Aptose Biosciences(APTO) - 2023 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents Aptose Biosciences Inc.'s unaudited interim financial statements and management's discussion for Q1 2023 Item 1 – Financial Statements Presents Aptose Biosciences Inc.'s unaudited condensed consolidated interim financial statements and related notes for Q1 2023 and 2022 Condensed Consolidated Interim Statements of Financial Position Summarizes Aptose Biosciences Inc.'s financial position, including assets, liabilities, and equity, as of March 31, 2023, and December 31, 2022 Condensed Consolidated Interim Statements of Financial Position (in thousands of US dollars) | Metric | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Total Assets | $39,330 | $51,027 | | Cash and Cash Equivalents | $22,762 | $36,970 | | Investments | $12,958 | $9,989 | | Total Current Assets | $37,929 | $49,519 | | Total Liabilities | $13,337 | $13,286 | | Total Shareholders' Equity | $25,993 | $37,741 | | Deficit | $(478,006) | $(464,330) | Condensed Consolidated Interim Statements of Loss and Comprehensive Loss Details Aptose Biosciences Inc.'s revenue, expenses, net loss, and loss per share for the three months ended March 31, 2023 and 2022 Condensed Consolidated Interim Statements of Loss and Comprehensive Loss (in thousands of US dollars, except per share data) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $— | $— | | Research and Development Expenses | $8,811 | $7,393 | | General and Administrative Expenses | $5,285 | $4,107 | | Operating Expenses | $14,096 | $11,500 | | Interest Income | $422 | $22 | | Net Loss | $(13,676) | $(11,481) | | Basic and Diluted Loss Per Common Share | $(0.15) | $(0.12) | Condensed Consolidated Interim Statements of Changes in Shareholders' Equity Outlines changes in Aptose Biosciences Inc.'s shareholders' equity, including net loss and share issuances, for Q1 2023 Condensed Consolidated Interim Statements of Changes in Shareholders' Equity (in thousands of US dollars) | Metric | Balance, December 31, 2022 | Balance, March 31, 2023 | | :------------------------- | :------------------------- | :---------------------- | | Total Shareholders' Equity | $37,741 | $25,993 | | Net Loss | $(13,676) | $(13,676) | | Common Shares Issued (2022 ATM Facility) | $34 | $34 | | Common Shares Issued (ESPP plan) | $16 | $16 | | Stock-based Compensation | $1,874 | $1,874 | Condensed Consolidated Interim Statements of Cash Flows Presents Aptose Biosciences Inc.'s cash flows from operating, investing, and financing activities for Q1 2023 and 2022 Condensed Consolidated Interim Statements of Cash Flows (in thousands of US dollars) | Cash Flow Activity | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(11,302) | $(9,645) | | Net cash from/(used in) investing activities | $(2,960) | $7,505 | | Net cash from financing activities | $50 | $15 | | Net decrease in cash and cash equivalents | $(14,208) | $(2,123) | | Cash and cash equivalents, end of period | $22,762 | $36,991 | 1. Reporting entity Provides an overview of Aptose Biosciences Inc.'s business, product pipeline, and going concern status - Aptose is a science-driven clinical-stage biotechnology company focused on developing precision medicines for oncology, with an initial focus on hematology[34] - The company has two clinical-stage investigational products for hematological malignancies: tuspetinib (myeloid kinase inhibitor) and luxeptinib (dual lymphoid and myeloid kinase inhibitor)[35] - Aptose has an accumulated deficit of approximately $478.0 million as of March 31, 2023, and faces substantial doubt about its ability to continue as a going concern, requiring additional financing[36][39] 2. Significant accounting policies Details Aptose Biosciences Inc.'s critical accounting policies, going concern considerations, and financial risk management - Substantial doubt exists about the Company's ability to continue as a going concern due to an accumulated deficit of $478.0 million, cash and cash equivalents and investment balances of $35.7 million, and working capital of $25.5 million as of March 31, 2023[39][43][44] - The company is evaluating strategies for additional funding, including equity or debt financing, but there is no assurance of obtaining such liquidity when needed or under acceptable terms, if at all[44] - No changes to significant accounting policies were made during the three months ended March 31, 2023, and the functional and presentation currency of the Company is the US dollar[45][47][48] - Credit