UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Trading Symbols(s) |
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Name of Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 14, 2023, the number of shares of the registrant’s common stock outstanding was
1
Table of Contents
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Page |
PART I. |
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Item 1. |
3 |
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3 |
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4 |
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5 |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity |
6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
Item 3. |
26 |
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Item 4. |
26 |
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PART II. |
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Item 1. |
27 |
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Item 1A. |
27 |
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Item 2. |
58 |
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Item 3. |
58 |
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Item 4. |
58 |
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Item 5. |
58 |
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Item 6. |
59 |
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60 |
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In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Aptevo,” and “the Company” refer to Aptevo Therapeutics Inc. and, where appropriate, its consolidated subsidiaries.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Aptevo Therapeutics Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts, unaudited)
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September 30, 2023 |
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December 31, 2022 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Royalty and milestone receivable |
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— |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use asset |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable and other accrued liabilities |
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$ |
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$ |
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Accrued compensation |
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Current portion of long-term debt |
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— |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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— |
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Operating lease liability |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock: $ |
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Common stock: $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Aptevo Therapeutics Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts, unaudited)
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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revenue |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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Operating expenses: |
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Research and development |
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( |
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( |
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( |
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( |
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General and administrative |
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( |
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( |
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( |
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( |
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Loss from operations |
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( |
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( |
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( |
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( |
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Other income (expense): |
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Other income (expense) from continuing operations, net |
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( |
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( |
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Gain related to sale of non-financial asset |
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— |
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— |
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— |
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Gain on extinguishment of liability related to sale of royalties |
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— |
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— |
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— |
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Net (loss) income from continuing operations |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Discontinued operations: |
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Income from discontinued operations |
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$ |
— |
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$ |
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$ |
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$ |
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Net (loss) income |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
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Basic and diluted net (loss) income per share from continuing operations: |
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Basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Basic and diluted net (loss) income per share: |
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Basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Shares used in calculation: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
Aptevo Therapeutics Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
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For the Nine Months Ended September 30, |
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2023 |
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2022 |
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Operating Activities |
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Net (loss) income |
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$ |
( |
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$ |
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Adjustments to reconcile net (loss) income to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation and amortization |
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Non-cash interest expense and other |
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Gain on extinguishment of liability related to sale of royalties |
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— |
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( |
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Changes in operating assets and liabilities: |
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Royalty receivable |
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Prepaid expenses and other current assets |
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Operating lease right-of-use asset |
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Accounts payable, accrued compensation and other liabilities |
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( |
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Long-term operating lease liability |
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( |
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Net cash used in operating activities |
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( |
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( |
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Investing Activities |
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Purchase of property and equipment |
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— |
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( |
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Net cash used in investing activities |
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— |
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( |
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Financing Activities |
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Payments of long-term debt, including fees |
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( |
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( |
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Repayments under liability related to sale of royalties |
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— |
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( |
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Value of equity awards withheld for tax liability |
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( |
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( |
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Proceeds from milestones related to sale of royalties |
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— |
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Transaction costs for milestones related to sale of royalties |
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— |
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( |
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Proceeds from issuance of common stock |
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Proceeds from exercise of pre-funded warrants |
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— |
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Net cash provided in (used in) financing activities |
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( |
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Decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period |
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$ |
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$ |
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Supplemental Cash Flow Information |
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Change in ROU asset and lease liability from lease remeasurement |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Aptevo Therapeutics Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share amounts, unaudited)
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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Common stock issued upon vesting of |
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— |
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( |
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— |
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( |
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Issuances of common stock |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net income for the period |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Common stock issued upon vesting of |
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— |
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( |
) |
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— |
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( |
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Issuances of common stock |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss for the period |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Common stock issued upon vesting of |
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— |
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— |
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— |
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— |
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Issuances of common stock |
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— |
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Issuances of pre-funded warrants |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss for the period |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Additional |
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Total |
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Common Stock |
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Paid-In |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity (Deficit) |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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Common stock issued upon vesting of |
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— |
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( |
) |
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— |
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( |
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Commitment shares issued pursuant to |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss for the period |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Common stock issued upon vesting of |
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— |
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— |
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— |
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— |
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Issuances of common stock |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net income for the period |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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( |
) |
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Common stock issued upon vesting of |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss for the period |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at September 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Aptevo Therapeutics Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies
Organization and Liquidity
Aptevo Therapeutics Inc. (Aptevo, we, us, or the Company) is a clinical-stage, research and development biotechnology company focused on developing novel immuno-oncology candidates for the treatment of different forms of cancer. We have developed
We are currently trading on the Nasdaq Capital Market under the symbol “APVO.”
