Aptose Biosciences Inc (APTO) 2016 Q2 法說會逐字稿

Good afternoon. My name is Catherine and I will be your conference operator today. I would like to welcome everyone to the Aptose Biosciences conference call for the second quarter ended June 30, 2016. (Operator Instructions) Thank you. As a reminder, this conference call may be recorded.

I would like to introduce Ms. Karen Bergman. Please go ahead.

Thank you, Catherine. Good afternoon and welcome to the Aptose Biosciences conference call to discuss financial and operational results for the second quarter ended June 30, 2016. My name is Karen Bergman with BCC Partners, the Investor Relations representative for Aptose Biosciences.

Joining me on the call today are Dr. William G. Rice, Chairman, President, and Chief Executive Officer; Mr. Gregory Chow, Senior Vice President and Chief Financial Officer; and Mr. Avanish Vellanki, Senior Vice President and Chief Business Officer.

Before we proceed, I'd like to remind everyone that certain statements made during this call will include forward-looking statements within the meaning of the US and Canadian securities laws. Forward-looking statements reflect Aptose's current expectations regarding future events but are not guarantees of performance, and it's possible that actual results and performance could differ materially from those stated expectations. They involve known and unknown risks, uncertainties, and assumptions that may cause actual results, performance, and achievements to differ materially from those expressed.

To learn more about these risks and uncertainties, please read the risk factors set forth in Aptose's most recent annual report on Form 20-F and SEC and SEDAR filings. All forward-looking statements made during this call speak only as of the date they are made. Aptose undertakes no obligation to revise or update the statements to reflect events or circumstances after the date of this call, except as required by law.

I will now turn the call over to Dr. Rice, Chairman, President, and CEO of Aptose Biosciences. Dr. Rice?

Thank you, Karen. I'd like to welcome everyone to our call for the second quarter ended June 30, 2016. During the quarter, we continued to make notable progress with APTO-253, or 253, and with our entire pipeline. Today we'll update you on these developments, our expectations for taking 253 back to the clinic, and on our newest pipeline addition, CG'806, which has already generated considerable excitement at a relatively early stage of development. Following, we will review our quarterly financials and then open the call to your questions.

But first, APTO-253. For those of you who may be new to Aptose, APTO-253 -- or again, 253, as I'll call it -- our lead compound, is a first-in-class inducer of the Kruppel-like factor 4, or KLF4, tumor suppressor gene. It is the only clinical-stage compound targeted for patients having cancers with suppressed KLF4 levels. And, of note, suppressed KLF4 levels have been reported in the scientific literature as a key event in the transformation from normal bone marrow cells to AML and high-risk myelodysplastic syndrome, or MDS, cells.

Recent mechanistic studies by our team have revealed more about the mechanism of 253 and its ability to inhibit the expression of the c-Myc oncogene, which is a major driver of cancer cell proliferation. 253 has demonstrated a favorable safety profile with no evidence of bone marrow suppression, which not only differentiates our candidate from other AML therapies but also underscores the importance of its clinical development.

Our Phase 1b trial of 253 was temporarily suspended late last year because of the report of an operational difficulty with an IV infusion pump at the clinical site. During dosing of a patient with the 100 mgs per meter-squared dose, the clinical site experienced an infusion pump stoppage caused by backflow pressure as a result of clogging of the in-line filter used during infusion.

As you are likely aware, our team has been diligent in creating new formulation methodologies for 253 in order to enhance its solubility and stability properties and to meet FDA's criteria, so that we may have the hold lifted and subsequently be allowed to reinitiate the clinical trial. As we mentioned in our last call, we have been very disciplined in our approach to getting 253 back into the clinic.

A significant amount of high-quality work has gone into this process, which have included identifying the root cause of the clogging issue and actively evaluating multiple formulation and production methodologies in order to select the best approach to optimizing the delivery of the product to patients. It's difficult to capture all of the strides we've made to get to this point, but since our last quarterly call we have selected the new formulation for 253 and we have been performing extensive studies with it.