risk from cash and investments is managed by investing in highly rated corporations and treasury bills capable of prompt liquidation[49] 3. Cash and cash equivalents Provides a breakdown of Aptose Biosciences Inc.'s cash and cash equivalents as of March 31, 2023, and December 31, 2022 Cash and Cash Equivalents (in thousands of US dollars) | Metric | March 31, 2023 | December 31, 2022 | | :------------------------------------------------ | :------------- | :---------------- | | Cash | $1,132 | $596 | | Deposits (high interest savings, money market, term deposits < 90 days) | $21,630 | $36,374 | | Total Cash and Cash Equivalents | $22,762 | $36,970 | 4. Prepaid expenses Details Aptose Biosciences Inc.'s prepaid expenses, including R&D and insurance, as of March 31, 2023, and December 31, 2022 Prepaid Expenses (in thousands of US dollars) | Metric | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Prepaid Research and Development Expenses | $1,208 | $1,271 | | Prepaid Insurance | $684 | $893 | | Other Prepaid Expenses | $155 | $139 | | Total Prepaid Expenses | $2,047 | $2,303 | 5. Right-of-use assets Presents Aptose Biosciences Inc.'s right-of-use assets and accumulated amortization as of March 31, 2023, and December 31, 2022 Right-of-Use Assets (in thousands of US dollars) | Metric | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Right-of-use assets, NBV | $1,218 | $1,297 | | Accumulated Amortization | $(1,906) | $(1,803) | 6. Investments Summarizes Aptose Biosciences Inc.'s investment portfolio, including Treasury Bills and Commercial Notes, as of March 31, 2023 Investments (Market Value in thousands of US dollars) | Investment Type | March 31, 2023 | December 31, 2022 | | :-------------- | :------------- | :---------------- | | United States Treasury Bills | $9,985 | $9,989 | | Commercial Notes | $2,973 | $0 | | Total Investments | $12,958 | $9,989 | 7. Fair value measurements and financial instruments Discusses Aptose Biosciences Inc.'s fair value measurements for financial assets, primarily classified as Level 2 inputs - All financial assets measured at fair value are classified as Level 2 inputs, indicating valuation based on observable market data other than quoted prices[59][60] Fair Value of Assets (in thousands of US dollars) | Asset Type | March 31, 2023 | December 31, 2022 | | :----------------------------------------- | :------------- | :---------------- | | Money Market funds | $14,126 | $22,343 | | High interest savings account | $1,537 | $13,866 | | United States Treasury Bills (cash equivalents) | $5,967 | $0 | | United States Treasury Bills (short-term investments) | $9,985 | $9,989 | | Commercial Note | $2,973 | $0 | | Total Fair Value Assets | $34,588 | $46,363 | 8. Accrued liabilities Details Aptose Biosciences Inc.'s accrued liabilities, including personnel and R&D costs, as of March 31, 2023, and December 31, 2022 Accrued Liabilities (in thousands of US dollars) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Accrued Personnel Related Costs | $1,180 | $2,302 | | Accrued Research and Development Expenses | $5,005 | $3,122 | | Other Accrued Expenses | $409 | $233 | | Total Accrued Liabilities | $6,594 | $5,657 | 9. Lease liability Outlines Aptose Biosciences Inc.'s lease liabilities and recent lease extensions for its office facilities - Aptose extended its San Diego office lease through May 31, 2026, and its Toronto office lease through June 30, 2024[63] Lease Liability (in thousands of US dollars) | Metric | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Lease liability, current portion | $306 | $301 | | Lease liability, long-term portion | $918 | $1,002 | | Total Lease Liability | $1,224 | $1,303 | 10. Share capital Details Aptose Biosciences Inc.'s equity issuances and loss per share calculations for the periods presented a. Equity issuances Summarizes Aptose Biosciences Inc.'s common share issuances under ATM facilities during Q1 2023 - Issued 46,427 common shares under the 2022 ATM Facility for net proceeds of $34 thousand during the three months ended March 31, 2023[69] - The 2020 ATM Facility was terminated on October 31, 2022, having raised a cumulative total of $86 thousand net proceeds[70] b. Loss per share Presents Aptose Biosciences Inc.'s net loss and weighted-average common shares for loss per share calculation Loss Per Share (in thousands of US dollars, except per share data) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net Loss | $(13,676) | $(11,481) | | Weighted-average common shares (basic and