The accompanying financial statements have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. For the nine months ended September 30, 2023, we had a net loss of $
We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to: (a) changes we may make to the business that affect ongoing operating expenses; (b) changes we may make in our business strategy; (c) changes we may make in our research and development spending plans; (d) whether and to what extent expected milestones are received from Medexus with respect to IXINITY; (e) whether and to what extent future milestone payments are received under our Royalty Purchase Agreement; (f) macroeconomic conditions such as rising interest rates, inflation and costs; and (g) other items affecting our forecasted level of expenditures and use of cash resources. We may obtain additional funding through our existing equity Purchase Agreement with Lincoln Park or our Equity Distribution Agreement with Piper Sandler, or attempt to obtain other public or private financing, collaborative or licensing arrangements with strategic partners, or through credit lines or other debt financing sources to increase the funds available to fund operations. However, we may not be able to secure such funding in a timely manner or on favorable terms, if at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration, licensing, or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. Without additional funds, we may be forced to delay, scale back, or eliminate some of our research and development activities or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development goals may be adversely affected. Given the continuing global economic and geopolitical climate, including rising interest rates and stock market volatility, we may experience delays or difficulties in the financing environment and raising capital due to economic uncertainty.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). These unaudited condensed consolidated financial statements include all adjustments, which include normal recurring adjustments, necessary for the fair presentation of the Company’s financial position. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
7
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and changes in these estimates are recorded when known.
The unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiary, Aptevo Research and Development LLC. All intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the unaudited condensed financial statements and accompanying notes. Estimates are used for, but not limited to, clinical accruals, useful lives of equipment, commitments and contingencies, stock-based compensation, and incremental borrowing rate (IBR) used for our lease. Given the global economic and geopolitical climate, these estimates are becoming more challenging, and actual results could differ materially from those estimates.
Significant Accounting Policies
Gain Related to Sale of Nonfinancial Asset to XOMA (US) LLC
On March 29, 2023, we entered into and closed a payment interest purchase agreement (the “Purchase Agreement”) with XOMA (US) LLC (“XOMA”) pursuant to which we sold to XOMA our right, title and interest in all of the deferred payments and a portion of the milestone payments from Medexus pursuant to our LLC Purchase Agreement. Under the terms of the Purchase Agreement, we received $
We accounted for the $
Liability Related to Sale of Royalties and Non-Cash Interest Expense
On March 30, 2021, we entered into and closed a Royalty Purchase Agreement with HCR pursuant to which we sold to HCR the right to receive royalty payments made by Pfizer in respect of global net sales of RUXIENCE. Under the terms of the Royalty Purchase Agreement, we have received $
Through March 31, 2022, we accounted for the Royalty Purchase Agreement with HCR as a debt-like instrument, amortized under the effective interest rate method over the life of the related expected royalty stream. The liabilities related to the sale of royalties and the debt amortization were based on our estimates of royalties expected to be paid over the life of the arrangement. We received the 2021 milestone payments in the collective amount of $
On June 7, 2022, we entered into and closed an amendment to the Royalty Purchase Agreement (the "Amendment to Royalty Purchase Agreement") (see Note 8) which removed all restrictions related to HCR’s rate of return, and it is no longer a sale of a specified percentage of royalty revenue. The Amendment to Royalty Purchase Agreement was accounted for under ASC 610-20, Gains and Losses from Derecognition of Nonfinancial Assets and ASC 405-20, Liabilities – Extinguishment of Liabilities and the transaction was no longer considered a debt-like financing.
As a result of the Amendment to Royalty Purchase Agreement, the Company recognized a gain of $
8
the 2022 milestone payment of $
Royalty Revenue
We recognized revenue in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
RUXIENCE Royalty Revenue
Aptevo’s royalty revenue was exclusively related to royalties on Pfizer’s net sales of RUXIENCE. We did not recognize royalty revenue for the nine months ended September 30, 2023. Royalty revenue for the period covered by this report reflects revenue recorded only in the first quarter of 2022 due to our Amendment to Royalty Purchase Agreement with HCR (see Note 8). As a result of the Amendment to Royalty Purchase Agreement, we ceased reporting as royalty revenue, royalties paid by Pfizer to HCR related to Pfizer’s sales of RUXIENCE.
