Aptevo Therapeutics Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Aptevo is a clinical-stage biotechnology company developing cancer immunotherapies; it had no approved products for commercial distribution. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparator |
|---|---|---|
| Royalty revenue | $2.421 | None |
| Research and development expense | $5.362 | $4.006 |
| General and administrative expense | $3.947 | $3.616 |
| Loss from operations | $(6.888) | $(7.622) |
| Net loss from continuing operations | $(7.670) | $(10.001) |
| Income from discontinued operations | $0.414 | $12.898 |
| Net income (loss) | $(7.256) | $2.897 |
| Basic and diluted net income (loss) per share | $(1.64) | $0.89 |
| Net cash used in operating activities | $(7.504) | $(11.175) |
Gross margin is not a meaningful reported measure for this clinical-stage business. The $2.4 million royalty revenue reflects a 2.5% royalty on global RUXIENCE sales. R&D expense rose $1.4 million, reflecting continued investment in APVO436 and preclinical programs; G&A rose $0.3 million, primarily due to professional services, including shareholder activism costs.
At March 31, cash and cash equivalents were $57.524 million and current restricted cash was $1.257 million, versus $39.979 million and $2.555 million, respectively, at December 31, 2020. Total current assets were $62.850 million; current liabilities were $29.344 million. Total assets were $68.753 million, total liabilities $58.249 million, and stockholders’ equity $10.504 million. Accumulated deficit was $192.862 million.
Operating cash use was $7.5 million. Financing provided $23.9 million, chiefly from the $35.0 million RUXIENCE royalty transaction, partially offset by $10.55 million of debt payments. Cash, cash equivalents, and restricted cash increased by $16.247 million during the quarter.
Material changes and financing transactions
- On March 30, Aptevo sold HCR the right to receive Pfizer’s RUXIENCE royalty payments for $35.0 million upfront and potential sales-based milestone payments of up to $32.5 million in aggregate for 2021–2023. Aptevo continues to recognize royalty revenue, but records the arrangement as financing: the proceeds, net of $1.1 million transaction costs, created a $33.920 million liability at quarter-end. The estimated effective interest rate was 21.9%. Aptevo is not required to fund a shortfall if royalty receipts are insufficient to repay the liability. After HCR receives payments totaling 190% of the upfront amount plus any milestones paid, Aptevo is entitled to 50% of subsequent royalty payments.
- Aptevo amended its MidCap credit agreement and used $10.0 million of the royalty-sale proceeds to reduce principal from $25.0 million to $15.0 million; it also paid a $0.6 million amendment fee. The balance sheet reports $10.167 million as current debt and $4.614 million as long-term debt. The agreement calls for $10.0 million due March 31, 2022, with monthly repayments of the remaining $5.0 million beginning March 1, 2022. The loan bears interest at one-month LIBOR plus 6.25%, subject to stated floors and caps.
- The prior-year comparison included $12.898 million of discontinued-operations income, largely a $14.338 million gain on the 2020 sale of Aptevo BioTherapeutics, partly offset by operating losses. Q1 2021 discontinued-operations income of $0.414 million consisted of payments related to previously sold businesses. Thus, the reported swing from net income to net loss is not a like-for-like change in continuing operations.
- Q1 2021 investing cash use was $0.191 million for property and equipment; Q1 2020 investing cash inflow of $28.120 million primarily reflected proceeds from the BioTherapeutics sale. Q1 2021 included $0.592 million from stock-option and warrant exercises. No shares were sold under the Piper Sandler equity distribution agreement during the quarter.
Outlook, risks, and other notable matters
- Management said available resources, expected deferred payments and milestones, potential warrant proceeds, access to equity facilities, and release of restricted cash were expected to fund projected operating requirements and debt service for at least 12 months from the financial statements’ issuance. The company nevertheless expects significant operating losses for years, says it lacks sufficient cash to complete development of its candidates, and expects to need substantial additional funding. Future financing may dilute shareholders or require restrictive terms or concessions.
- Aptevo continued enrollment in the Phase 1/1b APVO436 trial for AML and high-grade MDS, with dosing in Cohort 10 ongoing. It also reported continued investment in ALG.APV-527, APVO603, and APVO442. These are development programs, not approved products; clinical and regulatory success is uncertain.
- Management identified COVID-19-related risks to clinical enrollment, trial sites, suppliers, financing, and partnering. Future cash receipts also depend in part on Medexus’s IXINITY sales and payments and Pfizer’s RUXIENCE sales and HCR’s performance under the royalty agreement.
- Activist shareholder Tang, reported at 39.6% beneficial ownership as of the filing, had announced plans to nominate two directors and proposed a process to sell the company. Aptevo said the matter had caused, and could continue to cause, added professional costs and could complicate capital raising and strategic execution. The credit agreement contains a subjective acceleration clause and specified change-of-control-related provisions.
- Other commitments include an $8.1 million obligation over four years for the Beat AML clinical trial, subject to a 180-day termination-for-convenience provision. The Seattle office lease is recorded through April 2023 based on the company’s assessment of its termination option.
- Management reported effective disclosure controls as of March 31, 2021, and no material change in internal control over financial reporting during the quarter. The company reported no pending legal matter expected by management to have a material adverse effect and no off-balance-sheet arrangements.
Investor facts to verify
- Whether RUXIENCE sales generate the HCR milestone payments and how actual royalty receipts compare with the assumptions underlying the 21.9% estimated effective interest rate and royalty liability.
- Cash burn, trial spending, and the timing and amount of IXINITY deferred payments, warrant exercises, and any additional financing; management’s 12-month liquidity statement is an estimate, not a guarantee.
- Progress, enrollment, safety, and efficacy data for APVO436 and the other pipeline candidates, including any effects from COVID-19.
- The March 2022 $10.0 million debt payment, remaining loan terms, and LIBOR transition or other credit-agreement requirements.
- Potential dilution and governance or strategic consequences from equity facilities, outstanding warrants, and the activist shareholder situation. The filing reported 4,449,535 common shares outstanding as of May 10, 2021.