diluted) | 92,562 | 92,226 | | Net Loss per share (basic and diluted) | $(0.15) | $(0.12) | 11. Stock‑based compensation Details Aptose Biosciences Inc.'s stock option plan, employee stock purchase plan, and share-based payment expenses a. Stock option plan and employee stock purchase plan Provides an overview of Aptose Biosciences Inc.'s outstanding stock options, grants, and restricted stock units - As of March 31, 2023, 18.84 million stock options were outstanding (weighted average exercise price $3.11, contractual life 7.01 years)[80] - 3.22 million stock options were granted in Q1 2023 with a weighted-average grant date fair value of $0.44[80][82] - 570,000 restricted stock units (RSUs) were granted, immediately vested, and redeemed for common shares in Q1 2023[85][86] b. Share-based payment expense Details Aptose Biosciences Inc.'s share-based payment expenses allocated to R&D and G&A for Q1 2023 and 2022 Share-based Payment Expense (in thousands of US dollars) | Expense Category | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------------------- | :-------------------------------- | :-------------------------------- | | Research and Development | $652 | $946 | | General and Administrative | $1,222 | $1,568 | | Total Share-based Payment Expense | $1,874 | $2,514 | 12. Subsequent events Reports on Aptose Biosciences Inc.'s additional share issuances under the 2022 ATM Facility after March 31, 2023 - Subsequent to March 31, 2023, up to May 8, 2023, Aptose issued an additional 648,384 shares under the 2022 ATM Facility, generating $319 thousand in net proceeds[89] Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses Aptose Biosciences Inc.'s business, clinical programs, liquidity, capital resources, and financial results for Q1 2023 OVERVIEW Provides a general introduction to Aptose Biosciences Inc.'s clinical-stage biotechnology focus and product pipeline - Aptose is a clinical-stage biotechnology company developing precision medicines for oncology, specifically hematologic cancers[93] - The company's pipeline includes two clinical-stage investigational products: tuspetinib (myeloid kinase inhibitor) and luxeptinib (dual lymphoid and myeloid kinase inhibitor)[94][95] PROGRAM UPDATES Details the progress and clinical activity of Aptose Biosciences Inc.'s investigational products, tuspetinib and luxeptinib Tuspetinib Provides updates on the Phase 1/2 clinical trial for tuspetinib in R/R AML, highlighting its activity and designations - Tuspetinib, an oral myeloid kinase inhibitor, is in an international Phase 1/2 clinical trial for relapsed or refractory acute myeloid leukemia (R/R AML)[94][96] - It has demonstrated robust clinical activity, including multiple complete responses in R/R AML patients with diverse disease genotypes (e.g., NPM1, MLL, TP53, RAS pathway mutations), and a favorable safety profile without prolonged myelosuppression or life-threatening toxicities[96][101][103][105] - Tuspetinib received FDA Orphan Drug designation for AML (Oct 2018) and Fast Track designation for R/R AML with FLT3 mutation (May 2022)[98] - The APTIVATE Phase 1/2 expansion trial has initiated monotherapy and doublet combination treatment with venetoclax (TUS/VEN), showing brisk enrollment and early signs of antileukemic activity[100][105] - Preclinical data show tuspetinib inhibits wild type and mutant FLT3, SYK, JAK1, JAK2, and mutant c-KIT, and can overcome acquired resistance to other FLT3 inhibitors[106][107] Luxeptinib Details the Phase 1a/b studies for luxeptinib, including its new G3 formulation and clinical activity in various malignancies - Luxeptinib is an oral, dual lymphoid and myeloid kinase inhibitor in Phase 1a/b studies for R/R AML, high-risk MDS, and B-cell malignancies (CLL, SLL, NHL)[108][109] - A 'third generation' (G3) formulation of luxeptinib is being developed, showing up to an 18-fold improvement in plasma steady-state exposure compared to the original G1 formulation, with continuous dosing initiated in R/R AML patients[114][115][116] - Clinical activity includes a complete response in a diffuse large B-cell lymphoma patient and durable MRD-negative CR and blast reductions in FLT3-ITD mutated AML patients[110][113] - Research indicates luxeptinib interferes with LYN-mediated activation of SYK and modulates BCR signaling, distinct from BTK inhibitors like ibrutinib[117] Other corporate matters Addresses Aptose Biosciences Inc.'s Nasdaq compliance status and potential strategies for regaining minimum bid price - Aptose received a Nasdaq