UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
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 001-37746
APTEVO THERAPEUTICS INC.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2401 4th Avenue, Suite 1050
Seattle, Washington
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.001 par value per share
Trading Symbol
APVO
Registrant’s telephone number, including area code: (206) 838-0500
Securities registered pursuant to Section 12(g) of the Act:
None
81-1567056
(I.R.S. Employer
Identification No.)
98121
(Zip Code)
Name of Exchange on Which Registered
The Nasdaq Stock Market LLC
(The Nasdaq Capital Market)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
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. YES ☒ NO ☐
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). YES ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the
definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The aggregate market value of common stock held by non-affiliates of the Registrant as of June 30, 2021, the last business day of the Registrant’s most recently completed second fiscal quarter,
was $93.1 million, based upon the closing price of the Registrant’s common stock on the Nasdaq Stock Market LLC on June 30, 2021, the last trading day of the fiscal quarter.
Excludes an aggregate of 258,172 shares of the Registrant’s common stock held as of such date by officers, directors, and stockholders that the registrant has concluded are or were affiliates of
the Registrant. Exclusion of such shares should not be construed to indicate that the holder of any such shares possesses the power, direct or indirect, to direct or cause the direction of the
management or policies of the Registrant or that such person is controlled by or under common control with the Registrant.
As of March 24, 2022, the number of shares of Registrant’s common stock outstanding was 5,007,241.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year
covered by this Annual Report on Form 10-K, relating to the Registrant’s 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
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In this Annual Report on Form 10-K, “we,” “our,” “us,” “Aptevo,” and the “Company” refer to Aptevo Therapeutics Inc. and, where appropriate, its
consolidated subsidiaries.
ii
Cautionary Note Regarding Forward-Looking Information
PART I
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Statements in this Annual Report on Form 10-K, other
than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs,
prospects, plans, intentions, expectations, and objectives could be forward-looking statements. The words “anticipates,” “believes,” “could,” “designed,”
“estimates,” “expects,” “goal,” “intends,” “may,” “plans,” “projects,” “pursuing,” “will,” “would” and similar expressions (including the negatives
thereof) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Any forward-
looking statements are based upon management’s assumptions, expectations, projections, intentions, objectives and/or beliefs about future events or
occurrences and are subject to a number of risks and uncertainties. The timing of certain events and circumstances and known and unknown risks and
uncertainties could cause actual results to differ materially from the plans, intentions, expectations and objectives underlying or disclosed in the forward-
looking statements that we make. Therefore, you should not place undue reliance on our forward-looking statements. Some factors that we believe could
cause actual results or events to differ materially from our forward-looking statements include, but are not limited to, those discussed in “Risk Factors”,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K. Our
forward-looking statements in this Annual Report on Form 10-K are based on current information and we do not assume any obligation to update any
forward-looking statements expect as required by the federal securities laws.
You should read the following discussion and analysis together with the financial statements and the related notes to those statements included
elsewhere in this Annual Report on Form 10-K.
Item 1. Business.
OVERVIEW
We are a clinical-stage, research and development biotechnology company focused on developing novel immunotherapeutic candidates for the treatment of
different forms of cancer. We have developed two versatile and enabling platform technologies for rational design of precision immune modulatory drugs.
Our lead clinical candidate, APVO436, and preclinical candidates, ALG.APV-527 and APVO603, were developed using our ADAPTIR™ modular protein
technology platform. Our preclinical candidate APVO442 was developed using our ADAPTIR-FLEX™ modular protein technology platform.
The versatile and robust ADAPTIR and ADAPTIR-FLEX platforms are designed to generate monospecific, bispecific, and multi-specific antibody
candidates that are capable of enhancing the human immune system against cancer cells. ADAPTIR and ADAPTIR-FLEX are both modular platforms,
which gives us the flexibility to generate immunotherapeutic candidates with a variety of mechanisms of action. This flexibility in design allows us to
potentially generate novel therapeutic candidates that may provide the foundation for the establishment of effective strategies against difficult to treat, as
well as advanced forms cancer. We have successfully designed and constructed numerous investigational-stage prototype product candidates based on our
ADAPTIR platform. The ADAPTIR platform technology is designed to generate monospecific and bispecific immunotherapeutic proteins that specifically
bind to one or more targets, for example, bispecific therapeutic molecules, which may have structural and functional advantages over monoclonal
antibodies. The structural differences of ADAPTIR molecules over monoclonal antibodies allow for the development of ADAPTIR immunotherapeutics
that are designed to engage immune effector cells and disease targets in a novel manner to produce unique signaling responses and ultimately kill tumors or
modulate the immune system to kill tumors.
We are skilled at candidate generation, validation, and subsequent preclinical and clinical development using the ADAPTIR platform and have added the
ADAPTIR-FLEX platform to generate multi-specific candidates or other candidates to our platform capabilities. We have developed preclinical candidate
based on the ADAPTIR-FLEX platform which is advancing in our pipeline. We are developing our ADAPTIR and ADAPTIR-FLEX molecules by way of
our protein engineering, preclinical development, process development, and clinical development capabilities.
1
STRATEGY
We seek to grow our business by, among other things:
Advancing our lead clinical stage candidate, APVO436, through clinical development to evaluate its therapeutic potential alone and in
combination with other therapies. We are continuing enrollment and dosing in a Phase 1b dose expansion study. This is a multi-center, multi-cohort trial
designed to evaluate APVO436 in adult patients with acute myeloid leukemia (AML) both in monotherapy and in combination with current standard-of
care therapies. Enrollment is on-going at multiple centers across the United States. The Company is actively recruiting new centers to participate in the
trial, and plans to be open in up to 20 clinical sites nationally.
Advancing our preclinical stage candidate, ALG.APV-527, developed in partnership with Alligator Bioscience AB (Alligator), into clinical
stage. Aptevo and Alligator continue to advance preclinical candidate, ALG.APV-527 for the treatment of solid tumors, into the clinic and expect to file an
IND with the FDA in the US in the second half of 2022. A first-in-human study is expected to start in the second half of 2022. ALG.APV-527 targets 4-
1BB (T lymphocyte co-stimulatory receptor) and 5TA (tumor antigen) and is designed to reactivate antigen-primed T cells.
Advancing our ADAPTIR and ADAPTIR-FLEX platforms, focusing on immunotherapy and the development of novel bispecific and multi-
specific proteins for the treatment of cancer. We focus on product development using our ADAPTIR and ADAPTIR-FLEX platforms. We plan to generate
additional monospecific, bispecific, and multi-specific protein immunotherapies for development, potentially with other collaborative partners, to exploit
the potential of the ADAPTIR and ADAPTIR-FLEX platforms. We will select novel candidates that have the potential to demonstrate proof of concept
early in development and are differentiated in key oncology indications. We expect to continue to expand the ADAPTIR and ADAPTIR-FLEX product
pipelines to address areas of unmet medical need. Our goal is to generate monospecific, bispecific, and multi-specific ADAPTIR and ADAPTIR-FLEX
proteins to target tumors using the immune system or direct cytokine delivery to selective cell populations or modulate immune cells to treat diseases. We
believe these product candidates may have utility in oncology and other therapeutic areas.
Continuing to develop new products. We are committed to new product development. We have expertise in molecular and cellular biology,
immunology, oncology, pharmacology, translational services, antibody engineering and the development of protein therapeutics. This includes target
validation, preclinical proof of concept, cell line development, protein purification, assay and process development and analytical characterization. We
believe that these core areas of expertise enable the development of therapeutics based on the ADAPTIR and ADAPTIR-FLEX platform technologies from
design, preclinical testing, IND preparation, and clinical development to preparation of a biologics license application, or BLA.
Establishing collaborative partnerships to broaden our pipeline and provide funding for research and development. We intend to continue to
develop and grow our product portfolio through internal research and development as well as through collaborations with other biotechnology and
pharmaceutical companies, academia, and non-governmental organizations.
PLATFORM TECHNOLOGY AND PRODUCT CANDIDATES
Characteristics
Drug Targeting
Genetic and Structural Format
Half-life
Effector Function
Manufacturing
Current Pipeline Candidates
Technology
ADAPTIR
Bind up to two targets
Single gene that assembles into a homodimer based on an
antibody backbone
ADAPTIR-FLEX
Bind up to four targets
Two genes that assemble into a heterodimer based on a mutated
antibody backbone
Contains Immunoglobulin Gamma 1 Fc
Demonstrated antibody-like half-life in mice
Fc mutations may be utilized to eliminate binding to Fc Gamma Receptors or to enhance effector function
Antibody-like manufacturing processes
APVO436 (CD123 x CD3)
ALG.APV-527 (41BB x 5T4)
APVO603 (41BB x OX40)
2
APVO442 (PSMA x CD3)
Platform Technology
ADAPTIR and ADAPTIR-FLEX Platform Technologies. The ADAPTIR and ADAPTIR-FLEX platform technologies can be used to produce
monospecific, bispecific, and multi-specific immunotherapeutic proteins. These protein candidates bind to one or more targets found on tumor cells,
immune cells, or other cells in the body or circulation to either amplify, suppress, or regulate the body’s defense mechanisms to treat cancer. We focus on
developing drugs for treatment of oncology indications, but also may pursue other indications including autoimmune diseases. We believe we are well
positioned for the development of monospecific, bispecific, or multi-specific therapeutics, which are antibody-based molecules that are able to bind one or
more targets of therapeutic interest, utilizing our innovative ADAPTIR (modular protein technology) and ADAPTIR-FLEX platform technologies. This
allows us to take a novel approach to cancer immunotherapy or for treatment of other diseases.
Structurally, ADAPTIR and ADAPTIR-FLEX molecules are similar to antibodies; they can exhibit the same biological functions of an antibody
but can be easily modified to either eliminate or incorporate new activities, while maintaining a similar size, stability, half-life and manufacturing
advantages of a monoclonal antibody. The ADAPTIR molecules are single-chain polypeptides comprising customized elements, including a protein
domain that binds to one or more targets connected to the hinge domain and a set of antibody constant domains known as the fragment crystallizable
region, or Fc region of a human antibody. A second protein domain can be connected to the Fc region using a linker. The antibody Fc region can elicit an
immune response by binding to the corresponding Fc receptors found on various immune cells such as natural killer (NK) cells, and other cells bearing Fc
receptors to mediate antibody-dependent cell cytotoxicity resulting in killing the target. With the ADAPTIR platform, the Fc region can be modified to
enhance or eliminate these functions. Incorporation of the Fc region into the ADAPTIR platform also provides for an extended serum half-life by engaging
recycling via the neonatal Fc receptor or FcRn. A long serum half-life could potentially reduce dosing frequency and dose quantity. The ADAPTIR-FLEX
molecules are comprised of at least two polypeptides that are comprised of customized elements similar to ADAPTIR candidates. The Fc region of these
molecules can be modified to enable formation of a stable heterodimer. These candidates have similar mutations in the Fc region as ADAPTIR candidates
to enable or eliminate binding to Fc receptors but retaining binding to FcRn to provide for an extended serum half-life.
The ADAPTIR platform technology enables the design of both monospecific and bispecific bi-valent protein therapeutics.
3
Bispecific ADAPTIR molecules are similar in structure to monospecific ADAPTIR molecules, with the exception that they have two customized
target binding domains on the ends of the Fc region. We have created several bispecific molecules that are able to redirect T-cell cytotoxicity (RTCC). T-
cells are white blood cells that fight infections and tumor cells. RTCC ADAPTIR molecules are designed to activate T-cells to specifically kill a tumor. The
RTCC ADAPTIR does so by binding to a common component CD3, a receptor complex that activates T cells, when engaging a specific tumor antigen on a
specific tumor via the second binding domain, thereby activating the T-cell to kill the tumor.
Our ADAPTIR-FLEX platform technology extends advantages of ADAPTIR technology to create protein therapeutics with varied specificity and
valency and potentially new modes of action.
ADAPTIR-FLEX molecules are composed of two different polypeptides that form a dimer through modifying specific sequences in the Fc region
of each polypeptide. Each end of the polypeptide may contain one or two different binding domains, enabling the ADAPTIR-FLEX molecules to bind up to
four targets. In addition, the ADAPTIR-FLEX platform can be used to modify the valency of binding to each target, which means it can bind a target,
through one binding domain or through multiple binding domains, to a specific target to enable modifying the strength of binding to a specific target.
We believe that ADAPTIR and ADAPTIR-FLEX are promising platform technologies within the rapidly growing field of immuno-oncology
therapeutics. The structural differences between ADAPTIR and ADAPTIR-FLEX molecules and monoclonal antibodies allow for the development of new
immunotherapeutics that engage disease targets in a novel manner and produce a unique signaling response. By customizing the binding domains of our
molecules, we can select the desired potency, half-life, toxicity and stability/manufacturability. We have the potential to develop products with mechanisms
of action including, but not limited to, RTCC, modulating signals through immunostimulatory or immunoinhibitory receptors and targeted cytokine
delivery. We can expand our ADAPTIR and ADAPTIR-FLEX platforms to generate monospecifics, bispecifics, or multi-specifics that target tumor
antigens in combination with costimulatory molecules, including TNF-Receptor family members and other activating or inhibitory signaling receptors. We
believe the ADAPTIR and ADAPTIR-FLEX platform technologies may prove to have advantages over other immunotherapeutics and other bispecific T-
cell engaging technologies. In preclinical studies, we gathered data indicating that APVO436, a RTCC ADAPTIR bispecific that binds CD123, may have
high potency and activity at low doses, a long half-life, and reduced cytokine release compared to other bispecifics targeting the same tumor antigens and
CD3. The ADAPTIR and ADAPTIR-FLEX monospecifics, bispecifics, and multi-specifics can be produced using standard manufacturing practices.
Further clinical and preclinical studies may not confirm or establish the anticipated benefits of this platform.
Our ADAPTIR and ADAPTIR-FLEX platform intellectual property (IP) portfolio consists of IP that we solely own and control, with the exception
of non-exclusive licenses to Chinese hamster ovary (CHO) cell lines and related expression systems, and a non-exclusive license to certain transgenic
rodents of Open Monoclonal Technology, Inc.’s OmniAb platform, which we non-exclusively license from various third parties. See “Intellectual
Property”
4
for additional information about the ownership rights to ADAPTIR and ADAPTIR-FLEX platform intellectual property.
Product Portfolio
Our current product candidate pipeline is summarized in the table below:
Product Candidates
Our pipeline includes investigational clinical and preclinical stage anti-cancer drug candidates with clinical impact potential for treating both
hematologic malignancies, also known as “liquid” tumors, and solid tumor malignancies.
APVO436. a bispecific CD3xCD123 ADAPTIR that is designed to engage CD3 and CD123 to redirect T-cells to destroy leukemia cells expressing
the target CD123 molecule on their surface. This antibody-like recombinant protein therapeutic is designed to engage both leukemia cells and T-cells of the
immune system and activate T cells only when engaging CD3 to trigger the destruction of leukemia cells. Importantly, CD123 is not only expressed on the
leukemic blast cells but is also expressed on leukemic stem cells, differentiating it from other tumor antigens. APVO436 has been engineered using
Aptevo's proprietary platform technology and is uniquely designed to reduce the likelihood and severity of cytokine release syndrome (CRS). APVO436
has received orphan drug designation ("orphan status") for acute myeloid leukemia (AML) according to the Orphan Drug Act.
In Part 2 of APVO436-5001 which is the dose expansion of this Phase 1b multi-center study, 5 cohorts of AML patients are being simultaneously
enrolled to evaluate up to 90 adult patients. Cohorts include both monotherapy and combination therapy protocols including current standard of care
therapies. The Company anticipates using the outcomes from the Phase 1b trial to inform the APVO436 advanced clinical program. A patient who
experienced complete remission was reported on November 23, 2021. On February 9, 2022, Aptevo announced that this patient will proceed to transplant.
Complete remission and transplant in patients who have failed prior frontline therapy such as this one, are indicators that the patient is making positive
clinical progress in fighting this difficult-to-treat disease. The expansion trial is designed to evaluate the safety and tolerability of APVO436 when it is used
as an adjunct to the standard of care and as monotherapy, and to obtain a preliminary assessment of the anti-leukemia activity of APVO436 in both
modalities.
5
Overview of Cohorts: 5 cohorts enrolling in parallel at up to 20 trial sites in the U.S. – up to 18 patients per cohort are planned for a total of 90
patients.
Cohort
1
2
3
4
5
Cohort Therapy Description
Relapsed/refractory AML patients: Combination therapy in relapsed patients and those with primary refractory AML that
failed to respond to frontline standard induction chemotherapy. Patients will be treated with the standard chemotherapy
drug cytarabine or the standard chemotherapy triple drug combination MEC (mitoxantrone, etoposide, cytarabine) plus
APVO436.
Poor prognostic but fit primary or secondary AML patients who are treatment-naïve, in first relapse or with primary
refractory disease will receive APVO436 in combination with venetoclax and azacytidine.
APVO436 will be administered as monotherapy to AML patients in CR post frontline therapy for consolidation. In
addition, patients in first relapse (CR1<1 year) and patients with primary refractory disease will also be enrolled and
receive treatment with APVO436.
AML patients in first remission with a MRD+ status following standard of care frontline therapy will receive APVO436 in
combination with oral azacytidine.
AML patients in second remission with MRD+ status will receive APVO436 as a dose intensive monotherapy regimen.
In 2021, the Company completed a Phase 1b open-label, dose-escalation clinical trial in the U.S. evaluating APVO436. Patients received
APVO436 by intravenous dosing for up to six 28-day cycles. The objective of the trial was to evaluate safety, pharmacokinetics, and pharmacodynamics of
APVO436 in AML and MDS patients. Forty-six patients with both AML and MDS were enrolled in the trial. A recent presentation at the American Society
of Hematology (ASH) revealed the safety profile and some preliminary efficacy data in a heavily pretreated population. APVO436 was generally well
tolerated and two patients with unfavorable cytogenetics and/or adverse risk genomic mutations in the cohorts that received 12 mcg and 18 mcg flat dose
achieved a complete remission (CR) as their best overall response. Maximum tolerated dose (MTD) was not reached in this study and 18 mcg is now being
tested in a multi-center, multi-cohort expansion trial evaluating a total of 90 patients with AML.
The most common APVO436-related AEs were infusion-related reactions (IRR) occurring in thirteen (28.3%) patients and cytokine release
syndrome (CRS) occurring in ten (21.7%). No hematologic DLT was observed in any of the ten dose cohorts. Ten patients experienced twelve episodes of
Grade 3 febrile neutropenia and each one of these twelve episodes was reported as not related to APVO436. APVO436-related transient neurotoxicity
occurred in five of forty-six patients (10.9%). It was mild with Grade 1 AEs including headache, tremor, dizziness, lethargy, insomnia, memory loss, and
confusion. A single case of Grade 3 confusion was encountered on the first day of treatment and resolved within a day. APVO436-associated CRS was
generally manageable with standard of care and in most cases it resolved rapidly with the administration of tocilizumab at standard doses combined with
dexamethasone. APVO436-related CRS was not required for clinically meaningful responses in R/R AML patients, and it did not affect their survival
outcome. Notably patients who developed CRS after APVO436 therapy were not more or less likely to have a favorable response. Among eight AML
patients with favorable responses, four experienced a CRS and four did not. APVO436-related CRS was not required for clinically meaningful responses in
R/R AML patients, and it did not affect the survival outcome. Prolonged stabilization of disease, partial remissions and complete remissions were achieved
in both patients who experienced CRS as well as patients who did not experience CRS after APVO436 infusions. In addition, 3 of 6 evaluable MDS
patients developed a marrow CR.
6
A potential complication associated with treatment using bispecific, T-cell engaging antibodies is a systemic inflammatory syndrome known as
Cytokine Release Syndrome. CRS may occur within minutes to hours after infusion of the bispecific T-cell engaging antibody or emerge as a delayed onset
complication after several days. Clinical manifestations of CRS may range from mild to severe including hypotension, hypoxia, and uncontrolled systemic
inflammatory response with circulatory collapse, vascular leakage, peripheral and/or pulmonary edema, renal failure, cardiac dysfunction, and fatal
multiorgan system failure. Heart failure can also be a consequence of the systemic inflammatory syndrome of CRS. Another form of systemic
inflammation a bispecific T-cell engaging antibody can cause is Hemophagocytic Lymphohistiocytosis (HLH)/Macrophage Activation Syndrome (MAS)
which shares many clinical and laboratory features with CRS. HLH/MAS is considered a form of CRS when it occurs after treatment with a bispecific T-
cell engaging antibody.
CRS have occurred in some APVO436 patients, which have been effectively treated using the generally recommended standard CRS treatment,
which includes the use of tocilizumab and dexamethasone, combined with standard supportive care. This has been confirmed to be effective in the
APVO436 patients that have experienced CRS. Several additional treatments for CRS have recently become available, and we are working with key
opinion leaders and site investigators to further optimize our algorithm for addressing CRS.
On November 26, 2019, the FDA granted Orphan Drug Designation for AML to APVO436, which grants us exclusive marketing and development
rights, as well as eligibility for market exclusivity upon FDA approval of APVO436.
ALG.APV-527. a novel investigational bispecific ADAPTIR candidate, developed in partnership with Alligator Bioscience AB (Alligator),
featuring a novel mechanism of action designed to simultaneously target 4-1BB (CD137) and 5T4, a tumor antigen overexpressed in a number of different
types of cancer. 4-1BB, a costimulatory receptor on T cells, is known to enhance the immune response to cancer through activation of tumor-specific T
cells and is believed to be a promising target for new immunotherapeutic approaches. ALG.APV-527 could potentially have utility in the treatment of a
broad spectrum of cancers over-expressing the 5T4 tumor antigen, including mesothelioma, non-small-cell-lung, head and neck, pancreatic, renal, ovarian,
prostate, breast, cervical, colorectal, endometrial, and bladder cancers. Aptevo and Alligator plan to file an IND with the FDA in the US in 2022 and to
subsequently commence first in human study in the second half of 2022.
APVO603. a preclinical dual agonist bispecific ADAPTIR candidate employing a novel mechanism of action to simultaneously target 4-1BB
(CD137) and OX40 (CD134), both members of the TNF-receptor family. Dual targeting of 4-1BB and OX40 provides synergistic co-stimulation of T cells
with the potential to amplify the cytotoxic function of activated T cells and NK cells, potentially leading to more robust anti-tumor responses. APVO603’s
combined activation of both the 4-1BB and OX40 TNF receptors represents an attractive approach in potentially overcoming the immunosuppressive tumor
microenvironment. The targeted co-stimulation of 4-1BB and OX40 has the potential to promote an important immunological cascade, enhancing T-cell
activation, prolonging T-cell survival, and improving tumor killing. This product candidate is not dependent on any one tumor antigen and has the potential
to treat multiple solid tumors.
APVO442. a novel bispecific candidate based on the ADAPTIR-FLEX platform technology that binds to PSMA with two identical binding
domains to PSMA and with one binding domain to CD3 with reduced binding affinity. This candidate was designed to increase biodistribution of drugs to
PSMA positive tumors for treatment of prostate cancer. The low-affinity single binding domain to CD3 has the potential to allow for increased
concentrations at the tumor due to possibly reducing absorption of the drug by circulating peripheral T cells. Preclinical studies have been completed
demonstrating in vitro RTCC that is directed to PSMA bearing tumor cell lines in vitro and in vivo animal models.
Competition
We face, and will continue to face, intense competition from both U.S.-based and foreign producers of both large and small molecule
immunotherapeutic products, some of which have lower cost structures, greater access to capital, greater resources for research and development, and
sophisticated marketing capabilities. Any product candidate that we successfully develop and commercialize is likely to compete with currently marketed
products, as well as other novel product candidates that are in development for the same indications.
7
APVO436: We anticipate that APVO436 would compete with other agents targeting CD123 that are in development if they are also approved.
Bispecifics in development targeting CD123 include: flotetuzumab (formerly MGD006, Macrogenics), and JNJ-63709178 (Janssen). There are numerous
CAR-T therapies in development: CART123 (University of Penn.), CARTCD123 (NCI/City of Hope), UCART123 (Cellectis), MB-102 (Mustang Bio) and
several others in development in China. Other competitive products targeting CD123 are: tagraxofusp (formerly SL-401, an antibody immunotoxin,
Stemline), KHK2833 (monoclonal antibody, Kyowa Hakko Kirin Pharma), CSL362 (monoclonal antibody, CSL/Janssen) and IMGN632 (ImmunoGen and
Jazz Pharmaceuticals).
ALG.APV-527: This asset targets 4-1BB in a bispecific format when cross-linked with the tumor antigen 5T4. We anticipate that ALG.APV-527
would compete with bispecifics targeting 5T4 and 4-1BB, which are currently in preclinical development (Crescendo Biologics). Bispecific in the clinic
targeting 5T4 include GenMab and Abbvie’s (GEN1044), a 5T4 x CD3 DuoBody, in Phase 1/2 trials. In addition, other competitors include bispecifics
targeting 4-1BB in combination with other targets such as 4-1BB x FAP (FAP is expressed on tumor associated stomal fibroblasts). 4-1BB x FAP is
currently in phase 1 clinical development by Molecular Partners and Amgen (AMG506) and Hoffmann-La Roche (RO7122290) for treatment of advanced
solid tumors. Another bispecific targets 4-1BB x HER (Cinrebafusp Alfa, PRS343) which is in phase 2 clinical development by Pieris for treatment of
HER2+ solid tumors.
Furthermore, we face significant competition in the oncology market in general, including from: AbbVie Inc., ABL Bio, Aduro, Inc., Affirmed,
Amgen Inc., AnaptysBio, Inc., Astellas Pharma Inc., Bayer AG, Bicycle Therapeutics, Biogen Idec Inc., Boehringer Ingelheim GmbH, F-Star
Biotechnology Ltd., Genentech Inc. (a subsidiary of F. Hoffmann-La Roche Ltd.), Genmab A/S, GlaxoSmithKline plc, Grifols USA LLC, Bristol Myers
Squibb, I-Mab Biopharma, ImmunoGen, Inc., Immunomedics, Inc., Janssen BioTech Inc., Johnson & Johnson, Macrogenics, Inc., Novartis International
AG, Pieris Pharmaceuticals, Inc., Sanofi-Aventis US LLC, Takeda Pharmaceuticals U.S.A., Inc., Xencor, Inc. and Zymeworks Biopharmaceuticals, Inc.
Additionally, there may be other potential competitors or companies developing competitive products that may not be known to us at this time.
COLLABORATIONS WITH ALLIGATOR BIOSCIENCE
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 R&D and Alligator are collaboratively
developing ALG.APV-527, a lead 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 overexpressed in a number of different types of cancer. This product candidate
is built on our novel ADAPTIR platform.
Subject to certain exceptions for Aptevo R&D’s manufacturing and platform technologies, the parties will jointly own intellectual property
generated in the performance of the development activities under the Collaboration Agreement. Under the terms of the Collaboration Agreement, the
parties intend to share revenue received from a third-party commercialization partner equally, or, if the development costs are not equally shared under the
Collaboration Agreement, in proportion to the development costs borne by each party.
The Collaboration Agreement also contains several points in development at which either party may elect to “opt-out” (i.e., terminate without
cause) and, following a termination notice period, cease paying development costs for this product candidate, which would be borne fully by the continuing
party. Following an opt-out by a party, the continuing party will be granted exclusive rights to continue the development and commercialization of this
product candidate, subject to a requirement to pay a percentage of revenue received from any future commercialization partner for this product, or, if the
continuing party elects to self-commercialize, tiered royalties on the net sales of this product by the continuing party ranging from the low to mid-single
digits, based on the point in development at which the opt-out occurs. The parties have also agreed on certain technical criteria or “stage gates” related to
the development of this product that, if not met, will cause an automatic termination and wind-down of the Collaboration Agreement and the activities
thereunder, provided that the parties do not agree to continue.
The Collaboration Agreement contains industry standard termination rights, including for material breach following a specified cure period, and in
the case of a party’s insolvency.
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INTELLECTUAL PROPERTY
We rely on a combination of patents, trademarks, trade secrets, and nondisclosure and non-competition agreements to protect our proprietary
intellectual property and will continue to do so. We own or exclusively license the patents and patent applications in our patent portfolio that support the
ADAPTIR-FLEX platform, ADAPTIR platform and pipeline products with the exception of certain cell line rights and other research tools, which we
license on a non-exclusive basis. We practice patent life cycle management by filing patent applications to protect new inventions relating to meaningful
improvements to our products and related methods. We primarily seek patent protection for inventions that support our products and product candidates,
but from time to time, we may seek patent protection for inventions that could, for instance, support a potential business opportunity or block a competitor
from designing around our existing patents.
In general, and where possible, we pursue patent protection in countries where we believe there will be a significant market for the corresponding
product or product candidate. We generally do not seek patent protection in countries where we have reason to believe we would not be able to enforce
patents. For instance, we tend to not file in countries that are frequently listed on the Priority Watch List of the Special 301 Report prepared by the Office of
the United States Trade Representative, with the exception that we typically file patent applications in China, Russia and India. We may also decide to take
a narrower filing approach for secondary and improvement type inventions as compared to inventions that are more foundational to our products. We do
not seek patent protection in countries that are on the United Nations, or U.N., list of Least Developed Countries.
The term of protection for various patents associated with, and expected to be associated with, our marketed product and product candidates is
typically twenty years from the filing date, but may vary depending on a variety of factors, including the date of filing of the patent application or the date
of patent issuance and the legal term of patents in the countries in which they are obtained. The protection afforded by a patent varies on a product-by-
product basis and country-to-country basis and depends upon many factors, including the type of patent, the scope of its coverage, the availability of
regulatory-related extensions, the necessity for terminal disclaimers, the availability of legal remedies in a particular country, and the validity and
enforceability of the patents.
In some cases, we may decide that the best way to protect our intellectual property is to retain proprietary information as trade secrets and
confidential information, rather than to apply for patents, which would involve disclosure of proprietary information to the public. When determining
whether to protect intellectual property as a trade secret, we consider many factors including, for instance, our ability to maintain the trade secret, the
likelihood that a competitor will independently develop the information, our ability to patent protect the intellectual property and the likelihood we would
be able to enforce a resulting patent.
We are a party to a number of license agreements under which we license patents, patent applications, and other intellectual property. These
agreements impose various commercial diligence and financial payment obligations on us. We expect to continue to enter into these types of license
agreements in the future.
ADAPTIR and ADAPTIR-FLEX Platforms. We protect the ADAPTIR platform technology through a combination of patents and trade secrets.
We own all ADAPTIR and ADAPTIR-FLEX platform intellectual property, with the exception that we have licenses to certain intellectual property related
to third party research tools that we use in conjunction with our ADAPTIR platform technology such as cell lines, vectors, expression systems, and
transgenic rodents. For instance, we have a non-exclusive commercial license and research license with Lonza Group AG (Lonza) related to its CHO cell
lines and vectors. Under our Lonza research license, we have an option to take a license to use the GS System to develop and manufacture therapeutic
proteins for our commercial purposes. We also have a non-exclusive license to certain transgenic rodents of Open Monoclonal Technology, Inc.’s OmniAb
platform.
The initial version of the ADAPTIR platform technology was originally developed by Trubion Pharmaceuticals, Inc. (Trubion) prior to its
acquisition by Emergent BioSolutions Inc (Emergent). A patent family supporting use of unique linkers in the homodimer (a molecule consisting of two
identical halves) version of the ADAPTIR platform was invented jointly by Trubion and Wyeth Pharmaceuticals, Inc. (Wyeth) as part of a collaboration
between the two companies. Wyeth assigned the rights it had in that platform patent family to Trubion. We subsequently received the rights to the platform
patent family upon our spinoff from Emergent.
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In order to differentiate our platform inventions from antibodies and other antibody-like constructs that have been publicly disclosed, many of our
patents and patent applications are directed to unique aspects or components of our platform such as linkers, targets, or binding domains.
We have patents relating to the ADAPTIR platform issued in the United States, Australia, Israel, Japan, South Korea, Mexico, Malaysia, New
Zealand, Philippines, Russia, Singapore, South Africa, and Vietnam. We also have applications pending in various territories including Europe and Brazil.
We plan to continue to improve our ADAPTIR platform and to file patent applications on those improvements. Our decision as to where to file any new
ADAPTIR improvement inventions will be based in part on the significance of the improvement. If patents issue on the pending ADAPTIR patent
applications, the patent term for those patents are estimated to expire between 2027 and 2036. As our ADAPTIR platform technology evolves, we may
decide to allow patent applications and patents to expire if they contain claims that are limited to aspects of the platform that are no longer of value to
Aptevo.
ADAPTIR-FLEX, our heterodimer platform, is covered by patent application under the Patent Cooperation Treaty (PCT) that we filed in 2021. The
PCT patent application allows us to file patent applications in PCT member state countries including, for instance, the United States, Europe, Japan, China,
Australia, and Canada. If patents claiming priority to the pending ADAPTIR-FLEX patent application are issued, the resulting patents are estimated to
expire in 2041.
We own patent families directed to use of particular binding domains in the ADAPTIR and ADAPTIR-FLEX platforms. For instance, we have
some patents that cover the use of an ADAPTIR therapeutic to target CD3. We also have pending patent applications that cover ADAPTIR therapeutics
containing our preferred humanized CD3 binding domain polypeptide sequences.
APVO436. We nationalized our core patent family, which covers the APVO436 product candidate in various countries and territories including the
U.S., Australia, Brazil, Canada, China, Colombia, Europe, Eurasia, India, Indonesia, Israel, Japan, Malaysia, Mexico, New Zealand, Philippines,
Singapore, South Africa, South Korea, Ukraine, and Vietnam.
ALG.APV-527. We co-own with Alligator a patent family corresponding to PCT application PCT/EP2018/069850, which covers the ALG.APV-
527 product candidate. In January and February of 2020, this patent family was nationalized in various countries. Aptevo and Alligator also co-own U.S.
patent 10,239,949, which relates to protein molecules that specifically bind to 5T4 and/or 4-1BB.
In addition to the co-owned assets, Alligator owns a patent family corresponding to PCT application PCT/EP2017/059656, which also covers
ALG.APV-527. Aptevo has an exclusive license from Alligator to this patent family for the development of the ALG.APV-527 product candidate.
Preclinical Therapeutic Candidates. We routinely file United States provisional patent applications and/or Patent Cooperation Treaty (PCT) patent
applications on our preclinical therapeutic assets when we believe we have sufficient data to support a patent application filing. Aptevo owns pending
patent applications, for instance, which support its APVO603 and APVO442 therapeutic candidates.
Trademarks owned by Aptevo Therapeutics Inc. and its subsidiaries. Where possible, we pursue registered trademarks for our marketed products
in significant markets. We own trademark registrations and pending applications for the marks: APTEVO THERAPEUTICS, APTEVO
BIOTHERAPEUTICS, APTEVO RESEARCH AND DEVELOPMENT, the Aptevo logo, ADAPTIR, and ADAPTIR-FLEX in relevant jurisdictions.
REGULATION
Regulations in the United States and other countries have a significant impact on our product development, manufacturing, and marketing
activities. Government authorities in the United States, at the federal, state, and local level, and in other countries, extensively regulate, among other things,
the research, development, testing, approval, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing,
import, and export of biopharmaceutical products. In addition, sponsors of biopharmaceutical products participating in Medicaid and Medicare are required
to comply with mandatory price reporting, discount, and rebate requirements. The processes for obtaining regulatory approvals in the United States and in
foreign countries, along with compliance with applicable statutes and regulations, require the expenditure of substantial time and financial
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resources. In the United States, the FDA regulates biopharmaceutical products under the Federal Food, Drug, and Cosmetic Act, or FDCA, the Public
Health Services Act, or PHSA, and their implementing regulations. FDA’s requirements and expectations with respect to product development are
constantly evolving. By example, in light of the ongoing COVID-19 pandemic, the FDA issued a number of guidance documents to assist companies
navigating COVID-19, product development, and manufacturing.
Product Development for Therapeutics
Preclinical Testing. Before beginning testing of any compounds with potential therapeutic value in human subjects in the United States, stringent
government requirements for preclinical data must be satisfied. Preclinical testing includes both in vitro, or in an artificial environment outside of a living
organism, and in vivo, or within a living organism, laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation, as
well as its chemistry, pharmacology, and toxicity. We perform preclinical testing on all of our product candidates before we initiate any human trials.
Investigational New Drug Application. Before clinical testing may begin, the results of preclinical testing, together with manufacturing
information, analytical data and any other available clinical data or literature, must be submitted to the United States Food and Drug Administration, or
FDA, as part of an Investigational New Drug Application, or IND. The sponsor must also include an initial protocol detailing the first phase of the
proposed clinical investigation, together with information regarding the qualifications of the clinical investigators. The provided data must provide an
adequate basis for evaluating both the safety and the scientific rationale for the initial clinical studies in human volunteers. The IND automatically becomes
effective 30 days after receipt by the FDA unless the FDA imposes a clinical hold within that 30-day time period. In such a case, the IND sponsor and the
FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during
trials due to safety concerns or non-compliance. As a result, submission of an IND may not result in FDA authorization to commence a clinical trial.
Clinical Trials. Clinical trials involve the administration of the drug to healthy human volunteers, or to patients with the target disease or disorder
under the supervision of a qualified physician (also called an investigator) pursuant to an FDA-reviewed protocol. Human clinical trials typically are
conducted in three sequential phases, although the phases may overlap with one another. Clinical trials must be conducted under protocols that detail the
objectives of the study, the parameters to be used to monitor safety and the efficacy criteria, if any, to be evaluated. Each protocol, and any subsequent
amendments, must be submitted to the FDA, as part of the IND, or comparable foreign regulatory authorities.
