Susan Pietropaolo - IR, SMP Communications William Rice - Chairman, President & CEO Gregory Chow - SVP & CFO.

John Newman - Canaccord Pete Stavropoulos - Rodman & Renshaw.

Operator:.

Good afternoon. My name is Christine and I’ll be your conference operator today. I would like to welcome everyone to the Aptose Biosciences Conference Call for the Second Quarter Ended June 30, 2017. [Operator Instructions] Thank you. As a reminder, this conference call is being recorded. I would now like to introduce Ms. Susan Pietropaolo.

Please go ahead..

Thank you, Christine. Good afternoon and welcome to the Aptose Biosciences conference call to discuss financial and operational results for the second quarter ended June 30, 2017. I am Susan Pietropaolo’s of SMP Communications, the Investor Relations representative for Aptose Biosciences. Joining me on the call today are Dr. William G.

Rice, Chairman, President and CEO; and Mr. Gregory Chow, Senior Vice President and Chief Financial 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 achievement 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, Susan. I’d like to welcome everyone to our call for the second quarter ended June 30, 2017. In our last conference call we established the groundwork for activity with both of our hematology products, CG’806 and APTO-253.

During the second quarter we continued executing on the repositioning plan that we had articulated during the first quarter of this year.

This included focusing our resource on advancing CG’806 and oral first-in-class pan-FLT3 and BTK multi-kinase inhibitor being developed for patient with FLT3 driven AML and patients with certain B-cell malignancies.

And in parallel making modest investments to bring APTO-253 after the clinic and gaining more profound understanding of its mechanism of action. On today’s call I’ll update you on both of these compounds and talk about some of the compelling research and development activities that are driving us forward. Mr.

Greg Chow our Chief Financial Officer then we'll discuss our financials and then we'll open the call for your questions. So first let's talk about CG’806 or 806 as I will refer to it.

As a reminder 806 is a small molecule first-in-class and FLT3 and BTK multi-kinase inhibitor that we believe can become an effective and well-differentiated treatment for patients with acute myeloid leukemia or AML and for certain -cell malignancies.

We've been conducting extensive research activities to characterize the ability of 806 to potently inhibit the wall type and all mutant forms of FLT3 and of BTK attributes well-differentiated from other molecules already commercialized and molecules in development.

To conduct such studies we established collaborations with groups at Anderson Cancer Center, Oregon Health & Science University, Ohio State University and University of California San Diego which are among the nation's leading research teams in hematology.

During the second quarter data for 806 were presented in two poster presentations at the 2017 AACR, Hematologic Malignancies held in Boston.

In a study conducted at the University of Texas, MD Anderson Cancer Center 806 demonstrated superior potency relative to competitive agents against AML cells driven by various mutant forms of FLT3 and achieved complete elimination of AML FLT3-ITD tumors in the absence of toxicity in a mirroring model.

A second poster highlighted studies conducted at Oregon Health & Science University under the auspices of the beat AML initiative. To demonstrate the ability 806 to potent kill primary malignant cells and samples from patients with various hematologic malignancies including AML, CLL and others.

The data presented were the first public disclosures for the differentiating properties of 806 and the posters can be viewed at the publications and presentations section of the Aptose website.

In addition now we’ve conducted extensive cell-based research on target interactions and range of action properties of 806 with various types of AML cells and various forms of B-cell malignancies.

Regarding AML, we found that picomolar to lower nanomolar concentrations of 806 kill AML cells that have wild type wild type FLT3 or wild type FLT3 with the ITD mutation or FLT3 with mutations in the RGD loop of the tyrosine kinase domain active site or in the gatekeeper region.

Moreover we determine that 806 kills the cells by acting on different kinases in different pathways depending on the status of FLT3 and AML cells.

We also found that 806 demonstrates a positive interaction for killing of AML cells when combined with solid toxic agents and with certain targeted agents in development, indicating that 806 plays well in the fan box with other agents and it may serve as a potential combination partner for many other drugs in order to create drug cocktails that boots the effective treatment of AML patients.

So these data support development of 806 for AML patients with FLT3 ITD as well as the wall type FLT3 and FLT3 harboring mutations in the tyrosine kinase domain and housekeeping domain. Likewise, we investigated the mechanism of action of B-cell malignancy cells.

The literature teaches that over expression of BTK is a key driver of survival and in those cancer cells. First, we comment 806 exerts unexpected potency of cell killing indeed 806 exerts an in vitro IC50 against various B-cell malignancy cell lines that is a thousand fold greater in potency than ibrutinib.

