Aptevo Therapeutics Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial statements are unaudited; dollar amounts below are in millions unless noted.
Business context and reporting period
Aptevo is a clinical-stage biotechnology company developing cancer immunotherapies using its ADAPTIR platform. Its lead clinical candidate is APVO436; ALG.APV-527 and APVO603 are preclinical candidates. On February 28, 2020, Aptevo sold its Aptevo BioTherapeutics subsidiary, including IXINITY and the related Hemophilia B business, to Medexus. The sale is treated as a discontinued operation, leaving Aptevo primarily focused on research and development and royalty-related receipts.
Key financial metrics
| Metric | Q2 2020 | Six months 2020 | Comparable 2019 |
|---|---|---|---|
| Royalty revenue | $0.473 | $0.473 | None reported |
| Research and development expense | $4.440 | $8.446 | $6.125 / $12.759 |
| General and administrative expense | $2.840 | $6.456 | $4.279 / $8.807 |
| Loss from continuing operations | $(6.803) | $(16.804) | $(10.840) / $(22.581) |
| Net income (loss), including discontinued operations | $(6.803) | $(3.906) | $(13.332) / $(25.350) |
Q2 basic and diluted loss per share was $2.10; the six-month loss per share was $1.19. The six-month result includes $14.338 million gain on the sale of Aptevo BioTherapeutics, partly offset by $1.580 million of pre-sale operating losses and a $2.104 million debt-extinguishment loss. No gross margin is presented for continuing operations.
At June 30, cash and cash equivalents were $7.599 million, with restricted cash of $2.555 million; total cash, cash equivalents and restricted cash were $10.154 million. Current assets were $10.488 million and current liabilities $7.002 million. Total assets were $18.509 million, total liabilities $9.859 million, and stockholders’ equity $8.650 million. The company had no debt outstanding at June 30 following repayment of its prior facility.
For the first six months, operating cash use was $15.808 million, investing cash inflow was $28.120 million, and financing cash outflow was $22.104 million, producing a $9.792 million decrease in cash, cash equivalents and restricted cash. The investing inflow was the cash received from the subsidiary sale; financing outflow principally reflected repayment of the prior loan.
Changes versus the prior comparable period
- Q2 continuing-operations loss narrowed to $6.803 million from $10.840 million; first-half continuing loss narrowed to $16.804 million from $22.581 million.
- R&D expense declined by $1.685 million in Q2 and $4.313 million for the first half, primarily reflecting lower preclinical/general research spending and reduced spending on discontinued programs. APVO436 spending increased.
- G&A expense declined by $1.439 million in Q2 and $2.351 million for the first half, mainly due to lower personnel and professional-services costs.
- First-half net loss improved substantially from 2019, largely because of the one-time sale gain; it should not be read as a comparable improvement in recurring operating performance.
- Aptevo began recording Pfizer RUXIENCE royalties in 2020. The filing reports $0.473 million for both Q2 and the first half; there was no comparable 2019 royalty revenue.
Outlook, commentary, risks and unusual items
- Funding and runway: Management said available resources, expected royalty/deferred payments and the new MidCap facility should cover projected operating needs and debt service for at least 12 months from the filing date. It also expects to seek additional funds in 2021 and says substantial additional capital will be needed to complete development activities.
- Subsequent financing: On August 5, 2020, Aptevo entered a 48-month MidCap credit agreement and drew the full $25 million. The loan is interest-only for 18 months, then amortizes over 30 months; interest is one-month LIBOR plus 6.25%, subject to a 1.50% floor and 2.50% cap. Sale of specified IXINITY or RUXIENCE payment rights can trigger additional repayment provisions.
- Potential monetization: In July, Aptevo engaged Piper Sandler to seek a sale of its RUXIENCE royalty stream and IXINITY deferred payments and milestones. The filing does not establish that a sale will occur. IXINITY milestone payments could total up to $11 million; future deferred and milestone receipts are contingent and recognized when received or realized.
- Clinical and partnering: APVO436 Phase 1/1b enrollment continued, with Cohort 6 complete. Aptevo reported clinical-site capacity constraints and a delay to the Beat AML trial associated with COVID-19. The Beat AML participation obligation totals $8.1 million over four years, subject to a 180-day termination-for-convenience notice. ALG.APV-527’s move into the clinic was delayed while the parties pursue partnering.
- COVID-19 and development risks: The company cited potential disruption to patient enrollment, trial sites, materials, employees, partners and financing, as well as possible effects on Pfizer and Medexus commercialization and related receipts. It expects significant operating losses for several years; product development, regulatory approval and commercialization remain uncertain.
- Unusual items: Aptevo completed a 1-for-14 reverse stock split in March 2020; share and per-share data were retrospectively adjusted. It repaid $20 million principal on its former debt and paid $2.1 million in fees and related costs, recording a $2.104 million extinguishment loss.
- The company reported effective disclosure controls as of June 30, 2020, no material change in internal controls, and no pending legal matter believed likely to have a material adverse effect. No formal revenue or earnings guidance was provided.
Most important facts for investors to verify
- Whether the full $25 million MidCap borrowing, its covenants, interest costs and royalty-sale repayment provisions preserve adequate operating runway.
- Actual quarterly RUXIENCE royalty receipts and sales information, and the timing and amounts of Medexus deferred payments and any milestone receipts.
- Whether the proposed sale of royalty and contingent-payment rights is completed, and the net proceeds and resulting debt obligations.
- Cash burn relative to the stated runway, planned 2021 financing needs, and the $8.1 million Beat AML commitment.
- APVO436 trial progress and the extent of COVID-19-related enrollment or site delays; partnering progress for ALG.APV-527.