Aptevo Therapeutics Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results. Aptevo is a clinical-stage biotechnology company developing cancer immunotherapies; it reported no approved products for commercial distribution.
Financial performance and position
| Metric | Q3 2022 | Nine months 2022 | Comparable 2021 period |
|---|---|---|---|
| Royalty revenue | $0 | $3.1 million | $3.1 million Q3; $8.6 million nine months |
| Research and development expense | $4.5 million | $13.2 million | $4.4 million Q3; $14.5 million nine months |
| General and administrative expense | $3.3 million | $10.9 million | $3.5 million Q3; $11.5 million nine months |
| Net income (loss) | $(7.6) million | $12.7 million | $(7.0) million Q3; $(22.2) million nine months |
| Operating cash flow | Not separately stated for the quarter | $(15.1) million | $(17.8) million nine months |
- The nine-month net income was driven by a one-time $37.2 million gain from extinguishing the liability associated with the amended HCR royalty agreement; it does not indicate operating profitability. Continuing operations had a $12.2 million net income for the nine months, versus a $22.8 million loss in 2021. Q3 continuing-operations loss was $7.8 million.
- Cash and cash equivalents were $22.2 million at September 30, 2022, with $0.4 million restricted cash; combined cash, cash equivalents and restricted cash were $22.6 million, down from $46.3 million at December 31, 2021.
- Total assets were $31.7 million and stockholders’ equity was $15.8 million, compared with $56.6 million and $1.2 million, respectively, at year-end 2021.
- Long-term debt was $3.9 million: $2.0 million current and $1.9 million long-term. The facility bears interest at 6.25% plus SOFR, subject to a 1.50% floor and 2.50% cap. The royalty-sale liability was eliminated in June.
- Margins are not meaningful for this development-stage business: Q3 had no royalty revenue and the filing reports no commercial product sales.
Material changes versus the prior period
- Aptevo amended its HCR royalty purchase agreement in June 2022, recognized a $37.2 million gain, and stopped recording as revenue the RUXIENCE royalties paid to HCR. It remains eligible for up to $22.5 million of additional HCR milestone payments tied to 2022 and 2023 sales milestones.
- Q3 royalty revenue fell to zero from $3.1 million. Nine-month revenue declined to $3.1 million from $8.6 million, reflecting the HCR arrangement change and royalty revenue recorded only in Q1 2022.
- Q3 R&D spending increased modestly, principally due to APVO436 clinical-trial activity. Nine-month R&D and G&A expenses declined, mainly from lower preclinical, employee, and stockholder-activism-related costs.
- Operating cash use improved to $15.1 million from $17.8 million year over year, but financing activities used $8.6 million, largely reflecting debt repayments and royalties paid to HCR. The company repaid $11.8 million of debt during the nine months.
- A May 2022 office-lease amendment removed the termination option and added six months of free rent; the resulting lease liability and right-of-use asset increased by $4.4 million.
Outlook, developments and risks
- Management stated that available cash, potential HCR milestones, Medexus IXINITY deferred payments and milestones, equity-facility access, and release of restricted cash were expected to cover projected operating needs and debt service for at least 12 months from the filing date. This depends on uncertain future receipts and financing; management also said substantial additional funding will be needed to advance development programs.
- Aptevo expects significant operating losses for the next several years and has no cash sufficient to complete clinical development of its candidates. If additional capital is unavailable, it may delay, reduce, or stop trials or other activities. Equity financing could dilute shareholders; debt or partnering could impose restrictions or require relinquishing rights.
- APVO436 continued in a Phase 1b expansion trial for acute myeloid leukemia, in combination and as monotherapy. The FDA issued a “may proceed” notification for ALG.APV-527 on September 19, 2022, allowing the company and Alligator Bioscience to prepare a Phase 1 trial. APVO603 and APVO442 remained preclinical candidates.
- Key uncertainties include clinical efficacy and safety, patient enrollment and trial timing, dependence on third-party manufacturers and trial providers, access to capital, macroeconomic and supply-chain pressures, and the timing or amount of HCR and Medexus payments. Pfizer’s RUXIENCE sales and Medexus’s IXINITY commercialization are outside Aptevo’s control.
- The company reported that it regained compliance with Nasdaq’s stockholders’ equity requirement in Q2 2022. It also disclosed an active stockholder-rights plan extended through November 4, 2023. Management reported no pending legal matters expected to have a material adverse effect and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether HCR sales milestones for 2022 and 2023 are achieved, and the timing and amounts of any payments to Aptevo.
- Actual cash burn and the assumptions supporting management’s 12-month liquidity assessment, including availability and limits of the Piper Sandler and Lincoln Park equity arrangements.
- Remaining debt repayment schedule, interest costs under SOFR, and any applicable lender covenants or acceleration provisions.
- APVO436 trial progress and safety data, and the timing and execution of the planned ALG.APV-527 Phase 1 trial.
- Medexus’s IXINITY sales and any related deferred payments or milestones; the deferred-payment rate increased from 2% to 5% of net sales as of June 30, 2022.
- Potential dilution from future equity sales, equity awards, or warrant exercises; common shares outstanding were 5,091,758 as of November 10, 2022.