Aptevo Therapeutics Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Aptevo is a clinical-stage biotechnology company developing oncology immunotherapies; it sold its IXINITY hemophilia business during the year. Unless noted otherwise, financial figures are in U.S. dollars.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Royalty revenue | $4.3 million | None reported |
| Research and development expense | $17.9 million | $24.8 million |
| General and administrative expense | $14.0 million | $16.2 million |
| Loss from continuing operations | $30.9 million | $43.1 million |
| Income from discontinued operations | $13.2 million | $2.6 million |
| Net loss | $17.8 million | $40.4 million |
| Net cash used in operating activities | $29.3 million | $42.4 million |
FY2020 royalty revenue came from Pfizer’s RUXIENCE sales. The smaller total net loss reflects both lower expenses and the $14.3 million gain on the IXINITY-business sale; continuing operations remained loss-making. Gross or operating margins are not presented as meaningful measures in the filing for this development-stage business.
At year-end, cash and cash equivalents were $40.0 million and restricted cash was $2.6 million, for total cash, cash equivalents and restricted cash of $42.5 million. Total assets were $53.5 million; total liabilities were $37.0 million; stockholders’ equity was $16.6 million. The MidCap facility had $25 million of principal outstanding at year-end, with $5 million classified as current. The company reported no off-balance-sheet arrangements.
Material changes and transactions
- In February 2020, Aptevo sold IXINITY and its related business to Medexus for $30 million at closing. The sale produced a $14.3 million gain; Aptevo used $22.1 million to repay its prior debt facility. The company retained contingent deferred payments and potential milestones.
- R&D expense declined $6.9 million, mainly because of reduced spending on discontinued programs; increased APVO436 trial spending partly offset the reduction. G&A expense fell $2.2 million, primarily from lower personnel and professional-service costs.
- Operating cash outflow improved by $13.1 million year over year. Investing cash flow was $28.0 million, largely from the IXINITY sale; financing cash flow was $23.9 million, including $21.2 million from warrant exercises and proceeds from the new MidCap loan.
- Aptevo issued approximately 1.17 million shares through warrant exercises, raising about $21.2 million. Shares outstanding at December 31, 2020 were 4.41 million. A 1-for-14 reverse stock split took effect in March 2020.
- Subsequent event: On March 30, 2021, Aptevo sold its RUXIENCE royalty rights to HCR for $35 million upfront, with up to $32.5 million in additional sales-based milestone payments. After HCR receives payments totaling 190% of the upfront amount plus any milestones paid, Aptevo is entitled to 50% of subsequent Pfizer royalty payments. Aptevo used $10 million of the proceeds to reduce MidCap principal from $25 million to $15 million.
Business outlook, management commentary and risks
- Pipeline: APVO436 was in a Phase 1/1b trial for AML and MDS, with enrollment in cohort 10 ongoing. The company reported preliminary clinical activity, including two complete remissions in cohort 6, while noting that one patient later progressed and the other was no longer in complete remission. CRS occurred in some patients and was treated with standard measures; management said serious neurologic toxicity was not frequent in preliminary data. APVO436 received FDA orphan-drug designation for AML.
- ALG.APV-527 was being developed with Alligator; the companies planned a European clinical-trial application in 2021 and first-in-human dosing in Q4 2021. Aptevo was initiating IND-enabling and manufacturing work for APVO603, targeting an IND submission in 2022. APVO442 remained preclinical.
- Management expected continuing operating losses and stated that development-stage candidates would require substantial additional funding. The filing said liquidity, including the HCR transaction and other expected sources, was expected to cover projected operating needs and debt service for at least 12 months from the filing date. This is management’s assessment, not a guarantee; financing availability and future milestone or royalty receipts remain uncertain.
- Aptevo’s year-end credit agreement carried interest at one-month LIBOR plus 6.25%, subject to a 1.50% floor and 2.50% cap, and included restrictive covenants and royalty-related repayment provisions. A change-of-control default was waived after Tang’s ownership increase, but the agreement identifies potential default and acceleration risks.
- Tang, which reported 39.6% beneficial ownership by the filing date, made a nonbinding $50-per-share proposal to acquire the remaining shares. The board said it could not conduct due diligence because it did not reach agreement with Tang on a confidentiality agreement. Tang also announced director nominations and a proposal to begin a sale process. The company reported added advisory costs and potential effects on financing, strategy and share-price volatility.
- COVID-19 disrupted clinical-site capacity, enrollment and trial activities, including delaying Aptevo’s participation in the Beat AML trial. Further delays, funding constraints, clinical setbacks, adverse events, competition, manufacturing dependence and intellectual-property risks could materially affect results. The company reported an $8.1 million Beat AML trial commitment over three years, subject to a 180-day termination-for-convenience clause.
- The company reported no income tax benefit or expense from continuing operations. It had approximately $162.5 million in federal and $68.1 million in state net operating loss carryforwards; use may be limited by ownership changes, and the company was completing a Section 382/383 study.
- Management concluded disclosure controls and internal control over financial reporting were effective as of year-end. The independent auditor gave an unmodified opinion on the 2020 financial statements.
Most important facts for investors to verify
- Cash runway and cash burn after the March 2021 HCR proceeds, the $10 million debt repayment, and subsequent restricted-cash release.
- MidCap’s amended repayment schedule, fees, covenants and any remaining security or default provisions.
- Actual RUXIENCE sales milestones paid by HCR, the conditions for future payments and the timing and value of any residual royalty participation.
- Medexus’s IXINITY sales, deferred payments and milestones, including the transition from a 2% to a 5% royalty rate and the pediatric-trial condition.
- Updated APVO436 safety, efficacy, enrollment and trial timelines; whether the preliminary responses are durable; and progress of the other pipeline programs.
- Developments in Tang’s proposed transaction, proxy contest and sale-process proposal, and any resulting governance, financing or strategic changes.
- Results of the Section 382/383 study and the extent to which ownership changes could restrict NOL use.