deficiency letter on July 18, 2022, for not meeting the $1.00 minimum bid price requirement, with an extension until July 18, 2023[40][41][118] - The company is considering a reverse stock split (1-for-10 to 1-for-20) to regain Nasdaq compliance, pending shareholder and Board approval[42][120] LIQUIDITY AND CAPITAL RESOURCES Analyzes Aptose Biosciences Inc.'s financial position, funding sources, and cash flow activities, highlighting going concern risks - Aptose is an early-stage development company with no product revenues, dependent on equity financing and strategic partners[122] - The company faces substantial doubt about its ability to continue as a going concern and requires additional financing, which may be affected by market conditions or trial delays[125][131] Liquidity and Capital Resources (in thousands of US dollars) | Metric | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Cash and Cash Equivalents | $22,762 | $36,970 | | Investments | $12,958 | $9,989 | | Total Cash, Cash Equivalents & Investments | $35,720 | $46,959 | | Working Capital | $25,510 | $37,235 | Sources of liquidity Identifies Aptose Biosciences Inc.'s primary funding mechanisms, including equity financing and interest income - Operations are financed primarily through equity financing, exercise of warrants and stock options, and interest income[35][126] - Excess cash is invested in short-term, highly-rated financial instruments to manage credit risk[126][136] 2022 Base Shelf Describes Aptose Biosciences Inc.'s $200 million base shelf prospectus for future equity or debt offerings - A $200 million base shelf prospectus was filed in October 2022, effective until October 2025, for distributing common shares, warrants, or units[127] At-The-Market Facilities Summarizes Aptose Biosciences Inc.'s share issuances and net proceeds from its At-The-Market facilities - Raised $34 thousand net proceeds from the 2022 ATM Facility in Q1 2023 by issuing 46,427 shares[129] - The 2020 ATM Facility was terminated on October 31, 2022, after raising a cumulative $86 thousand net proceeds[130] Cash flows Provides a detailed breakdown of Aptose Biosciences Inc.'s cash flow activities from operations, investing, and financing Summary of Cash Flows (in thousands of US dollars) | Cash Flow Activity | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(11,302) | $(9,645) | | Net cash provided by (used in) investing activities | $(2,960) | $7,505 | | Net cash provided by (used in) financing activities | $50 | $15 | | Net decrease in cash and cash equivalents | $(14,208) | $(2,123) | Cash used in operating activities Analyzes the increase in cash used for Aptose Biosciences Inc.'s operating activities, driven by higher R&D expenses - Cash used in operating activities increased to $11.3 million in Q1 2023 (from $9.6 million in Q1 2022) due to higher operating expenses, including clinical studies, manufacturing, and professional fees[134] - Negative cash flow from operations is expected to continue until regulatory approval and commercialization of products, if ever[135] Cash flow from (used in) investing activities Compares Aptose Biosciences Inc.'s cash flow from investing activities, shifting from net maturities to net acquisitions of investments - Investing activities resulted in $3.0 million cash used in Q1 2023 (net acquisition of investments) compared to $7.5 million cash provided in Q1 2022 (net maturities of investments)[136] Cash flow from financing activities Details Aptose Biosciences Inc.'s cash generated from financing activities, primarily through ATM facilities and ESPP - Cash from financing activities was $50 thousand in Q1 2023 (2022 ATM Facility and ESPP) versus $15 thousand in Q1 2022 (stock option exercises)[139] CONTRACTUAL OBLIGATIONS and commitments described under Item 7 States that there are no material changes to Aptose Biosciences Inc.'s contractual obligations since the last annual report - No material changes to contractual obligations and commitments since the December 31, 2022 Annual Report on Form 10-K[140] RESULTS OF OPERATIONS Analyzes Aptose Biosciences Inc.'s financial performance, focusing on changes in R&D, G&A expenses, and net loss Summary of Results of Operations (in thousands of US dollars) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Net Loss | $13,676 | $11,481 | | Research and Development Expenses | $8,811 | $7,393 | | General and Administrative Expenses | $5,285 | $4,107 | | Other Income, net | $420 | $19 | Research and Development Discusses the increase