Aptose Shares Sell Off As The Market Wanted More Than Further Signs And Portents

Once again Aptose Biosciences (APTO) has exited a major medical meeting leaving investors hungry for more and punishing the stock as a result. The data that Aptose did provide at this year's American Society of Hematology meeting weren't bad, but they also didn't add much to the positive side of the scale, leaving investors still wondering whether the company's lead drug (CG-806) is truly an up-and-comer in AML and B-cell malignancies.

I believe there are some positives to draw from the data provided by Aptose, but significant questions and risks remain. Between expanded dosing at 750mg in B-cell malignancies (CLL in particular) and the AML program, Aptose should have more information to offer investors in the first half of 2021. In the meantime, though, the shares may well struggle to regain the momentum they had going into the ASH meeting, as I don't see any thesis-changing events prior to those 2021 presentations.

The Market Wanted Proof Of Efficacy And Didn't Get It

Aptose had previously told investors that there were no formal responses in the CG-806 studies at the cutoff point for the ASH abstracts, but management had left the door open that there could be enough progress between abstract submission and the presentation to discuss some formal responses. As it turned out, while there were some indications of efficacy, it would seem that the dosing levels used to this point haven't been sufficient to drive a meaningful clinical response.

There have been no formal responses in the CG-806 study so far, but management did briefly discuss three patients that experienced some tumor reduction. One follicular lymphoma patient who received the drug at 450mg and 600mg doses started seeing tumor reduction at week 13 and remains in the study. One patient with small lymphocytic lymphoma getting the 450mg dose saw a 10% reduction at/by week 8, but has since left the study. The third patient, a chronic lymphocytic lymphoma patient at the 600mg level, saw a 27% reduction at week 8, but left the study at week 16. At the time of discontinuation the tumor size was still below the baseline level.

Given that the CLL patient did not see a deepening response (the language there suggests to me there was progression from that trough of 27% reduction), that's certainly disappointing, as was the news that two of the three patients who showed some response left the study. Still, I would remind investors that the point of a Phase I dose escalation study is to figure out if there is a safe/tolerable dosing level that produces enough evidence of clinical efficacy to proceed to Phase II proof-of-concept testing.

I'm not disappointed by this update. Of course seeing strong efficacy data at this early stage would be a very positive thing, but the lack of proof of efficacy at this stage does not lead me to believe the drug is destined to fail. All that we really know is that the doses used so far aren't sufficient.

Safety Signals Are Likewise Not Definitive

Another potential contributor to the post-ASH sell-off (at least of this writing in the pre-market hours) was the news of some potential emergent safety signals. One patient receiving the 750mg dose reported a potential dose-limiting toxicity (hypertension), but this was a heavily pretreated patient who had previously received BTK inhibitors and it is unclear that CG-806 drove the issue. Two other patients dropped out due to adverse events, but those events are not believed to have been drug-related.

With the potential safety signal, Aptose will have to expand the 750mg cohort to six patients, and that's going to modestly extend the development timeline. On a more positive note, the 750mg dose level does appear to be producing a sustained steady-state plasma concentration of 2μm after one cycle, so we may finally be getting to a point where real efficacy can be seen.

Encouraging Early Hints In AML

I will again emphasize the "early" aspect of this, but Aptose did offer some interesting information on the new AML cohort in its CG-806 studies. The company has enrolled four patients at 450mg and one heavily pre-treated patient saw a reduction of peripheral blood blast count from 93% to 10% after the first cycle, though the blast count was rising again at the end of the cycle. As has been seen in the B-cell patients, 450mg is likely too low of a dose to produce a positive clinical outcome, but I would argue this still adds to the body of evidence that CG-806 does have some in-vivo activity against hematological malignancies. Whether that activity proves out to be sufficient to make CG-806 an approvable and commercially successful drug is of course still unknown, but it's still a positive takeaway.

The Outlook

Although Aptose did also present some information from the Phase I APTO-253 study, it wasn't really meaningful in terms of assessing the drug's prospects. The study has not yet seen dose-limiting toxicities and appears to reliably inhibit the myc oncogene, but I wouldn't call that a thesis-modifying update.

Given the need for an expanded 750mg dosing cohort, I'm modestly pushing out my timeline on CG-806 development, and that has a roughly $0.60/share negative impact on my fair value (down to a bit below $7/share). As the efficacy data were basically what I was expecting to see, I'm not changing my odds of clinical/commercial success (10%-15% for CG-806 across multiple indications), nor my addressable revenue opportunity estimate (a little under $4 billion).

The Bottom Line

I think all Aptose investors would have liked to have seen formal objective responses at the 600mg or lower doses, and I can understand the disappointment that is being reflected in the share price performance. Still, Aptose is well-funded for its near-term clinical needs and I expect to see stronger, more definitive clinical results at the 750mg level. This remains a very high-risk name, as is almost always the case with companies at this stage of clinical development, but I believe meaningful positive data in the first half of 2021 could more than make up for this near-term disappointment.

Disclosure: I am/we are long APTO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.