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

Greetings, and welcome to the Aptose Biosciences Corporate Update Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, November 4, 2021. I would now like to turn the conference over to Susan Pietropaolo. Please go ahead.

Thank you, Jason. Good afternoon, and welcome to the Aptose Biosciences conference call. Joining me on today's call are Dr. William G. Rice, Chairman, President and CEO; Dr. Joti Marango, Senior Vice President, Chief Financial Officer and Chief Business Officer; and Dr. Rafael Bejar, Senior Vice President, Chief Medical Officer. Before we proceed, I would like to remind everyone that certain statements made during this call will include forward-looking statements within the meaning of U.S. and Canadian securities laws. Forward-looking statements reflect Aptose's current expectations regarding future events, but are not guarantees of performance, and it is possible that actual results and performance could differ materially from these 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 10-K 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, Susan. Good morning, all, and thank you for attending our conference call. I know it's a very busy day. The purpose of today's call is to introduce you to the newest member of Aptose's pipeline of agents being developed for the treatment of hematologic malignancies. As you're aware, Aptose is a hematology-focused company with an established expertise in kinase inhibitors. Heme malignancies are extraordinarily heterogeneous and will require a diversity of agents to treat the diverse nature of these diseases. Our vision is to build a pipeline of oral kinase inhibitors that can cover the entire lymphoid and myeloid heme malignancy space, and our mandate is to identify undiscovered or underappreciated molecules and to acquire those molecules for our pipeline. Our commitment to kinase inhibitors is demonstrated by our Scientific Advisory Board, with members who developed important kinase inhibitors like Gleevec, sorafenib and others, as well as the recruitment of Dr. Rafael Bejar as our Chief Medical Officer, a recognized KOL in the development of myeloid therapies and in the treatment of patients with heme malignancies. A few years ago, we uncovered and licensed a distinctive kinase inhibitor known as luxeptinib or just lux, as we call it. When it was early in development, lux, first known as CG-806, was designed by CrystalGenomics of South Korea to noncovalently target a unique constellation of the lymphoid kinases and the myeloid kinases, operative broadly in the heme malignancies, enabling lux to be developed across a spectrum of lymphoid and myeloid malignancies. CrystalGenomics is a terrific partner, and lux is currently in 2 separate and ongoing Phase I dose-escalation trials for the treatment of a broad range of lymphoid cancers and for myeloid cancers. To be clear, we remain excited about lux because it has the potential to become a best-in-class kinase inhibitor for the broad treatment of lymphoid and myeloid cancers. But we also must look to the future and continue to build our company and our pipeline. Since inception, Aptose strategically has built its expertise in the hematology space. Now we are continuing on our mission by expanding our team and staying focused to identify and license and develop agents targeting distinct clusters of kinases to treat different populations of patients with heme malignancies. As I mentioned earlier, heme cancers exhibit extraordinary heterogeneity among patients and even within a single patient. An effective treatment of these patients will demand a panel of kinase inhibitors that target constellations of kinases, which will allow us to treat many different subpopulations of patients. So we sought to acquire an additional kinase inhibitor that targets a constellation of kinases with both overlap and distinctions from lux and that had already been validated clinically with confirmed responses. Our painstaking search led us to HM43239, or just 239, as we will refer to it, a myeloid kinome inhibitor discovered by Hanmi Pharmaceutical, Co. and currently in early clinical development. We're delighted to announce that, today, we have entered into an exclusive global license agreement with Hanmi for 239. We believe 239 is a unique agent designed to selectively target key parts of the myeloid kinome that drive malignancy. Importantly, 239's impressive preclinical data have already translated to strong clinical results. And now I will ask Dr. Bejar, our Chief Medical Officer, to describe 239 to you. Raf?

