of exchange rate fluctuations on cash and cash equivalents held
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
$
F-5
Year ended
Year ended
December 31, 2019
December 31, 2018
$
(26,277) $
(28,868)
2,296
360
152
461
90
(23)
(34)
(379)
(471)
(40)
645
1,662
(21,558)
68,883
19,736
178
4,370
10,000
-
(437)
718
103,448
(17,268)
(102)
(17,370)
23
64,543
15,299
79,842 $
4,276
600
87
-
-
25
-
(324)
-
(27)
726
298
(23,207)
-
-
10,720
-
1,926
15,000
(15)
240
27,871
341
(329)
12
(8)
4,668
10,631
15,299
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. The Company’s executive office is located in San Diego, California and its corporate office is located in Toronto,
Canada.
Aptose has two clinical-stage programs and a third program that is discovery-stage and partnered with another company. CG026806 (“CG-806”), Aptose’s mutation-
agnostic FMS-like tyrosine kinase 3 (FLT3 / Bruton’s tyrosine kinase (BTK) inhibitor, is currently enrolling patients in a Phase 1a/b, multicenter, open label, dose-
escalation study with expansions to assess the safety, tolerability, PK, and preliminary efficacy of CG-806 in patients with chronic lymphocytic leukemia (CLL/SLL)
or non-Hodgkin lymphomas (NHL). Aptose plans to seek allowance from the FDA to move into patient populations that include relapsed or refractory acute myeloid
leukemia (AML) and myelodysplastic syndromes (MDS) in a separate Phase 1 trial. APTO-253, Aptose’s second program, is a small molecule MYC inhibitor and is
currently enrolling patients in a Phase 1b clinical trial for the treatment of patients with R/R blood cancers, including AML and high-risk Myelodysplastic Syndrome.
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. Our uses of cash for operating activities have primarily consisted of salaries and wages for our
employees, facility and facility-related costs for our offices and laboratories, fees paid in connection with preclinical and clinical studies, drug manufacturing costs,
laboratory supplies and materials, and professional fees.
During the year ended December 31, 2019, the Company completed two confidentially marketed public offering (CMPO) through the issuance of 30,043,750 common
shares for gross proceeds of $95.45 million (approximately $88.18 million net of share issue costs). The Company also raised capital pursuant to two separate share
purchase agreement with Aspire Capital (Aspire) through the issuance of 7,302,433 common shares for gross and net proceeds of $14.4 million.
We do not expect to generate positive cash flow from operations for the foreseeable future due to the early stage of our clinical trials. 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.
We believe that our cash, cash equivalents and investments on hand at December 31, 2019 will be sufficient to finance our operations for at least 12 months from the
issuance date of these financial statements. We have based these estimates on assumptions and plans which may change and which could impact the magnitude and/or
timing of operating expenses and our cash runway. These estimates include the rate of enrolment and timing and release of the results of our clinical trials, and our
reliance on our manufacturers.
We expect that we will need to raise additional capital or incur indebtedness to continue to fund our operations in the future. Our ability to raise additional funds could
be affected by adverse market conditions, the status of our product pipeline and various other factors and we may be unable to raise capital when needed, or on terms
favorable to us. If necessary funds are not available, we may have to delay, reduce the scope of, or eliminate some of our development programs, potentially delaying
the time to market for any of our product candidates.
2.
Significant accounting policies
(a) Basis of consolidation:
These consolidated financial statements include the accounts of its subsidiaries. All intercompany transactions, balances, revenue and expenses are eliminated on
consolidation.
(b) Basis of presentation:
These consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States, or GAAP and the
rules and regulations of the Securities and Exchange Commission, or SEC, related to annual reports filed on Form 10-K. The functional and presentation currency
of the Company is the US dollar.
F-6
(c) Significant accounting policies, estimates and judgments:
The preparation of the consolidated financial statements 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.
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.
(d) Leases
Effective January 1, 2019, the Company adopted Financial Accounting Standards Board, or FASB, standard ASU No. 2016-02, “Leases (Topic 842)”. The
Company’s operating leases of tangible property with terms greater than twelve months are recognized as right of use assets, which represents the lessee’s right to
use, or control the use of, a specified asset for the lease term, and a corresponding lease liability, which represents the lessee’s obligation to make lease payments
under a lease, measured on a discounted basis. The Company adopted the new standard using the alternative transition method, which permits a company to use its
effective date as the date of initial application without restating comparative period financial statements. Landlord inducements in the form of free rent periods are
netted against lease payments to the landlord in measuring right-of-use assets and lease liabilities.
Impact of adoption:
As a result of adopting Topic 842, we recorded as of January 1, 2019, a right of use asset of approximately $1.570 million, and a lease liability of approximately
$1.647 million. Upon adoption, landlord inducements of approximately $78 thousand were de-recognized, and a corresponding adjustment was made to right-of-
use assets.
(e) Cash and cash equivalents:
Cash and cash equivalents are short-term highly liquid investments with original maturities of 90 days or less as at the date of purchase. Cash equivalents are
accounted for on amortized cost basis, which approximates its fair value due to their short-term maturities.
(f)
Investments:
Investments consist of time deposits with original maturities greater than 90 days are classified by management as securities available-for-sale. These available-for-
sale securities are recorded at estimated fair values. Unrealized gains and losses on these investments are recorded in accumulated other comprehensive income
(AOCI) in shareholder’s equity. Realized gains and losses and declines in value that are judged to be other than temporary are included in interest income.
(g) Concentration of risk:
The Company is subject to credit risk 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.
(h) 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:
F-7
Office furniture (years)
Laboratory equipment (years)
Computer hardware (years)
Computer software (years)
Leasehold improvements
5
5
3
3
Life of lease
The residual value, useful life and methods of depreciation of the assets are reviewed at each reporting period and adjusted prospectively if appropriate.
(i) Research and development:
Research and development (R&D) costs are expensed as incurred. R&D costs consist primarily of salaries and benefits, stock-based compensation, manufacturing,
contract services, clinical trials, intangibles, and research related overhead. Non-refundable advance payments for goods and services that will be used in future
research are recorded in prepaid and other assets and are expensed when the services are performed.
(j) Fair value:
The Company measures its financial assets and liabilities at fair value. The carrying amounts for the Company’s financial instruments, including cash and cash
equivalents, accounts payable and accrued liabilities approximate their fair value due to their short maturities. 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.
(k) 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 grant
date. In June 2018, FASB issued accounting standards update No 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. The amendment
establishes that nonemployee share-based payment awards within the scope of Topic 718 be measured at grant-date fair value of the equity instruments issued.
The amendments are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted and the Company elected to early adopt this policy.
The early adoption did not result in any changes in retained earnings or other components of equity as the accounting.
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 cost 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 using an estimate of the number of awards that will eventually vest.
(l) Segment reporting:
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief
operating decision-maker, or CODM. The Company’s Chief Executive Officer serves as its CODM. The Company views its operations and manages its business
as one segment, which is the discovery and development of personalized therapies addressing unmet medical needs in oncology. The Company operates primarily
in the US.
F-8
(m) 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 share 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.
(n)
Income taxes:
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which these temporary differences are expected to be recovered
or settled. Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
The Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves are based on a
determination of whether and how much of a tax benefit taken by the Company in its tax filing is more likely than not to be realized following resolution of any
potential contingencies present related to the tax benefit. Potential interest and penalties associated with such uncertain tax positions are recorded as components
of income tax expense. As at December 31, 2019 and December 31, 2018, the Company has not recorded any reserves for potential payments as the Company
has a history of losses and does not have any revenue from operations.
3.
Cash and cash equivalents:
Cash and cash equivalents consists of cash of $1.640 million (December 31, 2018 - $621 thousand) and deposits in high interest savings accounts and other term
deposits with maturities less than 90 days totaling of $78.202 million (December 31, 2018 - $14.678 million).
4.
Property and equipment:
December 31, 2019
Laboratory equipment
Computer hardware
Computer software
Office furniture
Leasehold improvements
December 31, 2018
Laboratory equipment
Computer hardware
Computer software
Office furniture
Leasehold improvements
Cost
185 $
122
222
116
177
822 $
Cost
176 $
80
222
82
160
720 $
Accumulated
depreciation
Net book value
160 $
60
128
51
89
488 $
25
62
94
65
88
334
Accumulated
depreciation Net book value
129 $
40
80
28
59
336 $
47
40
142
54
101
384
$
$
$
$
F-9
5.
Right of-use assets, operating leases:
Right-of-use assets, January 1, 2019
Additions to right-of-use assets
Right-of-use assets, December 31, 2019
Accumulated amortization
Right-of use assets, NBV
6.
