Item 1. Business
Overview
Aptose is a science-driven biotechnology company advancing highly
differentiated agents to treat unmet medical needs in life-threatening cancers, such as acute myeloid leukemia (“AML”),
certain B-cell malignancies, high-risk myelodysplastic syndrome (“MDS”) and other hematologic malignancies. Aptose
is a publicly listed company incorporated under the laws of Canada. The Company’s shares are listed on the Nasdaq Capital
Markets and the Toronto Stock Exchange. The Company was incorporated on September 5, 1986, under the name RML Medical Laboratories
(“RML”) pursuant to the Business Corporations Act (Ontario). Between 1986 and 2014, the Company operated under
the names of RML, IMUTEC Corporation and Lorus Therapeutics Inc. On August 28, 2014, the Company changed its name from Lorus Therapeutics
Inc. to Aptose Biosciences Inc. and, on October 1, 2014, we consolidated our outstanding common shares (the “Common Shares”)
on the basis of one post-consolidation Common Share for each twelve pre-consolidation Common Shares.
Based on insights into the genetic and epigenetic profiles of certain
cancers and patient populations, Aptose is building a pipeline of novel and targeted oncology therapies directed at dysregulated
processes and signaling pathways in cancer cells, and this strategy is intended to optimize efficacy through simultaneous targeting
of key drivers of disease in cancer cells, while preserving quality of life in patients by minimizing the side effects associated
with conventional therapies. Our product pipeline includes cancer drug candidates that exert potent activity as stand-alone agents
and that enhance the activities of other anticancer agents without causing overlapping toxicities. Indeed, we believe our targeted
products can emerge as first-in-class or best-in-class agents that deliver single agent benefit and may serve as part of a combination
therapeutic strategy for specific populations of cancer patients.
We believe the future of cancer treatment and management lies in
the prospective selection and treatment of patients having malignancies that are genetically or epigenetically predisposed to response
based on a drug’s unique mechanism of action. We are of the view that many drugs currently approved for the treatment and
management of cancer are not selective for the specific genetic alterations (targets) and pathways that cause the patient’s
tumor and hence allow for disease progression and /or significant toxicities due to off-target effects. Aptose’s strategy
is to develop agents that target underlying disease-promoting mutations or altered pathways within a patient population, and we
intend to apply this strategy across several therapeutic indications in oncology, including hematologic malignancies and solid
tumor indications.
Aptose Programs
Aptose has two clinical-stage programs, and a third program that
is discovery-stage and partnered with another company.
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CG-806, our first clinical stage program: An investigational new drug (“IND”) application was submitted February
22, 2019 to the U.S. Food and Drug Administration (“FDA”) for CG026806 (“CG-806”), Aptose’s
mutation-agnostic FMS-like tyrosine kinase 3 / Bruton’s tyrosine kinase (“FLT3/BTK”) inhibitor. CG-806 is
being currently evaluated in a Phase Ia/b dose escalation study in patients with certain B-cell malignancies, including chronic
lymphocytic leukemia (“CLL”), small lymphocytic lymphoma (“SLL”) and certain non-Hodgkin’s lymphomas
(“NHL”) that are resistant/refractory/intolerant to other therapies. The CG-806 clinical program also is planned
to expand into patients with relapsed/refractory (“R/R”) acute myeloid leukemia (“R/R AML”), including
the emerging populations resistant to FLT3 inhibitors.
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APTO-253, our second clinical-stage program: APTO-253 is a small molecule MYC oncogene inhibitor
and we are currently enrolling patients in a Phase Ib clinical trial for the treatment of patients with R/R blood cancers, including
AML and high-risk MDS.
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APL-581, our partnered program, is a dual bromodomain and extra-terminal domain motif (“BET”)
protein and kinase inhibitor program which we partnered to Ohm Oncology (“OHM”) on March 7, 2018.
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Aptose is committed to the development of anticancer drugs that
target aberrant oncologic signaling that underlies a particular life-threatening malignancy. This targeted approach is intended
to impact the disease-causing events in cancer cells without affecting normal processes within cells. Such an approach requires
that we first identify critical underlying oncogenic mechanisms in cancer cells and then develop a therapeutic that selectively
impacts such oncogenic mechanisms.
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As a cluster-selective kinase inhibitor, CG-806 targets multiple critical pathways that overlap
to lead to the proliferation of cancer cells, including the B-cell receptor signaling pathway and FLT3 receptor pathways, as well
as other receptor kinases and signaling cascades that drive dysregulated survival of the cancer cells.
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Further, Aptose created the APTO-253 small molecule targeted drug that inhibits expression of the
MYC oncogene and is under development as a novel therapy for AML and related MDS. Dysregulation of the MYC oncogene reprograms
signaling of cancer cells to allow for malignant transformation and resistance to typical anticancer drugs. APTO-253 directly targets
the MYC gene and inhibits production of MYC mRNA and protein, thereby leading to cancer cell death.
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The following table sets forth various product conditions in our
pipeline and their respective stages of development.
CG-806 Program
Overview
On May 7, 2018, we exercised an option by paying $2.0 million in
cash to South Korean company CrystalGenomics, Inc. (“CG”), in order to purchase an exclusive license to research, develop
and commercialize CG-806 in all countries of the world except the Republic of Korea and China, for all fields of use (collectively,
the “Rights”). CG-806 is a highly potent, orally bioavailable non-covalent small molecule being developed for AML and
certain B-cell malignancies because of its actions as a mutation-agnostic FLT3/BTK inhibitor. Subsequently, on June 14, 2018, we
announced that we entered into a license agreement with CG for Aptose to gain a license for Rights in China (including the People’s
Republic of China, Hong Kong and Macau) (the “China Rights”). Under the license agreement, Aptose made an upfront payment
to CG of $3.0 million for the China Rights. CG is eligible for development, regulatory and commercial-based milestones, as well
as single-digit royalties on product sales in China. The total deal value for the China Rights, including the upfront payment,
is up to $125 million. Aptose now owns worldwide (excluding Korea) Rights, including an issued patent in China, to CG-806, a first-in-class,
highly potent oral small molecule being developed for AML, B-cell malignancies and other hematologic malignancies. Future possible
royalties that might be paid under these agreements are determined on a country-by-country and product-by-product basis, on net
sales during the period of time beginning on the first commercial sale of such product in such country and continuing until the
later of: (i) the expiration of the last-to-expire valid claim of the CG Patents in such country covering such product; and (ii)
ten (10) years after the first commercial sale of such product in such country.
CG-806 exhibits a picomolar half maximal inhibitory concentration
(IC50) toward FLT3 with the Internal Tandem Duplication (“FLT3-ITD”), potency against the wild type FLT3 and a host
of mutant forms of FLT3, as well as single-digit nanomolar IC50’s against BTK and its C481S mutant (“BTK-C481S”).
Consequently, CG-806 is characterized as a mutation-agnostic FLT3/ BTK inhibitor. Further, CG-806 suppresses a small group of
other relevant oncogenic kinases/pathways (including CSF1R, PDGFRα, TRK, and the ERK, MYC, AKT/mTOR/S6K and AURK/H3S10 pathways)
that are operative in AML and certain B cell malignancies, but does not inhibit the TEC, EGFR and ErbB2/4 kinases that are responsible
for safety concerns with certain other kinase inhibitors.
As a potent inhibitor of FLT3-ITD, CG-806 may become an effective
therapy in a high-risk subset of AML patients. This is because the FLT3-ITD mutation occurs in approximately 30% of patients with
AML and is associated with a poor prognosis. In murine xenograft studies of human AML (FLT3-ITD), CG-806 administered orally resulted
in tumor elimination (“cures”) without measurable toxicity. Importantly, CG-806 targets other oncogenic kinases which
may also be operative in FLT3-ITD AML, thereby potentially allowing the agent to become an important therapeutic option for a broader
group of this difficult-to-treat AML patient population. The findings that CG-806 targets all forms of FLT3 and several other key
oncogenic pathways, and that CG-806 was well tolerated from a safety perspective during efficacy and formal Good Laboratory Practice
(“GLP”) toxicology studies, suggest that CG-806 may also have applicability in treating patients, particularly those
over the age of 65, who cannot tolerate other therapies.
Separate from the AML and FLT3 story, CG-806 may be a preferable
treatment for patients with B cell malignancies over alternatives such as ibrutinib or other commercially approved or development
stage BTK inhibitors in certain circumstances. Overexpression of the BTK enzyme can drive oncogenic signaling of certain B cell
malignancies, including chronic lymphocytic leukemia (“CLL”) and certain NHL such as mantle cell lymphoma (“MCL”),
diffuse large cell B cell lymphoma (“DLBCL”) and others. Therapy of these patients with covalent, irreversible BTK
inhibitors, such as ibrutinib, that target the active site cysteine (“Cys”) residue of BTK can be beneficial in many
patients. However, therapy with covalent BTK inhibitors can select for BTK with a C481S mutation, thereby conferring resistance
to covalent BTK inhibitors. Furthermore, approximately half of CLL patients have discontinued treatment with ibrutinib after 3.4
years of therapy. Discontinuation of ibrutinib is due to the development of drug resistance (in particular, patients have malignancies
that developed the BTK-C481S mutation), or due to refractory disease (patient tumors did not respond to ibrutinib) or intolerance
(side effects led to discontinuation of ibrutinib), according to a study performed at The Ohio State University. The C481S mutation
is observed in 5-10% of the patients, while 40-45% of the patients were intolerant or refractory to ibrutinib. As a non-covalent,
reversible inhibitor of BTK, CG-806 does not rely on the Cysteine 481 residue (“C481”) for inhibition of the BTK enzyme.
Indeed, recent X-ray crystallographic studies (with wild type and C481S BTK) demonstrated that CG-806 binds productively to the
BTK active site in a manner that is indifferent to the presence or absence of mutations at the 481 residue. Moreover, in vitro
studies demonstrated that CG-806 kills B cell malignancy cell lines on average approximately 1000 times more potently than ibrutinib
and kills ibrutinib-resistance cancer cells, and that CG-806 more potently killed primary malignant cells taken from the bone marrow
of CLL and ALL B-cell cancer patients. Yet, CG-806 demonstrated a high degree of safety in animal efficacy and GLP toxicology studies.
Consequently, patients who are resistant, refractory or intolerant to ibrutinib or other commercially approved or development-stage
BTK inhibitors with B cell malignancies may continue to be sensitive to CG-806 therapy. This is particularly true since CG-806
inhibits the wild type and mutant forms of BTK, as well as other kinases/pathways that drive the survival and proliferation of
B cell malignancies.
Role of BTK in B-cell signaling
BTK, a member of the TEC family kinase, is an essential element
of B-cell receptor (“BCR”) signaling, which is required for B-cell maturation, survival and proliferation. It is an
upstream activator of multiple pro-survival / anti-apoptotic pathways, including the NF-KB, mTOR-AKT, RAS, ERK and MAPK pathways.
BTK is overexpressed in malignant cells from patients with various B-cell malignancies, such as CLL, MCL, AML, and DLBCL. Disruption
of BCR signaling via inhibition of BTK, has been shown to lead to clinical remissions in these patients.
CG-806 as a Non-covalent, Reversible Kinase Inhibitor
Binding studies of CG-806 have confirmed non-covalent, reversible
inhibition of BTK, FLT3-ITD and Aurora Kinase A. Ibrutinib, a commercially-approved, covalent BTK inhibitor, possesses a Michael
acceptor to react with C481 in BTK and irreversibly inactivates the BTK enzyme. In contrast, CG-806 does not require reactivity
with the C481 residue for inhibition of the BTK enzyme, thereby allowing CG-806 to inhibit the wild type and C481 mutant form of
the BTK enzyme.
Preclinical In Vitro Evaluation of CG-806
CG-806 is a potent inhibitor of BTK and FLT3 wild types, as well
as the BTK C481S and FLT3-ITD mutants, which are strongly associated with clinical relapse or are negative prognostic factors
in patients. In enzymatic assays, CG-806 has demonstrated potency against the BTK C481S mutant with a half maximal IC50 of 2.5
nanomolar (nM). CG-806 also has potent activity against the FLT-ITD mutation, occurring in 30-35% of AML patients, with an IC50
against the purified enzyme of 0.8nM (800pM). Likewise, CG-806 exerts low nM IC50 values against the FLT3 enzyme having various
mutations in the tyrosine kinase domain (TKD) and the Gatekeeper region, and CG-806 has the ability to potently suppress the CSF1R,
PDGFRα, AKT/mTOR/S6K, ERK, MAPK, MYC and AURK/H3S10 pathways. Finally, CG-806 does not exhibit any inhibition of epidermal
growth factor receptor (“EGFR”), TEC or ErbB2/4 kinases. Inhibition of one or more of these kinases has been speculated
to contribute to the toxicity observed from the commercially approved BTK inhibitor.
BTK is overexpressed in the blast cells of approximately 80% of
AML patients as compared to normal peripheral blood mononuclear cells (“PBMCs”) in healthy subjects. Researchers have
shown that BTK inhibition attenuates the proliferation and survival of FLT3-ITD primary AML blasts and AML cell lines, as well
as inhibits the downstream activation of FLT3-ITD-dependent MYC and STAT5 kinases. We believe that CG-806 is the only drug in development
that inhibits both FLT3-ITD and BTK pathways reported to synergize to drive the proliferation and survival of AML.