Thank you, Bill. HM43239 demonstrated a strong preclinical profile. In kinome scanning studies, 239 is found to target a distinct compendium of myeloid kinases, including the SYK kinase, the wild-type and mutant forms of FLT3 kinase, the mutant forms but not the wild-type forms of the KIT kinase and certain other relevant kinases. Consistent with the kinase-targeting profile, 239 potently killed AML cells, with a broad array of mutations in FLT3 and other drivers of myeloid malignancies. In animal models with human AML cells housing the D835Y tyrosine kinase domain mutation or the F691L gatekeeper mutation, 239 was superior to gilteritinib as a single agent and when combined with the BCL-2 inhibitor, venetoclax, or with the hypomethylating agent, azacitidine. The strong preclinical data of 239 now have translated into strong clinically validated anti-leukemic activity in a diverse array of AML patients, delivering multiple complete responses or CRs early in a Phase I trial, thus far, and with no dose-limiting toxicities reported to date. The CRs occurred in AML patients with the FLT3-ITD mutation, patients with the FLT3-TKD mutation and in patients with the wild-type form of FLT3. The AML in these patients housed additional mutations in genes such as p53, RAS, NPM1, IDH1 and 2, DNMT3A, RUNX1 and other genes. Clearly, 239 has shown broad activity across major AML genotypes, representing a genotype-agnostic agent. We plan to continue this dose-escalation trial of 239. And based on the strong signals already seen to date as well as new lessons from later cohorts, we plan then to move aggressively towards registration-directed development. I would be remiss if I fail to mention that, today, we also announced a growing list of our study abstracts accepted for presentation at the Annual Meeting of the American Society of Hematology. Among them, you will see an abstract on 239, which has been accepted for an oral presentation at ASH and contains a summary of the strong clinical performance of 239, up to the abstract data cutoff date this last June, in the ongoing dose-escalation study in AML. We look forward to updating you at ASH on this program as well as on all of our other ongoing clinical programs. I'll now ask Dr. Marango to speak about the licensing transaction for 239. Joti?

Thank you, Raf, and good morning, everyone. Let's now turn to a more detailed view of the transaction. As you know, today, we announced an exclusive global license agreement with Hanmi Pharmaceutical for its compound named HM43239. In consideration of the license, Aptose will make an upfront payment to Hanmi in the amount of $12.5 million, including $5 million in cash and $7.5 million in Aptose common shares. In addition, Aptose will make certain future development, regulatory and commercial-based milestone payments totaling up to $407.5 million. More specifically, Hanmi will receive future clinical development and global regulatory milestones totaling up to $64.5 million for the first clinical indication of 239, up to $34 million for the second indication and up to $29 million for the third indication. Hanmi will receive future tiered global sales-based milestones totaling up to $280 million as well as tiered royalties on net sales ranging from high single digits to mid-double digits. Beyond the economics of the transaction, I would like to conclude with a message about our new partnership. Our entire team at Aptose is very grateful to our new colleagues and collaborators across the many different departments at Hanmi Pharmaceutical, who discovered and began the development of such a unique agent like 239. We look forward to strengthening our partnership with Hanmi, and we look forward to accelerating the development of 239 towards an NDA, diligently and quickly, to bring this unique molecule to all leukemia patients. I will now turn the call back over to Dr. Rice. Bill?

Thank you, Joti. We fully believe 239 can complement and strengthen Aptose's ability to treat a wider spectrum of myeloid cancer patients. As you will recall, lux targets both myeloid and lymphoid kinases. And while still undergoing dose escalation, lux has shown anti-tumor activity in both branches of the heme malignancies. There exists a true medical need for lux and for other kinase inhibitors because no single kinase inhibitor can target all of the kinases operative in the spectrum of AML without also affecting kinases that generate unacceptable toxicities. For this reason, there remains a need for additional myeloid kinase inhibitors that act on different constellations of kinases and kinase-driven pathways, while still avoiding the safety targets. Consequently, we acquired 239 because of the need to treat the heterogeneous disease of AML, not just treat one particular kinase, because of the desire to expand Aptose's ability to treat a wider spectrum of AML patients and because of the clinical responses and safety profile of 239 in the clinic to date. Lastly, we believe that both 239 and lux are superior assets that enable us to strengthen our ownership of the therapeutic space across the myeloid and lymphoid malignancies. We're thrilled to have executed and announced this transaction today that moves the company to the next level as the leader in the field of kinase inhibitors. And we look forward to telling you more about our pipeline programs and their path ahead as we approach the end of the year. Now let's open the floor to questions, and please feel free to pose a question to any of us today. Operator, if you could, please introduce the first question.