Investments:
Investments consisted of the following as of December 31, 2019 and December 31, 2018:
Guaranteed investment certificate(s)
Commercial notes
Canadian promissory note
Year ended
Year ended
December 31, 2019
December 31, 2018
$
1,570
267
1,837
(461)
1,376
-
-
-
-
-
December 31, 2019
Unrealized
gain/(loss)
Cost
12,008
3,736
1,996
17,740
18
-
-
18
December 31, 2018
Unrealized
gain (loss)
Cost
Market
value
12,026
3,736
1,996
17,758
Market
value
Guaranteed investment certificate(s)
440
-
440
7.
Fair value measurements and financial instruments:
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
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.
F-10
The following table presents the Company’s assets that are measured at fair value on a recurring basis for the periods presented:
Assets
High interest savings account
Commercial notes
Canadian provincial promissory notes
Guaranteed investment certificates, issued by a Canadian financial
institution
Assets
High interest savings account
United States treasury bills
Canadian provincial promissory notes
Guaranteed investment certificates, Royal Bank of Canada
December 31,
2019
Level 1
Level 2
Level 3
2,989 $
6,235
5,493
81,243
95,960 $
- $
-
-
-
- $
2,989
6,235
5,493
81,243
95,960 $
-
-
-
-
-
December 31,
2018
Level 1
Level 2
Level 3
496 $
3,989
5,991
4,642
15,118 $
- $
-
-
-
- $
496 $
3,989
5,991
4,642
15,118 $
-
-
-
-
-
$
$
$
$
8.
Accrued liabilities:
Accrued liabilities as of December 31, 2019 and December 31, 2018 consisted of the following:
Accrued personnel related costs
Accrued research and development expenses
Other accrued expenses
9.
Lease liability
December 31,
2019
December 31,
2018
$
$
1,739 $
1,062
257
3,058 $
955
257
262
1,474
Aptose leases office space and lab space in San Diego, California. The lease for the office space expires on March 31, 2023 and can be extended for an additional 5
year period. The lease for our lab space expired on February 29, 2019, and on February 18, 2019 was renewed until February 28, 2022. We lease office space in
Toronto, Ontario, Canada and the lease for this location expires on June 30, 2023 with an option to renew for another 5-year period. The Company has not included any
extension periods in calculating its right-to-use assets and lease liabilities. The Company also enters into leases for small office equipment.
F-11
Minimum payments, undiscounted, under our operating leases are as follows:
Years ending December 31,
2020
2021
2022
2023
Thereafter
$
$
534
545
463
119
-
1,661
To calculate the lease liability, the lease payments in the table above were discounted over the remaining term of the leases using the Company’s incremental
borrowing rate as at January 1, 2019 for existing leases at the time of adopting the Topic 842, and for new leases after the date adoption, as at the date of the execution
date of the new lease. The following table presents the weighted average remaining term of the leases and the weighted average discount rate:
Weighted-average remaining term – operating leases (years)
Weighted-average discount rate – operating leases
Lease liability, current portion
Lease liability, long term portion
Lease liability, total
Right-of-use assets obtained in exchange for new operating lease liabilities are as follows:
Right-of-use assets recorded upon adoption of Topic 842, January 1, 2019
Right-of-use assets obtained in exchange for new operating lease liabilities in the period
Operating lease costs and operating cash flows from our operating leases are as follows:
Operating lease cost
Operating cash flows from operating leases
Year ended
December 31, 2019
3.3
5.43%
521
1,011
1,532
Year ended
December 31, 2019
1,570
267
$
$
Year ended
December 31, 2019
551
471
$
$
Comparable figures are not presented as the Company adopted the new standard using the alternative transition method, which permits a company to use its effective
date as the date of initial application without restating comparative period financial statements.
F-12
10.
Share capital:
The Company has authorized share capital of an unlimited number of common voting shares.
(a) Equity issuances:
(i) December 2019 Confidentially Marketed Public Offering (CMPO)
On December 19, 2019, the Company completed a confidentially marketed public offering through the issuance of 18,543,750 common shares at a price of
$4.00 per share for gross proceeds of $74.175 million (approximately $68.588 million net of share issue costs). Costs associated with the proceeds consisted
of a 7% cash commissions and share issue costs, which consisted of agent commission, legal and professional fees and listing fees.
(ii) June 2019 Confidentially Marketed Public Offering (CMPO)
On June 3, 2019, the Company completed a confidentially marketed public offering through the issuance of 11,500,000 common shares at a price of $1.85
per share for gross proceeds of $21.275 (approximately $19.594 million net of share issue costs). Costs associated with the proceeds consisted of a 7% cash
commissions and share issue costs, which consisted of agent commission, legal and professional fees and listing fees.
(iii) 2019 Share Purchase agreement
On May 7, 2019, the Company entered into the 2019 Aspire Purchase Agreement, which provided that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital was committed to purchase up to an aggregate of $20 million of Common Shares over approximately 30 months.
Pursuant to the terms of this agreement, on May 13, 2019, the Company issued 171,428 Common Shares (“Commitment Shares”) to Aspire Capital in
consideration for entering into the 2019 Aspire Purchase Agreement for a total cost of $360 thousand. During the period from May 7, 2019 up to December
16, 2019, the date the 2019 Aspire Purchase Agreement was terminated, the Company issued 1,800,000 common shares under the agreement at an average
price of $2.43 per share for gross and net proceeds of $4.37 million.
(iv) 2018 Share Purchase agreement
On May 30, 2018, the Company entered into the 2018 Aspire Purchase Agreement, which provided that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital was committed to purchase up to an aggregate of $20 million of Common Shares over approximately 30 months.
Pursuant to the terms of this agreement, on June 8, 2018, the Company issued 170,261 Common Shares (“Commitment Shares”) to Aspire Capital in
consideration for entering into the 2018 Aspire Purchase Agreement for a total cost of $600 thousand. During the period from January 1, 2019 up to May 24,
2019, the date the 2018 Aspire Purchase Agreement was terminated, the Company issued 5,502,433 common shares under the agreement at an average price
of $1.82 per share for gross and net proceeds of $10 million. On a cumulative basis up to May 24, 2019, the Company raised a total of approximately $11.9
million gross and net proceeds under the 2018 Aspire Purchase Agreement. As of May 24, 2019, the Company has issued 6,409,980, the maximum number
of shares issuable under this facility without shareholder approval.
(v) 2017 Share purchase agreement
On October 27, 2017, the Company entered into the 2017 Aspire Purchase Agreement, which provided that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital was committed to purchase up to an aggregate of $15,500,000 of Common Shares over approximately 30 months.
During the year ended December 31, 2017, and pursuant to the terms of the Aspire Purchase Agreement, Aspire Capital purchased 357,143 Common Shares
for gross proceeds of $500 thousand ($324 thousand net of cash share issue costs) and the Company also issued 321,429 Common Shares to Aspire Capital in
consideration for entering into the Aspire Purchase Agreement. During the year ended December 31, 2018, the Company issued 5,231,953 common shares
under the Aspire Purchase Agreement at an average price of $2.87 per share for gross and net proceeds of approximately $15 million. On a cumulative basis
to December 31, 2018, the Company has raised a total of $15.5 million gross proceeds under the Aspire Purchase Agreement, the total amount that was
available under the Agreement.
F-13
(vi) 2019 At-The-Market (“ATM”) Facility
On May 24, 2019, the Company entered into an “At-The-Market” Facility (“ATM”) equity distribution agreement with Piper Jaffray and Canaccord Genuity
acting as co-agents. Under the terms of this facility, the Company may, from time to time, sell shares of our common stock having an aggregate offering
value of up to $40 million through Piper Jaffray and Canaccord Genuity on the Nasdaq Capital Market. During the period from May 24, 2019 to December
16, 2019, the date the “ATM” Facility was terminated, the Company did not issue any shares under this ATM equity.
(vii) 2018 At-The-Market (“ATM”) Facility
On March 27, 2018, the Company entered into an “At-The-Market” Facility (“ATM”) equity distribution agreement with Cantor Fitzgerald acting as sole
agent. Under the terms of this facility, the Company may, from time to time, sell shares of our common stock having an aggregate offering value of up to $30
million through Cantor Fitzgerald on the Nasdaq Capital Market. During the year ended December 31, 2018, the Company issued 4,085,615 shares under this
ATM equity facility at an average price of $2.71 for gross proceeds of $11 million ($10.7 million net of share issue costs). During the period from January 1,
2019 to May 24, 2019, the date the Agreement was terminated, the Company issued 77,349 shares under this ATM equity facility at an average price of
$2.37 for gross proceeds of $183 thousand ($178 thousand net of share issue costs). Costs associated with the proceeds consisted of a 3% cash commission.
As of May 24, 2019, the Company has raised a total of $11.2 million gross proceeds ($10.9 million net of share issue costs) under the ATM Facility.
