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 is a science-driven biotechnology
company advancing first-in-class targeted agents to treat life-threatening cancers, such as AML, high-risk MDS, 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: luxeptinib (CG-806) and APTO-253, both
being evaluated for safety, tolerability, pharmacokinetics and signals of efficacy in Phase 1 clinical trials. Each molecule is
described below.
Luxeptinib is an orally administered, highly
potent first-in-class FLT3/BTK inhibitor that selectively 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 1a/b study for
the treatment of patients having B-cell malignancies including classic CLL, SLL and certain NHL that are resistant/refractory/intolerant
to other therapies. In addition, Aptose received IND allowance and initiated patient dosing in a Phase 1a/b study to develop
luxeptinib for the treatment of patients with R/R AML, including the emerging populations resistant to FLT3 inhibitors. In this
trial of patients with R/R AML, the luxeptinib starting dose of 450 mg BID was selected because the plasma from B-cell cancer patients
at that dose completely inhibited phospho-FLT3, suggesting that this starting dose might be active in the AML patient population,
and that dose escalation is planned to identify an optimal dose for treating a breadth of AML patients. It is important to note
that luxeptinib now is undergoing formal clinical development in both lymphoid and myeloid hematologic malignancies.
APTO-253 is a first-in-class small molecule
therapeutic agent that clinically inhibits expression of the MYC oncogene without causing, to date, general myelosuppression of
the bone marrow. The MYC oncogene is overexpressed across many hematologic cancers, including AML and certain B cell malignancies,
as well as certain solid tumor indications. MYC acts as 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. APTO-253 is
currently being evaluated in a Phase 1a/b study for the treatment of patients with R/R AML and high-risk MDS. 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.
Impact of COVID 19 on our Research
Programs:
We are advancing first-in-class targeted
agents to treat life-threatening cancers that, in most cases, are not elective for patients and require immediate treatment. However,
COVID-19 has caused global economic and social disruptions that could adversely affect our ongoing or planned research and development
and clinical trial activities including enrollment of patients in our ongoing clinical trials, collection and analysis of patient
data and eventually, the reporting of top-line results from our trials.
Our team proactively addressed these new
challenges swiftly and appropriately, implementing safeguards and procedures to ensure both the safety of our employees and stakeholders,
and accommodate the potential challenges due to COVID-19. Aptose was early in directing its employees to work-from-home and provided
the tools to minimize productivity disruptions. Our clinical operations team reached out to active and future clinical sites to
determine their needs and challenges and assist where possible, including virtual monitoring of patients, which reduces patients’
visits. We also have contacted our drug manufacturers to identify any potential supply chain disruptions and are adjusting accordingly.
During the early part of the first quarter of 2020, we began to carefully monitor the potential impact of COVID-19, and on a regular
basis, we communicated with investigators at our clinical sites to gain an evolving understanding of competing COVID-19 related
activities and clinical trial related activities.
In the beginning of April 2020, we learned
that some of our larger clinical sites that are impacted by COVID-19 may either postpone or face delays in the enrollment of patients
on all on-going clinical trials due to a number of factors, including the re-allocation of resources and to avoid clinical trial
patients being exposed to COVID-19. Such measures taken at the clinical sites could lead to a slowdown in the enrollment of patients
on our trials at these sites. To minimize the impact of COVID-19, we focused efforts on our other larger clinical sites and regional
cancer care sites that are not/less impacted by COVID-19 to recruit patients into the fourth cohort. 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. APTO-253, which is
administered intravenously, requires the need for hospital / clinical site resources to assist and monitor patients during each
infusion and based on the current conditions caused by COVID-19, future enrollment of patients on this trial is likely to be negatively
impacted.
PROGRAM UPDATES
Luxeptinib (CG-806)
Indication and Clinical Trials:
Luxeptinib is being developed with the
intent to deliver the agent as an oral therapeutic for the treatment of R/R AML and for the treatment of a spectrum of B cell malignancies
(including but not limited to CLL, SLL and NHL).