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Phase 1 clinical trials test for safety, dose tolerance, absorption, bio-distribution, metabolism, excretion, structure activity relationships,
mechanism of action, and clinical pharmacology and, if possible, for early evidence regarding efficacy. Phase 1 studies may be conducted
in healthy human volunteers or patients with the target disease or condition. Phase 1a is typically a dose escalation trial. Phase 1b may
involve cohort expansion at one or more dose levels combinations, or in different population to determine the recommended Phase 2 dose
and strategy.
Phase 2 clinical trials are controlled studies that involve a small sample of individuals with the target disease or disorder and seek to assess
the efficacy of the drug for specific targeted indications to determine dose response and the optimal dose range and dose regimen and to
gather additional information relating to safety and potential adverse effects.
Phase 3 clinical trials are adequate and controlled studies that consist of expanded, large-scale studies of patients, at geographically
dispersed sites, with the target disease or disorder to obtain definitive statistical evidence of the efficacy and safety of the proposed product
and dosing regimen. The safety and efficacy data generated from Phase 3 clinical trials typically form the basis for FDA or comparable
foreign regulatory authorities approval of the product candidate, as well as product labeling. Typically, two Phase 3 trials are required by
the FDA for product approval. Under some limited circumstances, however, the FDA may approve a BLA based upon a single Phase 3
clinical study plus confirmatory evidence or a single large multicenter trial without confirmatory evidence.
Phase 4 clinical trials, if conducted, are conducted after a product has been approved. These trials can be conducted for a number of
purposes, including to collect long-term safety information or to collect additional data about a specific population. As part of a product
approval, the FDA or comparable foreign regulatory authorities may require that certain Phase 4 studies, which are called post-marketing
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commitment studies, be conducted post-approval. The results of Phase 4 studies can confirm or refute the effectiveness of a product
candidate, and can provide important safety information.
Additional kinds of data may also help to support a BLA or product development, such as patient experience and real world evidence. For
appropriate indications sought through supplemental BLAs, data summaries may provide marketing application support. For genetically targeted products
and variant protein targeted products intended to address an unmet medical need in one or more patient subgroups with a serious or life threatening rare
disease or condition, the FDA may allow a sponsor to rely upon data and information previously developed by the sponsor or for which the sponsor has a
right of reference, that was submitted previously to support an approved application for a product that incorporates or utilizes the same or similar
genetically targeted technology or a product that is the same or utilizes the same variant protein targeted drug as the product that is the subject of the
application.
In addition, under the Pediatric Research Equity Act of 2003, or PREA, BLAs and supplements for a new active ingredient, indication, dosage
form, dosage regimen, or route of administration must contain data to assess the safety and efficacy of the product for the claimed indications in all relevant
pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA
may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug or biologic
for an indication for which orphan designation has been granted for the relevant indication.
Good Clinical Practice. All of the phases of clinical studies must be conducted in conformance with the FDA’s Good Clinical Practices (GCPs) or
equivalent standards from comparable foreign regulatory authorities, which are ethical and scientific quality standards for conducting, recording and
reporting clinical trials to assure that the data and reported results are credible and accurate and that the rights, safety and well-being of trial participants are
protected. GCPs include requirements that all research subjects provide their informed consent in writing for their participation in any clinical trial.
Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to make certain financial disclosures to the FDA. In
addition, an Institutional Review Board, or IRB, at each study site participating in the clinical trial or a central IRB must review and approve the plan for
any clinical trial, informed consent forms, and communications to study subjects before a study commences at that site. An IRB considers, among other
things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits, and whether the
planned human subject protections are adequate. The IRB must continue to oversee the clinical trial while it is being conducted. Once an IND is in effect,
each new clinical protocol and any amendments to the protocol must be submitted to FDA for review, and to the IRB for approval. If a product candidate is
being investigated for multiple intended indications, separate INDs may also be required. Progress reports detailing the results of the clinical trials must
also be submitted at least annually to the FDA and the IRB and more frequently if serious adverse events or other significant safety information is found.
Information about certain clinical trials, including a description of the study and study results, must be submitted within specific timeframes to the
National Institutes of Health, or NIH, for public dissemination on their clinicaltrials.gov website. Sponsors or distributors of investigational products for the
diagnosis, monitoring, or treatment of one or more serious diseases or conditions must also have a publicly available policy on evaluating and responding
to requests for expanded access requests.
The manufacture of investigational biologics for the conduct of human clinical trials is subject to FDA’s current Good Manufacturing Practice, or
cGMP requirements. Investigational biologics and therapeutic substances imported into the United States are also subject to regulation by the FDA.
Further, the export of investigational products outside of the United States is subject to regulatory requirements of the receiving country as well as U.S.
export requirements under the FDCA.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the
chemistry and physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in
accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and,
among other things, manufacturers must develop methods for testing the identity, strength, quality, potency, and purity of the final product. Additionally,
appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo
unacceptable deterioration over its shelf life.
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The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the
clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. An IRB may
also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements or if the trial poses
an unexpected serious harm to subjects. The FDA or an IRB may also impose conditions on the conduct of a clinical trial. Clinical trial sponsors may also
choose to discontinue clinical trials as a result of risks to subjects, a lack of favorable results, or changing business priorities.
Marketing Approval - Biologics
Biologics License Application. All data obtained from a comprehensive development program, including research and product development,
manufacturing, preclinical and clinical trials, labeling and related information are submitted in a biologics license application, or BLA, to the FDA and in
similar regulatory filings with the corresponding agencies in other countries for review and approval. In most cases, the submission of a marketing
application is subject to a substantial application user fee. These user fees must be paid at the time of the first submission of the application, even if the
application is being submitted on a rolling basis. Fee waivers or reductions are available in certain circumstances. By example, product candidates that are
designated as orphan products, which are further described below, are not subject to application user fees unless the application includes an indication other
than the orphan indication.
The submission of an application is not a guarantee that the FDA will find the application complete and accept it for filing. The FDA may refuse to
file the application and request additional information rather than accept the application for filing, in which case the application must be resubmitted with
the supplemental information. The resubmitted application is also subject to review before the FDA accepts it for filing. The FDA has two months to
review an application for its acceptability for filing.
Once an application is accepted for filing, the FDA begins an in-depth substantive review. The Prescription Drug User Fee Act, or PDUFA,
establishes a two-tiered review system: Standard Review and Priority Review. When conducting Priority Review, the FDA has a goal to review and act on
BLA submissions within six months from the date of the FDA’s acceptance for filing of the application, rather than the ten-month goal under a Standard
Review. The FDA gives Priority Review status to product candidates that provide safe and effective therapies where no satisfactory alternative exists or to a
product candidate that are intended to treat serious conditions and, if approved, would provide significant improvements in the safety or effectiveness of the
treatment, diagnosis, or prevention of the serious condition. The PDUFA date is only a goal, thus, the FDA does not always meet its PDUFA dates. The
review process and the PDUFA date may also be extended if the FDA requests or the sponsor otherwise provides substantial additional information or
clarification regarding the submission.
The FDA may refer certain applications to an advisory committee. Before approving a product candidate for which no active ingredient (including
any ester or salt of active ingredients) has previously been approved by the FDA, the FDA must either refer that product candidate to an external advisory
committee or provide in an action letter, a summary of the reasons why the FDA did not refer the product candidate to an advisory committee. The FDA
may also refer other product candidates to an advisory committee if FDA believes that the advisory committee’s expertise would be beneficial. An advisory
committee is typically a panel that includes clinicians and other experts, which review, evaluate, and make a recommendation as to whether the application
should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions.
The FDA reviews applications to determine, among other things, whether a product candidate meets the agency’s approval standards and whether
the manufacturing methods and controls are adequate to assure and preserve the product’s identity, strength, quality, potency, and purity. Before approving
a marketing application, the FDA typically will inspect the facility or facilities where the product is manufactured, referred to as a Pre-Approval Inspection.
The FDA will not approve an application unless it determines that the manufacturing processes and facilities, including contract manufacturers and
subcontractors, are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.
Additionally, before approving a marketing application the FDA will inspect one or more clinical trial sites to assure compliance with GCPs.
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In reviewing a BLA, the FDA may grant approval or deny the application through a complete response letter, or CRL, if it determines the
application does not provide an adequate basis for approval requesting additional information. A CRL indicates that the review cycle of the application is
complete and the application is not ready for approval and describes all of the specific deficiencies that the FDA identified. A CRL generally contains a
statement of specific conditions that must be met in order to secure final approval of the marketing application, and may require additional clinical or
preclinical testing in order for the FDA to reconsider the application. The deficiencies identified may be minor, for example, requiring labeling changes; or
major, for example, requiring additional clinical trials. If a CRL is issued, the applicant may either: resubmit the marketing application, addressing all of the
deficiencies identified in the letter; withdraw the application; or request an opportunity for a hearing. Even if additional information outlined in a CRL is
submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval.
The receipt of regulatory approval often takes many years, involving the expenditure of substantial financial resources. The speed with which
approval is granted often depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments and the
risks and benefits demonstrated in clinical trials. The FDA may also impose conditions upon approval. For example, it may require a Risk Evaluation and
Mitigation Strategy, or REMS, for a product. This can include various required elements, such as publication of a medication guide, patient package insert,
a communication plan to educate health care providers of the drug’s risks and/or restrictions on distribution and use, such as limitations on who may
prescribe or dispense the drug. Following product approval, a REMS may also be required by the FDA if new safety information is discovered and the
FDA determines that a REMS is necessary to ensure that the benefits of the product outweigh the risks.
The FDA may also significantly limit the indications or populations approved for a given product, require that contraindications, warnings, or
precautions be included in the product labeling, including a boxed warning, and/or require, as a condition of approval, enhanced labeling, special
packaging or labeling, post-approval clinical trials, distribution or other risk management mechanisms, expedited reporting of certain adverse events, pre-
approval of promotional materials or restrictions on direct-to-consumer advertising, any of which could negatively impact the commercial success of a
drug. The FDA may also not approve label statements that are necessary for successful commercialization and marketing.
After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling
claims, are subject to further testing requirements and FDA review and approval. The FDA may also withdraw the product approval if compliance with the
pre- and post-marketing regulatory standards are not maintained or if problems occur after the product reaches the marketplace. Further, should new safety
information arise, additional testing, product labeling, or FDA notification may be required.
Breakthrough Therapy. Under the provisions of the Food and Drug Administration Safety and Innovation Act, or FDASIA, the FDA may
designate a product as a breakthrough therapy if the product is intended, alone or in combination with one or more other products, to treat a serious or life-
threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing
therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Products designated
as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing
advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.
Orphan Drugs. Under the Orphan Drug Act, an applicant can request the FDA to designate a product as an “orphan drug” in the United States if
the drug is intended to treat an orphan, or rare, disease or condition. A disease or condition is considered orphan if it affects fewer than 200,000 people in
the United States, or affecting more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and
making the product available in the United States will be recovered from United States sales. Additionally, sponsors must present a plausible hypothesis for
clinical superiority to obtain orphan drug designation if there is a product already approved by the FDA that that is considered by the FDA to be the same
as the already approved product and is intended for the same indication. This hypothesis must be demonstrated to obtain orphan exclusivity. Orphan drug
designation must be requested before submitting a BLA. Products designated as orphan drugs are eligible for special grant funding for research and
development, potential tax credits for research, waived user fees for marketing applications and a seven-year period of market exclusivity after marketing
approval. The tax advantages, however, were limited in the 2017 Tax Cuts and Jobs Act.
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Orphan drug exclusivity (afforded to the first applicant to receive approval for an orphan designated drug) prevents FDA approval of applications
by others for the same drug for the designated orphan disease or condition. The FDA may approve a subsequent application from another applicant if the
FDA determines that the application is for a different drug or different use, or if the FDA determines that the subsequent product is clinically superior, or
that the holder of the initial orphan drug approval cannot assure the availability of sufficient quantities of the drug to meet the public’s need. A grant of an
orphan designation is not a guarantee that a product will be approved. On November 26, 2019 FDA granted Orphan Drug Designation to APVO436, a
bispecific antibody candidate intended for the treatment of acute myelogenous leukemia (AML). APVO436 is currently being evaluated in a Phase 1b
clinical trial in patients with AML and myelodysplastic syndrome (MDS).
Post-Approval Requirements. Any biologic for which we receive FDA approval will be subject to continuing regulation by the FDA, including,
among other things, record keeping requirements, reporting of adverse experiences, reporting of deviations and shortages, providing the FDA with updated
safety and efficacy information, product sampling and distribution requirements, current good manufacturing practices, or cGMP, and restrictions on
advertising and promotion. Adverse events that are reported after marketing approval can result in additional limitations being placed on the product’s
distribution or use and, potentially, withdrawal or suspension of the product from the market. In addition, the FDA authority to require post-approval
clinical trials and/or safety labeling changes if warranted. In certain circumstances, the FDA may impose a REMS after a product has been approved.
Facilities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain
state agencies, list their manufactured products, and are subject to periodic unannounced inspections by the FDA for compliance with cGMP and other
laws. Manufacturers and other parties involved in the supply chain for prescription drug products must also comply with product tracking and tracing
requirements and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or products that are otherwise unfit for
distribution in the United States. Recently, the information that must be submitted to FDA regarding manufactured products was expanded through the
Coronavirus Aid, Relief, and Economic Security, or CARES, Act to include the volume of drugs produced during the prior year. Manufacturers must
continue to expend time, money, and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may
withdraw product approvals, require label modifications, or request product recalls, among other actions, if a company fails to comply with regulatory
standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
The FDA also closely monitors advertising and promotional materials we may disseminate for our products for compliance with restrictions on off-
label promotion and other laws. We may not promote our products for conditions of use that are not included in the approved package inserts for our
products. Physicians, in their independent professional medical judgment, however, may prescribe legally available products for unapproved indications
that are not described in the product’s labeling and that differ from those tested and approved by the FDA. Certain additional restrictions on advertising and
promotion exist for products that have boxed warnings in their approved package inserts. The FDA and other agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to
significant liability, including, but not limited to, criminal and civil penalties under the FDCA and False Claims Act, exclusion from participation in federal
healthcare programs, mandatory compliance programs under corporate integrity agreements, suspension and debarment from government contracts, and
refusal of orders under existing government contracts.
Biosimilars and Exclusivity. The Biologics Price Competition and Innovation Act of 2009, or BPCIA, creates an abbreviated approval pathway for
biological products shown to be highly similar to or interchangeable with an FDA-licensed reference biological product. Biosimilarity sufficient to
reference a prior FDA-approved product requires a high similarity to the reference product notwithstanding minor differences in clinically inactive
components, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency.
Biosimilarity must be shown through analytical studies, animal studies, and at least one clinical trial, absent a waiver by the FDA. There must be no
difference between the reference product and a biosimilar in mechanism of action, conditions of use, route of administration, dosage form, and strength. A
biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected to
produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be
switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference
biologic.
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A reference biologic is granted 12 years of exclusivity from the time of first licensure, and no application for a biosimilar can be submitted for four
years from the date of licensure. However, certain changes and supplements to an approved BLA, and subsequent applications filed by the same sponsor,
manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the twelve-year exclusivity period. The PHSA also includes
provisions to protect reference products that have patent protection. The biosimilar product sponsor and reference product sponsor may exchange certain
patent and product information for the purpose of determining whether there should be a legal patent challenge. Based on the outcome of negotiations
surrounding the exchanged information, the reference product sponsor may bring a patent infringement suit and injunction proceedings against the
biosimilar product sponsor. The biosimilar applicant may also be able to bring an action for declaratory judgment concerning the patent.
In an effort to increase competition in the biologic product marketplace, Congress, the executive branch, and FDA have taken certain legislative
and regulatory steps. For example, in 2020, FDA finalized a guidance to facilitate drug and biologic product importation. Moreover, the 2020 Further
Consolidated Appropriations Act included provisions requiring that sponsors of approved biologic products, including those subject to REMS, provide
samples of the approved products to persons developing biosimilar products within specified timeframes, in sufficient quantities, and on commercially
reasonable market-based terms. Failure to do so can subject the approved product sponsor to civil actions, penalties, and responsibility for attorney’s fees
and costs of the civil action. This same bill also includes provisions with respect to shared and separate REMS programs for reference and generic drug
products.
Patent Term Restoration. If approved, biologic products may also be eligible for periods of U.S. patent term restoration. If granted, patent term
restoration extends the patent life of a single unexpired patent, that has not previously been extended, for a maximum of five years. The total patent life of
the product with the extension also cannot exceed fourteen years from the product’ approval date. Subject to the prior limitations, the period of the
extension is calculated by adding half of the time from the effective date of an IND to the initial submission of a marketing application, and all of the time
between the submission of the marketing application and its approval. This period may also be reduced by any time that the applicant did not act with due
diligence.
Regulation in the European Union. Product development, the regulatory approval process and safety monitoring of medicinal products and their
manufacturers in the European Union proceed broadly in the same way as they do in the United States. Therefore, many of the issues discussed above
apply similarly in the context of the European Union. In addition, drugs are subject to the extensive price and reimbursement regulations of the various EU
member states. The Clinical Trial Regulation EU 536/2014 (“CTR”) repealed the Clinical Trials Directive 2001/20/EC, as amended (“CTD”) on January
31, 2022, subject to a three-year transition period. The CTR makes it possible within the EU for sponsors to submit a single harmonized electronic
submission via a single online platform known as the Clinical Trials Information System (“CTIS”) for approval to conduct a clinical trial in several
European countries and have a single assessment process for clinical trials conducted in multiple member states. Under the CTR, sponsors can use the
CTIS from January 31, 2022 but are not obliged to use it immediately, in line with a three-year transition period. Sponsors may use CTIS to apply to
conduct a clinical trial under the CTR or may choose to apply to conduct a trial under the CTD until January 30, 2023. From January 31, 2023, sponsors
will need to use CTIS to apply to start a new clinical trial in the EU/EEA. From January 31, 2025, any trials approved under the CTD that continue
running will need to comply with the CTR and their sponsors must have recorded information on such trials in CTIS.
Healthcare Fraud and Abuse and Anti-Corruption Laws
Various federal and state laws pertaining to health care “fraud and abuse” exist, including state and federal anti-kickback laws false claims laws,
and patent privacy and security laws. Anti-kickback laws make it illegal for a drug manufacturer to knowingly and willfully solicit, offer, receive or pay
any remuneration in exchange for, to induce, or in return for, the referral of business that may be reimbursed by a third party payor (including Medicare and
Medicaid), including the purchase, prescribing or recommendation of a particular drug. Due to the breadth of the statutory provisions, it is possible that our
practices might be challenged under anti-kickback or similar laws. Civil and criminal false claims laws, false statement laws and civil monetary penalty
laws prohibit, among other things, anyone from knowingly presenting, or causing to be presented for payment, to third-party payors (including Medicare
and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for
medically unnecessary items or services. Our activities relating to the
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sale and marketing of our products may be subject to scrutiny under these laws. Privacy and security laws, such as the Health Insurance Portability and
Accountability Act of 1996, or HIPAA, create federal criminal and civil liability for executing a scheme to defraud any healthcare benefit program or
knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services. Additionally, HIPAA, as amended by the Health Information Technology for Economic and Clinical
Health, or HITECH, and their respective implementing regulations, impose certain requirements relating to the privacy, security, and transmission of
individually identifiable health information.
In addition, as part of the Affordable Care Act, the federal government enacted the Physician Payment Sunshine Act. Manufacturers of drugs
biologics and devices that are reimbursed by Medicare, Medicaid or the Children’s Health Insurance Program are required to annually report to CMS
payments and transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals,
and ownership or investment interest held by physicians and their family members. Effective January 1, 2022, these reporting obligations extend to include
transfers of value made to certain non-physician providers (physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse
anesthetists and anesthesiologist assistants, and certified-nurse midwives).
Our operations are also subject to compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits corporations and individuals
from directly or indirectly paying, offering to pay, or authorizing the payment of anything of value to any foreign government official or employee, or any
foreign political party or political candidate in an attempt to obtain or retain business or to otherwise influence such official, employee, party or candidate
in his or her or its official capacity. Our operations are also subject to compliance with the U.K. Bribery Act of 2010, which applies to activities both in the
public and private sector, Canada’s Corruption of Foreign Public Officials Act and similar laws and industry codes in other countries where we do business.
Other Regulation
Our present and future business has been and will continue to be subject to various other laws and regulations. Various laws, regulations and
recommendations relating to safe working conditions, laboratory practices, the experimental use of animals, and the purchase, storage, movement, import,
export, use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents used in
connection with our product development, are or may be applicable to our activities.
Employees and Office Location
HUMAN CAPITAL
Aptevo employed 54 full-time persons as of December 31, 2021. The team is comprised of a dedicated group of accomplished professionals who
bring a broad range of academic achievements combined with significant industry experience. We believe that our future success will depend in part on our
continued ability to attract, hire and retain qualified personnel. To this end, we strive to maintain competitive base compensation structures and
comprehensive benefits packages, and to engage our employees through ongoing development and training. None of our employees are represented by a
labor union or covered by collective bargaining agreements. We believe our relationships with our employees are positive.
Our principal executive offices are located at 2401 4th Ave., Suite 1050, Seattle, Washington 98121. Our telephone number is (206) 838-0500.
Corporate Values
Leading by our core values unifies Aptevo and enables every employee to be an agent of positive culture. We believe that our success depends on
creating an environment that is personally and professionally rewarding and creating opportunities for personal and professional development. These
values, which are the foundation of our Company culture, are:
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Empowerment
Ownership
Professionalism
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We consider these values to be an integral part of our corporate goal setting and review process. We believe in empowering our employees and
consider them as owners of the business. We treat each other with respect and maintain a high level of professionalism and accountability. Our Board of
Directors and executive team continues to monitor and focus on our human capital resources to ensure we live by our core values.
Diversity, Equity, and Inclusion
Diversity, equity, and inclusion (DEI) is of great importance to our culture, day-to-day operations, and future success. Aptevo is an equal
opportunity employer, and we are committed to fostering DEI within our work environment and beyond. We believe DEI promotes our business growth,
drives innovation in the therapeutic product candidates we develop, and in the way we solve problems. Our efforts are focused on hiring and retaining
qualified candidates, and promoting a supportive and inclusive working environment for all of our employees. The Company is resolute on its commitment
to the development and fair treatment of all candidates and employees, including equal opportunity hiring and advancement practices and policies, and anti-
harassment and anti-retaliation policies. We believe that fostering diversity, equity, and inclusion is a key element to discovering, developing, and bringing
transformative therapies to patients. As of December 31, 2021, 55% of our workforce and 44% of our leadership (at the Director level and above) were
female. In addition, 44% of our workforce and our leadership (at the Director level and above) were racially or ethnically diverse. We strive to build a
workforce representative of the people we serve and to nurture an inclusive culture where all voices are welcomed, heard, and respected.
Recruiting and Retention
We invest in resources to recruit, develop, and retain the talent needed to achieve our business goals. We believe in supporting our employees to
reach their full potential and strive to promote internally. We have been successful in attracting and retaining talented personnel to support our business,
though competition for personnel in our industry is intense.
Compensation and Benefits
Our compensation packages are designed to attract and retain talent, drive Company performance and achieve business goals. In setting appropriate
compensation levels, we look at the average base pay rate for each position based on market data. We also offer an annual cash incentive program and long-
term equity incentive plans designed to assist in attracting, retaining, and motivating employees and promoting the creation of long-term value for
stockholders. Further, all employees are eligible for health insurance and other health benefits, paid and unpaid leaves, retirement benefits with Company
match, and life and disability coverage/insurance. We have an unlimited paid time off policy that provides employees with considerable flexibility in
scheduling time away from work.
Health & Safety
Employee safety and well-being is of paramount importance to us and was of continued focus in 2021 in light of the COVID-19 global pandemic.
The Company adjusted its working environment and operations since the onset of the COVID-19 global pandemic to ensure only essential employees,
which mainly include our research and development team, worked onsite, and transitioned all non-essential employees to remote work. We equipped our
employees working remotely with necessary equipment and tools to continue to collaborate and remain productive. To ensure health and safely of on-site
employees, we provided them with necessary personal protective equipment and implemented new safety procedures, including social distancing while in
the office, and wearing masks while on site.
Additionally, we have an Environmental, Health and Safety program that focuses on implementing policies and training programs, as well as
performing self-audits to enhance work safety. Importantly, during the COVID-19 pandemic, our continuing focus on safe work practices has enabled us to
preserve business continuity without sacrificing our commitment to keeping our colleagues and workplace visitors safe.
Aptevo was formed as a wholly-owned subsidiary of Emergent for the purpose of serving as the parent company for the development-based
biotechnology business focused on novel oncology, hematology, and autoimmune and inflammatory therapeutics and was incorporated in Delaware in
February 2016. On August 1,
ORGANIZATIONAL HISTORY
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2016, Emergent effectuated a spin-off of Aptevo into an independent publicly traded company and made a pro rata distribution of Aptevo common stock to
Emergent’s stockholder base at that time. Accordingly, Aptevo has operated as an independent publicly traded company since August 1, 2016.
AVAILABLE INFORMATION
The Aptevo website is located at www.AptevoTherapeutics.com. Aptevo makes certain filings with the Securities and Exchange Commission (the
SEC), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available free of charge through its website as soon as reasonably practicable after
we electronically file those reports with, or furnish them to, the SEC.
In addition, all disclosures that are required to be posted by applicable law, the rules of the SEC or the Nasdaq listing standards regarding any
amendment to, or waiver of, our code of business conduct and ethics are available free of charge on our website. We intend to use our website as a means
of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should
monitor our website, in addition to following our press releases, investor deck, SEC filings and public conference calls and webcasts. We have included our
website address as an inactive textual reference only. The information contained on, or that can be accessed through, our website is not a part of, or
incorporated by reference into, this Annual Report on form 10-K.
Item 1A. Risk Factors.
We are subject to significant risks and uncertainties that could impact the Company’s businesses, results of operations and financial condition,
including by causing our actual results to differ materially from those projected in any forward-looking statements. Additional risks and uncertainties that
are not currently known to the Company or management or that are not currently believed by the Company or management to be material may also harm
the Company’s business, financial condition and results of operation. You should carefully consider the following risks and other information in this Annual
Report on Form 10-K in evaluating us and our common stock.
RISK FACTOR SUMMARY
The following is a summary of the material risks to our business, operations, and ownership of our common stock:
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We have a history of losses and may not be profitable in the future.
We will require additional capital and may be unable to raise capital when needed or on acceptable terms.
Our future cash flow will depend, in part, on the ability of Pfizer to successfully sell RUXIENCE and our receipt of milestone and royalty
payments from HCR in connection therewith. If Pfizer is unable, or does not devote sufficient resources, to maintain or continue increasing
sales of RUXIENCE, or if HCR does not comply with the Royalty Purchase Agreement, our results of operations will be adversely
affected.
The ongoing COVID-19 pandemic could adversely impact our business, including our clinical trials.
The terms of our credit agreement may restrict the operation of our business and limit the cash available for investment in our business
operations.
If we experience delays or difficulties in the commencement, enrollment of patients or completion of our clinical trials, the time to reach
critical trial data and receipt of any necessary regulatory approvals could be delayed.
The results of our current and planned preclinical studies and clinical trials may not satisfy the requirements of the FDA or non-U.S.
regulatory authorities. Results from early-preclinical studies and clinical trials may not be predictive of results from later-stage or other
trials and interim or top line data may be subject to change or qualification based on the complete analysis of data.
Serious adverse events, undesirable side effects or other unexpected properties of our product candidates may be identified that could delay,
prevent, or cause the withdrawal of regulatory approval, limit the commercial potential, or result in significant negative consequences
following marketing approval.
We depend on third parties to conduct our clinical and non-clinical trials. If these third parties do not effectively carry out their contractual
duties, comply with regulatory requirements or meet expected
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deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be
substantially harmed.
Our ability to grow revenues and execute on our long-term strategy depends heavily on our ability to discover, develop, and obtain
marketing approval for our product candidates.
We may not be successful in our efforts to use and further develop our ADAPTIR or ADAPTIR-FLEX platforms.
Our long-term success depends, in part, upon our ability to develop, receive regulatory approval for and commercialize our product
candidates.
If we are unable to protect our intellectual proprietary rights, our business could be harmed.
Our stock price may be volatile.
We may be subject to periodic litigation, which could result in losses or unexpected expenditure of time and resources.
Actions of activist stockholders against us have been and could be disruptive and costly and may cause uncertainty about the strategic
direction of our business.
Our future income will depend, in part, on the ability of Medexus Pharmaceuticals Inc. (Medexus) to successfully further develop, market
and commercialize IXINITY, resulting in milestone payments and deferred payments to the Company by Medexus.
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RISKS RELATED TO OUR BUSINESS
Financial Risks
We have a history of losses and may not be profitable in the future.
We have experienced significant operating losses and we may not achieve profitability in the future. For the years ended December 31, 2021 and
2020, we had net losses of $28.5 million and $17.8 million, respectively. As of December 31, 2021, we had an accumulated deficit of $214.1 million. We
expect to continue to incur annual net operating losses for the foreseeable future, and will require substantial resources over the next several years as we
expand our efforts to discover, develop and commercialize immunotherapeutic candidates. While we believe our existing cash and cash equivalents and the
funding provided by our IXINITY deferred payment streams, the Royalty Purchase Agreement with HCR, Credit Agreement with MidCap Financial
(Credit Agreement), our Equity Distribution Agreement with Piper Sandler & Co (Piper Sandler) entered into in December 2020 (the Equity Distribution
Agreement) and our Purchase Agreement with Lincoln Park Capital Fund, LLC (Lincoln Park), entered into in February 2022 (the Purchase Agreement),
and exercises of warrants will provide us with sufficient liquidity to meet our cash requirements through at least next twelve months, our future success and
ability to attain profitability will depend upon our ability to develop and take to market our product candidates.
We will require additional capital and may be unable to raise capital when needed or on acceptable terms.
As of December 31, 2021, we had cash, cash equivalents, and restricted cash in the amount of $46.3 million. We will require additional funding to
grow our business including to support the ongoing clinical development of APVO436, develop additional products, support commercial marketing
activities, or otherwise provide additional financial flexibility. If we are not able to secure adequate additional funding, we may need to make further
reductions in spending. This may include extending payment terms with suppliers, liquidating assets, and suspending or curtailing planned programs. We
may also have to further delay, reduce the scope of, suspend or eliminate one or more research and development programs. A failure to raise the additional
funding or to effectively implement cost reductions could harm our business, results of operations and future prospects. Our future capital requirements will
depend on many factors, including:
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the level, timing and receipt of any milestone or deferred payments under our agreement with Medexus with respect to the sales of
IXINITY;
whether and to what extent future proceeds are received under our Royalty Purchase Agreement with HCR;
the extent to which we invest in products or technologies;
the ability to satisfy the payment obligations and covenants under any future indebtedness;
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the ability to secure partnerships and/or collaborations that generate additional cash;
capital improvements to our facilities;
the scope, progress, results, and costs of our development activities;
clinical development costs, timing, and other requirements to complete dosing of Phase 1b clinical trial for APVO436, as well as future
clinical trials; and
the cost of preparing, filing and prosecuting patent applications, obtaining, maintaining, enforcing and protecting our intellectual property
rights and defending intellectual property-related claims.
If our capital resources are insufficient to meet our future capital requirements, we will need to finance our cash needs through bank loans, public
or private equity or debt offerings, collaboration and licensing arrangements, or other strategic transactions. Future issuances of common stock may include
(i) any sale of up to the remaining $50.0 million worth of shares of our common stock pursuant to our Equity Distribution Agreement with Piper Sandler &
Co entered into in December 2020, (ii) any sale of up to $35 million worth of shares of our common stock to issue from our Purchase Agreement with
Lincoln Park Capital Fund, LLC, or Lincoln Park, entered into in February 2022, and (iii) the issuance of up to 350,589 remaining outstanding shares of
common stock as of December 31, 2021 upon the exercise of warrants issued in connection with our March 2019 public offering of common stock and
warrants. Public or bank debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures, pursuing acquisition opportunities, or declaring dividends. If we raise funds by
issuing equity securities, our stockholders will experience dilution. If we raise funds through collaboration and licensing arrangements with third parties or
enter into other strategic transactions, it may be necessary to relinquish valuable rights to our technologies or product candidates or grant licenses on terms
that may not be favorable to us.
Current economic conditions, including the impact of COVID-19 on our operations or on the global economy and capital markets, may make it
difficult to obtain additional financing on attractive terms, or at all. If financing is unavailable or lost, our business, results of operations, financial condition
and financial prospects would be adversely affected and we could be forced to delay, reduce the scope of or eliminate many of our planned activities.
Our business is affected by macroeconomic conditions, including rising inflation, interest rates and supply chain constraints.
Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in
inflation, interest rates and overall economic conditions and uncertainties such as those resulting from the current and future conditions in the global
financial markets. For instance, inflation could negatively impact the Company by increasing our labor costs, through higher wages and higher interest
rates. Recent supply chain constraints have led to higher inflation, which if sustained could have a negative impact on the Company's product development
and operations. If inflation or other factors were to significantly increase our business costs, our ability to develop our current pipeline and new therapeutic
products may be negatively affected. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the operation
of our business and our ability to raise capital in order to fund our operations. Similarly, these macroeconomic factors could affect the ability of our third-
party suppliers and manufacturers to manufacture all clinical trial materials for our product candidates.
Actions of activist stockholders against us have been and could be disruptive and costly and may cause uncertainty about the strategic direction of our
business.
Stockholders have in the past and may, from time to time, engage in proxy solicitations or advance stockholder proposals, or otherwise attempt to
effect changes and assert influence on our board of directors and management. For example, on February 9, 2021, Tang Capital Partners LP, Tang Capital
Management, LLC and Kevin Tang (collectively, “Tang”) submitted an advisory stockholder proposal for consideration at our 2021 annual meeting of
stockholders to commence a process to sell Aptevo to the highest bidder. Activist campaigns that contest or conflict with our strategic direction or seek
changes in the composition of our board of directors or management could have an adverse effect on our operating results and financial condition. A proxy
contest would require us to incur significant legal and advisory fees, proxy solicitation expenses and administrative and associated costs and require
significant time and attention by our board of directors and management, diverting their attention from the
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pursuit of our business strategy. Any perceived uncertainties as to our future direction and control, our ability to execute on our strategy, or changes to the
composition of our board of directors or senior management team arising from a proxy contest could lead to the perception of a change in the direction of
our business or instability which may result in the loss of potential business opportunities, make it more difficult to pursue our strategic initiatives, or limit
our ability to attract and retain qualified personnel and business partners, any of which could adversely affect our business and operating results. If
individuals are ultimately elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively implement our business
strategy and create additional value for our stockholders. We may choose to initiate, or may become subject to, litigation as a result of the proxy contest or
matters arising from the proxy contest, which would serve as a further distraction to our board of directors and management and would require us to incur
significant additional costs. In addition, actions such as those described above could cause significant fluctuations in our stock price based upon temporary
or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
Our future income will depend, in part, on the ability of Medexus to successfully further develop, market and commercialize IXINITY, resulting in
milestone payments and deferred payments to the Company by Medexus.
On February 28, 2020, we entered into a Purchase Agreement with Medexus, pursuant to which we sold all of the issued and outstanding limited liability
company interests of Aptevo BioTherapeutics, a subsidiary of Aptevo that wholly owns the IXINITY and related Hemophilia B business. We are entitled to
receive future potential payments to the extent of the achievement of certain regulatory and commercial milestones and through deferred payments based
on net sales of IXINITY. Royalties are earned at the rate of 2% of net revenue through the earlier of June 2022 or completion of the IXINITY pediatric trial
being run by Medexus. After that, the royalty rate will increase to 5%. We no longer control the development, marketing, and commercialization of
IXINITY and are dependent on Medexus to successfully do so. Although Medexus has agreed to use commercially reasonable efforts to commercialize
IXINITY in the ordinary course of business in good faith, Medexus may not commit adequate resources to the further development, marketing, and
commercialization of IXINITY, may experience financial difficulties, may face competition, or may prioritize other products or initiatives. Due to the
effect of the ongoing COVID-19 pandemic on the current and future environment for clinical development and regulatory approval, Medexus’ ability to
continue to successfully commercialize the IXINITY business may be affected, and we may experience potential impacts on our future deferred payments
from Medexus. The failure of Medexus to successfully market and commercialize IXINITY, including because of factors outside of Medexus’ control,
could result in lower than expected milestone or deferred payments to us and negatively impact our future financial and operating results.
Our operating results are unpredictable and may fluctuate.
Our operating results are difficult to predict and will likely fluctuate from quarter to quarter and year to year, as a result of a variety of factors,
including:
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the level and timing of any milestone or deferred payments with respect to sales of IXINITY by Medexus;
whether and to what extent future proceeds are received under our Royalty Purchase Agreement with HCR;
the extent of any payments received from collaboration arrangements and development funding as well as the achievement of development
and clinical milestones under collaboration and license agreements that we may enter into from time to time and that may vary significantly
from quarter to quarter; and,
the timing, cost, and level of investment in our research and development activities as well as expenditures we will or may incur to acquire
or develop additional technologies, products and product candidates.