(b) 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)
Net loss
Weighted-average common shares – basic and diluted
Net loss per share – basic and diluted
Year ended
Dec 31, 2019
Year ended
Dec 31, 2018
$
$
(26,277) $
50,160
(0.52) $
(28,868)
33,391
(0.86)
The effect of any potential exercise of the Company’s stock options outstanding during the year has been excluded from the calculation of diluted loss per
common share as it would be anti-dilutive.
11.
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 13.3 million options, rights and other entitlements as at
December 31, 2019. 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.
F-14
Stock option transactions for the years ended December 31, 2018 and 2019 are summarized as follows:
Option numbers are in (000’s)
Outstanding, December 31, 2017
Granted
Exercised
Expired
Forfeited
Outstanding, December 31, 2018
Granted
Exercised
Expired
Forfeited
Outstanding, December 31, 2019
Exercisable, December 31, 2019
Vested and expected to vest, December 31, 2109
Year ended
December 31, 2019
Weighted average
exercise price
Weighted
average
remaining
contractual
life(years)
Aggregate
Intrinsic
Value
3.46
2.98
2.04
2.34
4.97
3.11
2.00
2.32
4.61
2.36
2.84
3.44
2.89
7.6
6.5
7.5
16,866,623
6,853,978
15,364,726
Options
2,344 $
2,320
(114)
(51)
(10)
4,489 $
2,160
(312)
(67)
(329)
5,941
3,057
5,508
Aggregate intrinsic value represents the excess of the value of the closing stock price on the previous trading day of the respective balance sheet dates over the exercise
price of the stock options. Total intrinsic value of options exercised was $259 thousand for 2019 (2018 – $255 thousand).
As of December 31, 2019, there was $1.38 million of total unrecognized compensation cost related to non-vested stock options, which is expected to be recognized
over an estimated weighted-average period of 1.77 years.
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 year, 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
Year ended
Year ended
December 31, 2019
2.18%
-
83.9%
5
1.34
$
December 31, 2018
2.43%
-
93.3%
5
2.22
$
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, 2019, vest 50% after one year and 16.67% on each of the next three anniversaries, except
for 160,000 options which vest 50% after one year and 25% on each of the next two anniversaries and 335,000 options which vest 100% after one year.
Stock options granted by the Company during the year ended December 30, 2018 vest 50% after one year and 16.67% on each of the next three anniversaries, except
for 166,000 options which vest 50% after one year and 25% on each of the next two anniversaries and 850,000 options which vested immediately on the grant date.
F-15
(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, 2019 and 2018 the
units outstanding.
Outstanding, December 31. 2018
Granted
Redeemed
Outstanding, December 31, 2019
Year ended,
December 31, 2019
Year ended,
December 31, 2018
Number
(in thousands)
Weighted
average grant
date fair value
Number
(in thousands)
- $
80
(40)
40 $
-
2.00
2.00
2.00
- $
150
(150)
- $
Weighted
average grant
date fair value
-
3.35
3.35
-
On June 3, 2019, the Company granted 80,000 restricted share units (RSUs), 40,000 restricted share units of which have a vesting term of three months and the
balance having a vesting term of one year. On September 3, 2019, 50% of these restricted share units were vested and were redeemed for 40,000 common shares.
On July 13, 2018, the Company granted 150,000 restricted share units with a vesting term of three months.
The grant date fair value of the June 3, 2019 RSUs and July 13, 2018 were respectively determined as the closing value of the common shares of the Company on the
Nasdaq Stock Market on the date prior to the date of grant.
(c) Share-based payment expense
The Company recorded share-based payment expense related to stock options and RSUs as follows:
Research and development
General and administrative
Total
12.
Related party transactions:
Year ended
December 31, 2019
$
$
474 $
1,822
2,296 $
Year ended
December 31, 2018
1,026
3,250
4,276
The Company uses 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 oversees the laboratory work. The work is completed under the
terms of research services agreements executed in March 2015 and has been extended annually. In March 2019, the Board approved an extension of this agreement for
twelve months 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 the year ended December 31, 2019, the Company recorded $223 thousand (2018 – $279 thousand) in research and development expenses related to the
agreement.
F-16
13.
Collaborative agreements:
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 Company’s license agreement with CrystalGenomics for rights to CG-806, in all territories outside of the Republic of Korea and China, the Company has
obligations for development milestones of $16 million related to the initiation of Phase 2 and pivotal clinical trials, and regulatory milestones totaling $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.
On June 13, 2018, the Company entered into a license agreement with CrystalGenomics to gain an exclusive license to CG-806 in China. The Company has potential
future obligations of development milestones of $6 million related to approval of an Investigational New Drug (“IND”) and to the initiation of Phase 2 and pivotal
clinical trials, and regulatory milestones totaling $20 million. The Company also has an obligation to pay sales milestones and royalty payments on sales of
commercialized product. The timing or likelihood of any milestone or royalty payments that may become due is not yet determinable.
On March 7, 2018, we entered into an exclusive global license agreement with Ohm Oncology (OHM), for the development, manufacture and commercialization of
APL-581, as well as related molecules from our dual bromodomain and extra-terminal domain motif (BET) protein and kinase inhibitor program. Under the
agreement, we will retain reacquisition rights to certain molecules, while OHM/LALS will have the rights to develop and sublicense all other molecules. We have
received two nominal upfront cash payments and are 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.
14.
Income taxes:
(a) Recent tax legislation
In December 2017 the U.S. government enacted comprehensive tax legislation, the Tax Cuts and Jobs Act (the "Tax Act"), which significantly revises the U.S. tax
code, generally effective January 1, 2018, by lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system and setting
limitations on the deductibility of certain costs (e.g. Interest expenses) among other things. As a Canadian entity, we generally would be classified as a foreign entity
(and, therefore, a non-U.S. tax resident) under general rules of U.S. federal income taxation. However, we have a branch and U.S. subsidiary subject to U.S. federal
income taxation. The Tax Act has impacted our consolidated results of operations during 2017 and 2018, and is expected to continue to impact our consolidated results
of operations in future periods. The ultimate impact of the Tax Act on our effective tax rate in future periods will depend on interpretations and regulatory changes
from the Internal Revenue.
(b)
Income taxes
For the years ended December 31, 2018 and 2019, the total comprehensive loss is as follows:
Loss attributed to US foreign operations
Loss attributed to Canadian operations
Income (loss) before income taxes
December 31, 2019
December 31, 2018
$
(20,470) $
(5,807)
(26,277)
(21,807)
(7,061)
(28,868)
F-17
(c) Tax rate reconciliation
Major items causing the Company’s income tax rate to differ from the statutory rate of approximately 26.5% (December 31, 2018 – 26.5%) are as follows:
Net loss
Statutory Canadian corporate tax rate
Computed expected tax recovery
Non-deductible permanent differences
Change in valuation allowance
Foreign tax rate differential
Foreign exchange differences
Prior year true-up adjustments
Other
(d) Significant components of deferred taxes
Year ended
Year ended
December 31, 2019
December 31, 2018
$
$
$
(26,277) $
26.5%
(6,963) $
(1,305)
12,146
(286)
-
(3,563)
(29)
$
-
(28,868)
26.5%
(7,650)
1,422
4,528
(325)
2,183
-
(158)
-
The tax effects of temporary differences that give rise to significant portions of the unrecognized deferred tax assets are presented below:
Net operating losses carried forward
Research and development expenditures
Property, equipment, and other intangible assets
Research and development tax credits
Financing costs
Right-of-use assets
Total deferred tax assets
Valuation allowance
Net deferred tax asset
$
$
December 31, 2019
26,786 $
5,031
4,191
3,685
2,010
41
41,744
(41,744)
- $
December 31, 2018
19,567
5,024
4,161
394
452
-
29,598
(29,598)
-
The valuation allowance at December 31, 2019 was primarily related to net operating loss carryforwards that, in the judgment of management, are not more-likely
than-not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more-likely than-not that all or some portion of the
deferred assets will not be realized. This ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in
which those deductible temporary difference become deductible. Based on the history of losses and projections for future taxable income, management believes that it
is not more-likely than-not that the Company will realize the benefits of these deductible temporary differences (e.g. deferred tax assets).
The Company has undeducted research and development expenditures, totaling $18.958 million that can be carried forward indefinitely. The Company also has
Canadian non-refundable federal and provincial investment tax credits of approximately $4.113 million which are available to reduce future federal taxes payable and
begin to expire in 2020, as well as non-refundable US research and development tax credits of approximately $0.557 million which are available to reduce future US
taxes payable and begin to expire in 2038.
F-18
In addition, the Company has Canadian non-capital loss carryforwards of $97.127 million. To the extent that the non-capital loss carryforwards are not used, they
begin to expire in 2026. The Company also has US non-capital loss carryforward of $0.586 million, To the extent that the non-capital loss carryforwards are not used,
they begin to expire in 2034.