Secondly, we investigated the impact of 806 on the wall type and see 41 has forms of BTK as a reminder for Britain and other covalent BTK inhibitors on existing residue in the act decided BTK to inhibit the enzyme that the sitting residue at 41 position referred to as the C4 81 residue treatment of patients with such covalent inhibitors draws can result in drugresistance often called by mutation of the 50 at the see 41 residue to searing the coming see 41 and the cells of the [C401S] of BTK.

As a reminder are ibrutinib and other covalent inhibitors act on a cysteine residue in the active site of BTK to inhibit enzyme that the cysteine residue at the 41 position referred to as the C41 residue.

And treatment of patients with such conveying on inhibitor drugs can result in drug resistant often caused by mutation of cysteine at the C41 residue to a serine becoming C41S. and the cells with the C41S mutation the target for covalent inhibitors no longer exists and the cell becomes resistant to such as covalent inhibitors.

However CG’806 is non-covalent inhibitor and continues to inhibit the C41S mutant form of BTK just as well as it does wall type BTK.

Indeed we solved the crustal structures of 806 with wild type BTK and with the C41S mutant form of BTK and we determine that the presence or absence of cysteine 41 residue is irrelevant to 806 because the 41 residue is sufficiently distant in space but does not affect 806 that docked into the active site of BTK.

This suggests that 806 has the potential to overcome resistant to ibrutinib and other covalent inhibitors.

Taken together the research on B-cell malignancies revealed the ability of 806 to kill a broad range of cells indicating that 806 should be developed for patients harboring the C41S mutant form of BTK that are resistant to ibrutinib and other covalent BTK inhibitors as well as patients that are refractory or intolerant to ibrutinib and other covalent inhibitors.

Said more succinctly, we believe 806 can have application and B-cell malignancies well beyond merely the C41S population. All this research has yielded compelling results about 806 its mechanism of action, its differentiation from competitor agents and its potential roles for treatment of a broad range of AML patients and B-cell malignancy patients.

All of which we expect to discuss in more detail at the ASH Annual Conference that will be held in Atlanta this December. In fact we've along with our collaborators estimated five abstracts on CG’806 to ASH. Now regarding the development activities of 806, I want to remind you that we are developing 806 as an oral therapeutic.

Recently we’ve made significant strides in the manufacture and formulation of 806. You may recall that I mentioned on several occasions that we license 806 at an early stage and we were forced to create a chemical synthetic route that is scalable to manufacture kilogram quantities of 806.

Plus I mentioned that we had contracted with three different CMO's to optimize the very challenging chemistry required to synthesize this simple chemical structure and I’m delighted to report that we finally have solved the synthetic route and now scale the manufacture API.

Moreover, we are now manufacturing a batch of API which will be used for our planned dose range finding toxicology study. This is a major step forward for 806. Plus I had mentioned that we are performing a series of formulation studies to identify one or more formulations that can be taken to clinical trials.

Again I'm happy to report that we now have completed such studies and have identified a formulation that we plan to take to formal preclinical development and into first in human studies. This is another major step forward for 806. Regarding our clinical timelines Aptose expects to initiate the first clinical trial of 806 in 2018.

As we moved to the pre-IND studies and gain a more accurate estimation of the timing of events we will come back to you to provide greater granularity, regarding the exact timing of our IND in our Phase 1 trial with 806.

And I'll remind you that we plan to develop 806 as a therapeutic option for patients with AML that house different forms of FLT3 and for patients with B-cell malignancies that are resistant, refractory or intolerant to have given another covalent BTK inhibitors. And I truly look forward to providing those updates to you on 806 in the future.

Regarding intellectual property around 806 as we mentioned in our press release issued earlier today we received on August 4, 2017 a notice from the USPTO’s stating that our U.S. patent application is allowed for issuance as a patent.

The allowed application claims numerous compounds including the 806 compound pharmaceutical compositions comprising 806 compounds.

The methods of treating various diseases caused by abnormal or uncontrolled activation for protein kinase please note that the notice of allowance is not a grant of patent rights and although it is uncommon USPTO can withdraw the allowed application from issuance.

Again this is another major step forward for us and we will continue seeking to expand the IP state for 806. So all in all, we delivered a significant progress on 806 to build a strong foundation for its clinical development. So now let’s turn our attention to APTO-253 or 253 as I will refer to it.

253 remains an exciting and viable product candidate in the pipeline. You will recall that we had planned return to 253 to the clinic during the first quarter of this year for we experienced manufacturing step back at the end of 2016 that led to instability of the intended clinical supply.

