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 Common Shares are
listed on the Nasdaq Capital Market 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) and then continued
pursuant to the Canada Business Corporations Act (“CBCA”). 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 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 assets, and
a third program that is discovery-stage and partnered with another company.
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Luxeptinib (CG026806, CG-806) is a clinical stage asset with two separate clinical programs: luxeptinib,
Aptose’s FMS-like tyrosine kinase 3 (“FLT3”) / Bruton’s tyrosine kinase (“BTK”)
inhibitor is being evaluated currently in two separate Phase 1a/b dose escalation studies. The first trial, supported by an investigational
new drug (“IND”) application submitted to the U.S. Food and Drug Administration (“FDA”) in February 2019
for luxeptinib, is being conducted 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 second trial, supported by an IND application submitted in June 2020 to the FDA for luxeptinib, is being
conducted in patients with relapsed/refractory acute myeloid leukemia (“R/R AML”), including the emerging populations
resistant to FLT3 inhibitors.
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APTO-253, our second clinical-stage asset: APTO-253 is a small molecule MYC oncogene inhibitor
and we are currently enrolling patients in a Phase 1a/b clinical trial for the treatment of patients with relapsed or refractory
(“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 with Ohm Inc. (“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
asset that selectively impacts such oncogenic mechanisms.
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As a cluster-selective kinase inhibitor, luxeptinib targets the wild type and mutant forms of the
FLT3 and BTK validated cancer targets, as well as 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.
Luxeptinib (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 luxeptinib in all countries of the world except the Republic of Korea and China,
for all fields of use (collectively, the “Rights”). 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 luxeptinib, 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.
Luxeptinib 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, luxeptinib is characterized as a mutation-agnostic FLT3/ BTK inhibitor. Further,
luxeptinib 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, luxeptinib
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, luxeptinib 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 luxeptinib targets all forms of
FLT3 and several other key oncogenic pathways, and that luxeptinib was well tolerated from a safety perspective during efficacy
and formal Good Laboratory Practice (“GLP”) toxicology studies, suggest that luxeptinib 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, luxeptinib
may be a therapeutic option for patients with B cell malignancies. Overexpression of the BTK enzyme can drive oncogenic signaling
of certain B cell malignancies, including CLL and certain NHL such as mantle cell lymphoma (“MCL”), follicular lymphoma
(“FL”), 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, luxeptinib 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 luxeptinib 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 luxeptinib kills B cell malignancy cell lines on average approximately 1000 times
more potently than ibrutinib and kills ibrutinib-resistance cancer cells, and that luxeptinib more potently killed primary malignant
cells taken from the bone marrow of CLL and ALL B-cell cancer patients. Yet, luxeptinib 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 luxeptinib
therapy. This is particularly true since luxeptinib 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,
FL, and DLBCL. Disruption of BCR signaling via inhibition of BTK, has been shown to lead to clinical remissions in these patients.
Luxeptinib as a Non-covalent, Reversible
Kinase Inhibitor
Binding studies of luxeptinib 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, luxeptinib does
not require reactivity with the C481 residue for inhibition of the BTK enzyme, thereby allowing luxeptinib to inhibit the wild
type and C481 mutant form of the BTK enzyme.
Preclinical In Vitro Evaluation of Luxeptinib
Luxeptinib 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, luxeptinib 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, luxeptinib exerts low nM IC50 values against
the FLT3 enzyme having various mutations in the tyrosine kinase domain (TKD) and the Gatekeeper region, and luxeptinib has the
ability to potently suppress the CSF1R, PDGFRα, SYK, AKT/mTOR/S6K, ERK, MAPK, MYC and AURK/H3S10 pathways. Finally, luxeptinib
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.
Luxeptinib Xenograft Studies
In vivo subcutaneous AML tumor models of
anti-cancer efficacy revealed luxeptinib induced rapid and sustained tumor eradication (Figure 1a). Luxeptinib was administered
orally once daily, for 14 days. Moreover, luxeptinib 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 luxeptinib (CG-806)
in MV4-11 xenograft model.
MV4-11 tumor bearing mice were administered
an oral suspension once daily for 14 days of luxeptinib (CG-806) at 2 mg/kg (blue line), 10 mg/kg (green line) or 100 mg/kg (red
line), Ibrutinib at 12 mg/kg (turquoise line), or vehicle (Control; black 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 luxeptinib and mouse survival over 120 days were evaluated when mice were treated orally for 28
consecutive days with luxeptinib 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 (luxeptinib co-micronized with 2.5% sodium lauryl sulfate (SLS)) and the dosing
schedule (“BID”) was utilized. Luxeptinib 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. Luxeptinib (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 luxeptinib 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 luxeptinib (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 that luxeptinib may be used
to treat patients whose disease has become resistant to other FLT3 inhibitors.