On March 25, 2019, we announced that the
FDA granted Aptose IND allowance to initiate its Phase 1a/b clinical trial for luxeptinib. The clinical trial is a multicenter,
open label, dose-escalation study with additional optional expansion cohorts to assess the safety, tolerability, pharmacokinetics
and pharmacodynamic effects, and prelimnary efficacy of luxeptinib in patients with CLL, SLL or NHL. In this study, luxeptinib
is administered in gelatin capsules twice daily (BID during a 28-day cycle.
As of the date of this report, we have initiated thirty clinical
sites for the Phase 1a/b trial in patients with CLL/SLL or NHL which include specialty regional cancer care centers as well as
large hospitals and key academic institutions. As of the date of this report, we have completed the first, second, third and fourth
dose levels (150 mg, 300 mg, 450 mg and 600 mg BID, respectively). Cohort 5 (750mg) enrollment is ongoing. Under an FDA-approved
accelerated titration protocol, only one patient was required at each of the first two dose levels, followed by three patients
at each dose level thereafter. Intra-patient dose escalation is allowed if the higher dose is safe in three or more patients,
and additional patients may be enrolled at dose levels previously declared safe. To date, we have reported that among enrolled
patients with an array of B-cell malignancies, three classic CLL patients have received luxeptinib and all three demonstrated
inhibition of phospho-BTK and “on-target” lymphocytosis and modest tumor reductions in different tumor types, indicating
target engagement and pharmacologic activity of luxeptinib. As luxeptinib moves from low/intermediate dose levels and into the
higher dose levels, it is hoped that an optimal dose can be selected that demonstrates formal clinical responses without excessive
toxicity.
We are also advancing luxeptinib into myeloid
malignancies, with an initial focus on AML, in a separate Phase 1a/b trial. On June 29, 2020, we announced that we had received
allowance from the FDA to proceed into a study in R/R AML with a starting dose of 450 mg BID, and subsequently on October 19, 2020,
announced that we had initiated dosing of the first patient with AML. As of the date of this report we have initiated six clinical
sites for the Phase 1a/b trial and dosing continues at the 600 mg dose cohort.
The clinical trial is a multicenter, open
label, dose-escalation study with additional optional expansion cohorts to assess the safety, tolerability, pharmacokinetics and
pharmacodynamic effects, and preliminary efficacy of luxeptinib in patients with R/R AML. In this study, luxeptinib is administered
in gelatin capsules BID during a 28-day cycle. Our strategy was to identify a starting dose of luxeptinib that we believe could
be therapeutically active in critically ill patients with R/R AML. In our ongoing Phase 1a/b study in patients with CLL and other
B-cell malignancies, 450 mg BID luxeptinib delivered plasma levels potently inhibited phospho-FLT3 in a plasma inhibitory activity
(PIA) reporter cell assay, suggesting that the 450 mg BID dose may be active in patients with AML. Aptose plans to dose escalate
beyond the 450 mg BID dose level, provided the 450 mg BID dose level is safe and well tolerated in R/R AML patients. Based on strong
preclinical evidence of luxeptinib’s activity against AML – including demonstration of mutation-agnostic and genotype-agnostic
potency, particularly compared against other FLT3 inhibitors, and its ability to safely cure AML in murine leukemia models –
we believe that luxeptinib may offer hope to the fragile and difficult-to-treat AML patient population. The FDA has granted orphan
drug designation to luxeptinib 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. The orphan drug designation also provides us with seven additional years of marketing exclusivity in this
indication.