We recognized royalty revenue under ASC 606, which provides revenue recognition constraints by requiring the recognition of revenue at the later of the following: (1) when the subsequent sale or usage occurs or (2) when the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied). We satisfied our performance obligation prior to the period covered by this report, specifically in May 2011 when the original Collaboration and License Agreement between Trubion Pharmaceuticals and Wyeth was amended to remove the exclusivity/non-compete restrictions so that Pfizer could develop a CD20 biosimilar product in exchange for a one-time payment of $
Given the royalty revenues were based on
Debt Modification
On March 29, 2023, we used a portion of the proceeds from our Purchase Agreement with XOMA to fully repay the $
Other Significant Accounting Policies
Our other significant accounting policies were reported in our Annual Report on Form 10-K for the year ended December 31, 2022 that was filed with the SEC on March 30, 2023. Our other significant accounting policies have not changed materially from the policies previously reported.
Note 2. Discontinued Operations
The accompanying unaudited condensed consolidated financial statements include discontinued operations from two separate transactions: the sale of our hyperimmune business to Saol International Limited (subsequently acquired by Kamada Ltd.) in September 2017, from which we received a payment in March 2023 related to the collection of certain accounts receivable, and the sale of our Aptevo BioTherapeutics LLC business to Medexus in February 2020. In March 2023, we sold our rights to deferred payments and a percentage of potential future milestones from Medexus to XOMA.
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The following table represents the components attributable to income from discontinued operations in the unaudited condensed consolidated statements of operations (in thousands):
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For the Three Months Ended September 30, |
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For the Nine Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Deferred payment from Medexus |
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— |
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Gain on contingent consideration from release of escrow related to sale of Aptevo BioTherapeutics |
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— |
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— |
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|
|
— |
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Gain on contingent consideration from Kamada |
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— |
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|
— |
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|
|
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|
|
— |
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Income from discontinued operations |
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$ |
— |
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$ |
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$ |
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$ |
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The LLC Purchase Agreement with Medexus entitled us to future deferred payments and milestones. For the nine months ended September 30, 2023, we collected $
Note 3. XOMA Transaction
On March 29, 2023, we entered into and closed a Purchase Agreement with XOMA pursuant to which we sold to XOMA our right, title and interest in and to all of the deferred payments and a portion of the milestone payments from Medexus under our 2020 LLC Purchase Agreement. Under the terms of our Purchase Agreement with XOMA, we received $
We accounted for the $
Note 4. Collaboration Agreements
Alligator Bioscience AB
On July 20, 2017, our wholly owned subsidiary Aptevo Research and Development LLC ("Aptevo R&D"), entered into a collaboration and option agreement (the "Collaboration Agreement") with Alligator Bioscience AB ("Alligator"), pursuant to which Aptevo and Alligator have been collaboratively developing ALG.APV-527, a bispecific antibody candidate simultaneously targeting 4-1BB (CD137), a member of the TNFR superfamily of a costimulatory receptor found on activated T cells, and 5T4, a tumor antigen widely overexpressed in a number of different types of cancer.
We assessed the arrangement in accordance with ASC 606 and concluded that the contract counterparty, Alligator, is not a customer. As such the arrangement is not in the scope of ASC 606 and is instead treated as a collaborative agreement under ASC 808 – Collaborative Arrangements (ASC 808). In accordance with ASC 808, we concluded that because the Collaboration Agreement is a cost sharing agreement, there is no revenue.
For the nine months ended September 30, 2023 and 2022, we recorded approximately $
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Note 5. Fair Value Measurements
The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, it gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The level in the fair value hierarchy within which the fair value measurement is reported is based on the lowest level input that is significant to the measurement in its entirety. The three levels of the hierarchy are as follows:
Level 1— Quoted prices in active markets for identical assets and liabilities;
Level 2— Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
At September 30, 2023 and December 31, 2022, we had $
Note 6. Cash and Cash Equivalents
The Company’s cash equivalents are highly liquid investments with a maturity of
The following table shows our cash and cash equivalents as of September 30, 2023 and December 31, 2022:
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September 30, |
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December 31, |
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(in thousands) |
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2023 |
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2022 |
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Cash |
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$ |
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$ |
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Cash equivalents |
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Total cash and cash equivalents |
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$ |
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$ |
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Note 7. Debt
Credit Agreement
On August 5, 2020, we entered into a Credit Agreement, with MidCap Financial (the "Credit Agreement"). The Credit Agreement provided us with up to $
On March 29, 2023, we used a portion of the proceeds from our Purchase Agreement with XOMA to fully repay the $
Note 8. Liability Related to Sale of Royalties
On March 30, 2021, we entered into and closed a Royalty Purchase Agreement with HCR pursuant to which we sold to HCR the right to receive royalty payments made by Pfizer in respect of global net sales of RUXIENCE. Under the terms of the Royalty Purchase Agreement, we have received $
Due to the nature of the transaction, which included a cap on HCR’s rate of return, we recorded a liability related to the proceeds received from HCR of $