Figure 1c. Luxeptinib (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 a 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 1a/b clinical trial in patients with R/R hematologic malignancies, particularly AML and MDS, before being placed on
clinical hold by the FDA in November 2015. The Phase 1a/b trial was placed on clinical hold in order to solve a chemistry-based
formulation issue, and the chemistry of the active pharmaceutical ingredient (“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 1a/b Clinical Study of APTO-253. Since then, we have completed the
first four dose cohorts (20mg/m2, 40mg/m2, 66mg/m2 and 100mg/m2) and are currently dosing patients in the fifth dose cohort at
150mg/m2 dose level. In the patients we have dosed at the first four 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 1 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 2 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 2 dose. The addition of a second site expanded patient availability for enrollment.
In January 2013, Aptose announced that
Phase 1 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 non-small cell lung cancer (“NSCLC”) with
a dose-response effect in NSCLC.
In July 2013, Aptose announced the results
of the Phase 1 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 NSCLC 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 after 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 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.
Luxeptinib 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 (MK-1026), Roche, and Eli Lilly (LY3527727) among others.
Luxeptinib 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 inhibitors include
Novartis (RYDAPT), Astellas (XOSPATA), Daiichi Sankyo (quizartinib), Arog (crenolanib), and IDH1/2 inhibitors include Agios/Servier
(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 CG that had granted us an exclusive option to research,
develop and commercialize CG-806.
In June 2018, we entered into a separate
license agreement with CG for Aptose to gain a license for 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”, which 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.
US Patent No. 10,604,508
The issued patent, issued on March 21,
2020, claims a genus that covers the CG-806 compound, pharmaceutical compositions comprising a compound from the genus, and methods
of treating various diseases caused by abnormal or uncontrolled activation of protein kinases, including lymphoma and leukemia.
This US patent is expected to provide protection until December 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 twenty 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 Nos. 2013371146 and 2018214134
The granted patents claim numerous compounds,
including the CG-806 compound, pharmaceutical compositions comprising the CG-806 compound, and methods of treating various diseases,
including treating cancers such as lymphoma and leukemia. 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 Nos. 6325573 and 6596537
The granted patents claim 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, and pharmaceutical
compositions for treating various diseases, including treating cancers such as lymphoma and leukemia. The patents are 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.
Russian Patent No. 2671847
The granted patent claims various compounds,
including the CG-806 compound, pharmaceutical compositions comprising the CG-806 compound, and methods for treating diseases caused
by abnormal or uncontrolled activation of protein kinases, and uses for the treatment, relief or prevention of cancer. The patent
is expected to provide protection until December 2033.
APTO-253
As of March 23, 2021, 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 23 international
(non-U.S.) granted patents which together provide coverage for APTO-253, three of which are granted 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, 2020, we employed 39
full-time persons and two part-time persons in research and drug development and administration activities. Six of our employees
hold Ph.D.s 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 Ph.D.
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 (“EMA”) 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, 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 1 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 2 and
3 involve therapeutic studies. In Phase 2, 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 3, 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 3, 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 an 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 1, Phase 2 and Phase 3 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,
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 4 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 4 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 EMA 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 President, Chairman and Chief Executive Officer, our Chief Financial Officer and Chief
Operating Officer, our Chief Business and Strategy Officer and our Chief Medical Officer.
Dr. William G. Rice, Ph.D., age 62, joined
Aptose as Chairman 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. (“Cylene”), a private biotechnology company,
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, M.B.A., age
48, joined Aptose as Senior Vice President and Chief Financial Officer in December 2013, was then appointed as Executive Vice President
and Chief Financial Officer in 2019, and then Chief Operating Officer and Chief Financial Officer in 2021. 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, M.D, Ph.D., age 42,
joined Aptose as Senior Vice President and Chief Business Officer in June 2019 and Chief Business and Strategy Officer in
January 2021. 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 49, 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 and
also serves and is an independent consultant as a member of the Independent Data Monitoring Committee for other pharmaceutical
companies. 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 completed his fellowship at the Dana-Farber Cancer Institute and has been board certified in
Hematology and Oncology. 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 governed
by the 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 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 every province of Canada.
Cautionary Note Regarding Forward-Looking Statements and
Risk Factor Summary
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. 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.
Risk Factor Summary
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 operations could be adversely affected by events outside of our control, such as natural disasters, wars or health crises
such as the COVID-19 pandemic.
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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 “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 sale of Common Shares;
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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.
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.
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 revenues from product sales.
We are at an early stage of development.
In the past five years, none of our potential products has obtained regulatory approval for commercial use and sale in any country
and as such, no revenues have resulted from product sales. Significant additional investment will be necessary to complete the
development of any of our product candidates. Preclinical and clinical trial work must be completed before our potential products
could be ready for use within the markets that we have identified. We may fail to develop any products, obtain regulatory approvals,
enter clinical trials or commercialize any products. We do not know whether any of our potential product development efforts will
prove to be effective, meet applicable regulatory standards, obtain the requisite regulatory approvals, be capable of being manufactured
at a reasonable cost or be accepted in the marketplace. We also do not know whether sales, license fees or related royalties will
allow us to recoup any investment we make in the commercialization of our products.