[Operator Instructions] And our first question comes from the line of Gregory Renza with RBC Capital Markets.

Congratulations on the deal this morning. Bill, I think the natural question here is, just to ask you to expand a little bit on the rationale for acquiring another asset in this space, how do you envision positioning 239 with respect to lux and your current pipeline? And then just beyond that, how would you think about expanding 239 potentially beyond even AML? And then I think, lastly, just to wrap that, how the prioritization of your resources and your clinical attention would be applied across lux as well as now 239?

Thanks, Greg. Wow, a number of questions there. So let's start out with the first question about the natural question of positioning. So we have explained lux for some time now, and it hits a -- we've talked about a constellation of kinases that are hit by lux, and it's being developed for lymphoid and myeloid. But as I said, no kinase inhibitor can affect all of the kinases that are employed across AML. It's just such a diverse disease. Just like there's -- if you want to put it in -- some drugs in the buckets of FLT3 inhibitors, there's midostaurin, there's gilteritinib, there's quizartinib, and none of those completely cover the space. And so while we fully believe in lux, we also want to make sure that we cover additional kinases and constellations of kinases so that we can hit a broader panel of the AML patients. So we see this as not as a substitution. It is not. This is an addition of a molecule to our pipeline that allows us to hit additional patients within the AML realm. So you also asked about what is the potential beyond AML? Well, at this time, the drug is clearly focused in the AML realm. It has shown activity there in the Phase I clinical trial, and we're continuing to then dose-escalate so that we can fully understand what is the appropriate dose as well as appropriate patient populations so that we can then move in toward those registrational studies. But in terms of additional paths to pursue, that's also driven by the targets that are hit. A good example here is a certain KIT kinase, some of the mutant KITs that Dr. Bejar had mentioned. That could take us into a different therapeutic area. But at this time, let me just say we're absolutely focused on the AML patients to try to get as broad activity as we can there, both with 239 and with lux. And in terms of resources, Joti can address this more directly. But we did have -- at the end of June, we had over $103 million in cash, and that positions us into the first part of 2023. And we feel as though we're in good position now to develop these agents as appropriate. Joti, did you want to add to that?

Yes. Thank you for the question, Greg. And Bill summed it up quite nicely. We ended the second quarter with just a little over $103 million. And we had shared that, that takes us to the first part of 2023. Today's transaction has an upfront that only includes $5 million in cash. The rest of the upfront amount is in actual shares. And we will refresh our financials when we report the third quarter on November 11, which is 1 week from today, Greg.

Great. Maybe just one last question for me, Bill. How would you characterize the competition for such assets? We know you and others have been surveying the landscape for quite some time. But I just wanted to get your thoughts on the competitiveness of such processes and bringing in such an asset.

Okay. Thanks again, Greg. It is extraordinarily competitive to find an asset that is well-tolerated and has shown true responses in the clinic. That's what we're all looking for. We were able to find this molecule relatively early. We've been watching it for about -- over 1.5 years, from its very early days when it entered the clinic. And by the way, it entered the AML patient population about a year ahead of lux. But we've been watching it for some time. And we've been looking at the data at meetings, speaking, learning about it. And we wanted to make sure that we triggered this transaction before it gets out there necessarily so that everyone knows about it. And so we -- it is very competitive to get any compound like this. But we aggressively went after this compound, tried to get the information as quickly as we could. And so we've been very fortunate to be able to bring this in, and the Hanmi group had been wonderful to work with. And so that's where we are now. Joti, did you want to add anything there to the process?