Manufacturing:
During fiscal years 2017 and 2018, we created
a scalable chemical synthetic route for the manufacture of luxeptinib drug substance and have scaled the manufacture of API (active
pharmaceutical ingredient, or drug substance) to multi-kg levels, we completed the manufacture of a multi-kg batch of API under
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. During fiscal 2019 and 2020, we completed successful manufacture
of multiple batches of API and drug product, and planned numerous GMP production campaigns to supply the ongoing trial and planned
trials into the future. To date we have been able to manufacture API and capsules to support clinical supplies under GMP conditions.
We are continuing our manufacturing campaigns in the current 2021 fiscal period and continue scale-up and tech transfer activities
to support additional manufacturing capacity for the ongoing and planned clinical trials of luxeptinib. Additional research and
development funds are being utilized to support exploratory formulation studies in an ongoing effort to craft a superior formulation
for later stage development of luxeptinib.
Preclinical Program Updates:
We have completed several non-clinical
studies that demonstrate the highly differentiated profile of luxeptinib. Key studies that have been presented at scientific forums
are as follows:
APTO-253
APTO-253, a small molecule inhibitor of
MYC gene expression, is being evaluated by Aptose in a Phase 1a/b clinical trial in patients with R/R hematologic malignancies,
particularly R/R AML and high-risk MDS. The Phase 1b, 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 2 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.
As of the date of this report, we have
multiple active sites recruiting patients in the dose escalation stage of the trial. As of the date of this report, we have completed
enrollment and treatment of patients on the first, second, third and fourth dose levels (20, 40, 66, and 100 mg/m2,
respectively). Under an FDA-approved accelerated titration protocol, only one patient was required at each of the first two dose
levels, followed by three patients at each dose level thereafter. Aptose is currently enrolling and treating patients in the fifth
dose level (150 mg/m2) of APTO-253. During the second quarter of 2020, the FDA allowed an amendment for Aptose to initiate
more aggressive dose escalations with APTO-253, provided the tolerability profile remains favorable. The first four dosing cohorts
have enrolled a mix of patients with AML and MDS. To date, we have observed meaningful reductions in MYC expression in peripheral
blood mononuclear cells (PBMCs) from treated patients with AML and MDS, demonstrating MYC target engagement and mechanistic proof
of concept in different indications.
Manufacturing:
We are continuing to manufacture additional
drug substance and drug product for use in the ongoing trial.
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.
Preclinical data presented at scientific
forums are as follows:
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 enrollment 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.
As of the date of this report, we have
not experienced material delays in the manufacturing of luxeptinib or APTO-253 related to COVID-19. Should our manufacturers experience
shortages in staffing or be required to shut down their facilities due to COVID-19 for an extended period of time, our trials may
be negatively impacted.
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, 2020 and 2019.
(in thousands) Balances at December 31, 2020 Balances at December 31, 2019
Working capital represents primarily cash,
cash equivalents, investments, prepaid expenses and other current assets less current liabilities.
We believe that our cash, cash equivalents
and investments on hand at December 31, 2020 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.
On July 20, 2020 and August 10, 2020, the
Company completed a confidentially marketed public offering (“CMPO”), with Piper Sandler & Co. (“Piper Sandler”)
as the representative of the underwriters, through the issuance of, in the aggregate, 11,854,472 Common Shares for gross proceeds
of $62.2 million (approximately $58.2 million net of share issue costs).
On May 5, 2020, the Company entered an
“at-the-market” equity distribution agreement with Piper Sandler and Canaccord Genuity LLC (“Canaccord Genuity”)
acting as co-agents (the “2020 ATM Facility”). Under the terms of the 2020 ATM Facility, the Company may, from time
to time, sell Common Shares having an aggregate offering value of up to $75 million through Piper Sandler and Canaccord Genuity
on the Nasdaq Capital Market. During the year ended December 31, 2020, the Company did not issue any shares under the 2020 ATM
Facility.
