Aptose Biosciences Inc. (APS) Earnings Call Transcript & Summary

Good morning, all. I would like to call to order this Annual Meeting of Shareholders of Aptose Biosciences Incorporated. I'm Dr. William Rice, Chairman of the Board of Directors, President and Chief Executive Officer of Aptose, and I'll be serving as the chair of today's meeting. Joining me today online are other directors, including Dr. Dennis Burger, who's our Lead Independent Director; Dr. Erich Platzer; Mr. Warren Whitehead; Ms. Carol Ashe; Ms. Caroline Loewy; and Dr. Mark Vincent. Other company officers also joining us online today are Dr. Joti Marango, Senior Vice President, Chief Business Officer and Chief Financial Officer; and Dr. Rafael Bejar, Senior Vice President and Chief Medical Officer. It's my pleasure to welcome the shareholders and employees of Aptose and other invited guests to this meeting. As in 2020, considering concerns regarding the COVID-19 pandemic, Aptose has opted for a virtual [Audio Gap] our thoughts are with you. And we have ensured this virtual meeting offers registered shareholders and duly appointed and registered proxyholders the same opportunities to participate as in past in-person meetings. Instructions on how to ask questions and the voting procedure will appear on your screens. As with any technology, unexpected glitches may occur, but our service providers for this platform at Lumi are prepared to assist with any unanticipated technical difficulties. We will conduct the votes on the matters before us by a poll. On a poll, every registered shareholder or duly appointed and registered proxyholder entitled to vote has 1 vote in respect of each share entitled to be voted on the matter and held or represented by that registered shareholder or duly appointed and registered proxyholder. You already may have voted your shares. But if you need to vote during this meeting, it only can be done through our virtual voting platform on the webcast. The polls are open now. Registered shareholders and proxyholders who have obtained a control number are now able to cast their votes. Voting can be completed at any time from now until the end of formal business of the meeting, at which time the polls will close. We thank those of you who already have voted. And if you already have voted in advance of the meeting and you do not wish to change your vote, then you need to take no further action. For those of you who have not yet voted, we encourage you to vote now. Also, registered shareholders and duly appointed and registered proxyholders can submit questions at any time during the meeting through the virtual platform of our webcast. We will address questions during the general Q&A session at the end of the formal part of the meeting, provided that only questions regarding procedural matters or questions directly related to the motions before the meeting may be addressed during the meeting. To repeat, we only will answer questions which are related to the formal business matter presented at today's meeting. The secretary will receive the questions and, at the appropriate time, will read them loud so that everyone may be aware of the question being considered. If we have questions that are similar in topic, we may paraphrase, group the questions and mention that we have received similar questions. However, please note that due to time constraints, we may be unable to address all questions. I also wish to welcome all guests who are not registered shareholders or holding proxies of registered shareholders. As a reminder, as with any in-person meeting, only registered shareholders and duly appointed proxyholders are permitted to vote or ask questions. I now would like to outline the format of today's meeting. First, I will deal with the formal business of the meeting, as outlined in the proxy statement that all of you received, including voting on resolutions. After we conclude the formal portion of the meeting, we'll be pleased to answer questions you may have or respond to your comments regarding the business matters addressed during the formal part of the meeting. Second, after the Q&A period is concluded, I'll provide a brief corporate update. I now will ask Mr. Charles-Antoine Soulière of McCarthy Tétrault, Aptose's [Audio Gap] The Secretary has confirmed that the notice calling the meeting, including the proxy statement, financial statements and other documents were mailed on May 3, 2021, to shareholders of record as of April 19, 2021. The Secretary has placed with me before this meeting, copies of such notice, the proxy statement and the forms of proxy, together with the confirmations and mailing of these documents. I direct that the confirmations of proof of mailing of the notice be kept by the Secretary with the records of the meeting. Our corporate bylaws provide that the meeting may be held by electronic means. Our corporate bylaws also require a quorum comprised of 2 persons be present at the opening of the meeting are entitled to vote as shareholders or as proxyholders and holding or representing at least 25% of the votes. I would ask the secretary of the meeting to summarize the scrutineer's report on attendance, please.

Thank you. This scrutineer's preliminary report now has been received. And it shows that there are shareholders and proxyholders present or represented at this meeting, representing 64,780,457 shares or 72.83% of the issued and outstanding shares.