The product candidates we are currently
developing are not expected to be commercially viable for at least the next several years and we may encounter unforeseen difficulties
or delays in commercializing our product candidates. In addition, our potential products may not be effective or may cause undesirable
side effects.
Our product candidates require significant
funding to reach regulatory approval assuming positive clinical results. For example, our product candidate APTO-253 began enrollment
in a Phase 1a/b clinical trial in patients with relapsed or refractory AML and high risk MDS and was placed on clinical hold by
the FDA following a voluntary suspension of dosing by us. That hold has been lifted, but significant additional funding will be
necessary to complete the restarted Phase 1a/b clinical and, if required, Phase 2 or Phase 3 clinical trials. Similarly, we have
received FDA approval to initiate a Phase 1a/b clinical trial with our product candidate luxeptinib for patients with B-cell malignancies.
Significant additional capital will be necessary to complete the Phase 1 clinical trial, and if required, Phase 2 or Phase 3 clinical
trials. Such funding for our product candidates may be difficult, or impossible to raise in the public or private markets or through
partnerships. If funding or partnerships are not readily attainable, the development of our product candidates may be significantly
delayed or stopped altogether. The announcement of a delay or discontinuation of development would likely have a negative impact
on our share price.
We need to raise additional
capital.
We have an ongoing need to raise additional
capital. To obtain the necessary capital, we must rely on some or all of the following: additional share issues, debt issuances
(including promissory notes), collaboration agreements or corporate partnerships and grants and tax credits to provide full or
partial funding for our activities. Additional funding may not be available on terms that are acceptable to us or in amounts that
will enable us to carry out our business plan. Although, as of the date of this report, the COVID-19 pandemic did not have and
we do not expect that it will have a significant impact on our liquidity and capital resources, the extent to which COVID-19 impacts
our business will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity
and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic
effects of the pandemic and containment measures, among other future developments. As such, our ability to raise additional funds
could be affected by adverse market conditions resulting from the COVID-19 pandemic and delays related to COVID-19 in enrollment
in our trial.
Our need for capital may require us to:
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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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In addition, sales of a substantial number
of our Common Shares in the public markets, or the perception that such sales could occur, could depress the market price of our
Common Shares and impair our ability to raise capital through the sale of additional equity securities.
Our operations could be adversely
affected by events outside of our control, such as natural disasters, wars or health crises such as the COVID-19 pandemic.
We may be impacted by business interruptions
resulting from pandemics and public health emergencies, including those related to COVID-19, geopolitical actions, including war
and terrorism or natural disasters including earthquakes, typhoons, floods and fires. An outbreak of infectious disease, a pandemic
or a similar public health threat, such as the COVID-19 pandemic, or a fear of any of the foregoing, could adversely impact us
by causing operating, manufacturing, supply chain, clinical trial and project development delays and disruptions, labour shortages,
travel and shipping disruption and shutdowns (including as a result of government regulation and prevention measures). Although,
as of the date of this report, we do not expect that COVID-19 will have a significant impact on our liquidity and capital resources,
the extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be
predicted, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its
impact, and the direct and indirect economic effects of the pandemic and containment measures, among other future developments.
We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our
business, operating results and financial condition.
We have a history of operating losses.
We expect to incur net losses and we may never achieve or maintain profitability.
We have not been profitable since our inception
in 1986. We reported net losses of $55.2 million in the fiscal year ended December 31, 2020, $26.3 million in the fiscal
year ended December 31, 2019 and $28.8 million in the fiscal year ended December 31, 2018, and as of December 31, 2020, we
had an accumulated deficit of $357.2 million.
We have not generated any significant revenue
to date and it is possible that we will never have sufficient product sales revenue (if any) to achieve profitability. We expect
to continue to incur losses for at least the next several years as we or our collaborators and licensees pursue clinical trials
and research and development efforts. To become profitable, we, either alone or with our collaborators and licensees, must successfully
develop, manufacture and market our current product candidates APTO-253 or luxeptinib, as well as continue to identify, develop,
manufacture and market new product candidates. It is possible that we will never have significant product sales revenue or receive
royalties on our licensed product candidates. If funding is insufficient at any time in the future, we may not be able to develop
or commercialize our products, take advantage of business opportunities or respond to competitive pressures.
We currently do not earn any revenues from
our drug candidates and are therefore considered to be in the development stage. The continuation of our research and development
activities and the commercialization of the targeted therapeutic products are dependent upon our ability to successfully finance
and complete our research and development programs through a combination of equity financing and payments from strategic partners.
We have no current sources of significant payments from strategic partners.
We heavily rely on the capabilities
and experience of our key executives and scientists and the loss of any of them could affect our ability to develop our products.
