Susan Pietropaolo - Investor Relations William Rice - Chairman, President and Chief Executive Officer Gregory Chow - Senior Vice President and Chief Financial Officer

John Newman - Canaccord Genuity Pete Stavropoulos - H.C. Wainwright

Good afternoon. My name is Latif and I will be your conference operator today. I would like to welcome everyone to the Aptose Biosciences Conference Call for the Third Quarter Ended September 30, 2017. [Operator Instructions] Thank you. As a reminder, this conference call maybe recorded. I would like to introduce Ms. Susan Pietropaolo. Please go ahead.

Thank you, Latif. Good afternoon and welcome to the Aptose Biosciences conference call to discuss financial and operational results for the third quarter ended September 30, 2017. I am Susan Pietropaolo of SMP Communications 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 would like to welcome everyone to our call for the third quarter ended September 30, 2017. On today’s call, we will update you on the status of APTO-253 and CG’806, our products being developed for hematologic malignancies, both with highly differentiated mechanisms of action and both with exciting preclinical data and important upcoming milestones. With our compounds, we are addressing more than $1 billion market opportunity, but more importantly, we believe we are developing treatment options that fundamentally can change the lives of patient populations in need of new therapies. Following the updates on these products, our CFO, Mr. Greg Chow will review our quarterly financials and then we will open the call for your questions. We will begin today with APTO-253 or 253 as we call it. Many of you have been asking about this compound which initially we had put on clinical hold due to a formulation issue. We solved the formulation issue and then successfully manufactured multiple batches of non-GMP drug product with a revised formulation. To our great disappointment, we have then encountered a second setback during the manufacturer of the GMP batch led to a failed stability test and a failed clinical batch of drug product. Although these setbacks are painful, they were related to formulation and manufacturing activities and not due to safety concerns. Indeed, the preclinical and scientific data emerging with 253 justified continued development of the molecule. In our last quarterly call, we mentioned one, that we had completed our preliminary testing to determine the root cause of the failed stability test; two, that we had identified the primary reason for 253’s manufacturing setback; and three, we are in the midst of formal root cause and corrective action studies. I am happy to report that we now have successfully completed those formal root cause studies and we have established a Corrective and Preventive Action Plan, or CAPA. We are preparing for the manufacturer of the GMP batch of clinical supply for a planned return to the clinic. We have a designated site and CMO for manufacturing. We have established the appropriate analytical procedures and we have the GMP drug substance and [indiscernible] enzyme site. The next steps in the process are to manufacture, sterilize, bill and finish the drug product. As with any GMP batch for use in the clinic, upon manufacturer of the clinical supply, we will perform stability, sterility and marked infusion tests and in parallel perform animal bridging and blood compatibility studies. We plan to submit all of our findings and action plan regarding the clinical supply to the FDA to seek the release of clinical hold as soon as these activities are completed to our satisfaction. We fully expect the clinical supply can be manufactured with confidence and the program can be returned to the clinic around the end of Q1 2018, if all goes well, although that decision ultimately rests with the FDA. As a reminder, with 253, we do have an open Phase 1b trial in patients with acute myeloid leukemia referred to as AML or patients with my myelodysplastic syndrome, refer to as MDS. And we expect a dozen or more clinical sites to participate for both the dose escalation and expansion phases of the trial. While 253 has been on clinical hold, we, along with our research collaborators, have continued to study the molecule to elucidate its mechanism of action and uncover additional potential indications. As most of you know by now, 253 is a small molecule inhibitor of c-Myc oncogene expression that in preclinical studies demonstrated anti-tumor activity against xenograft models of solid tumors and hematologic cancers with AML cells exhibiting a particular sensitivity to 253. Because MIC is a key target in many malignancies, our research suggests that 253 may have a broad anticancer application across hematologic malignancies and certain solid tumor indications. In this regard, as we mentioned on the last quarterly call, our research team identified a synthetic lethal interaction between 253 and a population of solid tumor cancers with well-defined and clinically relevant mutations. We submitted these findings through abstracts at ASH, which will become publicly available on December 8, 2017 through the ASH website and to peer review journals for publication. And finally, remember that 253 does not cause myelosuppression to normal bone marrow, an important finding that we and our research partners have demonstrated in preclinical models, our GLP-tox studies and during a prior clinical trial in patients with advanced solid tumors. So, momentum and interest in 253 have been reenergized and it remains an exciting and viable product candidate in our pipeline. So, let’s turn now to CG’806 or 806 as we refer to it. As we have discussed, we have focused the bulk of our resources on 806 during 2017. 