The Company files income tax returns with Canada and its provinces and territories. Generally we are subject to routine examinations by the Canada Revenue Agency
("CRA"). Income tax returns filed with various provincial jurisdictions are generally open to examination for periods of four to five years subsequent to the filing of the
respective return.
The Company also files income tax returns for our U.S. operations and subsidiary with the U.S. federal and state tax jurisdictions. Generally, we are subject to routine
examination by taxing authorities in the U.S. jurisdictions. There are presently no examination of our U.S. federal and U.S. state returns. We believe that our tax
positions comply with the applicable tax law.
15.
Selected quarterly financial data (unaudited):
Selected financial data (unaudited) for the periods presented was as follows:
Revenue
Net loss
Basic and diluted loss per common share
Revenue
Net loss
Basic and diluted loss per common share
16.
Subsequent events
$
$
March 31,
June 30,
September 30,
2019
- $
(5,506)
(0.14)
2019
- $
(6,218)
(0.13)
2019
- $
(6,844)
(0.12)
March 31,
2018
- $
(6,814)
(0.23)
June 30,
2018
- $
(10,262)
(0.30)
September 30,
2018
- $
(5,531)
(0.16)
December 31,
2019
-
(7,709)
(0.13)
December 31,
2018
-
(6,261)
(0.17)
(a) Subsequent to the year end, the Company issued 5,808,834 stock options with an average exercise price of $6.82. The stock options vest 50% after one year and
16.67% on each of the next three anniversaries, except for 861,834 options which vest 50% after one year and 25% on each of the next two anniversaries.
(b) Subsequent to the year end, the Company issued 161,775 common shares upon the exercise of stock options, with an average exercise price of $2.68.
F-19
Description of Securities Registered
Under Section 12 of the Exchange Act of 1934
The following description of our common shares, no par value per share, is a summary and does not purport to be complete. It is subject to and qualified in its entirety
by reference to our Articles of Incorporation, Arrangement and Amendment last amended on June 12, 2015 (the “Articles”) and our Amended By-Law No. 2 (the “Bylaws”),
each of which is incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit is a part. We encourage you to read our Articles and our
Bylaws for additional information.
Exhibit 4.1
Authorized Capital
Our authorized share capital consists of an unlimited number of common shares.
Voting Rights
Holders of common shares will be entitled to receive notice of and to attend all meetings of the shareholders. Holders of common shares are entitled to one vote per
share on all matters voted on by the shareholders, including the election of directors. Our common shares do not have cumulative voting rights. Each director is elected by a
plurality of the votes cast. However, in an uncontested election, if a nominee for director receives a greater number of votes “withheld” from his or her election than votes “for”
such election, the nominee will be considered not to have received the support of the shareholders, even though duly elected as a matter of corporate law. Such a nominee will
be expected to provide forthwith his or her resignation to the board, effective on acceptance by the board. Unless special circumstances apply, the board will accept the
resignation. Within 90 days following the applicable meeting of the shareholders, the board will determine whether to accept or reject the resignation offer that has been
submitted. Following the board’s decision on the resignation, the board will promptly disclose, via press release, its decision (including the reasons for rejecting the resignation
offer, if applicable).
Except for the election of directors, or as otherwise required by the Articles, the Bylaws or applicable laws and regulations, all questions properly before a meeting of
shareholders will be decided by a majority of the votes cast on the question.
Dividend Rights and Dividend Policy
The holders of common shares are entitled, at the discretion of our board of directors, to receive out of any or all of our assets properly available for the payment of
dividends, any dividend declared by the board of directors and payable by us on our common shares. Any dividend unclaimed after a period of six years from the date on which
the same has been declared to be payable shall be forfeited and shall revert to us. We and our subsidiaries are, and may become, parties to agreements pursuant to which we
borrow money, and certain covenants in these agreements may limit our ability to pay dividends or other distributions with respect to the common shares or to repurchase
common shares.
We have not paid any dividends since our incorporation. At the discretion of our board of directors, we will consider paying dividends in the future as our operational
circumstances may permit, having regard to, among other things, our earnings, cash flow and financial requirements. It is the current policy of our board of directors to retain
all earnings to finance our business plan.
Liquidation Rights
The holders of common shares will participate on a pro rata basis in any distribution of our remaining property upon our liquidation, dissolution or winding-up or any
other return of capital or distribution of our assets among our shareholders for the purpose of winding up our affairs.
Other Rights and Preferences
Our common shares have no sinking fund or redemption provisions or preemptive, conversion or exchange rights.
Fully Paid Shares
Our outstanding common shares are, and any newly issued common shares will be, fully paid and non-assessable.
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Exhibit 10.7
APTOSE BIOSCIENCES INC.
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the ''Agreement'"), made between Aptose Biosciences Inc. (the "Company") and Rafael Bejar, M.D., Ph.D. ("Executive," and
together with the Company, the "Parties"), is entered into as of December 4, 2019. In the event Executive's employment with the Company does not commence on or prior to
January 1, 2020, this Agreement shall be null and void.
WHEREAS, the Company desires for Executive to commence employment with the Company on January 1, 2019, and wishes to provide Executive with certain
compensation and benefits in return for such employment; and
WHEREAS, Executive wishes to be employed by the Company and to provide personal services to the Company in return for certain compensation and benefits;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:
1.
Employment by the Company.
1.1 Position. Executive shall serve as the Company's Chief Medical Officer. While employed by the Company, Executive will devote Executive's
best efforts and substantially all of Executive's business time and attention to the business of the Company, except for approved vacation periods and reasonable periods of
illness or other incapacities permitted by the Company's general employment policies.
1.2 Duties and Location. Executive shall perform such duties as are required by the Company's Chief Executive Officer, to whom Executive will
report. In the event of the Chief Executive Officer's incapacity or unavailability, Executive will report to the Board of Directors of the Company (the "Board"). Executive's
primary office location shall be the Company's executive office located at 12270 High Bluff Drive, Suite 120, San Diego, California 92130. The Company reserves the right to
reasonably require Executive to perform Executive's duties at places other than Executive's primary office location from time to time, and to require reasonable business travel.
The Company may modify Executive's job title and duties as it deems necessary and appropriate in light of the Company's needs and interests from time to time.
1.3 Policies and Procedures. The employment relationship between the Parties shall be governed by the general employment policies and practices
of the Company, except that when the terms of this Agreement differ from or are in conflict with the Company's general employment policies or practices, this Agreement shall
control.
2.
Compensation.
2.1 Base Salary. For services to be rendered hereunder, Executive shall receive a base salary at the rate of U.S. $400,000 per year (the "Base
Salary"). The Base Salary will be payable in accordance with the Company's regular payroll schedule. Executive's Base Salary shall be subject to review annually by and at the
sole discretion of the Board or its designee.
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2.2 Bonus. Commencing in 2020, Executive will be eligible for an annual discretionary bonus of up to forty percent (40%) of Executive's then
current Base Salary (the "Annual Bonus"). Whether Executive receives an Annual Bonus for any given fiscal year, and the amount of any such Annual Bonus, will be
determined in the good faith discretion of the Board or its designee based upon the Company's and Executive's achievement of objectives and milestones to be determined on an
annual basis by the Board or its designee. Any such Annual Bonus will be paid prior to the fifteenth (15 th) day of the third (3rd) month following the close of the Company's
fiscal year to which such Annual Bonus relates. Except as otherwise provided in Section 6.2 herein, the Company’s payment, and the amount, of any such Annual Bonus shall
be in the sole discretion of the Company, and any such Annual Bonus will not be deemed earned unless Executive is an employee of the Company in good standing on the dates
the Annual Bonus is determined and paid.
3. Standard Company Benefits. Executive shall, in accordance with Company policy and the terms and conditions of the applicable Company benefit plan
documents, be eligible to participate in the benefit and fringe benefit programs provided by the Company to its U.S. based executive officers and other employees from time to
time, including, without limitation, vacation. Executive shall be entitled to four (4) weeks of vacation per year, which will accrue in accordance with Company policy.
4. Expenses. The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred by Executive in furtherance or in
connection with the performance of Executive's duties hereunder, in accordance with the Company's expense reimbursement policy as in effect from time to time. Any amounts
payable under this Section 4 shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Executive's
taxable year following the taxable year in which Executive incurred the expenses. The amounts provided under this Section 4 during any taxable year of Executive's will
not affect such amounts provided in any other taxable year of Executive's, and Executive's right to reimbursement for such amounts shall not be subject to liquidation or
exchange for any other benefit.
5. Equity. Subject to approval by the Board, and pursuant to the Company’s equity plan (the “Plan”), the Company shall grant Executive an award of
options to purchase 400,000 shares of the Company’s common stock, at an exercise price equal to the stock’s fair market value per share on the date of grant (the “Option”). The
Option will be subject to the terms and conditions of the Plan, and the corresponding grant notice and stock option agreement, and will be subject to the Company's standard
four-year vesting schedule.
