Right off the bat, Aptose Biosciences (NASDAQ:APTO) triggers a few warning signals. The company has been around a long time (since 1986), has had two name changes, and really hasn't accomplished much of anything. Now this biotech is targeting one of the more under-served areas of oncology and one that has seen many flame-outs (most recently Cyclacel (NASDAQ:CYCC). Coupled with a sub-$100 million market cap and a recent reverse stock split, a lot of the "beware of" biotech boxes are already checked.
One of the most dangerous phrases in investing is "it's different this time", but perhaps in the case of Aptose that is true. This company cleaned house a while back and brought in credible new senior management, naming the founder of Achillion (NASDAQ:ACHN) as its new CEO. The company also raised money and listed itself on the NASDAQ. Most importantly, though, the company has a drug in its pipeline that at least appears to have a credible mechanism of action in treating acute myeloid leukemia - a relatively common type of leukemia, but one that often has poor expected survival outcomes.
A Credible Shot On Goal
Unlike cancer types like breast cancer and prostate cancer, acute myeloid leukemia (or AML) has not seen much in the way of progress in treatment. The standard of care remains a regimen called "7+3", or seven consecutive days of continuous intravenous cytarabine followed by three days of anthracycline. While this regimen can produce remission in around 50% to 75% of patients who receive it as front-line therapy, relapse rates are high and elderly patients (who make up more than half of new diagnoses) often cannot tolerate the 7+3 regimen.
One of the main challenges with AML is that it is a very heterogeneous disease at the genetic/molecular level. That not only makes it more difficult to create a "one size fits all" treatment, but it also results in significant variation in survival - one study showed that patients with "favorable" cytogenetic profiles (approximately 20% of AML patients in the study) have a roughly 60% five-year survival rate, while those with adverse risk profiles (around 20% to 25% of patients) have a five-year survival rate of less than 10% and many die within two years of diagnosis.
What Aptose hopes to bring to the party is APTO-253 - a drug that targets CDX2 and KLF4 regulation and expression. Within the last ten years, scientists discovered that CDX2 is expressed in 90% of AML cells; CDX2 is a homeobox gene that is only supposed to be active at the embryonic stage. CDX2 is also known to down-regulate KLF4, a member of a family of transcription factors known to control the cell cycle (KLF6, for instance, appears to play a role in suppressing prostate cancer).
At the risk of oversimplification, a very large percentage of AML cells express CDX2, which is known to essentially shut down KLF4 - a transcription factor that suppresses AML. What APTO-253 does, then, is induce more KLF4 expression and, theoretically, the death of AML cells. More than 200 journal articles have been published on the role of the KLF family in cancer since 2011, making it at the very least a credible avenue to explore.
APTO-253 So Far
Aptose is still at a very early stage with the development of APTO-253, so there isn't a lot of clinical data. A small Phase I study in solid tumors showed an encouraging response rate (41%), even though the dosing was later determined to be sub-optimal. In vitro AML cell lines have shown far greater sensitivity to APTO-253 (10x-1,000x) and so Aptose has elected to prioritize hematological cancers as its development target. Preclinical testing of APTO-253 has also suggested potential synergy with several of the chemo agents currently used to treat AML - raising the possibility of combo therapy.
I would also note that the early testing of APTO-253 showed strong safety data. It was a small study (just 27 patients) and the dosing was sub-optimal, but there were no Grade 4 or Grade 5 adverse events. That suggests (to me, at least) a very attractive safety/tolerability profile and may mean that elderly AML patients, who are often ruled out of 7+3 chemo because of toxicity worries, could benefit from this drug.
Aptose is moving into Phase Ib testing of APTO-253 in hematological cancers (AML and high-risk MDS), but will also have a study arm exploring APTO-253 in lymphomas and multiple myelomas. Data could be available in the first half of 2015, with Phase II and Phase III testing possible in 2015/2016 and 2017/2018, respectively. It is also at least plausible that if the early clinical results are compelling enough, the company's development timeline could be accelerated. Aptose will also be looking to develop, or partner in the development, of a companion diagnostic to screen patients based upon their CDX2/KLF4 status.
