Aptevo Therapeutics Inc. (NASDAQ: APVO) is a clinical-stage biotechnology company focused on novel oncology and hematology therapeutics to improve patients’ lives.
In the recent past, APVO’s stock gained enormous strength & popularity, just after it sold three of its products for a much higher than expected value. On August 31st, Aptevo announced that it has agreed to sell its three marketed hyperimmune products to Saol Therapeutics.
The overall transaction is valued at up to $74.5 million, including an upfront payment of $65 million, and an additional potential milestone payment of up to $7.5 million related to the achievement of gross profit milestones. Additionally, Aptevo may receive up to $2 million related to the collection of certain accounts receivable after the closing. With this, the financing overhang on the company has been eliminated at least for the medium term.
The three products that Saol will get are all coming from Aptevo’s hyperimmune portfolio and are WinRho SDF for autoimmune platelet disorder and hemolytic disease of the newborn; HepaGam B for the prevention of Hepatitis B following liver transplantation and for treatment following hepatitis B exposure; and VARIZIG for treatment following exposure to varicella zoster virus for individuals with compromised immune systems.
The transaction described above brings in significant non-dilutive funding for Aptevo, enabling it to continue investing in its promising pipeline. With a deal value of up to $74.5 million, representing approximately 2.8 times of its market capitalization on August 30, 2017 and its 2016 annual revenue, the management views this as a very attractive opportunity to monetize its non-core assets and at the same time not dilute stockholders as it continues to invest in promising assets like ADAPTIR™ platform.
ADAPTIR is a modular protein technology platform that can generate highly-differentiated, bispecific antibodies with unique mechanisms of action to treat cancer or various autoimmune diseases. Furthermore, it can do so relatively quickly and comparatively cheaply when looked at against the cost of developing a unique asset in this type of oncology indication.
Therefore, the recent drug asset sale strengthens Aptevo’s cash position and provides it with all the necessary flexibility to continue to advance its ADAPTIR product candidates through potentially value-adding inflection points, including an ongoing dose-escalation Phase 1 study of APVO414 in metastatic castration resistant prostate cancer; an ongoing Phase 2 clinical program for otlertuzumab, and future Phase 1 clinical studies of its novel bispecifics focused on engaging the immune system, including, APVO436 and ALG.APV-527, a bispecific targeting ROR1, and a bispecific based on targeted cytokine delivery, APVO210 (formerly known as ES210.)
On the flip side, future revenues for the company might temporarily take a hit, but the overall financial flexibility and liquidity of the company has improved significantly. In other words, there’s no dilution risk for next 1-2 years, and by that time a few significant catalysts are likely to be crystallized.
It’s rare to find an exciting biotech play like APVO, who has low market cap, with huge liquidity, efficient/promising product pipeline in a high growth industry. In fact, the company estimates that the global market for patients with metastatic castration-resistant prostate cancer therapies is expected to reach $9.5 billion by 2020.
Driven by above-mentioned factors, traders and investors seem to be pricing APVO positively. The stock currently has an average rating of “BUY” and a consensus price target of $5. Considering present valuation, APVO is at an extremely favorable risk-reward position.
About the Company: Aptevo Therapeutics Inc. is a clinical-stage biotechnology company focused on novel oncology and hematology therapeutics to improve patients’ lives meaningfully.
Aptevo has a commercial product, IXINITY®, approved and marketed in the United States for the treatment of Hemophilia B, and a versatile core technology – the ADAPTIR™ modular protein technology platform capable of generating highly-differentiated bispecific antibodies with unique mechanisms of action to treat cancer or autoimmune diseases. Aptevo has two ADAPTIR antibody candidates currently in clinical development, and a broad pipeline of novel investigational-stage bispecific antibody candidates focused on immuno-oncology and autoimmune infection and inflammation.
ADAPTIR Clinical and Preclinical Portfolio:
- APVO414 – a bispecific ADAPTIR candidate, currently in Phase 1 development, targeting prostate-specific membrane antigen (PSMA), an enzyme that is expressed on the surface of prostate cancer cells, and, CD3, a component of the T cell receptor complex expressed on all T cells. APVO414 redirects T cells to specifically kill PSMA expressing tumors and is being developed for metastatic castration-resistant prostate cancer, which is advanced prostate cancer that has spread to other organs and no longer responds to hormone-blocking therapies.