Due to the ongoing COVID-19 pandemic, we may experience delays in opportunities to partner our product candidates, due to financial and other
impacts on potential partners. Additionally, we may experience potential impacts on our future milestone or deferred payments from Medexus, which may
impact Medexus’ ability to continue to successfully commercialize the IXINITY businesses. In 2021, we continue to see an impact of COVID-19 on our
business as some of our clinical sites were at reduced capacity. These and other factors may have a material adverse effect on our business, results of
operations and financial condition.
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Our future cash flow will depend, in part, on the ability of Pfizer to successfully sell RUXIENCE and our receipt of milestone and royalty payments
from HCR in connection therewith. If Pfizer is unable, or does not devote sufficient resources, to maintain or continue increasing sales of RUXIENCE,
or if HCR does not comply with the Royalty Purchase Agreement, our results of operations will be adversely affected.
On June 25, 2020, we announced that we will receive royalty payments from Pfizer related to sales of a rituximab biosimilar product, RUXIENCE
(Rituximab-pvvr), which was approved by the U.S. Food and Drug Administration in July 2019 and launched by Pfizer in the United States and Japan in
early 2020, and the European Union in the third quarter of 2020. The payments from Pfizer relate to a Collaboration and License Agreement acquired by us
as part of our spin-off from Emergent in 2016, which applies a fixed royalty rate of 2.5% on global net sales. The agreement was originally executed by
Trubion Pharmaceuticals (which was subsequently acquired by Emergent) and Wyeth (a wholly-owned subsidiary of Pfizer). The royalty term runs until
the seventh anniversary of the first commercial sale of the biosimilar. Royalty payments to us are due within 60 days after the end of each quarter. Although
the agreement was terminated in 2012, the royalty obligation thereunder survived.
On March 30, 2021, we entered into and closed a Royalty Purchase Agreement with HCR (Royalty Purchase Agreement) pursuant to which we
sold to HCR the right to receive royalty payments made by Pfizer in respect of net sales of RUXIENCE. Under the terms of the Royalty Purchase
Agreement, we received $35 million (the Investment Amount) at closing and we are eligible to receive additional payments in aggregate of up to an
additional $32.5 million based on the achievement of sales milestones in 2022, 2023, and 2024 (collectively, the Milestone Amounts). The Royalty
Purchase Agreement further provides that, once HCR reaches aggregate royalty payments totaling 190% of the Investment Amount plus the Milestone
Amounts to the extent paid to us by HCR, we will be entitled to receive 50% of any additional royalty payments by Pfizer thereafter. The Company
received a $10 million milestone payment in March 2022 and incurred $0.5 million in transaction costs. The proceeds from the milestone, net of transaction
costs, will be recorded as additional liability related to sale of future royalties on the balance sheet in the first quarter of 2022. The Company is eligible to
receive additional payments in aggregate of up to $22.5 million based on achievement of sales milestones in 2023 and 2024.
We have no control over the sales of RUXIENCE and are therefore dependent on the efforts and ability of Pfizer to generate net sales of
RUXIENCE sufficient for us to receive Milestone Payments and additional royalty payments under the Royalty Purchase Agreement. The failure of Pfizer
to successfully generate such net sales could negatively impact our future financial and operating results and our results of operations could therefore be
adversely affected. Additionally, even if Pfizer is able to generate net sales of RUXIENCE sufficient for us to receive such payments, if HCR breaches the
Royalty Purchase Agreement (for example, by not making required payments when due, or at all), disputes or litigation may arise. Such disputes or
litigation could be time-consuming and expensive and could adversely affect our business.
We face product liability exposure, which could cause us to incur substantial liabilities and negatively affect our business, financial condition, and
results of operations.
The nature of our business exposes us to potential liability inherent in pharmaceutical products, including with respect to the testing of our product
candidates in clinical trials and any product candidates that we successfully develop. Product liability claims might be made by patients in clinical trials,
consumers, health care providers or pharmaceutical companies or others that sell any products that we successfully develop. These claims may be made
even with respect to those products that are manufactured in licensed and regulated facilities or otherwise receive regulatory approval for study or
commercial sale. We cannot predict the frequency, outcome or cost to defend any such claims.
If we cannot successfully defend ourselves against future claims that our product candidates caused injuries, we may incur substantial liabilities.
Regardless of merit or eventual outcome, product liability claims may result in:
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adverse publicity and/or injury to our reputation;
withdrawal of clinical trial participants;
costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
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decreased demand or withdrawal of an approved product;
loss of revenue; and
an inability to commercialize products that we may develop.
The amount of insurance that we currently hold may not be adequate to cover all liabilities that may occur. Further product liability insurance may
be difficult and expensive to obtain. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance
coverage that will be adequate to satisfy all potential liabilities. Claims or losses in excess of our product liability insurance coverage could have a material
adverse effect on our business, financial condition, and results of operations. The cost of defending any product liability litigation or other proceeding, even
if resolved in our favor, could be substantial. Uncertainties resulting from the initiation and continuation of product liability litigation or other proceedings
could have a material adverse effect on our ability to compete in the marketplace. Product liability claims, regardless of merit or eventual outcome, may
absorb significant management time and result in reputational harm, potential loss of revenue from decreased demand for any product candidates we
successfully develop, withdrawal of clinical trial participants and potential termination of clinical trial sites or entire clinical programs, and could cause our
stock price to fall.
Our success is dependent on our continued ability to attract, motivate and retain key personnel, and any failure to attract or retain key personnel may
negatively affect our business.
Because of the specialized scientific nature of our business, our ability to develop products and to compete with our current and future competitors
largely depends upon our ability to attract, retain and motivate highly qualified managerial and key scientific and technical personnel. If we are unable to
retain the services of one or more of the principal members of senior management, including our Chief Executive Officer, Marvin L. White, our Chief
Financial Officer, Jeffrey G. Lamothe, our General Counsel, SoYoung Kwon, our VP of Finance, Daphne Taylor, or other key employees, our ability to
implement our business strategy could be materially harmed. We face intense competition for qualified employees from biotechnology and pharmaceutical
companies, research organizations and academic institutions. Moreover, we have recently experienced increased levels of attrition. On August 25, 2021,
Jane Gross, resigned as the Chief Scientific Officer of the Company effective September 17, 2021 and transitioned into a consulting relationship with the
Company through December 31, 2021. Attracting, retaining or replacing these personnel on acceptable terms may be difficult and time-consuming given
the high demand in our industry for similar personnel. We believe part of being able to attract, motivate and retain personnel is our ability to offer a
competitive compensation package, including equity incentive awards. If we cannot offer a competitive compensation package or otherwise attract and
retain the qualified personnel necessary for the continued development of our business, we may not be able to maintain our operations or grow our
business. Due to our equity plan proposal not receiving stockholder approval at the Company’s annual meeting in 2021, we may not have sufficient equity
available to attract and retain qualified personnel. In addition, we have experienced and may experience an impact on the health of key personnel due to the
ongoing COVID-19 pandemic.
The ongoing COVID-19 pandemic could adversely impact our business, including our clinical trials.
Since March of 2020, a novel strain of coronavirus, COVID-19, has spread through the world, including the United States. The COVID-19
outbreak has caused severe global economic and societal disruptions and uncertainties, and we have experienced disruptions that have impacted our
business and clinical trials, including, limitation of company operations, implementing work from home policies and office closures; delays or difficulties
in receiving deliveries of critical experimental materials; delays or difficulties in enrolling patients in our clinical trials; delays or difficulties in clinical site
initiation, including difficulties in recruiting clinical site investigators and clinical site staff; diversion of healthcare resources away from the conduct of
clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
interruption of key clinical trial activities, such as patient enrollment and clinical trial site monitoring; and, limitations in employee resources that would
otherwise be focused on our business, including the conduct of our research and development activities and process development activities, due to the
illness of employees or their families, or the preference of employees to avoid contact with large groups of people.
We may continue to experience disruptions in the future, or additional disruptions that could severely impact our business, such as delays or
difficulties to the financing environment and raising capital due to economic
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uncertainty; delays in opportunities to partner our product candidates, due to financial and other impacts on potential partners; diversion of healthcare
resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the
conduct of our clinical trials; potential impacts on our future deferred payments and milestones from Medexus due to the environment which may impact
Medexus’ ability to continue to successfully commercialize the IXINITY business or Pfizer to successfully commercialize RUXIENCE; and negative
impacts on suppliers and licensees. The global outbreak of COVID-19 continues to rapidly evolve. The ongoing COVID-19 pandemic may also result in
the need to suspend enrollment into studies, patient withdrawals, postponement of preclinical studies, study modification, suspension, or termination, the
introduction of remote study procedures and modified informed consent procedures, study site changes, direct delivery of investigational products to
patient homes requiring state licensing, study deviations or noncompliance, and changes or delays in site monitoring. The foregoing may require that we
consult with relevant review and ethics committees and the FDA or comparable foreign regulatory authorities. The foregoing may also impact the integrity
of our study data. The pandemic could further impact our ability to interact with the FDA or other regulatory authorities, and may result in delays in the
conduct of inspections or review of pending submissions.
The ongoing COVID-19 pandemic may further impact our suppliers and manufacturers. If any of our suppliers or manufacturers are adversely
impacted by the COVID-19 pandemic or the restrictions resulting from the outbreak, if they cannot obtain the necessary supplies, or if such third parties
need to prioritize other products or customers over us, including under the Defense Production Act, we may experience delays or disruptions in our supply
chain, which could have a material and adverse impact on our business and development plans. Third party manufacturers may also need to implement
measures and changes, or deviate from typical requirements, because of the COVID-19 pandemic that may otherwise adversely impact our supply chains or
the quality of the resulting products or supplies. Depending on the change, we may need to obtain FDA pre-approval or otherwise provide FDA with a
notification of the change.
The ongoing COVID-19 pandemic may result in changes in laws, policies, and regulations. By example, due to the potential impact of the
COVID-19 outbreak on clinical trials, drug development, and manufacturing, FDA issued guidance several times concerning how sponsors and
investigators may address these challenges. FDA’s guidance is continually evolving. By further example, in March 2020, the U.S. Congress passed the
Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which includes various provisions regarding FDA drug shortage reporting
requirements, as well as provisions regarding supply chain security, such as risk management plan requirements, and the promotion of supply chain
redundancy and domestic manufacturing. This and any future changes in law may require that we change our internal processes and procedures to ensure
continued compliance.
The extent to which the ongoing COVID-19 pandemic may impact our business and clinical trials will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel
restrictions and social distancing in the United States and other countries, business closures or business disruptions, the effectiveness of actions taken in the
United States and other countries to contain and treat the disease, including the effectiveness of vaccination programs, and whether businesses and the
economy in general will continue to reopen and stay open.
The terms of our credit agreement may restrict the operation of our business and limit the cash available for investment in our business operations.
In August 2020, we entered into a Credit and Security Agreement (the Credit Agreement), by and among us and certain of our subsidiaries as
borrowers, MidCap Financial, as agent, and the lenders from time to time party thereto. The terms of the Credit Agreement and borrowings we may make
under the Credit Agreement in the future, could have significant adverse consequences for our business, including:
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requiring us to dedicate a substantial portion of any cash flow from operations to payment on our debt, which would reduce the amounts
available to fund other corporate initiatives;
increasing the amount of interest that we have to pay on borrowings under the Credit Agreement if market rates of interest increase;
requiring compliance with restrictive covenants restricting, among other things, certain indebtedness, liens, dividends and other
distributions, repayment of subordinated indebtedness, mergers, dispositions,
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investments, acquisitions, transactions with affiliates and modification of organizational documents or certain other agreements, subject to
certain exceptions;
requiring compliance with affirmative covenants including payment and reporting covenants; and
placing us at a competitive disadvantage compared to our competitors that have less debt, better debt servicing options or stronger debt
servicing capacity.
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We may not have sufficient funds or be able to obtain additional financing to pay the amounts due under the Credit Agreement. In addition, failure
to comply with the covenants under the Credit Agreement, including those outside of our control, could result in an event of default. An event of default
could result in the acceleration of amounts due under the Credit Agreement, and we may not be able to obtain additional financing to make any accelerated
payments. Under these circumstances, our lenders could seek to enforce security interests in our assets securing our indebtedness, including our intellectual
property.
We completed a Section 382 study and experienced an “ownership change” as defined in Section 382 of the U.S. Internal Revenue Code of 1986, as
amended (the Code), the tax benefits of our pre-“ownership change” net operating loss carryforwards and certain other tax attributes will be subject to
annual limitation under Sections 382 and 383 of the Code, none of which permanently limits our federal tax attributes assuming sufficient income.
In general, a corporation undergoes an “ownership change” under Section 382 of the Code if, among other things, the stockholders who own,
directly or indirectly, 5% or more of the corporation’s stock (by value), or are otherwise treated as “5% stockholders” under Section 382 of the Code and
the Treasury regulations promulgated thereunder, increase their aggregate percentage ownership (by value) of the corporation’s stock by more than 50
percentage points over the lowest percentage of value owned by the 5% stockholders at any time during the applicable testing period, which is generally the
rolling three-year period preceding the potential ownership change. Such potential ownership change testing events include changes involving a
stockholder becoming a 5% stockholder or arising from a new issuance of capital stock or share repurchases by the corporation, subject to certain
exceptions.
In the event of an “ownership change,” Sections 382 and 383 of the Code impose an annual limitation on the amount of taxable income a
corporation may offset with pre-change net operating loss carryforwards and certain other tax attributes. The annual limitation is generally equal to the
value of the outstanding stock of the corporation immediately before the ownership change (excluding certain capital contributions), multiplied by the long-
term tax-exempt rate as published by the IRS for the month in which the ownership change occurs (the long-term tax-exempt rate for November 2020 is
0.89%). Any unused annual limitation may generally be carried over to subsequent years until the pre-ownership change net operating loss carryforwards
and certain other tax attributes expire or are fully utilized by the corporation. Similar provisions of state tax law may also apply to limit the use of state net
operating loss carryforwards and certain other tax attributes.
Additionally, Section 382 of the Code includes special rules that apply to a corporation with a significant amount of net unrealized built-in gains or
net unrealized built-in losses in its assets immediately prior to ownership change under Section 382 of the Code. In general, certain built-in gains
recognized during the five-year period beginning on the date of the ownership change increases the corporation’s annual limitation under Section 382 and
383 of the Code in the taxable year that such built-in gains are recognized or deemed recognized (but only up to the amount of the net unrealized built-in
gain), while certain built-in losses recognized during such five-year period is subject to the annual limitation under Section 382 of the Code (but only up to
the amount of the net unrealized built-in loss).
As of December 31, 2021, we had approximately $159.6 million and $70.3 million of federal and state net operating loss carryforwards,
respectively, available to reduce future taxable income that will begin to expire in 2037 for federal purposes. These net operating loss carryforwards could
expire unused and be unavailable to offset future income tax liabilities. Federal net operating loss carryforwards incurred in 2018 and in future years may
be carried forward indefinitely, but the usage of such federal net operating losses is limited. We completed an IRC Section 382 study on our federal tax
attributes and determined that the annual utilization of federal net operating loss carryforwards is limited. It is not expected that the annual limitations will
result in the expiration of tax attribute carryforwards prior to utilization assuming sufficient income.
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We cannot predict or control the occurrence or timing of another ownership change under Section 382 of the Code in the future. In addition, it is
possible that any offering of securities by us could result in an ownership change. If another ownership change were to occur, future limitations could
apply to our net operating losses and certain other tax attributes, which could result in a material amount of our net operating loss carryforwards and certain
other tax attributes becoming unavailable to offset future income tax liabilities.
The realization of all or a portion of our deferred income tax assets (including net operating loss carryforwards) is dependent upon the generation
of future income during the statutory carryforward periods. Our inability to utilize our limited pre-ownership change net operating loss carryforwards and
certain other tax attributes, or the occurrence of a future ownership change and resulting additional limitations to these tax attributes, could have a material
adverse effect on our financial condition, results of operations and cash flows.
Our investments are subject to market and credit risks that could diminish their value and these risks could be greater during periods of extreme
volatility or disruption in the financial and credit markets, which could adversely impact our business, financial condition, results of operations,
liquidity and cash flows.
Our investments and derivative financial instruments are subject to risks of credit defaults and changes in market values. Periods of
macroeconomic weakness or recession, heightened volatility or disruption in the financial and credit markets could increase these risks, potentially
resulting in other-than-temporary impairment of assets in our investment portfolio. The impact of geopolitical tension, such as a deterioration in the
bilateral relationship between the US and China or increasing escalation of conflict between Russia and Ukraine, including any additional sanctions, export
controls or other restrictive actions that may be imposed by the US and/or other countries against governmental or other entities in, for example, Russia,
also could lead to disruption, instability and volatility in the global markets, which may have an impact on our investments across negatively impacted
sectors or geographies.
Product Development Risks
The results of our current and planned preclinical studies and clinical trials may not satisfy the requirements of the FDA or non-U.S. regulatory
authorities. Results from early-preclinical studies and clinical trials may not be predictive of results from later-stage or other trials and interim or top
line data may be subject to change or qualification based on the complete analysis of data.
We are very early in our clinical trial with APVO436 and clinical failure can occur at any stage of preclinical or clinical development. Preclinical
studies and clinical trials may produce negative or inconclusive results. The FDA or a non-US regulatory authority may require us to conduct additional
clinical or preclinical testing. Success in early preclinical studies and clinical trials does not mean that future larger registration clinical trials will be
successful and interim results of a clinical trial do not necessarily predict final results. Product candidates in later-stage clinical trials may fail to
demonstrate sufficient safety and efficacy to the satisfaction of the FDA and non-U.S. regulatory authorities despite having progressed through initial
clinical trials. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product
candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations,
changes in adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. In addition, preclinical
and clinical data are often susceptible to various interpretations and analyses, and many companies whose product candidates performed satisfactorily in
preclinical studies and clinical trials have nonetheless failed to obtain marketing approval. Product candidates in later stages of clinical trials may fail to
show the desired safety and efficacy profile despite having progressed through preclinical studies and initial clinical trials. A number of companies in the
pharmaceutical and biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety
profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if early-stage clinical
trials are promising, we may need to conduct additional clinical trials of our product candidates in additional patient populations or under different
treatment conditions before we are able to seek approvals from the FDA and regulatory authorities outside the United States to market and sell these
product candidates. Any of these events could limit the commercial potential of our product candidates and have a material adverse effect on our business,
prospects, financial condition and results of operations. A number of companies in the pharmaceutical industry, including those with greater resources and
experience than us, have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.
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In addition, our APVO436 clinical trial are open-label studies and conducted at a limited number of clinical sites on a limited number of
patients. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product
candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and
sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as
patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient bias” where patients
perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may
be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have
received treatment and may interpret the information of the treated group more favorably given this knowledge. The results from these clinical trials may
not be predictive of future clinical trial results with APVO436 or other product candidates.
We may publicly disclose top line or interim data from time to time, which is based on a preliminary analysis of then-available data, and the results
and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. The
top line or interim results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such
results once additional data have been received and fully evaluated. Even in situations where a clinical stage candidate appears to be benefiting a patient,
that benefit may not be of a permanent nature. Top line and interim data also remain subject to audit and verification procedures, that may result in the final
data being materially different from the preliminary data we previously published. In addition, the achievement of one primary endpoint for a trial does not
guarantee that additional co-primary endpoints or secondary endpoints will be achieved. Further, others, including regulatory agencies, may not accept or
agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could
impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in
general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive
information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
Our future clinical trials may not be successful. Moreover, should there be a flaw in a clinical trial, it may not become apparent until the clinical
trial is well advanced. We may also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to
receive marketing approval or commercialize our product candidates, including:
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regulators or Institutional Review Boards (IRBs) may not authorize us or our investigators to commence or continue a clinical trial, conduct
a clinical trial at a prospective trial site, or amend trial protocols, or regulators or IRBs may require that we modify or amend our clinical
trial protocols;
we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with
prospective trial sites and our contract research organizations (CROs);
regulators may require us to perform additional or unanticipated clinical trials to obtain approval or we may be subject to additional post-
marketing testing, surveillance, or REMS requirements to maintain regulatory approval;
clinical trials of our product candidates may produce negative or inconclusive results, or our studies may fail to reach the necessary level of
statistical significance;
changes in marketing approval policies, laws, regulations, or the regulatory review process during the development period rendering our
data insufficient to obtain marketing approval;
the cost of clinical trials of our product candidates may be greater than we anticipate or we may have insufficient funds for a clinical trial or
to pay the substantial user fees required by the FDA upon the filing of a marketing application;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be
insufficient or inadequate;
we may fail to reach an agreement with regulators or IRBs regarding the scope, design, or implementation of our clinical trials;
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we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal of clinical trial sites;
there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may emerge regarding
our product candidates;
the FDA or comparable foreign regulatory authorities may disagree with our study design, including endpoints, or our interpretation of data
from non-clinical studies and clinical trials or find that a product candidate’s benefits do not outweigh its safety risks;
the FDA or comparable foreign regulatory authorities may not accept data from studies with clinical trial sites in foreign countries;
the FDA or comparable regulatory authorities may disagree with our intended indications;
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or
our contract manufacturer’s manufacturing facility for clinical and future commercial supplies; and
we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or current or future
competitive therapies in development.
Further, our product candidates may not be approved even if they achieve their primary endpoints in Phase 3 clinical trials or registration trials.
Regardless of any advisory committee recommendation, the FDA may decline to approve the BLA for a number of reasons including, if the clinical benefit,
safety profile or effectiveness of the drug is not deemed by the FDA to warrant approval. The FDA or other non-U.S. regulatory authorities may disagree
with our trial design, and our interpretation of data from non-clinical studies and clinical trials. In particular, the FDA may not view our data as being
clinically meaningful or statistically persuasive. In addition, any of these regulatory authorities may change requirements for the approval of a product
candidate even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 clinical trial. Any of these regulatory authorities may
also approve a product candidate for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-
marketing clinical trials. The FDA or other non-U.S. regulatory authorities may not approve the labeling claims that we believe would be necessary or
desirable for the successful commercialization of our product candidates.
We may not be able to file investigational new drug applications, or INDs, or IND amendments to commence additional clinical trials on the timelines
we expect, and even if we are able to, the FDA may not permit us to proceed.
We expect to submit an IND for ALG.APV-527 to the FDA in 2022, however, we may not be able to file future INDs for our product candidates on
the timelines we expect. For example, we may experience manufacturing delays or other delays with IND-enabling studies. Moreover, we cannot be sure
that submission of an IND will result in the FDA allowing further clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate
clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND, we cannot
guarantee that such regulatory authorities will not change their requirements in the future. These considerations also apply to new clinical trials we may
submit as amendments to existing INDs or to a new IND. Any failure to file INDs on the timelines we expect or to obtain regulatory approvals for our trials
may prevent us from completing our clinical trials or commercializing our products on a timely basis, if at all.
If we experience delays or difficulties in the commencement, enrollment of patients or completion of our clinical trials, the time to reach critical trial
data and receipt of any necessary regulatory approvals could be delayed.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate, enroll and maintain a sufficient
number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In addition, some
of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would
otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Furthermore, APVO436 has received
orphan drug designation for AML and thus has a relatively small patient population. Also, the eligibility criteria of our clinical trials may further limit the
pool of available study
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participants as we require that patients have specific characteristics that we can measure to assure their disease is either severe enough or not too advanced
to include them in a study. In addition, the global outbreak of the COVID-19 pandemic makes it more difficult to initiate studies and enroll patients and the
process of finding and diagnosing eligible patients under these conditions may prove costly.
Patient enrollment is affected by other factors including:
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the severity of the disease under investigation;
the design of the clinical trial, including the patient eligibility criteria for the study in question;
the perceived risks and benefits of the product candidate under study;
our payments for conducting clinical trials;
the patient referral practices of physicians;
our ability to recruit clinical trial investigators with the appropriate competencies and experiences;
our ability to obtain and maintain patient consents;
the ability to monitor patients adequately during and after treatment;
reporting of preliminary results of any of our clinical trial sites;
the proximity and availability of clinical trial sites for prospective patients; and
factors we may not be able to control that may limit patients, principal investigators or staff or clinical site availability, such as the ongoing
COVID-19 pandemic.
Our inability to enroll a sufficient number of patients for clinical trials could result in significant delays and could require us to abandon one or
more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, delays in the
availability of preliminary or final results, and delays to commercially launching our product candidates, if approved, which may cause the value of our
company to decline and limit our ability to obtain additional financing.
Serious adverse events, undesirable side effects or other unexpected properties of our product candidates may be identified that could delay, prevent, or
cause the withdrawal of regulatory approval, limit the commercial potential, or result in significant negative consequences following marketing
approval.
Serious adverse events or undesirable side effects caused by, or other unexpected properties of any of our product candidates, either when used
alone or in combination with other approved or investigational therapies, could cause us or regulatory authorities to interrupt, delay or halt our development
activities and manufacturing and distribution operations and could result in a more restrictive label, the imposition of a clinical hold, suspension,
distribution or use restrictions or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. If any of our product
candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon their
development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less
severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been
found to cause undesirable or unexpected side effects that prevented further development of the compound.
As we continue developing our product candidates and conduct clinical trials of our product candidates, serious adverse events, or SAEs,
undesirable side effects, relapse of disease or unexpected characteristics may emerge causing us to abandon these product candidates or limit their
development to more narrow uses or subpopulations in which the SAEs or undesirable side effects or other characteristics are less prevalent, less severe or
more acceptable from a risk-benefit perspective or in which efficacy is more pronounced or durable. Undesirable side effects, or other unexpected adverse
events or properties of any of our product candidates, could arise or become known either during clinical development or, if approved, after the approved
product has been marketed. If such an event occurs during development, the FDA or comparable foreign regulatory authorities could suspend or terminate a
clinical trial or deny approval of our product candidates. Furthermore, we may to evaluate our product candidates in combination with approved and/or
experimental therapies. These combinations may have additional or
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more severe side effects than caused by our product candidate as monotherapies. The uncertainty resulting from the use of our product candidate in
combination with other therapies may make it difficult to accurately predict side effects or efficacy in potential future clinical trials. If our product
candidates receive marketing approval and we or others later identify undesirable side effects caused by such products, a number of potentially significant
negative consequences may result, including:
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regulatory authorities may require us to conduct additional clinical trials or abandon our research efforts for our other product candidates;
regulatory authorities may require additional warnings on the label or impose distribution or use restrictions;
regulatory authorities may require one or more post-market studies;
we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
regulatory authorities may require implementation of a Risk Evaluation and Mitigation Strategy, or REMS, Field Safety Corrective Actions
or equivalent, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special
packaging or labeling, expedited reporting of certain adverse events, preapproval of promotional materials and restrictions on direct-to-
consumer advertising;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market approval and acceptance of the affected product candidate, or could
substantially increase commercialization costs and expenses, which could delay or prevent us from generating revenue from the sale of our products and
materially harm our business and results of operations.
We depend on third parties to conduct our clinical and non-clinical trials. If these third parties do not effectively carry out their contractual duties,
comply with regulatory requirements or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product
candidates and our business could be substantially harmed.
We do not have the ability to independently conduct the clinical and preclinical trials required to obtain regulatory approval for our product
candidates. We depend on third parties, such as independent clinical investigators, contract research organizations, or CROs, and other third-party service
providers to conduct the clinical and preclinical trials of our product candidates, and we expect to continue to do so. For example, Dr. Dirk Huebner is
providing clinical trial and medical affairs oversight duties as an independent consultant. We rely heavily on Dr. Huebner and these other third parties for
successful execution of our clinical and preclinical trials, but we do not exercise day to day control over their activities.
While we have agreements governing the activities of third parties, we have limited influence and control over their actual performance and
activities. For instance, our third-party service providers are not our employees, and except for remedies available to us under our agreements with such
third parties we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, and non-clinical programs. Our third-party
service providers may also have relationships with other entities, some of which may be our competitors, for whom they may also be conducting trials or
other therapeutic development activities that could harm our competitive position. If these third parties do not successfully carry out their contractual
duties, meet expected deadlines or conduct our non-clinical studies or clinical trials in accordance with regulatory requirements or our stated protocols, if
they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory
requirements or for other reasons, our trials may be repeated, extended, delayed, or terminated, we may not be able to obtain, or may be delayed in
obtaining, marketing approvals for our product candidates, we may not be able to, or may be delayed in our efforts to, successfully commercialize our
product candidates, or we or they may be subject to regulatory enforcement actions.
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Our reliance on third-party service providers does not relieve us of our regulatory responsibilities, including ensuring that our trials are conducted
in accordance with the FDA-approved good clinical practices, or GCPs, and the plans and protocols contained in the relevant regulatory application. In
addition, these organizations and individuals may not complete these activities on our anticipated or desired timeframe. We also may experience
unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the work of a contract research organization may lead us
to seek to terminate the relationship and use an alternative service provider, which may prove difficult and/or costly and result in a delay of our trials. In
addition, business disruptions arising from the ongoing COVID-19 pandemic could negatively affect the ability of some of the independent clinical
investigators, contract research organizations and other third-party service providers that conduct our clinical and preclinical trials of our product
candidates. Any delay in or inability to complete our trials could delay or prevent the development, approval, and commercialization of our product
candidates.
If CROs or other third parties assisting us or our study sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials
may be deemed unreliable and the FDA or its non-U.S. counterparts may require us to perform additional clinical trials before approving our marketing
applications. We or they may also face regulatory enforcement action. We cannot assure you that, upon inspection, the FDA or non-U.S. regulatory
agencies will determine that any of our clinical trials comply with GCPs. In addition, our clinical trials must be conducted with product produced under
GMPs and similar regulations outside of the United States. Our failure, or the failure of our product manufacturers, to comply with these regulations may
require us to repeat or redesign clinical trials, or conduct additional trials, which would increase our development costs and delay or impact the likelihood
of regulatory approval.
If third parties do not carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to
the failure to adhere to our clinical protocols, including dosing requirements, or regulatory requirements, or if they otherwise fail to comply with clinical
trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory
requirements or if these third parties need to be replaced, our clinical trials may be extended, delayed, suspended or terminated.
Agreements with third parties conducting or otherwise assisting with our clinical or non-clinical studies might terminate for a variety of reasons,
including a failure to perform by the third parties. If any of our relationships with these third parties terminate, we may not be able to enter into
arrangements with alternative providers or to do so on commercially reasonable terms. Switching or adding additional third parties involves additional cost
and requires management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, if we need
to enter into alternative arrangements, it could delay our product development activities and adversely affect our business. Though we carefully manage our
relationships with our third parties, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges
will not have a material adverse impact on our business, financial condition and prospects, and results of operations.
If any of these events occur, we may not be able to obtain regulatory approval of our product candidates or succeed in our efforts to create
approved line extensions for certain of our existing products or generate additional useful clinical data in support of these products. Moreover, if we are
unable to obtain any necessary third-party services on acceptable terms or if these service providers do not successfully carry out their contractual duties or
meet expected deadlines, our efforts to obtain regulatory approvals for our product candidates may be delayed or prevented.
Manufacture of our product candidates, especially in large quantities, is complex and time consuming. The loss of any of our third-party
manufacturers, or delays or problems in the manufacture our product candidates, could result in product shortages and/or delays in clinical
development.
We do not have manufacturing capabilities and do not plan to develop such capacity in the foreseeable future. We depend on a limited number of
third-party suppliers for our product candidates. Accordingly, our ability to develop and deliver products in a timely and competitive manner and to enable
us to conduct our development programs depends on our third-party manufacturers being able to continue to meet our ongoing clinical trial needs and
perform their contractual obligations. In order to successfully develop and commercialize our product candidates in a timely manner, we and our third-party
manufacturers must be able to develop and execute on manufacturing processes and reach agreement on contract terms.
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Our current and anticipated future dependence upon others for the manufacture of our product candidates or any product that we develop may
adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.
In addition, any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.
If these third-party manufacturers do not successfully carry out their contractual duties, meet expected deadlines or manufacture our product
candidates in accordance with regulatory requirements, if there are disagreements between us and such parties, or if such parties are unable to expand
capacities to support commercialization of any of our product candidates for which we obtain marketing approval, we may not be able to produce, or may
be delayed in producing sufficient product candidates to meet our supply requirements. Any delays in obtaining adequate supplies with respect to our
product candidates and components may delay the development or commercialization of our product candidates.
We may not succeed in our efforts to establish manufacturing relationships or other alternative arrangements for any of our product candidates,
components, and programs. Our product candidates may compete with other products and product candidates for access to manufacturing facilities. There
are a limited number of manufacturers that operate under GMP regulations and that are both capable of manufacturing for us and willing to do so.
If our existing third-party manufacturers, or the third parties that we engage in the future to manufacture a product or component for commercial
sale or for our clinical trials should cease to continue to do so for any reason, we likely would experience delays in obtaining sufficient quantities of our
product candidates for us to meet commercial demand or to advance our clinical trials while we identify and qualify replacement suppliers. These third-
party facilities may also be affected by natural disasters, such as floods or fire, or such facilities could face manufacturing issues, such as contamination or
regulatory findings following a regulatory inspection of such facility. In such instances, we may need to locate an appropriate replacement third-party
relationship, which may not be readily available or on acceptable terms, which would cause additional delay and increased expense. In some cases, the
technical skills required to manufacture our products or product candidates may be unique or proprietary to the original manufacturer and we may have
difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to an alternate supplier in a timely fashion if at all. The
addition of a new or alternative manufacturer may also require FDA approvals and may have a material adverse effect on our business.
If for any reason we are unable to obtain adequate supplies of our product candidates or the components used to manufacture them, it will be more
difficult for us to develop our product candidates and compete effectively. Further, even if we do establish such collaborations or arrangements, our third-
party manufacturers may breach, terminate, or not renew these agreements.
We or our third-party manufacturers may also encounter shortages in the raw materials or therapeutic substances necessary to produce our product
candidates in the quantities needed for our clinical trials or, if our product candidates are approved, in sufficient quantities for commercialization or to meet
an increase in demand. Such shortages may occur for a variety of reasons, including capacity constraints, delays or disruptions in the market, and shortages
caused by the purchase of such materials by our competitors or others. We may also not be able to obtain such materials on favorable terms as a result of
global trade policies. Our or our third-party manufacturers’ failure to obtain the raw materials, therapeutic substances, or active pharmaceutical ingredients
necessary to manufacture sufficient quantities of our product candidates may have a material adverse effect on our business.
All of our current product candidates are biologics. Our product candidates must be made consistently and in compliance with a clearly defined
manufacturing process. Problems may arise during manufacturing for a variety of reasons, including problems with raw materials, equipment malfunction
or replacement and failure to follow specific protocols and procedures. Slight deviations anywhere in the manufacturing process, including obtaining
materials, maintaining master seed or cell banks and preventing genetic drift, seed or cell growth, fermentation and contamination including from, among
other things, particulates, filtration, filling, labeling, packaging, storage and shipping, and quality control testing, may result in lot failures or manufacturing
shut-down, delays in the release of lots, product recalls, spoilage or regulatory action. Due to the ongoing COVID-19 pandemic, our third-party
manufacturers may experience difficulties that impact our product candidates.
Additionally, our development and commercialization strategy involves entering into arrangements with corporate and academic collaborators,
contract research organizations, distributors, third-party manufacturers, licensors, licensees and others to conduct development work, manage or conduct
our clinical trials, manufacture our
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product candidates and market and sell our products outside of the United States and maintaining our existing arrangements with respect to the
commercialization or manufacture of our products. We may not have the expertise or the resources to conduct all of these activities for all products and
product candidates on our own and, as a result, are particularly dependent on third parties in many areas. Any current or future arrangements for
development and commercialization may not be successful, as the amount and timing of resources that third parties devote to developing, manufacturing,
and commercializing our products candidates are not within our control. If we are not able to establish or maintain agreements relating to our product
candidates in development, our results of operations and prospects would be materially and adversely affected.
Any loss of a third-party manufacturer, any delays, or problems in the manufacture of our products, or termination of any arrangements for
development and commercialization of our products could have a material adverse effect on our business, operations, results of operations and financial
condition. We may be required to replace our manufacturer and if this were to occur, we may incur added costs and delays in identifying and qualifying any
such replacements. We may also not be able to enter into such arrangements on favorable commercial terms.
Failure of our third-party manufacturers to successfully manufacture material that conforms to our specifications and the FDA’s or foreign regulatory
authorities’ strict regulatory requirements, may prevent regulatory approval of those manufacturing facilities.
We rely on third parties to manufacture all clinical trial materials for our product candidates, and we will rely on third parties to manufacture
commercial supplies, if any such product candidates are ultimately approved for commercial sale. Manufacturers of our product candidates and therapeutic
substances must comply with GMP requirements enforced by the FDA that are applicable to both finished products and their active components used both
for clinical and commercial supply. The FDA enforces these requirements through its facilities inspection program. Our product candidates, including
APVO436 and ALG.APV-527 will not be approved for marketing by the FDA or other foreign regulatory authorities unless the FDA or their foreign
equivalents also approve the facilities used by our third-party manufacturers to produce them for commercialization. If our third-party manufacturers
cannot successfully manufacture material that conforms to our specifications and the FDA’s or foreign regulatory authorities’ strict regulatory requirements,
the FDA or their foreign counterparts will not approve their manufacturing facilities, which would result in significant delays in obtaining FDA or foreign
marketing approvals for our product candidates. If this were to occur, we may also never receive marketing approval, we may need to repeat clinical trials,
we may need to undertake costly corrective actions, including product recalls, we may risk harm to subjects or patients, and we may face enforcement
actions.
