Aptevo Therapeutics Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Aptevo is a clinical-stage biotechnology company developing cancer immunotherapies. Its lead clinical candidate is APVO436; ALG.APV-527, APVO603 and APVO442 are preclinical candidates. Financial figures below are in U.S. dollars; millions are used unless noted.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Royalty revenue | $0 | $3.11m | $3.11m | $5.53m |
| Research and development expense | $3.87m | $4.72m | $8.73m | $10.08m |
| General and administrative expense | $3.70m | $4.11m | $7.56m | $8.06m |
| Loss from operations | $7.56m | $5.72m | $13.17m | $12.61m |
| Net income (loss) | $28.01m | ($7.93m) | $20.31m | ($15.19m) |
| Net income (loss) per share, basic and diluted | $5.58 | ($1.75) | $4.08 | ($3.39) |
Reported net income was driven by a one-time $37.2m gain from extinguishing the HCR royalty-sale liability; it does not indicate operating profitability. No gross margin is presented, and the filing reports no royalty revenue for Q2 after the June amendment to the HCR agreement.
- Cash and liquidity: Cash and cash equivalents were $29.4m at June 30, 2022, plus $0.5m restricted cash, versus $45.0m and $1.3m, respectively, at December 31, 2021. Current assets were $31.4m and current liabilities $7.0m.
- Cash flow, six months: Operating cash use was $8.2m, compared with $12.6m in 2021; investing cash use was $0.03m. Financing used $8.1m, including debt repayments, partly offset by the $10.0m HCR milestone payment and $0.4m of equity proceeds. Cash, cash equivalents and restricted cash declined $16.3m to $30.0m.
- Debt and other obligations: MidCap term-loan principal was approximately $4.4m at quarter-end ($2.0m current and $2.4m long-term); the loan bears interest at one-month LIBOR plus 6.25%, subject to a floor and cap. The royalty-sale liability was eliminated by the HCR amendment. Operating lease liabilities were $6.4m long-term, with a lease term through April 2030 following a May 2022 amendment.
- Equity: Stockholders’ equity was $23.0m at June 30, 2022, compared with $1.2m at year-end 2021. The filing reports 5,089,852 shares outstanding at June 30 and 5,090,644 as of August 11, 2022.
Material changes versus the prior comparable period
- Q2 royalty revenue fell to zero, and first-half revenue declined to $3.1m from $5.5m. The first-half 2022 amount relates to the quarter ended March 31; Aptevo will not recognize RUXIENCE royalties paid to HCR going forward.
- Q2 operating loss widened to $7.6m from $5.7m despite lower R&D and G&A expenses. First-half operating loss also widened to $13.2m from $12.6m.
- First-half net income of $20.3m replaced a $15.2m net loss in 2021, primarily because of the non-cash $37.2m HCR liability-extinguishment gain.
- R&D expense declined year over year, mainly due to lower preclinical and employee costs; APVO436 clinical spending increased. G&A expense also decreased, partly due to lower employee and stockholder-activism-related costs.
- Aptevo used the HCR milestone proceeds to reduce MidCap principal, and the amended HCR agreement restored Nasdaq stockholders’ equity compliance without issuing equity for that purpose. The company nevertheless issued 78,285 shares through its Piper Sandler agreement for $0.4m and issued 99,276 commitment shares to Lincoln Park for no cash consideration.
Outlook, management commentary and risks
- Management stated that available cash, potential HCR milestones, financing capacity under Lincoln Park and Piper Sandler agreements, Medexus IXINITY deferred payments and milestones, and release of restricted cash were expected to fund projected operations and debt service for at least 12 months from the filing date. This depends on uncertain future receipts and access to financing.
- Management expects significant operating losses for the next several years and says additional funding is needed to complete development of its candidates. It may need to delay, reduce or stop development if financing is unavailable or inadequate; equity financing could dilute shareholders.
- Aptevo reported positive preliminary APVO436 Phase 1b data on June 9: four of 11 response-evaluable patients in combination-therapy cohort 1 achieved remission while on therapy, and cohort 3 had two patients with clinical activity. A high-risk MDS patient remained stable on treatment beyond 18 months. These are preliminary, early-stage results and may change with further analysis.
- ALG.APV-527 remained on track for an IND submission in the second half of 2022 after a second-quarter FDA pre-IND meeting. Aptevo also expected to announce a new preclinical molecule by year-end.
- Key uncertainties include clinical-trial enrollment, safety and efficacy, regulatory outcomes, reliance on third-party manufacturers and collaborators, COVID-19 and macroeconomic effects, and receipt of future HCR and Medexus payments. HCR milestone potential was up to $22.5m for 2022 and 2023, contingent on RUXIENCE sales; Medexus payments depend on IXINITY sales and commercialization.
- Other notable exposures include the variable-rate LIBOR-linked debt and transition to an alternative rate, the MidCap loan’s subjective acceleration clause, possible dilution from financing facilities, and future Nasdaq listing compliance. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. It said no pending legal matter was expected to have a material adverse effect.
Important facts for investors to verify
- Whether APVO436’s preliminary response and activity data are confirmed by fuller analyses and subsequent trial updates.
- Whether ALG.APV-527’s IND is submitted on the stated timeline and what development plans follow.
- Actual timing and amounts of HCR sales milestones and Medexus IXINITY payments, and the resulting cash runway.
- Quarterly cash burn, debt service and remaining MidCap principal, including the effect of the LIBOR transition.
- Potential share dilution and continued compliance with Nasdaq listing requirements.