Since then we have conducted preliminary root cause studies to identify the cause of the filled stability test from the drug product manufacturing campaign of late 2016 and we believe we have identified the primary reason for the setback. Formal root cause and corrective action studies are now underway and we hope to complete these shortly.

If successful and I emphasize if then we plan to manufacture a new clinical supply, based on stability testing and report the findings to the FDA. Presentation of the data to the FDA will not occur during this third quarter of 2017 but we are hopeful that the clinical hold can be removed in the near future.

So we can return 253 to clinic again we're hopeful but cannot provide guarantees at this point. Meanwhile we also continued research activities on 253 our research on the mechanism of action of 253 suggest it may have a broad anticancer application across hematologic malignancies in certain cell and tumor indications.

Although 253 was originally designed described as an inducer of the KLF4 gene we’ve determined that 253 works upstream of KLF4 and actually inhibits expression of the c-Myc oncogene which is widely known as a major driver of cancer cell proliferation.

In addition, we now have identified the intracellular form of the drug which acts as the active form of 253. And we determine the ability of the active form of 253 to engage a defined cellular target. This recently identified targeting agent can explain the effect on c-Myc as well as other mechanistic events that are caused by 253.

In fact this line of research also allowed us to identify a synthetic lethal interaction between 253 and a population of cancers with specific mutations. Finally, we evaluated 253 in hundreds of AML patient samples through collaboration with the beat AML initiative.

And these studies will determine the IC50 and we performed RNA seg gene expression analysis on each sample. These data suggest we may have identified a gene expression profile that may aid in the selection of the most sensitive patient's for clinical trials.

We along with our collaborators have submitted two abstracts on 253 for presentation at the upcoming ASH Annual Conference in December bringing our total number of submitted abstracts to seven.

These abstracts along with the two posters that were presented in May highlight the significant scientific research that we and our collaborations have conducted this year on both 806 and 253. We look forward to sharing that research with you at ASH. I'll now turn the call over to our Chief Financial Officer, Mr.

Greg Chow who will review the results of the quarter..

Thank you Bill and good afternoon everyone, just a quick reminder that our reporting currency is in Canadian dollars. At June 30, 2017 we had CAD$14.2 million or US$10.9 million in cash, cash equivalents and investments compared to CAD$12 million or US$9 million at March 31, 2017.

During the quarter, we utilized approximately 3.6 million of cash in our operating activities and raised net proceeds of 6.1 million through the company’s at the market program. We had no revenues during the quarter. Research and development expenses were 1.5 million for the quarter compared to 3.3 million for the quarter ended June 30, 2016.

This decrease is due to reduced expenditures related with APTO-253 the termination of the LALS/Moffitt collaboration and a one-time option fee payment to CrystalGenomics in the prior comparative quarter. General and administrative expenses for the quarter were 1.8 million versus 2.3 million for the quarter ended June 30, 2016.

This decrease was primarily due to lower salaries and a result of the company's cost containment initiatives resulting in lower travel consulting and rent costs. For the reasons mentioned above our net loss for the quarter decreased to $3.2 million or $0.15 per share compared to $5.6 million or $0.46 per share for the quarter ended June 30, 2016.

More detailed information can be found in our filings on EDGAR and SEDAR. I will now turn the call back over to Dr. Rice..

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

[Operator Instructions] Our first question comes from the line of John Newman from Canaccord. Your line is open..

I just had two this afternoon. The first one is on 806 Bill I wondered if you could discuss the BTK activity versus the FLT3 activity if you see those two as complementary if you see activity towards one target as perhaps more instrumental than the other in terms of the potential efficacy of the drug.

And then on 253 I just wondered if you could discuss whether ultimately the intention there could be to partner the program or if you're still potentially looking to continue that development in-house? Thanks..

First one it’s very interesting question so let’s talk about 806 and its activity against BTK versus FLT3. When you said complementary it’s actually an interesting situation because if you look across.

I think have mentioned we looked at all these different types of AML cell lines and patient samples, whether they have the FLT3 wall type, ITD, tyrosine kinase domain, housekeeping, mutation and across all of these you might think they are driven by FLT3 but they’re not.

So we’re going to be presenting some of these data at ASH, but what we see is that depending on the genetic background of the AML cells. They may be using FLT3 driven pathway, BTK driven pathways, Aurora driven pathways.