806 is an exciting oral first-in-class pan-FLT3 and pan-BTK multi-kinase inhibitor being developed for patients with FLT3 driven AML and certain B-cell malignancies. AML is of a devastating cancer of the blood and bone marrow and approximately a third of patients have mutation referred to as ITD in the FLT3 receptor tyrosine kinase. And the FLT3 ITD mutation is recognized as the key driver of disease in these patients. With the recent FDA approval of midostaurin for AML patients who expressed the FLT3-ITD mutation, there is palpable excitement around the development of other yet superior FLT3 inhibitors for AML. Indeed, there remains an unmet need in AML, because currently available FLT3 inhibitors can be rendered ineffective by additional non-ITD mutations that occurred in FLT3. The inability of other FLT3 inhibitors to suppress all of the mutant forms of FLT3 opens the door for 806, as 806 is the only known pan-FLT3 inhibitor for AML. 806 retains the potency against all forms of FLT3, including the most clinically relevant mutant forms in AML that rendered the disease resistant to other FLT3 inhibitors. Recently, the beta AML initiative tested 806 as well as numerous other FLT3 inhibitors against patient cells taken from the bone marrow of hundreds of AML patients. That third-party evaluation demonstrated that 806 was highly effective across a broad range of AML patients, not just the FLT3-ITD patients and 806 demonstrated superior activity among all the FLT3 inhibitors evaluated. Thus the low hanging fruit will be patients having the FLT3-ITD mutation, but we plan to develop 806 for the entire population of AML patients. Additionally, 806 eliminated AML tumors and the absence of toxicity and murine xenograft models performed at two separate third-party sites. Thus, we believe that 806 can become the best-in-class therapeutic for AML patients. Importantly, 806 also is a non-covalent BTK inhibitor. And as we mentioned on our last call, it kills various B-cell malignancy cell lines in vitro with approximately a thousand fold greater potency than ibrutinib. Of the non-covalent BTK inhibitor, 806 may overcome limitations of ibrutinib and other covalent BTK inhibitors, including resistance and certain toxicities and provided treatment option to patients especially those who have acquired resistance to ibrutinib. 806 inhibits BTK and disrupts multiple downstream oncogenic pathways and the B-cell cancer cells thereby allowing you to outcompete ibrutinib and other BTK inhibitors in potency against the B-cell cancer cells in preclinical studies. We often are asked how 806 can affect the FLT3 BTK and other oncogenic pathways and exert potent anti-tumor efficacy without causing extensive toxicity. Our recent x-ray crystallography studies have shown that 806 binds to kinases in an atypical binding mode and we believe this property may allow for inhibition of specific kinases without causing hERG or CYP450 inhibition or productive binding to other targets that are associated with toxicity. We will continue to investigate this question, but the atypical binding mode is our most likely reason for efficacy in the absence of toxicity. Now, for manufacturing. As a reminder, we licensed 806 from career-based CrystalGenomics at a very early stage which enabled us to obtain the asset early. The benefit is that we obtained 806 before other companies had an opportunity to evaluate it. However, it also meant that there was no synthetic route for scale-up manufacturing and there were no formal tox data. On our last conference call, we announced that we solved the synthetic route for scale-up manufacturer of the API. Today, we can announce that during October we manufactured a large batch of highly purified and well-characterized APIs sufficient to complete rodent PK studies and the dose-range finding studies. That API has now been used to complete our preclinical formulation in PK studies and these studies allowed us to select our best formulation and establish our animal species that will be used for formal toxicology studies. These are major steps forward for 806 and we now can move into our dose-range finding studies. With regard to IND enabling studies, we have triggered the process to manufacture multi-kilogram batches of GLP grade API for use in the formal IND enabling animal toxicology studies. And I began preparing starting materials for the GMP batch that will be used for clinical trials. We expect to a file an IND in the late summer of 2018 and initiate a clinical trial shortly thereafter. We have expanded a great deal of effort to address CMC formulation and safety matters prior to entering first in human trials. And we have advanced the scientific understanding of 806 such that we now have confidence to submit an IND to cover trials in both AML and B-cell malignancies specifically, CLL, chronic lymphocytic leukemia. We plan to initiate both trials simultaneously and build value of 806 as rapidly as possible. Now, just to note on intellectual property, we believe we have two very important compounds in our pipeline and we are very aggressive in building strong fences around their intellectual property estates. On September 12 following our receipt of the notice of allowance for issuance of the patent we announced the formal issuance of the U.S. patent for 806 covering numerous compounds pharmaceutical compositions and methods of use for treating various diseases. 806 has unique structural properties and is well differentiated from other molecules in development. The patent is expected to provide protection until the end of 2033. In addition, we continue to bolster our patent portfolio with additional provisional patent applications for new discoveries as they emerge. Regarding ASH on November 1, 2017, we announced that selective data of 806 will be presented in three poster presentations at the upcoming ASH annual meeting in December. These data will be presented by our partners at Oregon Health & Science University that is Brian Druker’s group and includes the Beat AML initiative and by our partners at MD Anderson Cancer Center. We and our collaborators look forward to share initial search with you at ASH as we present differentiating data on the ability of 806 to inhibit all forms of FLT3 and BTK as well as downstream oncogenic pathways resulting in the ability of 806 to kill a broad spectrum of AML and B-cell cancer cell lines and cells from patients with bone marrow samples from patient bone marrow samples as well as the ability of 806 to combine productively with a variety of other agents. For those of you interested in more information, the abstracts for those posters are now on the ASH website. The titles of the posters are in the press release on our website and linked directly to the abstracts. So as a final note, during 2018, we plan to have two active INDs, one for 253 and one for 806 and three active clinical trials, one for 253 and two with 806. And we are eager to make this happen. I now will turn the call over to our Chief Financial Officer, Mr. Greg Chow who will review results in the quarter.

