Aptevo Therapeutics Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; filed November 12, 2021. Aptevo is a clinical-stage biotechnology company developing cancer immunotherapies. Its lead clinical candidate is APVO436; ALG.APV-527, APVO603 and APVO442 are preclinical candidates. The company has no product candidates approved for commercial sale.
Financial performance and position
Amounts below are in millions of dollars unless otherwise noted.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Royalty revenue | $3.10 | $1.46 | $8.63 | $1.94 |
| Research and development expense | $4.37 | $4.49 | $14.45 | $12.94 |
| General and administrative expense | $3.48 | $3.22 | $11.54 | $9.67 |
| Loss from operations | $(4.75) | $(6.25) | $(17.36) | $(20.68) |
| Net loss from continuing operations | $(7.08) | $(6.95) | $(22.81) | $(23.75) |
| Net loss, including discontinued operations | $(7.00) | $(6.79) | $(22.19) | $(10.70) |
| Basic and diluted net loss per share | $(1.43) | $(2.10) | $(4.80) | $(3.31) |
- Cash and liquidity: At September 30, cash and cash equivalents were $52.1 million and current restricted cash was $1.3 million; total cash, cash equivalents and restricted cash were $53.4 million. Total current assets were $58.9 million and current liabilities were $32.4 million.
- Cash flow: Nine-month operating cash use was $17.8 million, compared with $23.2 million in 2020. Investing activities used $0.6 million. Financing activities provided $29.2 million, primarily from the royalty transaction and equity issuance, partly offset by debt repayment.
- Debt and royalty financing: The MidCap term loan had $15.0 million principal remaining after a $10.0 million paydown in March; $11.2 million was classified as current at quarter-end. Aptevo received $35.0 million from HCR for the RUXIENCE royalty stream and recorded the proceeds, net of costs, as a liability. The liability was $32.1 million at September 30, including $13.4 million current. The estimated effective interest rate was 21.9%.
- Equity: Stockholders’ equity was $7.3 million, down from $16.6 million at December 31, 2020. Shares outstanding increased from 4.41 million to 4.90 million; 407,047 shares sold to Lincoln Park generated $10.2 million during the first nine months.
Material changes versus the prior comparable period
- Nine-month royalty revenue rose to $8.6 million from $1.9 million, reflecting RUXIENCE sales. The royalty stream was sold to HCR in March 2021, but Aptevo continues to recognize royalty revenue and records payments to HCR as a reduction of the related liability.
- Nine-month R&D expense increased $1.5 million, mainly from APVO436 clinical-trial consulting and analytical work on preclinical programs. Q3 R&D was slightly lower year over year.
- Nine-month G&A expense increased $1.9 million, primarily due to stockholder-activism-related costs and higher employee costs.
- Other expense increased to $5.5 million for the first nine months from $1.0 million, mainly due to MidCap interest and exit fees and non-cash interest on the HCR arrangement.
- The 2020 nine-month net loss included a $14.3 million gain on the sale of Aptevo BioTherapeutics. Accordingly, the lower reported 2020 net loss does not reflect a comparable operating improvement. Discontinued-operations income was $0.6 million in 2021 versus $13.1 million in 2020.
Outlook, commentary and risks
- Management expects continued significant operating losses for the next several years and stated that available resources, expected IXINITY deferred payments, potential HCR milestone proceeds and release of restricted cash should cover projected operating requirements and debt service for at least 12 months from the filing date. This is not a guarantee; the company says it will need substantial additional funding to complete product development.
- Enrollment and dosing began in Part 2, the expansion phase, of the APVO436 Phase 1B trial in adults with AML. The filing provides no numerical financial guidance.
- Future cash and results depend partly on Medexus’s IXINITY sales and payments and Pfizer’s RUXIENCE sales and related HCR milestones. The company does not control either commercialization effort.
- Key risks include clinical-development failure or delay, patient-enrollment and site constraints, COVID-19 disruption, dependence on third-party manufacturers and trial providers, additional financing needs and potential dilution, debt covenants and a subjective acceleration clause, and stockholder activism. The MidCap loan’s LIBOR reference also requires transition to an alternative rate.
- The company reported no material pending legal claims and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, 2021 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway assumptions, cash burn and timing or amount of future financing needs.
- APVO436 expansion-trial enrollment, safety and efficacy results, and development timelines for the broader pipeline.
- RUXIENCE sales, HCR milestone eligibility and the evolving balance and financing cost of the royalty liability.
- IXINITY sales and expected Medexus deferred payments or milestones.
- MidCap repayment schedule, covenant compliance, acceleration provisions and LIBOR replacement terms.
- Potential dilution from remaining Lincoln Park capacity, the Piper Sandler equity program, warrants and equity awards.