CG-806 Xenograft Studies
In vivo subcutaneous AML tumor models of anti-cancer efficacy revealed
CG-806 induced rapid and sustained tumor eradication (Figure 1a). CG-806 was administered orally once daily, for 14 days. Moreover,
CG-806 exhibited the sustained tumor elimination post therapy, while demonstrating no impact to murine body weight, no impacts
to hematology cell counts or visible organ toxicities – necropsy and clinical pathology findings did not reveal any abnormal
observations. A maximum tolerated dose has not yet been identified with murine xenograft studies.
Figure 1a. Efficacy of CG-806 in MV4-11 xenograft model.
MV4-11 tumor bearing mice were administered an oral suspension
once daily for 14 days of CG-806 at 2 mg/kg (red line), 10 mg/kg (green line) or 100 mg/kg (purple line), Ibrutinib, 12 mg/kg
(black line), or Vehicle Control (light blue line) with 7-day post-treatment follow-up. Tumor volumes and body weights were measured
3 times weekly.
In a separate MV4-11 xenograft study (Figure 1b), the antitumor
efficacy of CG-806 and mouse survival over 120 days were evaluated when mice were treated orally for 28 consecutive days with
CG 806 at dose levels of 0 (vehicle only, red), 10 (olive), 30 (green), 100 (blue), or 300 mg/kg (magenta). In this study, the
clinical formulation (CG-806 co-micronized with 2.5% sodium lauryl sulfate (SLS) and the dosing schedule (“BID”) planned
for human clinical studies were utilized. CG-806 produced slower tumor growth and extended survival at the 10 and 30mg/kg dose
levels, while 100% cure rates were achieved at the 100 and 300 mg/kg dose levels (11/11 mice survived in the latter two groups).
Moreover, no signs of toxicity were noted at any dose level.
Figure 1b. CG-806 Extends Survival in a Dose-Dependent Way in MV4-11
AML Xenograft Mouse Model Following Oral BID Dosing for 28 Consecutive Days.
Although the above murine xenograft models demonstrate potent antitumor
activity with no observed toxicity, the models utilize an AML cell line rather than cells derived from an AML patient. In a study
performed at the University of Texas MD Anderson Cancer Center (“MDACC”), the efficacy of CG-806 was evaluated in a
patient derived xenograft (“PDX”) model (Figure 1c). Bone marrow cells were collected from an AML patient that had
relapsed on a clinical trial. The patient entered the trial with FLT3-ITD AML and was placed on sorafenib and azacytidine. After
one cycle, the patient had a complete response but then relapsed after cycle 3. Genetic analysis demonstrated that the AML cells
had acquired a second mutation in AML, and this was the D835 mutation, making the patient dual mutant FLT3-ITD/D835. Bone marrow
cells from the patient (AML FLT3-ITD/D835) were implanted in mice to establish a PDX model. Expansion of the human AML cells in
the bone marrow and peripheral blood of the mice took approximately one month. In the vehicle (15% Transcutol HP/85% PEG-400) treated
mice, the leukemic burden in the peripheral blood increased from day 31 through day 50 and beyond. However, treatment with 100
mg/kg CG-806 (orally daily for 5 consecutive days followed by 2 days off every week), resulted in significant reduction in the
leukemic burden and reductions in splenomegaly at 52 days post-implantation. These data suggest CG-806 may be used to treat patients
whose disease has become resistant to other FLT3 inhibitors.
Figure 1c. CG-806 Efficacy in PDX Model Against AML Patient Cells
with FLT3-ITD+D835Y Mutations
APTO-253 Program
Overview
APTO-253, our second clinical-stage program, is a novel small molecule
therapeutic agent that inhibits expression of the MYC oncogene, leading to cell cycle arrest and programmed cell death (apoptosis)
in human-derived solid tumor and hematologic cancer cells, without causing general myelosuppression of the healthy bone marrow.
The MYC oncogene is overexpressed in hematologic cancers, including AML. MYC is a transcription factor that regulates cell growth,
proliferation, differentiation and apoptosis, and overexpression amplifies new sets of genes to promote oncogenesis. APTO-253 dramatically
down-regulates expression of the MYC oncogene in AML cells and depletes those cells of the MYC oncoprotein, leading to apoptotic
cell death in AML cells. Thus APTO-253 may serve as safe and effective MYC inhibitor for AML that combines well with other agents
and does not impact the normal bone marrow.
During 2015, we were evaluating APTO-253 in a Phase Ib clinical
trial in patients with relapsed / refractory hematologic malignancies, particularly AML and MDS, before being placed on clinical
hold by the FDA in November 2015. The Phase Ib trial was placed on clinical hold in order to solve a chemistry-based formulation
issue, and the chemistry of the API and the formulation underwent minor modifications to deliver a stable and soluble drug product
for return to the clinical setting. In December 2016, we announced that we had successfully manufactured multiple non-GMP batches
of a new drug product formulation for APTO-253, including a batch that had been stable and soluble for over six months. However,
the 40L batch that was the intended clinical supply encountered an unanticipated mishap during the filling process that compromised
the stability of that batch of drug product. On January 23, 2017, we announced that the root cause and corrective action studies
would take longer than originally expected and that we would temporarily delay clinical activities with APTO-253 in order to elucidate
the cause of manufacturing mishap, with the intention of restoring the molecule to a state supporting clinical development and
partnering. Formal root cause analyses studies were completed to identify the reason for the drug product stability failure, and
a correction action was implemented. We then manufactured a new GMP clinical supply of drug product and performed the studies required
to demonstrate the fitness of the drug product for clinical usage, and presented the findings to the FDA in the second quarter
of 2018. On June 28, 2018, the FDA notified us that it had lifted the clinical hold on APTO-253. This was followed by resubmission
of the revised clinical protocol to Institutional Review Boards (“IRB”) at multiple clinical sites.
On November 28, 2018, we announced that we dosed the first patient
in the re-initiation of the Phase Ib Clinical Study of APTO-253. Since then, we have completed the first three dose cohorts (20mg/m2,
40mg/m2 and 66mg/m2) and are currently dosing patients in the fourth dose cohort at 100mg/m2 dose level. In the patients we have
dosed at the first three dose levels, we observed meaningful reductions in MYC expression in the patient PBMC samples and noted
that the drug product is well tolerated to date.
APTO-253 Studies on Solid Tumors
In January 2011, Aptose announced the first patient enrollment in
a Phase I dose-escalation study for APTO-253 in patients with advanced or metastatic solid tumors who are unresponsive to conventional
therapy or for whom no effective therapy is available. The study was initially being conducted at Memorial Sloan-Kettering Cancer
Center in New York. Objectives of the study included determination or characterization of the safety profile, maximum tolerated
dose, and antitumor activity of APTO-253, as well as pharmacokinetics and a recommended Phase II dose for subsequent clinical trials.
In June 2012, MDACC in Houston was added as a second site under
the direction of Dr. Jennifer Wheler as the principal investigator. In addition, Aptose announced that the study had successfully
completed the accelerated drug dose escalation stage (Stage 1), with further escalation under way in the non-accelerated dose escalation
stage (Stage 2) for the purpose of determining the maximal tolerated dose level and recommended Phase II dose. The addition of
a second site expanded patient availability for enrollment.
In January 2013, Aptose announced that Phase I clinical study of
APTO-253 had successfully escalated to the target dose level based on predicted and observed clinical effects without limitation
by toxicity. The success of this study allowed Aptose to initiate a biomarker clinical investigation to further explore the effects
of the drug at relevant doses determined in the clinical trial.
In April 2013, Aptose announced that studies demonstrated the antitumor
activity of APTO-253 in animal models of human NSCLC with a dose-response effect in NSCLC.
In July 2013, Aptose announced the results of the Phase I clinical
trial of APTO-253. In this first-in-man dose-escalation clinical study, APTO-253 demonstrated a favorable safety profile, as well
as encouraging signs of antitumor activity in patients with solid tumors. The design of this trial consisted of APTO-253 as a single
agent in patients with advanced solid tumors resistant to multiple standard therapies. The study enrolled 27 patients, all of which
had failed a median of four prior chemotherapies. Although this was primarily a dose-escalation safety study, efficacy and pharmacokinetics
were also explored.
The clinical trial enrolled patients at seven dose levels ranging
from 20 to 229 mg/m2. Of the 27 patients enrolled, 17 were evaluable for efficacy. Of these 17 patients, seven (41%) achieved stable
disease by Response Evaluation Criteria In Solid Tumors (“RECIST”). This included patients with colorectal, lung, appendiceal,
liver and uterine cancers. Dose related activity was demonstrated at the higher dose levels (176 and 229 mg/m2). At these two highest
dose levels, four of five evaluable patients (80%) achieved sustained stable disease by RECIST ranging from 5.6 months to 8 months,
representative of disease control. Of these, a patient with non-small cell lung cancer at the highest dose level additionally demonstrated
non-index tumor shrinkage.
The safety assessment indicated that APTO-253 was well tolerated
at all dose levels tested in this trial. The dose escalation was not limited by toxicity. The most common adverse event was Grade
1 or 2 fatigue seen in three patients. There was one Grade 3 toxicity, asymptomatic low blood phosphate level that was reversible
by supplementation with phosphates. The pharmacokinetic profile was consistent with the predictive profile seen preclinically,
and the elimination profile and half-life in patients were suggestive of a very rapid distribution phase and prolonged retention.
No further studies were performed by the prior administration of Aptose following the arrival of the new administration in late
2013.
APL-581 Program
In November 2015, Aptose announced an exclusive drug discovery partnership
with Laxai Avanti Life Sciences (“LALS”) for their expertise in next generation epigenetic-based therapies. Under the
agreement, LALS was to be responsible for developing multiple clinical candidates, including optimizing candidates that exert dual
BRD4 / kinase inhibitory activity. Based on available resources, Aptose halted further investment in the collaboration with LALS
in late 2016. However, the program delivered novel intellectual property and hit molecules (such as APL-581). Consequently, Aptose
chose to out-license the program.
On March 7, 2018, Aptose entered into an exclusive global license
agreement with OHM, an affiliate of LALS that was formed in 2016 to advance the clinical development of compelling molecules derived
from the LALS initiative, for the development, manufacture and commercialization of APL-581, as well as related molecules, from
Aptose’s dual BET protein and kinase inhibitor program. Under the agreement, Aptose retained reacquisition rights to certain
molecules, while OHM/LALS has the rights to develop and sublicense all other molecules. Aptose received a nominal upfront cash
payment and is eligible to receive up to $125 million of additional payments based on the achievement of certain developmental,
regulatory and sales milestones, as well as significant royalties on future sales generated from the program, if any. We have not
received any milestone or royalty payments pursuant to this agreement. Future possible royalties that might be paid by Ohm to Aptose
under these agreements are determined on a country-by-country and product-by-product basis, on net sales during the period of time
beginning on the first commercial sale of such product in such country and continuing until the later of: (i) the expiration of
the last-to-expire valid claim of the CG Patents in such country covering such product; and (ii) ten (10) years after the first
commercial sale of such product in such country.
Competitive Conditions
The biotechnology and pharmaceutical industries are characterized
by rapidly evolving technology and intense competition. There are numerous companies in these industries that are focusing their
efforts on activities similar to ours. Some of these are companies with established positions in the pharmaceutical industry and
may have substantially more financial and technical resources, more extensive research and development capabilities, and greater
marketing, distribution, production and human resources than Aptose. In addition, we face competition from other companies for
opportunities to enter into partnerships with biotechnology and pharmaceutical companies and academic institutions.
Competition with our potential products may include chemotherapeutic
agents, monoclonal antibodies, antisense therapies, small molecules, immunotherapies, vaccines and other biologics with novel mechanisms
of action. These drugs may kill cancer cells indiscriminately, or through a targeted approach, and some have the potential to be
used in non-cancer indications. We also expect that we will experience competition from established and emerging pharmaceutical
and biotechnology companies that have other forms of treatment for the cancers that we target, including drugs currently in development
for the treatment of cancer that employ a number of novel approaches for attacking these cancer targets. Cancer is a complex disease
with more than 100 indications requiring drugs for treatment. The drugs in competition with our potential drugs have specific targets
for attacking the disease, targets which are not necessarily the same as ours. These competitive drugs, however, could potentially
also be used together in combination therapies with our drugs to manage the disease. Other factors that could render our potential
products less competitive may include the stage of development, where competitors’ products may achieve earlier commercialization,
as well as superior patent protection, better safety profiles, or a preferred cost-benefit profile.
CG-806 Treatment for B Cell Malignancies
We are aware of a number of companies that have developed and are
pursuing different approaches to BTK inhibition, both for the wild type and to the C481S-mutant forms. Companies that have developed
approved or are currently developing inhibitors that directly target the wild type include AbbVie (IMBRUVICA) and AstraZeneca (CALQUENCE)
and Beigene Co., Ltd. (Zanubrutinib).
Others that are developing inhibitors that target the C481S-mutant
BTK include Merck (ARQ 531), Roche, Sunesis Pharmaceuticals (vecabrutinib) and Eli Lilly (LOXO-305) among others.
CG-806 and APTO-253 for AML
We also face intense competition in AML as there is a wide range
of therapies that have been approved and are under development for the treatment of AML. Companies that have developed approved
or are currently developing non-targeted therapies include Jazz (VYXEOS), Pfizer (MYLOTARG) and AbbVie (VENCLEXTA), among others.
Others that have developed or are developing highly targeted therapies such as FLT3 include Novartis (RYDAPT), Astellas (XOSAPTA),
Daiichi Sankyo (quizartinib), Arog (crenolanib), and IDH1/2 include Agios (TIBSOVO) and Celgene/BMS (IDHIFA) among others.