During the year ended December 31, 2019,
the Company completed two CMPOs, with RBC Capital Markets, LLC (“RBC Capital Markets”) and Canaccord Genuity, as representatives
of the underwriters, and Piper Jaffray & Co (now Piper Sandler) as the representative of the underwriters, respectively, through
the issuance of, in the aggregate, 30,043,750 Common Shares for aggregate 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 agreements with Aspire
Capital Fund, LLC (“Aspire Capital”) through the issuance of an aggregate of 7,302,433 Common Shares for aggregate
gross proceeds of $14.4 million. We do not expect that COVID-19 will have a significant impact on our liquidity and capital resources
and we are not incurring significant additional costs to support our ongoing operations during this time. We have not entered into
long term manufacturing contracts and should there be a delay in our trials we have flexibility to reduce future planned manufacturing
campaigns without incurring additional costs.
We expect that we will need to raise additional
capital or incur indebtedness to continue to fund our operations in the future. In December 2019, we filed a short form base shelf
prospectus (the “Base Shelf”) that allows us to distribute, upon the filing of prospectus supplements, up to $200,000,000
of Common Shares, warrants, or units comprising any combination of Common Shares and warrants. The Base Shelf was declared effective
by the SEC on January 9, 2020 and expires on January 9, 2023.
Our ability to raise additional funds could
be affected by adverse market conditions, the status of our product pipeline, possible delays in enrollment in our trial related
to COVID-19, and various other factors and we may be unable to raise capital when needed, or on terms favorable to us. If the necessary
funds are not available, we may need 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.
Cash flows:
The following table presents a summary
of our cash flows for the years ended December 31, 2020 and 2019:
For the Years Ended,
Net cash provided by (used in):
Effect of exchange rates changes on cash and cash equivalents 7 23
Net increase in cash and cash equivalents $ 37,551 $ 64,543
Cash used in operating activities:
Our cash used from operating activities
for the years ended December 31, 2020 and 2019 was approximately $33.9 million and $21.6 million, respectively. Net cash used
in operating activities was higher in the year ended December 31, 2020 as compared with the year ended December 31, 2019 resulting
mostly from a higher net loss in the current year. See “Results of Operations”. Our uses of cash for operating activities
for both years consisted primarily 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.
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 provided by investing activities
for the year ended December 31, 2020 was $12.6 million, and consisted of maturities of investments of $12.7 million and
purchases of property and equipment of $79 thousand. 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.
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 and treasury bills 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.
Cash flow from financing activities:
Our cash flow from financing activities
for the year ended December 31, 2020 was approximately $58.8 million, consisted mostly of the CMPO we completed in July and August
2020 as described above and of proceeds from the exercise of stock options of $573 thousand. Net cash provided by financing
activities in the year ended December 31, 2019 reflects mostly:
vi) proceeds from the exercise of stock options of $718 thousand.
At-The-Market Facilities
On May 5, 2020, the Company entered into
an equity distribution agreement with Piper Sandler and Canaccord Genuity acting as co-agents in connection with the 2020 ATM Facility.
Under the terms of the 2020 ATM Facility, the Company may, from time to time, sell Common Shares having an aggregate offering value
of up to $75 million through Piper Sandler and Canaccord Genuity on the Nasdaq Capital Market. During the year ended December 31,
2020, the Company did not issue any shares under the 2020 ATM Facility.
On May 24, 2019, we entered an at-the-market
equity facility (the “2019 ATM Facility”) with Piper Jaffray & Co. (now Piper Sandler) and Canaccord Genuity, acting
as co-agents. The 2019 ATM Facility replaced the previous facility that we had entered into with Cantor Fitzgerald (the “2018
ATM Facility”). 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.
On March 27, 2018, the Company entered
into an equity distribution agreement with Cantor Fitzgerald acting as sole agent in connection with the 2018 ATM Facility. Under
the terms of the 2018 ATM Facility, the Company was allowed, from time to time, to sell Common Shares having an aggregate offering
value of up to $30 million through Cantor Fitzgerald on the Nasdaq Capital Market. During the year ended December 31, 2019, the
Company issued 77,349 shares under the 2018 ATM Facility at an average price of $2.37 for gross proceeds of $183 thousand ($178
thousand net of share issue costs). On a cumulative basis to December 31, 2019, the Company had raised a total of $11.2 million
gross proceeds ($10.9 million net of share issue costs) under the 2018 ATM Facility. The Company terminated this agreement on May
24, 2019.