While we are ultimately responsible for the manufacture of our product candidates, other than through our contractual arrangements, we have little
control over our manufacturers’ compliance with these regulations and standards. If the FDA or a comparable foreign regulatory authority does not approve
these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative
manufacturing facilities, which would significantly impact our ability to develop, obtain and maintain regulatory approval for or market our product
candidates, if approved. Any new manufacturers would need to either obtain or develop the necessary manufacturing know-how, and obtain the necessary
equipment and materials, which may take substantial time and investment. We must also receive FDA approval for the use of any new manufacturers for
commercial supply.
We and our third-party manufacturers may not be able to meet these manufacturing process requirements for any of our current product candidates,
all of which have complex manufacturing processes, which make meeting these requirements even more challenging. Due to the ongoing COVID-19
pandemic, our third-party manufacturers may experience difficulties that impact our product candidates. If we are unable to develop manufacturing
processes for our clinical product candidates that satisfy these requirements, we will not be able to supply sufficient quantities of test material to conduct
our clinical trials in a timely or cost effective manner, and as a result, our development programs will be delayed, our financial performance will be
adversely impacted and we will be unable to meet our long-term goals.
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Certain of our product candidates have received orphan drug designation from the FDA. However, there is no guarantee that we will be able to
maintain this designation, receive this designation for any of our other product candidates, or receive or maintain any corresponding benefits,
including periods of exclusivity.
Certain of our product candidates have received orphan drug designation. We may also seek orphan drug designation for our other product
candidates, as appropriate. While orphan drug designation does provide us with certain advantages, it neither shortens the development time or regulatory
review time of a product candidate nor gives the product candidate any advantage in the regulatory review or approval process.
Generally, if a product candidate with orphan drug designation subsequently receives marketing approval before another product considered by the
FDA to be the same for the same orphan indication, the product is entitled to a period of marketing exclusivity, which precludes the FDA from approving
another marketing application for the same drug or biologic for the same indication for a period of seven years in the United States.
We may not be able to obtain any future orphan drug designations that we apply for. Orphan drug designations do not guarantee that we will be
able to successfully develop our product candidates, and there is no guarantee that we will be able to maintain any orphan drug designations that we
receive. For instance, orphan drug designations may be revoked if the FDA finds that the request for designation contained an untrue statement of material
fact or omitted material information, or if the FDA finds that the product candidate was not eligible for designation at the time of the submission of the
request.
Moreover, even if we are able to receive and maintain orphan drug designations, we may ultimately not receive any period of regulatory exclusivity
if our product candidates are approved. For instance, we may not receive orphan product regulatory exclusivity if the indication for which we receive FDA
approval is broader than the orphan drug designation. Orphan exclusivity may also be lost for the same reasons that orphan drug designation may be lost.
Orphan exclusivity may further be lost if we are unable to assure a sufficient quantity of the product to meet the needs of patients with the rare disease or
condition.
Even if we obtain orphan exclusivity for any of our current or future product candidates, that exclusivity may not effectively protect the product
from competition as different products can be approved for the same condition or products that are the same as ours can be approved for different
conditions. Even after an orphan product is approved, the FDA can also subsequently approve a product containing the same principal molecular features
for the same condition if the FDA concludes that the later product is clinically superior. The FDA may further grant orphan drug designation to multiple
sponsors for the same compound or active molecule and for the same indication. If another sponsor receives FDA approval for such product before we do,
we would be prevented from launching our product in the United States for the orphan indication for a period of at least seven years, unless we can
demonstrate clinical superiority. Moreover, third-party payors may reimburse for products off-label even if not indicated for the orphan condition.
We have in the past and may in the future conduct clinical trials for our product candidates outside the United States, and the FDA or non-U.S.
regulatory authorities may not accept data from such trials in the development or approval of our product candidates in those jurisdictions.
We have in the past and may in the future conduct clinical trials outside the U.S. and the FDA and foreign regulatory authorities may not accept
those data in support of the further development or approval of our product candidates. The acceptance of trial data from clinical trials conducted outside
the United States by the FDA or applicable foreign regulatory authority may be subject to certain conditions. In cases where data from foreign clinical trials
are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign
data alone unless (i) the data are applicable to the United States population and United States medical practice; and (ii) the trials were performed by clinical
investigators of recognized competence and pursuant to GCP regulations. Additionally, the FDA’s clinical trial requirements, including sufficient size of
patient populations and statistical powering, must be met. Many foreign regulatory bodies have similar approval requirements.
In addition, such foreign trials will be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be
no assurance that the FDA or any applicable foreign regulatory authority will accept data from trials conducted outside of the United States. If the FDA or
any applicable foreign regulatory authority does not accept such data, it would result in the need to conduct additional trials beyond those we have
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planned, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving
marketing approval for commercialization in the applicable jurisdiction.
Commercialization Risks
Our ability to grow revenues and execute on our long-term strategy depends heavily on our ability to discover, develop, and obtain marketing approval
for our product candidates.
We currently have no products approved for commercial distribution. We have invested a significant portion of our efforts and financial resources
in the development of our product candidates. Our business depends on the successful development and commercialization of our product candidates,
which will require additional clinical and preclinical development, regulatory approval, commercial manufacturing arrangements, establishment of a
commercial organization, significant marketing efforts, and further investment, which may never occur. Our ability to generate revenues is substantially
dependent on our ability to develop, obtain regulatory approval for, and then successfully commercialize our product candidates. Except for the revenues
from previously sold products, we currently generate no revenues from sales of any products, and we may never be able to develop or commercialize a
marketable product.
In order for us to achieve our long-term business objectives, we will need to successfully discover and/or develop and commercialize our product
candidates. Although we have made, and expect to continue to make, significant investments in research and development, we have had only a limited
number of our internally-discovered product candidates reach the clinical development stage. We currently have one clinical-stage candidate, APVO436,
which is built on the ADAPTIR platform. Drug discovery and development is a complex, time-consuming and expensive process that is fraught with risk
and a high rate of failure. Our product candidates are susceptible to the risks of failure inherent at any stage of product development, including the
appearance of unexpected or unacceptable adverse events or failure to demonstrate efficacy in clinical trials. For example, in 2018, we announced the
discontinuation of development of APVO414 and otlertuzumab as a result of clinical trial results. In addition, in October 2019, we announced our decision
to discontinue development of APVO210, a novel investigational bispecific antibody candidate under development for the treatment of autoimmune
diseases. The decision followed the review of data from Phase 1 multiple ascending dose (MAD) clinical study of APVO210 in healthy volunteers that
suggests that APVO210 would not meet the desired target product profile for future commercialization. Specifically, the clinical data showed evidence of
increasing titers of ADA with repeated doses of APVO210, which had varying impact on APVO210 drug levels in subjects’ blood. Failure to successfully
discover and/or develop, obtain marketing approval for and commercialize additional products and product candidates would likely have a material adverse
effect on our ability to grow revenues and improve our financial condition. If we are required to conduct additional clinical trials or other testing of our
product candidates that we develop beyond those that we currently expect, if we are unable to successfully complete clinical trials of our product candidates
or other testing, if the results of these trials or tests are not positive or are only modestly positive, or if there are safety concerns, we may be delayed in
obtaining marketing approval for our product candidates, not obtain marketing approval at all, obtain approval for limited indications or patient
populations, with a label without claims necessary for us to successfully market our products, or with significant labeled warnings. We may also be subject
to additional post-marketing testing requirements, surveillance requirements, or REMS. To the extent any of the foregoing should occur, our business may
be materially harmed.
We may not be successful in our efforts to use and further develop our ADAPTIR or ADAPTIR-FLEX platforms.
A key element of our strategy is to expand our product pipeline of immunotherapeutics based on our ADAPTIR and ADAPTIR-FLEX platform
technologies. We plan to select and create product candidates for early development, potentially with other collaborative partners. We expect to continue to
develop the platform to address unmet medical needs through directed cytokine delivery via monospecifics and bispecifics in areas including oncology, and
multi-specific molecules in oncology and other therapeutic areas. Our goal is to leverage this technology to make targeted investment in monospecific,
bispecific, and multi-specific ADAPTIR and ADAPTIR-FLEX therapeutics. Even if we are successful in continuing to build our pipeline, the potential
product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other
characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not
successfully develop and commercialize product candidates based on our ADAPTIR and ADAPTIR-FLEX platform technologies, our ability to obtain
product revenues in
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future periods may be adversely affected, which likely would result in harm to our financial position and our financial prospects, and adversely affect our
stock price.
We face and will continue to face substantial competition and our failure to effectively compete may prevent us from achieving significant market
penetration for our product candidates, if approved.
The development and commercialization of new biotechnology products is highly competitive and subject to rapid technological advances. We may
face future competition with respect to our current product candidates and any product candidates we may seek to develop or commercialize in the future
obtained from other companies and governments, universities, and other non-profit research organizations. Our competitors may develop products that are
safer, more effective, more convenient, or less costly than any products that we may develop or market, or may obtain marketing approval for their products
from the FDA, or equivalent foreign regulatory bodies more rapidly than we may obtain approval for our product candidates. Our competitors may have
greater resources and may devote greater resources to research and develop their products, research and development capabilities, adapt more quickly to
new technologies, scientific advances or patient preferences and needs, initiate or withstand substantial price competition more successfully, or more
effectively negotiate third-party licensing and collaborative arrangements.
We believe that our most significant competitors in the oncology market include: AbbVie Inc., Affimed, Amgen Inc., AnaptysBio, Inc., Astellas
Pharma Inc., Bayer AG, Biogen Idec Inc., Boehringer Ingelheim GmbH, Chinook Therapeutics, F-Star Biotechnology Ltd., Genentech Inc. (a subsidiary of
F. Hoffmann-La Roche Ltd.), Genmab A/S, GlaxoSmithKline plc, Grifols USA LLC, Bristol Myers Squibb, ImmunoGen, Inc., Immunomedics, Inc.,
Janssen BioTech Inc., Johnson & Johnson, Macrogenics, Inc., Pieris Pharmaceuticals, Inc., Sanofi-Aventis US LLC, Takeda Pharmaceuticals U.S.A., Inc.,
Teneobio, Inc., Xencor, Inc. and Zymeworks Biopharmaceuticals, Inc. We expect to compete on the basis of product efficacy, safety, ease of administration,
price and economic value compared to drugs used in current practice or currently being developed. If we are not successful in demonstrating these
attributes, physicians and other key healthcare decision makers may choose other products over any products we successfully develop, switch from our
products to new products or choose to use our products only in limited circumstances, which could adversely affect our business, financial condition and
results of operations.
Any of our product candidates, if approved, may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies,
which would harm our business.
The success of our product candidates, if approved, will depend upon, among other things, their acceptance by physicians, patients, third-party
payors, and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If any of our
product candidates do not achieve and maintain an adequate level of acceptance, we may not generate material revenues from sales of these products. The
degree of market acceptance of our products will depend on a number of factors, including: our ability to provide acceptable evidence of safety and
efficacy; the prevalence and severity of any side effects; availability, relative cost and relative efficacy of alternative and competing treatments; the ability
to offer our products for sale at competitive prices; our ability to continuously supply the market without interruption; the relative convenience and ease of
administration; the willingness of the target patient population to try new products and of physicians to prescribe these products; the strength of marketing
and distribution support; publicity concerning our products or competing products and treatments; and the sufficiency of coverage or reimbursement by
third parties.
Legislative or healthcare reform measures may have a material adverse effect on our business and results of operations.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010,
the ACA was enacted, which substantially changed the way health care is financed by both governmental and private insurers, and significantly impacted
the U.S. pharmaceutical industry. However, some provisions of the ACA have yet to be fully implemented and certain provisions have been subject to legal
and political challenges, as well as efforts to repeal, replace delay, circumvent, or loosen certain aspects of the ACA or mandates required thereby.
Additionally, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed
comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA, such as removing penalties as of January 1, 2019 for not
complying with the ACA’s individual mandate to carry health insurance, delaying the implementation of certain ACA-mandated fees, and increasing the
point-of-sale discount that is owed by pharmaceutical manufacturers who
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participate in Medicare Part D. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several
states without specifically ruling on the constitutionality of the ACA. It is unclear how other healthcare reform measures of the Biden administration or
other efforts, if any, to challenge, repeal or replace the ACA will impact our business. In addition, other legislative changes have been proposed and
adopted in the United States since the ACA was enacted:
•
•
On August 2, 2011, the Budget Control Act of 2011 among other things, included aggregate reductions of Medicare payments to providers
of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will
remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 due to the
COVID-19 pandemic. Following the temporary suspension, a 1% payment reduction will occur beginning April 1, 2022 through June 30,
2022, and the 2% payment reduction will resume on July 1, 2022.
On May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients
to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for
FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining
FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug
products available to eligible patients as a result of the Right to Try Act.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the
Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction,
tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby
triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2
percent per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in
effect through 2030 unless additional Congressional action is taken.
Additionally, there has been heightened governmental scrutiny recently over the manner in which manufacturers set prices for their marketed
products. For example, there have been several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among
other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drug products, including by tying reimbursement to the price of products in other developed countries. For
example, proposals have been made to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs,
incentivize manufacturers to lower the list price of their products, and reduce the out-of-pocket costs of drug products paid by consumers. Individual states
in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product
pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and
transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. On January 20, 2021, Joe Biden
was sworn in as the U.S. president, and the Democratic Party obtained an equal number of seats in the U.S. Senate as the Republican Party, as well as
maintained control of the U.S. House of Representatives. Many expect that the Biden administration will pursue stronger healthcare consumer protections,
and it may act to overturn some of the prior Trump administration initiatives; however, the legislative and regulatory agendas, as they relate to the
healthcare and pharmaceutical industries and the economy as a whole, of the Biden administration and the U.S. Congress currently remain uncertain. Any
new laws and initiatives may result in additional reductions in Medicare and other healthcare funding or impose additional regulatory requirements on drug
development or approval, which could have a material adverse effect on our future customers and accordingly, our financial operations.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that
federal and state governments will pay for healthcare products and services, which could result in reduced demand for any product candidates we
successfully develop or additional pricing pressures.
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Changes in product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates are developed through preclinical studies to late-stage clinical trials toward approval and commercialization, it is common
that various aspects of the development program, such as manufacturing methods, manufacturing sites, and formulation, are altered along the way in an
effort to optimize processes and results. Any of these changes could cause our product candidates to perform differently and affect the results of planned
clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require additional testing, clinical trials, FDA
notification, or FDA approval. Any of the foregoing could limit our future revenues and growth.
Regulatory and Compliance Risks
Our long-term success depends, in part, upon our ability to develop, receive regulatory approval for and commercialize our product candidates.
Our product candidates and the activities associated with their development, including testing, manufacture, recordkeeping, storage, and approval,
are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries.
Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate. We have limited resources for
use in preparing, filing, and supporting the applications necessary to gain regulatory approvals and expect to rely on third-party contract research
organizations and consultants to assist us in this process.
The FDA and other comparable regulatory agencies in foreign countries impose substantial and rigorous requirements for the development,
production, marketing authorization and commercial introduction of drug products. These requirements include non-clinical, laboratory and clinical testing
procedures, sampling activities, clinical trials, and other costly and time-consuming procedures. In addition, regulation is not static, and regulatory
authorities, including the FDA evolve in their staff interpretations and practices and may impose more stringent or different requirements than currently in
effect, which may adversely affect our planned and ongoing drug development and/or our sales and marketing efforts.
In the United States, to obtain approval from the FDA to market any of our future biologic products, we will be required to submit a BLA to the
FDA. Ordinarily, the FDA requires a sponsor to support a BLA with substantial evidence of the product’s safety, purity, and potency in treating the targeted
indication based on data derived from adequate and well-controlled clinical trials, including Phase 3 safety and efficacy trials conducted in patients with the
disease or condition being targeted.
Developing and obtaining regulatory approval for product candidates is a lengthy process, often taking a number of years, is uncertain and
expensive. All of the product candidates that we are developing, or may develop in the future, require research and development, non-clinical studies, non-
clinical testing, and clinical trials prior to seeking regulatory approval, and commencing commercial sales. In addition, we may need to address a number of
technological challenges in order to complete development of our product candidates. As a result, the development of product candidates may take longer
than anticipated or not be successful at all.
Our product candidate development costs will also increase if we experience delays in testing or approvals, and we may not have sufficient funding
to complete the testing and approval process for any of our product candidates. We may be required to obtain additional funds to complete clinical trials
and prepare for possible commercialization of our product candidates. We do not know whether any non-clinical tests or clinical trials above what we
currently have planned will be required, will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Significant delays
relating to any preclinical or clinical trials also could shorten any periods during which we may have the exclusive right to commercialize our product
candidates or allow our competitors to bring products to market before we do. This may prevent us from receiving marketing approvals and impair our
ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that
cause, or lead to, delays in clinical trials may ultimately lead to the denial of marketing approval of any of our product candidates. If any of this occurs, our
business, financial condition, results of operations, and prospects will be materially harmed.
Generally, no product can receive FDA approval, marketing authorization from the European Commission or the competent authorities of the EU
Member States, or approval from comparable regulatory agencies in foreign
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countries unless data generated in human clinical trials demonstrates both safety and efficacy for each target indication in accordance with such
authority’s standards.
The large majority of product candidates that begin human clinical trials fail to demonstrate the required safety and efficacy characteristics
necessary for marketing approval. Failure to demonstrate the safety and efficacy of any of our product candidates for each target indication in clinical trials
would prevent us from obtaining required approvals from regulatory authorities, which would prevent us from commercializing those product candidates.
Negative or inconclusive results from the clinical trials or adverse medical events during the trials could lead to requirements that trials be repeated or
extended, or that additional trials be conducted, any of which may not be clinically feasible or financially practicable, that the conduct of trials be
suspended, or that a program be terminated.
Any regulatory approval we ultimately obtain may limit the indicated uses for the product or subject the product to restrictions or post-approval
commitments that render the product commercially non-viable. Securing regulatory approval requires the submission of extensive non-clinical and clinical
data, information about product manufacturing processes and inspection of facilities and supporting information to the regulatory authorities for each
therapeutic indication to establish the product’s safety and efficacy. If we are unable to submit the necessary data and information, for example, because the
results of clinical trials are not favorable, or if the applicable regulatory authority delays reviewing or does not approve our applications, we will be unable
to obtain regulatory approval.
Delays in obtaining or failure to obtain regulatory approvals may: delay or prevent the successful commercialization of any of the products or
product candidates in the jurisdiction for which approval is sought; diminish our competitive advantage; and defer or decrease our receipt of revenue.
Some of our product candidates previously in development experienced regulatory and/or clinical setbacks. Clinical development has been
discontinued for product candidates otlertuzumab, APVO414, and APVO210. Both APVO414 and APVO210 were discontinued after patients developed
ADA. Most recently, in 2019, we elected to discontinue the APVO210 development program following the review of data from the Phase 1 multiple
ascending dose (MAD) clinical study of APVO210 in healthy volunteers that suggests that APVO210 would not meet the desired target product profile for
future commercialization. Specifically, the clinical data showed evidence of increasing titers of ADA with repeated doses of APVO210, which had varying
impact on APVO210 drug levels in subjects’ blood. The cause of the ADA is uncertain; however, we believe that appearance of ADA is related to the
mechanism of action of APVO210, and not due to the structure, or sequences characteristic of the ADAPTIR platform. Although we have re-designed
certain components of the ADAPTIR platform based on what we have learned in prior clinical trials, there is no guarantee that the occurrence of ADA or
other clinical setbacks will not occur in the development of our existing and future ADAPTIR product candidates.
The procedures to obtain marketing approvals vary among countries and can involve additional clinical trials or other pre-filing requirements. The
time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may
include all the risks associated with obtaining FDA approval, or different or additional risks. Regulatory agencies may have varying interpretations of the
same data, and approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. Accordingly, approval by the
FDA does not ensure approval by the regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval
by the FDA or regulatory authorities in other foreign countries. Failure to obtain regulatory approval in one jurisdiction, however, may impact the decision
of other jurisdictions. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products and
products in development in any market on a timely basis, if at all.
Our product candidates are and will continue to be subject to ongoing obligations and continued regulatory review, which may result in significant
additional expense. We may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our
products.
We and our product candidates are subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities,
including requirements related to the conduct of clinical and non-clinical studies, manufacturing processes, post-approval clinical data, labeling, packaging,
distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such products. These
requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and
listing requirements, the payment of annual fees, continued compliance with
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GMP-requirements relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records and documents, and
requirements regarding the distribution of samples to physicians.
FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the
FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of our product candidates, they may,
among other actions, withdraw approval, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a
product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any such
restrictions could limit sales of the product.
We and any of our collaborators could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with GMPs
and other FDA regulatory requirements. Application holders must further notify the FDA, and depending on the nature of the change, obtain FDA pre-
approval for product and manufacturing changes. In addition, later discovery of previously unknown adverse events or that the product is less effective
than previously thought or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements
both before and after approval, may yield various results, including:
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restrictions on manufacturing or distribution, or marketing of such products;
modifications to promotional pieces and product labels;
issuance of corrective information;
requirements to conduct post-marketing studies or other clinical trials;
clinical holds or termination of clinical trials;
requirements to establish or modify a REMS or a similar strategy;
changes to the way the product is administered;
liability for harm caused to patients or subjects;
reputational harm;
the product becoming less competitive;
warning, untitled, or cyber letters;
suspension of marketing or withdrawal of the products from the market;
regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing
warnings or other safety information about the product;
refusal to approve pending applications or supplements to approved applications that we submit;
recalls of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of our products;
product seizure or detention;
FDA debarment, suspension and debarment from government contracts, and refusal of orders under existing government contracts,
exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements; or
injunctions or the imposition of civil or criminal penalties, including imprisonment.
Any of these events could prevent us from achieving or maintaining product approval and market acceptance of the particular product candidate, if
approved, or could substantially increase the costs and expenses of developing and commercializing such product, which in turn could delay or prevent us
from generating significant revenues from its sale. Any of these events could further have other material and adverse effects on our operations and
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business and could adversely impact our stock price and could significantly harm our business, financial condition, results of operations, and prospects.
The FDA’s policies may change and additional government laws and regulations may be enacted that could prevent, limit, or delay regulatory
approval of our product candidates, that could limit the marketability of our product candidates, or that could impose additional regulatory obligations on
us. By example the change in the U.S. administration that occurred on January 20, 2021 may result in new or revised laws, regulatory requirements, and
associated compliance obligations, as well as postponed or frozen regulatory requirements. Changes in medical practice and standard of care may also
impact the marketability of our product candidates. If we are slow or unable to adapt to changes in existing requirements, standards of care, or the adoption
of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained
and be subject to regulatory enforcement action.
Should any of the above actions take place, they could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance
with post-approval regulations may have a negative effect on our operating results and financial condition.
If we fail to comply with foreign, federal, state, and local healthcare laws, including fraud and abuse and health information privacy and security laws,
we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.
As a biotechnology company, even though we do not provide healthcare services or receive payments directly from or bill directly to Medicare,
Medicaid, or other third-party payors for our products, certain federal, state, local and foreign healthcare laws and regulations pertaining to fraud and abuse
and patients’ rights are applicable to our business. We are subject to healthcare fraud and abuse and patient privacy regulation by both the federal
government and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute makes it illegal for any person or entity, including a prescription drug manufacturer (or a party acting on
its behalf) to knowingly and willfully solicit, receive, offer or pay remuneration, directly or indirectly, overtly or covertly, to induce, or in
return for, either the referral of an individual, or the purchase, lease, prescribing or recommendation of an item, good, facility or service
reimbursable by a federally funded healthcare program, such as the Medicare or Medicaid program. The term “remuneration” has been
interpreted broadly and may constrain our marketing practices, educational programs, pricing policies and relationships with healthcare
providers or other entities, among other activities;
federal civil and criminal false claims, including the federal False Claims Act, and false statement laws and civil monetary penalty laws,
which impose criminal and civil penalties, including through civil whistleblower or qui tam actions, on individuals or entities for, among
other things, knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other federal
health care programs that are false or fraudulent or knowingly making any materially false statement in connection with the delivery or
payment for healthcare benefits, items or services;
the U.S. federal Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, which imposes criminal and civil
liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit
program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or
under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and
willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statement, in
connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a
person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health, or HITECH, and their respective
implementing regulations mandates, among other things, the adoption of uniform standards for the electronic exchange of information in
common healthcare transactions, as well as standards relating to the privacy, security and transmission of individually identifiable health
information, which require the adoption of administrative, physical and technical safeguards to protect
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such information. Among other things, HITECH makes HIPAA's security standards directly applicable to "business associates", or
independent contractors or agents of covered entities that create, receive or obtain protected health information in connection with
providing a service for or on behalf of a covered entity;
the Physician Payments Sunshine Act and its implementing regulations, which requires certain manufacturers of drugs, biologics, medical
devices and medical supplies for which payment is available under Medicare, Medicaid or the CMS, certain payments and transfers of
value made to physicians and teaching hospitals, and ownership or investment interests held by physicians and their immediate family
members. Effective January 1, 2022, applicable manufacturers are required to report information regarding payments and transfers of value
provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives;
and,
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services
reimbursed by any third-party payor, including commercial insurers; state and foreign laws governing the privacy and security of health
information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus
complicating compliance efforts; state, local and foreign laws that require pharmaceutical companies to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, obtain
pharmaceutical agent licensure, and/or otherwise restrict payments that may be made to healthcare providers and entities; and state, local
and foreign laws and industry codes that require drug manufacturers to report information related to payments and other transfers of value
to healthcare providers or entities, or marketing expenditures.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-
Kickback Statute, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Moreover, recent health
care reform legislation has strengthened these laws. For example, the ACA, among other things, amends the intent requirement of the federal Anti-
Kickback Statute and criminal health care fraud statutes, so that a person or entity no longer needs to have actual knowledge of the statute or specific intent
to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Recently, several pharmaceutical and other healthcare companies have been prosecuted under the federal false claims laws for allegedly inflating
drug prices they report to pricing services, which in turn are used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly
providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing
practices, including off-label promotion, interactions with specialty pharmacies, and patient assistance programs may also violate fraud and abuse laws. To
the extent that any product we make is sold in a foreign country, we may be subject to similar foreign laws and regulations.
In addition, certain state and local laws mandate that we comply with a state code of conduct, adopt a company code of conduct under state criteria,
disclose marketing payments made to health care professionals and entities, disclose drug pricing information and/or report compliance information to the
state authorities. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply in multiple
jurisdictions with different compliance and reporting requirements increase the possibility that a pharmaceutical company may violate one or more of the
requirements. Any failure to comply with these reporting requirements could result in significant fines and penalties.
The risks of complying with these laws cannot be entirely eliminated. The risk of violation of such laws is also increased because many of them
have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us
for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s
attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal, state, local and foreign privacy,
security, fraud and transparency laws may prove costly. If our past or present operations, or those of our distributors are found to be in violation of any of
the laws described above or any other governmental regulations that apply to us, we may be subject to sanctions, including civil and administrative
penalties, criminal fines, damages, disgorgement, exclusion from participation in U.S. federal or state health care
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programs, individual imprisonment, integrity obligations, and the curtailment or restructuring of our operations, any of which could materially adversely
affect our ability to operate our business and our financial results. Similarly, if healthcare providers, distributors or other entities with whom we do business
are found to be out of compliance with applicable laws and regulations, they may be subject to sanctions, which could also have a negative impact on us.
Our employees, independent contractors, consultants, commercial partners, principal investigators, or CROs may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, independent contractors, consultants, commercial
partners, manufacturers, investigators, or CROs could include intentional, reckless, negligent, or unintentional failures to comply with FDA regulations or
applicable fraud and abuse laws, provide accurate information to the FDA, properly calculate pricing information required by federal programs, comply
with federal procurement rules or contract terms, report financial information or data accurately or disclose unauthorized activities to us. This misconduct
could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions
and serious harm to our reputation. It is not always possible to identify and deter this type of misconduct, and the precautions we take to detect and prevent
this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions
or lawsuits stemming from a failure to be in compliance with such laws or regulations. Moreover, it is possible for a whistleblower to pursue a False Claims
Act case against us even if the government considers the claim unmeritorious and declines to intervene, which could require us to incur costs defending
against such a claim. Further, due to the risk that a judgment in a False Claims Act case could result in exclusion from federal health programs or
debarment from government contracts, whistleblower cases often result in large settlements. If any such actions are instituted against us, and we are not
successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, and results of
operations, including the imposition of significant fines or other sanctions.
Our operations, including our use of hazardous materials, chemicals, bacteria, and viruses, require us to comply with regulatory requirements and
expose us to significant potential liabilities.
Our operations involve the use of hazardous materials, including chemicals, and may produce dangerous waste products. Accordingly, we, along
with the third parties that conduct clinical trials and manufacture our products and product candidates on our behalf, are subject to federal, state, local and
foreign laws and regulations that govern the use, manufacture, distribution, storage, handling, exposure, disposal and recordkeeping with respect to these
materials. We are also subject to a variety of environmental and occupational health and safety laws. Compliance with current or future laws and
regulations can require significant costs and we could be subject to substantial fines and penalties in the event of noncompliance. In addition, the risk of
contamination or injury from these materials cannot be completely eliminated. In such event, we could be held liable for substantial civil damages or costs
associated with the cleanup of hazardous materials.
Intellectual Property Risks
If we are unable to protect our intellectual proprietary rights, our business could be harmed.
Our commercial success will depend, in large part, on our ability to obtain and maintain protection in the United States and other countries for the
intellectual property covering or incorporated into our technology, products and product candidates. Obtaining and maintaining this protection is very
costly. The patentability of technology in the biotechnology field generally is highly uncertain and involves complex legal and scientific questions. We
cannot be certain that our patents and patent applications, including our own and those that we have rights through licenses from third parties, will
adequately protect our intellectual property. Our success protecting our intellectual property depends significantly on our ability to:
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obtain and maintain U.S. and foreign patents, that are meaningful to our products, including defending those patents against adverse claims;
secure patent term extension for the patents covering our approved products;
protect trade secrets;
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operate without infringing the proprietary rights of others; and,
prevent others from infringing our proprietary rights.
We may not be able to obtain issued patents relating to our technology or product candidates. Even if issued, patents may inadvertently lapse or be
challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the duration
of patent protection we may have for our product candidates. Further, patents may lapse prior to the regulatory approval of the underlying product in one or
more territories. In the past, we have abandoned the prosecution and/or maintenance of patent applications related to patent families in the ordinary course
of business. In the future, we may choose to abandon such prosecution and/or maintenance in a similar fashion. If these patent rights are later determined to
be valuable or necessary to our business, our competitive position may be adversely affected. Changes in patent laws or administrative patent office rules or
changes in interpretations of patent laws in the United States and in other countries may diminish the value of our intellectual property or narrow the scope
of our patent protection, or result in costly defensive measures.
Patent and other intellectual property laws outside the United States are even more uncertain than in the United States and are continually
undergoing review and revisions in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same
extent as the laws of the United States. For example, certain countries do not grant patent claims that are directed to business methods and processes. In
addition, we may have to participate in additional opposition proceedings, like the proceedings described above, to determine the validity of our foreign
patents or our competitors’ foreign patents, which could result in substantial costs and diversion of our efforts.
Our collaborative partners and licensors may not adequately protect our intellectual property rights. These third parties may have the first right to
maintain or defend intellectual property rights in which we have an interest and, although we may have the right to assume the maintenance and defense of
such intellectual property rights if these third parties do not do so, our ability to maintain and defend such intellectual property rights may be compromised
by the acts or omissions of these third parties.
The cost of litigation to uphold the validity of patents, once obtained, to prevent infringement or to otherwise protect or enforce our proprietary
rights could be substantial and, from time to time, our patents are subject to patent office proceedings. Some of our competitors may be better able to
sustain the costs of complex patent litigation because they may have substantially greater financial resources. Intellectual property lawsuits are expensive
and unpredictable and would consume management’s time and attention and other resources, even if the outcome were successful. In addition, there is a
risk that a court would decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions covered by or
incorporating them. There is also a risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the
invention(s), including on the grounds that its activities do not infringe the patent. If any of these events were to occur, our business, financial condition and
operating results could be materially and adversely affected.
In addition to patent litigation, we may be a party to adversarial proceedings before the Patent Trial and Appeal Board (PTAB) of the US Patent and
Trademark Office (USPTO), or the Opposition Division of the European Patent Office (EPO). Potential proceedings before the PTAB include inter partes
review proceedings, post-grant review proceedings and interference proceedings. Depending on our level of success at the PTAB and Opposition Division
of the EPO, these proceedings could adversely impact our intellectual property rights with respect to our products and technology.
In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in
certain circumstances or weakening the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the
value of patents, once obtained, and with regard to our ability to obtain patents in the future. Depending on decisions by the U.S. Congress, the federal
courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents
or to enforce our existing patents and patents that we might obtain in the future. Patent and intellectual property laws outside of the United States may also
change and be uncertain.
Our patents, once obtained, also may not afford us protection against competitors with similar technology. Because patent applications in the
United States and many foreign jurisdictions are typically not published until eighteen months after filing, or in some cases not at all, and because
publications of discoveries in the scientific
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literature often lag behind actual discoveries, neither we nor our licensors can be certain that others have not filed or maintained patent applications for
technology used by us or covered by our pending patent applications without our being aware of these applications.
We also will rely on current and future trademarks to establish and maintain recognized brands, including APTEVO THERAPEUTICS, APTEVO
BIOTHERAPEUTICS, APTEVO RESEARCH AND DEVELOPMENT, the Aptevo logo, ADAPTIR, and ADAPTIR-FLEX in relevant jurisdictions. If we
fail to acquire and protect such trademarks, our ability to market and sell our products, if approved for marketing, will be harmed. In addition, our current
and future trademarks may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks
and we may not be able to protect our rights in these trademarks, which we need in order to build name recognition. Any of the foregoing could have a
material and adverse effect on our business, financial condition and operating results.
If approved, our products regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the
ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for
biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a
biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In
addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first
licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a
BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the
safety, purity, and potency of the other company’s product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its
ultimate impact, implementation, and meaning are subject to uncertainty. We believe that any of our product candidates approved as a biological product
under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional
action or otherwise, or that the FDA will not consider our investigational medicines to be reference products for competing products, potentially creating
the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions,
have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once licensed, will be substituted for any one of our reference
products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace
and regulatory factors that are still developing. If competitors are able to obtain marketing approval for biosimilars referencing any of our products, if
approved, our products may become subject to competition from such biosimilars, which would impair our ability to successfully commercialize and
generate revenues from sales of such products.
Third parties may choose to file patent infringement claims against us.
Our development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be
claimed to infringe patents and other intellectual property rights of third parties under which we do not hold sufficient licenses or other rights. Third parties
may be successful in obtaining patent protection for technologies that cover development and commercialization activities in which we are already
engaged. These third parties may have substantially greater financial resources than us and could bring claims against us that could cause us to incur
substantial expenses to defend against these claims and, if successful against us, could cause us to pay substantial damages. If a patent infringement or
other similar suit were brought against us, we could be forced to stop or delay development, manufacturing or sales of the product or product candidate that
is the subject of the suit. Intellectual property litigation in the biotechnology industry is common, and we expect this trend to continue.
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As a result of patent infringement or other similar claims, or to avoid potential claims, we may choose or be required to seek a license from the
third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able
to obtain a license, the rights may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we
could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened
patent infringement claims, we are unable to enter into licenses on acceptable terms, if at all, or if an injunction is granted against us, which could harm our
business significantly.
There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other adversarial proceedings
such as proceedings before the Patent Trial Appeals Board and opposition proceedings in the European Patent Office, regarding intellectual property rights
that could impact our products and technology.
Patent litigation and other proceedings may also absorb significant management time. The cost to us of any patent litigation or other proceeding,
even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more
effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time.
Our Aptevo trademarks may be opposed which could have a material and adverse effect on our business.
We have applications pending that cover the APTEVO THERAPEUTICS, APTEVO BIOTHERAPEUTICS, and APTEVO RESEARCH AND
DEVELOPMENT trademarks. We refer to these trademarks as our house marks. If a third party opposes any of these house marks and we are unable to
reach settlement prior to the commencement of an opposition proceeding, we may incur significant expense in the course of participating in the opposition
process, which can be expensive and lengthy. Any settlement with a third party may result in our agreeing to be subject to restrictions on our use of the
relevant house mark. In addition, if we are unsuccessful in an opposition against a house mark, we would lose the ability to obtain trademark registration
for one or more uses of the relevant mark both in the United States and in other territories which could have a material and adverse effect on our business.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees or we have inadvertently
or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these
claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Failure to comply with our obligations in our intellectual property licenses with third parties, could result in loss of license rights or other damages.
We are a party to a number of license agreements and expect to enter into additional license agreements in the future. Our existing licenses impose,
and we expect future licenses will impose, various diligence, milestone payment, royalty, insurance, and other obligations on us. If we fail to comply with
these obligations, the licensor may have the right to terminate the license in whole or in part, terminate the exclusive nature of the license and/or sue us for
breach, which could cause us to not be able to market any product that is covered by the licensed patents and may be subject to damages.
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and product candidates could
be adversely affected.