in Aptose Biosciences Inc.'s R&D expenses, primarily driven by the tuspetinib program - R&D expenses increased by $1.4 million to $8.8 million in Q1 2023, primarily due to higher tuspetinib program costs[146] - Tuspetinib program costs increased to $4.8 million (from $1.2 million in Q1 2022) due to patient enrollment in the APTIVATE clinical trial[146] - Luxeptinib program costs decreased by $1.5 million due to lower manufacturing costs from a new formulation requiring less API, partially offset by higher clinical trial contractor costs[146] - Personnel-related expenses decreased by $256 thousand, and stock-based compensation decreased by $294 thousand[146] - R&D expenses are expected to be higher in the foreseeable future as tuspetinib advances into larger clinical trials[142] General and Administrative Examines the increase in Aptose Biosciences Inc.'s G&A expenses, mainly due to higher salaries and professional fees - G&A expenses increased by $1.2 million to $5.3 million in Q1 2023, primarily due to higher salaries and professional fees[148] - Stock-based compensation within G&A decreased by $346 thousand due to lower grant date fair values[150] - G&A expenses are expected to increase in the foreseeable future to support pipeline expansion and intellectual property[147] CRITICAL ACCOUNTING POLICIES Reviews Aptose Biosciences Inc.'s critical accounting policies, estimates, and updated share information Critical Accounting Policies and Estimates Confirms no material changes to Aptose Biosciences Inc.'s critical accounting policies and estimates in Q1 2023 - No material changes to critical accounting policies and estimates occurred during the three months ended March 31, 2023[152] Significant accounting judgments and estimates Highlights management's judgments and estimates for R&D expenses and their potential impact on financial statements - Management makes significant judgments and estimates for R&D expenses based on contract progress, impacting accrued and prepaid balances[153] - A 10% variance in R&D expense estimates could result in an over or understatement of approximately $620 thousand in R&D expenses[154] Updated share information Provides Aptose Biosciences Inc.'s common shares issued and outstanding, and shares issuable from stock options as of May 8, 2023 Updated Share Information (as of May 8, 2023) | Metric | Amount | | :----------------------------------- | :------------- | | Common Shares Issued and Outstanding | 93,653,652 | | Common Shares Issuable from Stock Options | 18,790,758 | Item 3 – Qualitative and Quantitative Disclosures about Market Risk Aptose Biosciences Inc., as a smaller reporting company, is exempt from market risk disclosures - As a smaller reporting company, Aptose is exempt from providing qualitative and quantitative disclosures about market risk[158] Item 4 – Controls and Procedures Management concluded Aptose Biosciences Inc.'s disclosure controls and procedures were effective as of March 31, 2023 - As of March 31, 2023, disclosure controls and procedures were deemed effective by management, including the CEO and CFO[159] - Control systems provide reasonable, not absolute, assurance and may not prevent all errors or fraud[160] CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING Confirms no material changes in Aptose Biosciences Inc.'s internal control over financial reporting during Q1 2023 - No material changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2023[161] PART II—OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, exhibits, and signatures for the report Item 1 – Legal Proceedings Aptose Biosciences Inc. is not currently involved in any material active legal actions - The company is not involved in any material active legal actions[163] Item 1A – Risk Factors No material changes to Aptose Biosciences Inc.'s risk factors since the December 31, 2022 Annual Report on Form 10-K - No material changes to risk factors since the December 31, 2022 Annual Report on Form 10-K[164] Item 6 – Exhibits Lists exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL financial statements - Includes certifications from Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[166] - Contains Inline XBRL formatted financial statements and related taxonomy documents (Exhibit 101 and 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[166] Signatures The report was signed by Aptose Biosciences Inc.'s President and CEO on May 8, 2023 - Report signed by William G. Rice, Ph.D., President and CEO, on May 8, 2023[168]