Thank you, Bill and good afternoon everyone. First, let me address our recent announcement regarding our $15.5 million Common Shares Purchase Agreement with Aspire Capital, into which we entered into on October 30. This transaction provides Aptose with efficient and opportunistic access to capital to advance our preclinical and clinical milestones. It is important to note that Aptose is in full control of any sale, which is the issuance of common stock with no warrants at an agreed upon price and Aptose is under no obligation to draw down in the facility whatsoever. In addition, there are no limitations on use of proceeds, financial covenants or restrictions on future financings and there are no right to first refusal, participation rights, penalties or liquidated damages. We also have the ability to cancel this agreement at anytime without penalty. Now, on to the financials and a quick reminder that our reporting currency is in the Canadian dollars, we ended the quarter with CAD$13.6 million or $10.9 million in cash and cash equivalents and investments compared to CAD$14.2 million or US$10.9 million at June 30, 2017. During the quarter, we utilized approximately $2.7 million of cash in our operating activities compared with CAD$3.3 million during the 3 months ended September 30, 2016. Through the use of our ATM facility with Cowen, which has been the lowest cost of capital available to Aptose, we have extended our cash runway into Q4 2018. Moving on to the income statement, we had no revenues in three months ended September 30, 2017. Research and development expenses were CAD$1.7 million for the quarter compared to CAD$2.2 million for the three month ended September 30, 2016. Although cost associated with the 806 program increased, total R&D decreased due to lower spend on 253 and a cancellation of the LALS/Moffitt collaboration. General and administrative expenses for the quarter were CAD$1.7 million compared to CAD$1.9 million for the three months ended September 30, 2016. This decrease over the comparable quarter is mainly due to lower salaries due to reduced headcount and lower stock-based compensation. Finally, our net loss for the quarter was CAD$3.3 million or $0.14 per share compared to a loss of CAD$4 million or $0.31 per share in the three months ended September 30, 2016. I will now turn the call back over to Dr. Rice.

Thank you, Greg. I would like to open the call for questions. So operator, if you could please introduce the first question.

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

Thanks for taking the question. So Bill, I am curious hopefully 253 will be back in the clinic at the end of the first quarter in ’18 as you mentioned when you do put the drug back into the clinic, I am just curious as to where you will start in terms of the dosing if you will pickup where you left off before or if you will just sort of initiate a new dose range? Thanks.

Hi, John. Thanks for the question. So if you will recall, we had manufactured this drug product earlier. Even though it’s an IV formulation, we found 3x exposure levels of this formulation in the plasma relative to the prior formulation. So, this allows us to maintain much higher levels with lower doses of the drug. We assume this new manufactured batch is also going to have that 3x level of exposure relative to that original drug product. If that’s true, we most likely will start at the lowest level, which was 20 mgs per meter squared. That would be the equivalent of the third level when we started earlier. So, that is our assumption for now. Once we are able to manufacture this next batch this clinical supply, we will repeat those rat PK studies and determine if it truly is still the 3x exposure levels and then we will take that to the FDA and make that recommendation. If that is true, it actually allows us to dose escalate faster than when we had the 1x, even if we started at a higher dose. So, we think it positions us well. We hope to get back in those clinics soon and we are very happy with the progress that we have made. Hope that answers your question.

