Aptevo Therapeutics Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited results are compared with the periods ended June 30, 2018. Aptevo is a biotechnology company with one marketed product, IXINITY, and investigational oncology and immunology candidates.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Product sales | $7.36 million | $6.83 million | $14.38 million | $10.90 million |
| Gross profit | $1.38 million | $4.29 million | $4.55 million | $6.58 million |
| Gross margin | 19% | 63% | 32% | 60% |
| Operating loss | $12.90 million | $12.44 million | $24.34 million | $25.95 million |
| Net loss | $13.33 million | $13.14 million | $25.35 million | $27.00 million |
| Net loss per share | $0.30 | $0.58 | $0.70 | $1.21 |
- At June 30, cash and cash equivalents were $20.96 million; restricted cash was $7.50 million, bringing cash, cash equivalents and restricted cash to $28.46 million. Working capital was $27.1 million and accumulated deficit was $152.8 million.
- Six-month operating cash use was $29.74 million, compared with $32.98 million a year earlier. Investing cash use was $0.15 million; financing provided $20.26 million, primarily from the March equity offering.
- Long-term debt, net, was $19.56 million. The MidCap facility bears interest at LIBOR plus 7.60%, matures February 1, 2023, and principal repayment was scheduled to begin February 1, 2020, with possible deferral to August 2020. Restricted cash includes $5.0 million for a minimum-cash covenant and $2.5 million securing letters of credit.
- Operating lease liabilities totaled $4.82 million, including $3.76 million long-term. The amended Seattle lease runs through April 2030, subject to a termination option in April 2023.
Changes versus prior comparable periods
- IXINITY sales rose 8% in Q2 and 32% for the first half, attributed to patient-base growth and a price increase effective January 1, 2019.
- Cost of product sales rose 136% in Q2 and 128% for the first half, reducing gross margin substantially. Q2 cost included $0.9 million of testing and stability costs for the new 3,000 IU presentation and a $0.5 million inventory write-off. Management also cited higher unit volume and, for the half-year comparison, lower-cost inventory sold in 2018 following a supplier credit.
- Research and development expense declined to $7.73 million in Q2 and $15.02 million for the first half, from $9.71 million and $17.91 million, respectively. Lower clinical-program spending was partly offset by increased preclinical research and IXINITY pediatric-study start-up costs.
- Selling, general and administrative expense decreased 7% in Q2 and 5% for the first half, primarily due to lower personnel and professional-services costs.
- Net loss was slightly higher in Q2 but lower for the first half. The year-over-year improvement in first-half net loss did not prevent substantial operating cash use.
Outlook, management commentary and material risks
- Management stated that existing resources, future IXINITY sales and a $4.25 million Saol milestone received August 6, 2019 were expected to fund projected operating requirements and debt service for at least twelve months from the filing date. The payment replaced specified future gross-profit-threshold milestones; no additional milestone amounts remained outstanding.
- The company expects significant operating losses for several years and says it lacks sufficient cash to complete clinical development of its candidates without additional funding. If financing is unavailable or IXINITY growth disappoints, it may delay, reduce, suspend or eliminate development programs. Potential funding sources include equity, debt, collaborations, licensing or asset transactions, with possible dilution or restrictions on operations.
- Pipeline milestones described included ongoing Phase 1/1b testing of APVO436, with no dose-limiting toxicities or anti-drug antibodies reported through the first three cohorts; APVO210 Phase 1 single-dose stage completion and planned multiple-dose stage; and a planned second-half 2019 clinical trial authorization filing for partnered ALG.APV-527. These were forward-looking plans and early-stage observations, not proof of efficacy.
- Aptevo planned to begin a Phase 4 IXINITY post-marketing study in Q3 2019 that could support a pediatric label expansion. It introduced a 3,000 IU assay size in June and was exploring IXINITY distribution or partnership opportunities outside the U.S.; sales at the time were U.S.-only.
- Liquidity and financing risks include dependence on a single revenue-generating product, substantial continuing cash burn, possible equity dilution, debt covenants and a lender acceleration clause. MidCap obtained a security interest in registered intellectual property after unrestricted cash fell below $25 million in January 2019; the lender may take ownership of that IP if obligations are not met.
- Aptevo reported a Nasdaq minimum-bid-price deficiency notice dated April 18, 2019, with a compliance deadline of October 15, 2019. The company said it would monitor the share price and evaluate options, including a possible reverse split if necessary.
- Other significant risks include clinical and regulatory failure, third-party manufacturing dependence, competition and reimbursement pressure, and potential dilution. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. It stated there were no currently pending legal matters expected to have a material adverse effect.
Important facts for investors to verify
- Whether IXINITY sales growth continues and whether gross margin recovers after the 2019 testing, inventory and production costs.
- Cash runway and future financing needs, including the effect of operating cash burn, the Saol payment, debt service and potential equity issuance.
- Compliance with MidCap cash and revenue covenants, and the implications of its security interest in Aptevo’s registered intellectual property.
- Clinical progress and safety data for APVO436 and APVO210, and whether planned pipeline and IXINITY study milestones were achieved.
- Nasdaq bid-price compliance and any resulting listing or reverse-split actions; also consider dilution exposure from the March 2019 offering, including 22 million outstanding warrants exercisable at $1.30 per share.