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 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 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 1a/b 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 1a/b clinical and, if required, Phase 2 or Phase 3 clinical trials. Similarly, we have
received FDA approval to initiate a Phase 1a/b clinical trial with our product candidate luxeptinib for patients with B-cell malignancies.
Significant additional capital will be necessary to complete the Phase 1 clinical trial, and if required, Phase 2 or Phase 3 clinical
trials. Such funding for our product candidates may be difficult, or impossible to raise in the public or private markets or through
partnerships. If funding or partnerships are not readily attainable, the development of our product candidates may be significantly
delayed or stopped altogether. The announcement of a delay or discontinuation of development would likely have a negative impact
on our share price.
We need to raise additional
capital.
We have an ongoing need to raise additional
capital. To obtain the necessary capital, we must rely on some or all of the following: additional share issues, debt issuances
(including promissory notes), collaboration agreements or corporate partnerships and grants and tax credits to provide full or
partial funding for our activities. Additional funding may not be available on terms that are acceptable to us or in amounts that
will enable us to carry out our business plan. Although, as of the date of this report, the COVID-19 pandemic did not have and
we do not expect that it will have a significant impact on our liquidity and capital resources, the extent to which COVID-19 impacts
our business will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity
and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic
effects of the pandemic and containment measures, among other future developments. As such, our ability to raise additional funds
could be affected by adverse market conditions resulting from the COVID-19 pandemic and delays related to COVID-19 in enrollment
in our trial.
Our need for capital may require us to:
· considerably reduce operations; or
· cease our operations.
In addition, sales of a substantial number
of our Common Shares in the public markets, or the perception that such sales could occur, could depress the market price of our
Common Shares and impair our ability to raise capital through the sale of additional equity securities.
Our operations could be adversely
affected by events outside of our control, such as natural disasters, wars or health crises such as the COVID-19 pandemic.
We may be impacted by business interruptions
resulting from pandemics and public health emergencies, including those related to COVID-19, geopolitical actions, including war
and terrorism or natural disasters including earthquakes, typhoons, floods and fires. An outbreak of infectious disease, a pandemic
or a similar public health threat, such as the COVID-19 pandemic, or a fear of any of the foregoing, could adversely impact us
by causing operating, manufacturing, supply chain, clinical trial and project development delays and disruptions, labour shortages,
travel and shipping disruption and shutdowns (including as a result of government regulation and prevention measures). Although,
as of the date of this report, we do not expect that COVID-19 will have a significant impact on our liquidity and capital resources,
the extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be
predicted, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its
impact, and the direct and indirect economic effects of the pandemic and containment measures, among other future developments.
We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our
business, operating results and financial condition.
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 $55.2 million in the fiscal year ended December 31, 2020, $26.3 million in the fiscal
year ended December 31, 2019 and $28.8 million in the fiscal year ended December 31, 2018, and as of December 31, 2020, we
had an accumulated deficit of $357.2 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 luxeptinib, 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.
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 are
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:
· 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:
· substantial cash expenditures;
· technology development risks;
· potentially dilutive issuances of equity securities;
· difficulties in assimilating the operations of the acquired companies;
· potential disputes regarding contingent consideration;
· diverting our management’s attention away from other business concerns;
· entering markets in which we have limited or no direct experience;
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
1 clinical trials may not necessarily repeat in larger Phase 2 or Phase 3 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 1a/b 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 luxeptinib product candidate is currently
being evaluated in a Phase 1a/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.
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.
Although, as of the date of this report,
we do not foresee material delays to the enrollment of patients or timelines for our trials due to COVID-19, the extent to which
COVID-19 will impact the projected development goals will depend on future developments, which are highly uncertain and cannot
be predicted. In the beginning of April 2020 we learned that certain of our larger sites would not be able to enroll new patients
on the fourth dose level of luxeptinib due to the current environment caused by COVID-19 and we therefore expect a slowdown in
enrollment at these sites. While it is difficult to estimate the duration and impact of COVID-19 on the larger clinical sites and
regional cancer care sites, as of the date of this report, we have not experienced and do not foresee material delays to the enrollment
of patients or timelines for the luxeptinib Phase 1a/b B-cell malignancy trial due to the variety of clinical sites that we
have actively recruited for this trial. While as of the date of this report we have not experienced any material delays in initiating
our luxeptinib Phase 1 clinical study in AML due to COVID-19, we are conducting site initiation visits remotely which could
result in delays in site activations and negatively impact this trial. Additionally, COVID-19 could negatively impact patient enrolment
if our clinical sites are unable to enroll patients due to either a lack of administrative resources at their sites or decisions
made at the clinical sites to limit patient exposure to COVID-19.
Future enrollment of patients on the APTO-253
trial is likely to be negatively impacted as a result of the current environment, as it is administered to patients intravenously,
which requires the need for hospital / clinical site resources to assist and monitor patients during each infusion.
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 completion of clinical trials for our products, including the APTO-253 Phase 1a/b clinical
trial, the Phase 1a/b clinical trial for the luxeptinib study for the treatment of patients having B-cell malignancies, and the
IND acceptance of our planned Phase 1a/b study for the development of luxeptinib for the treatment of patients with R/R AML may
be delayed for a number of reasons, including delays related, but not limited, to:
· 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;
· any changes to our manufacturing process that may be necessary or desired;
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.
Although, as of the date of this report,
we have not experienced any material delays in the manufacturing of luxeptinib and APTO-253 due to COVID-19, the extent to which
it will impact the manufacturing of our products will depend on future developments, which are highly uncertain and cannot be predicted.
Should our suppliers involved in the manufacture of luxeptinib be required to shut down their facilities due to COVID-19 either
due to lack of materials or personnel, our trials would be negatively impacted. We are mitigating this risk by continuing to manufacture
drug supply, but there is no guarantee that we will have enough drug to supply the trial if any of our manufacturers have a sustained
shut down in their operations. COVID-19 may also affect the timing and delivery of labeled and packaged drug product for APTO-253
since it is an intravenous formulation which, compared to orally administered therapies, involves a more complex process. Factors
related to COVID-19 caused a delay in the labeling and packaging of the APTO-253 drug product; however, going forward we do not
anticipate this to materially affect the patient accrual for the ongoing Phase 1b trial.
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 COVID-19 pandemic has resulted in the
extended shutdown of certain businesses and markets in many regions causing reduced availability for certain pharmaceutical ingredients.
The current 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.
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:
· 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.
Although, as of the date of this report,
we do not foresee material delays to the enrollment of patients or timelines for our trials due to COVID-19, the extent to which
COVID-19 will impact the projected development goals will depend on future developments, which are highly uncertain and cannot
be predicted.
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.
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 2, Phase 3 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 3 clinical trials or registration trials. The FDA, Health Canada or other regulatory authorities
may disagree with our trial design and our interpretation of data from preclinical studies and clinical trials. In addition, any
of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing
comments or advice on a protocol for a pivotal Phase 3 clinical trial that has the potential to result in 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 we request 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:
· drug products that have already been approved or are in development;
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 luxeptinib 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 Merck (MK-1026), Roche, and Eli Lilly (LY3527727) among others.
For luxeptinib 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 (XOSPATA), Daiichi Sankyo (QUIZARTINIB), Arog (CRENOLANIB), and IDH1
include Agios (TIBSOVO) and Celgene/BMS (IDHIFA) among others.
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:
· 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 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.
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 USPTO, 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 luxeptinib. 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 luxeptinib 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.
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 luxeptinib 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 our 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 our 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 our 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.
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