The loss of our executive officers could
harm our operations and our ability to achieve strategic objectives. While we have employment agreements with our executive officers,
such employment agreements do not guarantee their retention. We also depend on our scientific and clinical collaborators and advisors,
all of whom have outside commitments that may limit their availability to us. In addition, we believe that our future success will
depend in large part upon our ability to attract and retain highly skilled scientific, managerial, medical, clinical and regulatory
personnel, particularly as we expand our activities and seek regulatory approvals for clinical trials. We routinely enter into
consulting agreements with our scientific and clinical collaborators and advisors, key opinion leaders and academic partners in
the ordinary course of our business. We also enter into contractual agreements with physicians and institutions who will recruit
patients into our clinical trials on our behalf in the ordinary course of our business. Notwithstanding these arrangements, we
face significant competition for these types of personnel from other companies, research and academic institutions, government
entities and other organizations. We cannot predict our success in hiring or retaining the personnel we require for continued growth.
The loss of the services of any of our executive officers or other key personnel could potentially harm our business, operating
results or financial condition.
Our employees may engage in
misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a
material adverse effect on our business.
We are exposed to the risk of employee
fraud or other misconduct. Misconduct by employees could include failures to comply with FDA/Health Canada regulations, provide
accurate information to the FDA/Health Canada, comply with manufacturing standards we have established, comply with federal, state
and provincial health-care fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized
activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive
laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations
may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs
and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course
of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. If any such actions are instituted
against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a substantial impact
on our business and results of operations, including the imposition of substantial fines or other sanctions.
We have no sales, marketing or distribution
experience and would have to invest significant financial and management resources to establish these capabilities.
We have no sales, marketing
or distribution experience. We currently expect to rely heavily on third parties to launch and market our products, if they are
approved. However, if we elect to develop internal sales, distribution and marketing capabilities, we will need to invest significant
financial and management resources. For products where we decide to perform sales, marketing and distribution functions ourselves,
we could face a number of additional risks, including:
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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
1 clinical trials may not necessarily repeat in larger Phase 2 or Phase 3 clinical trials.
Our preclinical studies and clinical trials
may not generate positive results that will allow us to move towards the commercial use and sale of our product candidates. Furthermore,
negative preclinical or clinical trial results may cause our business, financial condition, or results of operations to be materially
adversely affected. For example, our Phase 1a/b clinical trial of APTO-253 in patients with relapsed or refractory AML and high
risk MDS was placed on clinical hold by the FDA in November 2015. Those short comings of the drug product were addressed and the
clinical hold was lifted. However, there can be no assurance that the Company will have the resources, or that we will decide,
to continue the development of APTO-253. There is a long development path ahead that will take many years to complete the development
and is prone to the risks of failure or delays inherent in drug development. Likewise, our luxeptinib product candidate is currently
being evaluated in a Phase 1a/b study for patients having B-cell malignancies, and it is expected to undergo many years of testing
and regulatory examinations prior to any potential regulatory approvals.
Preparing, submitting and advancing applications
for regulatory approval of products is complex, expensive and time intensive and entails significant uncertainty. A commitment
of substantial resources to conduct time-consuming research, preclinical studies and clinical trials is required if we are to complete
development of our products.
Clinical trials of our products require
that we identify and enroll a large number of patients with the illness under investigation. We may not be able to enroll a sufficient
number of appropriate patients to complete our clinical trials in a timely manner, particularly in smaller indications and indications
where there is significant competition for patients. If we experience difficulty in enrolling a sufficient number of patients to
conduct our clinical trials, we may need to delay or terminate ongoing clinical trials and will not accomplish objectives material
to our success. Delays in planned patient enrollment or lower than anticipated event rates in our current clinical trials or future
clinical trials also may result in increased costs, program delays, or both.
In addition, unacceptable toxicities or
adverse side effects may occur at any time in the course of preclinical studies or human clinical trials or, if any product candidates
are successfully developed and approved for marketing, during commercial use of any approved products. The appearance of any unacceptable
toxicities or adverse side effects could interrupt, limit, delay or abort the development of any of our product candidates or,
if previously approved, necessitate their withdrawal from the market. Furthermore, disease resistance or other unforeseen factors
may limit the effectiveness of our potential products.
Our failure to develop safe and commercially
viable drugs would substantially impair our ability to generate revenues and sustain our operations and would materially harm our
business and adversely affect our share price.
We may not achieve our projected
development goals in the time frames we announce and expect.
We set goals for, and make public statements
regarding, the expected timing of the accomplishment of objectives material to our success, such as the commencement and completion
of clinical trials, the submission of a drug-regulatory application, and the expected costs to develop our product candidates.
The actual timing and costs of these events can vary dramatically due to factors within and beyond our control, such as delays
or failures in our IND submissions or clinical trials, issues related to the manufacturing of drug supply, uncertainties inherent
in the regulatory approval process, market conditions and interest by partners in our product candidates, among other things. Our
clinical trials may not be completed, we may not make regulatory submissions or receive regulatory approvals as planned; or we
may not secure partnerships for any of our product candidates. Any failure to achieve one or more of these milestones as planned
would have a material adverse effect on our business, financial condition and results of operations.