- Otlertuzumab – a monospecific ADAPTIR candidate currently in Phase 2 development for the treatment of chronic lymphocytic leukemia (CLL). Data from a Phase 2 clinical trial evaluating otlertuzumab in combination with bendamustine, compared to bendamustine alone, demonstrated a significant increase in median progression-free survival for the combination, from approximately 10 to 16 months.
- APVO436 – a bispecific ADAPTIR candidate currently in preclinical development targeting CD123, a cell surface receptor highly expressed on several hematological malignancies and CD3, a component of the T-cell receptor. APVO436 engages T cells in killing tumor cells.
- APV-527 – a bispecific antibody candidate, partnered with Alligator Bioscience, featuring a novel mechanism of action designed to simultaneously target 4-1BB (CD137) and an undisclosed tumor antigen.
- APVO210 – a bispecific ADAPTIR preclinical candidate with a novel mechanism of action based on targeted cytokine delivery.
- ROR1 Bispecific – a proof-of-concept bispecific candidate targeting ROR1, an antigen found in several solid tumors and hematologic, or blood-related malignancies. Initial preclinical data demonstrate redirected T cell killing of tumors expressing ROR1 in vitro and in vivo in animal models.
Other recent announcements:
On Oct 2nd, the company announced new information on the Company’s proprietary next-generation ADAPTIR™ protein therapeutic platform was presented at the 8th Annual World Bispecific Summit in Boston, MA, September 26-28, 2017.
Aptevo’s next generation ADAPTIR platform, highlights improvements that have led to the development of new ADAPTIR candidates with increased stability, superior manufacturability and antibody expression levels, and an extended half-life of up to 12.5 days in rodents.
As per management, recent data on APVO436 confirm the important advances it made with its next-generation ADAPTIR candidates, specifically improved stability, half-life, activity, and manufacturability – all critical attributes for commercialization.
2017 Second quarter financial results:
Liquidity and Financial Flexibility: Aptevo had cash, cash equivalents, and short-term investments as of June 30, 2017, totaling $48.6 million. With the money coming in and given the current burn rate of about $10M – $15M per quarter, the company is estimated to have at least two years of liquidity.
Moreover, the company recently announced that it had amended the terms of a credit agreement initially executed with MidCap Financial Trust in August 2016. The first tranche of this term loan, for $20 million, was funded in August 2016. The amendment allows Aptevo to retain this $20 million funding tranche, for which repayment was anticipated coincident with the sale transaction of Aptevo’s hyperimmune commercial assets. As part of the amendment, the companies have agreed to eliminate the option for the second tranche of $15 million.
Product Sales Revenue: Total product sales revenue was $10.8 million for the three months ended June 30, 2017, compared to $10.2 million for the same period in 2016. The increase in product sales revenue was primarily due to increased sales of IXINITY as new supply of IXINITY was reintroduced during the current period, offset by reduced sales of WinRho.
Net Loss: Aptevo’s net loss for the three months ended June 30, 2017, was $11.2 million or ($0.53) per share, compared to $12.8 million or ($0.63) per share for the corresponding period in 2016.
Key risk factors and potential stock drivers:
After the recent asset sale, the focus on R&D expenses is likely to increase. Additionally, the revenues are expected to shrink together with a higher than before cash burn, until the existing pipeline starts to contribute meaningfully.
Therefore, Aptevo will need to demonstrate the meaningful value in its R&D activities, and the market will react accordingly. Any non-favorable news regarding the same could be a major constraining factor for the company’s business risk profile.
Given the historical track record of the asset sale, the company might sell other products as well, which could potentially produce another substantial cash inflow within the next 1-2 years.
The biotech space is a high-risk sector due to uncertainties associated with the novel drug development. Therefore, favorable outcome of the upcoming catalyst is necessary for the stock to retain its momentum. Any adversities related with the same could upset the stock performance significantly.
On Monday, October 9th, 2017, in intra-day trading, APVO was at $2.57 (-4.81%) on volume of 400 thousand shares exchanging hands. Market capitalization is $57.20 million. The current RSI is 66.38
In the past 52 weeks, shares of APVO have traded as low as $1.15 and as high as 3.85
At $2.57, shares of APVO are trading above its 50-day moving average (MA) at $1.87 and above its 200-day MA at $2.01
The present support and resistance levels for the stock are at $2.53 & $2.88 respectively.
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