Thank you. I have before me and I adopt the scrutineer's preliminary report on attendance, whether in person or by proxy through the online webcast platform, which confirms that a quorum is present. I direct that a copy of the final report on attendance be filed with the record of the meeting. As notice of the meeting has been properly given and quorum is present, accordingly, I now declare today's meeting to be properly constituted for the transaction of the business for which it has been called. The formal business of this meeting consists of: one, presenting the financial statements for fiscal year 2020; two, electing directors; three, appointing the independent registered public accounting firm of the corporation; four, adopting a stock incentive program; five, adopting an employee stock purchase plan; six, advising on the compensation of the corporation's named executive officers; and seven, advising on the frequency of future say-on-pay votes. To expedite the formal part of the meeting. Dr. Marango will move, and I will second all motions. While this procedure will facilitate the handling of the formal matters, registered shareholders or duly appointed and registered proxyholders may address the meeting when there is a call to discuss a motion before the meeting. [Operator Instructions] If there is any discussion or question the secretary will read the question aloud. All motions will be moved and seconded once the formal matters of the meeting have been presented. As I said, the annual meeting was called to consider 7 matters. The first item of business is to provide you with Aptose's audited financial statements for the year ended December 31, 2020. The tabled copy of the audited consolidated financial statements and the auditor's report thereon are available for inspection at the hyperlink provided on the meeting platform. I direct the secretary to make a copy available for review by any shareholder who so request. With the consent of the meeting, the reading of such statements and report will be dispensed. I do wish to recognize and advise the meeting that members of the independent registered public accounting firm of Aptose, KPMG LLP, or in attendance online. I do not propose to ask shareholders to approve the financial statements tabled. However, I will be pleased to receive any questions now concerning the financial statements.

I confirm there is no discussion at this time on this matter.

Thank you. As there are no questions at this time on the audited financial statements for the year ended December 31, 2020, I will proceed to the second item of business. The second item of business is the election of directors for the current year. The proxy statement contains the names of management's proposed nominees for the Board of Directors, which are: Ms. Carol Ashe, Dr. Dennis Burger, Ms. Caroline Loewy, Dr. Erich Platzer, Dr. William Rice, Dr. Mark Vincent and Mr. Warren Whitehead. I understand that these nominees have consented to act as Directors. Mr. Secretary, are there additional nominations?

There are no additional nominations.

Thank you. There being no further nominations, I declare the nominations closed. The third item of business is the appointment of KPMG LLP as the independent registered public accounting firm of Aptose for the fiscal year ending December 31, 2021. The fourth item of business is considering and, if deemed appropriate, adopting a resolution, the text of which is set forth in the proxy statement, ratifying, confirming and approving the adoption of Aptose's 2021 stock incentive plan, which I will refer to as the new incentive plan and which has been amended to bring it in more in accord with the plans of other U.S. based companies. As described in the proxy statement, under the new incentive plan, the maximum number of common shares in the capital of Aptose authorized in reserve for issuance is a fixed limit of up to 6,343,242 common shares. The new incentive plan authorizes the grant of equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units or dividend equivalents. For a more detailed description of the new incentive plan, please refer to the proxy statement. The fifth item of business is considering and, if deemed appropriate, adopting a resolution the, text of which is set forth in the proxy statement, ratifying, confirming and approving the adoption of Aptose's 2021 employee stock purchase plan, which I will refer to as the ESPP. The Board believes that the ESPP will encourage employees to acquire common shares, thereby fostering broad alignment of employees' interest with the interest of the shareholders. As described in the proxy statement, the maximum number of common shares in the capital of Aptose authorized and reserved for issuance from treasury under the ESPP is a fixed limit of up to 1,700,000 common shares. For a more detailed description of the ESPP, please refer to the proxy statement. The sixth item of business is considering and, if deemed appropriate, adopting an advisory, nonbinding resolution, the text of which is set forth in the proxy statement, approving the compensation paid to Aptose's named executive officers. Because this vote is advisory, the results will not be binding on Aptose or the Board. However, this proposal, commonly known as say-on-pay proposal, gives shareholders the opportunity to endorse or not endorse Aptose's executive compensation programs. And the results will be taken into consideration when future decisions regarding executive compensations are made. The seventh item of business is considering and, if deemed appropriate, adopting an advisory, nonbinding resolution, the text of which is set forth in the proxy statement on how frequently future say-on-pay votes are presented to you, the shareholders. The option of once every 1 year, 2 years or 3 years that receives the greatest number of votes cast for the resolution will determine the preferred frequency with which Aptose will hold an advisory, nonbinding shareholder vote to approve the compensation of its named executive officers. The Board of Aptose recommends that holding an advisory vote on executive compensation every 1 year is the most appropriate alternative. Although this advisory vote is not binding on Aptose, the Board will consider the results of the vote when determining the frequency of future advisory votes on executive compensation. Now that all formal matters of the business have been presented, Dr. Marango, please make the motions for the formal matters of the meeting.