Common Share Purchase Agreements
On May 30, 2018, the Company entered into
a common share purchase agreement to sell up to $20.0 million of Common Shares to Aspire Capital over approximately 30 months (the
“2018 Aspire Purchase Agreement”). Pursuant to the terms of this agreement, on June 8, 2018, the Company issued 170,261
Common Shares to Aspire Capital in consideration for entering into the 2018 Aspire Purchase Agreement for a total cost of $600
thousand. During the year ended December 31, 2019, the Company issued 5,502,433 Common Shares to Aspire Capital pursuant to
the 2018 Aspire Purchase Agreement at an average price of $1.82 per Common Share for gross and net proceeds of $10 million. On
a cumulative basis, 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 had issued 6,409,980 Common Shares, the maximum number of Common Shares issuable under
this facility without shareholder approval, and the 2018 Aspire Purchase Agreement was accordingly terminated.
On May 7, 2019, the Company entered into
the a common share purchase agreement with Aspire Capital (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 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 Common
Share for gross and net proceeds of $4.4 million.
Contractual Obligations and Off-Balance Sheet Financing
As at December 31, 2020, 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 with
regards to the Rights (other than the China Rights), 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.
Under the license agreement with CG with
regards to the China Rights, 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 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 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, 2020 and 2019 is presented below:
Year ended December 31,
(in thousands except per Common Share data) 2020 2019
Revenues $ — $ —
Unrealized gain/(loss) on securities available-for-sale (18 ) 18
Basic and diluted loss per Common Share $ (0.67 ) $ (0.52 )
Net loss of $55.2 million for the year
ended December 31, 2020 increased by approximately $28.9 million as compared with $26.3 million for the year ended December 31,
2019, primarily as a result of an increase of $19.1 million in stock-based compensation in the current period, a combined increase
in program costs and related labor costs of approximately $9.8 million on our luxeptinib development program and higher cash-based
general and administrative expenses of approximately $549 thousand. These expenses were partially offset by lower costs of $545
thousand on our APTO-253 development programs.
Research and Development Expenses
The research and development (“R&D”)
expenses for the years ended December 31, 2020 and 2019 were as follows:
Year ended December 31,
Depreciation of equipment 17 30
R&D expenses increased by $12.5 million
to $29.3 million for the year ended December 31, 2020 as compared with $16.8 million for the comparative period in 2019. Changes
to the components of our R&D expenses presented in the table above are primarily as a result of the following activities:
General and Administrative Expenses
The general and administrative expenses
for the years ended December 31, 2020 and 2019 are as follows:
Year ended December 31,
General and administrative, excluding items below: $ 8,627 $ 8,078
Depreciation of equipment 135 122
General and administrative expenses for
the year ended December 31, 2020 were approximately $26.5 million as compared with $10.0 million for the comparative period in
2019, an increase of approximately $16.5 million. The increase was primarily as a result of the following:
COVID-19 did not have a significant impact
on our results of operations for the year ended December 31, 2020. We have not experienced and do not foresee material delays to
the enrollment of patients or timelines for the luxeptinib Phase 1a/b trial due to the variety of clinical sites that we have actively
recruited for this trial. Similarly, we do not expect our enrollment of the luxeptinib AML trial to be negatively impacted by COVID-19
as we plan to use a variety of clinical sites for this trial as well. APTO-253, which is administered intravenously, requires the
need for hospital / clinical site resources to assist and monitor patients during each infusion and, based on the current conditions
caused by COVID-19, future enrollment of patients on this trial is likely to be negatively impacted. As of the date of this report,
we have not experienced material delays in the manufacturing of luxeptinib or APTO-253 related to COVID-19. Should our manufacturers
be required to shut down their facilities due to COVID-19 for an extended period of time, our trials may be negatively impacted.
