Aptose Biosciences(APTO) - 2022 Q4 - Annual Report

Part I Business Aptose Biosciences is a clinical-stage biotech developing precision oncology medicines for hematologic malignancies, with lead assets tuspetinib and luxeptinib in Phase 1/2 trials - Aptose is a clinical-stage biotechnology company focused on precision oncology medicines for hematology, with assets designed for single-agent and combination efficacy without overlapping toxicities[14] - The company's strategy focuses on advancing oral targeted agents for life-threatening cancers, primarily tuspetinib and luxeptinib[15] - The clinical program for APTO-253, a MYC oncogene inhibitor, was discontinued on December 20, 2021, to prioritize advanced pipeline candidates[20][39] Product Candidate Pipeline | Product Candidate | Target Indication | Stage of Development | | :--- | :--- | :--- | | Tuspetinib | Relapsed/Refractory Acute Myeloid Leukemia (R/R AML) | Phase 1/2 | | Luxeptinib | R/R B-Cell Malignancies & R/R AML/High-Risk MDS | Phase 1a/b | | APTO-253 | R/R Blood Cancers (AML/MDS) | Program Discontinued | Tuspetinib Program Tuspetinib, an oral myeloid kinase inhibitor, has shown complete responses in R/R AML Phase 1/2 trials and advanced to the APTIVATE expansion study - Aptose acquired exclusive worldwide rights for tuspetinib from Hanmi Pharmaceutical for an upfront payment of $12.5 million ($5 million cash, $7.5 million shares) and up to $407.5 million in future milestones plus royalties[23] - In its Phase 1/2 trial for R/R AML, tuspetinib demonstrated complete responses (CRs) at multiple dose levels (40mg, 80mg, 120mg, 160mg) with a favorable safety profile, showing no QTc prolongations, liver/kidney toxicities, or differentiation syndrome[16][28] - The program advanced to the APTIVATE expansion trial, with 120 mg selected for monotherapy and 80 mg for combination therapy with venetoclax[28] Luxeptinib Program Luxeptinib, a dual kinase inhibitor, is in Phase 1a/b trials for B-cell malignancies and AML, with a new G3 formulation showing improved bioavailability - Aptose holds worldwide rights (excluding Korea) to luxeptinib, licensed from Crystal Genomics, with a total deal value of up to $125 million for China rights, plus milestones and royalties[31] - A new G3 formulation was developed to address limited absorption, with a 50 mg G3 dose predicted to provide exposure comparable to a 900 mg G1 dose in R/R AML patients[19][36] - The original G1 formulation yielded a complete response (CR) in a DLBCL patient at a 900mg BID dose and a CR in an R/R AML patient at a 450mg BID dose[19][36] Competitive Conditions The company faces intense competition in AML and B-cell malignancies from established pharmaceutical companies with approved and developing therapies - In the AML market, Aptose competes with approved therapies from companies including Jazz (VYXEOS), Pfizer (MYLOTARG), Novartis (RYDAPT), Astellas (XOSPATA), and AbbVie (VENCLEXTA)[42] - For B-cell malignancies, competitors include companies with approved BTK inhibitors like AbbVie (IMBRUVICA) and AstraZeneca (CALQUENCE), and those developing inhibitors for mutant BTK forms, such as Merck and Eli Lilly[43] Intellectual Property Aptose holds intellectual property for tuspetinib (39 patents, protection until 2038-2039) and luxeptinib (46 patents, protection until 2033-2038) via licensing - Aptose holds exclusive worldwide rights to tuspetinib, with 39 issued patents providing protection until 2038-2039[48] - The company holds rights to 46 issued patents for luxeptinib, expected to provide protection until 2033-2038[51] Risk Factors The company faces significant risks including going concern doubt, early-stage product development, reliance on third parties, regulatory uncertainties, intense competition, and Nasdaq delisting concerns - There is substantial doubt about the company's ability to continue as a going concern, requiring additional financing to fund operations over the next twelve months[94] - The company has a history of operating losses, reporting a net loss of $41.8 million for FY 2022 and an accumulated deficit of $464.3 million as of December 31, 2022[104] - On July 18, 2022, the company received a Nasdaq notice for its stock price falling below the $1.00 minimum, with a 180-day extension until July 18, 2023, to regain compliance[203][204] - The company believes it is classified as a Passive Foreign Investment Company (PFIC), potentially leading to adverse U.S. federal income tax consequences for its U.S. shareholders[212] - Aptose relies heavily on contract manufacturing organizations (CMOs) for product manufacturing and contract research organizations (CROs) for clinical development, creating dependence on third parties[132][143] Properties Aptose leases office spaces in San Diego (7,556 sq. ft.) and Toronto (2,078 sq. ft.), with a San Diego lab lease expiring in February 2023 - The company leases office space in San Diego, CA (7,556 sq. ft.) and Toronto, Canada (2,078 sq. ft.)