Business context and reporting period
Aptevo Therapeutics Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The company is a clinical-stage biotechnology business developing cancer immunotherapies using its ADAPTIR platform. It sold its IXINITY and Hemophilia B business to Medexus on February 28, 2020; those results are presented as discontinued operations. Continuing revenue principally consists of royalties on Pfizer’s RUXIENCE sales.
Key financial metrics
| Metric | Three months ended September 30, 2020 | Nine months ended September 30, 2020 |
|---|---|---|
| Royalty revenue | $1.463 million | $1.936 million |
| Research and development expense | $4.494 million | $12.940 million |
| General and administrative expense | $3.215 million | $9.671 million |
| Loss from operations | $6.246 million | $20.675 million |
| Net loss from continuing operations | $6.948 million | $23.752 million |
| Income from discontinued operations | $0.157 million | $13.055 million |
| Net loss | $6.791 million | $10.697 million |
| Net loss per share | $2.10 | $3.31 |
For the nine months, net cash used in operating activities was $23.195 million; investing activities provided $28.120 million, mainly from the Aptevo BioTherapeutics sale; and financing activities provided $2.626 million. Cash and cash equivalents were $24.942 million at September 30, with $2.555 million of restricted cash, for total cash, cash equivalents and restricted cash of $27.497 million. Total assets were $37.420 million, total liabilities $35.218 million, and stockholders’ equity $2.202 million. The balance sheet reported $25.199 million of long-term loan payable and no current portion of long-term debt.
No gross profit or operating margin is reported; the filing provides royalty revenue and operating expenses rather than a product-sales gross margin. The company reported an accumulated deficit of $178.553 million.
Material changes versus the prior comparable period
- Q3 royalty revenue was $1.463 million, versus none in Q3 2019, reflecting Pfizer’s RUXIENCE launches in the United States, Japan and Europe. Nine-month royalty revenue was $1.936 million, also versus none in 2019.
- Q3 R&D expense declined $3.102 million year over year and nine-month expense declined $7.415 million, mainly due to lower preclinical, discovery and other clinical program spending. APVO436 spending increased year to date.
- G&A expense fell $0.648 million in Q3 and $3.000 million for the nine months, primarily from lower personnel and professional-services costs.
- Nine-month net loss improved from $32.274 million in 2019 to $10.697 million in 2020, largely because 2020 included a $14.338 million gain on the sale of Aptevo BioTherapeutics. The sale generated $13.055 million of nine-month discontinued-operations income, including a $1.580 million operating loss before sale. Q3 2020 discontinued-operations income was $0.157 million, compared with $4.161 million in Q3 2019.
- Operating cash use declined from $37.283 million in the first nine months of 2019 to $23.195 million in 2020. The 2020 period included the sale proceeds and new borrowing, while 2019 included a public offering and warrant-related financing.
Outlook, management commentary, risks and unusual items
- Management stated that available resources—including cash, expected royalties and deferred payments, potential warrant exercises, potential release of restricted cash, and the MidCap facility—were expected to support projected operations and debt service for at least 12 months from the filing date. The company also said it expected to raise additional funds in 2021, did not have sufficient cash to complete clinical development of its candidates, and anticipated significant operating losses for several years.
- Aptevo drew the full $25 million under a new MidCap loan on August 5, 2020. It has a 48-month term, 18 months of interest-only payments followed by 30 months of straight-line amortization, and interest of one-month LIBOR plus 6.25%, subject to a 1.50% floor and 2.50% cap. The loan has repayment provisions tied to sales of specified royalty or milestone rights. In February, Aptevo used $22.1 million of IXINITY sale proceeds to repay its prior MidCap debt and related fees.
- Aptevo engaged Piper Sandler to seek a sale of the RUXIENCE royalty stream and IXINITY deferred-payment and milestone rights. The filing gives no completed sale or proceeds. The IXINITY arrangement includes potential milestones totaling up to $11 million; a third-quarter deferred payment of approximately $0.1 million was expected to be received and recognized in Q4.
- APVO436 Phase 1/1b enrollment had reached Cohort 8 after dosing in Cohorts 1–7. After quarter-end, the company reported preliminary complete-remission data for two patients in Cohort 6; the filing cautions that interim clinical findings may change and do not establish durable benefit. The Beat AML trial was delayed, and the company cited COVID-19-related risks to enrollment, trial-site activity, materials supply, partnering and financing. Its four-year Beat AML participation obligation totals $8.1 million and may be terminated on 180 days’ notice.
- Development of ALG.APV-527 was delayed while the company pursued partnering opportunities. The company reported only an immaterial collaboration expense for the first nine months of 2020. APVO603 is also identified as a preclinical candidate.
- On November 6, 2020, Tang-affiliated parties reported ownership of approximately 54% of outstanding shares. The resulting change in control triggered a MidCap default, which the lender waived on November 10 subject to a specified board-composition condition. On November 8, the board adopted a shareholder rights agreement. These events occurred after quarter-end.
- After quarter-end and through November 9, holders exercised warrants, generating approximately $16.4 million of proceeds and issuing approximately 0.9 million shares. The filing also reports 4,145,011 common shares outstanding as of November 10, versus 3,232,811 at September 30. Aptevo completed a 1-for-14 reverse stock split in March 2020; share and per-share data are retroactively adjusted.
- Management cited dependence on RUXIENCE royalties and Medexus payments, continued financing needs, clinical and regulatory uncertainty, competition, intellectual-property and third-party manufacturing risks, and possible COVID-19 disruptions. The filing reported no material pending legal proceeding and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the expected financing or proposed royalty-rights sale proceeds materialize, and how any sale would affect MidCap repayment obligations.
- Actual RUXIENCE royalty receipts and Medexus deferred payments and milestones, including the timing and amount of the expected Q4 IXINITY payment.
- Cash burn, restricted-cash availability, debt service and the timing of any additional capital requirement relative to management’s stated 12-month liquidity expectation.
- Updated APVO436 enrollment, safety and efficacy data, including whether preliminary remissions persist, and the status of the delayed Beat AML trial.
- The effect of Tang’s controlling ownership, the MidCap waiver conditions, the rights agreement and post-quarter warrant exercises on governance, dilution and liquidity.