So what we’re able to do is look in all these different cell lines and were able to see which kinases are affected by 806 which pathways are affected and we see very different types of cell killing depending on the status of the FLT3. And ironically in a number of the AML cells you see that BTK contributes as part of the pathway.

The same is true for B-cell malignancies. So what we do as we look across all these different B-cell malignancy cell lines I think we looked at 12 to 15 at this point – whether they are driven by over expression of BTK. But the cell depth does not always correlate with inhibiting BTK.

So we see effects on hitting BTK, FLT3, walls a variety of other kinases and pathways across the B-cell malignancies.

A good example is when we look at B-cell malignancy cell lines if we compared to a ibrutinib, ibrutinib will knockout the BTK down around one nanomolar, but it does not kill the cells up until around 3 to 10 micromolar so 3,000 and 10,000 fold difference in the killings. So it’s not necessarily always related to BTK.

Whereas we’re able to kill the cells around 1 to 10 nanomolar so we might be 3000 to 6000 times more potent than an ibrutinib but because we inhibit the BTK wild type and C41S as well as those other kinases that are operative in the B-cell malignancy that you just don't hear about it.

So again a lot of those data are going to – hopefully will come out at ASH. So we see inhibiting FLT3 and BTK as well as a couple of the other oncogenic kinases as critical to the activity of this drug and the application to broad patient populations in AML B-cell malignancies. So that 806 if you have further questions on that one please come back.

In terms of 253 our primary focus at this point is to try to get that compound position to come back into the clinic.

We’ve made great strides quietly in terms of determining what was the root cause of the setback in the manufacturing and if all goes well we should be able to present our data to the FDA and manufacture new drug product and then move it back to the clinic.

It actually has increased in prominence to us, because that we've learned we now understand how the drug is working we know the molecular target we know the active form of the drug and then we even have this synthetic lethal. So it opens up entirely new populations of cancer patients to us.

So in the near future I have to assume we’ll be taking this on our own but as the data begin to emerge we clearly will look at partnering the opportunities into the future, because it's difficult for a small company to run two molecules simultaneously especially since 806 has such productivity for multiple indications.

Does that answer your question?.

And then just one additional question for Greg just on the financial side.

Greg can you talk about your cash runway given your current balance, but also whether or not there will be any flexibility there depending on for example clinic results for 806 if you could prioritize that program and perhaps push the cash one way or other a bit more by spending a little less on your other clinical activities? Thanks..

So right now with our current cash balance and with our current run rate we have cash out to Q3 of next year. We can certainly dial back some of the activities on some of the other things let’s say 253 continues to be delayed we can dial things back there. Our focus right now is 806 but we are starting to make a lot of progress on 253.

We still have capacity on the ATM program that we have in place about $4 million that additional $4 million at the current burn rate would get us to December of next year. So we do have some runway, we have some toggles internally where we can increase the cost containment efforts and definitely extend runway..

Your next question comes from the line of Joe Pantginis from Rodman & Renshaw. Your line is open..

This is Pete Stavropoulos calling on behalf of Joe Pantginis? I have one quick question about the manufacturing of 806 I was wondering if the company is still considering alternative wraps of synthesis for 806 or you guy sit on the current synthesis protocol?.

I’m sorry I really couldn’t hear what you said on what synthesis of 806?.

You said on the current synthesis protocol or do you have alternative protocols that you still considering?.

We have identified a synthetic route now that allows us to scale up – again that was a major step. So out of all the steps in the synthesis we had one particular step that was causing is difficulty for months, but we found a modification of that one particular step that increased the yield of that one step more than approximately 10 volt.

So now we do have a synthetic process that clearly allows for kilogram amounts of this drug to be made we’re moving forward, but any company as we go into the future we will continue in parallel to continue to develop the chemical synthesis pathway if we find something that's cheaper better more robust in the future we will get definitely go for that.

As long as the impurity profiles are consistent and doesn't set us back so we have the pathway, we feel confident we can manufacture the drug, but we’ll always seek to improve into the future that's true with synthesis and API as well as the formulation..

We have no further questions at this time. I’d like to turn the call over to Dr. Rice..

Well thank you everyone for joining us today. I’d like to thank our shareholders for your support, our employees and collaborators for the hard work and innovation and we look forward to speaking with all of you again.

Just as a reminder, we will be attending the Canaccord Genuity Conference in Boston later this week and additional conferences during the remainder of the year. For those attending such conferences we look forward to seeing you there. So operator, would you please conclude the conference call and thank you again..

This concludes today’s conference call. Thank you for your participation. You may now disconnect..