Manufacturers, Suppliers and Other Third Party Contractors
Contract manufacturing organizations (“CMOs”) manufacture
our product candidates for all preclinical studies and clinical trials. We rely on CMOs for manufacturing, filling, packaging,
storing and shipping of drug product in compliance with Current Good Manufacturing Practice (“cGMP”) regulations applicable
to our products. The FDA ensures the quality of drug products by carefully monitoring drug manufacturers’ compliance with
cGMP regulations. The cGMP regulations for drugs contain minimum requirements for the methods, facilities and controls used in
manufacturing, processing and packing of a drug product. These CMOs are reputable companies active in the biotechnology industry.
Pricing is predictable as there are many alternatives of such supplies that are readily available.
We rely and will continue to rely on third party contract research
organizations (“CROs”) to conduct a significant portion of our preclinical and clinical development activities. Preclinical
activities include in vivo studies providing access to specific disease models, pharmacology and toxicology studies, and
assay development. Clinical development activities include trial design, regulatory submissions, clinical patient recruitment,
clinical trial monitoring, clinical data management and analysis, safety monitoring and project management, contract manufacturing
and quality assurance.
Intellectual Property
We believe that our issued patents and pending applications are
important in establishing and maintaining a competitive position with respect to our products and technology.
CG-806
A Patent Cooperation Treaty (“PCT”) application providing
composition of matter and use protection for CG-806 was filed in late 2013, with a potential expiry in 2033 before extension opportunities,
across all major geographies
In May 2018, we paid $2.0 million in cash and licensed the rights
to CG-806, for all fields of use, in all territories outside of the Republic of Korea and China, by exercising an option we obtained
through a June 2016 option-license agreement with South Korean company CrystalGenomics, Inc. (“CG”) that had granted
us an exclusive option to research, develop and commercialize (collectively, the “Rights”) CG-806.
In June 2018, we entered into a separate license agreement with
CG for Aptose to gain a license for Rights to CG-806 in the People’s Republic of China, Hong Kong and Macau (the “China
Rights”). This license agreement was formally executed by Aptose through an upfront payment to CG of $3.0 million for the
China Rights. CG is eligible for payments upon the achievement of developmental, regulatory and commercial-based milestones, as
well as single-digit royalties on product sales in China. Aptose now owns worldwide Rights to CG-806, including an issued patent
in China but excluding any Rights in Korea.
US Patent No. 9,758,508
On September 12, 2017, we announced that United States Patent and Trademark Office (“USPTO”)
issued patent number 9,758,508 entitled “2,3-dihydro-isoindole-1-on derivative as BTK kinase suppressant, and pharmaceutical
composition including same”. patent claims numerous compounds, including the CG-806 compound, pharmaceutical compositions
comprising the CG-806 compound, and methods of treating various diseases. The patent is expected to provide protection until December
of 2033.
European Patent No. EP2940014B1
The granted patent claims the CG-806 compound, pharmaceutical compositions
comprising the CG-806 compound, and uses for treating diseases caused by abnormal or uncontrolled activation of protein kinases,
such as cancer. This European patent will be nationalized in, and cover, approximately forty European countries including the United
Kingdom, France, Germany, Italy, Netherlands and Spain. The patent is expected to provide protection until December of 2033.
Australian Patent No. 2013371146
The granted patent clams numerous compounds, including the CG-806
compound, pharmaceutical compositions comprising the CG-806 compound, and methods of treating various diseases. The patent is expected
to provide protection until December of 2033.
Chinese Patent No. CN 104995184 B
The granted patent claims numerous compounds, including the CG-806
compound, pharmaceutical compositions comprising the CG-806 compound, and the use of such a compound for the manufacture of a pharmaceutical
composition for treating a disease caused by an abnormal or uncontrolled protein kinase. The patent is expected to provide protection
until December of 2033.
Japanese Patent No. 6325573
The granted patent claims numerous compounds, including the CG-806
compound, pharmaceutical compositions comprising the CG-806 compound, and the use of such a compound for the manufacture of a pharmaceutical
composition for treating a disease caused by an abnormal or uncontrolled protein kinase. The patent is expected to provide protection
until December of 2033.
Canadian Patent No. 2896711
The granted patent claims numerous compounds, including the CG-806
compound, pharmaceutical compositions comprising the CG-806 compound, and the use of such a compound for the manufacture of a pharmaceutical
composition for treating a disease caused by an abnormal or uncontrolled protein kinase. The patent is expected to provide protection
until December of 2033.
APTO-253
As of March 10, 2020, we are the owner of record of five issued
U.S. patents, which together provide coverage for the APTO-253 compound, its pharmaceutical composition and methods of treating
various cancers with APTO-253, including solid tumors and leukemia. The APTO-253 composition of matter has patent protection until
February, 2028 in the United States and May, 2026 in other countries. We also hold 20 international (non-U.S.) patents which together
provide coverage for APTO-253, three of which are issued European patents, validated in at least eight countries in Europe. Our
patents also include several compounds that are similar to APTO-253, which provide protection from competitors seeking to develop
anticancer products that are related in chemical structure to APTO-253.
Environmental Protection
The Company’s research and development activities involve
the controlled use of hazardous and radioactive materials and, accordingly, the Company is subject to federal, provincial and local
laws and regulations in the United States and Canada governing the use, manufacture, storage, handling and disposal of such materials
and certain waste products. To the knowledge of the Company, compliance with such environmental laws and regulations does not and
will not have any significant impact on its capital spending, profits or competitive position within the normal course of its operating
activities. There can be no assurance, however, that the Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future or that its operations, business or assets will not be materially adversely affected
by current or future environmental laws or regulations.
Employees
As at December 31, 2019, we employed 31 full-time persons and two
part-time persons in research and drug development and administration activities. Seven of our employees hold Ph.Ds. and numerous
others hold degrees and designations such as MD, MSc, BSc, CPA (CA), CPA (California) and MBA. To encourage a focus on achieving
long-term performance, employees and members of the board of directors of the Company (the “Board”) have the ability
to acquire an ownership interest in the Company through Aptose’s share option and alternate compensation plans. Of note,
in January of 2020, Aptose hired a Chief Medical Officer holding an MD and a PhD.
The business of the Company requires personnel with specialized
skills and knowledge in oncology. Researchers must be able to design and implement studies to assess the efficacy of anticancer
drugs. Specialized knowledge and skills relating to chemistry and formulation process development are also needed. Such knowledge
and skills are needed to develop product specific analytical methods and formulation processes. The Company’s business also
requires clinical and regulatory expertise and knowledge. The Company has trained scientists and personnel with broad experience
in these fields.
None of our employees are unionized, and we consider our relations
with our employees to be good.
Government Regulation
Overview
Our overall regulatory strategy is to work with the appropriate
government departments which regulate the use and sale of therapeutic drug products. This includes the FDA in the United States,
Health Canada in Canada, the European Medicines Agency in Europe, and other local regulatory agencies with oversight of preclinical
studies, clinical trials and marketing of therapeutic products. Where possible, we intend to take advantage of opportunities for
accelerated development of drugs designed to treat rare and serious or life-threatening diseases. We also intend to pursue priority
evaluation of any application for marketing approval filed in Canada, the United States or the European Union and to file additional
drug applications in other markets where commercial opportunities exist. We may not be able to pursue these opportunities successfully.
Regulation(s) by government authorities in the United States, Canada,
and the European Union are significant factors in guiding our current research and drug development activities. To clinically test,
manufacture and market drug products for therapeutic use, we must be in compliance with guidance and regulations established by
the regulatory agencies in the countries in which we currently operate or intend to operate.
The laws of most of these countries require the licensing of manufacturing
facilities, carefully controlled research and the extensive testing of products. Biotechnology companies must establish the safety
and efficacy of their new products in clinical trials; they must establish and comply with cGMPs for the manufacturing of the product
and control over marketing activities before being allowed to market a product. The safety and efficacy of a new drug must be shown
through human clinical trials of the drug carried out in accordance with the guidance and regulations established by local and
federal regulatory agencies.
The process of completing clinical trials and obtaining regulatory
approval for a new drug takes a number of years and requires the expenditure of substantial resources. Once a new drug or product
license application is submitted, regulatory agencies may not review the application in a timely manner and may not approve the
product. Even after a New Drug Application (“NDA”) submission has occurred and/or approval has been obtained, further
studies, including post-marketing studies, may be required to provide additional data on the efficacy and safety necessary to confirm
the approved indication or to gain approval for the use of the new drug as a treatment for clinical indications other than those
for which the new drug was initially tested. Also, regulatory agencies require post-marketing surveillance programs to monitor
a new drug’s side effects, safety and long-term effects of the product. A serious safety or effectiveness problem involving
an approved new drug may result in a regulatory agency mandating a withdrawal of the new drug from the market and possible civil
action. It is possible that we could encounter such difficulties or excessive costs in our efforts to secure necessary approvals,
which could delay or prevent us from manufacturing or marketing our products.
In addition to the regulatory product approval framework, biotechnology
companies, including Aptose, are subject to regulation under local, provincial, state and federal law, including requirements regarding
occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other
present and future local, provincial, state, federal and foreign regulation, including possible future regulation of the biotechnology
industry.
Approval of New Drugs in Canada
In Canada, the manufacture and sale of new drugs are controlled
by Health Canada. New drugs must pass through a number of testing stages, including pre-clinical testing and human clinical trials.
Pre-clinical testing involves testing the new drug’s chemistry, pharmacology and toxicology in vitro and in vivo. Successful
results (that is, potentially valuable pharmacological activity combined with an acceptable low level of toxicity) enable the developer
of the new drug to file a clinical trial application to begin clinical trials involving humans.
To study a drug in Canadian patients, a clinical trial application
submission must be filed with Health Canada. The clinical trial application submission must contain specified information, including
the results of the pre-clinical tests completed at the time of the submission and any available information regarding use of the
drug in humans. In addition, since the method of manufacture may affect the efficacy and safety of a new drug, information on manufacturing
methods and standards and the stability of the drug substance and dosage form must be presented. Production methods and quality
control procedures must be in place to ensure an acceptably pure product, essentially free of contamination, and to ensure uniformity
with respect to all quality aspects.
In addition, all federally regulated trials must be approved and
monitored by an independent committee of doctors, scientists, advocates and others to ensure safety and ethical standards. These
committees are called Institutional Review Boards (IRBs) or Ethics Review Boards (“ERBs”). The review boards study
and approve all study-related documents before a clinical trial begins and also carefully monitor data to detect benefit or harm,
and validity of results.
Provided Health Canada does not reject a clinical trial application
submission and IRB or ERB approval has been obtained, clinical trials can begin. Clinical trials for product candidates in Canada,
as in the United States, are generally carried out in three phases. Phase I involves studies to evaluate toxicity and ideal
dose levels in healthy humans. The new drug is administered to human patients who have met the clinical trial entry criteria to
determine pharmacokinetics, human tolerance and prevalence of any adverse side effects. Phases II and III involve therapeutic studies.
In Phase II, efficacy, dosage, side effects and safety are established in a small number of patients who have the disease or disorder
that the new drug is intended to treat. In Phase III, there are controlled clinical trials in which the new drug is administered
to a large number of patients who are likely to receive benefit from the new drug. In Phase III, the effectiveness of the new drug
in patients is compared to that of standard accepted methods of treatment in order to provide sufficient data for the statistical
proof of safety and efficacy for the new drug.
If clinical studies establish that a new drug has value, the manufacturer
submits a new drug submission application to Health Canada for marketing approval. The new drug submission contains all information
known about the new drug, including the results of pre-clinical testing and clinical trials. Information about a substance contained
in new drug submission includes its proper name, its chemical name, and details on its method of manufacturing and purification,
and its biological, pharmacological and toxicological properties. The new drug submission also provides information about the dosage
form of the new drug, including a quantitative listing of all ingredients used in its formulation, its method of manufacture, manufacturing
facility information, packaging and labelling, the results of stability tests, and its diagnostic or therapeutic claims and side
effects, as well as details of the clinical trials to support the safety and efficacy of the new drug. Furthermore, for biological
products, an on-site evaluation is completed to assess the production process and manufacturing facility. It is required prior
to the issuance of a notice of compliance. All aspects of the new drug submission are critically reviewed by Health Canada. If
a new drug submission is found satisfactory, a notice of compliance is issued permitting the new drug to be sold for the approved
use. In Canada, an establishment license must be obtained prior to marketing the product.
Health Canada has a policy of priority evaluation of new drug submissions
for all drugs intended for serious or life-threatening diseases for which no drug product has received regulatory approval in Canada
and for which there is reasonable scientific evidence to indicate that the proposed new drug is safe and may provide effective
treatment.
An exception to the foregoing requirements relating to the manufacture
and sale of a new drug is the limited authorization that may be available in respect of the sale of new drugs for emergency treatment.
Under the special access program, Health Canada may authorize the sale of a quantity of a new drug for human use to a specific
practitioner for the emergency treatment of a patient under the practitioner’s care. Prior to authorization, the practitioner
must supply Health Canada with information concerning the medical emergency for which the new drug is required, such data as is
in the possession of the practitioner with respect to the use, safety and efficacy of the new drug, the names of the institutions
at which the new drug is to be used and such other information as may be requested by Health Canada. In addition, the practitioner
must agree to report to both the drug manufacturer and Health Canada the results of the new drug’s use in the medical emergency,
including information concerning adverse reactions, and must account to Health Canada for all quantities of the new drug made available.