In addition to patented technology, we rely upon unpatented proprietary technology, information processes and know-how. These types of trade
secrets can be difficult to protect. We seek to protect this confidential information, in part, through agreements with our employees, consultants and third
parties as well as confidentiality
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policies and audits, although these may not be successful in protecting our trade secrets and confidential information. These agreements may be breached,
and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known, including through a potential
cyber security breach, or may be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and
know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely impact our
business.
Risk Related to Collaborations and Other Agreements
We may not be successful in establishing and maintaining collaborations that leverage our capabilities in pursuit of developing and commercializing
our product candidates.
For each of our product candidates we plan to evaluate the merits of entering into collaboration arrangements with third parties, including leading
biotechnology companies or non-governmental organizations. In July 2017, we entered into a collaboration agreement with Alligator pursuant to which
Aptevo R&D and Alligator will collaboratively develop ALG.APV-527, a lead 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 intend to pursue collaboration arrangements with third parties that have particular technology, expertise or resources for the
development or commercialization of our product candidates or for accessing particular markets. We face, and will continue to face, significant competition
in seeking appropriate partners for our product candidates. If we are unable to identify partners whose capabilities complement and integrate well with ours
and reach collaboration arrangements with such partners on a timely basis, on acceptable terms or at all, or if the arrangements we establish are
unproductive for us, we may fail to meet our business objectives for the particular product candidate. Our ability to enter into such arrangements with
respect to products in development that are subject to licenses may be limited by the terms of those licenses.
Our collaboration agreement with Alligator, or any collaboration agreement we may consider entering into, may not be successful and the success
of our collaboration arrangements will depend heavily on the efforts and activities of our collaborative partners. It is likely that our collaborative partners
will have significant discretion in determining the efforts and resources that they will apply to these collaborations.
The risks that we are subject to in any of our collaborations include, among others:
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our collaborative partners may not commit adequate resources to the development, marketing and distribution of any collaboration
products, limiting our potential revenues from these products;
our collaborative partners may experience financial difficulties and may therefore be unable to meet their commitments to us;
our collaborative partners may pursue a competing product candidate developed either independently or in collaboration with others,
including our competitors; and,
our collaborative partners may terminate our relationship.
The failure of any of our current or future collaboration partners to perform as expected could place us at a competitive disadvantage and adversely
affect us financially, including delay and increased costs of development, loss of market opportunities, lower than expected revenues and impairment of the
value of the related product candidate. A loss of our collaboration agreement with Alligator would result in a burden of locating a replacement partner
under potentially less favorable terms at an additional cost. Collaborations are a critical part of our business strategy, and any inability on our part to
establish and successfully maintain such arrangements on terms favorable to us or to work successfully with our collaborative partners could have an
adverse effect on our operations and financial performance. Due to the ongoing COVID-19 pandemic, we may experience delays in opportunities to
develop our product candidates, due to financial and other impacts on potential partners.
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In connection with our separation from Emergent, we and Emergent agreed to indemnify the other party for certain liabilities. The Emergent
indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which Emergent will be allocated responsibility, and
Emergent may not be able to satisfy its indemnification obligations in the future.
Pursuant to the separation agreement and certain other agreements with Emergent, Emergent has agreed to indemnify us for certain liabilities, and
we agreed to indemnify Emergent for certain liabilities. Indemnities that we may be required to provide Emergent are not subject to any cap, may be
significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature of the
distribution. Third parties could also seek to hold us responsible for any of the liabilities that Emergent has agreed to retain. Any amounts we are required
to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance
of our operating business. Further, the indemnity from Emergent may not be sufficient to protect us against the full amount of such liabilities, and Emergent
may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Emergent any amounts for
which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of
operations and financial condition.
Risks Related to Our Common Stock and General Risks
Our stock price may be volatile.
Our stock price has fluctuated in the past and is likely to be volatile in the future. Since August 1, 2016, the reported closing price of our common
stock has fluctuated between $3.11 and $112 per share (as adjusted to reflect our 1-for-14 reverse stock split of our outstanding common stock that was
effective on March 26, 2020). The stock market in general, and the market for biotechnology companies in particular, have experienced extreme volatility
that has often been unrelated to the operating performance of particular companies. In particular, the stock market has experienced extreme volatility in
recent months as a result of the war in Ukraine. The market price of our common stock may fluctuate significantly due to a number of factors, some of
which may be beyond our control or unrelated to our operations, including, among others:
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changes in earnings estimated by securities analysts or management, or our ability to meet those estimates;
investor perceptions or negative announcements by our competitors, suppliers, or partners regarding their own performance;
the success of competitive products or technologies;
the timing, expenses, and results of clinical and preclinical trials of our product candidates;
announcements regarding clinical trial results and product introductions by us or our competitors;
announcements of acquisitions, collaborations, financings or other transactions by us or our competitors;
public concern as to the safety of our product candidates;
termination or delay of a development program;
the recruitment or departure of key personnel;
estimated or actual sales of IXINITY by Medexus;
whether and to what extent future proceeds are received under our Royalty Purchase Agreement with HCR;
actual or anticipated variations in our cash flows or results of operations;
the operating and stock price performance of comparable companies;
the impact of COVID-19 or similar global health challenges;
general industry conditions and domestic and global financial, economic, and geo-political instability; and,
the other factors described in this “Risk Factors” section.
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Biotechnology company stock prices have declined significantly in certain instances where companies have failed to obtain FDA or foreign
regulatory authority approval of a product candidate or if the timing of FDA or foreign regulatory authority approval is delayed. If the FDA’s or any foreign
regulatory authority’s response to any application for approval is delayed or not favorable for any of our product candidates, our stock price could decline
significantly.
In addition, when the market price of a company’s common stock drops significantly, stockholders often institute securities class action lawsuits
against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other
resources.
In the event that coverage under our directors’ and officers’ liability insurance is reduced or terminated as a result of the ownership change or
otherwise, our indemnification obligations and limitations of our directors’ and officers’ liability insurance may have a material adverse effect on our
financial condition, results of operations and cash flows.
Under Delaware law, our certificate of incorporation, and our bylaws and certain indemnification agreements to which we are a party, we have an
obligation to indemnify, or we have otherwise agreed to indemnify, certain of our current and former directors and officers with respect to past, current, and
future investigations and litigation. In order to reduce the risk of expense of these obligations, we maintain directors’ and officers’ liability insurance.
However, as a result of the Tang Ownership Change, the cost to us of our directors’ and officers’ liability insurance coverage has increased, and it may
continue to increase in the future, or the coverage thereunder may be reduced or terminated in full. In the event that the coverage under our directors’ and
officers’ liability insurance is reduced or terminated, we will be required to pay the expenses of indemnifying our current and former directors and officers
in their defense of current and future investigations and litigation, which expenses may be significant. The increased costs to us of our directors’ and
officers’ liability insurance coverage, or our indemnification obligations if our directors’ and officers’ liability insurance coverage is reduced or terminated,
could result in the diversion of our financial resources, and may have a material adverse effect on our financial condition, results of operations and cash
flows.
If we do not maintain effective internal controls, we may not be able to accurately report our financial results and our business could be harmed.
The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and
the effectiveness of our disclosure controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires us to
perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent
registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. In the past, we were an emerging
growth company and availed ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the
effectiveness of our internal control over financial reporting under Section 404. However, we will no longer avail ourselves of this exemption since we
ceased to be an emerging growth company since August 2021. When our independent registered public accounting firm is required to undertake an
assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with
applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-
related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply
with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies
deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we
could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management
resources.
Investor perceptions of our company may suffer if material weaknesses are found, and this could cause a decline in the market price of our
common stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could harm our operating results
and reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial
results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm.
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The public announcement of data from clinical trials or news of any developments related to our product pipeline may cause significant volatility in
our stock price.
The announcement of data from clinical trials by us or our collaborative partners or news of any developments related to our key pipeline product
candidates may cause significant volatility in our stock price. Furthermore, the announcement of any negative or unexpected data or the discontinuation of
development of any of our key pipeline product candidates, or any delay in our anticipated timelines for filing for regulatory approval, could cause our
stock price to decline significantly. There can be no assurance that data from clinical trials will support a filing for regulatory approval or even if approved,
that any of our key pipeline products will become commercially successful.
Our common stock may be at risk for delisting from the Nasdaq Capital Market in the future. Delisting could adversely affect the liquidity of our
common stock and the market price of our common stock could decrease.
Our common stock is currently listed on the Nasdaq Capital Market. The Nasdaq Stock Market LLC has minimum requirements that a company
must meet in order to remain listed on Nasdaq, including corporate governance standards and a requirement that we maintain a minimum closing bid price
of $1.00 per share. If we fail to maintain such minimum requirements and a final determination is made by Nasdaq that our common stock must be
delisted, the liquidity of our common stock would be adversely affected and the market price of our common stock could decrease. In addition, if delisted,
we would no longer be subject to Nasdaq rules, including rules requiring us to have a certain number of independent directors and to meet other corporate
governance standards. Our failure to be listed on Nasdaq or another established securities market would have a material adverse effect on the value of your
investment in us.
If our common stock is not listed on Nasdaq or another national exchange, the trading price of our common stock is below $5.00 per share and we
have net tangible assets of $6,000,000 or less, the open-market trading of our common stock will be subject to the “penny stock” rules promulgated under
the Securities Exchange Act of 1934, as amended. If our shares become subject to the “penny stock” rules, broker-dealers may find it difficult to effectuate
customer transactions and trading activity in our securities may be adversely affected. Under these rules, broker-dealers who recommend such securities to
persons other than institutional accredited investors must:
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make a special written suitability determination for the purchaser;
receive the purchaser’s written agreement to the transaction prior to sale;
provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which
describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and
obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk
disclosure document before a transaction in a “penny stock” can be completed.
As a result of these requirements, the market price of our securities may be adversely impacted, and current stockholders may find it more difficult
to sell our securities.
Your percentage of ownership in Aptevo may be diluted in the future.
In the future, your percentage ownership in Aptevo may be diluted because of equity issuances for acquisitions, capital market transactions or
otherwise, including, but not limited to, equity issuances under our existing Purchase Agreement with Lincoln Park Financial LLC, under our Equity
Distribution Agreement with Piper Sandler, under our Rights Plan with Broadridge Corporate Issuer Solutions, Inc., upon the exercise of warrants issued in
connection with our March 2019 public offering, and equity awards to our directors, officers and employees. Our employees have options to purchase
shares of our common stock and from time to time, we expect to issue additional options, restricted stock units, or other stock-based awards to our
employees under our employee benefits plans.
In addition, our restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of
preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our
common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or
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series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock
the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the
repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common
stock.
Provisions under Delaware law and in our restated certificate of incorporation, amended and restated by-laws and rights agreement may discourage
acquisition proposals, delay a change in control or prevent transactions that stockholders may consider favorable.
Certain provisions in our restated certificate of incorporation and amended and restated by-laws, and under Delaware law, may discourage, delay,
or prevent a merger, acquisition or other changes in control that stockholders may consider favorable, including transactions in which stockholders might
otherwise receive a premium for their shares. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our
incumbent directors and management.
These provisions include:
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the classification of our directors;
limitations on the removal of directors;
limitations on filling vacancies on the board;
advance notice requirements for stockholder nominations of candidates for election to the Board of Directors and other proposals;
the inability of stockholders to act by written consent;
the inability of stockholders to call special meetings; and,
the ability of our Board of Directors to designate the terms of and issue a new series of preferred stock without stockholder approval.
The affirmative vote of holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required
to amend or repeal the above provisions of our certificate of incorporation. The affirmative vote of either a majority of the directors present at a meeting of
our Board of Directors or holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required to
amend or repeal our by-laws.
In addition, Section 203 of the General Corporation Law of Delaware prohibits a corporation from engaging in a business combination with an
interested stockholder, generally a person which, together with its affiliates, owns or within the last three years has owned 15% or more of the corporation’s
voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Accordingly, Section 203 may discourage, delay or prevent a change in control of us. Tang is an interested
stockholder for purposes of Section 203.
Moreover, we currently have a short-term stockholder rights agreement in effect. This rights agreement was amended on November 4, 2021 to extend
the expiration date of such agreement from November 8, 2021 to November 5, 2022. This rights agreement could render more difficult, or discourage a
merger, tender offer, or assumption of control of the Company that is not approved by our Board that some stockholders may consider favorable. The rights
agreement, however, should not interfere with any merger, tender or exchange offer or other business combination approved by our Board. Nor does the
rights agreement prevent our Board from considering any offer that it considers to be in the best interest of our stockholders.
Our bylaws include a forum selection clause, which may impact your ability to bring actions against us.
Subject to certain limitations, our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery
in the State of Delaware will be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring: (a) any derivative action or
proceeding brought on our behalf; (b) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees or
our stockholders; (c) any action asserting a claim arising pursuant to any provision of the DGCL or our certificate
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of incorporation or bylaws; or (d) any action asserting a claim governed by the internal affairs doctrine. In addition, our bylaws provide that unless we
consent in writing to the selection of an alternative forum, the federal district courts of the United States will be the exclusive forum for resolving any
complaint asserting a cause of action arising under the federal securities laws of the United States against us, our officers, directors, employees or
underwriters. These limitations on the forum in which stockholders may initiate action against us could create costs, inconvenience or otherwise adversely
affect your ability to seek legal redress.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability
created by the Securities Act or the rules and regulations thereunder. As a result, a court may decline to enforce these exclusive forum provisions with
respect to suits brought to enforce any duty or liability created by the Securities Act or any other claim for which the federal and state courts have
concurrent jurisdiction, and our stockholders may not be deemed to have waived our compliance with the federal securities laws and the rules and
regulations thereunder. If a court were to find the exclusive forum provisions to be inapplicable or unenforceable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions.
We may be subject to periodic litigation, which could result in losses or unexpected expenditure of time and resources.
From time to time, we may be called upon to defend ourselves against lawsuits relating to our business. Any litigation, regardless of its merits,
could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully run our business. Due to the
inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome in any such
proceedings could have an adverse impact on our business, financial condition and results of operations. If our stock price is volatile, we may become
involved in securities class action lawsuits in the future.
Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and
adversely impact our operating results.
EU Member States, Switzerland and other countries have adopted data protection laws and regulations, which impose significant compliance
obligations. For example, European Union, or EU, member states and other foreign jurisdictions, including Switzerland, have adopted data protection laws
and regulations which impose significant compliance obligations. Moreover, the collection and use of personal health data in the EU is now governed under
the EU General Data Protection Regulation, or the GDPR, effective in May 2018. The GDPR, which is wide-ranging in scope, imposed several
requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and
confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing of personal data. The
GDPR also imposes strict rules on the transfer of personal data out of the EU to the U.S., provides an enforcement authority and imposes large penalties for
noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is
greater. The GDPR requirements apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, including
employee information. The GDPR increases our responsibility and liability in relation to personal data that we process, including in clinical trials, and we
may be required to put in place additional mechanisms to ensure compliance with the GDPR, which could divert management’s attention and increase our
cost of doing business. In addition, new regulation or legislative actions regarding data privacy and security (together with applicable industry standards)
may increase our costs of doing business. However, despite our ongoing efforts, we may not be successful either due to various factors within our control,
such as limited financial or human resources, or other factors outside our control. It is also possible that local data protection authorities may have different
interpretations of the GDPR, leading to potential inconsistencies amongst various EU member states. Any failure or alleged failure (including as a result of
deficiencies in our policies, procedures, or measures relating to privacy, data security, marketing, or communications) by us to comply with laws,
regulations, policies, legal or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in
governmental investigations and enforcement actions, litigation, fines and penalties or adverse publicity. In addition, we expect that there will continue to
be new proposed laws, regulations and industry standards relating to privacy and data protection in the United States, the EU and other jurisdictions, such
as the California Consumer Privacy Act of 2018, which has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States,
and we cannot determine the impact such future laws, regulations and standards may have on our business.
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If we experience a significant disruption in our information technology systems or breaches of data security, including due to a cyber-security incident,
our business could be adversely affected.
We rely on information technology systems to keep financial records, capture laboratory data, maintain clinical trial data and corporate records,
communicate with staff and external parties and operate other critical functions. Our information technology systems are potentially vulnerable to
disruption due to breakdown, malicious intrusion and computer viruses or other disruptive events including but not limited to natural disaster. The impact
of the ongoing COVID-19 pandemic also poses an increased security risk, due to the remote working environment.
We also face the challenge of promptly detecting and remediating any cyber-security breaches. Our information technology systems security
measures are focused on the prevention, detection and remediation of damage from computer viruses, unauthorized access, cyber-attack and other similar
disruptions. However, our information technology systems protection measures may not be successful in preventing unauthorized access, intrusion and
damage. Threats to our systems can derive from human error, fraud or malice on the part of employees or third parties, including computer hackers,
encryption by ransomware, or may result from technological failure.
If we were to experience a prolonged system disruption in our information technology systems or those of certain of our vendors, it could delay or
negatively impact our development and commercialization of our product candidates, which could adversely impact our business. If operations at our
facilities were disrupted, it may cause a material disruption in our business if we are not capable of restoring function on an acceptable timeframe.
In addition, as discussed above, our information technology systems are potentially vulnerable to data security breaches—whether by employees or
others, intentionally or unintentionally—which may expose sensitive or personal data to unauthorized persons. Such data security breaches could lead to
the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal
information) of our employees, customers and others, any of which could have a material adverse effect on our business, financial condition and results of
operations.
Moreover, a security breach or privacy violation that leads to destruction, loss, alteration, unauthorized use or access, disclosure or modification of,
personally identifiable information or personal data, could harm our reputation, compel us to comply with federal, state and/or international breach
notification laws, subject us to mandatory corrective or regulatory action, require us to verify the correctness of database contents and otherwise subject us
to liability under laws and regulations that protect personal data, including the GDPR and the California Consumer Privacy Act of 2018, which could
disrupt our business, result in increased costs or loss, and/or result in significant legal and financial exposure. In addition, a data security breach could
result in loss of clinical trial data or damage to the integrity of that data.
If we are unable to implement and maintain adequate organizational and technical measures to prevent such security breaches or privacy violations,
or to respond adequately in the event of a breach, our operations could be disrupted, and we may suffer loss of reputation, problems with regulatory
authorities, financial loss and other negative consequences. In addition, these breaches and other inappropriate access can be difficult to detect, and any
delay in identifying them may lead to increased harm of the type described above.
If a breach of our information technology systems occurs, we may incur additional costs related to repairing or rebuilding our internal systems,
complying with breach notification laws, defending legal claims or proceedings, responding to regulatory actions, incurring penalties, and paying damages.
Moreover, it may be determined that as a result of such a breach there was a material weakness or significant deficiency in our internal controls or other
failure of our control environment. If such a breach occurs, it may have a material adverse effect on our business, results of operations, and financial
condition, and it may also negatively impact our reputation.
A significant portion of our shares may be sold into the market at any time which could depress our stock price.
If our stockholders sell a substantial number of shares of our common stock in the public market, our market price could decline. In connection
with the transaction with Lincoln Park, we have agreed to register under the Securities Act of 1933, as amended, the resale of shares of common stock that
have been and may be issued under the Purchase Agreement with Lincoln Park. Any such sales by Lincoln Park, or the perception that such sales may
occur, could decrease the market price of our common stock. In addition, holders of an aggregate of approximately three million shares of our common
stock have the right to require us to register these shares of common stock under specified circumstances.
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Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease our headquarters office and laboratory space in Seattle, Washington. The Seattle facility is approximately 48,000 square feet and the lease
for the Seattle facility expires in April 2030.
Item 3. Legal Proceedings.
We may from time to time be named as a party to legal claims, actions and complaints, including matters involving employment claims, our
intellectual property or other third party claims. Our management believes that there are currently no claims or actions pending against us, the ultimate
disposition of which could have a material adverse effect on our results of operations, financial condition, or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock has been listed on The Nasdaq Capital Market under the symbol “APVO” since October 18, 2019, and was listed on The
Nasdaq Global Market from August 1, 2016 to October 17, 2019.
Holders of Common Stock
As of March 24, 2022, there were 162 holders of record of our common stock. The number of record holders does not include stockholders who are
beneficial owners but whose shares are held in “street name” by brokers and other nominees or persons, partnerships, associates, corporations, or other
entities identified in security position listings maintained by depositories.
Dividend Policy
We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will retain all available
funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future. In
addition, future debt instruments may materially restrict our ability to pay dividends on our common stock. Payment of future cash dividends, if any, will be
at the discretion of the board of directors after taking into account various factors, including our financial condition, operating results, current and
anticipated cash needs, the requirements of then-existing debt instruments and other factors the board of directors deems relevant.
Recent Sales of Unregistered Securities
We did not sell any unregistered securities during the year ended December 31, 2021.
Issuer Purchases of Equity Securities
We did not repurchase any shares of our common stock during the year ended December 31, 2021.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (this MD&A) together
with the consolidated financial statements and the related notes thereto included in this Annual Report on Form 10-K. This MD&A contains forward-
looking statements that are subject to risks and uncertainties, such as those set forth in the sections of this Annual Report on Form 10-K captioned
“Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere. As a result, our actual results may differ materially from those
anticipated in these forward-looking statements.
Overview
We are a clinical-stage, research and development biotechnology company focused on developing novel immunotherapeutic candidates for the treatment of
different forms of cancer. We have developed two versatile and enabling platform technologies for rational design of precision immune modulatory drugs.
Our lead clinical candidate, APVO436, and preclinical candidates, ALG.APV-527 and APVO603, were developed using our ADAPTIR™ modular protein
technology platform. Our preclinical candidate APVO442 was developed using our ADAPTIR-FLEX™ modular protein technology platform.
The versatile and robust ADAPTIR and ADAPTIR-FLEX platforms are designed to generate monospecific, bispecific, and multi-specific antibody
candidates that are capable of enhancing the human immune system against cancer cells. ADAPTIR and ADAPTIR-FLEX are both modular platforms,
which gives us the flexibility to generate immunotherapeutic candidates with a variety of mechanisms of action. This flexibility in design allows us to
potentially generate novel therapeutic candidates that may provide the foundation for the establishment of effective strategies against difficult to treat, as
well as advanced forms of cancer. We have successfully designed and constructed numerous investigational-stage prototype product candidates based on
our ADAPTIR platform. The ADAPTIR platform technology is designed to generate monospecific and bispecific immunotherapeutic proteins that
specifically bind to one or more targets, for example, bispecific therapeutic molecules, which may have structural and functional advantages over
monoclonal antibodies. The structural differences of ADAPTIR molecules over monoclonal antibodies allow for the development of ADAPTIR
immunotherapeutics that are designed to engage immune effector cells and disease targets in a novel manner to produce unique signaling responses and
ultimately kill tumors or modulate the immune system to kill tumors.
We are skilled at candidate generation, validation, and subsequent preclinical and clinical development using the ADAPTIR platform and have added the
ADAPTIR-FLEX platform to generate multi-specific candidates or other candidates to our platform capabilities. We have developed preclinical candidate
based on the ADAPTIR-FLEX platform which is advancing in our pipeline. We are developing our ADAPTIR and ADAPTIR-FLEX molecules by way of
our protein engineering, preclinical development, process development, and clinical development capabilities.
Recent Developments
Announced results from the Phase 1b dose escalation trial evaluating lead drug candidate, APVO436, for the treatment of AML and MDS. Results
showed:
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APVO436 exhibited a favorable safety profile with acceptable tolerability and generally manageable drug-related adverse events.
Promising clinical activity was observed in 11 of 40 patients (27.5%) evaluable for efficacy. This included two complete remissions in
patients with AML and three complete marrow responses in patients with MDS.
Initiated the dose expansion part of the APVO436 Phase 1b trial, evaluating adult patients with acute myeloid leukemia (AML) in a multi-center,
multi-cohort study of up to 90 patients who will receive APVO436 in combination and monotherapy.
Published three articles in two peer-reviewed publications, Cancers and Frontiers in Medicine, discussing APVO436 data. Results were also
presented at the American Society of Hematology annual meeting in November 2021.
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Announced that a high-risk AML patient treated with a combination of chemotherapy plus APVO436 achieved a complete remission after one
cycle of therapy. The chemotherapy regimen included the standard leukemia drugs Mitoxantrone, Etoposide, and Cytarabine. The patient tolerated
treatment without evidence of overt toxicity. More recently, Aptevo reported that this patient will proceed to transplant.
Solidified plans with Alligator Bioscience to submit an IND for ALG.APV-527 in the second half of 2022 to evaluate the compound for the
treatment of multiple solid tumor types.
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Aptevo will investigate the initial differentiating benefits of ALG.APV-527 to induce stronger and more tumor-directed T cell activity with
the potential for improved safety and efficacy than existing 4-1BB monoclonal antibody treatments.
Received $35 million on March 30, 2021 from its sale of the right to royalty payments made by Pfizer with respect to net sales of RUXIENCE to
an entity managed by HCR.
Earned a $10 million milestone payment related to 2021 sales of RUXIENCE under the terms of its royalty purchase agreement with HCR.
Received the proceeds from the milestone payment in March 2022, which will be used to pay down our MidCap Financial term loan to $5 million, further
strengthening the Company’s balance sheet.
On November 22, 2021 and November 26, 2021, Tang filed statements on Schedule 13D/A to report that Tang had sold 1,760,000 shares of our
common stock. The shares sold represented Tang’s entire ownership position in the Company at that time and as of the date hereof we believe that Tang no
longer holds any of our shares of issued and outstanding common stock.
Results of Operations
Except as otherwise stated below, the following discussions of our results of operations reflect the results of our continuing operations, excluding
the results related to Aptevo BioTherapeutics LLC (Aptevo BioTherapeutics), which was sold in February 2020 to Medexus and has been separated from
continuing operations and reflected as a discontinued operation. See Note 2 – Discontinued Operations to the accompanying consolidated financial
statements for additional information.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
For the years ended December 31, 2021 and 2020, we had net losses of $28.5 million and $17.8 million, respectively. As of December 31, 2021,
we had an accumulated deficit of $214.1 million.
Royalty Revenue
For the years ended December 31, 2021 and 2020, we recorded royalty revenue of $12.3 million and $4.3 million, respectively. The royalty
revenue relates to a Collaboration and License Agreement (Definitive Agreement) acquired by Aptevo as part of our spin-off from Emergent in 2016. The
agreement was originally executed by Trubion Pharmaceuticals, which was subsequently acquired by Emergent, and Wyeth, a wholly-owned subsidiary of
Pfizer. The royalty term runs through January 2027, which is the seventh anniversary of the first commercial sale of the CD20 biosimilar. On March 30,
2021, we entered into the Royalty Purchase Agreement pursuant to which we sold to HCR the right to receive royalty payments made by Pfizer in respect
of net sales of RUXIENCE. We maintain our rights under the Definitive Agreement originally between Trubion and Wyeth, with the exception of the cash
flows of the RUXIENCE royalty payments purchased by HCR. Due to our continuing involvement under the Definitive Agreement originally between
Trubion and Wyeth, we continue to recognize royalty revenue on net sales of RUXIENCE and record the royalty payments to HCR as a reduction of the
liability when paid. As such payments are made to HCR, the balance of the liability will be effectively repaid over the life of the Royalty Purchase
Agreement. To the extent total future royalties collected are an amount less than the liability, the Company is not obligated to fund any such shortfall.
58
Research and Development Expenses
We expense research and development costs as incurred. These expenses consist primarily of the costs associated with our research and
development activities, including conducting non-clinical studies and clinical trials, fees to professional service providers for analytical testing, consulting
costs, independent monitoring or other administration of our clinical trials and obtaining and evaluating data from our clinical trials and non-clinical
studies, as well as costs of contract manufacturing services for clinical trial material, and costs of materials used in clinical trials and research and
development. Our research and development expenses include:
•
•
•
•
employee salaries and related expenses, including stock-based compensation and benefits for our employees involved in our drug discovery
and development activities;
external research and development expense incurred under agreements with third-party contract research organizations (CROs) and
investigative sites;
manufacturing expenses and material for third-party manufacturing; and,
overhead costs such as rent, utilities and depreciation.
We expect our research and development spending will be dependent upon such factors as the results from our clinical trials, the availability of
reimbursement of research and development spending, the number of product candidates under development, the size, structure and duration of any clinical
programs that we may initiate, and the costs associated with manufacturing our product candidates on a large-scale basis for later stage clinical trials. We
may experience interruption of key clinical trial activities, such as patient enrollment and clinical trial site monitoring, and key non-clinical activities due to
the ongoing COVID-19 pandemic. While programs are still in the preclinical trial phase, we do not provide a breakdown of the initial associated expenses
as we are often evaluating multiple product candidates simultaneously. Costs are reported in preclinical research and discovery until the program enters the
clinic.
Our research and development expenses by program for the years ended December 31, 2021 and 2020 are shown in the following table:
(in thousands)
Clinical programs:
APVO436
Other
Total clinical programs
Preclinical program, general research and discovery
Total
For the Year Ended December 31,
2021
2020
Change
$
$
5,323 $
(223)
5,100
4,791 $
242
5,033
13,894
18,994 $
12,819
17,852 $
532
(465)
67
1,075
1,142
Research and development expenses increased by $1.1 million, to $19.0 million for the year ended December 31, 2021 from $17.9 million for the
year ended December 31, 2020. The increase is due to higher spending on consulting services for our APVO436 clinical trial as we continue to advance
that trial and increased spending on analytical analysis for our preclinical programs, including ALG.APV-527, APVO603, and APVO442. Further, we have
now started dosing in our Phase 1b Expansion program for our APVO436 clinical trial.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs and professional fees in support of our executive, business
development, finance, accounting, information technology, legal and human resource functions. Other costs include facility costs not otherwise included in
research and development expenses.
For the year ended December 31, 2021, general and administrative expenses increased by $0.7 million, or 5%, to $14.7 million from $14.0 million
for the year ended December 31, 2020. This increase was primarily due to higher costs related to responding to stockholder activism matters and higher
employee costs.
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Other Expense, Net
Other expense consists primarily of costs related to debt extinguishment, accrued exit fees on debt, non-cash interest on financing agreements, and
interest on debt. Other expense, net was $8.0 million for the year ended December 31, 2021 and $3.4 million for the year ended December 31, 2020. This
increase is primarily due to interest expense and accrued exit fees for the MidCap Credit Agreement, as well as non-cash interest expense for the Royalty
Purchase Agreement.
Discontinued Operations
The accompanying consolidated financial statements include discontinued operations from two separate transactions: the sale of hyperimmune
business to Saol International Limited in September 2017, from which we received a payment in 2021 related to collection of certain accounts receivable,
and the sale of Aptevo BioTherapeutics in 2020.
The following table represents the components attributable to income from discontinued operations in the consolidated statements of operations (in
thousands):
Loss from operations
Gain on sale of Aptevo BioTherapeutics
Gain on contingent consideration from Saol
Deferred payment from Medexus
Income from discontinued operations
For the Year Ended December 31,
2020
2021
—
—
460
491
951
$
$
(1,582)
14,338
—
417
13,173
$
$
Income from discontinued operations was $1.0 million for the year ended December 31, 2021 and $13.2 million for the year ended December
31, 2020. For the year ended December 31, 2021, we collected $0.5 million related to the sale of hyperimmune business to Saol as a result of the collection
of certain accounts receivable and deferred payment of $0.5 million received from Medexus related to IXINITY sales. For the year ended December 31,
2020, we recognized net income from discontinued operations totaling $13.2 million. This included the gain on the sale of Aptevo BioTherapeutics of
$14.3 million, net operating losses from Aptevo BioTherapeutics of $1.6 million related to the period prior to the sale on February 28, 2020, and $0.4
million deferred payment from Medexus related to IXINITY sales.
Liquidity and Capital Resources
Cash Flows
The following table provides information regarding our cash flows for year ended December 31, 2021 and 2020:
(in thousands)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Increase in cash and cash equivalents
For the Year Ended December 31,
2021
2020
$
$
(21,679) $
(713)
26,161
3,769 $
(29,318)
28,032
23,874
22,588
Net cash used in operating activities for the year ended December 31, 2021 was primarily due to our net operating loss of $28.5 million and
changes in working capital accounts. Net cash used in operating activities for the year ended December 31, 2020 was primarily due to our net operating
loss of $17.8 million, the gain on sale of Aptevo BioTherapeutics of $14.3 million, and changes in working capital accounts.
60
Net cash used in investing activities for the year ended December 31, 2021 was primarily due to purchases of property and equipment. Net cash
provided by investing activities for the year ended December 31, 2020, was primarily due to the cash received from the sale of Aptevo BioTherapeutics, net
of transaction fees.
Net cash provided by financing activities for the year ended December 31, 2021, was primarily due to $35.0 million received from Royalty
Purchase Agreement, $10.2 million received from the common stock sold to Lincoln Park, offset by the $10.5 million partial repayment of the MidCap
Financial term loan and the $8.6 million repayments under liability related to sale of future royalties. Net cash provided by financing activities for the year
ended December 31, 2020 was primarily due to $21.2 million received from the exercises of warrants and common stock, and proceeds of $24.7 million
from the credit agreement we entered into with MidCap Financial on August 5, 2020, which was offset by the $22.1 million repayment of long-term debt in
the first quarter of 2020.
Sources of Liquidity
Royalty Purchase Agreement and Milestone Payments
On March 30, 2021, we entered into Royalty Purchase Agreement with HCR pursuant to which we sold HCR the right to receive royalty payments
made by Pfizer in respect to net sale of RUXIENCE. Under the Royalty Purchase Agreement, we received $35 million at closing and incurred $1.1 million
in transaction costs. We are eligible to receive additional payments in aggregate of up to an additional $32.5 million based on achievement of sales
milestones in 2022, 2023, and 2024. The Royalty Purchase Agreement further provides that, once HCR reaches aggregate royalty payments totaling 190%
of the Investment Amount plus the Milestone Amounts to the extent paid to us by HCR, we will be entitled to receive 50% of any additional royalty
payments by Pfizer thereafter. The Company received $10 million milestone payment in March 2022 and incurred $0.5 million in transaction costs. The
Company is eligible to receive additional payments in aggregate of up to $22.5 million based on achievement of sales milestone in 2023 and 2024.
IXINITY Royalty Payments
On February 28, 2020, Aptevo entered into an LLC Purchase Agreement with Medexus, pursuant to which we sold all of the issued and
outstanding limited liability company interests of Aptevo BioTherapeutics LLC, a wholly owned subsidiary of Aptevo. As consideration for the sale,
Aptevo received $30 million in cash at closing. In addition to the payment received at closing, the Company receives deferred payments based on quarterly
net sales of IXINITY and may also earn milestones from Medexus in the future. For the year ended December 31, 2021, Aptevo received $0.5 million from
Medexus related to IXINITY sales.
Equity Distribution Agreement
On December 14, 2020, we entered into an Equity Distribution Agreement with Piper Sandler & Co (Piper Sandler). The Equity Distribution
Agreement provides that, upon the terms and subject to the conditions set forth therein, we may issue and sell through Piper Sandler, acting as sales agent,
shares of our common stock having an aggregate offering price of up to $50 million. We have no obligation to sell any such shares under the Equity
Distribution Agreement. The sale of the shares of our common stock by Piper Sandler, if any, will be effected pursuant to a Registration Statement on Form
S-3 which we filed on December 14, 2020. We did not issue any shares under the Equity Distribution Agreement for the year ended December 31, 2021.
The Equity Distribution Agreement will terminate upon the issuance and sale of all shares under the Equity Distribution Agreement or upon the
earlier termination thereof at any time by us or Piper Sandler upon notice to the other party.
Registration Statement
We previously filed a registration statement with the Securities and Exchange Commission on November 13, 2017, amended on December 6, 2017
and declared effective on December 15, 2017 (the Prior Registration Statement). The Prior Registration Statement registered the offer and sale of an
indeterminate number of shares of common stock and preferred stock, an indeterminate principal amount of debt securities and an indeterminate number of
warrants to purchase common stock, preferred stock, and various series of debt securities and/or warrants to purchase any of such securities, having an
aggregate initial offering price of $150 million, of which an aggregate of $127.8 million remained unsold as of the December 14, 2020. On December 14,
2020, we filed a new registration
61
statement covering the offering, issuance, and sale up to $200 million in common stock, preferred stock, and various series of debt securities and/or
warrants to purchase any of such securities, which included the unsold securities from the Prior Registration Statement.
Purchase Agreement
On December 20, 2018, we entered into a Purchase Agreement, and a Registration Rights Agreement with Lincoln Park Financial LLC (Lincoln
Park). Pursuant to the Purchase Agreement, Lincoln Park committed to purchase up to $35.0 million worth of our common stock over a 36-month period
commencing on February 13, 2019, the date the registration statement covering the resale of the shares was declared effective by the SEC.
Under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase shares of our common stock provided
that Lincoln Park’s maximum commitment on any single day does not exceed $2.0 million. The purchase price per share will be based off of prevailing
market prices of our common stock immediately preceding the time of sale; provided, however, that we cannot direct any such purchase if the prevailing
market price is less than $1.00. In addition, we may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional
accelerated purchases if the closing sale price of our common stock exceeds certain threshold prices as set forth in the Purchase Agreement. For the year
ended December 31, 2021, the Company issued 407,047 shares of common stock to Lincoln Park under the Purchase Agreement. We received $10.2
million in proceeds from issuance of these shares over three-year period. Our 2018 Purchase Agreement and Registration Rights Agreement with Lincoln
Park expired in March 2022.