6.
Termination of Employment; Severance.
6.1 At-Will Employment. Executive's employment relationship is at-will. Either Executive or the Company may terminate the employment
relationship at any time, with or without Cause (as defined below) or advance notice. If Executive's employment terminates for any reason, Executive shall not be entitled to any
payments, benefits, damages, awards or compensation other than as provided in this Agreement. Upon any termination of Executive's employment, in addition to any severance
benefits to which Executive may be entitled under Section 6.2 below, the Company shall pay to Executive (a) his or her fully earned but unpaid base salary, through the date of
termination at the rate then in effect, plus (b) all accrued but unpaid vacation, plus (c) all other amounts to which Executive is entitled under any compensation plan or practice
of the Company at the time of termination in accordance with the terms of such plans or practices, including, without limitation, any continuation of benefits required by
COBRA or applicable law (together, the "Accrued Obligations").
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6.2
Termination Without Cause; Resignation for Good Reason.
below). Further, Executive may resign at any time for Good Reason (as defined in Section 10.2 below).
(i)
The Company may terminate Executive's employment with the Company at any time without Cause (as defined in Section 10.1
In the event Executive's employment with the Company is terminated by the Company without Cause (and other than as a result of
Executive's death or Permanent Disability (as defined in Section 6.3(i) below)), or Executive resigns for Good Reason, then provided that Executive satisfies the Release
Requirement in Section 7 herein, and remains in compliance with the terms of this Agreement and the Confidentiality Agreement (as defined below), the Company shall provide
Executive with the following "Severance Benefits":
(ii)
(a) A lump sum cash payment equal to Executive's annual Base Salary (i.e., a full payment of one year’s salary at the Base Salary
rate) at the time of employment termination (without giving effect to any reduction in Base Salary that would give Executive the right to resign for Good Reason) to be paid by
the Company on the first payroll date following the Effective Date of the Release (as defined below), but in no event more than seventy-five (75) days following the date of
Executive's termination of employment.
(b) A lump sum cash payment in an amount equal to the average of the Annual Bonus payments Executive received from the
Company during the last three years of employment completed prior to the year of the employment termination (or such lesser number of years of employment completed by
Executive prior to the year of the employment termination if Executive has not yet been employed for three full years prior to the year of the employment termination), pro-
rated based on the number of days Executive worked during the fiscal year of the employment termination, divided by 365, to be paid by the Company on the first payroll date
following the Effective Date of the Release, but in no event more than seventy-five (75) days following the date of Executive's termination of employment.
(c) If the Company has previously established a group health plan in which Executive participates prior to Executive's termination
and Executive timely elects COBRA coverage following any such termination, the Company will pay Executive for the full amount of such COBRA premiums for himself or
herself and his or her covered dependents (on a monthly basis) for a period of up to twelve (12) months following the date of termination; provided, that, if and to the extent that
any benefit described in this Section 6.2(ii)(c) is not or cannot be paid or provided under any Company plan or program without penalties or adverse tax consequences to the
Company or for any other reason, as determined by the Company in its sole discretion, then the Company shall pay Executive a fully taxable cash payment equal to the COBRA
premium for each month that such benefits cannot be so paid or provided by the Company for a period of up to twelve (12) months following the date of termination; provided,
further, that the COBRA payments or, if applicable, the taxable monthly payment discussed above, shall terminate on the earliest to occur of (A) the close of the 12-month
period following the termination of Executive's employment; (B) the expiration of Executive's (or Executive's dependents') eligibility for coverage under COBRA; and (C) the
date when Executive becomes eligible for group health insurance coverage in connection with new employment or self-employment. If Executive becomes eligible for coverage
under another employer's group health plan or otherwise ceases to be eligible for COBRA coverage during the period provided in this Section 6.2(ii)(c), Executive must
immediately provide written notice to the Company of such event, and the Company-provided COBRA payments, or if applicable, the monthly payments under this Section
6.2(ii)(c) shall immediately cease.
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(iii) Furthermore, in the event Executive's employment with the Company is terminated by the Company pursuant to Section 6.2(ii), in either
case, within sixty (60) days immediately preceding or twelve (12) months immediately following the consummation of a Change in Control (as defined below), then, in lieu of
(and not additional to) the severance benefits described in Section 6.2(ii), and provided that Executive satisfies the Release Requirement in Section 7 herein and remains in
compliance with the terms of this Agreement and the Confidentiality Agreement, the Company shall instead provide Executive with the following benefits (the " Change in
Control Severance Benefits"). For the avoidance of doubt: (A) in no event will Executive be entitled to severance benefits under Section 6.2(ii) and this Section 6.2(iii), and (B)
if the Company has commenced providing severance benefits to Executive under Section 6.2(ii) prior to the date that Executive becomes eligible to receive Change in Control
Severance Benefits under this Section 6.2(iii), the benefits previously provided to Executive under Section 6.2(ii) of this Agreement shall reduce the severance benefits provided
under this Section 6.2(iii):
(a) A lump sum cash payment in an amount equal to eighteen (18) months of Executive's annual Base Salary (without giving
effect to any reduction in Base Salary that would give Executive the right to resign for Good Reason), to be paid in a single lump sum during the first payroll date following the
later of (i) the Effective Date of the Release or (ii) if Executive's termination of employment occurs prior to a Change in Control, the date of such Change in Control, but in no
event more than seventy-five (75) days following the date of Executive's termination of employment.
(b) A lump sum cash payment in an amount equal to 150% of the average of the Annual Bonus payments Executive received from
the Company during the last three years of employment completed prior to the year of the employment termination (or such lesser number of years of employment completed by
Executive prior to the year of the employment termination if Executive has not yet been employed for three full years prior to the year of the employment termination), pro-
rated based on the number of days Executive worked during the fiscal year of the employment termination, divided by three hundred sixty-five (365), to be paid by the
Company on the first payroll date following the later of (i) the Effective Date of the Release or (ii) if Executive's termination of employment occurs prior to a Change in
Control, the date of such Change in Control, but in no event more than seventy-five (75) days following the date of Executive's termination of employment.
(c) If the Company has previously established a group health plan in which Executive participates prior to Executive's termination
and Executive timely elects COBRA coverage following any such termination, the Company will pay Executive for the full amount of such COBRA premiums for himself or
herself and his or her covered dependents (on a monthly basis) for a period of up to twelve (12) months following the date of termination; provided, that, if and to the extent that
any benefit described in this Section 6.2(iii)(c) is not or cannot be paid or provided under any Company plan or program without penalties or adverse tax consequences to the
Company or for any other reason, as determined by the Company in its sole discretion, then the Company shall pay Executive a fully taxable cash payment equal to the COBRA
premium for each month that such benefits cannot be so paid or provided by the Company for a period of up to twelve (12) months following the date of termination; provided,
further, that the COBRA payments or, if applicable, the monthly payment discussed above, shall terminate on the earliest to occur of (A) the close of the 12-month period
following the termination of Executive's employment; (B) the expiration of Executive's (or Executive's covered dependents) eligibility for coverage under COBRA; and (C) the
date when Executive becomes eligible for group health insurance coverage in connection with new employment or self-employment. If Executive becomes eligible for coverage
under another employer's group health plan or otherwise ceases to be eligible for COBRA coverage during the period provided in this Section 6.2(iii)(c), Executive must
immediately provide written notice to the Company of such event, and the Company-provided COBRA payments, or if applicable, the monthly payments under this Section
6.2(iii)(c) shall immediately cease.
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(d) Notwithstanding anything to the contrary set forth in the Company's equity plan or form of award agreement, effective as of
Executive's employment termination date, the vesting and exercisability of all then outstanding unvested Stock Awards (as defined below) then held by Executive shall
accelerate such that all shares become immediately vested and exercisable, if applicable, by Executive upon such termination and shall remain exercisable, if applicable,
following Executive's termination as set forth in the applicable equity award documents.
6.3 Termination for Cause; Resignation Without Good Reason; Death or Permanent Disability.
(i) The Company may terminate Executive's employment with the Company for Cause. Further, Executive may resign at any time without Good
Reason. Executive's employment with the Company will also terminate automatically upon Executive's death. Executive's employment may also be terminated following
Executive's "Permanent Disability." For purposes of this Agreement, “Permanent Disability” shall be deemed to have occurred if Executive shall become physically or
mentally incapacitated or disabled or otherwise unable fully to discharge his duties hereunder for a period of ninety (90) consecutive calendar days or for one hundred twenty
(120) calendar days in any one hundred eighty (180) calendar-day period. The existence of Executive's Permanent Disability shall be determined by the Company on the advice
of a duly licensed physician reasonably acceptable to the Company and Executive.