The Canadian regulatory approval requirements for new drugs outlined
above are similar to those of other major pharmaceutical markets. While the testing carried out in Canada is often acceptable for
the purposes of regulatory submissions in other countries, individual regulatory authorities may request supplementary testing
during their assessment of any submission. Therefore, the clinical testing conducted under Health Canada authorization or the approval
of regulatory authorities of other countries may not be accepted by regulatory authorities outside Canada or other countries.
Approval of New Drugs in the United States
In the United States, the FDA controls and investigates the investigation,
manufacturing, and sale of new drugs. New drugs require FDA approval of a NDA prior to commercial sale. In the case of certain
biological products, a Biological License Application (“BLA”) must be obtained prior to marketing and batch releasing.
As in Canada, to obtain marketing approval, data from adequate and well-controlled human clinical trials, demonstrating to the
FDA’s satisfaction a new drug’s safety and effectiveness for its intended use, are required. Data are generated in
studies conducted pursuant to an IND submission, similar to that required for a clinical trial application in Canada. Clinical
trials with human subjects are characterized as Phase I, Phase II and Phase III trials or a combination thereof. In a marketing
application, the manufacturer must also demonstrate the identity, potency, quality and purity of the active ingredients of the
new drug involved, and the stability of those ingredients. Further, the manufacturing facilities, equipment, processes and quality
controls for the new drug must comply with the FDA’s current cGMP regulations for drugs both in a pre-licensing inspection
before product licensing and in subsequent periodic inspections after licensing. An establishment license grants the sponsor permission
to fabricate, package, label, distribute, import, wholesale or test the newly approved drug.
Federally regulated trials must be approved and monitored by an
independent committee of doctors, scientists, advocates and others to ensure safety and ethical standards. These committees are
called IRBs or ERBs. The review boards study and approve all study-related documents before a clinical trial begins and also carefully
monitor data to detect benefit or harm, and validity of results.
Post-Approval Regulation
The monitoring of a new drug does not cease once it is on the market.
For example, a manufacturer of a new drug must report any new information received concerning serious side effects, as well as
the failure of the new drug to produce desired effects. If Health Canada determines it to be in the interest of public health,
a notice of compliance for a new drug may be suspended and the new drug may be removed from the market.
A post surveillance program involves clinical trials conducted after
a drug is marketed (referred to as Phase IV studies in the United States) and is an important source of information on as yet undetected
adverse outcomes, especially in populations that may not have been involved in the premarketing trials (e.g., children, the elderly,
pregnant women) and the drug’s long-term morbidity and mortality profile. Regulatory authorities may require companies to
conduct Phase IV studies as a condition of market approval. Companies often conduct post-marketing studies in the absence of a
regulatory mandate.
The foregoing description is a brief summary of the requirements
for a new drug to be approved for marketing in North America. The European Medicines Agency and Japanese Pharmaceuticals and Medical
Devices Agency are also important regulatory authorities in drug development. Together with the FDA, they are the three International
Conference on Harmonization parties which oversee the three largest markets for drug sales.
Information About Our Executive Officers
Aptose’s leadership team comprises accomplished industry,
financial and clinical research professionals who are dedicated to building a comprehensive anticancer drug pipeline and clinical
development programs focused on targeted therapeutics directed against dysregulated oncogenic processes in patients with life.
The team includes our Chairman and Chief Executive Officer, our Chief Financial Officer, our Chief Business Officer and our Chief
Medical Officer.
Dr. William G. Rice, age 61, joined Aptose as Chairman, President
and Chief Executive Officer in October 2013. Prior to joining Aptose, Dr. Rice served as the President, Chief Executive Officer
and Chairman of the board of Cylene Pharmaceuticals, Inc., a private biotechnology company (“Cylene”) from 2003 to
2013. Prior to Cylene, Dr. Rice was the founder, President, Chief Executive Officer and Director of Achillion Pharmaceuticals,
Inc. from 1998 to 2003. He also served as Senior Scientist and Head of the Drug Mechanism Laboratory at the National Cancer Institute-Frederick
Cancer Research and Development Center from 1992 to 1998, and served as a faculty member in the division of Pediatric Hematology
and Oncology at Emory University School of Medicine from 1989 to 1992. Dr. Rice received his Ph.D. from Emory University Department
of Biochemistry. He continues to serve as the Chairman of the board of Cylene and is a member of the board of directors of Oncolytics
Biotech Inc. since 2015.
Gregory K. Chow, age 47, joined
Aptose as Senior Vice President and Chief Financial Officer in December 2013. Previously, Mr. Chow served as Managing Director,
Director of Private Placements at Wedbush Securities from 2012 to 2013, where he led the private placement capital activities within
the Life Sciences Investment Banking Group. Prior to joining Wedbush, he was a Director in the Private Placements / Equity Capital
Markets Group at RBC Capital Markets from 2006 to 2011, where he led life science private capital activities. From 2003 to 2006,
he led the Private Capital Group at Wells Fargo Securities and was a Senior Auditor at BDO Seidman, LLP in their Century
City, CA office. Mr. Chow is a Certified Public Accountant (inactive) in the State of California. Mr. Chow received his MBA in
Finance from The Wharton School at the University of Pennsylvania, and his BA in Business Economics with an emphasis in Accounting
from the University of California, Santa Barbara.
Dr. Jotin Marango, age 41, joined Aptose as Senior Vice President
and Chief Business Officer in June 2019. Prior to joining Aptose, from 2017 to 2019, Dr. Marango was a managing director and
senior research analyst at Roth Capital Partners covering biotechnology and therapeutics. Dr. Marango joined Roth from H.C. Wainwright
& Co., where he worked from 2015 to 2017 and covered hematology, oncology, and pulmonary therapeutics, with a focus on epigenetic
and molecularly targeted therapies. Dr. Marango began his career in equity research with Collins Stewart/Canaccord Genuity
in 2010. Previously, Dr. Marango also served as Chief Operating Officer at the Samuel Waxman Cancer Research Foundation from 2012
to 2015, where he oversaw academic collaborations in translational therapeutics, as well as venture philanthropy initiatives in
drug development. Dr. Marango studied theoretical chemistry and classical literature at Harvard University and later received his
M.D. and Ph.D. degrees from the Mount Sinai School of Medicine in New York.
Dr. Rafael Bejar, M.D, Ph.D., age 48, joined Aptose as Senior Vice
President and Chief Medical Officer in January 2020. Dr. Bejar is an internationally recognized physician scientist with extensive
research and clinical experience in the area of hematologic malignancies. Dr. Bejar joined Aptose from UC San Diego (“UCSD”)
where he began working in 2012. He continues to serve at UCSD as an Associate Professor of Clinical Medicine, caring for patients
and maintaining a research laboratory focused on translational studies of myeloid malignancies. At UCSD, he founded the MDS Center
of Excellence and led the Hematology Disease Team from 2017 to 2019. There he has directed several clinical studies and served
as an advisor for numerous companies including Celgene, Takeda, AbbVie, Astex, Genoptix, Forty Seven, PersImmune, and Daiichi-Sankyo.
Outside UCSD, Dr. Bejar sits on the Scientific Advisory Board for the MDS Foundation, is a prior member of the National Comprehensive
Cancer Network Guidelines Committee, and has led projects for the International Working Group for MDS. He is frequently invited
to speak at national and international meetings and has published articles in a variety of journals including The New England
Journal of Medicine, Journal of Clinical Oncology, Leukemia, Blood, and Blood Advances. Dr. Bejar has been board
certified in Hematology and Oncology since completing his fellowship at the Dana-Farber Cancer Institute. He completed his internship
in Internal Medicine at the University of Chicago followed by his residency at the Brigham and Women’s Hospital in Boston
where he later served a Medical Chief Resident and an Instructor in Hematology. He holds an MD degree and Neuroscience PhD from
UCSD and a BS in Physics from MIT.
Corporate Information
Aptose is a publicly traded company incorporated pursuant to the
Canada Business Corporations Act, or CBCA. Our headquarters are located at 251 Consumers Road, Suite 1105 Toronto, Ontario,
Canada M2J 4R3 (telephone: 647-479-9828), and our executive offices are located at 12770 High Bluff Drive, Suite 120, San Diego,
CA 92130 (telephone: 858-926-2730).
We file annual, quarterly, current reports, proxy statements and
other information with the Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet site
that contains our public filings and other information regarding the Company, at www.sec.gov. We are also a reporting issuer under
the securities laws of the Province of Ontario in Canada. We make these reports available free of charge at our website http://www.aptose.com
(under the “Investors — Financial Information” caption).
Prior to December 31, 2018, Aptose was a foreign private issuer,
and in compliance with SEC regulations, filed its Quarterly reports on Form 6-Ks, and its Annual Reports on either Forms F-20 or
F-40. These reports were made available on our website as soon as reasonably practicable after their filing with, or furnishing
to, the SEC. We are also a reporting issuer under the securities laws of the Province of Ontario in Canada.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” within
the meaning of applicable Canadian securities law. We refer to such forward-looking statements and forward-looking information
collectively as “forward-looking statements”. These statements relate to future events or future performance and reflect
our expectations and assumptions regarding our growth, results of operations, performance and business prospects and opportunities.
Such forward-looking statements reflect our current beliefs and are based on information currently available to us. In some cases,
forward-looking statements can be identified by terminology such as “may”, “would”, “could”,
“will”, “should”, “expect”, “plan”, “intend”, “anticipate”,
“believe”, “estimate”, “predict”, “potential”, “continue” or the negative
of these terms or other similar expressions concerning matters that are not historical facts. The forward-looking statements in
this Annual Report on Form 10-K include, among others, statements regarding our future operating results, economic performance
and product development efforts and statements in respect of:
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our ability to obtain the substantial capital we require to fund research and operations;
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our clinical development plans;
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our plans to conduct clinical trials and preclinical programs;
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our ability to accrue appropriate numbers and types of patients;
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our reliance on external contract research/manufacturing organizations for certain activities;
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our plans to secure and maintain strategic partnerships to assist in the further development of our product candidates and
to build our pipeline;
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our ability to file and maintain intellectual property to protect our pharmaceutical assets;
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potential exposure to legal actions and potential need to take action against other entities;
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our expectations regarding the progress and the successful and timely completion of the various stages of our drug discovery,
drug synthesis and formulation, preclinical and clinical studies and the regulatory approval process;
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our plans, objectives, expectations and intentions; and
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other statements including words such as “anticipate”, “contemplate”, “continue”, “believe”,
“plan”, “estimate”, “expect”, “intend”, “will”, “should”,
“may”, and other similar expressions.
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The forward-looking statements contained in this Annual
Report on Form 10-K reflect our current views with respect to future events, are subject to significant risks and uncertainties,
and are based upon a number of estimates and assumptions that, while considered reasonable by us, are inherently subject to significant
business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause our actual results,
performance or achievements to be materially different from any future results, performance, or achievements that may be expressed
or implied by such forward-looking statements, including, among others:
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our lack of product revenues and net losses and a history of operating losses;
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our early stage of development, particularly the inherent risks and uncertainties associated with (i) developing new drug
candidates generally, (ii) demonstrating the safety and efficacy of these drug candidates in clinical studies in humans, and
(iii) obtaining regulatory approval to commercialize these drug candidates;
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our need to raise substantial additional capital in the future and that we may be unable to raise such funds when needed and
on acceptable terms;
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further equity financing, which may substantially dilute the interests of our existing shareholders;
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clinical studies and regulatory approvals of our drug candidates are subject to delays, and may not be completed or granted
on expected timetables, if at all, and such delays may increase our costs and could substantially harm our business;
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our reliance on external contract research/manufacturing organizations for certain activities and if we are subject to quality,
cost, or delivery issues with the preclinical and clinical grade materials supplied by contract manufacturers, our business operations
could suffer significant harm;
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clinical studies are long, expensive and uncertain processes and the FDA, or other similar foreign regulatory agencies that
we are required to report to, may ultimately not approve any of our product candidates;
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our ability to comply with applicable governmental regulations and standards;
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our inability to achieve our projected development goals in the time frames we announce and expect;
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difficulties in enrolling patients for clinical trials may lead to delays or cancellations of our clinical trials;
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our reliance on third-parties to conduct and monitor our preclinical studies;
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our ability to attract and retain key personnel, including key executives and scientists;
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any misconduct or improper activities by our employees;
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our exposure to exchange rate risk;
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our ability to commercialize our business attributed to negative results from clinical trials;
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the marketplace may not accept our products or product candidates due to the intense competition and technological change in
the biotechnical and pharmaceuticals, and we may not be able to compete successfully against other companies in our industries
and achieve profitability;
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our ability to obtain and maintain patent protection;
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our ability to afford substantial costs incurred with defending our intellectual property;
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our ability to protect our intellectual property rights and not infringe on the intellectual property rights of others;
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our business is subject to potential product liability and other claims;
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potential exposure to legal actions and potential need to take action against other entities;
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commercialization limitations imposed by intellectual property rights owned or controlled by third parties;
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our ability to maintain adequate insurance at acceptable costs;
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our ability to find and enter into agreements with potential partners;
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extensive government regulation;
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data security incidents and privacy breaches could result in increased costs and reputational harm;
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our share price has been and is likely to continue to be volatile;
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future sales of our Common Shares by us or by our existing shareholders could cause our share price to drop;
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changing global market and financial conditions;
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changes in an active trading market in our Common Shares;
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difficulties by non-Canadian investors to obtain and enforce judgments against us because of our Canadian incorporation
and presence;
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potential adverse U.S. federal tax consequences for U.S. shareholders because we are a “passive foreign investment company”;
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our “emerging growth company” and “smaller reporting company” status;
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any failures to maintain an effective system of internal controls may result in material misstatements of our financial statements,
or cause us to fail to meet our reporting obligations or fail to prevent fraud;
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our broad discretion in how we use the proceeds of the Common Shares issued pursuant to the two confidentially marketed public
offerings completed in the year ended December 31, 2019, and from the sale of the Common Shares to Aspire Capital pursuant to the
purchase agreements between us and Aspire;
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our ability to expand our business through the acquisition of companies or businesses; and
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other risks detailed from time-to-time in our on-going filings with the SEC and Canadian securities regulators,
and those which are discussed in Item 1A. Risk Factors in this Annual Report on Form 10-K.