Yes. And is the plan at this point just to continue the work that’s focused on AML and MDS, I am just wondering if you plan on looking at any other tumor types at this point with 253 or if you are just going to say in those two?

Well, our immediate focus is in the AML MDS, because we already have that trial is open. We believe the drug will be active there and so we are going to drive it into that trial as quickly as possible. But as I mentioned, we have a lot of scientific studies ongoing behind the scenes. I have mentioned this, for instance, this one indication in which we have a synthetic lethal of 253 when we have very specific mutations that occur in certain tumor cells. And I have to be a little bit coy on it, because that’s going to be presented and released on December 8, but that’s in a solid tumor indication or multiple solid tumor indications. Those would be very large market opportunities. So, we are going to pursue that although if not – but those are very large trials we might do that in partnership with another company, but it really is a case where it’s a clear activity with a specific type of mutation that occurs in known solid tumors. The market there is known. Our drug does not cause bone marrow suppression and we believe there is a real path there. Also along the side that will also pursue activity to develop this potentially as an oral therapeutic into the future. So, those are our plans with 253.

Okay, great. Thanks.

Thanks John.

Thank you. Our next question comes from the line of [indiscernible] of ROTH. Your line is open.

Thank you. Hi, Bill. Hi, Greg. Thanks for taking the question and congrats on the progress with 253. So, both of my questions are about 806 and they are macro questions. So, the first one, midostaurin is a add-on to chemo and it’s starting to look right now out there that another viable combo for FLT3 agents is not just chemo, but other targeted agents. So, the FLT3 agents out there seem a little bit in their development, which gives you guys an advantage combined with agent right now earlier on in development. So I guess considering that I was going to ask are there synergies that you have seen between your agents and other targeted agents that are striking or maybe just fueling from a strategic standpoint? And then I have a follow-up.

So, you are right, midostaurin was approved, but in combination with other agents with chemo the low-dose cytarabine other FLT3 inhibitors coming along, they are going to be somewhat restricted to the available drug. So, it’s a great pickup on you. So, other molecules coming along, so some of this is going to be presented at ASH and it’s now available in the abstracts that are going to be presented, for instance Bcl-2 inhibitor, Mcl-1 inhibitor, cytarabine, daunorubicin. Also, data will be presented on brimonidine inhibitors. So, all we have seen is very nice combination activity with these other types of molecules and some of them are very impressive. I am careful to say synergy. So, we combined well. We see enhanced activity. But many of these studies were actually performed in bone marrow samples from AML patients and you are unable to get sufficient numbers of replicates to really get a combination index number from those. So, I am reluctant to say synergy, but I can say we saw really impressive enhanced activity when you combine it say the Bcl-2 inhibitors out there and I am not going to use all the names, Mcl-1 again cytarabine, daunorubicin, idarubicin and the brimonidine inhibitors. So, those are the ones that we have done so far. So, yes, as those come online – and some of those are already available, cytarabine and daunorubicin, that’s the backbone currently that’s available out there and we know we are synergistic with those. We have done those with cell lines. And then the other ones also as they come along. What’s your second question? Thanks, Jyoti for the first one, what’s your second question?

Thank you. And the second question is about the two different arms of the activity of the biology, FLT3 and BTK among others perhaps, taking it towards the myeloid and the then the lymphoid directions clinically. So as you move to the clinic, I assume a Phase 1 is a Phase 1, there is not much you can do with it, but as you move forward towards expansion cohorts or Phase 2 and I understand that some of this extrapolation. Are there events in the next year in the FLT3 and BTK fields that could – that you would be on the watch for that could skew that positioning one way or the other purely from a strategic standpoint all else equal in terms of efficacy?

