Aptevo Therapeutics Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 25, 2020. This is an annual report, not a standalone fourth-quarter report. Unless stated otherwise, financial amounts below are in millions of dollars.
Business context
Aptevo was a clinical-stage biotechnology company developing cancer immunotherapies using its ADAPTIR platform. At year-end, its only marketed product and source of product revenue was IXINITY, a treatment for Hemophilia B. On February 28, 2020, after the reporting period, Aptevo sold the IXINITY business to Medexus and became focused on its development-stage pipeline.
Financial results and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Product sales | $32.4 | $23.1 |
| Cost of product sales | $19.9 | $11.2 |
| Gross profit / margin | $12.5 / 39% | $11.9 / 51% |
| Research and development | $29.8 | $35.4 |
| Selling, general and administrative | $25.3 | $28.1 |
| Loss from operations | $(42.6) | $(51.7) |
| Net loss from continuing operations | $(44.7) | $(53.7) |
| Net loss, including discontinued operations | $(40.4) | $(53.7) |
| Net loss per share | $(0.99) | $(2.39) |
| Net cash used in operating activities | $(42.4) | $(51.4) |
- IXINITY sales grew 41%, attributed to patient-base expansion, the 3,000 IU assay launch and price increases. Gross margin fell 12 percentage points, partly reflecting a prior-year supplier credit, higher product costs, new assay stability costs and 2019 inventory write-offs.
- FY 2019 net loss included a $4.25 million gain in discontinued operations from a Saol milestone payment. No additional amounts were outstanding under that milestone.
- At December 31, 2019, cash and cash equivalents were $12.4 million and restricted cash was $7.5 million; total cash, cash equivalents and restricted cash were $19.9 million. Current assets were $30.0 million versus current liabilities of $38.2 million, indicating working capital deficiency. Total stockholders’ equity was $11.8 million.
- Year-end debt included $19.9 million classified as current. In February 2020, Aptevo used $22.1 million of IXINITY-sale proceeds to repay the $20 million MidCap principal balance plus fees, accrued interest and other costs. Repayment also released the $5 million cash restriction tied to the facility.
- Cash flows included $4.1 million provided by investing activities and $20.1 million provided by financing activities in 2019, largely reflecting the Saol milestone and the March 2019 equity and warrant offering, respectively.
Material changes and developments
- IXINITY was sold for $30 million cash at closing, subject to customary post-closing adjustments; $0.9 million was placed in escrow. Additional milestone payments of up to $11 million and deferred payments tied to future sales were potential, not guaranteed. The filing cites forecast-based deferred proceeds exceeding $60 million and estimated total proceeds exceeding $100 million.
- Aptevo reported 45.3 million common shares outstanding at December 31, 2019, compared with 22.8 million a year earlier, following the March 2019 offering. Up to 22 million $1.30 warrants remained outstanding, creating potential dilution and, if exercised, potential cash proceeds.
- Research and development spending declined by $5.6 million year over year. APVO436 spending decreased, while IXINITY pediatric and preclinical research spending rose. SG&A declined 10% to $25.3 million.
- In October 2019, Aptevo announced an expense-reduction plan targeting approximately 30% lower annual expenditures, including program, staffing, professional-services and facility reductions.
Outlook, risks and unusual items
- Going concern: Management and the auditor reported substantial doubt about Aptevo’s ability to continue as a going concern. The auditor’s opinion on the financial statements was unmodified but included a going-concern emphasis. The filing says additional funding, partnerships or asset sales would be needed; Aptevo stated it did not have sufficient cash to complete clinical development of its candidates.
- Pipeline: APVO436 was in a Phase 1/1b trial for AML and MDS; 19 patients had been treated, one dose-limiting toxicity was observed in cohort 4, and none was reported in cohort 5. The FDA granted APVO436 orphan drug designation. These early-stage observations do not establish safety or efficacy. ALG.APV-527’s clinical-trial authorization was delayed while the partners sought a development partner. APVO603 remained preclinical. APVO210 was discontinued after repeated dosing was associated with anti-drug antibodies; earlier programs APVO414 and otlertuzumab had also been discontinued.
- Future obligations and revenue: Aptevo entered an $8.1 million, three-year commitment for the Beat AML Master Clinical Trial in January 2020, with a termination-for-convenience provision requiring 180 days’ notice. After selling IXINITY, future milestone and deferred payments depend on Medexus’s performance and product sales; Aptevo no longer controls the product’s commercialization.
- Key risks: ongoing losses and cash burn, need for further financing and potential dilution, clinical and regulatory failure, dependence on third-party manufacturers and trial providers, competition, and possible delays from COVID-19. The company also disclosed Nasdaq’s minimum-bid-price deficiency and an additional compliance period through April 13, 2020; a reverse stock split had shareholder approval but had not been effected as of the financial-statement date.
- Other: The filing reported no material pending legal proceedings and no off-balance-sheet arrangements. It disclosed that three wholesale customers represented 83% of 2019 revenue, indicating substantial customer concentration.
Important facts for investors to verify
- Aptevo’s post-sale cash, runway and financing needs, including the effect of releasing restricted cash and repaying MidCap debt.
- Final IXINITY sale adjustments, escrow release, and the terms, timing and likelihood of Medexus milestone and deferred payments.
- APVO436 trial enrollment, safety findings and clinical activity, along with partnering progress for ALG.APV-527 and development plans for APVO603.
- Actual spending reductions, the cost and termination terms of the Beat AML commitment, and whether planned financing or partnerships are sufficient to support operations.
- Nasdaq listing compliance, any reverse-split implementation, and dilution from outstanding warrants, equity facilities and future financing.