(ii) If Executive resigns without Good Reason, or the Company terminates Executive's employment for Cause, or upon Executive's death or
following Executive's Permanent Disability, then (a) Executive will no longer vest in his or her Stock Awards, (b) all payments of compensation by the Company to Executive
hereunder will terminate immediately (except as to amounts already earned and the Accrued Obligations), and (c) Executive will not be entitled to any severance benefits,
including (without limitation) the Severance Benefits and Change in Control Benefits listed in Sections 6.2(ii) and 6.2(iii). In addition, Executive shall resign from all positions
and terminate any relationships as an employee, advisor, officer or director with the Company and any of its affiliates, each effective on the date of termination. In the event of
Executive's death or Permanent Disability, Executive, or his estate or heirs, as the case may be, shall also be entitled to any life insurance or disability benefits provided under
the Company's benefit plans in which Executive participates, subject to the terms and conditions of such plans.
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7. Conditions to Receipt of Severance Benefits and Change in Control Severance Benefits. Notwithstanding the foregoing, to be eligible for any of the
Severance Benefits or Change in Control Severance Benefits, on or within sixty (60) days following the termination of employment, Executive must satisfy the requirement (the
"Release Requirement") to return to the Company a signed and dated general release of all known and unknown claims in a form acceptable to the Company (the "Release and
Waiver") and allow that Release and Waiver to become effective in accordance with its terms (such date, the "Effective Date of the Release"). No Severance Benefits or
Change in Control Severance Benefits will be paid hereunder prior to the Effective Date of the Release. Accordingly, if Executive breaches the preceding sentence and/or
refuses to sign and deliver to the Company an executed Release and Waiver within the foregoing time period or signs and delivers to the Company the Release and Waiver but
exercises his or her right, if any, under applicable law to revoke the Release and Waiver (or any portion thereof), then Executive will not be entitled to any severance, payment
or benefit under this Agreement.
8. Section 409A. It is intended that all of the severance benefits and other payments payable under this Agreement satisfy, to the greatest extent possible, the
exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations and other guidance thereunder and any
state law of similar effect (collectively "Section 409A"), provided under Treasury Regulations l.409A-1(b)(4), 1.409A- l (b)(5) and 1.409A-l (b)(9), and this Agreement will be
construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Agreement (and any definitions hereunder) will be construed
in a manner that complies with Section 409A. For purposes of Code Section 409A (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)
(iii)), Executive's right to receive any installment payments under this Agreement (whether severance payments, reimbursements or otherwise) shall be treated as a right to
receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment. Notwithstanding
anything herein to the contrary, to the extent any payments to Executive pursuant to this Agreement (including the Severance Benefits or Change in Control Severance Benefits)
constitute “non-qualified deferred compensation” subject to Section 409A of the Code, then, to the extent required by Section 409A of the Code (including, without limitation,
to secure an exemption from or to comply with Section 409A), no amount shall be payable pursuant to such sections unless Executive's termination of employment constitutes a
“separation from service” with the Company (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a "Separation
from Service"). Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed by the Company at the time of Executive's Separation from Service to
be a "specified employee" for purposes of Code Section 409A(a)(2)(B)(i), and if any of the payments upon Separation from Service set forth herein and/or under any other
agreement with the Company are deemed to be "deferred compensation", then to the extent delayed commencement of any portion of such payments is required in order to
avoid a prohibited distribution under Code Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments shall not be provided to Executive
prior to the earliest of (a) the expiration of the six-month and one day period measured from the date of Executive's Separation from Service with the Company, (b) the date of
Executive's death or (c) such earlier date as permitted under Section 409A without the imposition of adverse taxation. Upon the first business day following the expiration of
such applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to this Paragraph shall be paid in a lump sum to Executive, and any remaining payments
due shall be paid as otherwise provided herein or in the applicable agreement. No interest shall be due on any amounts so deferred. If any severance benefits provided under this
Agreement constitute "non-qualified deferred compensation" under Section 409A, any such severance benefits shall not be paid, or in the case of installments shall not
commence payment, until the sixtieth (60th) day following the Executive's Separation from Service (the "Initial Payment Date"), regardless of when the Release actually
becomes effective (and any payments scheduled to be made prior to such Initial Payment Date shall instead accrue and be paid in a single lump sum on such Initial Payment
Date) and the remaining payments shall be made as provided in this Agreement.
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9.
Section 280G; Limitations on Payment.
9.1 If any payment or benefit Executive will or may receive from the Company or otherwise (a "280G Payment") would (a) constitute a "parachute
payment" within the meaning of Section 280G of the Code, and (b) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"),
then any such 280G Payment provided pursuant to this Agreement (a "Payment") shall be equal to the Reduced Amount. The "Reduced Amount" shall be either (x) the largest
portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax or (y) the largest portion, up to and including the total, of
the Payment, whichever amount (i.e., the amount determined by clause (x) or by clause (y)), after taking into account all applicable federal, state and local employment taxes,
income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Executive's receipt, on an after-tax basis, of the greater economic benefit
notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in a Payment is required pursuant to the preceding sentence and the
Reduced Amount is determined pursuant to clause (x) of the preceding sentence, the reduction shall occur in the manner (the "Reduction Method") that results in the greatest
economic benefit for Executive. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata (the "Pro Rata
Reduction Method").
9.2 Notwithstanding any provision of Section 9.1 to the contrary, if the Reduction Method or the Pro Rata Reduction Method would result in any
portion of the Payment being subject to taxes pursuant to Section 409A that would not otherwise be subject to taxes pursuant to Section 409A, then the Reduction Method
and/or the Pro Rata Reduction Method, as the case may be, shall be modified so as to avoid the imposition of taxes pursuant to Section 409A as follows: (A) as a first priority,
the modification shall preserve to the greatest extent possible, the greatest economic benefit for Executive as determined on an after-tax basis; (B) as a second priority,
Payments that are contingent on future events (e.g., being terminated without Cause), shall be reduced (or eliminated) before Payments that are not contingent on future events;
and (C) as a third priority, Payments that are "deferred compensation" within the meaning of Section 409A shall be reduced (or eliminated) before Payments that are not
deferred compensation within the meaning of Section 409A.
9.3 Unless Executive and the Company agree on an alternative accounting firm or law firm, the accounting firm engaged by the Company for
general tax compliance purposes as of the day prior to the effective date of the Change in Control transaction shall perform the foregoing calculations. If the accounting firm so
engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control transaction, the Company shall appoint a
nationally recognized accounting or law firm to make the determinations required by this Section 9. The Company shall bear all expenses with respect to the determinations by
such accounting or law firm required to be made hereunder. The Company shall use commercially reasonable efforts to cause the accounting or law firm engaged to make the
determinations hereunder to provide its calculations, together with detailed supporting documentation, to Executive and the Company within fifteen (15) calendar days after the
date on which Executive's right to a 280G Payment becomes reasonably likely to occur (if requested at that time by Executive or the Company) or such other time as requested
by Executive or the Company.
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9.4 If Executive receives a Payment for which the Reduced Amount was determined pursuant to clause (x) of Section 9.1 and the Internal Revenue
Service determines thereafter that some portion of the Payment is subject to the Excise Tax, Executive agrees to promptly return to the Company a sufficient amount of the
Payment (after reduction pursuant to clause (x) of Section 9.1) so that no portion of the remaining Payment is subject to the Excise Tax. For the avoidance of doubt, if the
Reduced Amount was determined pursuant to clause (y) of Section 9.1, Executive shall have no obligation to return any portion of the Payment pursuant to the preceding
sentence.
10.
Definitions.
10.1 Cause. For purposes of this Agreement, "Cause" for termination will mean: (a) Executive's commission of any felony or commission of a crime
involving dishonesty; (b) Executive's participation in any fraud against the Company; (c) a material breach of Executive's duties to the Company; (d) Executive's persistent
unsatisfactory performance of his job duties; (e) Executive's intentional damage to any property of the Company; (f) Executive's misconduct, or other violation of Company
policy that causes harm to the Company; and (g) Executive's breach of any material provision of this Agreement or any other written agreement between Executive and the
Company; provided, however, that prior to the determination that “Cause” under this Section 10.1 has occurred, the Company shall (i) provide to Executive a written notice
providing, in reasonable detail, the reasons for the determination that such “Cause” exists, (ii) other than with respect to clause (a) above, afford Executive a reasonable
opportunity to remedy any such event or breach (if deemed curable), (iii) provide Executive an opportunity to be heard prior to the final decision to terminate Executive's
employment hereunder for such “Cause” and (iv) make any decision that such “Cause” exists in good faith.