The Market Opportunity
According to sources including the National Cancer Institute's SEER database, there are approximately 16,000 to 19,000 new cases of AML in the U.S. each year, with around 45% of new cases in patients younger than 55 years old. Incidence rates in Western Europe are basically similar. With 90% of AML cells reportedly expressing CDX2/KLF4, a large percentage of these patients could conceivably be targeted by Aptose's drug (particularly if the safety data remain compelling).
It's a little more challenging to translate that into a target revenue figure, as there are still a lot of unknowns about the number of treatment cycles a patient will get and the price of the drug. Based on what has happened in oncology markets like melanoma, though, I don't think it is unreasonable to suggest that an effective new drug for an underserved market could get $100,000/year pricing. That suggests a total addressable market of over $3 billion/year, even assuming lower pricing in the EU.
The potential of APTO-253 may not just be in AML. Myelodysplastic syndrome (or MDS) is a hematological condition that is similar to leukemia in some respects and progresses to AML in about 30% to 40% of cases. CDX2 is expressed in about 40% of MDS cases, and I don't think the similarity between that figure and the progression to AML is a coincidence. MDS generally affects a more elderly patient group (75% of diagnoses are in patients older than 70), though, so a clean safety profile would be critical here but the market size (13,000 to 18,000 new cases a year) is intriguing.
There is also the possibility that APTO-253 may be effective in lymphomas and myelomas. These cancers are not generally seen as quite so underserved as AML, but there is still plenty of room for better treatments - particularly if APTO-253 shows better tolerability and/or can be added to a combo therapy.
A Lot Could Still Go Wrong
I believe that Aptose could be worth $13 a share today on the basis of its prospects for APTO-2533 in AML and MDS. I use 2025 as my target valuation year and assume a blended ASP of just over $90,000 and market share of just 20%. I'm assuming the drug is launched in 2021 and achieves 20% share by 2025 (on its way to 40% at peak). I'm also currently assuming just 15% odds of success - in-line with the average of Phase I pipeline drugs and above the average for oncology drugs.
I'm also assuming that Aptose will need to raise money and am working that assumption into my valuation. The company's current cash should get the company through to a pivotal study of APTO-253, but they will need money at that point (and particularly so if they choose to advance other candidates into the clinic). A development partnership would potentially remove that funding gap, but at the cost of surrendering a significant percentage of the drug's future revenue. Aptose does have other drugs in its preclinical pipeline, but I assign no value to them today due to the paucity of information about them (including safety and efficacy).
Success with APTO-253 would most likely vault Aptose to a billion dollar-plus market cap, but there are a lot of milestones that the company must achieve and there is the time value of money (and risk) to consider in the meanwhile. It may well be that APTO-253's mechanism of action makes sense on the page but doesn't translate into meaningful survival benefit, or perhaps other companies like Celgene (NASDAQ:CELG) will trump the company with an even better drug for AML. Likewise, there are abundant unknowns with respect to pricing, safety, and management's ability to successfully design and execute clinical trials.
The Bottom Line
Investing in a biotech with a single Phase I asset is inherently a high-risk endeavor. To Aptose's credit, targeting CDX2/KLF4 expression looks like an interesting approach and one that could potentially address a large number of AML/MDS patients. It's also worth noting again that APTO-253 showed a pretty good response rate in solid tumors and AML cells appear considerably more sensitive.
For me, this could be an interesting stock to add to the portfolio today as a "what the heck!" sort of high-risk position. On the whole, investing in such early stage biotechs means that you're going to have more losers than winners and there are certainly some details in Aptose's corporate history that should make an investor pause. As a speculation, though, this one seems worth a closer look at least up to the point where Phase Ib data can offer more clues as to whether the company really might have found something to help AML patients.
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The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.