On February 16, 2022, the Company entered into a new Purchase Agreement and a Registration Rights Agreement with Lincoln Park. Under the
new Purchase Agreement, Lincoln Park committed to purchase up to $35.0 million worth of our common stock over a 36-month period commencing after
the satisfaction of certain conditions set forth in the Purchase Agreement. The purchase price per share will be based off of prevailing market price;
provided, however, that the prevailing market price is not below $1.00. The Company agreed to issue 99,276 shares of our common stock to Lincoln Park
for no cash consideration as an initial fee for its commitment to purchase shares of our common stock under the Purchase Agreement.
Actual sales of shares of our common stock to Lincoln Park under the Purchase Agreement will occur at our discretion from time to time and
depend on a variety of factors, including, among others, market conditions, the trading price of our common stock and additional determinations as to the
appropriate sources of funding for our operations. Lincoln Park has no right to require any sales, but is obligated to make purchases as we direct, in
accordance with the Purchase Agreement.
Warrants
On March 11, 2019, we completed a public offering of common stock and warrants, as follows:
•
•
for a combined public offering price of $14.00 per share of common stock and related warrants, 1,417,857 shares of common stock and
related warrants with a 5-year life to purchase up to 1,417,857 shares of common stock at an exercise price of $18.20 per share,
for a combined public offering price of $13.86 per pre-funded warrant and related warrant, pre-funded warrants with a 10-year life to
purchase up to 153,571 shares of common stock at an exercise price of $0.14 per share and related warrants with a 5-year life to purchase
up to 153,571 shares of common stock at an exercise price of $18.20 per share. These pre-funded warrants were exercised on March 21,
2019.
For the year ended December 31, 2021, certain of the holders of the Company’s warrants exercised warrants with a strike price of $18.20 per share,
resulting in the issuance of 54,105 shares of the Company’s common stock and aggregate proceeds to the Company of approximately $1.0 million. As of
December 31, 2021, there were warrants to purchase 350,589 shares of common stock outstanding.
Liquidity
We have financed our operations to date primarily through revenue generated from our commercial products, the Royalty Purchase Agreement with
HCR, royalty payments from Pfizer, deferred payments from Medexus, the
62
sale of our hyperimmune products business in September 2017, the sale of Aptevo BioTherapeutics on February 28, 2020, public offerings of our common
stock, proceeds from issuance of our common stock pursuant to our 2018 Purchase Agreement with Lincoln Park, loan proceeds, milestone payments,
research and development funding from strategic partners, and funds received at the date of our spin-off from Emergent. We had a net loss of $28.5 million
and $17.8 million for the years ended December 31, 2021 and December 31, 2020, respectively. We had cash and cash equivalents of $45.0 million,
restricted cash of $1.3 million, and an accumulated deficit of $214.1 million as of December 31, 2021.
For the year ended December 31, 2021, net cash used in our operating activities was $21.7 million.
Our future success is dependent on our ability to develop our product candidates and ultimately upon our ability to attain profitable operations. We
anticipate that we will continue to incur significant operating losses for the next several years as we incur expenses to continue to execute on our
development strategy to advance our preclinical and clinical stage assets. We will not generate revenues from our development stage product candidates
unless and/or until we or our collaborators successfully complete development and obtain regulatory approval for such product candidates, which we
expect will take a number of years and is subject to significant uncertainty. If we obtain regulatory approval for one of our development stage product
candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution, to the extent that such
costs are not paid by collaborators. We do not have sufficient cash to complete the clinical development of any of our development stage product candidates
and will require additional funding in order to complete the development activities required for regulatory approval of such product candidates. We will
require substantial additional funds to continue our development programs and to fulfill our planned operating goals.
Due to the ongoing COVID-19 pandemic, we may experience delays in opportunities to partner our product candidates, due to financial and other
impacts on potential partners. Additionally, we may experience potential impacts on our future deferred payments and milestones from Medexus due to
effects of the COVID-19 pandemic, which may impact Medexus’ ability to continue to successfully commercialize the IXINITY businesses. Additionally,
we may experience potential impacts on our future milestones from HCR, which are based on global net sales of RUXIENCE, due to the effects of the
COVID-19 pandemic, which may impact Pfizer’s ability to continue to successfully commercialize the RUXIENCE business. We believe that our existing
cash resources, the Investment Amount and Milestone Amounts related to the Royalty Purchase Agreement with HCR, Purchase Agreement with Lincoln
Park, the cash to be generated from future IXINITY deferred payments, release of restricted cash securing letters of credit, and funds available to us from
the remaining principal balance of the Credit Agreement with MidCap Financial, will be sufficient to meet our projected operating requirements and debt
service for at least twelve months from the date of this filing of this Annual Report on Form 10-K.
There are numerous risks and uncertainties associated with research, development, and commercialization of pharmaceutical products.
Accordingly, our future funding requirements may vary from our current expectations and will depend on many factors, including, but not limited to:
•
•
•
•
•
•
•
•
•
our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;
the number and characteristics of the product candidates we pursue;
the scope, progress, results, and costs of researching and developing our product candidates, and of conducting preclinical and clinical
trials;
our ability to obtain regulatory clearance to commence clinical trials for product candidates;
the timing of, and the costs involved in, completing our clinical trials, and obtaining regulatory approvals for our product candidates;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the
outcome of such litigation;
the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales, and distribution
costs;
the cost of manufacturing our product candidates and any products we successfully commercialize;
the cost of attracting and retaining skilled personnel;
63
•
•
whether and to what extent future proceeds are received under our Royalty Purchase Agreement with HCR; and,
the timing, receipt and amount of any milestone payments and deferred payments from Medexus with respect to IXINITY.
If we are unable to raise substantial additional capital in the next year, whether on terms that are acceptable to us or at all, then we may be required
to:
•
•
delay, limit, reduce or terminate our clinical trials or other development activities for one or more of our product candidates; and/or,
delay, limit, reduce or terminate our establishment of other activities that may be necessary to commercialize our product candidates, if
approved.
The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. If we raise additional funds through
the issuance of debt securities or preferred stock or through credit facilities, these securities and/or the loans under credit facilities could provide for rights
senior to those of our common stock and could contain covenants that would restrict our operations. Additional funds may not be available when we need
them, on terms that are acceptable to us, or at all. We also expect to seek additional funds through arrangements with collaborators, licensees or other third
parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or drug candidates, and we may not be
able to enter into such arrangements on acceptable terms, if at all. Due to the ongoing COVID-19 pandemic, we may experience delays in clinical trials and
non-clinical work, and opportunities to partner our product candidates, due to financial and other impacts on potential partners.
Contractual Obligations
We have an operating lease related to our office and laboratory space in Seattle, Washington. This lease was amended and extended in March 2019.
The term of the amended lease is through April 2030 and we have two options to extend the lease term, each by five years, as well as a one-time option to
terminate the lease in April 2023.
In January 2020, we entered into a contract with The Leukemia & Lymphoma Society (LLS) to be part of an ongoing national AML master clinical
trial called the ‘Beat AML Master Clinical Trial.’ The Beat AML Master Clinical Trial provides access to leading academic cancer centers and allows us to
study APVO436 in a front-line AML setting. Once we begin participation in the Beat AML Master Clinical Trial, our purchase obligation for the Beat
AML Master Clinical Trial may total up to $8.1 million over four years. As of December 31, 2021, we have not begun participation in the Beat AML
Master Clinical Trial and we do not currently intend to participate under the current trial design. The Clinical Trial Participation Agreement contains a
termination for convenience clause where we may terminate the agreement with 180 days prior written notice. We may re-assess our participation in the
master clinical trial as Part 2 (expansion phase) of our Phase 1b APVO436 clinical trial progresses.
On August 5, 2020, we entered into a new Credit and Security Agreement (Credit Agreement), with MidCap Financial. The Credit Agreement
provided us with up to $25 million of available borrowing capacity. The MidCap Financial loan has a 48 month term, is interest-only for the first 18
months, with straight-line amortization for the remaining 30 months and bears interest at a rate of one month LIBOR plus 6.25% per annum, subject to a
1.50% LIBOR floor and a 2.50% LIBOR cap. On March 30, 2021, we amended our Credit Agreement with MidCap Financial and used $10 million of the
proceeds received from the Royalty Purchase Agreement with HCR to pay down the outstanding principal under this agreement from $25 million to $15
million. Additionally, the Company will use the $10 million milestone payment received on March 8, 2022, pursuant to our Royalty Purchase Agreement
with HCR to pay down the outstanding principal down to $5 million. The Company’s Credit Agreement currently references LIBOR. The United
Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, phased out one-week and two-month US Dollar LIBOR settings on December 31,
2021. All other US Dollar LIBOR settings, including the overnight, one-month, three-month, six-month and twelve-month, will be phased out on June 30,
2023. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after
2023. Our Credit Agreement with MidCap Financial currently references one-month LIBOR and also provides that we may amend the Credit Agreement to
reflect an alternative rate of interest upon the phase out of LIBOR.
64
On March 30, 2021, we entered into the Royalty Purchase Agreement pursuant to which the Company sold to HCR the right to receive royalty
payments made by Pfizer in respect of net sales of RUXIENCE. Pursuant to the Purchase Agreement, we received $35 million at closing and we are
eligible to receive additional payments in aggregate of up to an additional $32.5 million based on the achievement of sales milestones in 2022, 2023, and
2024. The Company received $10 million milestone payment in March 2022 and incurred $0.5 million in transaction costs. The Company is eligible to
receive additional payments in aggregate of up to $22.5 million based on achievement of sales milestone in 2023 and 2024. We accounted for the Royalty
Purchase Agreement with HCR, including future milestone payments to be received, as a debt-like instrument within the scope of ASC 470-10-25, Debt –
Sales of Future Revenues or Various Other Measures of Income.
Our principal commitments include obligations under vendor contracts to purchase research services and other purchase commitments with our
vendors. In the normal course of business, we enter into services agreements with contract research organizations, contract manufacturing organizations
and other third parties. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing
of termination and the terms of the agreement. The actual amounts and timing of payments under these agreements are uncertain and contingent upon the
initiation and completion of the services to be provided.
Critical Accounting Policies, and Significant Judgments, and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP)
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our
estimates on historical experience and on various other factors. Although we believe that our judgments and estimates are appropriate, actual results may
differ materially from our estimates and changes in these estimates are recorded when known. An accounting policy is considered critical if it is important
to a company’s financial condition and results of operations and if it requires the exercise of significant judgment and the use of estimates on the part of
management in its application.
While our significant accounting policies are more fully described in Note 1 to our audited consolidated financial statements appearing elsewhere
in this report, we believe the following accounting policies are the most critical to the judgments and estimates we use in the preparation of our
consolidated financial statements.
Non-Cash Interest Expense and Liability Related to Sale of Future Royalties
The Company accounted for the Royalty Purchase Agreement with HCR, including future milestone payments to be received, as a debt-like
instrument within the scope of ASC 470-10-25, Debt – Sales of Future Revenues or Various Other Measures of Income. We recorded the proceeds from the
Royalty Purchase Agreement as a liability related to the sale of future royalties, net of transaction costs, and amortized the balance using the effective
interest method. To determine the amortization of the liability, the Company estimates the total amount of future net royalty payments over the life of the
arrangement. The total amount of net royalty payments over the life of the arrangement, less the net proceeds received, will be recorded as non-cash
interest expense over the life of the arrangement using the effective interest method. Over the life of the arrangement, the actual effective interest rate will
be affected by the amount and timing of the net royalty payments received by HCR and changes in the Company’s royalty forecasts. The Company engages
third party consultant services in estimating total future net royalty payments and continually assesses the effective interest rate by comparing projected net
royalty payments to actual and adjusts the effective interest rate retrospectively. Future milestone payments will be recorded as additions to the liability
related to the sale of future royalties, net of transaction costs. While we believe our estimates are reasonable, actual net royalty payments may be different
than our projections. Historically, differences between estimated and actual net royalty payments have not been material.
Research and Development Expenses
Research and development expenses are expensed as incurred. Research and development costs primarily consist of internal labor costs, fees paid
to outside service providers and the costs of materials used in clinical trials and research and development. Other research and development expenses
include facility, maintenance, and related support expenses.
65
A substantial portion of our preclinical studies and all of our clinical studies have been performed by third-party contract research organizations
(CRO). We review the activities performed by the CROs each period. For preclinical studies, the significant factors used in estimating accruals include the
percentage of work completed to date and contract milestones achieved. For clinical study expenses, the significant factors used in estimating accruals
include the number of patients enrolled and percentage of work completed to date. Our estimates are highly dependent upon the timeliness and accuracy of
the data provided by our CROs regarding the status of each program and total program spending and adjustments are made when deemed necessary.
Stock-Based Compensation
Under ASC 718, Compensation—Stock-based Compensation, we measure and recognize compensation expense for restricted stock units (RSUs),
and stock options granted to our employees and directors based as of the fair value of the awards on the date of grant. The fair value of stock options is
estimated at the date of grant using the Black-Scholes option pricing model that requires management to apply judgment and make estimates, including:
•
•
•
•
•
the expected term of the stock option award, which we calculate using the simplified method, as permitted by the SEC Staff Accounting
Bulletin No. 110, Share-Based Payment, as we have insufficient historical information regarding our stock options to provide a basis for an
estimate;
the expected volatility of our underlying common stock, which we estimate based on the historical volatility of a representative group of
publicly traded biopharmaceutical companies with similar characteristics to us, and our own historical and implied future volatility;
the risk-free interest rate, which we based on the yield curve of U.S. Treasury securities with periods commensurate with the expected term
of the options being valued;
the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have no present
intention to pay cash dividends; and
the fair value of our common stock on the date of grant.
Stock-based compensation expense for RSUs, and stock options is recognized on a straight-line basis over the requisite service period, which is
generally the vesting period of the respective award. We are required to estimate a forfeiture rate to calculate the stock-based compensation expense for our
awards. Our forfeiture rate is based on an analysis of our actual forfeitures since the adoption of our equity award plan. We routinely evaluate the
appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and expectations of future option exercise
behavior.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information required under this
item.
66
Table of Contents
Item 8. Financial Statements and Supplementary Data
APTEVO THERAPEUTICS INC.
Index to Consolidated Financial Statements
Report of Moss Adams LLP, Independent Registered Public Accounting Firm (Moss Adams LLP, Seattle, WA, PCAOB ID: 659)
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
67
68
70
71
72
73
74
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Aptevo Therapeutics Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Aptevo Therapeutics Inc. (the “Company”) as of December 31, 2021 and 2020, the
related consolidated statements of operations, cash flows, and changes in stockholders’ equity for the years then ended, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Non-Cash Interest Expense and Liability Related to Sale of Future Royalties
As described in Note 8, on March 30, 2021, the Company entered into a royalty purchase agreement (the Royalty Purchase Agreement) with an entity
managed by HealthCare Royalty Management, LLC (HCR), through which the Company sold the right to receive royalty payments made by Pfizer Inc.
related to the global net sales of RUXIENCE. The Company received $35 million at the closing of the agreement and is eligible to receive additional
payments in aggregate of up to an additional $32.5 million based on the achievement of RUXIENCE sales milestones in 2022, 2023, and 2024
(collectively, the Milestone Amounts). The Royalty Purchase Agreement further provides that, once HCR reaches aggregate royalty payments totaling
190% of the amount paid at closing plus
68
Milestone Amounts to the extent paid by HCR to the Company, Aptevo will be entitled to receive 50% of royalty interest payments thereafter. The
proceeds received from HCR were recorded as a debt financing, net of transaction costs, which are amortized over the estimated life of the arrangement
using the effective interest method. In order to determine the amortization of the liability, the Company is required to estimate the total amount of future
royalty payments to be received by HCR over the life of the arrangement. The total amount of future royalty payments received by HCR under the Royalty
Purchase Agreement, less the net proceeds paid to the Company, is recorded as non-cash interest expense over the life of the arrangement using the
effective interest method.
We identified the estimation of the non-cash interest expense and the liability related to the Royalty Purchase Agreement as a critical audit matter. There
was significant judgment by management when developing the estimate of the timing and amount of future royalties to be paid and the implied effective
interest rate in the arrangement. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and in evaluating
audit evidence relating to management’s estimate of the expected future royalties to be paid and the implied effective interest rate, including significant
assumptions of future royalty sales by Pfizer Inc. which is reported to the Company on a quarterly basis.
The primary procedures we performed to address this critical audit matter included:
•
•
•
•
•
•
•
Evaluating management’s significant accounting policies related to the Royalty Purchase Agreement and the application of the relevant
accounting guidance.
Vouching cash payments received from HCR to the Company during the year and through issuance of the consolidated financial statements.
Obtaining management’s forecast of future royalty sales by Pfizer Inc, including projections provided by a third-party specialist. Evaluating the
competency, expertise, and methodology used by such specialist.
Evaluating the reasonableness of significant assumptions used by management when developing the estimate of expected future royalties to be
paid, including future revenue royalty sales of Pfizer Inc.
Performing a retrospective review of historical projected royalty sales to actual results for reasonableness.
Evaluating the appropriateness of management’s method used to estimate the implied effective interest rate and the resulting non-cash interest
expense and liability recognized.
Testing and recalculating the effective interest rate, non-cash interest expense, and the classification of the short-term and long-term liability on
the consolidated balance sheet.
/s/ Moss Adams LLP
Seattle, Washington
March 24, 2022
We have served as the Company’s auditor since 2020.
69
Aptevo Therapeutics Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS
December 31, 2021
December 31, 2020
Current assets:
Cash and cash equivalents
Restricted cash
Royalty receivable
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use asset
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities
Accrued compensation
Liability related to the sale of future royalties, net - short-term
Current portion of long-term debt
Other current liabilities
Total current liabilities
Liability related to the sale of future royalties, net - long-term
Loan payable - long-term
Operating lease liability
Total liabilities
Stockholders' equity:
Preferred stock: $0.001 par value; 15,000,000 shares authorized, zero
shares issued or outstanding
Common stock: $0.001 par value; 500,000,000 shares authorized;
4,898,143 and 4,410,909 shares issued and outstanding at December
31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
$
$
$
$
$
$
$
45,044
1,259
3,664
1,823
780
52,570
2,379
1,584
68
56,601
3,462
2,077
15,465
11,667
2,086
34,757
15,580
3,707
1,341
55,385
39,979
2,555
2,369
2,228
133
47,264
2,815
2,722
746
53,547
5,583
2,757
-
5,000
1,199
14,539
-
20,054
2,360
36,953
—
—
47
215,232
(214,063)
1,216
56,601
$
46
202,154
(185,606)
16,594
53,547
The accompanying notes are an integral part of these consolidated financial statements.
70
Aptevo Therapeutics Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Royalty revenue
Operating expenses:
Research and development
General and administrative
Loss from operations
Other expenses:
Other expense from continuing operations, net
Loss on extinguishment of debt
Net loss from continuing operations
Discontinued operations:
Income from discontinued operations
Net loss
Net loss from continuing operations per share
Net income from discontinued operations per share
Basic and diluted net loss per basic share
Weighted-average shares used to compute per share
calculations
For the Year Ended December 31,
2020
2021
12,292
(18,994)
(14,698)
(21,400)
(8,008)
—
(29,408)
951
(28,457) $
(6.27) $
0.20
$
(6.07) $
4,309
(17,852)
(13,951)
(27,494)
(1,325)
(2,104)
(30,923)
13,173
(17,750)
(9.12)
3.88
(5.23)
4,687,952
3,390,919
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
71
Aptevo Therapeutics Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating Activities
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities:
Stock-based compensation
Depreciation and amortization
Loss on disposal of property and equipment
Gain on sale of Aptevo BioTherapeutics
Loss on extinguishment of debt
Non-cash interest expense and other
Changes in operating assets and liabilities:
Royalty receivable
Prepaid expenses and other current assets
Operating lease right-of-use asset
Accounts payable, accrued compensation and other liabilities
Long-term operating lease liability
Change in assets and liabilities held for sale
Net cash used in operating activities
Investing Activities
Purchases of property and equipment
Cash received from sale of Aptevo BioTherapeutics
Net cash (used in) provided by investing activities
Financing Activities
Proceeds from other long-term obligations, net of issuance costs
Payments of long-term debt, including exit and other fees
Repayments under liability related to sale of future royalties
Proceeds from sale of future royalties
Transaction costs from sale of future royalties
Proceeds from exercises of stock options
Proceeds from exercises of warrants
Proceeds from common stock issued pursuant to the Lincoln Park Purchase Agreement
Payment of tax liability for vested equity awards
Net cash provided by financing activities from continuing operations
Increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of period
Cash, cash equivalents, and restricted cash at end of period
For the Year Ended December 31,
2020
2021
$
(28,457) $
(17,750)
1,643
1,144
4
—
—
6,642
(1,295)
436
1,138
(1,915)
(1,019)
—
(21,679)
(713)
—
(713)
—
(10,550)
(8,627)
35,000
(1,100)
220
985
10,233
—
26,161
3,769
42,534
46,303 $
$
1,255
1,406
—
(14,338)
2,104
411
(2,369)
(1,112)
1,025
(702)
(967)
1,719
(29,318)
(88)
28,120
28,032
24,731
(22,104)
—
—
—
23
21,235
—
(11)
23,874
22,588
19,946
42,534
The accompanying notes are an integral part of these consolidated financial statements.
72
Aptevo Therapeutics Inc.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Balance at December 31, 2019
Cancellation of fractional shares
arising from reverse stock split
Proceeds from exercise of stock options
Proceeds from exercise of warrants
Common stock issued upon vesting of
restricted stock units
Stock-based compensation
Net loss for the period
Balance at December 31, 2020
Proceeds from exercise of stock options
Proceeds from exercise of warrants
Common stock sold pursuant to
the Lincoln Park Purchase
Agreement
Stock-based compensation
Net loss for the period
Balance at December 31, 2021
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Deficit
Total
Stockholders'
Equity
3,234,231
$
45
$
179,653 $
(167,856)
$
11,842
(1,421)
2,158
1,166,735
9,206
—
—
4,410,909
26,082
54,105
407,047
—
—
4,898,143
$
$
—
—
1
—
—
—
46
—
—
1
—
—
47
$
$
—
23
21,234
(11)
1,255
—
202,154 $
218
984
10,233
1,643
—
215,232 $
—
—
—
—
—
(17,750)
(185,606)
—
—
—
—
(28,457)
(214,063)
$
$
—
23
21,235
(11)
1,255
(17,750)
16,594
218
984
10,234
1,643
(28,457)
1,216
The accompanying notes are an integral part of these consolidated financial statements.
73
Aptevo Therapeutics Inc.
Notes to 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 immunotherapeutic candidates for the treatment of different forms of cancer. We have developed two versatile and enabling platform
technologies for rational design of precision immune stimulatory drugs. Our lead clinical candidate, APVO436, and preclinical candidates, ALG.APV-527
and APVO603, were developed using our ADAPTIR™ modular protein technology platform. Our preclinical candidate APVO442 was developed using
our ADAPTIR-FLEX™ modular protein technology platform.
We are currently trading on the Nasdaq Capital Market under the symbol “APVO.”
On February 28, 2020, we entered into an LLC Purchase Agreement with Medexus, pursuant to which we sold all of the issued and outstanding
limited liability company interests of Aptevo BioTherapeutics LLC, a wholly owned subsidiary of Aptevo. As a result of the transaction, Medexus obtained
all right, title and interest to the IXINITY® product and the related Hemophilia B business and intellectual property. In addition, Aptevo BioTherapeutics
personnel responsible for the sale and marketing of IXINITY also transitioned to Medexus as part of the transaction. Aptevo BioTherapeutics met all the
conditions to be classified as a discontinued operation, since the sale of Aptevo BioTherapeutics represented a strategic shift that will have a major effect
on the Company’s operations and financial results. Aptevo will not have further significant involvement in the operations of the discontinued Aptevo
BioTherapeutics business. The operating results of Aptevo BioTherapeutics are reported as income (loss) from discontinued operations, in the consolidated
statements of operations for all periods presented. The gain recognized on the sale of Aptevo BioTherapeutics is presented in income from discontinued
operations in the consolidated statement of operations. See Note 2 – Discontinued Operations for additional information
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 year ended December 31, 2021, we had a
net loss $28.5 million. We had an accumulated deficit of $214.1 million as of December 31, 2021. For the year ended December 31, 2021, net cash used in
our operating activities was $21.7 million. We have suffered recurring losses from operations and negative cash flows from operating activities. We believe
that our existing cash resources, the Investment Amount and Milestone Amounts related to Royalty Purchase Agreement with HCR, Purchase Agreement
with Lincoln Park, the cash to be generated from future deferred payments and milestones, and release of restricted cash securing letters of credit, funds
available to us from the remaining principal balance of the Credit Agreement with Midcap Financial, will be sufficient to meet our projected operating
requirements and debt service for at least twelve months from the date of issuance of these financial statements. We may choose to raise additional funds to
support our operating and capital needs in the future.
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) potential decreases in our expected milestone and deferred
payments from Medexus with respect to IXINITY; (e) whether and to what extent future proceeds are received under our Royalty Purchase Agreement; and
(f) other items affecting our forecasted level of expenditures and use of cash resources. We may attempt to obtain additional funding through our existing
equity sales agreement with Lincoln Park or our Equity Distribution Agreement with Piper Sandler & Co (Piper Sandler), or other public or private
financing, collaborative 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
74
continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals may be adversely affected.
Given the global economic climate and additional or unforeseen effects from the ongoing COVID-19 pandemic, we may experience delays or difficulties in
the financing environment and raising capital due to economic uncertainty.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(GAAP). These consolidated financial statements include all adjustments, which include normal recurring adjustments, necessary for the fair presentation
of the Company’s financial position. The Company currently operates in one operating segment, which is discovery and development of novel oncology
therapeutics.
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 consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries: Aptevo Research and Development
LLC and Aptevo BioTherapeutics LLC (for the period prior to its sale on February 28, 2020). All intercompany balances and transactions have been
eliminated.
In March 2020, we effected a 1-for-14 reverse stock split (the “Reverse Split”) of our common stock pursuant to which every 14 shares of our
common stock issued and outstanding as of March 26, 2020 were automatically combined into one issued and outstanding share of common stock. No
fractional shares were issued as a result of the reverse stock split. Stockholders of record who would otherwise have been entitled to receive a fractional
share received a cash payment in lieu thereof. All share and per share information with respect to our common stock have been restated to reflect the effect
of the Reverse Split for all periods presented.
Significant Accounting Policies
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 consolidated financial statements and accompanying notes.
Estimates are used for, but not limited to, forecasted royalties, effective interest rates, clinical accruals, useful lives of equipment, commitments and
contingencies, and stock-based compensation. Given the global economic climate and additional or unforeseen effects from the ongoing COVID-19
pandemic, these estimates are becoming more challenging, and actual results could differ materially from those estimates.
Cash Equivalents
Cash equivalents are highly liquid investments with a maturity of 90 days or less at the date of purchase and include time deposits and investments
in money market funds with commercial banks and financial institutions.
Restricted Cash
As of December 31, 2021, we had current restricted cash of $1.3 million related to securing letters of credit. We classify our restricted cash as
either current or non-current based on the term of the underlying letters of credit.
Concentrations of Credit Risk
Financial instruments that potentially subject Aptevo to concentrations of credit risk consist primarily of cash and cash equivalents, certain
investments and royalties receivable. Aptevo places its cash and cash equivalents with high quality financial institutions and may maintain cash balances in
excess of insured limits. Management believes that the financial risks associated with its cash and cash equivalents are minimal.
75
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:
Furniture and equipment
Software and hardware
Leasehold improvements
7-10 years
3-5 years or product life
Lesser of the asset life or the remaining lease term
Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting
gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.
Leases
We determine if an arrangement is a lease at inception date. Leases are to be classified as finance or operating leases at the lease commencement
date, which affects the classification of expense recognition in the consolidated statement of operations. Right-of-use assets represent the right to use an
underlying asset for the lease term and lease liabilities represent the obligation to make lease payments, as agreed to in the lease. Operating lease liabilities
and the corresponding right-of-use assets are recognized based on the present value of the future minimum lease payments over the lease term at
commencement date. An operating right-of-use asset is measured as the amount of the initial measurement of the lease liability, adjusted for prepaid or
accrued lease payments, the remaining balance of any lease incentive received, unamortized initial direct costs, and any impairment of the right-of-use
asset. The initial measurement of the lease liabilities and right-to-use assets of finance leases is the same as for operating leases. We include options to
extend the lease and certain termination options in our lease liability and right-of-use asset when it is reasonably certain that we will exercise those options.
As our existing leases do not contain an implicit interest rate, we estimate our incremental borrowing rate (IBR) based on information available at
commencement date in determining the present value of future payments. Due to the significant judgment involved and the complex analysis needed to
determine this discount rate, we engaged a third-party valuation specialist to advise us in our determination of our IBR for the initial adoption of the
standard.
Lease expense for operating leases is recognized on a straight-line basis over the lease term as part of our selling, general and administrative
expenses and our research and development expenses on our consolidated statements of operations. Lease expense for financing leases consists of
amortization of the right-of-use asset and interest on the lease liability as part of our research and development expenses on our consolidated statements of
operations.
Fair Value of Financial Instruments
We measure and record cash equivalents and investment securities considered available-for-sale at fair value in the accompanying financial
statements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The carrying amounts of our short-term financial instruments, which include cash and cash equivalents, royalties receivable and accounts payable,
approximate their fair value due to their short maturities.
Debt Issuance Costs
Aptevo defers costs related to debt issuance and amortizes these costs to interest expense over the term of the debt, using the effective interest
method. Debt issuance costs are presented in the consolidated balance sheet as a reduction of the carrying amount of the debt liability.
76
Debt Modification
On March 30, 2021, we amended our Credit Agreement with MidCap Financial and used $10 million of the proceeds received from the Royalty
Purchase Agreement to pay down the outstanding principal under the Credit Agreement from $25 million to $15 million. The amended Credit Agreement
was accounted for under ASC 470-50, Debt Modifications and Extinguishments as a debt modification, rather than an extinguishment, based on a
comparison of the present value of the cash flows under the terms of the debt immediately before and after the amendment, which resulted in a change of
less than 10%. Unamortized issuance costs as of the date of modification will be amortized to interest expense using the effective interest method over the
repayment term.
Liability Related to Sale of Future Royalties and Non-Cash Interest Expense
On March 30, 2021, the Company entered into and closed a Royalty Purchase Agreement (the Royalty Purchase Agreement) with an entity
managed by HealthCare Royalty Management, LLC (HCR) pursuant to which the Company sold to HCR the right to receive royalty payments made by
Pfizer Inc. (Pfizer) in respect of net sales of RUXIENCE. Under the terms of the agreement, the Company received $35 million (the Investment Amount) at
closing and the Company is eligible to receive additional payments in aggregate of up to an additional $32.5 million based on the achievement of sales
milestones in 2022, 2023, and 2024 (collectively, the Milestone Amounts). The Royalty Purchase Agreement further provides that, once HCR reaches
aggregate royalty payments totaling 190% of the Investment Amount plus the Milestone Amounts to the extent paid by HCR to the Company, Aptevo will
be entitled to receive 50% of royalty interest payments thereafter. The Company received a $10 million milestone payment in March 2022 and incurred
$0.5 million in transaction costs. The proceeds from the milestone, net of transaction costs, will be recorded as an additional liability related to the sale of
future royalties on the consolidated balance sheet in the first quarter of 2022. The Company is eligible to receive additional payments in aggregate of up to
$22.5 million based on achievement of sales milestones in 2023 and 2024.
We treat the Royalty Purchase Agreement with HCR (see Note 8) 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 future royalties and the debt amortization are based on our current
estimates of future royalties expected to be paid over the life of the arrangement. To the extent total future royalties collected are an amount less than the
liability, the Company is not obligated to fund any such shortfall. We will periodically assess the expected royalty payments using projections from external
sources. To the extent our estimates of future royalty payments are greater or less than previous estimates or the estimated timing of such payments is
materially different than previous estimates, we will adjust the effective interest rate and recognize related non-cash interest expense on a retrospective
basis. We are not obligated to repay the proceeds received under the Royalty Purchase Agreement with HCR. Due to our continuing involvement under the
Collaboration and License Agreement originally between Trubion and Wyeth, we continue to recognize royalty revenue on net sales of RUXIENCE and
record the royalty payments to HCR as a reduction of the liability when paid. As such payments are made to HCR, the balance of the liability will be
effectively repaid over the life of the Royalty Purchase Agreement.
Research and Development Expenses
Research and development expenses are expensed as incurred. Research and development costs primarily consist of internal labor costs, fees paid
to outside service providers and the costs of materials used in clinical trials and research and development. Other research and development expenses
include facility, maintenance, and related support expenses.
A substantial portion of Aptevo’s preclinical studies and all of its clinical studies have been performed by third-party CROs. The Company reviews
the activities performed by the CROs each period. For preclinical studies, the significant factors used in estimating accruals include the percentage of work
completed to date and contract milestones achieved. For clinical study expenses, the significant factors used in estimating accruals include the number of
patients enrolled and services provided but not yet invoiced. The Company’s estimates are highly dependent upon the timeliness and accuracy of the data
provided by its CROs regarding the status of each program and total program spending and adjustments are made when deemed necessary.
77
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs and professional fees in support of our executive, business
development, finance, accounting, information technology, legal and human resource functions. Other costs include facility costs not otherwise included in
research and development expense.
Stock-Based Compensation
Under ASC 718, Compensation—Stock-based Compensation, we measure and recognize compensation expense for restricted stock units (RSUs),
and stock options granted to our employees and directors based on the fair value of the awards as of the date of grant. The fair value of stock options is
estimated at the date of grant using the Black-Scholes option pricing model that requires management to apply judgment and make estimates, including:
•
•
•
•
•
the expected term of the stock option award, which we calculate using the simplified method, as permitted by the SEC Staff Accounting
Bulletin No. 110, Share-Based Payment, as we have insufficient historical information regarding our stock options to provide a basis for an
estimate;
the expected volatility of our underlying common stock, which we estimate based on the historical volatility of the historical and implied
future volatility of our common stock;
the risk-free interest rate, which we based on the yield curve of U.S. Treasury securities with periods commensurate with the expected term
of the options being valued;
the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have no present
intention to pay cash dividends; and
the fair value of our common stock on the date of grant.
Stock-based compensation expense for RSUs is recognized on a straight-line basis over the vesting period of the respective award. Stock-based
compensation expense for our stock options, both converted and Aptevo granted, is recognized on a straight-line basis over the vesting period of the
respective award.
We have elected to estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. We have estimated a forfeiture rate
of twenty-three percent. We routinely evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee
turnover, and expectations of future option exercise behavior.
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable
to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those
temporary differences are expected to be recovered or settled.
Aptevo’s ability to realize deferred tax assets depends upon future taxable income, as well as the limitations discussed below. For financial
reporting purposes, a deferred tax asset must be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax
assets will not be realized prior to expiration. Aptevo considers historical and future taxable income, future reversals of existing taxable temporary
differences, taxable income in prior carryback years, and ongoing tax planning strategies in assessing the need for valuation allowances. In general, if
Aptevo determines that it is more likely than not to realize more than the recorded amounts of net deferred tax assets in the future, Aptevo will reverse all
or a portion of the valuation allowance established against its deferred tax assets, resulting in a decrease to the provision for income taxes in the period in
which the determination is made. Likewise, if Aptevo determines that it is not more likely than not to realize all or part of the net deferred tax asset in the
future, Aptevo will establish a valuation allowance against deferred tax assets, with an offsetting increase to the provision for income taxes, in the period in
which the determination is made.
78
Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, Aptevo makes certain estimates
and assumptions, in (1) calculating Aptevo’s income tax expense, deferred tax assets and deferred tax liabilities, (2) determining any valuation allowance
recorded against deferred tax assets and (3) evaluating the amount of unrecognized tax benefits, as well as the interest and penalties related to such
uncertain tax positions. Aptevo’s estimates and assumptions may differ significantly from tax benefits ultimately realized.
Note 2. Discontinued Operations
The accompanying financial statements include discontinued operations from two separate transactions: the sale of our hyperimmune business in
2017, from which we received a payment in March 2021 related to the collection of a certain accounts receivable, and the sale of our Aptevo
BioTherapeutics LLC business in February 2020.
On February 28, 2020, we entered into an LLC Purchase Agreement with Medexus, pursuant to which Aptevo sold all of the issued and
outstanding limited liability company interests of Aptevo BioTherapeutics, a wholly owned subsidiary of Aptevo. As a result of the transaction, Medexus
obtained all rights, title and interest to the IXINITY product and the related Hemophilia B business and intellectual property.
The net gain on sale of Aptevo BioTherapeutics, totaling $14.3 million, was calculated as the difference between the fair value of the consideration
received for Aptevo BioTherapeutics, less the net carrying value of the assets transferred to Medexus, less the transaction costs incurred and a working
capital adjustment. We recorded a gain on sale in the quarter ended March 31, 2020.
The following table summarizes the gain on sale for the year ended December 31, 2020 (in thousands):
Cash payment received
Escrow receivable
Total consideration
Less:
Net carrying value of assets transferred to Medexus
Transaction costs
Minimum Transition Services Agreement ("TSA") fund
Net gain on sale of business
$
$
29,250
750
30,000
13,376
1,880
406
14,338
The following table represents the components attributable to income from discontinued operations in the consolidated statements of operations (in
thousands):
Loss from operations
Gain on sale of Aptevo BioTherapeutics
Gain on contingent consideration from Saol
Deferred payment from Medexus
Income from discontinued operations
For the Year Ended December 31,
2020
2021
—
—
460
491
951
$
$
(1,582)
14,338
—
417
13,173
$
$
The LLC Purchase Agreement with Medexus entitles us to future deferred payments and royalties. For the year ended December 31, 2021, we
collected an approximately $0.5 million deferred payment from Medexus related to IXINITY sales.