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, 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 estimates related to prepaid and accrued R&D activities, the valuation of contingent liabilities,
the valuation of tax accounts, and the assumptions used in determining the valuation of share-based compensation.
Research and Development Activities:
R&D costs are expensed as incurred. R&D
costs consist primarily of salaries and benefits, stock-based compensation, manufacturing, contract services, clinical trials,
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.
The Company records expenses for research
and development activities based on Management’s estimates of services received and efforts expended pursuant to contracts
with vendors that conduct research and development on Aptose’s behalf. The financial terms vary from contract to contract
and may result in uneven payment flows as compared with services performed or products delivered. As a result, the Company is required
to estimate research and development expenses incurred during the period, which impacts the amount of accrued expenses and prepaid
balances related to such costs as of each balance sheet date. Management estimates the amount of work completed through discussions
with internal personnel and external service providers as to the progress or stage of completion of the services. Management makes significant judgments and estimates in determining the accrued balance in each
reporting period. As actual costs become known, the Company adjusts the accrued estimates.
Although Management does not expect our
estimates to be materially different from amounts actually incurred, if the estimates of the status and timing of services performed
differ from the actual status and timing of services performed, it could result in the Company reporting amounts that are too high
or too low in any particular period. To date, there have been no material differences between the estimates of such expenses and
the amounts actually incurred.
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.
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, 2020 and 2019, respectively, are presented in Note 12 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 23, 2021, we had 88,885,238 Common Shares issued and
outstanding. In addition, there were 14,643,053 Common Shares issuable upon the exercise of outstanding stock
options.
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.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of our fiscal year ended
December 31, 2020, 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 Exchange Act) 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 SEC 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, 2020, 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, 2020, our internal control over financial reporting was effective based on those
criteria. We are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K under the Securities Act.
For as long as we continue to be a smaller reporting company, we may take advantage of exemptions from various reporting requirements
that are applicable to other public companies that are not smaller reporting companies.
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, 2020, 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 2021 Annual Meeting of Shareholders, referred to as the Proxy Statement, which will be filed with the SEC within
120 days of the 2020 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.
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.”
PART IV.
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:
Page
Report of Independent Registered Public Accounting Firm F-2 - F-4
Balance Sheets F-5
Statements of Operations and Comprehensive Loss F-6
Statements of Shareholders’ Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-9
2. Financial Statement Schedules.
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 Description of Document
4.1* Description of Securities
Exhibit Number Description of Document
21.1* List of Subsidiaries
23.1* Consent of Independent Registered Public Accounting Firm (KPMG)
24.1* Powers of Attorney (included on signature page)
_______________________________
+ Indicates management contract or compensatory plan.
* Filed herewith.
ITEM 16. form 10-k summary
None.
SIGNATURES
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 23rd day of March, 2021.
Aptose Biosciences Inc.
By: /s/ William G. Rice
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/ Denis R. Burger, Ph.D. Director, Lead Independent
/s/ Carol G. Ashe Director
/s/ Caroline Loewy Director
/s/ Erich M. Platzer, M.D., Ph.D. Director
/s/ Mark D.Vincent, M.D. Director
/s/ Warren Whitehead Director
Consolidated Financial Statements
APTOSE BIOSCIENCES INC.
Years ended December 31, 2020 and 2019
KPMG LLP
100 New Park Place, Suite 1400
Vaughan, ON
L4K 0J3
Tel 905-265 5900
Fax 905-265 6390
www.kpmg.ca
Report of Independent Registered Public Accounting
Firm
To the Shareholders and Board of Directors
Aptose
Biosciences Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated
statements of financial position of Aptose Biosciences Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, 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, 2020, 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