Yes. Thank you, Bill, and thank you again, Greg. I echo Bill's feelings about the asset. We believe that it is a very unique inhibitor, Greg, which is very -- would be positioned extremely well competitively. Now as we've discussed today, but also in prior calls, Aptose has a fairly deep domain expertise in kinase inhibitors. And that starts with our Scientific Advisory Board, and it extends to our current employees, to Dr. Rafael Bejar, and so on. And what we have learned is that no one inhibitor can cover or treat a disease. But even more so, what we have learned is that you do need to hit multiple targets. And so that's something that we saw in this inhibitor. While many of the programs that we observe out there and that we follow, just as you follow, do pursue, hit, cover only one target electively. We believe that, actually, the way to go in order to treat the disease is a different one. We need to cover multiple targets. And so following that philosophy, as lesson from our experience in this field, that led us to this asset. And that is why we believe that it is competitively superior. And we believe that the clinical experience will eventually continue to show that.

Yes. Thank you, Joti. And it's really that holistic view of understanding all the properties and the constellation of kinases hit by any particular molecule, and understanding then which subpopulations that they can go after and then getting complementary molecules that can add additional patients. Okay? Thank you, Greg.

And our next question comes from the line of Ted Tenthoff with Piper Sandler.

Congratulations on this transaction. I love how opportunistic you're being and diligent in finding new assets. And I wanted to ask about the potential for combination of -- within your own pipeline. And maybe you can comment on that, and I appreciate it.

Ted, thanks for the question, and thanks for the compliment there in terms of diligently going after the molecules. You raised an interesting question that clearly is on our mind and is on everyone else's mind. I can't speak to the ability of combining those molecules today, but one could envision that, that's a possibility. Especially as each of them is able to hit both an overlapping and distinct clusters then of kinases without hitting on all the safety targets, you could envision that's a possibility into the future. I can tell you, we will evaluate that, both in vitro and possibly in animal models. And we may be able to talk to you about that in the future. That would be great if that's the case. It's not our expectation. We didn't bring it in for that reason. We brought it in because it stands on its own, as does lux, but we will -- we'll follow that thread and learn what we can. Did you have any other questions, Ted?

No. Very helpful.

All right. Thank you.

And our next question comes from the line of Alethia Young with Cantor Fitzgerald.

This is Emily on for Alethia. Congrats on the deal. I guess, I'm just curious on if there are any other myeloid kinome inhibitors in development that you're aware of? And have any of those shown data? And maybe just talk about your next steps for development here.

In terms of other kinome inhibitors, well, there are a number of companies developing kinase inhibitors targeting AML, whether -- and very often, they talk about being in buckets. You'll hear IRAK4. You'll hear SYK inhibitors. So even though they may be called that, they actually hit themselves a constellation of kinases. And so those molecules are out there. Our molecules are out there. There are also already existing molecules. So as I said, midostaurin as well as gilteritinib. It will take the panoply of many different molecules to be able to cover the diversity of AML patients. So yes, that gives you a sense of various other kinome-targeting agents. And then I'll ask Dr. Bejar possibly to add to that.

Yes, Bill, I think you did a nice job covering some other examples of molecules that are out there. And each of them do have a distinct activity in different patient populations, in some cases, and they have their different toxicities. And I think that, that is what makes room for a lot of these different agents in the market, that no one patient is going to be served by any one drug. I think these combinations, these different drugs available out there are going to allow us to better target those individual patients that need a particular product. But there are many others out there. So this is not unprecedented, by any means, but I think provide a unique opportunity for us.

Yes. Okay. Thank you, Emily.

And our next question comes from the line of Joe Pantginis with H.C. Wainwright.

