Aptevo Therapeutics Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Aptevo is a clinical-stage biotechnology company developing cancer immunotherapies; it reported no approved products. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Royalty revenue | $3.110m | $0.473m | $5.531m | $0.473m |
| Research and development expense | $4.722m | $4.440m | $10.084m | $8.446m |
| General and administrative expense | $4.110m | $2.840m | $8.057m | $6.456m |
| Operating loss | $5.722m | $6.807m | $12.610m | $14.429m |
| Loss from continuing operations | $8.064m | $6.803m | $15.734m | $16.804m |
| Net loss | $7.932m | $6.803m | $15.188m | $3.906m |
| Basic and diluted loss per share | $1.75 | $2.10 | $3.39 | $1.19 |
- For the six months, operating cash use was $12.557m, compared with $15.808m in 2020. Investing used $0.582m; financing provided $32.258m. Cash, cash equivalents and restricted cash increased by $19.119m to $61.653m.
- At June 30, cash and cash equivalents were $60.394m and restricted cash was $1.259m. Current assets were $65.765m against current liabilities of $30.864m. Accumulated deficit was $200.794m; stockholders’ equity was $13.881m.
- MidCap term-loan principal was reduced from $25m to $15m in March. The balance sheet classified $10.667m as current and $4.323m as long-term. The amended agreement requires $10m principal payment on March 31, 2022, with monthly amortization of the remaining $5m beginning March 2022.
- The $35m HCR royalty transaction is accounted for as a financing liability, not revenue. The liability was $33.347m at quarter-end, including $12.810m current and $20.537m long-term. Six-month non-cash interest expense was $2.354m; the estimated effective interest rate was 21.9%.
Material changes and notable items
- Royalty revenue rose substantially, primarily reflecting Pfizer sales of RUXIENCE. Aptevo sold HCR the right to receive those royalties for $35m and may receive up to a further $32.5m tied to sales milestones in 2021–2023. After HCR receives aggregate payments equal to 190% of its investment and any paid milestones, Aptevo is entitled to 50% of subsequent royalty payments. Aptevo continues to recognize RUXIENCE royalty revenue and records payments to HCR against the liability.
- R&D expense increased $1.638m for the six-month period as Aptevo continued APVO436 clinical work and investment in preclinical programs. G&A expense rose $1.601m, primarily due to professional fees, including costs related to stockholder activism.
- Six-month net loss comparisons are affected by 2020 discontinued-operations income of $12.898m, including a $14.338m gain on the sale of Aptevo BioTherapeutics. Continuing-operations loss improved year over year, while total net loss worsened versus 2020’s sale-related gain.
- In June, Aptevo issued 407,047 shares to Lincoln Park for $10.2m, leaving $24.8m available under that purchase agreement, subject to registration requirements. Shares outstanding were 4,884,515 at June 30 and 4,893,991 as of August 11.
Outlook, commentary and risks
- Management said existing resources, expected deferred payments and milestones, warrant proceeds, and release of restricted cash were expected to cover projected operating needs and debt service for at least 12 months from the filing date. The filing also says Aptevo expects significant operating losses for several years, lacks sufficient cash to complete clinical development of its candidates, and will need substantial additional funding. No specific revenue or earnings guidance was provided.
- In May, Aptevo began the expansion phase of its APVO436 AML trial using the recommended dose identified in dose escalation. Management reported a manageable side-effect profile and encouraging single-agent activity in Part 1; these are preliminary clinical observations, not evidence of approval or commercial success.
- Key risks include clinical-trial failure or delay, patient enrollment and COVID-19 disruptions, dependence on third-party manufacturers and collaborators, and uncertainty around future RUXIENCE-related HCR payments and IXINITY-related Medexus payments. Aptevo also warned that additional financing may be unavailable or dilutive and that operations or development programs could be reduced if funds are insufficient.
- The company reported recurring losses and negative operating cash flows. Its cash sufficiency depends in part on future royalty proceeds and other payments. The MidCap facility contains restrictive covenants and a subjective acceleration clause; it also references LIBOR, whose phaseout the company was evaluating.
- Tang withdrew its director nominations and $50-per-share acquisition proposal in June. Stockholders approved an advisory proposal to begin a sale process, but the Board decided not to start one at that time. The company said activism has incurred and may continue to incur professional costs.
- Aptevo reported effective disclosure controls as of June 30, 2021, no material change in internal control over financial reporting, and no pending legal matters management believed could materially affect results, financial condition or cash flows.
Important facts for investors to verify
- Whether RUXIENCE sales generate the HCR milestone payments and how actual royalty receipts compare with the assumptions behind the 21.9% effective interest rate.
- APVO436 trial enrollment, safety, efficacy and timing, and progress or funding commitments for other pipeline candidates.
- Cash burn, remaining financing capacity, potential dilution, and ability to meet the March 2022 loan payment and subsequent amortization.
- Timing and amount of Medexus deferred payments and milestones, and any operational or clinical impact from COVID-19.
- Changes in shares outstanding, stockholder activism or strategic plans, and any developments affecting the company’s stated 12-month liquidity outlook.