10.2 Good Reason. For purposes of this Agreement, Executive shall have "Good Reason" for resignation from employment with the Company if any
of the following actions are taken by the Company without Executive's prior written consent: (a) a material reduction in Executive's Base Salary, other than in connection with
an across-the-board decrease of base salaries applicable to all senior executives of the Company; (b) a material reduction in Executive's duties (including responsibilities and/or
authorities), provided, however, that a change in job position (including a change in title) shall not be deemed a "material reduction" in and of itself unless Executive's new
duties are materially reduced from the prior duties; or (c) relocation of Executive's principal place of employment to a place that increases Executive's one-way commute from
the Executive’s residence (after the relocation agreed by Executive and the Company in Section 1.2) by more than fifty (50) miles as compared to Executive's then-current
principal place of employment immediately prior to such relocation. In order for Executive to resign for Good Reason, each of the following requirements must be met: (i)
Executive must provide written notice to the Company's Chief Executive Officer within 60 days after the first occurrence of the event giving rise to Good Reason setting forth
the basis for Executive's resignation, (ii) the Executive must allow the Company at least 30 days from receipt of such written notice to cure such event (the "Cure Period"), (iii)
such event is not reasonably cured by the Company within the Cure Period, and (iv) Executive must resign from all positions Executive then holds with the Company not later
than 30 days after the expiration of the Cure Period.
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10.3 Change in Control. For purposes of this Agreement, "Change in Control" shall mean the consummation of any of the following: (a) the
acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is party (including, without limitation, any
stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which
the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding
or by such voting securities being converted into voting securities of the surviving entity), following such transaction, at least fifty percent (50%) of the total voting power
represented by the voting securities of the surviving entity outstanding immediately after such transaction or series of transactions; (b) a sale, lease or other conveyance of all or
substantially all of the assets of the Company; or (c) any liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily. Notwithstanding the
foregoing, the Company and Executive agree that Change in Control does not include any reorganization, sale or plan of arrangement undertaken to move the domicile of the
Company to the U.S., pursuant to which the Company will become a wholly-owned subsidiary of a Delaware corporation. Notwithstanding the foregoing, if a Change in
Control constitutes a payment event with respect to any payment hereunder that provides for the deferral of compensation that is subject to Section 409A, to the extent required
to avoid the imposition of additional taxes under Section 409A, the transaction or event with respect to such payment shall only constitute a Change in Control for purposes of
the payment timing of such payment if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
incentive award plans or agreements and any shares of stock issued upon exercise thereof.
10.4
"Stock Awards" means all stock options, restricted stock and such other awards granted pursuant to the Company’s stock option and equity
11.
Confidential Information Obligations.
Employee Proprietary Information and Inventions Assignment Agreement (the "Confidentiality Agreement").
11.1 Confidential Information Agreement. As a condition of employment, Executive shall execute and abide by the Company's standard form of
11.2 Third-Party Agreements and Information. Executive represents and wan-ants that Executive's employment by the Company does not conflict
with any prior employment or consulting agreement or other agreement with any third party, and that Executive will perform Executive's duties to the Company without
violating any such agreement. Executive represents and warrants that Executive does not possess confidential information arising out of prior employment, consulting, or other
third party relationships, that would be used in connection with Executive's employment by the Company, except as expressly authorized by that third party. During Executive's
employment by the Company, Executive will use in the performance of Executive's duties only information which is generally known and used by persons with training and
experience comparable to Executive's own, common knowledge in the industry, otherwise legally in the public domain, or obtained or developed by the Company or by
Executive in the course of Executive's work for the Company.
11.3 Return of Company Property. If Executive's employment is terminated for any reason, the Company shall have the right, at its option, to
require Executive to vacate his or her offices prior to or on the effective date of termination and to cease all activities on the Company’s behalf. Upon the termination of his or
her employment in any manner, as a condition to the Executive's receipt of any post-termination benefits described in this Agreement, Executive shall immediately surrender to
the Company all lists, books, records and documents of, or in connection with, the Company’s business, and all other property belonging to the Company, it being distinctly
understood that all such lists, books and records, and other documents and property, are the property of the Company. Executive shall deliver to the Company a signed statement
certifying compliance with this Section 11.3 prior to the receipt of any post-termination benefits described in this Agreement.
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12 below, the Company shall have all of the rights and remedies available to the Company under law or in equity.
11.4 Rights and Remedies Upon Breach. If Executive breaches or threatens to commit a breach of any of the provisions of this Section 11 or Section
11.5 Whistleblower Provision. Nothing herein shall be construed to prohibit Executive from communicating directly with, cooperating with, or
providing information to, any government regulator, including, but not limited to, the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading
Commission, or the U.S. Department of Justice. Executive acknowledges that the Company has provided Executive with the following notice of immunity rights in compliance
with the requirements of the Defend Trade Secrets Act: (a) Executive shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure
of proprietary information of the Company that is made in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting or
investigating a suspected violation of law, (b) Executive shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of proprietary
information of the Company that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal and (c) if Executive files a
lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may disclose the proprietary information to my attorney and use the proprietary
information in the court proceeding, if Executive files any document containing the proprietary information under seal, and does not disclose the proprietary information, except
pursuant to court order.
12.
Outside Activities During Employment; Non-Solicitation.
12.1 Non-Company Business. Except with the prior written consent of the Board or the Chief Executive Officer of the Company, Executive will not
during the term of Executive's employment with the Company undertake or engage in any other employment, occupation or business enterprise, other than ones in which
Executive is a passive investor. Subject to the terms of the Confidentiality Agreement and Section 12.2 below, Executive may engage in civic and not-for-profit activities so
long as such activities do not materially interfere with the performance of Executive's duties hereunder. Executive agrees that he or she will not join any boards, other than civic
and not-for-profit boards (which do not materially interfere with Executive's duties to the Company), without the prior written approval of the Board, which approval shall not
be unreasonably withheld.
12.2
No Adverse Interests. During the term of Executive's employment, Executive agrees not to acquire, assume or participate in, directly or
indirectly, any position, investment or interest known to be adverse or antagonistic to the Company, its business or prospects, financial or otherwise. In addition, and in
furtherance of the provisions of this Section 12, except as may otherwise be approved in writing by the Board or the Chief Executive Officer of the Company, during the period
of Executive's employment, Executive shall not have any ownership interest (of record or beneficial) in, or perform services as an employee, salesman, consultant, independent
contractor, officer or director of, or otherwise aid or assist in any manner, any firm, corporation, partnership, proprietorship or other business that engages in any county, city or
part thereof in the United States and/or any foreign country in a business which competes directly or indirectly (as determined by the Board) with the Company’s business in
such county, city or part thereof, so long as the Company, or any successor in interest of the Company to the business and goodwill of the Company, remains engaged in such
business in such county, city or part thereof or continues to solicit customers or potential customers therein; provided, however, that Executive may own, directly or indirectly,
solely as an investment, securities of any entity which are traded on any national securities exchange if Executive (a) is not a controlling person of, or a member of a group
which controls, such entity; or (b) does not, directly or indirectly, own one percent (1%) or more of any class of securities of any such entity.
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12.3 Solicitation of Employees. Executive shall not during the term of Executive’s employment and for a period of twelve (12) months following
Executive’s termination of employment, directly or indirectly, solicit or encourage to leave the employment of the Company or any of its subsidiaries, any employee of the
Company or any of its subsidiaries.
13. Insurance; Indemnification. The Company shall have the right to take out life, health, accident, “key-man” or other insurance covering Executive, in the
name of the Company and at the Company’s expense in any amount deemed appropriate by the Company. Executive shall assist the Company in obtaining such insurance,
including, without limitation, submitting to any required examinations and providing information and data required by insurance companies. Executive will be provided with
indemnification against third party claims related to his or her work for the Company as required by applicable law, including advancement of attorneys’ fees and costs related
to any such indemnification as provided by applicable law. The Company shall provide Executive with directors and officers liability insurance coverage at least as favorable as
that which the Company may maintain from time to time for the directors of the Company or the other executive officers.
14. Dispute Resolution.
14.1
In the event of any dispute, claim, cause of action or disagreement (a “Dispute”) arising out of or in connection to this Agreement, including,
without limitation, the negotiation, execution, interpretation, performance or non-performance of this Agreement, as well as Executive's employment with the Company or the
termination thereof, the Parties shall attempt to resolve the Dispute in non-binding mediation administered by JAMS, Inc. ("JAMS") or its successors. The parties shall agree on
a mediator or if they cannot agree, the dispute shall be submitted to the mediation process of JAMS. The place of mediation shall be San Diego, California. If the Dispute is not
resolved pursuant to the foregoing procedure within thirty (30) days after the initial mediation meeting among the parties and the mediator, or if the mediation is otherwise
terminated, then either Party may submit the Dispute to arbitration pursuant to Section 14.2 below. Each Party shall pay the fees of its own attorneys and all other expenses
connected with presenting its case. Other costs of the mediation, including JAMS' administrative fees, the fee of the mediator, and all other fees and costs, shall be borne by the
Company.