There was no amortization for Aptevo BioTherapeutics in the year ended December 31, 2021 and amortization was $0.1 million for the year ended
December 31, 2020. Significant operating non-cash items include the gain on sale of Aptevo BioTherapeutics of $14.3 million for the year ended
December 31, 2020. There were no significant investing non-cash items for the year ended December 31, 2021 and 2020.
79
Note 3. 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 will collaboratively develop
ALG.APV-527, a lead 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 years ended December 31, 2021 and December 31, 2020, we recorded approximately $0.1 million in our research and development expense
related to the collaboration arrangement.
Note 4. 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, 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 December 31, 2021 and December 31, 2020, we had $41.2 million and $35.4. million in money market funds, respectively. The carrying
amounts of our money market funds approximate their fair value. At December 31, 2021 and December 31, 2020, we did not have any Level 2 or Level 3
assets or liabilities.
Note 5. Cash, Cash Equivalents, and Restricted Cash
The Company’s cash equivalents are highly liquid investments with a maturity of 90 days or less at the date of purchase and investments in money
market funds. Restricted cash, which are time deposits, includes $1.3 million securing letters of credit.
The following table shows our cash, cash equivalents and current restricted cash as of December 31, 2021 and December 31, 2020:
(in thousands)
Cash
Cash equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash
For the Year Ended December 31,
2021
2020
$
$
3,841 $
41,203
1,259
46,303 $
4,601
35,378
2,555
42,534
80
Note 6. Property and equipment, net
Property and equipment consist of the following:
(in thousands)
Leasehold improvements
Furniture and equipment
Property and equipment, gross
Less: Accumulated depreciation
Total property and equipment, net
For the Year Ended December 31,
2021
2020
$
$
$
2,228
12,430
14,658
(12,279)
$
2,379
2,228
11,730
13,958
(11,143)
2,815
Depreciation expense for the years ended December 31, 2021 and December 31, 2020 was $1.1 million and $1.2 million, respectively.
Note 7. Debt
Credit Agreement
On February 28, 2020, we used a portion of the proceeds from the sale of Aptevo BioTherapeutics to Medexus to fully repay $20 million
outstanding principal under the Credit and Security Agreement, including payment of $2.1 million in an end of facility fee, accrued interest, legal fees, and
prepayment fees. On August 5, 2020, we entered into a Credit and Security Agreement (the Credit Agreement), with MidCap Financial. The Credit
Agreement provided us with up to $25.0 million of available borrowing capacity under a term loan facility. The full $25.0 million was drawn on the closing
date of the Credit Agreement. The term loan facility has a 48 month term, is interest-only for the first 18 months, with straight-line amortization for the
remaining 30 months and bears interest at a rate of one month LIBOR plus 6.25% per annum, subject to a 1.50% LIBOR floor and a 2.50% LIBOR cap.
The Company’s assets are pledged as collateral under the terms of the Credit Agreement. The term loan facility includes additional repayment provisions
should either or both of the royalties or milestones related to IXINITY under the LLC Purchase Agreement with Medexus or royalties related to
RUXIENCE under the Royalty Purchase Agreement with HCR be sold during the term of the loan. The United Kingdom’s Financial Conduct Authority
(FCA), which regulates LIBOR, phased out one-week and two-month US Dollar LIBOR settings on December 31, 2021. All other US Dollar LIBOR
settings, including the overnight, one-month, three-month, six-month and twelve-month, will be phased out on June 30, 2023. It is unclear if at that time
LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2023. Our Credit Agreement with
MidCap Financial currently references one-month LIBOR and also provides that we may amend the Credit Agreement to reflect an alternative rate of
interest upon the phase out of LIBOR.
On November 6, 2020, Kevin Tang and his related entities filed a statement on Schedule 13D to report the purchase of 1,760,000 shares of the
Company’s common stock, which at the time represented approximately 54% of the Company’s issued and outstanding shares of the Company’s common
stock. This acquisition of voting stock triggered a change in control, resulting in an Event of Default under Section 10.1(a)(ii) of the Credit Agreement. On
November 10, 2020, the Company obtained a waiver from MidCap Financial pursuant to which, among other things, MidCap Financial waived such Event
of Default and MidCap Financial and the Company agreed that an immediate event of default under the Credit Agreement will be deemed to have occurred
in the event that (a) a majority of the seats on the Company’s board of directors are occupied by persons who were neither (i) nominated by the Company’s
board of directors nor (ii) appointed by the directors so nominated, and (b) Tang has appointed the majority of the Company’s board of directors. No other
events of default have occurred with respect to the Credit Agreement.
On March 30, 2021, we amended our Credit Agreement with MidCap Financial and used $10.0 million of the proceeds received from the Royalty
Purchase Agreement to pay down the outstanding principal under the Credit Agreement from $25.0 million to $15.0 million. $10.0 million of the remaining
$15.0 million principal balance will be payable on March 31, 2022. Beginning March 1, 2022, monthly repayment of the remaining $5.0 million of
principal will commence and continue for the final 30 months of the loan term. If the Company sells the IXINITY deferred payment stream and milestones
prior to full repayment of this $5.0 million principal amount, under the
81
agreement with MidCap Financial, we will be required to use the proceeds from the sale to pay down the outstanding loan principal balance. MidCap
Financial also released its security interest in the RUXIENCE royalty payments. A fee of $0.6 million was paid by the Company to MidCap Financial in
connection with the amendment in lieu of the formula-based fee previously required.
The amended Credit Agreement was accounted for as a debt modification, rather than an extinguishment, based on a comparison of the present
value of the cash flows under the terms of the debt immediately before and after the amendment, which resulted in a change of less than 10%. Unamortized
issuance costs as of the date of modification will be amortized to interest expense using the effective interest method over the repayment term.
As of December 31, 2021, we classified $11.7 million of the $15.0 million principal of the amended Credit Agreement to current portion of long-
term debt on the consolidated balance sheet. The amended Credit Agreement states that $10.0 million of the remaining $15.0 million principal balance will
be payable on March 31, 2022. Additionally, within the next twelve months, we will pay $1.7 million to MidCap Financial for monthly repayments of
outstanding principal beginning on March 1, 2022. For the years ended December 31, 2021 and 2020, the Company paid $1.4 million and $1.1 million in
interest expense pursuant to our Credit Agreement.
This facility is subject to a subjective acceleration clause that could be invoked by MidCap Financial upon the occurrence of any event MidCap
Financial deems to have a material adverse effect on our ability to repay the lender.
Future principal and interest payments in connection with the Credit Agreement as of December 31, 2021 are as follows:
(in thousands)
2022
2023
2024
Total principal and interest payments
$
$
12,333
2,252
1,435
16,020
Note 8. Liability Related to Sale of Future Royalties
In March 2021, we entered into and closed the 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 agreement, we received $35.0 million (the
Investment Amount) at closing and we are eligible to receive additional payments in aggregate of up to an additional $32.5 million based on the
achievement of sales milestones in 2022, 2023, and 2024 (collectively, the Milestone Amounts). The Royalty Purchase Agreement further provides that,
once HCR reaches aggregate royalty payments totaling 190% of the amount paid at closing plus Milestone Amounts to the extent paid by HCR to the
Company, Aptevo will be entitled to receive 50% of royalty interest payments thereafter. The Company received a $10.0 million milestone payment in
March 2022 and incurred $0.5 million in transaction costs. The proceeds from the milestone, net of transaction costs, will be recorded as additional liability
related to sale of future royalties on the balance sheet in the first quarter of 2022. The Company is eligible to receive additional payments in aggregate of up
to $22.5 million based on achievement of sales milestones in 2023 and 2024.
The proceeds received from HCR of $35.0 million were recorded as a liability, net of transaction costs of $1.1 million, which will be amortized
over the estimated life of the arrangement using the effective interest method. In order to determine the amortization of the liability, we are required to
estimate the total amount of future royalty payments to be received by HCR over the life of the arrangement. The total amount of royalty payments
received by HCR under the Royalty Purchase Agreement, less the net proceeds we received of $33.9 million, is recorded as non-cash interest expense over
the life of the arrangement using the effective interest method. We maintain our rights under the Definitive Agreement originally between Trubion and
Wyeth, with the exception of the cash flows of the RUXIENCE royalty payments purchased by HCR. Due to our continuing involvement under the
Definitive Agreement originally between Trubion and Wyeth, we continue to recognize royalty revenue on net sales of RUXIENCE and record the royalty
payments to HCR as a reduction of the liability when paid. As such payments are made to HCR, the balance of the liability will be effectively repaid over
the life of the Royalty Purchase Agreement. To the extent total future royalties collected are an amount less than the liability, the Company is not obligated
to fund any such shortfall.
82
We estimate the effective interest rate used to record non-cash interest expense under the Royalty Purchase Agreement based on the estimate of
future royalty payments to be received by HCR. As of December 31, 2021, the estimated effective interest rate under the agreement was 23.0%. Over the
life of the arrangement, the actual effective interest rate will be affected by the amount and timing of the royalty payments received by HCR and changes in
our forecasted royalties. Periodically, we will reassess our estimate of total future royalty payments to be received by HCR, and retrospectively adjust the
effective interest rate and amortization of the liability as necessary.
The following table presents the changes in the liability in the year related to the sale of future royalties under the Royalty Purchase Agreement
with HCR (in thousands):
Liability related to sale of future royalties, beginning balance
Proceeds from sale of future royalties
Deferred transaction costs
Non-cash interest expense
RUXIENCE royalties paid to HCR
Liability related to sale of future royalties, ending balance
Current portion of liability related to sale of future royalties
Liability related to sale of future royalties, non-current
Note 9. Leases and Contingencies
Office Space Lease – Operating
For the year ended December 31,
2021
2020
—
$
35,000
(1,100)
5,772
(8,627)
31,045
(15,465)
15,580
$
—
—
—
—
—
—
—
—
$
$
We have an operating lease related to our office and laboratory space in Seattle, Washington. This lease was amended and extended in March 2019.
The term of the amended lease is through April 2030 and we have two options to extend the lease term, each by five years, as well as a one-time option to
terminate the lease in April 2023. The lease was further amended, effective August 2019, to reduce the square footage of our rented area.
The amended lease has a renewal option of two five-year renewals at fair market value as determined at the time of renewal, and a termination
option after month thirty-six with nine months written notice. The termination option also requires a penalty equal to the unamortized tenant improvement
allowance at 8% interest, the unamortized real estate taxes at 8% interest, and the equivalent of four-months’ rent at the base rent price at the time of
termination. The estimated termination penalty has been recorded in our lease payments. We determined we should not include any periods after the
termination option when evaluating this amendment as we are not reasonably certain to not exercise the option, therefore we are recording our liability
through April 30, 2023.
For the years ended December 31, 2021 and December 31, 2020, we recorded $0.8 million and $0.7 million, respectively, related to variable
expenses due to true ups of operating costs or real estate taxes.
Equipment Leases - Operating
As of December 31, 2021, we have operating leases for one piece of lab equipment and four copiers in our Seattle, Washington headquarters. The
future expense for these leases will be straight-line and will include any variable expenses that arise.
Equipment Lease – Financing
As of December 31, 2021, we had one equipment lease classified as a financing lease as the lease transferred ownership of the underlying asset to
us at the end of the lease term in 2020. The lease has no remaining expense obligation. There were no financing lease payments for the year ended
December 31, 2021.
83
Components of lease expense:
(in thousands)
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total lease cost
Right of use assets acquired under operating leases:
(in thousands)
Operating leases, excluding Seattle office lease
Seattle office lease, including amendment
Total operating leases
Lease payments:
(in thousands)
For operating leases
Future minimum payments as of December 31, 2021 are as follows:
(in thousands)
2022
2023
Total future minimum lease payments
Less: imputed interest
Total
For the year ended
December 31,
For the year ended
December 31,
2021
2020
$
1,556 $
6
—
1,562 $
$
1,580
6
1
1,587
As of December 31,
As of December 31,
2021
2020
$
$
7 $
1,577
1,584 $
122
2,600
2,722
For the year ended
December 31,
For the year ended
December 31,
2021
2020
$
1,387 $
1,480
1,294
1,399
2,693
(333)
2,360
$
The long-term portion of the lease liabilities included in the amounts above is $1.3 million and the remainder of our lease liabilities are included in
other current liabilities on our consolidated balance sheets.
As of December 31, 2021, the weighted average remaining lease term and weighted discount rate for operating leases was 1.3 years and 14.46%.
As of December 31, 2020, the weighted average remaining lease term and weighted discount rate for operating leases was 2.3 years and 14.52%.
Note 10. Net Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for
the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common share equivalents
outstanding for the period using the as-if converted method. For the purpose of this calculation, warrants, stock options and restricted stock units (RSUs)
are only included in the calculation of diluted net income (loss) per share when their effect is dilutive.
84
We utilize the control number concept in the computation of diluted earnings per share to determine whether potential common stock instruments
are dilutive. The control number used is loss from continuing operations or income from discontinued operations. The control number concept requires that
the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other
categories of income or loss, regardless of their anti-dilutive effect on such categories. Therefore, no dilutive effect has been recognized in the calculation
of income from discontinued operations per share.
Common stock equivalents include warrants, stock options and unvested RSUs.
The following table presents the computation of basic and diluted net income (loss) per share (in thousands, except share and per share amounts):
Net loss from continuing operations
Income from discontinued operations
Net loss
Basic and diluted net income (loss) per share:
Net loss from continuing operations
Net income from discontinued operations
Net loss per basic share
For the Year Ended December 31,
2020
2021
(29,408) $
951
(28,457) $
(6.27) $
0.20
$
(6.07) $
(30,923)
13,173
(17,750)
(9.12)
3.88
(5.23)
$
$
$
$
$
Weighted-average shares used to compute per share calculation
4,687,952
3,390,919
The following table represents all potentially dilutive shares, which were all anti-dilutive and therefore excluded from the calculation of diluted net
loss per share:
(in thousands, except for per share amounts)
Warrants
Outstanding options to purchase common stock
Unvested RSUs
Note 11. Equity
Common Stock
For the Year Ended December 31,
2021
2020
351
334
57
405
213
9
The Company issued warrants to purchase shares of our common stock outstanding related to our March 11, 2019 public offering. For the years
ended December 31, 2021 and December 31, 2020, certain of the holders of the Company’s warrants exercised warrants with a strike price of $18.20 per
share, resulting in the issuance of approximately 54,105 and 1,166,735 shares of the Company’s common stock and aggregate proceeds to the Company of
approximately $1.0 million and $21.2 million, respectively. As of December 31, 2021, and December 31, 2020, there were warrants to purchase 350,589
and 404,694 shares of our common stock outstanding, respectively.
For the year ended December 31, 2021, we did not issue any common stock due to the vesting of RSUs. For the year ended December 31, 2020, we
issued 9,206 of common stock due to the vesting of RSUs.
For the years ended December 31, 2021 and December 31, 2020, we received proceeds of $0.2 million and $0.02 million upon the exercise of stock
options which resulted in the issuance of 26,082 and 2,158 shares of common stock, respectively.
85
Lincoln Park Purchase Agreement
On December 20, 2018, we entered into a Purchase Agreement, and a registration rights agreement, with Lincoln Park (the Purchase Agreement).
Pursuant to the Purchase Agreement, Lincoln Park has committed to purchase up to $35.0 million worth of our common stock over a 36-month period
commencing on February 13, 2019, the date the registration statement covering the resale of the shares was declared effective by the SEC. Under the
Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase shares of our common stock provided that Lincoln Park’s
maximum commitment on any single day does not exceed $2.0 million. The purchase price per share will be based off of prevailing market prices of our
common stock immediately preceding the time of sale; provided, however, that we cannot direct any such purchase if the prevailing market price is less
than $1.00.
For the year ended December 31, 2021, the Company issued 407,047 shares of common stock to Lincoln Park under the 2018 Purchase Agreement.
We received $10.2 million in proceeds from issuance of these shares over the three-year period. The Company did not issue any shares of common stock to
Lincoln Park under the Purchase Agreement for the year ended December 31, 2020. Our 2018 Purchase Agreement and Registration Rights Agreement
with Lincoln Park expired in March 2022.
On February 16, 2022, the Company entered into a new Purchase Agreement and a Registration Rights Agreement with Lincoln Park. Under the
new Purchase Agreement, Lincoln Park committed to purchase up to $35.0 million worth of our common stock over a 36-month period commencing after
the satisfaction of certain conditions set forth in the Purchase Agreement. The purchase price per share will be based off of prevailing market price;
provided, however, that the prevailing market price is not below $1.00. The Company agreed to issue 99,276 shares of our common stock to Lincoln Park
for no cash consideration as an initial fee for its commitment to purchase shares of our common stock under the Purchase Agreement.
Rights Plan
On November 8, 2020, our Board of Directors (Board) approved and adopted a Rights Agreement, dated as of November 8, 2020, by and between
the Company and Broadridge Corporate Issuer Solutions, Inc., as rights agent, pursuant to which the Board declared a dividend of one preferred share
purchase right (each, a Right) for each outstanding share of the Company’s common stock held by stockholders as of the close of business on November
23, 2020. When exercisable, each right initially would represent the right to purchase from the Company one one-thousandth of a share of a newly-
designated series of preferred stock, Series A Junior Participating Preferred Stock, par value $0.001 per share, of the Company, at an exercise price of
$400.00 per one one-thousandth of a Series A Junior Participating Preferred Share, subject to adjustment. Subject to various exceptions, the Rights become
exercisable in the event any person (excluding certain exempted or grandfathered persons) becomes the beneficial owner of ten percent (10%) or more of
the Company’s common stock without the approval of the Board. The Rights Agreement was amended on November 4, 2021 to extend the expiration date
of such agreement from November 8, 2021 to November 5, 2022.
Equity Distribution Agreement
On December 14, 2020, we entered into an Equity Distribution Agreement (the Equity Distribution Agreement) with Piper Sandler. The Equity
Distribution Agreement provides that, upon the terms and subject to the conditions set forth therein, we may issue and sell through Piper Sandler, acting as
sales agent, shares of our common stock, $0.001 par value per share, having an aggregate offering price of up to $50 million. This offering supersedes and
replaces the program we commenced in December 2017. We have no obligation to sell any such shares under the Equity Distribution Agreement. The sale
of such shares of common stock by Piper Sandler will be effected pursuant to a Registration Statement on Form S-3, which we filed on December 14, 2020.
We issued no shares under the Equity Distribution Agreement in 2021.
Converted Equity Awards Incentive Plan
In connection with the spin-off from Emergent in August 2016, we adopted the Converted Equity Awards Incentive Plan (Converted Plan) and
outstanding equity awards of Emergent held by Aptevo employees were converted into or replaced with equity awards of Aptevo (Conversion Awards). A
total of 0.1 million shares of Aptevo common stock have been authorized for issuance under the Converted Plan.
86
2016 Stock Incentive Plan
On August 1, 2016, the Company adopted the 2016 Stock Incentive Plan (the 2016 SIP). A total of 0.2 million shares of Aptevo common stock
have been authorized for issuance under the 2016 SIP in the form of equity stock options.
On May 31, 2017, at the 2017 Annual Meeting of Stockholders (Annual Meeting), the Company’s stockholders approved the amendment and
restatement of the Company’s 2016 SIP (Restated 2016 Plan) to, among other things, increase the number of authorized shares issuable by 0.1 million
shares of Aptevo common stock. The Restated 2016 Plan was previously approved, subject to stockholder approval, by the Board of Directors of the
Company.
2018 Stock Incentive Plan
On June 1, 2018, at the 2018 Annual Meeting of the Stockholders, the Company’s stockholders approved a new 2018 Stock Incentive Plan (2018
SIP), which replaced the Restated 2016 Plan on a go-forward basis. All stock options, RSUs or other equity awards granted subsequent to June 1, 2018
have been and will be issued out of the 2018 SIP, which has 0.3 million shares of Aptevo common stock authorized for issuance. The 2018 Plan became
effective immediately upon stockholder approval at the 2018 Annual Meeting of the Stockholders. Any shares subject to outstanding stock awards granted
under the 2016 SIP that (a) expire or terminate for any reason prior to exercise or settlement; (b) are forfeited because of the failure to meet a contingency
or condition required to vest such shares or otherwise return to the Company; or (c) otherwise would have returned to the 2016 SIP for future grant
pursuant to the terms of the 2016 Plan (such shares, the “Returning Shares”) will immediately be added to the share reserve under the 2018 SIP as and
when such shares become Returning Shares, up to a maximum of 0.3 million shares. As of December 31, 2021, there are less than 0.1 million shares
available to be granted under the 2018 SIP.
Stock options under the 2018 SIP generally vest pro rata over a three-year period and terminate ten years from the grant date, though the specific
terms of each grant are determined individually. The Company’s executive officers and certain other employees may be awarded options with different
vesting criteria, and options granted to non-employee directors also vest over a three-year period. Option exercise prices for new options granted by the
Company equal the closing price of the Company’s common stock on the Nasdaq Capital Market on the date of grant.
Stock-Based Compensation Expense
Stock-based compensation expense includes amortization of stock options and RSUs granted to employees and non-employees and has been
reported in our consolidated statements of operations as follows:
(in thousands)
Research and development
General and administrative
Total stock-based compensation expense
For the Year Ended December 31,
2020
2021
$
$
510
1,133
1,643
$
$
471
784
1,255
The Company accounts for stock-based compensation by measuring the cost of employee services received in exchange for all equity awards
granted based on the fair value of the award as of the grant date. The Company recognizes the compensation expense over the vesting period. All
assumptions used to calculate the grant date fair value of nonemployee options are generally consistent with the assumptions used for options granted to
employees. In the event the Company terminates any of its consulting agreements, the unvested options underlying the agreements would also be cancelled.
87
Stock Options
Aptevo utilizes the Black-Scholes valuation model for estimating the fair value of all stock options granted. Set forth below are the assumptions
used in valuing the stock options granted:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected average life of options
For the Year Ended December 31,
2021
0.00%
99.15%
0.61%
5 years
2020
0.00%
87.78%
1.97%
7 years
Management has applied an estimated forfeiture rate of 23% and 16% for the year ended December 31, 2021 and December 31, 2020, respectively.
Expected volatility increased, as our stock price fluctuated from a low of $6.48 to a high of $40.59 throughout the year ended December 31, 2021,
compared to a low of $3.11 and high of $48.36 for the year ended December 31, 2020.
The following is a summary of option activity for the year ended December 31, 2021:
Outstanding at December 31, 2020
Granted
Exercised
Forfeited
Outstanding at December 31, 2021
Exercisable at December 31, 2021
Vested and expected to vest at December 31, 2021
Number of
Shares
Weighted-
Average
Exercise Price
8.32
30.67
8.42
20.02
19.17
212,581 $
229,162
(26,185)
(81,146)
334,412
114,929
278,917 $
8.42
17.83
Weighted-
Average
Remaining Term
Aggregate
Intrinsic
Value
8.78 $
—
—
—
8.70
8.17
8.62 $
—
—
415,274
—
43,210
14,454
38,545
As of December 31, 2021, we had $3.4 million of unrecognized compensation expense related to options expected to vest over a weighted average
period of 2.1 years. The weighted average remaining contractual life of outstanding and exercisable options is 8.2 years. For the year ended December 31,
2021, 81,146 shares were forfeited, compared to 325,904 shares forfeited in the year ended December 31, 2020. The weighted-average grant date fair value
per share of options granted during the years ended December 31, 2021 and 2020 was $23.02 and $5.32, respectively. The total intrinsic value of options
exercised for the years ended December 31, 2021 and 2020 was $0.4 million and $0.1 million, respectively. The total fair value of stock options vested for
the years ended December 31, 2021 and 2020 was $1.6 million and $0.9 million, respectively.
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the closing stock price of
Aptevo’s common stock and the exercise price, multiplied by the number of in the money options) that would have been received by the option holders had
all the option holders exercised their options on the last trading day of the year.
88
Restricted Stock Units
The following is a summary of restricted stock activity for the year ended December 31, 2021:
Outstanding at December 31, 2020
Granted
Vested
Forfeited
Outstanding at December 31, 2021
Expected to Vest
Number of
Units
Weighted
Average Fair
Value per Unit
9,000 $
84,038
(1,000)
(35,228)
56,810 $
56,810 $
41.00
29.83
41.00
31.03
30.66
30.66
As of December 31, 2021, we had $1.4 million of unrecognized stock-based compensation expense related to RSUs expected to vest over a
weighted average period of 2.2 years.
The fair value of each RSU has been determined to be the closing trading price of the Company’s common stock on the date of grant as quoted on
the Nasdaq Capital Market.
Warrants
In March 2019, as part of a public offering, we issued warrants to purchase up to 1,725,000 shares of our common stock, 1,571,429 of which have
an exercise price of $18.20 per share and have a five-year life, and 153,571 of pre-funded warrants with an exercise price of $0.14 per share. The pre-
funded warrants had a ten-year life and would have expired on March 11, 2029; however, all of the pre-funded warrants were exercised in March 2019. We
determined the warrants do not meet liability classification pursuant to ASC 480 – Distinguishing Liabilities from Equity. These are therefore included
within equity on our consolidated balance sheets. For the years ended December 31, 2021 and December 31, 2020, certain holders of the Company’s
warrants exercised warrants with a strike price of $18.20 per share, resulting in the issuance of approximately 54,105 and 1,166,735 shares of the
Company’s common stock and aggregate proceeds to the Company of approximately $1.0 million and $21.2 million, respectively. As of December 31,
2021, and December 31, 2020, there were warrants to purchase 350,589 and 404,694 shares of our common stock outstanding, respectively.
Note 12. 401(k) Savings Plan
Aptevo has established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code, as amended. The 401(k) Plan
covers all employees. Under the 401(k) Plan, employees may make elective salary deferrals. Aptevo currently provides for matching of qualified deferrals
up to 50% of 401(k) employee deferral contributions, based on a maximum employee deferral rate of 6% of compensation. During the year ended
December 31, 2021 and December 31, 2020, Aptevo’s related share of matching contributions was approximately $0.2 million and $0.3 million,
respectively.
Note 13. Income Taxes
We did not have an income tax benefit or income tax expense from continuing operations in the years ended December 31, 2021 and December 31,
2020.
The components of loss before income taxes were as follows (in thousands):
(in thousands)
US
Loss from continuing operations before benefit from income taxes
Year ended December 31,
2021
2020
$
$
(29,408) $
(29,408) $
(30,923)
(30,923)
89
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented
below:
(in thousands)
Federal losses carryforward
Intangible assets
Stock-based compensation
State losses carryforward
Other deferred tax assets
Other tax credits
Lease liabilities
Property and equipment
Liability related to sale of future royalties
Deferred tax assets, gross
Valuation allowance
Deferred tax assets, net of valuation
Right-of-use assets
Deferred tax liability
Net deferred tax liabilities
For the Year Ended December 31,
2020
2021
$
33,520
235
986
3,743
2,023
3,253
496
456
5,866
50,578
(50,245)
333
(333)
(333)
$
—
34,118
306
1,042
3,626
2,345
2,241
772
—
473
44,923
(44,291)
632
(632)
(632)
—
$
$
The Company evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s
history of operating losses, including a three-year cumulative loss position as of December 31, 2021, the Company has concluded that it is more likely than
not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company provided a full valuation allowance for its net deferred tax
assets as of December 31, 2021 and 2020. The valuation allowance increased by $6.0 million during the year ended December 31, 2021. The increase in the
valuation allowance during the year ended December 31, 2021 was due primarily to an increase in deferred tax assets resulting from the sale of the
Company’s RUXIENCE royalty rights to HCR, which was treated as a sale for tax purposes, orphan drug credit generated during the period, and stock-
based compensation expense, the impact of which was partially offset by the utilization of federal and state NOLs during the period.
As of December 31, 2021, and 2020, we have recorded federal net operating losses (NOL) carryforwards of approximately $159.6 million and
$162.5 million, state NOL carryforwards of approximately $70.3 million and $68.1 million, and tax credit carryforwards of $3.3 million and $2.2 million,
respectively. Approximately $38.0 million of the federal losses and credits would begin to expire in 2037, while $121.6 million of federal losses may be
carried forward indefinitely. The state net operating losses will begin to expire in varying periods.
The Company is in the process of completing an IRC Section 382/383 study on its federal and state tax attributes based on an ownership change
that occurred during 2021. At this time the Company does not anticipate any permanent limitations on our ability to use federal and state net operating loss
carryforwards and tax credits. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which
may be outside of our control. If an ownership change occurs in the future, our ability to use our net operating loss carryforwards and credits could be
limited.
The Company files income tax returns in the U.S. and several state jurisdictions and are open to review by taxing authorities for the 2016 tax
filings and thereafter.
We are subject to the accounting guidance for uncertain income tax positions. We believe that our income tax positions and deductions will be
sustained on audit and do not anticipate any adjustments that will result in a material adverse effect on our financial condition, results of operations, or cash
flow. Our policy for recording interest and penalties associated with audits and uncertain tax positions is to record such items as a component of income tax
expense, and amounts recognized to date are insignificant. No uncertain income tax positions are recorded, and we do not expect our uncertain tax position
to change during the next twelve months.
90
The reconciliation of the federal statutory income tax rate to the Company’s effective income tax from continuing operations is as follows:
Federal tax at statutory rates
State taxes, net of federal benefit
Change in valuation allowance
Tax credits
Permanent differences
Stock Based Compensation
Other
Total income tax benefit
Note 14. Subsequent Events
Year ended December 31,
2021
2020
21.0%
-1.0%
-20.9%
3.2%
0.0%
-1.3%
-1.0%
0.0%
21.0%
1.9%
-24.1%
3.5%
-1.1%
0.0%
-1.2%
0.0%
On March 8, 2022, the Company received a $10 million milestone payment from HCR pursuant to our Royalty Purchase Agreement. We incurred
$0.5 million in transaction costs related to the milestone payment. Proceeds from the milestone payment, net of transaction costs, will be recorded as a
liability related to sale of future royalties on the balance sheet in the first quarter of 2022. Consistent with our initial accounting for the Royalty Purchase
Agreement, the milestone payment was accounted for as debt-like instrument within the scope of ASC 470-20-25, Debt – Sales of Future Revenues or
Various Other Measures of Income and will be amortized over the life of the arrangement. The Company is eligible to receive additional payments in
aggregate of up to $22.5 million based on achievement of sales milestones in 2023 and 2024.
On February 16, 2022, the Company entered into a new Purchase Agreement and a Registration Rights Agreement with Lincoln Park to replace our
initial Purchase Agreement and Registration Rights Agreement from 2018. Under the new Purchase Agreement, Lincoln Park committed to purchase up to
$35.0 million worth of our common stock over a 36-month period commencing after the satisfaction of certain conditions set forth in the Purchase
Agreement. The purchase price per share will be based off of prevailing market price; provided, however, that the prevailing market price is not below
$1.00. The Company agreed to issue 99,276 shares of our common stock to Lincoln Park for no cash consideration as an initial fee for its commitment to
purchase shares of our common stock under the Purchase Agreement.
91
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of December 31, 2021, management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation
of the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e) and 15d-15(e) of the Exchange Act. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, the design and operation of our disclosure controls and
procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance
that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the
1934 Act. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 based on criteria established
in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this
assessment, management concluded that, as of December 31, 2021, our internal control over financial reporting was effective in providing reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Limitations on Controls
Because of inherent limitations, disclosure controls and internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Item 9B. Other Information.
On March 21, 2022, the Board of Directors of the Company approved the Amended and Restated Senior Management Severance Plan (the “Plan”),
which became effective on March 23, 2022. Among other changes, the Plan was modified to reinstate the percentage of compensation payable to Executive
Vice Presidents that existed in a previous Senior Management Severance Plan. In the event of termination in connection without cause (as defined in the
Plan), Executive Vice Presidents will receive 125% of such participant’s base salary plus target bonus for a period of 15 months and 200% of base salary
plus target bonus for termination without cause related to a change of control (as defined in the Plan).
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
Not Applicable
92
Item 10. Directors, Executives Officers and Corporate Governance.
PART III
Information required by this item will be contained in our definitive proxy statement to be filed with the SEC on Schedule 14A in connection with
our 2022 Annual Meeting of Stockholders (the Proxy Statement), which is expected to be filed not later than 120 days after December 31, 2021, under the
headings “Executive Officers,” “Proposal 1 - Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance,” and
“Delinquent Section 16(a) Reports,” and is incorporated herein by reference.
Item 11. Executive Compensation.
Information required by this item will be contained in the Proxy Statement under the headings “Executive Compensation” and “Director
Compensation,” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information required by this item will be contained in the Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners
and Management” and is incorporated herein by reference.
Item 13. Certain Relationships, Related Transactions and Director Independence.
Information required by this item will be contained in the Proxy Statement under the headings “Transactions with Related Persons” and
“Information Regarding the Board of Directors and Corporate Governance,” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
Information required by this item will be contained in the Proxy Statement under the heading “Proposal 2 – Ratification of the Selection of
Independent Registered Public Accounting Firm,” and is incorporated herein by reference.
93
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)
The following documents are filed as part of this report:
1.
Consolidated Financial Statements
See Index to Consolidated Financial Statements at Item 8 herein.
2.
Consolidated Financial Statement Schedules
All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes
thereto.
3.
Exhibit Index
94
Exhibit
Number
2.1
+2.2
†+2.3
+2.4
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.6
Exhibit Index
Description
Form Exhibit
Filing Date
File No.
Filed
Herewith
Contribution Agreement, dated July 29, 2016, by and among Emergent
BioSolutions Inc., Aptevo Therapeutics Inc., Aptevo Research and
Development LLC and Aptevo BioTherapeutics LLC
8-K
2.1
August 2, 2016
001-37746
Separation and Distribution Agreement, dated July 29, 2016, by and
between Emergent BioSolutions Inc. and Aptevo Therapeutics Inc.
8-K
2.2
August 2, 2016
001-37746
LLC Purchase Agreement, dated as of August 31, 2017, by and among
Aptevo BioTherapeutics LLC, Aptevo Therapeutics Inc., Venus Bio
Therapeutics Sub LLC, and Saol International Limited.
10-Q
2.1
November 13, 2017
001-37746
LLC Purchase Agreement by and among Aptevo Therapeutics Inc. and
Medexus Pharma, Inc. dated February 28, 2020.
8-K
2.1
March 2, 2020
001-37746
Amended and Restated Certificate of
Therapeutics Inc.
Incorporation of Aptevo
8-K
3.1
August 2, 2016
001-37746
Amended and Restated Bylaws of Aptevo Therapeutics Inc.
Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Aptevo Therapeutics Inc.
8-K
8-K
3.2
3.1
August 2, 2016
001-37746
March 27, 2020
001-37746
Certificate of Designation of Series A Junior Participating Preferred
Stock of Aptevo Therapeutics Inc.
8-K
3.1
November 9, 2020
001-37746
Amended and Restated Bylaws of Aptevo Therapeutics Inc.
Form of Common Stock Certificate
Registration Rights Agreement, dated as of August 1, 2016, by and among
Aptevo Therapeutics Inc. and certain of its stockholders
8-K
10
8-K
3.1
4.1
4
November 30, 2020
001-37746
June 29, 2016
001-37746
August 2, 2016
001-37746
Registration Rights Agreement, dated December 20, 2018, by and
between Aptevo Therapeutics Inc. and Lincoln Park Capital Fund, LLC.
8-K
10.2
December 24, 2018
001-37746
Rights Agreement, dated as of November 8, 2020, by and between
Aptevo Therapeutics Inc. and Broadridge Corporate Issuer Solutions,
Inc., as rights agent
Amendment No. 1 to Right Agreement, dated as of November 5, 2021,
between the Company and Broadridge Corporate Issuer Solutions, Inc.,
as Rights Agent
8-K
4.1
November 9, 2020
001-37746
8-K
4.1
November 5, 2021
001-37746
4.6
Description of Capital Stock of Aptevo Therapeutics
4.5
March 31, 2021
001-37746
95
Exhibit
Number
4.7
10.1
10.2
10.3
C 10.4
C 10.5
C 10.6
C 10.7
10.8
Description
Form Exhibit
Filing Date
File No.
Agreement to Terminate Registration Rights Agreement between the
Company and Intervac L.L.C. and BioVac L.L.C.
Transition Services Agreement, dated July 29, 2016, by and between
Emergent BioSolutions Inc. and Aptevo Therapeutics Inc.
8-K
10.2
August 2, 2016
001-37746
Tax Matters Agreement, dated July 29, 2016, by and between Emergent
BioSolutions Inc. and Aptevo Therapeutics Inc.
8-K
10.3
August 2, 2016
001-37746
Product License Agreement, dated July 29, 2016, by and between
Emergent BioSolutions Inc. and Aptevo Therapeutics Inc.
8-K
10.8
August 2, 2016
001-37746
Aptevo Therapeutics Inc. Amended and Restated 2016 Stock Incentive
Plan.