Mr. Chair, first, I move that the persons that have been nominated be individually elected as a Director of Aptose for the ensuing year or until their successors are elected or appointed. Second, I move that KPMG LLP be appointed as an independent registered public accounting firm of Aptose for the fiscal year ending December 31, 2021. Third, I move that the new incentive plan be approved. In view to accelerate the process, I would like to dispense with the reading of the new incentive plan resolution and that, for the purposes of the meeting, the new incentive plan resolution be approved as if it had been read in its entirety. Fourth, I move that the new ESPP be approved. In view to accelerate the process, I would like to dispense with the reading of the ESPP resolution and that, for the purposes of the meeting, the ESPP resolution be approved as if it had been read in its entirety. Fifth, I move that the compensation paid to Aptose's named executive officers be approved. And sixth, I move that the option of having an advisory, nonbinding vote approving the compensation of named executive officers once every 1 year be approved.

Thank you, Dr. Marango. I second all of Dr. Marango's motions. Mr. Secretary, are there any questions or discussion on these motions?

There is no discussion at this time.

Thank you. As there is no discussion, I now call for a vote on the motions before the meeting. As previously mentioned, voting today will be conducted by electronic ballot. The polls have been opened since the beginning of the meeting. And at this point, all registered holders and duly appointed and registered proxyholders who have properly logged in with their control numbers and user name and wish to vote should make their way to the vote tab on the webcast platform. There, they will be able to see on the screen the motions brought forth at this meeting. The voting will remain open for an additional 1 minute. Once the electronic balloting closes, the voting page will disappear and your votes automatically will be submitted. We now will pause for 1 minute. [Voting]

Now before announcing the voting results, Mr. Secretary, is there any other business that any shareholder or proxyholder present wishes to bring to the attention of the meeting?

There is no proposal for other business.

Thank you. If there is no further business, I'll now declare the polls closed, and we will proceed to present the voting results. I now ask the secretary to provide the preliminary results of the scrutineer's tabulation of today's votes.

Thank you, Mr. Chair. The scrutineer confirms the following preliminary vote results: Each of the 7 director nominees received the required percentage of votes for. The percentage of required votes are favorable to the appointment of KPMG as independent registered public accounting firm of Aptose for the fiscal year ending December 31, 2021. The percentage of required votes are favorable today to the adoption of the new incentive plan. The percentage of required votes are favorable to the adoption of the ESPP. A majority of votes are favorable to the advisory, nonbinding resolution on the compensation of Aptose's named executive officers. The majority of votes are favorable to a 1-year frequency for the say-on-pay votes.