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Should one or more of these risks or uncertainties materialize,
or should the assumptions described in the Item 1A. Risk Factors in this Annual Report on Form 10-K underlying those forward-looking
statements prove incorrect, actual results may vary materially from those described in the forward-looking statements.
More detailed information about these and other factors is included
in this Annual Report on Form 10-K under Item 1A. Risk Factors. Although we have attempted to identify factors that could cause
actual actions, events or results to differ materially from those described in forward-looking statements, there may be other
factors that cause actions, events or results not to be as anticipated, estimated or intended. Forward-looking statements are
based upon our beliefs, estimates and opinions at the time they are made and we undertake no obligation to update forward-looking
statements if these beliefs, estimates and opinions or circumstances should change, except as required by applicable law. There
can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking
statements.
Forward-looking statements contained in this Annual Report
on Form 10-K are made as of the date of this Annual Report on Form 10-K.
Except as required under applicable securities legislation,
we undertake no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future
events or otherwise. We qualify all the forward-looking statements contained in this Annual Report on Form 10-K by
the foregoing cautionary statements.
ITEM 1A. RISK FACTORS
Risk Factors and Uncertainties
Any of the risks and uncertainties described below could significantly and negatively
affect our business, prospects, financial condition, operating results, or credit ratings, which could cause the trading price
of our Common Shares to decline. Additional risks and uncertainties not presently known to us, or risks that we currently consider
immaterial, could also impair our business operations or financial condition. The following discussion of risk factors contains
“forward-looking” statements, as discussed above.
Risks
Related to our Business
We are an early stage development
company with no significant revenues from product sales.
We are at an early stage of development. In the past five years,
none of our potential products has obtained regulatory approval for commercial use and sale in any country and as such, no significant
revenues have resulted from product sales. Significant additional investment will be necessary to complete the development of any
of our product candidates. Preclinical and clinical trial work must be completed before our potential products could be ready for
use within the markets that we have identified. We may fail to develop any products, obtain regulatory approvals, enter clinical
trials or commercialize any products. We do not know whether any of our potential product development efforts will prove to be
effective, meet applicable regulatory standards, obtain the requisite regulatory approvals, be capable of being manufactured at
a reasonable cost or be accepted in the marketplace. We also do not know whether sales, license fees or related royalties will
allow us to recoup any investment we make in the commercialization of our products.
The product candidates we are currently developing are not expected
to be commercially viable for at least the next several years and we may encounter unforeseen difficulties or delays in commercializing
our product candidates. In addition, our potential products may not be effective or may cause undesirable side effects.
Our product candidates require significant funding to reach regulatory
approval assuming positive clinical results. For example, our product candidate APTO-253 began enrollment in a Phase Ib clinical
trial in patients with relapsed or refractory AML and high risk MDS and was placed on clinical hold by the FDA following a voluntary
suspension of dosing by us. That hold has been lifted, but significant additional funding will be necessary to complete the restarted
Phase Ib clinical and, if required, Phase II or Phase III clinical trials. Similarly, we have received FDA approval to initiate
a Phase I clinical trial with our product candidate CG-806 for patients with B-cell malignancies. Significant additional capital
will be necessary to complete the Phase I clinical trial, and if required, Phase II or Phase III clinical trials. Such funding
for our product candidates may be difficult, or impossible to raise in the public or private markets or through partnerships. If
funding or partnerships are not readily attainable, the development of our product candidates may be significantly delayed or stopped
altogether. The announcement of a delay or discontinuation of development would likely have a negative impact on our share price.
We need to raise additional
capital.
We have an ongoing need to raise additional capital. To obtain the
necessary capital, we must rely on some or all of the following: additional share issues, debt issuances (including promissory
notes), collaboration agreements or corporate partnerships and grants and tax credits to provide full or partial funding for our
activities. Additional funding may not be available on terms that are acceptable to us or in amounts that will enable us to carry
out our business plan.
Our need for capital may require us to:
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engage in equity financings that could result in significant dilution to existing investors;
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delay or reduce the scope of or eliminate one or more of our development programs;
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obtain funds through arrangements with collaborators or others that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or commercialize ourselves;
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license rights to technologies, product candidates or products on terms that are less favorable to us than might otherwise
be available;
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considerably reduce operations; or
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We have a history of operating losses. We expect to incur
net losses and we may never achieve or maintain profitability.
We have not been profitable since our inception in 1986. We reported
net losses of $26.3 million in the fiscal year ended December 31, 2019, $28.8 million in the fiscal year ended December 31, 2018,
and $11.7 million in the fiscal year ended December 31, 2017, and as of December 31, 2019, we had an accumulated deficit of $301.9
million.
We have not generated any significant revenue to date and it is
possible that we will never have sufficient product sales revenue (if any) to achieve profitability. We expect to continue to incur
losses for at least the next several years as we or our collaborators and licensees pursue clinical trials and research and development
efforts. To become profitable, we, either alone or with our collaborators and licensees, must successfully develop, manufacture
and market our current product candidates APTO-253 or CG-806, as well as continue to identify, develop, manufacture and market
new product candidates. It is possible that we will never have significant product sales revenue or receive royalties on our licensed
product candidates. If funding is insufficient at any time in the future, we may not be able to develop or commercialize our products,
take advantage of business opportunities or respond to competitive pressures.
We currently do not earn any revenues from our drug candidates and
are therefore considered to be in the development stage. The continuation of our research and development activities and the commercialization
of the targeted therapeutic products are dependent upon our ability to successfully finance and complete our research and development
programs through a combination of equity financing and payments from strategic partners. We have no current sources of significant
payments from strategic partners.
We heavily rely on the capabilities
and experience of our key executives and scientists and the loss of any of them could affect our ability to develop our products.
The loss of our executive officers could harm our operations and
our ability to achieve strategic objectives. While we have employment agreements with our executive officers, such employment agreements
do not guarantee their retention. We also depend on our scientific and clinical collaborators and advisors, all of whom have outside
commitments that may limit their availability to us. In addition, we believe that our future success will depend in large part
upon our ability to attract and retain highly skilled scientific, managerial, medical, clinical and regulatory personnel, particularly
as we expand our activities and seek regulatory approvals for clinical trials. We routinely enter into consulting agreements with
our scientific and clinical collaborators and advisors, key opinion leaders and academic partners in the ordinary course of our
business. We also enter into contractual agreements with physicians and institutions who will recruit patients into our clinical
trials on our behalf in the ordinary course of our business. Notwithstanding these arrangements, we face significant competition
for these types of personnel from other companies, research and academic institutions, government entities and other organizations.
We cannot predict our success in hiring or retaining the personnel we require for continued growth. The loss of the services of
any of our executive officers or other key personnel could potentially harm our business, operating results or financial condition.
Our employees may engage
in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have
a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct.
Misconduct by employees could include failures to comply with FDA/Health Canada regulations, provide accurate information to the
FDA/Health Canada, comply with manufacturing standards we have established, comply with federal, state and provincial health-care
fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us.
In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit
a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business
arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials,
which could result in regulatory sanctions and serious harm to our reputation. If any such actions are instituted against us, and
we are not successful in defending ourselves or asserting our rights, those actions could have a substantial impact on our business
and results of operations, including the imposition of substantial fines or other sanctions.
We have no sales, marketing or distribution experience and
would have to invest significant financial and management resources to establish these capabilities.
We have no sales,
marketing or distribution experience. We currently expect to rely heavily on third parties to launch and market our products,
if they approved. However, if we elect to develop internal sales, distribution and marketing capabilities, we will need to invest
significant financial and management resources. For products where we decide to perform sales, marketing and distribution functions
ourselves, we could face a number of additional risks, including:
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we may not be able to attract and build a significant marketing or sales force;
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the cost of establishing a marketing or sales force may not be justifiable in light of the revenues generated by any particular
product; and
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our direct sales and marketing efforts may not be successful.
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If we are unable to develop our own sales, marketing and distribution
capabilities, we will not be able to successfully commercialize our products without reliance on third parties.
We may expand our business
through the acquisition of companies or businesses or by entering into collaborations or by in-licensing product candidates, each
of which could disrupt our business and harm our financial condition.
We may in the future seek to expand our pipeline and capabilities
by acquiring one or more companies or businesses, entering into collaborations or in-licensing one or more product candidates.
For example, in June 2016, we entered into a definitive agreement with CG, granting Aptose an exclusive option to research, develop
and commercialize CG-806 in all countries of the world except Korea, for all fields of use.
Acquisitions, collaborations and in-licenses involve numerous risks,
including, but not limited to:
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substantial cash expenditures;
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technology development risks;
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potentially dilutive issuances of equity securities;
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incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
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difficulties in assimilating the operations of the acquired companies;
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potential disputes regarding contingent consideration;
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diverting our management’s attention away from other business concerns;
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entering markets in which we have limited or no direct experience;
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potential loss of our key employees or key employees of the acquired companies or businesses; and
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failure of the in-licenses agents or technologies to deliver the desired activities or functions.
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We have experience in entering collaborations and in-licensing product
candidates; however, we cannot provide assurance that any acquisition, collaboration or in-license will result in short-term or
long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business or in-licensed product
candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some
of these acquisitions, collaborations and in-licenses. We cannot assure you that we would be able to successfully combine our business
with that of acquired businesses, manage a collaboration or integrate in-licensed product candidates. Furthermore, the development
or expansion of our business may require a substantial capital investment by us.
Fluctuations in exchange
rates can cause us to incur losses.
We may be exposed to fluctuations of the United States dollar against
certain other currencies because we hold most of our cash and cash equivalents in United States dollars, while we incur some of
our expenses in foreign currencies, primarily the Canadian dollar. Fluctuations in the value of currencies could cause us to incur
currency exchange losses, and we do not currently employ a hedging strategy against exchange rate risk. As a result, changes in
the exchange rate between the Canadian dollar and the U.S. dollar could materially impact our reported results of operations and
distort period to period comparisons. In particular, to the extent that foreign currency-denominated (i.e., non-U.S. dollar) monetary
assets do not equal the amount of our foreign currency denominated monetary liabilities, foreign currency gains or losses could
arise and materially impact our financial statements. As a result of such foreign currency fluctuations, it could be more difficult
to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency
exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading
price of our Common Shares could be adversely affected.
Risks
Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates
Clinical trials are long,
expensive and uncertain processes and the FDA or Health Canada may ultimately not approve any of our product candidates. We may
never develop any commercial drugs or other products that generate revenues.
In the past five years, none of our product candidates has received
regulatory approval for commercial use and sale in North America. We cannot market a pharmaceutical product in any jurisdiction
until it has completed thorough preclinical testing and clinical trials in addition to that jurisdiction’s extensive regulatory
approval process. Approval in one country does not assure approval in another country. In general, significant research and development
and clinical studies are required to demonstrate the safety and effectiveness of our product candidates before we can submit any
applications for regulatory approval.
Clinical trials are long, expensive and uncertain processes. Clinical
trials may not start or be on schedule and the FDA or Health Canada or any other regulatory body may not ultimately approve our
product candidates for commercial sale in the relevant territory. The clinical trials of any of our drug candidates could be unsuccessful,
which would prevent us from advancing, commercializing or partnering the drug.
Even if the results of our preclinical studies or clinical trials
are initially positive, it is possible that we will obtain different results in the later stages of drug development or that results
seen in clinical trials will not continue with longer term treatment. Positive results in Phase I clinical trials may not necessarily
repeat in larger Phase II or Phase III clinical trials.
Our preclinical studies and clinical trials may not generate positive
results that will allow us to move towards the commercial use and sale of our product candidates. Furthermore, negative preclinical
or clinical trial results may cause our business, financial condition, or results of operations to be materially adversely affected.
For example, our Phase Ib clinical trial of APTO-253 in patients with relapsed or refractory AML and high risk MDS was placed
on clinical hold by the FDA in November 2015. Those short comings of the drug product were addressed and the clinical hold was
lifted. However, there can be no assurance that the Company will have the resources, or that we will decide, to continue the development
of APTO-253. There is a long development path ahead that will take many years to complete the development and is prone to the
risks of failure or delays inherent in drug development. Likewise, our CG-806 product candidate is currently being evaluated in
a Phase Ia/b study for patients having B-cell malignancies, and it is expected to undergo many years of testing and regulatory
examinations prior to any potential regulatory approvals.
Preparing, submitting and advancing applications for regulatory
approval of products is complex, expensive and time intensive and entails significant uncertainty. A commitment of substantial
resources to conduct time-consuming research, preclinical studies and clinical trials is required if we are to complete development
of our products.