10-Q
4.1
August 10, 2017
001-37746
Aptevo Therapeutics Inc. Converted Equity Awards Incentive Plan
8-K
10.10
August 2, 2016
001-37746
Filed
Herewith
X
X
Aptevo Therapeutics Inc. Amended and Restated Senior Management
Severance Plan
Form of Indemnity Agreement for directors and senior officers
Fourth and Battery Office Lease, dated as of April 28, 2003, by and
between Emergent Product Development Seattle, LLC (as successor-in-
interest to Trubion Pharmaceuticals, Inc. and Genecraft, Inc.) and Selig
Real Estate Holdings Eight L.L.C. , or the Seattle Office Lease
10.9
Seattle Office Lease Amendment, dated December 8, 2004
10.10
Seattle Office Lease Amendment, dated February 1, 2006
10.11
Seattle Office Lease Amendment, dated February 2, 2007
10.12
Seattle Office Lease Amendment, dated June 7, 2010
10.13
Seattle Office Lease Amendment, dated December 21, 2010
10.14
Seattle Office Lease Amendment, dated July 17, 2012
10.15
Seventh Amendment to Seattle Office Lease, dated December 5, 2014
†10.16
License and Co-Development Agreement, dated as of August 19, 2014,
by and between Emergent Product Development Seattle, LLC and
MorphoSys AG, or the MorphoSys Collaboration Agreement
96
10
10
10
10
10
10
10
10
10
10
10.9
April 15, 2016
001-37746
10.12
April 15, 2016
001-37746
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
April 15, 2016
001-37746
April 15, 2016
001-37746
April 15, 2016
001-37746
April 15, 2016
001-37746
April 15, 2016
001-37746
April 15, 2016
001-37746
April 15, 2016
001-37746
June 29, 2016
001-37746
Exhibit
Number
†10.17
†10.18
10.19
10.20
10.21
10.22
10.23
Description
Form Exhibit
Filing Date
File No.
Filed
Herewith
First Amendment to MorphoSys Collaboration Agreement, dated June
19, 2015
Second Amendment to MorphoSys Collaboration Agreement, dated
December 7, 2015
10
10.21
April 15, 2016
001-37746
10
10.22
April 15, 2016
001-37746
Third Amendment to MorphoSys Collaboration Agreement, dated
December 12, 2016
8-K
10.1
December 15, 2016
001-37746
Fourth Amendment MorphoSys Collaboration Agreement, dated June 19,
2017.
10
10.3
August 10, 2017
001-37746
Equity Distribution Agreement, dated November 9, 2017, between
Aptevo Therapeutics, Inc. and Piper Jaffray and Company LLC.
8-K
1.1
November 9, 2017
001-37746
Collaboration and Option Agreement, dated as of July 20, 2017, by and
between Aptevo Research and Development LLC, and Alligator
Bioscience AB.
Amendment No. 3 to Credit and Security Agreement, dated as of
February 23, 2018, by and among Aptevo Therapeutics Inc. and certain
of its subsidiaries and Midcap Financial Trust.
10-Q
10.2
November 13, 2017
001-37746
10-K 10.38
March 13, 2018
001-37746
10.24
Aptevo Therapeutics Inc. 2018 Stock Incentive Plan.
10-Q
10.1
August 9, 2018
001-37746
10.25
Aptevo Therapeutics Inc. Non-Statutory Stock Option Agreement.
10-Q
10.2
August 9, 2018
001-37746
10.26
10.27
10.28
10.29
10.30
Purchase Agreement, dated December 20, 2018, by and between Aptevo
Therapeutics Inc. and Lincoln Park Capital Fund, LLC.
8-K
10.1
December 24, 2018
001-37746
Eighth Amendment to Office Lease, dated as of March 19, 2019, by and
between Aptevo Therapeutics Inc. and Selig Real Estate Holdings Eight
L.L.C.
Amendment to LLC Purchase Agreement, dated as of August 31, 2017,
by and among Aptevo BioTherapeutics LLC, Aptevo Therapeutics Inc.,
Venus Bio Therapeutics Sub LLC, and Saol International Limited.
8-K
10.1
March 22, 2019
001-37746
10-Q
10.1
August 9, 2019
001-37746
Collaboration and License Agreement, dated as of December 19, 2005,
by and among Wyeth Pharmaceuticals and Trubion Pharmaceuticals, Inc.
10-Q
10.1
August 14, 2020
001-37746
Amendment No. 1 to the Collaboration and License Agreement dated as
of December 19, 2005 (the “Agreement”) by and between Trubion
Pharmaceuticals, Inc. (“Trubion”) and Wyeth, acting through its Wyeth
Pharmaceuticals Division (“Wyeth”).
10-Q
10.2
August 14, 2020
001-37746
97
Exhibit
Number
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Description
Form Exhibit
Filing Date
File No.
Filed
Herewith
Amendment No. 2 to the Collaboration and License Agreement dated as
of December 19, 2005 (as previously amended, the “Agreement”) by and
between Trubion Pharmaceuticals, Inc. (“Trubion”) and Wyeth LLC
(formerly known as Wyeth), acting through its Wyeth Pharmaceuticals
Division (“Wyeth”).
Amendment No. 3 to the Collaboration and License Agreement dated as
of December 19, 2005 (as previously amended, the “Agreement”) by and
between Emergent Product Development Seattle, LLC (successor to
Trubion Pharmaceuticals, Inc. (“Trubion”)) (“EPDS”) and Wyeth LLC
(formerly known as Wyeth), acting through its Wyeth Pharmaceuticals
Division (“Wyeth”).
Amendment No. 4 to the Collaboration and License Agreement dated as
of December 19, 2005 (as previously amended, the “Agreement”) by and
between Emergent Product Development Seattle, LLC (successor to
Trubion Pharmaceuticals, Inc. (“Trubion”)) and Wyeth LLC (formerly
known as Wyeth), acting through its Wyeth Pharmaceuticals Division
(“Wyeth”).
10-Q
10.3
August 14, 2020
001-37746
8-K
10.4
August 14, 2020
001-37746
10-Q
10.5
August 14, 2020
001-37746
Credit and Security Agreement, dated as of August 5, 2020, by and
among Aptevo Therapeutics Inc., and MidCap Financial Trust.
10-Q
10.1
November 10, 2019
001-37746
Equity Distribution Agreement, dated December 14, 2020, between
Aptevo Therapeutics Inc. and Piper Sandler & Co.
8-K
1.1
December 14, 2020
001-37746
Royalty Purchase Agreement by and among Aptevo Therapeutics Inc.
and Healthcare Royalty Partners IV, LP. dated as of March 30, 2021.
10-Q
10.1
May 11, 2021
001-37746
First Amendment to Credit and Security Agreement dated March 30,
2021.
10-Q
10.2
May 11, 2021
001-37746
10.38
Executive Transition Services Agreement.
10-Q
10.3
November 12, 2021
001-37746
10.39
Amendment to Executive Transition Services Agreement.
10-Q
10.4
November 12, 2021
001-37746
10.40
10.41
Purchase Agreement, dated February 16, 2022, by and between the
Company and Lincoln Park.
Registration Rights Agreement, dated February 16, 2022, by and between
the Company and Lincoln Park.
8-K
10.1
February 17, 2022
001-37746
8-K
10.2
February 17, 2022
001-37746
21.1
Subsidiaries of Aptevo Therapeutics Inc.
X
98
Description
Form Exhibit
Filing Date
File No.
Filed
Herewith
Exhibit
Number
23.1
31.1
31.2
32.1*
32.2*
Consent of Independent Registered Public Accounting Firm.
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a)
and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL with
applicable taxonomy extension information contained in Exhibits 101)
X
X
X
X
X
X
X
X
X
X
X
X
*
†
C
+
Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company's filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any
such filing.
Confidential treatment granted from the Securities and Exchange Commission as to certain portions, which portions have been omitted and filed
separately with the Securities and Exchange Commission.
Management contract or compensatory plan.
Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Aptevo will furnish copies of any such schedules to the Securities and
Exchange Commission upon request.
Item 16. Form 10-K Summary
We have chosen not to include the summary permitted by this Item 16.
99
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 24, 2022
Company Name
By: /s/ Marvin L. White
Marvin L. White
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
Name
/s/Marvin L. White
Marvin L. White
/s/Jeffrey G. Lamothe
Jeffrey Lamothe
/s/Fuad El-Hibri
Fuad El-Hibri
/s/Daniel J. Abdun-Nabi
Daniel J. Abdun-Nabi
/s/Grady Grant, III
Grady Grant, III
/s/Zsolt Harsanyi, Ph. D.
Zsolt Harsanyi, Ph. D.
/s/Barbara Lopez Kunz
Barbara Lopez Kunz
/s/John E. Niederhuber, M.D.
John E. Niederhuber, M.D.
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
March 24, 2022
March 24, 2022
Chairman of the Board of Directors
March 24, 2022
Director
Director
Director
Director
Director
100
March 24, 2022
March 24, 2022
March 24, 2022
March 24, 2022
March 24, 2022
AGREEMENT TO TERMINATE
REGISTRATION RIGHTS AGREEMENT
EXHIBIT 4.7
This AGREEMENT TO TERMINATE THE REGISTRATION RIGHTS AGREEMENT (this “Agreement”), is
dated as of December 14, 2021, by and among Aptevo Therapeutics Inc., a Delaware corporation (the “Company”), Intervac
L.L.C., a Maryland limited liability company (“Intervac”) and BioVac, L.L.C., a Maryland limited liability company (“BioVac”)
(collectively the “Parties,” each a “Party”).
RECITALS
WHEREAS, the Parties previously entered into the Registration Rights Agreement, dated as of August 1, 2016 (the
“Registration Rights Agreement”), who became party to and bound by the Registration Rights Agreement on the terms and
subject to the conditions thereto;
WHEREAS, the Parties desire to terminate the Agreement and all rights of the Parties thereunder; and
WHEREAS, Section 8(d) of the Registration Rights Agreement provides that, except as otherwise provided therein,
any term of the Registration Rights Agreement may be amended and the observance of any term therein may be waived (either
generally or in a particular instance and either retroactively or prospectively), with the written consent of thethe Parties;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each Party hereto, the Parties hereby
agree as follows:
AGREEMENT
1. Effectiveness. This Agreement will become effective upon the due execution and delivery of this Agreement by
the Company and the Remaining Investors.
2. Termination of Registration Rights Agreement. This Agreement hereby terminates the Registration Rights
Agreement in its entirety.
3. Capitalized Terms. Capitalized terms used without definition herein shall have the meanings ascribed to them in
the Registration Rights Agreement.
4. Entire Agreement. This Agreement supersedes all prior discussions and agreements between the Parties with
respect to the subject matter hereof. The Registration Rights Agreement, as amended by this Agreement, contains the sole and
entire agreement between the Parties with respect to the subject matter hereof.
5. Governing Law and Legal Matters. This Agreement shall be governed, construed and interpreted in accordance
with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
6. Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, to
the maximum extent permitted by law, such provision shall be excluded from this Agreement, the balance of this Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
7. Mutual Release. The Company, individually and on behalf of its successors and assigns, hereby forever waives,
releases and covenants not to sue Intervac or BioVac and their respective members and managers with respect to any and all
claims, actions, causes of action, damages or liabilities arising under the Registration Rights Agreement at any time (“Claims”)
and each of Intervac and BioVac, individually and on behalf of their respective successors and assigns, hereby forever waives,
releases and covenants not to sue the Company and its directors, officers, employees and board members with respect to any and
all Claims.
8. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and
all of which together shall constitute one instrument. A signed copy of this Agreement delivered by facsimile, e-mail (including
pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other means of
electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this letter
agreement.
[Signature Pages Follow]
Aptevo Therapeutics Inc.
By:
/s/ Marvin White
Name: Marvin White
Title: President & CEO
Intervac L.L.C.
By:
/s/ Fuad El-Hibri
Name: Fuad El-Hibri
Title: General Manager
BioVac, L.L.C.
By:
/s/ Fuad El-Hibri
Name: Fuad El-Hibri
Title: General Manager
Aptevo Therapeutics Inc.
Amended and Restated Senior Management Severance Plan
EXHIBIT C 10.6
Section 1. Definitions. The following terms shall have the meaning ascribed to them below:
(A)
(B)
(C)
(D)
(E)
“Applicable Bonus” shall mean the Participant’s individual annual target bonus at the time of termination.
“Base Salary” shall mean a Participant’s annual base salary in effect on the date of the Change of Control or the date of termination,
whichever is applicable.
“Board” shall mean the board of directors of the Company or any committee of the Board that has been delegated authority to
administer this Plan.
“Cause” shall mean each of the following that results in demonstrable harm to the Company’s financial condition or business
reputation: (1) Participant’s conviction of or plea of guilty or no contest to any felony or crime of moral turpitude; (2) Participant’s
dishonesty or disloyalty in performance of duties; (3) conduct by the Participant that jeopardizes the Company’s right or ability to
operate its business; (4) violation by the Participant of any of the Company’s policies or procedures, (including without limitation
employee workplace policies, anti-bribery policies, insider trading policy, communications policy, etc.) if uncured within two
weeks of written notice by the Company; or (5) Participant’s willful malfeasance, misconduct, or gross neglect of duty.
“Change of Control” shall means an event or occurrence set forth in any one or more of subsections (a) through (d) below,
including an event or occurrence that constitutes a Change of Control under one of such subsections but is specifically exempted
from another such subsection, provided that such event or occurrence constitutes a change in the ownership or effective control of
the Company, or a change in the ownership of a substantial portion of the assets of the Company, as defined in Treasury Regulation
Section 1.409A-3(i)(5):
(a)
the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a “Person”) of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 20% or more of either
(x) the then-outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or
(y) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the
Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for,
convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising,
converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of
the Company), (ii) any acquisition by the Company or an Excluded Person, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company,
or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of
subsection (c) of this Section; or
(b)
(c)
at such time as the Incumbent Directors do not constitute a majority of the Board (or, if applicable, the Board of
Directors of a successor corporation to the Company); or
the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the
Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of
transactions (a “Business Combination”), unless, immediately following such Business Combination, each of the
following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of
common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the
election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall
include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of
the Company’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is
referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership, immediately
prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting
Securities, respectively; and (ii) no Person (excluding any employee benefit plan (or related trust) maintained or
sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the
then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent
that such ownership existed prior to the Business Combination); or
(d)
approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
“Code” shall mean the Internal Revenue Code of 1986, as amended, and, as applicable, the regulations promulgated thereunder.
“Company” shall mean Aptevo Therapeutics Inc., and each of its subsidiaries, and after a Change of Control, any successor or
successors thereto, including any Acquiring Corporation (as defined in Section 1(E)(c)).
“Compensation” shall mean the sum of a Participant’s Applicable Bonus and Base Salary.
“Effective Date” shall be March 23, 2022
“Employee Benefits” shall mean, except as otherwise specified by the Board with respect to a Participant at the time such
Participant is designated as a Participant, the employee and fringe benefits and perquisites (including without limitation medical,
dental, and life insurance), and pension benefits (including maximum matching contributions) made available to a Participant (and
his or her eligible dependents) immediately prior to the Participant’s termination, in the case of the application of Section 3(a)(vii)
or immediately prior to a Change of Control in the case of the application of Section 5(d) (or, in each case, the economic equivalent
thereof where applicable laws prohibit or restrict such benefits), provided that “Employee Benefits” shall not include life insurance
in excess of one year or disability insurance.
(F)
(G)
(H)
(I)
(J)
(K)
“Excluded Person” shall mean Fuad El-Hibri and his respective “Affiliates” or “Associates” (each as defined in Rule 12b-2 under
the Exchange Act), their respective heirs and any trust or foundation to which either of them have transferred or may transfer the
Company’s voting securities.
(L)
(M)
(N)
(O)
(P)
(Q)
(R)
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Good Reason” shall mean with respect to a Participant, (i) a material diminution in the Participant’s base compensation, (ii) a
material diminution in the Participant’s authority, duties or responsibilities, (iiii) relocation of the Participant’s primary office more
than 35 miles from its current location, or (iv) any other action or inaction that constitutes a material breach by the Company of its
obligations under the Plan. Notwithstanding the foregoing, “Good Reason” shall not be deemed to have occurred unless: (1) the
Participant provides the Company with written notice that the Participant intends to terminate employment hereunder for one of the
grounds set forth in subsections (i), (ii), (iii) or (iv) of the immediately preceding sentence within sixty (60) days of such reason(s)
occurring, (2) if such ground is capable of being cured, the Company has failed to cure such ground within a period of thirty (30)
days from the date of such written notice, and (3) the Participant terminates employment within six (6) months from the date that
Good Reason first occurs.
“Group” shall have the meaning ascribed to such term in the Exchange Act.
“Incumbent Director” shall mean at any date a member of the Board (i) who was a member of the Board on the Effective Date or
(ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Incumbent Directors at
the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the
directors who were Incumbent Directors at the time of such nomination or election; provided, however, that there shall be excluded
from this clause any individual whose initial assumption of office occurred as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf
of a person other than the Board.
“Participant” shall mean an employee of the Company with the title of Chief Executive Officer, Executive Vice President, Senior
Vice President or Vice President who has (i) been employed by the Company for at least 6 months, (ii) been designated to
participate in this Plan by the Board or, with the authorization of the Board, by the Chief Executive Officer of the Company, and
(iii) executed the form provided by the Company to the employee substantially in the form attached hereto as Exhibit A (the
“Acknowledgment Form”).
“Person” shall have the meaning ascribed to such term in the Exchange Act.
“Plan” shall mean this Amended and Restated Senior Management Severance Plan, as it may be amended from time to time.
Section 2. Term. This Plan shall be effective as of the Effective Date and shall continue in effect through December 31, 2022; provided, however, that,
commencing on December 31, 2022, and on each December 31 thereafter, this Plan shall be automatically extended for one additional year unless, not later
than ninety (90) days prior to the scheduled expiration of the term (or any extension thereof), the Company provides written notice that the term will not be
extended.
Section 3. Severance Plan.
(a)
If during the term of this Plan a Participant’s employment with the Company is terminated by the Company without Cause, other
than under circumstances described in Section 4 below, then such Participant shall become entitled to:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
any unpaid Base Salary and, to the extent consistent with general Company policy and/or as otherwise required by
applicable law, accrued but unused paid-time-off through the date of termination, to be paid in accordance with the
Company’s regular payroll practices and with applicable law but no later than the next regularly scheduled pay period;
reimbursement for any unreimbursed expenses incurred by such Participant prior to the date of termination;
employee and fringe benefits and perquisites, if any, to which such Participant may be entitled as of the date of
termination under the relevant plans, policies and programs of the Company;
an amount equal to the percentage of such Participant’s Compensation set forth in the table below opposite such
Participant’s title, to be paid, in accordance with and subject to Sections 3(c) and 13, in equal installments over the
period set forth in the table below opposite such Participant’s title;
Title
Chief Executive Officer
Executive Vice President
Senior Vice President
Vice President
Percentage of Participant’s
Compensation
150%
125%
75%
50%
Period
(months)
18
15
9
6
any bonus earned but unpaid as of the date of termination for any previously completed year, to be paid in a single
lump-sum, in accordance with and subject to Section 3(c) or, if later than the first payroll period that begins after the
Release becomes binding, on the date on which such bonus would otherwise have been paid to the Participant if the
Participant had remained employed;
pro rata target annual bonus in respect of the year of termination, to be paid in a single lump-sum, in accordance with
and subject to Section 3(c), on the first payroll period that begins after the Release becomes binding; and
continued eligibility for such Participant and his/her eligible dependents to receive Employee Benefits, for such period
following such Participant’s date of termination as set forth in the table at Section 3(a)(iv) above opposite such
Participant’s title, except where the provision of such Employee Benefits would result in a duplication of benefits
provided by any subsequent employer.
(b)
If during the term of this Plan, a Participant’s employment with the Company is terminated by the Company with Cause, then
Participant shall not be entitled to receive any compensation, benefits or rights set forth herein or in Section 5, except to the extent
provided by applicable law, and any stock options or other equity participation benefits vested on or prior to the date of such
termination, but not yet exercised, shall immediately terminate.
(c)
As a condition to payment of any of the amounts under this Section 3(a)(iv)-(vii), Participant:
(i)
(ii)
(iii)
shall, for the period set forth therein, continue to comply with the non-solicit and non-competition terms of the
Participant’s executed Acknowledgment Form;
upon reasonable notice and at the Company’s expense, cooperate fully with any reasonable request that may be made by
the Company (giving due consideration for Participant’s obligations with respect to any new employment or business
activity) in connection with any investigation, litigation, or other similar activity to which the Company or any affiliate
is or may be a party or otherwise involved and for which Participant may have relevant information; and
shall execute a suitable waiver and release under which the Participant shall release and discharge the Company and its
affiliates from and on account of any and all claims that relate to or arise out of the employment relationship between
the Company and the Participant (“the Release”); the Release must become binding within 60 days following the date
of the termination event described in Section 3(a). After the Release becomes binding, the Participant will be paid
pursuant to the terms of Section 3(a), in accordance with regular payroll cycles of the Company (starting with the first
payroll period that begins after the Release is binding), provided that if the 60th day falls in the calendar year following
the year of the date of the termination event described in Section 3(a), the payments will begin no earlier than the first
payroll period of such later calendar year. Payments to certain Participants may be delayed by six months, as described
in Section 13.
(d)
Should Participant breach any obligation set forth in Section 3(c), above, (which breach remains uncured for a period of 10 days
following written notice) the Company shall be relieved of any obligation to make further payments to Participant and shall be
entitled to receive full repayment and restitution of all amounts theretofore paid to Participant under Sections 3(a)(iv)-(vii).
Section 4. Termination Protection. If during the term of this Plan:
(a)
(b)
a Participant’s employment with the Company is terminated by the Company without Cause, or a Participant resigns for Good
Reason, in each case within eighteen (18) months following a Change of Control, or
a Participant’s employment with the Company is terminated prior to a Change of Control (which subsequently occurs) at the
request of a party involved in such Change of Control, or otherwise in connection with or in anticipation of a Change of Control,
then in the case of each of clauses (a) and (b) such Participant shall become entitled to the compensation, benefits and rights set
forth in Section 5 (a) through (f), inclusive, subject to Section 13. Notwithstanding anything to the contrary set forth in this Plan
and subject to the provisions of Section 13, if a termination described in Section 4(b) occurs, the compensation, benefits and rights
set forth in Section 5 (a) through (f) shall be paid or distributed in the same manner as set forth in Section 3(a).
Section 5. Benefits and Rights
(a)
Except as otherwise provided below, a cash lump sum, payable within thirty (30) days following the date of termination of
employment equal to the sum of:
(i)
(ii)
(iii)
(iv)
(v)
any unpaid Base Salary and, to the extent consistent with general Company policy and/or as otherwise required by
applicable law, accrued but unused paid-time-off through the date of termination to be paid in accordance with the
Company’s regular payroll practices and with applicable law but no later than the next regularly scheduled pay period;
reimbursement for any unreimbursed expenses incurred by such Participant prior to the date of termination
an amount equal to the percentage of such Participant’s Compensation set forth in the table below opposite such
Participant’s title:
Title
Chief Executive Officer
Executive Vice President
Senior Vice President
Vice President
Percentage of Compensation
250%
200%
150%
75%
any bonus earned but unpaid as of the date of termination for any previously completed year; and
such Participant’s pro rata target annual bonus in respect of the year of termination.
(b)
(c)
(d)
Such Employee Benefits, if any, to which such Participant may be entitled as of the date of termination of employment under the
relevant plans, policies and programs of the Company.
Any unvested Company stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-unit awards
(collectively, “Equity Awards”) held by such Participant that are outstanding on the date of termination of employment shall
become fully vested as of such date, and the period during which any Equity Award held by such Participant that is outstanding on
such date may be exercised (if applicable) shall be extended to a date that is the later of the fifteenth day of the third month
following the date, or December 31 of the calendar year in which, such Equity Award would otherwise have expired if the exercise
period had not been extended, but not beyond the final date such Equity Award could have been exercised if the Participant’s
employment had not terminated, in each case based on the terms of such Equity Award at the original grant date.
Continued eligibility for such Participant and his/her eligible dependents to receive Employee Benefits, for such period following
such Participant’s date of termination of employment as set forth in the table below opposite the Participant’s title, except where the
provision of such Employee Benefits would result in a duplication of benefits provided by any subsequent employer.
Title
Chief Executive Officer
Executive Vice President
Senior Vice President
Vice President
Period
30
24
12
6
(e)
(f)
All rights such Participant has to indemnification from the Company immediately prior to the Change of Control shall be retained
for the maximum period permitted by applicable law, and any director’s and officer’s liability insurance covering such Participant
immediately prior to the Change of Control shall be continued throughout the period of any applicable statute of limitations.
The Company shall advance to such Participant all costs and expenses, including all attorneys’ fees and disbursements, incurred by
such Participant in connection with any legal proceedings (including arbitration), which relate to the termination of employment or
the interpretation or enforcement of any provision of this Plan, and the Participant shall have no obligation to reimburse the
Company for any amounts advanced hereunder where such Participant prevails in such proceeding with respect to at least one
material issue, it being acknowledged that settlement of any such proceeding shall relieve the Participant from any reimbursement
obligation.
Section 6. Section 280G; Potential Reduction in Payments.
(a)
Anything in this Plan to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any
Payment would be subject to the Excise Tax, then the Participant shall have the following two options:
(i) if a reduction in benefits to a Value equivalent to the Safe Harbor Amount would result in an increase in the Payments
that would be retained by Participant, net of all applicable taxes, Participant may choose to reduce the amount of the
payments made pursuant to this Plan to the Safe Harbor Amount, or
(ii) in the event that Participant decides not to reduce the amount of Payments to the Safe Harbor Amount pursuant to
Section 6(a)(i), Participant may choose to be solely responsible for the payment of all taxes, including any Excise
Taxes, that become due thereon. The reduction of amounts payable pursuant to Section 6(a)(i), if applicable, shall be
made, as determined by the Company, in the following order: (A) any cash payments, (B) any taxable benefits, (C) any
nontaxable benefits, and (D) any vesting of equity awards, in each case in reverse order beginning with payments or
benefits that are to be paid the farthest in time from the date that triggers the applicability of the Excise Tax, to the
extent necessary to maximize the Value of all Payments actually made to the Participant. For purposes of reducing the
Payments to the Safe Harbor Amount, only amounts payable under this Plan (and no other Payments) shall be reduced.
(b)
All determinations required to be made under this Section 6, including the amount of such Excise Tax and the assumptions to be
utilized to assist Participant with determining his/her options under Section 6(a), shall be made by such certified public accounting
firm as may be designated by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to
the Company and the Participant as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any determination by the Accounting Firm shall be binding upon the Company and the Participant.
(c)
The following terms shall have the meanings below for purposes of this Section 6.
(i) “Excise Tax” shall mean the excise tax imposed by Section 4999 of the Code, together with any interest or penalties
imposed with respect to such excise tax.
(ii) “Parachute Value” of a Payment shall mean the present value as of the date of the Change of Control for purposes of
Section 280G of the Code of the portion of such Payment that constitutes a “parachute payment” under
Section 280G(b)(2), as determined by the Accounting Firm for purposes of determining whether and to what extent the
Excise Tax will apply to such Payment.
(iii) A “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of
Section 280G(b)(2) of the Code) to or for the benefit of the Participant, whether paid or payable pursuant to this Plan or
otherwise.
(iv) The “Safe Harbor Amount” means 2.99 times the Participant’s “base amount,” within the meaning of Section 280G(b)
(3) of the Code.
(v) “Value” of a Payment shall mean the economic present value of a Payment as of the date of the Change of Control for
purposes of Section 280G of the Code, as determined by the Accounting Firm using the discount rate required by
Section 280G(d)(4) of the Code.
Section 7. No Mitigation or Offset. Except as provided in Sections 3(a)(vii) and 5(d), a Participant shall not be required to mitigate the amount of any
payment or benefit provided for under this Plan by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for
hereunder be reduced by any compensation or benefits earned or received by such Participant as the result of employment by a subsequent employer, by
retirement benefits, by offset against any amount claimed to be owed by such Participant to the Company or otherwise.
Section 8. Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of
this Plan, which other provision shall remain in full force and effect.
Section 9. Withholding. All payments hereunder shall be reduced by any applicable taxes required by applicable law to be paid or withheld by the
Company.
Section 10. Modification or Waiver. The Board may amend, modify, or terminate the Plan at any time in its sole discretion; provided, however, that (a) any
such amendment, modification or termination that adversely affects the rights of any Participant shall be unanimously approved by the Board and
consented to in writing by such Participant, (b) no such amendment, modification or termination may affect the rights of a Participant then receiving
payments or benefits under the Plan without the consent in writing of such Participant and (c) no such amendment, modification or termination made after a
Change of Control shall be effective for at least eighteen (18) months following the closing of the Change of Control.
Section 11. Applicable Law. This Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts
of laws principles thereof.
Section 12. Administration of Plan. This Plan will be administered by the Board. The Board shall have authority to adopt, amend and repeal such
administrative rules, guidelines and practices relating to this Plan as it shall deem advisable. The Board may construe and interpret the terms of this Plan
and correct any defect, supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent that it shall deem expedient to carry
the Plan into effect and it shall be the sole and final judge of such expediency. All decisions of the Board shall be made in the Board’s sole discretion and
shall be final and binding on all persons having or claiming any interest in the Plan. Neither the Board nor the Chief Executive Officer of the Company
shall have any liability for any decision made in good faith in interpreting, implementing or operating this Plan, including without limitation, any changes
made to the definition Good Reason, in establishing the list of Participants, or in selecting the Participants to be included in any of the Appendices attached
to this Plan. The Company hereby agrees to indemnify and hold harmless each member of the Board and each officer, including without limitation the
Chief Executive Officer of the Company, for (and in each case, advance) any and all costs and expenses incurred in connection with the
administration, operation and implementation of the Plan, including without limitation any changes made to the definition Good Reason, in establishing the
list of Participants, or in selecting the Participants to be included in any of the Appendices attached to this Plan. No amounts paid under this Section 12 for
or on account of any of the foregoing officers or directors shall be included in Compensation under this Plan.
Section 13. Payments Subject to Section 409A.
(a)
Subject to the provisions in this Section 13, any severance payments or benefits under the Plan shall begin only upon the date of the
Participant’s “separation from service” (as determined below), which occurs on or after the date of the Participant’s termination of
employment. The following rules shall apply with respect to distribution of the severance payments and benefits, if any, to be
provided to the Participant under this Plan:
(i) It is intended that each installment of the severance payments and benefits provided under this Plan shall be treated as
a separate “payment” for purposes of Section 409A of the Code and the guidance issued thereunder (“Section
409A”). Neither the Participant nor the Company shall have the right to accelerate or defer the delivery of any such
payments or benefits except to the extent specifically permitted or required by Section 409A.
(ii) If, as of the date of the Participant’s “separation from service” from the Company (within the meaning of Section 13(a)
(iv) below), the Participant is not a “specified employee” (within the meaning of Section 409A), then each installment
of the severance payments and benefits shall be made on the dates and terms set forth in this Plan.
(iii) If, as of the date of the Participant’s “separation from service” from the Company, the Participant is a “specified
employee” (within the meaning of Section 409A), then:
A. Each installment of the severance payments and benefits due under this Plan that, in accordance
with the dates and terms set forth herein, will in all circumstances, regardless of when the
separation from service occurs, be paid within the short-term deferral period (as defined under
Section 409A) shall be treated as a short-term deferral within the meaning of Treasury Regulation
Section 1.409A-1(b)(4) to the maximum extent permissible under Section 409A and shall be made
on the dates and terms set forth in this Plan; and
B. Each installment of the severance payments and benefits due under this Plan that is not described
in Section 13(a)(iii)(A) above and that would, absent this subsection, be paid within the six-month
period following the Participant’s “separation from service” from the Company shall not be paid
until the date that is six months and one day after such separation from service (or, if earlier, the
Participant’s death), with any such installments that are required to be delayed being accumulated
during the six-month period and paid in a lump sum on the date that is six months and one day
following the Participant’s separation from service and any subsequent installments, if any, being
paid in accordance with the dates and terms set forth herein; provided, however, that the preceding
provisions of this sentence shall not apply to any installment of severance payments and benefits if
and to the maximum extent that that such installment is deemed to be paid under a separation pay
plan that does not provide for a deferral of compensation by reason of the application of Treasury
Regulation Section 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation
from service). Any installments that qualify for the exception under Treasury Regulation Section
1.409A-1(b)(9)(iii) must be paid no later than the last day of the Participant’s second taxable year
following the taxable year in which the separation from service occurs.
(iv) The determination of whether and when the Participant’s separation from service from the Company has occurred shall
be made in a manner consistent with, and based on the presumptions set forth in, Treasury Regulation Section 1.409A-
1(h). Solely for purposes of this Section 13(a)(iv), “Company” shall include all persons with whom the Company
would be considered a single employer as determined under Treasury Regulation Section 1.409A-1(h)(3).
(b)
(c)
(d)
All reimbursements and in-kind benefits provided under this Plan shall be made or provided in accordance with the requirements of
Section 409A to the extent that such reimbursements or in-kind benefits are subject to Section 409A, including, where applicable,
the requirement that (i) any reimbursement is for expenses incurred during the Participant’s lifetime (or during a shorter period of
time specified in this Plan), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the
expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or
before the last day of the calendar year following the year in which the expense is incurred and (iv) the right to reimbursement is
not subject to set off or liquidation or exchange for any other benefit.
The Company makes no representation or warranty and shall have no liability to the Participants or any other person if any
provisions of this Plan are determined to constitute deferred compensation subject to Section 409A and do not satisfy an exemption
from, or the conditions of, Section 409A.
The Plan and the Payments hereunder are intended to comply with or be exempt from Section 409A, and the Plan shall be
interpreted consistent with the provisions of Section 409A.
This Plan supersedes and replaces any severance benefit plan, policy, agreement or practice of or with the Company regarding the subject nature hereof,
including, but not limited to the Amended Senior Management Severance Plan approved by the Board on August 10, 2020.
Adopted by Aptevo Therapeutics Inc. this 23rd day of March, 2022.
Exhibit A
Form of Amended and Restated Senior Management Severance Plan
Acknowledgement Form
Terms used but not defined in this Acknowledgement Form shall have the meaning ascribed to them in the Aptevo Therapeutics Inc.
Amended and Restated Senior Management Severance Plan (the “Plan”).
I acknowledge and agree that:
1.
2.
3.
4.
I am electing to become a Participant in, and to be subject to the terms and conditions of, the Plan.
I acknowledge that any non-competition, non-solicitation, confidentiality, assignment of inventions, or similar agreement that I
may have with the Company or any of its affiliates is not affected by this letter or by my participation in the Plan and remains in
full force and effect.
I agree that any indemnification agreement or shareholder agreement, that I may have with the Company or any of its affiliates is
not affected by this letter or by my participation in the Plan and remains in full force and effect.
I am and will remain an at-will employee, and my employer or I may terminate my employment at any time for any reason or for
no reason.
5. My compensation is governed by my employer’s general benefit plans, as they may be amended from time to time, unless the
Company notifies me otherwise in writing.
6.
This Acknowledgment Form may not be modified, changed or discharged in whole or in part, except by an agreement in writing
signed by the Company and me. This Acknowledgment Form shall be governed by and construed as a sealed instrument under
and in accordance with the laws of the State of Delaware without regard to conflicts of law provisions.
EMPLOYEE NAME
DATE
LIST OF SUBSIDIARIES
EXHIBIT 21.1
Name of Subsidiary
Jurisdiction of Incorporation or Organization
Aptevo Research and Development LLC
Delaware
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements of Aptevo Therapeutics Inc. of our report dated March 24,
2022, relating to the 2021 consolidated financial statements of Aptevo Therapeutics Inc., appearing in this Annual Report on Form 10-K for the
year ended December 31, 2021.
•
•
•
•
Registration Statement in Form S-8 (No. 333-213108) pertaining to the Converted Equity Awards Incentive Plan and 2016 Stock
Incentive Plan of Aptevo Therapeutics Inc.,
Registration Statement on Form S-8 (No. 333-219875) pertaining to the 2016 Stock Incentive Plan of Aptevo Therapeutics Inc.,
Registration Statement on Form S-8 (No. 333-226717) pertaining to the 2018 Stock Incentive Plan of Aptevo Therapeutics Inc., and
Registration Statement on Form S-3 (No. 333-251318) of Aptevo Therapeutics Inc.
Exhibit 23.1
/s/ Moss Adams LLP
Seattle, Washington
March 24, 2022
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Marvin White, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Aptevo Therapeutics Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 24, 2022
By:
/s/ Marvin White
Marvin White
President and Chief Executive Officer
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Jeff Lamothe, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Aptevo Therapeutics Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(b)
(c)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 24, 2022
By:
/s/ Jeff Lamothe
Jeff Lamothe
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED AND
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Aptevo Therapeutics Inc. (the “Company”) on Form 10-K for the period ending December 31, 2021 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 24, 2022
By:
/s/ Marvin White
Marvin White
President and Chief Executive Officer
“This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Aptevo Therapeutics Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (whether made before or after the date of the Form-K), irrespective of any general incorporation language contained in such filing.”
CERTIFICATION PURSUANT TO
RULE 13a-14(b) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED AND
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Aptevo Therapeutics Inc. (the “Company”) on Form 10-K for the period ending December 31, 2021 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906
of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 24, 2022
By:
/s/ Jeff Lamothe
Jeff Lamothe
Executive Vice President and Chief Financial Officer
“This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Aptevo Therapeutics Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (whether made before or after the date of the Form-K), irrespective of any general incorporation language contained in such filing.”