I'd like to highlight a few of the steps that we've taken. One, the identification of a chemistry-based cause for the filter clogging that was observed with the prior drug product. Two, selection of an appropriate solid-state form of 253 to use in future clinical supplies, a form other than the HCl salt that can be formulated into a safe, soluble, and stable drug product.

Three, manufacture under GMP conditions of the drug substance representing the appropriate solid-state form of 253. Four, evaluation of many combinations of excipients or co-solvents and many methodologies to identify an appropriate formulation for our new drug product. And five, performing mock or simulated infusion studies with the new formulation at multiple CROs to test various technical parameters and ensure that filter clogging does not occur, as well as conducting extensive physiochemical and biochemical analyses to demonstrate the properties of the new drug product meets our standards and those of the Agency.

We are hopeful that the FDA lifts the clinical hold and subsequently allows us to reinitiate patient dosing, and we look forward to reporting back to you. It is our expectation to be back in the clinic during the fourth quarter of this year.

Finally, it's important to note that formulation enhancement studies will continue. Why? Because these efforts will make certain that we give 253 every opportunity to succeed, and because new formulations can extend the lifetime of intellectual property around the molecule.

We still have risks until the FDA lifts the hold and allows us to reenter the clinic, but we are taking every step imaginable to reduce the risk; to remain disciplined; to promote speed, not haste; to prevent future missteps; and to drive 253 back into AML patients where we believe the drug has the best chance to demonstrate efficacy.

While we've been deeply focused on 253 formulation work, members of our clinical team have been very active in expanding the number of clinical sites that will be prepared to initiate dosing. Soon after 253 reenters the clinic, assuming the FDA allows us to do so, we should have up to 15 clinical sites onboard at that time.

As you may recall, the Phase 1b study was originally designed for approximately 15 patients to be enrolled in each of two arms of the dose-escalation phase of the study. Arm A would include patients with acute leukemia, including acute myeloid leukemia, or AML, and high-risk myelodysplastic syndromes, or MDS; Arm B would include patients with lymphomas, Hodgkin's and non-Hodgkin's lymphoma, and multiple myeloma; followed by enrollment of an additional 15 patients in each of the two separate disease-specific expansion cohorts for a total estimated a moment of 60 patients.

Aptose now has modified the clinical trial design for the Phase 1b study, pending approval from the FDA. Under the proposed modification, we will focus on patients with AML and MDS. Arm B of the dose-escalation phase of this study will be discontinued.

Arm A of the study focused on patients with acute leukemia, in particular, AML, and myelodysplastic syndrome, or MDS, and that remains unchanged. Arm A remains unchanged.

The rationale underlying this modification is to focus all resources on the patient population most likely to benefit from 253. Indeed, the study is designed to assess the safety, tolerability, and pharmacodynamic and pharmacokinetic responses as well as the efficacy of 253 as a single agent. From the date of clinical trial restart, we would estimate that the efficacy readout would take approximately six to 12 months.

Finally, I want to remind you of several other highlights. As Mr. Avanish Vellanki, our Chief Business Officer, will describe, we've also been busy profiling and advancing our CG'806 kinase inhibitor program to drive this very unique molecule toward the clinic, plus we have submitted three abstracts to the 2016 ASH conference. Two are related to 253, and the third is related to our early preclinical program.

I'd now like to turn the call over Avanish who will provide an update on CG'806 and the dual bromodomain JAK2 inhibitor program. Avanish?

Thank you, Bill, and good afternoon, everyone. This is the first earnings call post-announcing the transaction with CrystalGenomics for CG'806, the multi-kinase BTK/FLT3 inhibitor, so I will review first why this molecule was so compelling to us as well as the top-line deal terms. I'll also comment briefly on the status of our early preclinical program, which is focused on the development of an inhibitor of BRD4, a key oncogenic member of the BET family of proteins, and JAK2.

First, CG'806. Recall that Aptose effected a definitive agreement with CrystalGenomics in June of this year. Under the option structure of the agreement, Aptose will be responsible for preclinical development; and upon potential exercise of the option, prior to submitting an IND application with the FDA, Aptose will assume all development and commercialization rights outside of Korea and China.