Clinical trials of our products require that we identify and enroll
a large number of patients with the illness under investigation. We may not be able to enroll a sufficient number of appropriate
patients to complete our clinical trials in a timely manner, particularly in smaller indications and indications where there is
significant competition for patients. If we experience difficulty in enrolling a sufficient number of patients to conduct our clinical
trials, we may need to delay or terminate ongoing clinical trials and will not accomplish objectives material to our success. Delays
in planned patient enrollment or lower than anticipated event rates in our current clinical trials or future clinical trials also
may result in increased costs, program delays, or both.
In addition, unacceptable toxicities or adverse side effects may
occur at any time in the course of preclinical studies or human clinical trials or, if any product candidates are successfully
developed and approved for marketing, during commercial use of any approved products. The appearance of any unacceptable toxicities
or adverse side effects could interrupt, limit, delay or abort the development of any of our product candidates or, if previously
approved, necessitate their withdrawal from the market. Furthermore, disease resistance or other unforeseen factors may limit the
effectiveness of our potential products.
Our failure to develop safe and commercially viable drugs would
substantially impair our ability to generate revenues and sustain our operations and would materially harm our business and adversely
affect our share price.
We may not achieve our projected
development goals in the time frames we announce and expect.
We set goals for, and make public statements regarding, the expected
timing of the accomplishment of objectives material to our success, such as the commencement and completion of clinical trials,
the submission of a drug-regulatory application, and the expected costs to develop our product candidates. The actual timing and
costs of these events can vary dramatically due to factors within and beyond our control, such as delays or failures in our IND
submissions or clinical trials, issues related to the manufacturing of drug supply, uncertainties inherent in the regulatory approval
process, market conditions and interest by partners in our product candidates among other things. Our clinical trials may not
be completed, we may not make regulatory submissions or receive regulatory approvals as planned; or we may not secure partnerships
for any of our product candidates. Any failure to achieve one or more of these milestones as planned would have a material adverse
effect on our business, financial condition and results of operations.
Delays in clinical testing
could result in delays in commercializing our product candidates and our business may be substantially harmed.
We cannot predict whether any clinical trials will begin as planned,
will need to be restructured or will be completed on schedule, if at all. Our product development costs will increase if we experience
delays in clinical testing. Significant clinical trial delays could shorten any periods during which we may have the exclusive
right to commercialize our product candidates or allow our competitors to bring products to market before us, which would impair
our ability to successfully commercialize our product candidates and may harm our financial condition, results of operations and
prospects. The recommencement and completion of clinical trials for our products, including the APTO-253 phase Ib clinical trial,
the phase Ia/b clinical trial for CG-806 study for the treatment of patients having B-cell malignancies, and the IND acceptance
of our planned Phase I study for the development of CG-806 for the treatment of patients with relapsed/refractory acute myeloid
leukemia (“R/R AML”) may be delayed for a number of reasons, including delays related, but not limited, to:.
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failure by regulatory authorities to grant permission to proceed with a clinical trial;
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a regulatory decision to place or placing the clinical trial on hold;
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patients failing to enroll or remain in our trials at the rate we expect;
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suspension or termination of clinical trials by regulators for many reasons, including concerns about patient safety or failure
of our contract manufacturers to comply with cGMP requirements;
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any changes to our manufacturing process that may be necessary or desired;
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delays or failure to obtain GMP-grade clinical supply from contract manufacturers of our products necessary to conduct clinical
trials;
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product candidates demonstrating a lack of safety or efficacy during clinical trials;
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patients choosing an alternative treatment for the indications for which we are developing any of our product candidates or
participating in competing clinical trials;
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patients failing to complete clinical trials due to dissatisfaction with the treatment, side effects or other reasons;
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reports of clinical testing on similar technologies and products raising safety and/or efficacy concerns;
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competing clinical trials and scheduling conflicts with participating clinicians;
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clinical investigators not performing our clinical trials on their anticipated schedule, dropping out of a trial, or employing
methods not consistent with the clinical trial protocol, regulatory requirements or other third parties not performing data collection
and analysis in a timely or accurate manner;
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failure of our contract research organizations, or CROs, to satisfy their contractual duties or meet expected deadlines;
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inspections of clinical trial sites by regulatory authorities or IRBs, or ethics committees or boards finding regulatory violations that
require us to undertake corrective action, resulting in suspension or termination of one or more sites or the imposition of
a clinical hold on the entire study;
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one or more IRBs or ethics committees or boards rejecting, suspending or terminating the study at an investigational site, precluding
enrollment of additional subjects, or withdrawing its approval of the trial; or
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failure to reach agreement on acceptable terms with prospective clinical trial sites.
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Our product development costs will increase if we experience delays
in testing or approval or if we need to perform more or larger clinical trials than planned. Additionally, changes in regulatory
requirements and policies may occur, and we may need to amend study protocols to reflect these changes. Amendments may require
us to resubmit our study protocols to regulatory authorities or IRBs or ethics committees or boards for re-examination, which
may impact the cost, timing or successful completion of a trial. Delays or increased product development costs may have a material
adverse effect on our business, financial condition and prospects.
We rely on contract manufacturers
over whom we have limited control. If we are subject to quality, cost or delivery issues with the preclinical and clinical grade
materials supplied by contract manufacturers, our business operations could suffer significant harm.
We rely on CMOs to manufacture our product candidates for some preclinical
studies and clinical trials. We rely on CMOs for manufacturing, filling, packaging, storing and shipping of drug product in compliance
with cGMP regulations applicable to our products. The FDA and other regulatory agencies ensure the quality of drug products by
carefully monitoring drug manufacturers’ compliance with cGMP regulations. The cGMP regulations for drugs contain minimum
requirements for the methods, facilities and controls used in manufacturing, processing and packing of a drug product.
We contracted with multiple CMOs for the manufacture of APTO-253
and CG-806 to supply the active ingredient and then drug product for our clinical trials. The synthesis of CG-806 is challenging
from a scale-up synthetic chemistry perspective. The formulation and manufacture of APTO-253 is a complex process with many variables
involved. We pre-qualified CMOs to have the capacity, the systems and the experience to supply CG-806 and APTO-253 for our clinical
trials. We have qualified the manufacturing facilities and the FDA has also performed site audits for our selected CMOs. In spite
of the efforts to prequalify CMOs, delays and errors may occur, and any such manufacturing failures, delays or compliance issues
could cause delays in the completion of our clinical trial programs.
There can be no assurances that CMOs will be able to meet our timetable
and requirements. We have contracted with alternate suppliers in the event our current CMOs are unable to scale up production,
or if our current CMOs otherwise experience any other significant problems in the manufacture of CG-806 and APTO-253. However,
it is possible that all third-party manufacturing sources may experience failure or delays and may demand commercially unreasonable
terms, which may lead to further delays in the development of our product candidates. Further, contract manufacturers must operate
in compliance with cGMP and failure to do so could result in, among other things, the disruption of product supplies. Our
dependence upon third parties for the manufacture of our products may adversely affect our profit margins and our ability to develop
and deliver products on a timely and competitive basis.
Some components of our products are manufactured by third parties outside of the
United States, and our business may be harmed by legal, regulatory, economic, political and public health risks associated with
international trade and those markets.
We have third-party manufacturing partners in Germany and the United
Kingdom; in addition, some materials used by our third-party manufacturers are supplied by companies located in other countries,
including China. Our reliance on suppliers and manufacturers in foreign markets creates risks inherent in doing business in foreign
jurisdictions, including: (a) the burdens of complying with a variety of foreign laws and regulations, including laws relating
to the importation and taxation of goods (b) public health crises, such as pandemics and epidemics, in the countries where
our suppliers and manufacturers are located; (c) transportation interruptions or increases in transportation costs; and (d)
foreign intellectual property infringement risks. For example, the ongoing coronavirus outbreak emanating from China at the beginning
of 2020 has resulted in extended shutdown of certain businesses in the region causing reduced availability for certain pharmaceutical
ingredients. This public health crisis or any further political developments or health concerns in markets in which our products
are manufactured or from which we obtain necessary pharmaceutical ingredients could adversely affect the supply of our drug products
and, in turn, our business, financial condition, and results of operations.
If we have difficulty enrolling
patients in clinical trials, the completion of the trials may be delayed or cancelled.
As our product candidates advance from preclinical testing to clinical
testing, and then through progressively larger and more complex clinical trials, we will need to enroll an increasing number of
patients that meet our eligibility criteria. There is significant competition for recruiting cancer patients in clinical trials,
and we may be unable to enroll the patients we need to complete clinical trials for cancer indications on a timely basis or at
all. Certain factors that affect enrollment of patients in our clinical trials are impacted by external forces that may be beyond
our control. Such factors include, but are not limited to, the following:
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size and nature of the patient population;
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eligibility and exclusion criteria for the trial;
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design of the study protocol;
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competition with other companies for clinical sites or patients;
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the perceived risks and benefits of the product candidate under study;
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the patient referral practices of physicians; and
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the number, availability, location and accessibility of clinical trial sites.
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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 II, Phase III or other clinical trials that we may conduct will demonstrate
consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.
Further, the FDA, Health Canada and comparable foreign regulatory
authorities will have some discretion in the approval process and in determining when or whether regulatory approval will be obtained
for any of our product candidates. Our product candidates may not be approved even if they achieve their primary endpoints in
future Phase III clinical trials or registration trials. The FDA, Health Canada or other regulatory authorities may disagree with
our trial design and the Company’s interpretation of data from preclinical studies and clinical trials. In addition, any
of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing
comments or advice on a protocol for a pivotal Phase III clinical trial that has the potential to result in approval by the FDA,
Health Canada or another regulatory agency. In addition, any of these regulatory authorities may also approve a product candidate
for fewer or more limited indications than the Company requests or may grant approval contingent on the performance of costly
post-marketing clinical trials. The FDA, Health Canada or other regulatory authorities may not approve the labeling claims that
we believe would be necessary or desirable for the successful commercialization of our product candidates.
As a result of intense competition
and technological change in the biotechnical and pharmaceutical industries, the marketplace may not accept our products or product
candidates, and we may not be able to compete successfully against other companies in our industry and achieve profitability.
Many of our competitors have:
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drug products that have already been approved or are in development;
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large, well-funded research and development programs in the biotechnical and pharmaceutical
fields;large, well-funded research and development programs in the biotechnical and pharmaceutical
fields;
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substantially greater financial, technical and management resources, stronger intellectual property positions and greater manufacturing,
marketing and sales capabilities, areas in which we have limited or no experience; and
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significantly greater experience than we do in undertaking preclinical testing and clinical trials of new or improved pharmaceutical
products and obtaining required regulatory approvals.
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Consequently, our competitors may obtain FDA, Health Canada and
other regulatory approvals for product candidates sooner and may be more successful in manufacturing and marketing their products
than we or our collaborators are.
Our competitors’ existing and future products, therapies and
technological approaches will compete directly with the products we seek to develop. Current and prospective competing products
may be more effective than our existing and future products insofar as they may provide greater therapeutic benefits for a specific
problem or may offer easier delivery or comparable performance at a lower cost.
For CG-806 and APTO-253 in AML, examples of potential competitors
include Companies that have developed approved or are currently developing inhibitors that directly target the wild type include
AbbVie (IMBRUVICA) and AstraZeneca (CALQUENCE) and Beigene Co., Ltd. (Zanubrutinib).
Others that are developing inhibitors that target the C481S-mutant
BTK include Arqule, Inc. (ARQ 531), Roche, Sunesis Pharmaceuticals (SNS-062) and Eli Lilly among others.
For CG-806 and APTO-253 in AML, examples of potential competitors
include companies that have developed approved or are currently developing non-targeted therapies include Jazz (VYXEOS), Pfizer
(MYLOTARG) and Roche (VENCLEXTA), among others. Others that have developed or are developing highly targeted therapies such as
FLT-3 include Novartis (RYDAPT), Astellas (XOSAPTA), Daiichi Sankyo (QUIZARTINIB), Arog (CRENOLANIB), and IDH1 include Agios (TIBSOVO)
and Celgene/BMS (IDHIFA) among others.
Any product candidate that we develop and that obtains regulatory
approval must then compete for market acceptance and market share. Our products may not gain market acceptance among physicians,
patients, healthcare payers, insurers, the medical community and other stakeholders. The degree of market acceptance of our product
candidates, if approved for commercial sale, will depend on a number of factors, including:
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efficacy and potential advantages compared to alternative treatments;
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the ability to offer our product candidates for sale at competitive prices;
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convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
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the strength of marketing and distribution support;
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sufficient third-party coverage or reimbursement; and
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the prevalence and severity of any side effects.
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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 United States Patent and Trademark Office, European opposition proceedings,
or other analogous proceedings in other parts of the world to determine priority of invention and the validity of patent rights
granted or applied for, which could result in substantial cost and delay, even if the eventual outcome is favorable to us. Our
pending patent applications, even if issued, may not be held valid or enforceable.
Our products and product
candidates may infringe the intellectual property rights of others, or others may infringe on our intellectual property rights
which could increase our costs.
Our success also depends on avoiding infringement of the proprietary
technologies of others. In particular, there may be certain issued patents and patent applications claiming subject matter which
we or our collaborators may be required to license in order to research, develop or commercialize APTO-253 or CG-806. In addition,
third parties may assert infringement or other intellectual property claims against us. An adverse outcome in these proceedings
could subject us to significant liabilities to third-parties, require disputed rights to be licensed from third-parties or require
us to cease or modify our use of the technology. If we are required to license third-party technology, a license under such patents
and patent applications may not be available on acceptable terms or at all. Further, we may incur substantial costs defending ourselves
in lawsuits against charges of patent infringement or other unlawful use of another’s proprietary technology. We may also
need to bring claims against others who we believe are infringing our rights in order to become or remain competitive and successful.