Although, as of the date of this report,
we do not foresee material delays to the enrollment of patients or timelines for our trials due to COVID-19, the extent to which
COVID-19 will impact the projected development goals will depend on future developments, which are highly uncertain and cannot
be predicted. In the beginning of April 2020 we learned that certain of our larger sites would not be able to enroll new patients
on the fourth dose level of luxeptinib due to the current environment caused by COVID-19 and we therefore expect a slowdown in
enrollment at these sites. While it is difficult to estimate the duration and impact of COVID-19 on the larger clinical sites and
regional cancer care sites, as of the date of this report, we have not experienced and do not foresee material delays to the enrollment
of patients or timelines for the luxeptinib Phase 1a/b B-cell malignancy trial due to the variety of clinical sites that we
have actively recruited for this trial. While as of the date of this report we have not experienced any material delays in initiating
our luxeptinib Phase 1 clinical study in AML due to COVID-19, we are conducting site initiation visits remotely which could
result in delays in site activations and negatively impact this trial. Additionally, COVID-19 could negatively impact patient enrolment
if our clinical sites are unable to enroll patients due to either a lack of administrative resources at their sites or decisions
made at the clinical sites to limit patient exposure to COVID-19.
Future enrollment of patients on the APTO-253
trial is likely to be negatively impacted as a result of the current environment, as it is administered to patients intravenously,
which requires the need for hospital / clinical site resources to assist and monitor patients during each infusion.
Delays in clinical testing
could result in delays in commercializing our product candidates and our business may be substantially harmed.
We cannot predict whether any clinical
trials will begin as planned, will need to be restructured or will be completed on schedule, if at all. Our product development
costs will increase if we experience delays in clinical testing. Significant clinical trial delays could shorten any periods during
which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market
before us, which would impair our ability to successfully commercialize our product candidates and may harm our financial condition,
results of operations and prospects. The completion of clinical trials for our products, including the APTO-253 Phase 1a/b clinical
trial, the Phase 1a/b clinical trial for the luxeptinib study for the treatment of patients having B-cell malignancies, and the
IND acceptance of our planned Phase 1a/b study for the development of luxeptinib for the treatment of patients with R/R AML may
be delayed for a number of reasons, including delays related, but not limited, to:
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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.
Although, as of the date of this report,
we have not experienced any material delays in the manufacturing of luxeptinib and APTO-253 due to COVID-19, the extent to which
it will impact the manufacturing of our products will depend on future developments, which are highly uncertain and cannot be predicted.
Should our suppliers involved in the manufacture of luxeptinib be required to shut down their facilities due to COVID-19 either
due to lack of materials or personnel, our trials would be negatively impacted. We are mitigating this risk by continuing to manufacture
drug supply, but there is no guarantee that we will have enough drug to supply the trial if any of our manufacturers have a sustained
shut down in their operations. COVID-19 may also affect the timing and delivery of labeled and packaged drug product for APTO-253
since it is an intravenous formulation which, compared to orally administered therapies, involves a more complex process. Factors
related to COVID-19 caused a delay in the labeling and packaging of the APTO-253 drug product; however, going forward we do not
anticipate this to materially affect the patient accrual for the ongoing Phase 1b trial.
Some components of our products are manufactured by third
parties outside of the United States, and our business may be harmed by legal, regulatory, economic, political and public health
risks associated with international trade and those markets.
We have third-party manufacturing partners
in Germany and the United Kingdom; in addition, some materials used by our third-party manufacturers are supplied by companies
located in other countries, including China. Our reliance on suppliers and manufacturers in foreign markets creates risks inherent
in doing business in foreign jurisdictions, including: (a) the burdens of complying with a variety of foreign laws and regulations,
including laws relating to the importation and taxation of goods (b) public health crises, such as pandemics and epidemics,
in the countries where our suppliers and manufacturers are located; (c) transportation interruptions or increases in transportation
costs; and (d) foreign intellectual property infringement risks. For example, the ongoing COVID-19 pandemic has resulted in the
extended shutdown of certain businesses and markets in many regions causing reduced availability for certain pharmaceutical ingredients.
The current public health crisis or any further political developments or health concerns in markets in which our products are
manufactured or from which we obtain necessary pharmaceutical ingredients could adversely affect the supply of our drug products
and, in turn, our business, financial condition, and results of operations.
If we have difficulty enrolling
patients in clinical trials, the completion of the trials may be delayed or cancelled.
As our product candidates advance from
preclinical testing to clinical testing, and then through progressively larger and more complex clinical trials, we will need to
enroll an increasing number of patients that meet our eligibility criteria. There is significant competition for recruiting cancer
patients in clinical trials, and we may be unable to enroll the patients we need to complete clinical trials for cancer indications
on a timely basis or at all. Certain factors that affect enrollment of patients in our clinical trials are impacted by external
forces that may be beyond our control. Such factors include, but are not limited to, the following:
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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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Although, as of the date of this report,
we do not foresee material delays to the enrollment of patients or timelines for our trials due to COVID-19, the extent to which
COVID-19 will impact the projected development goals will depend on future developments, which are highly uncertain and cannot
be predicted.