Thanks for all the details and relevant points. So with that said, I guess, I'm going to approach it a little differently about the profile of the drug. Obviously, for years now, you've been putting out those nice pictures of the kinome trees and the intensity that you're hitting the different kinases on those different branches. So I guess, for 239, I would ask the following. What are you not hitting that appears to be giving it its differentiated profile? And then also, can you discuss what the preclinical talks was at very high levels, if any?

Joe, thanks for calling in. In terms of the kinome, the entire list of kinases hit by 239 has not yet been publicly announced. There have been kinome trees that have been shown. And clearly, they demonstrated that it inhibited the FLT3, SYK, some of the KIT and certain other kinases. There is some overlap there with lux and with other molecules. But -- for instance, lux goes into the BTK in the lymphoid area. And so there always will be distinctions among these compounds. Going into the future, we'll provide additional information as to all the different kinases that we believe are hit and are operative and into other therapeutic areas that it could take us. But for now, the amount -- the information has already been released. It's in the abstract that was released today about the kinases that are hit for now. And so -- did Dr. Bejar want to add anything to that, about the kinome hit?

I think you're absolutely right about that, Bill. I would add that, to address a little bit of the second question about preclinical talks data, we now have clinical data to rely on, which I think is extremely helpful as it really gives a better picture. And a lot of that will be detailed in the ASH presentation, that abstract that was released today.

Good point. Thank you for following up on this. Okay. Thank you, Joe.

[Operator Instructions] Our next question comes from the line of Matt Biegler with Oppenheimer.

Let me add my congratulations on -- as well on what looks like a really exciting asset. Looking forward to seeing at ASH that oral presentation. A lot of good questions so far. I want to kind of maybe ask like a flip side of the equation. Given its activity on c-KIT, is there a potential for development outside heme malignancies? I think we've seen c-KIT inhibitors being effective in indications like gastric and melanoma. Just curious of your thoughts there.

So yes, we're -- we will keep an eye on this. We will evaluate it. So what was interesting is Dr. Bejar mentioned that it potently inhibited the mutant forms of KIT, but not the wild-type form, which was somewhat of a surprise when we saw the data, and it was confirmed. So that places in a situation where it could be possibly used for certain other indications without having the KIT-associated toxicities that can occur, the myelosuppression, by hitting the wild-type KIT. So we are hopeful that we could take it into additional indications. That's for the future. But at least, for now, we think -- we believe we have a real asset in AML patients. We're going to drive that forward as fast as we can toward the market. And then along the way, if these other indications bear fruit, we'll pursue them.

Got it. And why do you think the transaction made sense for Hanmi to part ways with it, given that some of it is early activity? I mean did they just -- is it a relationship that's been building over for some time?

That's a huge part of it is the relationship. And so they can see that we are focused on kinase inhibitors. We have a team that's been built around that. They also saw that we were very transparent in terms of talking about kinases that are hit, understand the constellation, understanding that you must hit multiple kinases, not just -- in order to treat the disease, not just to hit a single target. I think they saw in us the ability to rapidly develop a molecule that they were very proud of. And so now we've developed a partnership, and it really is relationship building over time. We give Joti a tremendous amount of compliments here and for bringing this to us and bringing it together. Joti, did you want to add anything else on it?

Thank you, Bill, and thank you, Matt, for the question. I really can go back to some of the comments that Dr. Kwon, CEO of Hanmi Pharmaceutical, made and that you read in our press release, which is that they have high conviction in this molecule. And also, they have high conviction in Aptose's ability to deliver. They do believe that we are very qualified in this specific field of hematologic malignancies and kinase inhibitors, and that we will be able to advance this agent quickly and smartly. Thank you, Matt.

And we have no further questions over the phone lines at this time.

All right then. What I want to do is thank everyone for joining us this morning. I know it's a very busy morning with all the abstracts coming out. Just want to highlight the fact that we're excited about our partnership with Hanmi Pharmaceutical Company and the potential of 239. We look forward to keeping you all apprised of our progress. And as a reminder, we will be holding our earnings call next week. And I want to thank you, and everyone, have a wonderful day. Bye-bye.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.