[221] Legal Proceedings The company reports no material pending legal proceedings as of the report date - As of the report date, the company is not aware of any material pending legal proceedings[222] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on Nasdaq (APTO) and TSX (APS), with no anticipated cash dividends or Q4 2022 equity repurchases - Common shares are traded on Nasdaq (APTO) and the Toronto Stock Exchange (APS)[224] - The company does not expect to pay cash dividends in the foreseeable future[224] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A details a reduced net loss in 2022 due to lower R&D, but weakened liquidity and going concern doubt persist, while tuspetinib and luxeptinib programs advanced Program Updates In 2022, tuspetinib completed dose escalation and initiated the APTIVATE trial, while luxeptinib advanced with a new, more bioavailable G3 formulation - Tuspetinib completed dose escalation and exploration, delivering single-agent responses in heavily pretreated R/R AML patients, and initiated the APTIVATE expansion trial for monotherapy (120mg) and combination (80mg) with venetoclax[236] - For luxeptinib, a new G3 formulation was developed, with a 50mg G3 dose predicted to achieve plasma exposure comparable to 900mg of the original G1 formulation, with AML patient dosing beginning in November 2022[240] Liquidity and Capital Resources The company's liquidity significantly declined in 2022, with cash and investments at $47.0 million, raising substantial doubt about its going concern status and necessitating additional financing - Management states that additional financing is necessary to continue operations, raising substantial doubt about the company's ability to continue as a going concern[255] Liquidity Position (in thousands) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $36,970 | $39,114 | | Investments | $9,989 | $40,014 | | Total Cash & Investments | $46,959 | $79,128 | | Working capital | $37,235 | $73,563 | Cash Flow Summary (in thousands) | Activity | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in Operating activities | $(32,322) | $(43,304) | | Net cash from (used in) Investing activities | $30,066 | $(35,208) | | Net cash from Financing activities | $116 | $226 | Results of Operations Aptose reported a reduced net loss of $41.8 million in 2022, down from $65.4 million in 2021, primarily due to lower R&D and G&A expenses Consolidated Results of Operations (in thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Research and development expenses | $28,088 | $45,985 | | General and administrative expenses | $14,514 | $19,462 | | Net loss | $(41,823) | $(65,354) | | Basic and diluted loss per Common Share | $(0.45) | $(0.73) | Research & Development Expense Breakdown (in thousands) | Expense Category | 2022 | 2021 | | :--- | :--- | :--- | | License fee – Tuspetinib | $— | $12,500 | | Program costs – Tuspetinib | $10,083 | $57 | | Program costs – Luxeptinib | $8,426 | $18,490 | | Program costs – APTO-253 | $141 | $3,543 | | Personnel & Stock-based comp. | $9,399 | $11,383 | | Total R&D Expenses | $28,088 | $45,985 | - The $17.9 million decrease in R&D expenses from 2021 to 2022 was primarily due to the $12.5 million tuspetinib license fee in 2021, a $10.1 million decrease in luxeptinib program costs, and a $3.4 million decrease in APTO-253 costs, partially offset by a $10.0 million increase in tuspetinib program costs[279] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes in Q4 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[299] - Based on the COSO 2013 framework, management concluded that internal control over financial reporting was effective as of December 31, 2022[303] Part III Directors, Compensation, Ownership, and Fees Information for Items 10-14, covering directors, compensation, ownership, and fees, is incorporated by reference from the 2023 Proxy Statement - The information required for Items 10 through 14 is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders[306] Part IV Exhibits and Financial Statement Schedules This section includes consolidated financial statements for 2022 and 2021, and KPMG LLP's auditor report, which highlights a "Going Concern" uncertainty - The Report of Independent Registered Public Accounting Firm (KPMG LLP) includes a "Going Concern" paragraph, citing recurring losses that raise substantial doubt about the company's ability to continue as a going concern[330] - The auditor's report identifies "Research and Development Prepaid and Accrued Costs" as a Critical Audit Matter due to subjective and complex estimation judgments[336][337] Consolidated Statements of Financial Position (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $49,519 | $81,737 | | Total assets | $51,027 | $82,525 | | Total current liabilities | $12,284 | $8,174 | | Total liabilities | $13,286 | $8,289 | | Total shareholders' equity | $37,741 | $74,236 | Consolidated Statements of Loss and Comprehensive Loss (in thousands) | | Year ended Dec 31, 2022 | Year ended Dec 31, 2021 | | :--- | :--- | :--- | | Research and development | $28,088 | $45,985 | | General and administrative | $14,514 | $19,462 | | Net loss | $(41,823) | $(65,354) |