14.2 To ensure the rapid and economical resolution of Disputes, including any and all Disputes, in law or equity, including but not limited to statutory
claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Executive's employment with the Company, or the termination of
Executive's employment from the Company, shall be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §1-16, and to the fullest extent permitted by law, by final,
binding and confidential arbitration conducted in San Diego, California by JAMS or its successors before a single arbitrator, under the JAMS Employment Arbitration Rules &
Procedures (which can be found at https://www.jamsadr.com/rules-employment-arbitration/, and which will be provided to Executive on request); provided that the arbitrator
shall issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The judgment and award rendered by the
arbitrator may be entered in any court or tribunal of competent jurisdiction. This Section 14 is intended to be the exclusive method for resolving any and all claims by the parties
against each other for payment of damages under this Agreement or relating to Executive’s employment; provided, however, that (i) Executive shall retain the right to file
administrative charges with or seek relief through any government agency of competent jurisdiction, and to participate in any government investigation, including but not
limited to (a) claims for workers’ compensation, state disability insurance or unemployment insurance; (b) claims for unpaid wages or waiting time penalties brought before the
California Division of Labor Standards Enforcement (or any similar agency in any applicable jurisdiction other than California); provided, however, that any appeal from an
award or from denial of an award of wages and/or waiting time penalties shall be arbitrated pursuant to the terms of this Agreement; and (c) claims for administrative relief
from the United States Equal Employment Opportunity Commission and/or the California Department of Fair Employment and Housing (or any similar agency in any
applicable jurisdiction other than California). Executive and the Company shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law;
provided, however, that in no event shall the arbitrator be empowered to hear or determine any class or collective claim of any type. Nothing in this Agreement is intended to
prevent either Executive or the Company from obtaining injunctive relief (or any other provisional remedy) in any court of competent jurisdiction pursuant to California Code
of Civil Procedure Section 1281.8 (or similar statute of an applicable jurisdiction) to prevent irreparable harm (including, without limitation, pending the conclusion of any
arbitration), which, to the extent applicable, shall be brought in the state or federal courts of California, as applicable. The Company shall pay all fees relating to the
administration of the arbitration, including the arbitrator’s fees, arbitration expenses and any other costs unique to the arbitration proceeding (recognizing that each side shall
bear its own deposition, witness, expert and attorney’s fees and other expenses to the same extent as if the matter were being heard in court). In the event that a Party refuses to
acknowledge his or its obligation to arbitrate a Dispute or files an action in court that is subject to arbitration pursuant to this Section 14.2, and the Executive or the Company
seeks to compel arbitration pursuant to this Section 14.2, or if either Party brings an action to enforce an arbitration award hereunder, the prevailing party shall be entitled to
attorneys' fees and costs pursuant to applicable law. In addition, if a Party to this Agreement hereafter pursues any dispute by any method other than as set forth herein, the
responding Party shall be entitled to recover from the initiating Party all damages, costs, expenses and attorneys' fees incurred as a result of defending such action. BOTH
EXECUTIVE AND THE COMPANY ACKNOWLEDGE THAT BY AGREEING TO THIS ARBITRATION PROCEDURE, EACH WAIVES THE RIGHT TO RESOLVE
ANY SUCH DISPUTE THROUGH A TRIAL BY JURY OR JUDGE OR ADMINISTRATIVE PROCEEDING.
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15.
General Provisions.
15.1 Notices. Any notices provided must be in writing and will be deemed effective upon the earlier of personal delivery (including delivery by email
or facsimile transmission upon acknowledgment of receipt of electronic transmission) or the next day after sending by overnight carrier, to the Company at its primary office
location (with any email notice to the Chief Executive Officer of the Company at his primary Company email address) and to Executive at the address (or email address) as
listed on the Company payroll.
15.2
Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such
jurisdiction to the extent possible in keeping with the intent of the Parties.
12
have waived any preceding or succeeding breach of the same or any other provision of this Agreement.
15.3 Waiver. Any waiver of any breach of any provisions of this Agreement must be in writing to be effective, and it shall not thereby be deemed to
15.4 Complete Agreement. This Agreement, together with the Confidentiality Agreement, constitutes the entire agreement between Executive and
the Company with regard to the subject matter hereof and is the complete, final, and exclusive embodiment of the Company's and Executive's agreement with regard to this
subject matter, and supersedes any prior agreements between Executive and the Company, including, without limitation, the offer letter between Executive and the Company
dated November 6, 2019. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it
supersedes any other such promises, warranties or representations. It cannot be modified or amended except in a writing signed by Executive and a duly authorized officer of the
Company.
but both of which taken together will constitute one and the same Agreement.
15.5 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one Party,
affect the meaning thereof.
15.6 Headings. The headings of the paragraphs hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to
15.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors, assigns, heirs, executors and administrators, except that Executive may not assign any of his or her duties hereunder and he or she may not assign
any of his or her rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.
15.8 Tax Withholding. All amounts payable to Executive will be subject to appropriate payroll deductions and withholdings.
15.9 Governing Law; Consent to Personal Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the
State of California without regard to the conflict of laws provisions thereof. Executive hereby expressly consents to the personal jurisdiction of the state and federal courts
located in San Diego County, California for any lawsuit filed by Executive or by the Company arising from or related to this Agreement or Executive's employment with the
Company
any termination of this Agreement.
15.10 Survival. The covenants, agreements, representations and warranties contained in or made in Sections 6 through 15 of this Agreement shall survive
Party to this Agreement.
15.11 Third-Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a
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[Signature Page Follows]
14
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and year first written above.
APTOSE BIOSCIENCES INC.
By: ___________________________________
Name: William G. Rice, Ph.D.
Title: Chairman, President & CEO
Date: __________________________________
EXECUTIVE
_______________________________________
Print Name: Rafael Bejar, M.D., Ph.D.
Date: __________________________________
15
Name
Aptose Biosciences U.S. Inc.
NuChem Pharmaceuticals Inc.
Subsidiaries of the Registrant
State/Jurisdiction of Incorporation
Delaware
Ontario, Canada
Exhibit 21.1
Exhibit 23.1
KPMG LLP
Vaughan Metropolitan Centre 100 New Park Place, Suite 1400 Vaughan, ON L4K 0J3
Canada
Tel 905-265-5900
Fax 905-265-6390
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Aptose Biosciences Inc.
We, KPMG LLP, consent to the incorporation by reference in the registration statement (No. 333-235730) on Form S-3 of common shares or warrants or any combination of
those securities, either individually or in units, up to an aggregate initial offering price of $200,000,000 and by reference in the registration statements on Form S-8 (No. 333-
228794) and (No.333-205158) related to the stock incentive plan of Aptose Biosciences Inc. (the Company), of our report dated March 10, 2020, on the consolidated financial
statements of the Company, which comprise the consolidated statements of financial position as at December 31, 2019 and December 31, 2018, the related consolidated
statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2019, and the
related notes, (collectively, the consolidated financial statements), and to the reference to our firm under the heading “Experts” in the registration statement.
Our report dated March 10, 2020, on the consolidated financial statements referred to above contains an explanatory paragraph indicating the Company has changed its method
of accounting for leases on January 1, 2019, due to the adoption of Financial Accounting Standards Board, ASU No. 2016-02, Leases (Topic 842).
Chartered Professional Accountants, Licensed Public Accountants
March 10, 2020
Vaughan, 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.
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, William G. Rice, certify that:
1.
I have reviewed this Annual Report on Form 10-K 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 registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer 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 registrant and have:
a) 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 registrant, 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;
b) 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;
c) Evaluated the effectiveness of the registrant'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; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial
reporting.
Date: March 10, 2020
/s/ William G. Rice
Name: William G. Rice, Ph.D.
Title: President and Chief Executive Officer
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Gregory K. Chow, certify that:
1.
I have reviewed this Annual Report on Form 10-K 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 registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer 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 registrant and have:
a) 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 registrant, 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;
b) 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;
c) Evaluated the effectiveness of the registrant'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; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors
and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial
reporting.
Date: March 10, 2020
/s/ Gregory K. Chow
Name: Gregory K. Chow
Title: Executive Vice President and Chief Financial Officer
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, William G. Rice, the President and Chief Executive
Officer of Aptose Biosciences Inc. (the “Company”), hereby certify that, to my knowledge:
1. The Annual Report on Form 10-K for the year ended December 31, 2019 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 10, 2020
Exhibit 32.1
/s/ William G. Rice
Name: William G. Rice, Ph.D.
Title: President and Chief Executive Officer
Exhibit 32.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Gregory K. Chow, the Executive President and Chief
Financial Officer of Aptose Biosciences Inc. (the “Company”), hereby certify that, to my knowledge:
1. The Annual Report on Form 10-K for the year ended December 31, 2019 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 10, 2020
/s/ Gregory K. Chow
Name: Gregory K. Chow
Title: Executive Vice President and Chief Financial Officer