Any such claims can be time consuming and expensive to pursue.
We may incur substantial
cost in defending our intellectual property.
While we believe that our products and technology do not infringe
proprietary rights of others, third parties may assert infringement claims in the future and such claims could be successful. Even
if challenges are unsuccessful, we could incur substantial costs in defending ourselves against patent infringement claims brought
by others or in prosecuting suits against others. In addition, others may obtain patents that we would need to license, which may
not be available to us on reasonable terms. Whether we are able to obtain a necessary license would depend on the terms offered,
the degree of risk of infringement and the need for the patent.
We have licensed important portions of our intellectual property
from CG, and are subject to significant obligations under that license agreement.
The rights we hold under our license agreement with CG are critical
to our business. Our CG-806 program is built around patents exclusively in-licensed from CG, which permit us to research, develop
and commercialize CG-806 worldwide except for the Republic of Korea. Under our agreement with CG, we are subject to significant
obligations, including diligence obligations with respect to development and commercialization activities, payment obligations
upon achievement of certain milestones and royalties on product sales, as well as other material obligations. CG is eligible for
payments upon the achievement of developmental, regulatory and commercial-based milestones, as well as low single-digit royalties
on product sales in all territories outside of the Republic of Korea.
If there is any conflict, dispute, disagreement or issue of non-performance
between us and CG regarding our rights or obligations under the license agreements, including any conflict, dispute or disagreement
arising from our failure to satisfy diligence or payment obligations under such agreements, CG may have a right to terminate the
license. The loss of this license agreement could materially and adversely affect our ability to use intellectual property that
could be critical to our drug discovery and development efforts, as well as our ability to enter into future collaboration, licensing
and/or marketing agreements for one or more affected drug candidates or development programs.
Our business depends, in part, on our ability to use technology
that we have licensed or will in the future license from third parties, including CG, and, if these licenses were terminated or
if we were unable to license additional technology we may need in the future, our business will be adversely affected.
We currently hold licenses for certain technologies that are or
may be critical to our current and subsequent product candidates. These include our exclusive license to research, develop and
commercialize CG-806 worldwide except for the Republic of Korea. The license from CG is subject to termination in the event of
a breach by us of the license, if we fail to cure the breach following notice and the passage of a cure period. We may need to
acquire additional licenses in the future to technologies developed by others. Furthermore, future license agreements may require
us to make substantial milestone payments. We may also be obligated to make royalty payments on the sales, if any, of products
resulting from the license. The termination of a license or the inability to license future technologies on acceptable terms may
adversely affect our ability to develop or sell our products.
Legal and Regulatory Risk
Our ability to develop, produce and market our products is subject to extensive government
regulation.
Government regulation is a significant factor in the development,
production and marketing of the Company’s products. Research and development, testing, manufacture, marketing and sales
of pharmaceutical products or related products are subject to extensive regulatory oversight, often in multiple jurisdictions,
which may cause significant additional costs and/or delays in bringing products to market, and in turn, may cause significant
losses to investors. The regulations applicable to the Company’s product candidates in a given jurisdiction may change.
Even if granted, regulatory approvals may include significant limitations on the uses for which products can be marketed or may
be conditioned on the conduct of post-marketing surveillance studies. Failure to comply with applicable regulatory requirements
can, among other things, result in delay in approving or refusal to approve a product candidate, interruptions of clinical trials
or manufacturing, suspension or withdrawal of regulatory approval, warning letters, the imposition of civil penalties or other
monetary payments, product recall or seizure, operating restrictions, injunctions or criminal prosecution. In addition, regulatory
agencies many not approve the labeling claims that are necessary or desirable for the successful commercialization of the Company’s
product candidates.
Requirements for regulatory approval vary widely from country to
country. Whether or not approved in Canada or the United States, regulatory authorities in other countries must approve a product
prior to the commencement of marketing the product in those countries. The time required to obtain any such approval may be longer
or shorter than in Canada or the United States. Approved drugs, as well as their manufacturers, are subject to continuing and ongoing
review, and discovery of problems with these products or the failure to adhere to manufacturing or quality control requirements
may result in regulatory restrictions being imposed.
Current and future legislation may increase the difficulty
and cost for us to obtain marketing approval of and commercialize our product candidates and may adversely affect the prices we
may obtain.
In the United States and some foreign jurisdictions, there have
been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other
things, prevent or delay marketing approval of our product candidates, restrict or regulate post approval activities and affect
our ability to profitably sell any products for which we obtain marketing approval.
For example, in March 2010, the Patient Protection and Affordable
Care Act, as amended by the Health Care Education Reconciliation Act, or collectively the Affordable Care Act, was enacted to broaden
access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add
new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry
and impose additional health policy reforms. Additionally, the Drug Supply Chain Security Act, enacted in 2013, imposed new obligations
on manufacturers of pharmaceutical products related to product tracking and tracing.
Members of Congress and the Trump Administration have considered
legislation to fundamentally change or repeal the Affordable Care Act. While Congress has not passed repeal legislation to date,
the Tax Cuts and Jobs Act (“TCJA”) includes a provision repealing the individual insurance coverage mandate
included in the Affordable Care Act, effective January 1, 2019. Further, President Trump signed an Executive Order directing federal
agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the
implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states, individuals,
healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, the President
signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the Affordable Care Act. Several
state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining
order was denied by a federal judge in California on October 25, 2017. In addition, the Centers for Medicare and Medicaid Services
has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual
and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the Affordable
Care Act for plans sold through such marketplaces. Congress may consider other legislation to replace elements of the Affordable
Care Act. The implications of the Affordable Care Act, its possible repeal, any legislation that may be proposed to replace the
Affordable Care Act, or the political uncertainty surrounding any repeal or replacement legislation for our business and financial
condition, if any, are not yet clear.
We expect ongoing initiatives in the United States and internationally
to increase pressure on drug pricing. Regulations that mandate price controls and limitations on patient access to products or
establish prices paid by government entities or programs may impact product candidates that we may successfully develop. Pharmaceutical
product pricing is subject to enhanced government and public scrutiny and calls for reform. Some U.S. states have implemented,
and other U.S. states are considering, pharmaceutical price controls or patient access constraints under the Medicaid program,
and some U.S. states are considering price-control regimes that would apply to broader segments of their populations that are not
Medicaid eligible. Efforts by government officials or legislators to implement measures to regulate prices or payments for pharmaceutical
products, including legislation on drug importation, could have an adverse effect on anticipated revenues from product candidates
that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition
and ability to develop drug candidates.
Legislative and regulatory proposals have also been made to expand
post approval requirements and restrict sales and promotional activities for pharmaceutical products in the US. Any healthcare
reforms enacted in the future may, like the Affordable Care Act, be phased in over a number of years but, if enacted, could reduce
our revenue, increase our costs, or require us to revise the ways in which we conduct business or put us at risk for loss of business.
We are not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations
will be changed, or what the impact of such changes on our business, if any, may be.
In Canada, the Patented Medicine Prices Review Board ("PMPRB")
has jurisdiction to control prices of patented medicines that are considered excessive.
Recent changes to the regulations governing the PMPRB are intended to lower the prices of patented medicines even further. The
PMPRB's jurisdiction could extend to any of our drug products that are approved in Canada and protected under Canadian patents,
with an adverse effect on the prices that we would otherwise obtain for these drugs in the relevant market.
Coverage and adequate reimbursement may not be available for
our product candidates, which could make it difficult for us to sell our products profitably.
Market acceptance and sales of any drug candidates that we develop
will depend in part on the extent to which reimbursement for these products and related treatments will be available from third
party payors, including government health administration authorities and private health insurers. Third party payors decide which
drugs they will pay for and establish reimbursement levels. Third party payors often rely upon Medicare coverage policy and payment
limitations in setting their own reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement
to be provided for each of our drug candidates will be made on a plan by plan basis. One payor’s determination to provide
coverage for a product does not assure that other payors will also provide coverage, and adequate reimbursement, for the product.
Additionally, a third party payor’s decision to provide coverage for a drug does not imply that an adequate reimbursement
rate will be approved. Each plan determines whether or not it will provide coverage for a drug, what amount it will pay the manufacturer
for the drug, and on what tier of its formulary the drug will be placed. The position of a drug on a formulary generally determines
the copayment that a patient will need to make to obtain the drug and can strongly influence the adoption of a drug by patients
and physicians. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally
rely on third party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products
unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
A primary trend in the U.S. healthcare industry and elsewhere is
cost containment. Third party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular
medications. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if
reimbursement is available, what the level of reimbursement will be. Inadequate coverage and reimbursement may impact the demand
for, or the price of, any product for which we obtain marketing approval. If coverage and adequate reimbursement is not available,
or is available only to limited levels, we may not be able to successfully commercialize any drug candidates that we develop.
Additionally, there have been a number of legislative and regulatory
proposals to change the healthcare system in the United States and in some foreign jurisdictions, including Canada, that could
affect our ability to sell any future drugs profitably. These legislative and regulatory changes may negatively impact the reimbursement
for any future drugs, following approval.
We are subject to U.S. and Canadian healthcare laws and regulations,
which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, fines, disgorgement, exclusion
from participation in government healthcare programs, curtailment or restricting of our operations and diminished profits and future
earnings.
Healthcare providers, physicians and others will play a primary
role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements with
healthcare providers, patients and third party payors could expose us to broadly applicable U.S. and Canadian laws and regulations
relating to fraud abuse and healthcare more generally that may constrain the business or financial arrangements and collaborative
partners through which we market, sell and distribute any products for which we obtain marketing approval.
Efforts to ensure that our collaborations with third parties, and
our business generally, will comply with applicable U.S. and Canadian healthcare laws and regulations will involve substantial
costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future
statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations
are found to be in violation of any of these laws or any other governmental laws and regulations that may apply to us, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government
funded healthcare programs, contractual damages, reputational harm, disgorgement, curtailment or restricting of our operations,
any of which could substantially disrupt our operations and diminish our profits and future earnings. If any of the physicians
or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may
be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. The
risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by
the regulatory authorities or the courts, and their provisions are open to a variety of interpretations.
If product liability, clinical
trial liability or environmental liability claims are brought against us or we are unable to obtain or maintain product liability,
clinical trial or environmental liability insurance, we may incur substantial liabilities that could reduce our financial resources.
The clinical testing and commercial use of pharmaceutical products
involves significant exposure to product liability, clinical trial liability, environmental liability and other risks that are
inherent in the testing, manufacturing and marketing of our products. These liabilities, if realized, could have a material adverse
effect on the Company’s business, results of operations and financial condition.
We have obtained limited product liability insurance coverage for
our clinical trials on humans; however, our insurance coverage may be insufficient to protect us against all product liability
damages. Regardless of merit or eventual outcome, liability claims may result in decreased demand for a future product, injury
to reputation, withdrawal of clinical trial volunteers, loss of revenue, costs of litigation, distraction of management and substantial
monetary awards to plaintiffs. Additionally, if we are required to pay a product liability claim, we may not have sufficient financial
resources to complete development or commercialization of any of our product candidates and our business and results of operations
will be adversely affected. In general, insurance will not protect us against some of our own actions, such as negligence.
As the Company’s development activities progress towards the
commercialization of product candidates, our liability coverage may not be adequate, and the Company may not be able to obtain
adequate product liability insurance coverage at a reasonable cost, if at all. Even if the Company obtains product liability insurance,
its financial position may be materially adversely affected by a product liability claim. A product liability claim could also
significantly harm the Company’s reputation and delay market acceptance of its product candidates. Additionally, product
recalls may be issued at the direction of the FDA, other government agencies or other companies having regulatory control for pharmaceutical
sales. If a product recall occurs in the future, such a recall could adversely affect our business, financial condition or reputation.
If we fail to comply with
environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous
materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and radioactive
and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the
disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event
of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and
any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover
us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance
may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic
tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive
materials.
In addition, we may incur substantial costs in order to comply with
current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair
our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial
fines, penalties or other sanctions.
We may be unable to obtain partnerships for our product candidates,
which could curtail future development and negatively affect our share price. In addition, our partners might not satisfy their
contractual responsibilities or devote sufficient resources to our partnership.
Our strategy for the research, development and commercialization
of our products requires entering into various arrangements with corporate collaborators, licensors, licensees and others, and
our commercial success is dependent upon these outside parties performing their respective contractual responsibilities. The amount
and timing of resources that such third parties will devote to these activities may not be within our control. These third parties
may not perform their obligations as expected and our collaborators may not devote adequate resources to our programs. In addition,
we could become involved in disputes with our collaborators, which could result in a delay or termination of the related development
programs or result in litigation. We intend to seek additional collaborative arrangements to develop and commercialize some of
our products. We may not be able to negotiate collaborative arrangements on favorable terms, or at all, in the future, and our
current or future collaborative arrangements may not be successful.
If we cannot negotiate collaboration, license or partnering agreements,
we may never achieve profitability and we may not be able to continue to develop our product candidates. Commencing Phase I, Phase
II and Phase III clinical trials for CG-806 and continuing Phase Ib, and commencing Phase II and Phase III clinical trials
for APTO-253 would require significant amounts of funding and such funding may not be available to us.