If we are unable to successfully
develop companion diagnostics for our therapeutic product candidates, or experience significant delays in doing so, we may not
achieve marketing approval or realize the full commercial potential of our therapeutic product candidates.
We plan to develop companion diagnostics
for our therapeutic product candidates. We expect that, at least in some cases, regulatory authorities may require the development
and regulatory approval of a companion diagnostic as a condition to approving our therapeutic product candidates. We have limited
experience and capabilities in developing or commercializing diagnostics and plan to rely in large part on third parties to perform
these functions. We do not currently have any agreement in place with any third party to develop or commercialize companion diagnostics
for any of our therapeutic product candidates.
Companion diagnostics are subject to regulation
by the FDA, Health Canada and comparable foreign regulatory authorities as medical devices and may require separate regulatory
approval or clearance prior to commercialization. If we, or any third parties that we engage to assist us, are unable to successfully
develop companion diagnostics for our therapeutic product candidates, or experience delays in doing so, our business may be substantially
harmed.
We rely and will continue to
rely on third parties to conduct and monitor many of our preclinical studies and our clinical trials, and their failure to perform
as required could cause substantial harm to our business.
We rely and will continue to rely on third
parties to conduct a significant portion of our preclinical and clinical development activities. Preclinical activities include
in vivo studies providing access to specific disease models, pharmacology and toxicology studies, and assay development.
Clinical development activities include trial design, regulatory submissions, clinical patient recruitment, clinical trial monitoring,
clinical data management and analysis, safety monitoring and project management, contract manufacturing and quality assurance.
If there is any dispute or disruption in our relationship with third parties, or if they are unable to provide quality services
in a timely manner and at a feasible cost, our active development programs will face delays. Further, if any of these third parties
fails to perform as we expect or if their work fails to meet regulatory requirements, our testing could be delayed, cancelled or
rendered ineffective.
Negative results from clinical
trials or studies of others and adverse safety events involving the targets of our products may have an adverse impact on our future
commercialization efforts.
From time to time, studies or clinical
trials on various aspects of biopharmaceutical products are conducted by academic researchers, competitors or others. The results
of these studies or trials, when published, may have a significant effect on the market for the biopharmaceutical product that
is the subject of the study. The publication of negative results of studies or clinical trials or adverse safety events related
to our product candidates, or the therapeutic areas in which our product candidates compete, could adversely affect our share price
and our ability to finance future development of our product candidates, and our business and financial results could be materially
and adversely affected.
The design or our execution
of clinical trials may not support regulatory approval.
The design or execution of a clinical trial
can determine whether its results will support regulatory approval and flaws in the design or execution of a clinical trial may
not become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety
or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial
protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other trial protocols and
the rate of dropout among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials that
we may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product
candidates.
Further, the FDA, Health Canada and comparable
foreign regulatory authorities will have some discretion in the approval process and in determining when or whether regulatory
approval will be obtained for any of our product candidates. Our product candidates may not be approved even if they achieve their
primary endpoints in future Phase 3 clinical trials or registration trials. The FDA, Health Canada or other regulatory authorities
may disagree with our trial design and our interpretation of data from preclinical studies and clinical trials. In addition, any
of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing
comments or advice on a protocol for a pivotal Phase 3 clinical trial that has the potential to result in approval by the FDA,
Health Canada or another regulatory agency. In addition, any of these regulatory authorities may also approve a product candidate
for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing
clinical trials. The FDA, Health Canada or other regulatory authorities may not approve the labeling claims that we believe would
be necessary or desirable for the successful commercialization of our product candidates.
As a result of intense competition
and technological change in the biotechnical and pharmaceutical industries, the marketplace may not accept our products or product
candidates, and we may not be able to compete successfully against other companies in our industry and achieve profitability.
Many of our competitors have:
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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;
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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 luxeptinib and APTO-253 in AML, examples
of potential competitors include companies that have developed approved or are currently developing inhibitors that directly target
the wild type include AbbVie (IMBRUVICA) and AstraZeneca (CALQUENCE) and Beigene Co., Ltd. (Zanubrutinib).
Others that are developing inhibitors that
target the C481S-mutant BTK include Merck (MK-1026), Roche, and Eli Lilly (LY3527727) among others.
For luxeptinib and APTO-253 in AML, examples
of potential competitors include companies that have developed, approved or are currently developing non-targeted therapies include
Jazz (VYXEOS), Pfizer (MYLOTARG) and Roche (VENCLEXTA), among others. Others that have developed or are developing highly targeted
therapies such as FLT-3 include Novartis (RYDAPT), Astellas (XOSPATA), Daiichi Sankyo (QUIZARTINIB), Arog (CRENOLANIB), and IDH1
include Agios (TIBSOVO) and Celgene/BMS (IDHIFA) among others.