Yes, it’s a complex question. So, because we inhibit FLT3 and we inhibit all of the mutant forms of FLT3, we are definitely going after AML, but I am not going restrict it to the FLT3-ITD AML patients, because we have seen very potent activity across a range of patient samples as well as AML cell lines. I think some of the data are going to come out at ASH and it really is impressive how broad activity we have in AML. So even if there are competitors coming along that are FLT3 inhibitors, we think we should be able to outcompete them, because we are more than a FLT3 inhibitor and we have the broader activity. So, I think that will open up. So, from the AML standpoint, right now, we are going into the dose escalation in all-comers AML, that’s our resistant refractory patients in AML, but they don’t have to be FLT3-ITD patients. So, we will go after all the patients. But if we see terrific data in particular in the FLT3-ITD population, we would plan to move that into the expansion phase, but if we see something different. For instance, we have the population out there and you are well aware of this population that they just can’t handle the standard of care cytarabine, daunorubicin. So, those are fragile patients that cannot handle the other drugs. If ours truly does demonstrate the safety profile that we believe it will, it would be great drugs taken to that population, because we believe it can be effective, combine well with the other drugs and minimize the toxicity to their patient population. Now, for the B-cell malignancies, again, we inhibit BTK very potently as well as the C41S, the mutant form of BTK, but I do not want to just restrict this drug as a BTK inhibitor for B-cell malignancies, because we see some of the downstream pathways that are turned off. ERK is a very important pathway, especially in the bone marrow of patients that if you maintain the level of the ERK pathway, you tend to get more drug resistance. The patients do not respond as well. So, we would look to go after a variety of patients, CLL patients, those that have BTK wild-type and mutant forms in CLL and ultimately we would want to look at some of the other B-cell malignancies also. It’s just that we don’t have the bandwidth to do all of those at this point. So initially, we want to go into relapsed refractory CLL patients, take a look at the data, their profile of data that emerged from there in the safety profile and then focus afterwards. But it would also be interesting to see if the other compounds that maybe ahead of us that are BTK inhibitors these are also non-covalent BTK inhibitors. If they are showing activity in those and they focus exclusively on those, then that really opens the window for us to go after all of the patients other than the C41S mutants. So, just couple of our thoughts, but there is – I am sure we will learn a lot going forward. I also want to mention one other thing you may have seen that there is a deal really announced recently around a TRK inhibitor, TRK. We haven’t really talked about it yet much, because many people are not that familiar with the TRK kinase, but we are also a potent inhibitor there and that also opens up other lines of therapy for us. It’s a longwinded answer, but hopefully that will give you a perspective of how we view it.

Great. Thank you. See you at ASH.

See you then.

Thank you. [Operator Instructions] Our next question comes from the line of Joe Pantginis of H.C. Wainwright. Your line is open.

Hi, this is Pete Stavropoulos filling in for Joe.

Hi, Pete.

Congratulations on the progress you made this quarter. Hi, how are you doing? So, I have a couple of quick questions. ASH seems like an important upcoming form to further solidify the preclinical profile of 806. With that said, how long do you expect the animal tox studies to take?

I mean this is the – I don’t want to say it’s good, but there are certain levels of studies that have to be performed before you go to the IND. It typically takes 5 to 7 months depending on the data. What we are going to do is 28-day dosing so that we can have continuous dosing in patients. You have to do the in life portion, then you typically have wanted to a follow-up. Again, all of that’s the in-life. You then have to collect all the samples, perform clinpath, histopath and it’s the clinpath studies that take the longest time. We don’t expect any problems to emerge, but it just takes time. So, we hope that we can do it on the shorter timeframe in there, but you just never know. I can’t tell you that it’s going to be 5 months, it can be anywhere 5 to 7 months typically for those studies to get the reports, but in parallel we will be writing up everything for the IND. We already have the clinical protocols written in the patient populations you are going after. So while we have been, I don’t want to say, spinning our wheels, but we have been waiting for the API to be generated and it took more time than we expected. It allow us to do many of these other studies on the site and hopefully move things forward quickly in parallel, but those are the IND enabling studies, they have to be done properly and it just takes time.

Alright, thanks. And targeting an IND with a broad initial coverage for AML and B-cell malignancies?

Well, yes, we would undergo a single IND, but have two separate trials, one in AML and one in CLL, because of different entry as well as exclusion criteria. AML patients tend to be very sick and so you just have to be careful there. You never know if the safety people would be the different in AML versus other patients, so yes, a single IND with heme malignancies, but two separate trials, one in AML and one in CLL.

Alright, thank you very much.

Thank you.

And I am currently showing no further questions. I will now turn the call back over to Dr. Rice for closing remarks.

Alright. Well, I would like to thank everyone today for joining us with potentially two compounds taken to the clinic next year and the plan to perform three separate clinical trials as we just spoke about, we believe Aptose is positioned well to create shareholder value throughout 2018 and beyond. We are pleased with the new level of interest we are seeing from the Street recently and we hope to continue to expand our visibility. We thank our stockholders for your support and our employees and collaborators for their hard work and innovation. As I have mentioned before, we greatly benefit from working with some of the greatest minds in the hematologic space. We look forward to communicating with you on the progress of our business. And operator, I would allow you to conclude the conference call and we thank everyone and have a great evening.

Thank you, ladies and gentlemen. That concludes today’s conference. You may all disconnect and have a wonderful day.