What intrigued us about this program was the in-vivo data. Data from CrystalGenomics and studies conducted by Aptose at US CRO partners confirmed two important things about the program: one, CG'806 can rapidly eliminate tumors, not just inhibit tumor growth, in multiple heme cancer mouse models without any safety issues; and two, it can do so at various doses.

We believe the therapeutic window to be quite broad. In fact, we've not yet identified a maximum tolerated dose, or MTD, in xenograft studies.

As a multi-kinase inhibitor, CG'806 does affect other targets that could be contributing to its potency. In fact, in AML cell lines, the cell-killing capacity of CG'806 is better than the published data from other FLT3 inhibitors. However, the impact of CG'806 on these other targets thus far has not led to any observable toxicity in animals.

The rationale behind BTK in FLT3-ITD inhibition in AML has been documented in the literature. And as far as we know, we have the only program that inhibits both of these key oncogenic targets.

As a noncovalent inhibitor, CG'806 does not require the cysteine 41 residue of BTK that the other covalent BTK inhibitors need in order to bind to the pocket. Hence, when that cysteine is mutated, CG'806 retains potency. In fact, the IC50 for CG'806 against the Cys481 BTK mutant is approximately 2 to 3 nanomolar.

In the treatment landscape of CLL and mantle cell lymphoma, we would expect that more prevalent treatment with ibrutinib, or potentially acalabrutinib, will lead to an increase in patients with the C481S mutation, potentially making those patients ineligible for other covalent BTK inhibitors in development. Therefore, our initial analysis has revealed several patient populations that could hold promise for CG'806. These include FLT3-ITD positive AML; relapsed/refractory CLL in mantle cell lymphoma; and finally, patients with T-cell ALL or, acute lymphocytic leukemia, resistant to imatinib, or Gleevec, that possess the T315I mutation.

With regards to that latter opportunity in ALL, in-vitro studies have revealed that CG'806 could be one of the most potent agents in development against the Abl kinase with the T315I mutation. And as some of you are aware, patients with Abl T315I do not respond well to the existing landscape of dual Bcr-Abl Src inhibitors.

We are just getting underway with all the studies for CG'806, and we expect to have additional insights into other opportunities as we move along. Aptose anticipates a filing of the IND for CG'806 in the middle of 2017, with the Phase 1 trial to start shortly thereafter.

The full agreement for the transaction with CrystalGenomics has been filed with the SEC, and a brief summary of the key financial terms are as follows. Aptose made a $1 million payment, US dollars, up front as part of the option grant fee. If the option is exercised prior to IND submission, Aptose will make a $2 million payment in either cash or stock.

Total payments through commercial approval for the first indication total $63 million. Commercial-based milestones along with approvals in other indications brings the total deal value to $303 million. CrystalGenomics will earn a 4% royalty on sales in Aptose's territories.

Second, let me turn to our early preclinical program, the dual bromodomain 4, or BRD4, and JAK2 inhibitor. As a reminder, Aptose executed an agreement in late 2015 with Moffitt Cancer Center bringing some intellectual property around dual inhibitors of the bromodomain family members and other kinases.

Aptose and our partners at Laxai Avanti Life Sciences, or LALS, have moved that program forward. This program is another first-in-class program for oncology that attempts to move away from the pan-bromodomain inhibitors in the landscape and coupled with targeting JAK2 selectively over JAK1 and JAK3. We hope to present data on various of these novel structures that we've identified in an abstract at the upcoming American Society of Hematology, or ASH, conference in December.

Both Aptose and LALS are continuing to optimize a family of compounds in the hope of selecting a lead candidate by late this year. We anticipate the synergy documented between BRD4 and JAK2 will hold opportunity across a range of blood cancers and neoplasms.

With that, let me turn it over to Mr. Greg Chow to review the financials from the quarter.

