Aptevo Therapeutics Inc. annual report, FY2022

Aptevo Therapeutics Inc. — FY2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. Filed March 30, 2023. Aptevo is a clinical-stage biotechnology company developing cancer immunotherapies; it had no product approved for commercial distribution.

Financial performance and liquidity

Metric	FY2022	FY2021
Royalty revenue	$3.1 million	$12.3 million
Research and development expense	$17.9 million	$19.0 million
General and administrative expense	$13.9 million	$14.7 million
Operating loss	$28.6 million	$21.4 million
Net income (loss)	$8.0 million	$(28.5) million
Net cash used in operating activities	$21.0 million	$21.7 million

• FY2022 net income was not representative of operating profitability: it included a $37.2 million noncash gain from extinguishing the royalty-sale liability and $2.5 million of RUXIENCE milestone income. The company continued to report an operating loss and accumulated deficit of $206.0 million.
• Royalty revenue fell because the June 2022 amendment to the HCR agreement ended Aptevo’s recognition of royalties paid by Pfizer to HCR. The $3.1 million FY2022 royalty revenue was recorded only before the second quarter.
• Cash and cash equivalents were $22.6 million at year-end, versus $45.0 million a year earlier; restricted cash was zero, down from $1.3 million. Current assets were $27.5 million and current liabilities $8.7 million.
• Year-end debt was approximately $3.5 million in principal: $2.0 million current and $1.5 million long-term. Aptevo repaid $12.3 million of debt principal and related fees during 2022. The credit facility bears interest at 6.25% plus SOFR, subject to a 1.50% floor and 2.50% cap.
• Financing cash flow was a $2.6 million use, including debt repayments and $6.8 million of royalty payments to HCR, partly offset by $9.5 million net proceeds from HCR milestone receipts and $6.9 million from common-stock sales. Cash decreased by $23.7 million overall.

Material changes and subsequent events

• Aptevo’s RUXIENCE royalty transaction with HCR was amended in June 2022. The amendment eliminated the royalty-sale liability and produced the $37.2 million gain; Aptevo gave up specified rights to incremental royalty revenue after HCR reached the contractual return threshold. A further $10 million milestone may be earned based on 2023 sales.
• FY2022 R&D expense declined $1.1 million, mainly from lower preclinical and employee spending, partly offset by higher APVO436 trial and ALG.APV-527 preparation costs. G&A declined $0.8 million, including lower personnel and consulting costs and no comparable stockholder-activism response costs.
• Aptevo sold 1,452,065 shares through its Piper Sandler equity distribution agreement in 2022, receiving $7.0 million at an average price of $4.92. Year-end shares outstanding were 6,466,294; the filing reports another 730,913 shares issued before filing, and 7,239,471 shares outstanding as of March 30, 2023.
• In March 2023, Aptevo sold to XOMA rights to future IXINITY deferred payments and portions of certain Medexus milestones for $9.6 million, with a possible additional $0.05 million payment. It used part of the proceeds to repay the remaining $2.8 million MidCap debt, including $0.3 million in exit fees.
• Medexus deferred payments from IXINITY sales generated $1.0 million of discontinued-operations income in 2022. The deferred-payment rate increased from 2% to 5% of net sales as of June 30, 2022; Aptevo sold its future deferred-payment rights to XOMA in March 2023.

Pipeline, outlook and key risks

• APVO436: The Phase 1b study’s dose-expansion enrollment concluded. In the venetoclax-naive subgroup receiving APVO436 plus venetoclax and azacitidine, the company reported 82% composite complete remission, 73% CR/CRi, and 91% clinical benefit. These are preliminary results from a small, open-label early-stage study, not confirmatory evidence. Aptevo planned to initiate a Phase 2 study in the second half of 2023.
• APVO436 was generally described as tolerated, but 10 of 42 patients developed cytokine release syndrome, mostly grade 1 or 2; one treatment-related grade 5 CRS event was reported, with sepsis and pneumonia complicating causality assessment. APVO436 has FDA orphan-drug designation for AML.
• ALG.APV-527: The first-in-human Phase 1 study began in the first quarter of 2023, with enrollment ongoing. It is being developed with Alligator Bioscience for 5T4-expressing solid tumors.
• Preclinical candidates: APVO603 and APVO442 were advancing through preclinical or IND-enabling work. APVO711 remained preclinical; the company filed a provisional patent in January 2023 and said further studies were planned.
• Management said available cash, potential HCR milestones, financing facilities and remaining Medexus-related receipts were expected to cover projected operating needs and debt service for at least 12 months from the filing. However, Aptevo stated it would need substantial additional funding to complete product development and did not have sufficient cash to complete clinical development of any candidate. Continued operating losses, financing availability and potential dilution are material concerns.
• Principal risks include clinical failure or delays, serious adverse effects, reliance on third-party trial and manufacturing providers, intense competition, dependence on partner performance and milestone receipts, intellectual-property challenges, macroeconomic and supply constraints, and potential future equity dilution. Early trial results may not predict later-stage outcomes.
• The company reported effective disclosure controls and internal control over financial reporting at December 31, 2022. The auditor issued an unqualified opinion on the financial statements and was not engaged to attest to internal-control effectiveness.

Most important facts for investors to verify

• Whether APVO436’s preliminary response and safety findings are confirmed in full analyses and subsequent controlled or larger trials, including the circumstances of the fatal CRS event.
• Whether planned clinical milestones occurred on schedule and what updated enrollment, efficacy, safety and cost disclosures show for APVO436 and ALG.APV-527.
• Current cash, operating burn, debt status and funding runway after the XOMA transaction and MidCap repayment; assess the extent and price of any further equity issuance.
• Whether the potential 2023 HCR milestone was achieved and whether remaining Medexus-related milestone rights retained after the XOMA sale produce payments.
• The dilution reflected in the post-year-end share count and any additional shares issued under the Piper Sandler or Lincoln Park agreements.