Thank you. I declare each of the resolutions considered at today's meeting in respect to those matters as carried. The exact number of votes cast in respect of each matter will be filed on SEDAR and EDGAR. We now will take a few moments to answer any questions received during today's meeting. [Audio Gap] during the upcoming year. As we wrap up this formal portion of the meeting, once again, I wish to thank all shareholders and proxyholders for your attendance today. Also, I'd like to remind everyone that I had planned to provide a corporate update following the formal part of the meeting, and it now is my pleasure to begin the presentation. [Audio Gap] acute myeloid leukemia, or AML, myelodysplastic syndromes, or MDS, chronic lymphocytic leukemia or CLL and certain non-Hodgkin's lymphomas. Our first molecule, luxeptinib, or just lux, that's L-U-X, formerly known as CG-806, is an oral kinase inhibitor that potently inhibits the wild type and mutant forms of the FLT3 [Audio Gap] activity in a Phase I trial of patients with B-cell cancers, including non-Hodgkin's lymphomas and CLL. Our second molecule, APTO-253, is a clinical agent -- clinical-stage agent that targets a regulatory motif in the MYC oncogene and represses the expression of MYC messenger RNA and MYC protein production. And 253 is in a dose-escalating Phase I trial for the treatment of patients with AML and high-risk MDS. During the past 12 months, we delivered on many critical achievements. Most noteworthy was demonstrating lux is active in the clinic. We've shown lux into a Phase I dose-escalating trial in patients with relapsed or refractory AML, and lux delivered a complete response, often referred to as a CR, in a patient with AML. We will provide additional data on this and other patients in the upcoming meeting of the European Hematology Association, or EHA meeting, in 10 days from now. Separately, lux is showing the indicators of clinical activity in patients with B-cell cancers. And here too, we will provide updated findings at the upcoming EHA meeting. We've shown that lux and APTO-253 are generally well tolerated. And we've achieved multiple dose escalations with both programs. We also are in a strong financial position after successful completion of an offering during 2020. And we continue to present clinical data at key medical conferences and banking conferences. And finally, we've expanded the management team over this past year to recruit important skill sets that will enable future activities. In fact, members of the management team are listed here. And we are very fortunate to have a team of such talented individuals. Regarding financial parameters. We ended Q1 of this year at March 31, 2021, with approximately $112 million and cash runway to 2023. We have a $200 million shelf statement on file with approximately $138 million of dry powder remaining as well as a $75 million at-the-market or ATM facility that has not been used and is fully available. We also have strong research analyst support. And we are happy to have the opportunity to deliver updated presentations at major banking conferences. Now let's spend a few minutes to focus on luxeptinib, our oral FLT3 and BTK kinase inhibitor currently in a Phase Ia/b trial for the treatment of patients with B-cell cancers and in a Phase Ia/b trial for the treatment of patients with relapsed or refractory AML. What truly distinguishes lux is its unusual kinase inhibitory profile. As you can see, it inhibits clusters of related kinases that act as cell surface receptors or as intracellular transducers of growth and proliferation signals. Lux is the only agent to potently inhibit both BTK and FLT3. And both kinases are clinically validated targets for cancer therapy. Importantly, lux inhibits the wild type and the mutant forms of BTK and of FLT3, plus lux simultaneously suppresses multiple oncogenic signaling pathways while avoiding many of the kinases that can negatively impact safety. While lux is being developed in parallel for the treatment of patients with B-cell lymphoid cancers, including lymphomas and CLL, as well as for patients with AML myeloid malignancies, let's first look at the application of lux to patients with the B-cell malignancies. Over-expression of the BTK kinase is one of the drivers of many B-cell cancers. And covalent inhibitors of BTK, such as ibrutinib, acalabrutinib, and zanubrutinib, target a cysteine residue in the active site and are highly efficacious against CLL. However, the effectiveness of these covalent BTK inhibitors can be diminished by mutation in that cysteine residue of BTK. This is the C41S mutation. In addition, these covalent BTK inhibitors may be discontinued due to tolerability issues or patients may discontinue due to refractory disease, in which the cancer cells survive by activating other rescue pathways that compensate for inhibition of BTK. Similar to the covalent BTK inhibitors, patients are being failed by a host of other types of agents. We believe lux may overcome many of these shortcomings of other drugs. Lux suppresses the B-cell receptor pathway by inhibiting not only BTK but also suppressing the upstream kinases, such as SYK and LYN, that's S-Y-K and L-Y-N, that activate BTK. And lux suppresses downstream oncogenic rescue pathways that cancer cells deploy to abate a pure BTK inhibitor. In our first Phase I dose escalation trial, the patient population includes heavily pretreated B-cell cancer patients who failed or are intolerant to multiple lines of established therapy, including other BTK inhibitors. Patients receive oral capsules of lux twice daily over 28-day cycles with an accelerated titration design. We've completed the first 4 dose levels of 150, 300, 450 and 600 milligrams. And as we dose escalated, we watched for leading indicators of clinical activity. To date, we've observed target engagement, including dose-related inhibition of the phospho, or activated form of BTK. We observed on-target lymphocytosis in CLL patients and reduction in tumor volumes for multiple types of B-cell malignancies. Now we are treating patients with 750 milligrams BID at dose level 5. And we plan to dose escalate further to the 900 milligram BID dose level 6. The 24-hour pharmacokinetic curves on the left side of the slide demonstrate dose-related increases in plasma exposure, ranging with the first dose level of 150 milligrams in the green spheres to the fifth dose level of 750 milligrams in the blue spheres. The graphs on the right panel show pharmacodynamic activity against key kinases. These studies demonstrate that as the