Risks Related to Our Common Shares
Our share price has been
and is likely to continue to be volatile and an investment in our Common Shares could suffer a decline in value.
You should consider an investment in our Common Shares as risky
and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. The market
price of our Common Shares has been highly volatile and is likely to continue to be volatile. This leads to a heightened risk of
securities litigation pertaining to such volatility. Factors affecting our Common Share price include but are not limited to:
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the progress of our pre-clinical and clinical trials;
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our ability to obtain partners and collaborators to assist with the future development of our products;
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general market conditions;
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announcements of technological innovations or new product candidates by us, our collaborators or our competitors;
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published reports by securities analysts;
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developments in patent or other intellectual property rights;
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the cash and investments held by us and our ability to secure future financing;
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our ability to raise additional capital;
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public concern as to the safety and efficacy of drugs that we and our competitors develop;
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shareholder interest in our Common Shares;
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low liquidity in the daily trading volume of our Common Shares; and
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our ability to continue as a going concern;
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Future sales of our Common
Shares by us or by our existing shareholders could cause our share price to fall.
The issuance of Common Shares by us could result in significant
dilution in the equity interest of existing shareholders and adversely affect the market price of our Common Shares. Sales by existing
shareholders of a large number of our Common Shares in the public market and the issuance of Common Shares in connection with strategic
alliances, or the perception that such additional sales could occur, could cause the market price of our Common Shares to decline
and have an undesirable impact on our ability to raise capital.
We are susceptible to stress
in the global economy and therefore, our business may be affected by the current and future global financial conditions.
If the increased level of volatility and market turmoil that have
marked recent years continue, our operations, business, financial condition and the trading price of our Common Shares could be
materially adversely affected. Furthermore, general economic conditions may have a great impact on us, including our ability to
raise capital, our commercialization opportunities and our ability to establish and maintain arrangements with others for research,
manufacturing, product development and sales.
An active trading market
in our Common Shares may not be sustained.
Our Common Shares are listed for trading on the Nasdaq Capital Market
and the TSX. However, an active trading market in our Common Shares on the stock exchanges may not be sustained and we may not
be able to maintain our listings.
Certain Canadian laws could delay or deter a change of control.
Limitations on the ability to acquire and hold our Common Shares
may be imposed by the Competition Act in Canada. This legislation permits the Commissioner of Competition of Canada to review
any acquisition of a significant interest in us. This legislation grants the Commissioner jurisdiction to challenge such an acquisition
before the Canadian Competition Tribunal if the Commissioner believes that it would, or would be likely to, result in a substantial
lessening or prevention of competition in any market in Canada. The Investment Canada Act subjects an acquisition of control
of a company by a non-Canadian to government review if the value of our assets, as calculated pursuant to the legislation, exceeds
a threshold amount. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely
to result in a net benefit to Canada. Any of the foregoing could prevent or delay a change of control and may deprive or limit
strategic opportunities for our shareholders to sell their shares.
The exercise of all or any number of outstanding stock options, the award of any
additional options, restricted stock units or other stock-based awards or any issuance of shares to raise funds or acquire a business
may dilute your Common Shares.
We have in the past and may in the future grant to some or all of
our directors, officers and employees options to purchase our Common Shares and other stock-based awards as non-cash incentives
to those persons. The issuance of any equity securities could, and the issuance of any additional shares will, cause our existing
shareholders to experience dilution of their ownership interests.
Any additional issuance of shares or a decision to acquire other
businesses through the sale of equity securities may dilute our investors’ interests, and investors may suffer dilution in
their net book value per share depending on the price at which such securities are sold. Such issuance may cause a reduction in
the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the price of our
Common Shares or a change in control.
We do not expect to pay dividends for the foreseeable future.
We have not paid any cash dividends to date and we do not intend
to declare dividends for the foreseeable future, as we anticipate that we will reinvest future earnings, if any, in the development
and growth of our business. Therefore, investors will not receive any funds unless they sell their Common Shares, and shareholders
may be unable to sell their shares on favorable terms or at all. We cannot assure you of a positive return on investment or that
you will not lose the entire amount of your investment in our Common Shares. Prospective investors seeking or needing dividend
income or liquidity should not purchase our Common Shares.
Other Risks
It may be difficult for non-Canadian
investors to obtain and enforce judgments against us because of our Canadian incorporation and presence.
We are a corporation existing under the laws of Canada. Some of
our directors and officers, and many of the experts named in this Annual Report on Form 10-K, are residents of Canada, and all
or a substantial portion of their assets, and a substantial portion of our assets, are located outside the United States. Consequently,
although we have appointed an agent for service of process in the United States, it may be difficult for holders of our shares
who reside in the United States to effect service within the United States upon our directors and officers and experts who are
not residents of the United States. It may also be difficult for holders of our shares who reside in the United States to realize
in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability
of our directors, officers and experts under the United States federal securities laws. Investors should not assume that Canadian
courts (i) would enforce judgments of United States courts obtained in actions against us or our directors, officers or experts
predicated upon the civil liability provisions of the United States federal securities laws or the securities or “blue sky”
laws of any state within the United States or (ii) would enforce, in original actions, liabilities against us or our directors,
officers or experts predicated upon the United States federal securities laws or any such state securities or “blue sky”
laws. In addition, we have been advised by our Canadian counsel that in normal circumstances, only civil judgments and not other
rights arising from United States securities legislation are enforceable in Canada and that the protections afforded by Canadian
securities laws may not be available to investors in the United States.
We are likely a “passive
foreign investment company” which may have adverse United States federal income tax consequences for United States shareholders.
United States investors in our Common Shares should be aware that
the Company believes it was classified as a passive foreign investment company (“PFIC”) during the tax year ended December
31, 2019, and based on the nature of our business, the projected composition of our gross income and the projected composition
and estimated fair market value of our assets, the Company expects to be a PFIC for the year ending December 31, 2020, and may
be a PFIC in subsequent tax years. If the Company is a PFIC for any year during a United States shareholder’s holding period,
then such United States shareholder generally will be required to treat any gain realized upon a disposition of Common Shares,
or any so-called “excess distribution” received on its Common Shares, as ordinary income, and to pay an interest charge
on a portion of such gain or distributions, unless the shareholder makes a timely and effective “qualified electing fund”
election (“QEF election”) or a “mark-to-market” election with respect to the Common Shares. A United States
shareholder who makes a QEF election generally must report on a current basis its share of the Company’s net capital gain
and ordinary earnings for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to its shareholders.
However, United States shareholders should be aware that we do not intend to satisfy record keeping requirements that apply to
a qualified electing fund, and we do not intend to supply United States shareholders with information that such United States shareholders
require to report under the QEF election rules, in the event that we are a PFIC and a United States shareholder wishes to make
a QEF election. Thus, United States shareholders should assume that they will not be able to make a QEF election with respect to
their Common Shares. A United States shareholder who makes the mark-to-market election generally must include as ordinary income
each year the excess of the fair market value of the Common Shares over the taxpayer’s basis therein. Each United States
shareholder should consult its own tax advisor regarding the United States federal, United States local, and foreign tax consequences
of the PFIC rules and the acquisition, ownership, and disposition of our Common Shares.
We are an “emerging
growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will
make our Common Shares less attractive to investors.
We are an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act of 2012 (United States), or the JOBS Act. For as long as we continue to be an emerging
growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section
404 of the Sarbanes-Oxley Act of 2002 (United States) (the “SOX”), reduced disclosure obligations regarding
executive compensation in our periodic reports and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved.
We will cease to be an emerging growth company upon the earliest
of:
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the last day of the fiscal year during which we have total annual gross revenues of $1,000,000,000 (as such amount is indexed
for inflation every five years by the SEC or more;
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the last day of our fiscal year following the fifth anniversary of the completion of our first sale of common equity securities
pursuant to an effective registration statement under the Securities Act (United States) which will be in September 2020;
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the date on which we have, during the previous three-year period, issued more than $1,000,000,000 in non- convertible debt;
or
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the date on which we are deemed to be a “large accelerated filer”, as defined in Rule 12b–2 of the Exchange
Act (United States) (the “Exchange Act”), which would occur if the market value of our ordinary shares that are
held by non-affiliates exceeds $700,000,000 as of the last day of our most recently completed second fiscal quarter.
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We cannot predict if investors will find our Common Shares less
attractive because we may rely on these exemptions. If some investors find our Common Shares less attractive as a result, there
may be a less active trading market for our Common Shares and our share price may be more volatile.
Any failure to maintain an
effective system of internal controls may result in material misstatements of our consolidated financial statements or cause us
to fail to meet our reporting obligations or fail to prevent fraud; and in that case, our shareholders could lose confidence in
our financial reporting, which would harm our business and could negatively impact the price of our Common Shares.
Section 404(a) of the SOX requires that our management assess and
report annually on the effectiveness of our internal control over financial reporting and identify any material weaknesses in
our internal control over financial reporting. Although Section 404(b) of the SOX requires our independent registered public accounting
firm to issue an annual report that addresses the effectiveness of our internal control over financial reporting, we have opted
to rely on the exemptions provided to us by virtue of being an emerging growth company, and consequently will not be required
to comply with SEC rules that implement Section 404(b) of SOX until we lose our emerging growth company status.
Effective internal controls are necessary for us to provide reliable
financial reports and prevent fraud. If we fail to maintain an effective system of internal controls, we might not be able to
report our financial results accurately or prevent fraud; and in that case, our shareholders could lose confidence in our financial
reporting, which would harm our business and could negatively impact the price of our Common Shares. While we believe that we
have sufficient personnel and review procedures to allow us to maintain an effective system of internal controls, we cannot assure
you that we will not experience potential material weaknesses in our internal control. Even if we conclude that our internal control
over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with generally accepted accounting principles in the United
States (“US GAAP”), because of its inherent limitations, internal control over financial reporting may not prevent
or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their
implementation, could harm our results of operations or cause us to fail to meet our future reporting obligations.
If we fail to timely achieve and maintain the adequacy of our internal
control over financial reporting, we may not be able to produce reliable financial reports or help prevent fraud. Our failure
to achieve and maintain effective internal control over financial reporting could prevent us from complying with our reporting
obligations on a timely basis, which could result in the loss of investor confidence in the reliability of our consolidated financial
statements, harm our business and negatively impact the trading price of our Common Shares.
Prior to December 31, 2018,
we were a foreign private issuer and were therefore not subject to certain United States securities law disclosure requirements
that apply to a domestic United States issuer, which may limit the historical information publicly available to our shareholders.
As a foreign private issuer prior to December 31, 2018, we were
exempt from certain rules under the Exchange Act that impose disclosure requirements as well as procedural requirements for proxy
solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders were exempt
from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act. Moreover, we were
not required to file periodic reports and financial statements with the SEC as frequently or as promptly as a company that files
as a domestic issuer whose securities are registered under the Exchange Act, nor were we generally required to comply with the
SEC’s Regulation Fair Disclosure, which restricts the selective disclosure of material non-public information. For as long
as we were a “foreign private issuer” or an eligible Canadian issuer under the Multijurisdictional Disclosure System,
we filed our annual financial statements on Form 20-F, or on Form 40-F, respectively, and furnished our quarterly updates on Form
6-K to the SEC. However, the information we filed or furnished was not the same as the information required in annual and quarterly
reports on Form 10-K or Form 10-Q for United States domestic issuers. Accordingly, there may be less historical information publicly
available concerning us than there is for a company that has filed as a domestic issuer for longer.
Data security incidents and
privacy breaches could result in important remediation costs, increased cyber security costs, litigation and reputational harm.
Cyber security incidents can result from deliberate attacks or unintentional
events. Cyber-attacks and security breaches could include unauthorized attempts to access, disable, improperly modify or degrade
the Company’s information, systems and networks, the introduction of computer viruses and other malicious codes and fraudulent
“phishing” emails that seek to misappropriate data and information or install malware onto users’ computers.
Cyber-attacks in particular vary in technique and sources, are persistent, frequently change and are increasingly more targeted
and difficult to detect and prevent against. Our network security and data recovery measures and those of third parties with which
we contract, may not be adequate to protect again cyber-attacks.
Disruptions due to cyber security incidents could adversely affect
Aptose’s business. In particular, a cyber security incident could result in the loss or corruption of data from Aptose’s
research and development activities, including clinical trials, which may cause significant delays to some or all of the Company’s
clinical programs. Also, the Company’s trade secrets, including unpatented know how, technology and other proprietary information
could be disclosed to competitors further to a breach, which would harm the Company’s business and competitive position.
We expect that risks and exposures related to cyber security attacks will remain high for the foreseeable future due to the rapidly
evolving nature and sophistication of these threats. While we have invested in the protection of data and information technology,
there can be no assurance that our efforts to implement adequate security measures would be sufficient to protect the Company against
cyber-attacks.
We must successfully upgrade
and maintain our information technology systems.
We rely on various information technology systems to manage our
operations. There are inherent costs and risks associated with maintaining, modifying and/or changing these systems and implementing
new systems, including potential disruption of our internal control structure, substantial capital expenditures, additional administration
and operating expenses, retention of sufficiently skilled personnel to implement and operate its systems, demands on management
time and other risks and costs of delays or difficulties in transitioning to new systems or of integrating new systems into our
current systems. In addition, our information technology system implementations may not result in productivity improvements at
a level that outweighs the costs of implementation, or at all. The implementation of new information technology systems may also
cause disruptions in our business operations and have an adverse effect on our business, prospects, financial condition and operating
results.