Any product candidate that we develop and
that obtains regulatory approval must then compete for market acceptance and market share. Our products may not gain market acceptance
among physicians, patients, healthcare payers, insurers, the medical community and other stakeholders. The degree of market acceptance
of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
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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 USPTO, European opposition proceedings, or other analogous
proceedings in other parts of the world to determine priority of invention and the validity of patent rights granted or applied
for, which could result in substantial cost and delay, even if the eventual outcome is favorable to us. Our pending patent applications,
even if issued, may not be held valid or enforceable.
Our products and product candidates
may infringe the intellectual property rights of others, or others may infringe on our intellectual property rights which could
increase our costs.
Our success also depends on avoiding infringement
of the proprietary technologies of others. In particular, there may be certain issued patents and patent applications claiming
subject matter which we or our collaborators may be required to license in order to research, develop or commercialize APTO-253
or luxeptinib. In addition, third parties may assert infringement or other intellectual property claims against us. An adverse
outcome in these proceedings could subject us to significant liabilities to third-parties, require disputed rights to be licensed
from third-parties or require us to cease or modify our use of the technology. If we are required to license third-party technology,
a license under such patents and patent applications may not be available on acceptable terms or at all. Further, we may incur
substantial costs defending ourselves in lawsuits against charges of patent infringement or other unlawful use of another’s
proprietary technology. We may also need to bring claims against others who we believe are infringing our rights in order to become
or remain competitive and successful. Any such claims can be time consuming and expensive to pursue.
We may incur substantial cost
in defending our intellectual property.
While we believe that our products and
technology do not infringe proprietary rights of others, third parties may assert infringement claims in the future and such claims
could be successful. Even if challenges are unsuccessful, we could incur substantial costs in defending ourselves against patent
infringement claims brought by others or in prosecuting suits against others. In addition, others may obtain patents that we would
need to license, which may not be available to us on reasonable terms. Whether we are able to obtain a necessary license would
depend on the terms offered, the degree of risk of infringement and the need for the patent.
We have licensed important portions
of our intellectual property from CG, and are subject to significant obligations under that license agreement.
The Rights we hold under our license agreement
with CG are critical to our business. Our luxeptinib program is built around patents exclusively in-licensed from CG, which permit
us to research, develop and commercialize CG-806 worldwide except for the Republic of Korea. Under our agreement with CG, we are
subject to significant obligations, including diligence obligations with respect to development and commercialization activities,
payment obligations upon achievement of certain milestones and royalties on product sales, as well as other material obligations.
CG is eligible for payments upon the achievement of developmental, regulatory and commercial-based milestones, as well as low single-digit
royalties on product sales in all territories outside of the Republic of Korea.
If there is any conflict, dispute, disagreement
or issue of non-performance between us and CG regarding our rights or obligations under the license agreements, including any conflict,
dispute or disagreement arising from our failure to satisfy diligence or payment obligations under such agreements, CG may have
a right to terminate the license. The loss of this license agreement could materially and adversely affect our ability to use intellectual
property that could be critical to our drug discovery and development efforts, as well as our ability to enter into future collaboration,
licensing and/or marketing agreements for one or more affected drug candidates or development programs.
Our business depends, in part, on
our ability to use technology that we have licensed or will in the future license from third parties, including CG, and, if these
licenses were terminated or if we were unable to license additional technology we may need in the future, our business will be
adversely affected.
We currently hold licenses for certain
technologies that are or may be critical to our current and subsequent product candidates. These include our exclusive license
to research, develop and commercialize luxeptinib worldwide except for the Republic of Korea. The license from CG is subject to
termination in the event of a breach by us of the license, if we fail to cure the breach following notice and the passage of a
cure period. We may need to acquire additional licenses in the future to technologies developed by others. Furthermore, future
license agreements may require us to make substantial milestone payments. We may also be obligated to make royalty payments on
the sales, if any, of products resulting from the license. The termination of a license or the inability to license future technologies
on acceptable terms may adversely affect our ability to develop or sell our products.
Legal and Regulatory Risk
Our ability to develop, produce
and market our products is subject to extensive government regulation.
Government regulation is a significant
factor in the development, production and marketing of our products. Research and development, testing, manufacture, marketing
and sales of pharmaceutical products or related products are subject to extensive regulatory oversight, often in multiple jurisdictions,
which may cause significant additional costs and/or delays in bringing products to market, and in turn, may cause significant losses
to investors. The regulations applicable to our product candidates in a given jurisdiction may change. Even if granted, regulatory
approvals may include significant limitations on the uses for which products can be marketed or may be conditioned on the conduct
of post-marketing surveillance studies. Failure to comply with applicable regulatory requirements can, among other things, result
in delay in approving or refusal to approve a product candidate, interruptions of clinical trials or manufacturing, suspension
or withdrawal of regulatory approval, warning letters, the imposition of civil penalties or other monetary payments, product recall
or seizure, operating restrictions, injunctions or criminal prosecution. In addition, regulatory agencies many not approve the
labeling claims that are necessary or desirable for the successful commercialization of our product candidates.