exposure level of lux increases in the plasma of patients, the BTK and SYK kinases were effectively inhibited by lux. To summarize the status of this trial, we currently are dosing patients at the 750 milligram dose level 5. As a reminder, we faced an apparent DLT of hypertension in a patient at dose level 5. But upon further review, the DLP -- DLT appears highly unlikely to be related to lux. Nevertheless, this required us to expand the dose to 6 valuable patients. And we plan to complete this dose level and anticipate escalating to the next dose level. In this trial, we've seen a number of rapidly progressing CLL patients as they came on to our trial. We will continue to enroll CLL patients but anticipate only enrolling those with a higher performance status as they become available. In addition to CLL patients, we are enrolling a diverse set of B-cell cancer patients, lymphomas, Waldenström's, DLBCL and others because such cancers employ a panoply of oncogenic pathways, not just BTK, and such cancers are less affected by pure BTK inhibitors. We believe lux has the potential of providing benefit to these patients. We plan to continue enrolling such patients on the dose-escalating portion of the trial. Separately, we're enrolling a diversity of B-cell cancer patients into a bioavailability substudy of this trial. In the substudy, we enroll patients to receive 450 milligrams for 2 weeks of our first-generation hand-filled capsules and 450 milligrams for 2 weeks of our second-generation capsules that are machine filled. If the patients do well on the 450 milligram doses, they can be dose escalated to 600 milligrams and then to 750 milligrams once that dose is demonstrated to be safe. This substudy allows us to simultaneously qualify our automated manufacturing capsules and to place more patients ultimately into dose escalation. We plan to continue dose escalations to identify the recommended Phase II dose and plan for expansion cohorts. We're encouraged by the indicators of clinical activity observed in B-cell cancer patients. And we will present updated data during the upcoming EHA conference. Now let's review data from the dose-escalating Phase I trial of lux in patients with relapsed or refractory AML. As a reminder, AML is a highly aggressive, highly heterogeneous and deadly cancer. The most common mutation of AML is the internal tandem duplication or ITD mutation that occurs in the FLT3 receptor tyrosine kinase, as shown on the top panel. The FLT3 ITD mutation is found in approximately 1/3 of AML patients and causes the mutated cells to divide continuously. As illustrated in the tables on this slide, lux is highly potent against the ITD mutant form of FLT3, and it retains potency against the wild type and all mutant forms of FLT3. And we believe the kinase inhibitory profile, the ability to suppress multiple oncogenic pathways simultaneously and the combinability of lux with other agents provide a path for lux to become a meaningful drug for patients with relapsed or refractory AML. Indeed, the compelling preclinical data with lux allowed us to move into a Phase Ia/b dose-escalating clinical trial to treat a broad range of relapsed or refractory AML patients who failed other therapies, such as azacitidine, venetoclax and other FLT3 inhibitors; patients who have a variety of mutations; patients who are FLT3 mutated, often referred to as FLT3 positive; or patients with wild-type FLT3 as well as patients that are unfit for intensive chemotherapy and patients that have previously failed allogeneic stem cell transplants. We selected the starting dose of 450 milligrams for AML patients and observed antileukemic activity, including a patient with a complete response or CR at the starting dose level. We since have completed dose level 1 and dose level 2 and now are enrolling patients at dose level 3, in which patients receive 750 milligrams. The big picture for the Phase I study of lux and AML patients is that we already have observed antileukemic activities in patients with deep relapsed or refractory AML disease. At the starting dose level, one patient with a FLT3 ITD mutation experienced a rapid but transient reduction in abnormal peripheral blood blast, while a second AML patient experienced a complete response or CR. We now have completed the 450 and 600 milligram dose levels, and the 750 milligram dose level is ongoing. We plan to dose escalate rapidly to identify the recommended Phase II dose and then move into phenotypically or genotypically defined expansion cohorts. And finally, we plan to release a flow of data throughout the remainder of '21. And the next major data release will occur during the EHA conference on June 11. In the last few minutes, I want to mention our other drug under clinical development, and that is APTO-253, or just 253 as I'll refer to it, our MYC gene suppressor, being developed for patients with AML or MDS. As shown on the left panel, 253 interacts with the G-quadruplex DNA motif that is housed in the promoter region of the MYC gene, thereby repressing expression of the MYC gene. We recently completed dose level 5 with 253 and moved into dose level 6. As 253 continues to move into higher dose levels, we hope it will deliver therapeutic activity for these patients in need of additional agents. Now let's begin to wrap up the presentation for today. As we look forward, we will present data and posters with lux and with APTO-253 at the EHA meeting on June 11. Separately, we will hold a corporate update event on June 11 to provide a broader view of the clinical data to date and to be available to answer questions. And finally, we continue to execute on our plan to develop first-in-class precision treatments for patients with hematologic malignancies as we continue to dose escalate with lux during the second half of 2021. We will have the opportunity to see more patients on higher levels of drug and over longer periods of time. The company is on track as our trials continue to see strong patient flow. We have been and will continue to execute on our goal to release clinical data at 2 major medical meetings throughout the year, EHA in June and ASH during December. We're poised to generate value-creating clinical updates in the coming year. And we thank our patients, their families and caregivers as well as our dedicated employees and shareholders. With that, I'll stop and thank you for listening today. And once again, we express our sincere gratitude to the patients, employees and our supportive shareholders. And we wish you a good day and a wonderful year ahead. Thank you.