Thank you, Avanish, and good afternoon, everyone. At June 30, 2016, we had CAD12.6 million in cash and cash equivalents compared to CAD15 million at March 31, 2016. During the quarter, we utilized approximately CAD4.6 million of cash in our operating activities and raised net proceeds of CAD2.2 million through the issuance of 641,734 shares via the Company's at-the-market program. We had no revenues during the quarter.

Research and development expenses were CAD3.3 million for the quarter compared to CAD1.3 million for the quarter ended June 30, 2015. This increase was due to costs associated with the LALS market collaboration that Avanish discussed earlier; increased research and clinical operations headcount; increased formulation and manufacturing costs associated with 253 and the root cause analyses; and finally the option fee payment of CAD1.3 million to CrystalGenomics, or $1 million.

General and administrative expenses for the quarter were CAD2.3 million versus CAD2.5 million for the quarter ended June 30, 2015. This slight decrease compared to the quarter ended June 30, 2015, was primarily due to lower legal and patent costs as well as lower regulatory and filing fees related to transactions completed in the prior year.

For the reasons mentioned above, our net loss for the quarter increased to CAD5.6 million or CAD0.46 per share, compared to CAD3.4 million or CAD0.28 per share for the quarter ended June 30, 2015. I will now turn the call back over to Dr. Rice. Bill?

Thank you, Greg. I'd like to open the call for questions. Operator, if you could please introduce the first question.

(Operator Instructions) Adnan Butt, RBC Capital Markets.

Yes, good afternoon. This is Arshad Haider on for Adnan. In terms of 806, what type of IND-enabling work still needs to be completed before a phase 1 can be underway?

Hi, this is Bill Rice. I'll start on this, and then I may ask Avanish to jump in also. We just recently brought in the molecule, we've evaluated it, and some of the key studies that helped us make the decision to bring the molecule in, such as [HERBS] and [TIBS], understanding the full kinase panel, as well as testing in its bromodomain.

So what we've done thus far is to profile the molecule accurately. But now we have to begin the full GLP studies, the IND-enabling GLP studies. That's the tox safety studies and the PK/PD.

We expect those studies will take approximately six to eight months to complete. So right now we're just beginning to enter into the preclinical studies, and as soon as we have material, sufficient material, GLP material to begin those studies, we will do so.

But right now, we're on track to submit the IND mid-2016. Avanish, did you want to add anything to that?

No, I think that covers it. Nothing further to add there.

(Operator Instructions) John Newman, Canaccord.

Hi. Thanks for taking my question. Bill, I just wondered if you could talk a little bit -- I apologize if the question has already been asked -- but if you could talk a bit about your expectations regarding whether or not you would have to restart the dose titration for 253 where you left off, or whether you would have to start from the beginning. Thanks.

Well, hi, John; thanks for the call. Well, of course, ultimately, that is the FDA's call. Our expectation is that we will be able to start where we left off at the 100 mgs per meter-squared. They might ask us to step down one dose.

But my perspective on this would be -- now, very often we get asked should we, would we need to start over the 20 mgs per meter-squared and go up to 20, 40, 66, and then 100? Our argument to that would be: It would be unethical, because we already know the exposure levels received by the patients at those dose levels were the expected exposure levels.

Those levels were not expected, though, to be efficacious; and they were not. So it would be unethical to put the patient back on those dose levels, in our perspective, provided the molecule, the new formulation gives us the equivalent exposures in PK study that we present to the FDA.

So we hope, we expect we'll be able to start at or near the 100 mgs per meter-squared and go from there. But ultimately, that is the FDA's decision.

Okay, great. Thank you.

Thank you. I'm currently showing no further questions. I'd now like to turn the call back over to Dr. Rice for any closing remarks.

Well, thank you, everyone, for taking the time to join us today. We appreciate your support and commitment, especially as we work to get 253 trials restarted and drive CG'806 toward the clinic.

We look forward to reporting further progress on both 253 clinical development and our pipeline strategy and programs. Please note our recent webcast and presentations can be found on our website at www.Aptose.com. Thank you again and have a wonderful evening.

Thank you, ladies and gentlemen. That concludes today's conference. You may all disconnect and everyone have a great day.