Requirements for regulatory approval vary
widely from country to country. Whether or not approved in Canada or the United States, regulatory authorities in other countries
must approve a product prior to the commencement of marketing the product in those countries. The time required to obtain any such
approval may be longer or shorter than in Canada or the United States. Approved drugs, as well as their manufacturers, are subject
to continuing and ongoing review, and discovery of problems with these products or the failure to adhere to manufacturing or quality
control requirements may result in regulatory restrictions being imposed.
Current and future legislation may increase the difficulty and cost for us to
obtain marketing approval of and commercialize our product candidates and may adversely affect the prices we may obtain.
In the United States and some foreign jurisdictions,
there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could,
among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post approval activities
and affect our ability to profitably sell any products for which we obtain marketing approval.
For example, in March 2010, the Patient
Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or collectively the Affordable
Care Act, was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies
against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and
fees on the health industry and impose additional health policy reforms. Additionally, the Drug Supply Chain Security Act, enacted
in 2013, imposed new obligations on manufacturers of pharmaceutical products related to product tracking and tracing.
Members of Congress and the Trump Administration
have considered legislation to fundamentally change or repeal the Affordable Care Act. While Congress has not passed repeal legislation
to date, the Tax Cuts and Jobs Act (“TCJA”) includes a provision repealing the individual insurance coverage
mandate included in the Affordable Care Act, effective January 1, 2019. Further, President Trump signed an Executive Order directing
federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or
delay the implementation of any provision of the Affordable Care Act that would impose a fiscal or regulatory burden on states,
individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13,
2017, the President signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the Affordable
Care Act. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request
for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, the Centers for Medicare
and Medicaid Services has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers
in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under
the Affordable Care Act for plans sold through such marketplaces. Congress may consider other legislation to replace elements of
the Affordable Care Act. The implications of the Affordable Care Act, its possible repeal, any legislation that may be proposed
to replace the Affordable Care Act, or the political uncertainty surrounding any repeal or replacement legislation for our business
and financial condition, if any, are not yet clear.
We expect ongoing initiatives in the United
States and internationally to increase pressure on drug pricing. Regulations that mandate price controls and limitations on patient
access to products or establish prices paid by government entities or programs may impact product candidates that we may successfully
develop. Pharmaceutical product pricing is subject to enhanced government and public scrutiny and calls for reform. Some U.S. states
have implemented, and other U.S. states are considering, pharmaceutical price controls or patient access constraints under the
Medicaid program, and some U.S. states are considering price-control regimes that would apply to broader segments of their populations
that are not Medicaid eligible. Efforts by government officials or legislators to implement measures to regulate prices or payments
for pharmaceutical products, including legislation on drug importation, could have an adverse effect on anticipated revenues from
product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall
financial condition and ability to develop drug candidates.
Legislative and regulatory proposals have
also been made to expand post approval requirements and restrict sales and promotional activities for pharmaceutical products in
the US. Any healthcare reforms enacted in the future may, like the Affordable Care Act, be phased in over a number of years but,
if enacted, could reduce our revenue, increase our costs, or require us to revise the ways in which we conduct business or put
us at risk for loss of business. We are not sure whether additional legislative changes will be enacted, or whether the current
regulations, guidance or interpretations will be changed, or what the impact of such changes on our business, if any, may be.
In Canada, the Patented Medicine Prices
Review Board (“PMPRB”) has jurisdiction to control prices of patented medicines that are considered excessive. Recent
changes to the regulations governing the PMPRB are intended to lower the prices of patented medicines even further. The PMPRB’s
jurisdiction could extend to any of our drug products that are approved in Canada and protected under Canadian patents, with an
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 our 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 our development activities progress
towards the commercialization of product candidates, our liability coverage may not be adequate, and we may not be able to obtain
adequate product liability insurance coverage at a reasonable cost, if at all. Even if we obtain product liability insurance, our
financial position may be materially adversely affected by a product liability claim. A product liability claim could also significantly
harm our reputation and delay market acceptance of our 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.
Continuing Phase 1a/b, and commencing Phase 2 and Phase 3 clinical trials for luxeptinib and 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 Toronto Stock Exchange. 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.
General 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 we believe we are classified as a passive foreign investment company (“PFIC”) during the tax year
ended December 31, 2020, 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, we expect to be a PFIC for the year ending December 31, 2021, 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.
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 Sarbanes-Oxley Act
of 2002 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.
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 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 against cyber-attacks.
Disruptions due to cyber security incidents
could adversely affect our business. In particular, a cyber security incident could result in the loss or corruption of data from
our research and development activities, including clinical trials, which may cause significant delays to some or all of our clinical
programs. Also, our trade secrets, including unpatented know how, technology and other proprietary information could be disclosed
to competitors further to a breach, which would harm our 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 us 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.