Aptevo Therapeutics Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Aptevo is a biotechnology company whose only marketed product is IXINITY, a treatment for hemophilia B. Its other candidates remain in development.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Product revenue | $7.0 million | $4.1 million |
| Cost of product sales | $3.8 million | $1.8 million |
| Gross profit and margin | $3.2 million; 45% | $2.3 million; 56% |
| Research and development | $7.3 million | $8.2 million |
| Selling, general and administrative | $7.3 million | $7.6 million |
| Operating loss | $11.4 million | $13.5 million |
| Net loss | $12.0 million; $0.44 per share | $13.9 million; $0.63 per share |
| Cash used in operating activities | $13.8 million | $17.0 million |
| Cash, cash equivalents and restricted cash | $44.5 million | $38.1 million at Dec. 31, 2018 |
| Long-term debt, net | $19.4 million | $19.3 million at Dec. 31, 2018 |
At March 31, cash and cash equivalents were $37.0 million, with a further $7.4 million restricted. Total assets were $80.8 million, current liabilities $18.3 million, and stockholders’ equity $39.1 million. The accumulated deficit was $139.4 million. The filing does not provide a separate EBITDA or operating cash-flow margin.
Material changes and financing
- IXINITY sales rose $3.0 million, or 73%, year over year, attributed primarily to growth in the hemophilia B patient base and a price increase effective January 1, 2019.
- Gross margin fell 11 percentage points to 45%. Cost of sales increased 116%, reflecting higher sales and lower-cost inventory sold in Q1 2018.
- R&D declined $0.9 million, mainly due to timing of APVO436 and APVO210 activities and discontinuation of two clinical trials; preclinical research and IXINITY pediatric-study startup costs increased.
- A March public offering generated net proceeds of approximately $20.2 million, but substantially increased the share count: 45.1 million shares were outstanding at March 31 versus 22.8 million at year-end 2018. The offering also included warrants to purchase up to 22.0 million shares at $1.30 per share. Full exercise could generate up to $28.6 million, but is not assured.
- Financing activities provided $20.4 million; investing activities used $0.2 million. The increase in cash, cash equivalents and restricted cash was $6.4 million.
Outlook, developments and risks
- Management expected available cash and cash equivalents to fund operations for at least 12 months from the filing date. It also stated that Aptevo lacks sufficient cash to complete clinical development of any development-stage candidate and expects to need additional financing. No specific revenue or earnings guidance is provided.
- Management warned that slower-than-expected IXINITY growth or inability to raise capital could require delaying, reducing, suspending or ending R&D programs. The business remains dependent on one revenue-generating product and expects negative cash flows until revenue, partnering or other financing is sufficient.
- APVO436 was in a Phase 1/1b trial; the company anticipated anti-drug antibody data in Q3 2019 and preliminary safety data in Q4 2019. APVO210’s Phase 1 trial began in Australia in March 2019; initial single-dose results were anticipated in Q3 and preliminary data in Q4 2019. These are forward-looking expectations, not reported results.
- Aptevo planned to file a clinical trial authorization for partnered candidate ALG.APV-527 in the second half of 2019, and anticipated starting an IXINITY pediatric Phase 4 study in Q3 2019. A new 3,000 IU IXINITY assay size was expected around mid-2019.
- Debt is due February 1, 2023 and bears interest at LIBOR plus 7.60%. Principal repayments were deferred to February 1, 2020, with a possible further deferral to August 2020. Restricted cash includes $5.0 million for a credit-facility covenant and $2.4 million supporting letters of credit. MidCap holds a security interest in registered intellectual property after unrestricted cash fell below $25.0 million; the agreement also contains a subjective acceleration clause, which management said it believed was unlikely to be exercised.
- The company adopted lease accounting in January 2019 and recorded operating lease assets and liabilities. Its Seattle headquarters lease was amended in March, extending the term nominally to 2030, subject to a termination option; the recorded lease liability reflects payments through April 2023.
- Nasdaq notified Aptevo on April 18, 2019 that its share bid price had been below $1.00 for 30 consecutive business days. The company had until October 15, 2019 to regain compliance, with possible additional time subject to listing requirements.
- Other key risks include clinical and regulatory failure, reliance on third-party manufacturers and suppliers, competition and reimbursement pressure, possible dilution, and an adverse outcome in a European patent opposition that could affect IXINITY fill-and-finish manufacturing. The filing reported no pending legal matter believed likely to have a material adverse effect and no off-balance-sheet arrangements.
Investor verification points
- Verify subsequent IXINITY sales, patient-base growth, pricing effects, and gross-margin trajectory, including inventory costs and rebates.
- Check actual operating cash burn and cash runway against management’s 12-month expectation, and whether additional financing or program cuts became necessary.
- Review the clinical and regulatory progress and reported results for APVO436, APVO210, ALG.APV-527, and the IXINITY pediatric study against stated timelines.
- Assess the dilution and potential overhang from the March offering, outstanding warrants, and the Lincoln Park and Piper Jaffray equity facilities.
- Monitor debt covenants, repayment timing, interest expense, MidCap’s IP security interest, and Nasdaq bid-price compliance.