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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

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

81-1567056

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

2401 4th Avenue, Suite 1050

Seattle, Washington

98121

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (206) 838-0500

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading Symbols(s)

 

Name of Exchange on Which Registered

Common Stock, $0.001 par value per share

 

APVO

 

The Nasdaq Stock Market LLC
(The Nasdaq Capital Market)

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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

 

 

 

Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of May 8, 2024, the number of shares of the registrant’s common stock outstanding was 4,080,169.

 

 

1


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

3

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

Condensed Consolidated Statements of Cash Flows

5

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 3.

Defaults Upon Senior Securities

53

Item 4.

Mine Safety Disclosures

53

Item 5.

Other Information

53

Item 6.

Exhibits

54

Signatures

55

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Aptevo,” and “the Company” refer to Aptevo Therapeutics Inc. and, where appropriate, its consolidated subsidiaries.

 

 

2


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Aptevo Therapeutics Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts, unaudited)

 

 

 

 

March 31, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,250

 

 

$

16,904

 

Prepaid expenses

 

 

1,133

 

 

 

1,473

 

Other current assets

 

 

691

 

 

 

689

 

Total current assets

 

 

12,074

 

 

 

19,066

 

Property and equipment, net

 

 

789

 

 

 

895

 

Operating lease right-of-use asset

 

 

4,766

 

 

 

4,881

 

Total assets

 

$

17,629

 

 

$

24,842

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

3,720

 

 

$

3,984

 

Accrued compensation

 

 

1,610

 

 

 

2,098

 

Other current liabilities

 

 

968

 

 

 

1,142

 

Total current liabilities

 

 

6,298

 

 

 

7,224

 

Other long-term liabilities

 

 

14

 

 

 

 

Operating lease liability

 

 

5,214

 

 

 

5,397

 

Total liabilities

 

 

11,526

 

 

 

12,621

 

 

 

 

 

 

 

 

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; 673,430 and
   
442,458 shares issued and outstanding at March 31, 2024 and
   December 31, 2023, respectively

 

 

66

 

 

 

61

 

Additional paid-in capital

 

 

236,318

 

 

 

235,607

 

Accumulated deficit

 

 

(230,281

)

 

 

(223,447

)

Total stockholders' equity

 

 

6,103

 

 

 

12,221

 

Total liabilities and stockholders' equity

 

$

17,629

 

 

$

24,842

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


Aptevo Therapeutics Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts, unaudited)

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

(3,752

)

 

$

(4,168

)

General and administrative

 

 

(3,231

)

 

 

(3,588

)

Loss from operations

 

 

(6,983

)

 

 

(7,756

)

Other income (expense):

 

 

 

 

 

 

Other income (expense) from continuing operations, net

 

 

149

 

 

 

(67

)

Gain related to sale of non-financial asset

 

 

 

 

 

9,650

 

Net (loss) income from continuing operations

 

$

(6,834

)

 

$

1,827

 

Discontinued operations:

 

 

 

 

 

 

Income from discontinued operations

 

$

 

 

$

946

 

Net (loss) income

 

$

(6,834

)

 

$

2,773

 

 

 

 

 

 

 

Basic and diluted net (loss) income per share from continuing operations:

 

 

 

 

 

 

Basic

 

$

(9.95

)

 

$

11.45

 

Diluted

 

$

(9.95

)

 

$

11.45

 

Basic and diluted net (loss) income per share:

 

 

 

 

 

 

Basic

 

$

(9.95

)

 

$

17.38

 

Diluted

 

$

(9.95

)

 

$

17.38

 

Shares used in calculation:

 

 

 

 

 

 

Basic

 

 

686,735

 

 

 

159,597

 

Diluted

 

 

686,735

 

 

 

159,597

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


Aptevo Therapeutics Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Operating Activities

 

 

 

 

 

 

Net (loss) income

 

$

(6,834

)

 

$

2,773

 

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

719

 

 

 

915

 

Depreciation and amortization

 

 

106

 

 

 

178

 

Non-cash interest expense and other

 

 

 

 

 

10

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Royalty receivable

 

 

 

 

 

2,500

 

Prepaid expenses and other current assets

 

 

338

 

 

 

(841

)

Operating lease right-of-use asset

 

 

115

 

 

 

103

 

Accounts payable, accrued compensation and other liabilities

 

 

(926

)

 

 

(909

)

Long-term operating lease liability

 

 

(169

)

 

 

(163

)

Net cash (used in) provided by operating activities

 

 

(6,651

)

 

 

4,566

 

Investing Activities

 

 

 

 

 

 

Net cash from investing activities

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

Payments of long-term debt, including fees

 

 

 

 

 

(3,467

)

Value of equity awards withheld for tax liability

 

 

 

 

 

(8

)

Proceeds from issuance of common stock

 

 

 

 

 

1,602

 

Payments in lieu of fractional shares

 

 

(3

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(3

)

 

 

(1,873

)

(Decrease) increase in cash and cash equivalents

 

 

(6,654

)

 

 

2,693

 

Cash and cash equivalents at beginning of period

 

 

16,904

 

 

 

22,635

 

Cash and cash equivalents at end of period

 

$

10,250

 

 

$

25,328

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


Aptevo Therapeutics Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share amounts, unaudited)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2023

 

 

442,458

 

 

$

61

 

 

$

235,607

 

 

$

(223,447

)

 

$

12,221

 

Common stock issued upon vesting of
   restricted stock units

 

 

213

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuances of common stock

 

 

231,130

 

 

 

5

 

 

 

(5

)

 

 

 

 

 

 

Payment in lieu of fractional shares in connection with the 1-for-44 reverse stock split effected on March 5, 2024

 

 

(371

)

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Stock-based compensation

 

 

 

 

 

 

 

 

719

 

 

 

 

 

 

719

 

Net loss for the period

 

 

 

 

 

 

 

 

 

 

 

(6,834

)

 

 

(6,834

)

Balance at March 31, 2024

 

 

673,430

 

 

$

66

 

 

$

236,318

 

 

$

(230,281

)

 

$

6,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (Deficit)

 

Balance at December 31, 2022

 

 

146,961

 

 

$

48

 

 

$

223,962

 

 

$

(206,036

)

 

$

17,974

 

Common stock issued upon vesting of
   restricted stock units

 

 

961

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Issuances of common stock

 

 

16,611

 

 

 

1

 

 

 

1,601

 

 

 

 

 

 

1,602

 

Stock-based compensation

 

 

 

 

 

 

 

 

915

 

 

 

 

 

 

915

 

Net income for the period

 

 

 

 

 

 

 

 

 

 

 

2,773

 

 

 

2,773

 

Balance at March 31, 2023

 

 

164,533

 

 

$

49

 

 

$

226,470

 

 

$

(203,263

)

 

$

23,256

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


Aptevo Therapeutics Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

Note 1. Nature of Business and Significant Accounting Policies

Organization and Liquidity

Aptevo Therapeutics Inc. (Aptevo, we, us, or the Company) is a clinical-stage, research and development biotechnology company focused on developing novel immuno-oncology candidates for the treatment of different forms of cancer. We have developed two versatile and enabling platform technologies for rational design of precision immune modulatory drugs. Our clinical candidates, APVO436 and ALG.APV-527, and preclinical candidates, APVO603 and APVO711, 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.”

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. The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty of our ability to continue as a going concern, nor do they include adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. For the three months ended March 31, 2024, we had a net loss of $6.8 million. We had an accumulated deficit of $230.3 million as of March 31, 2024. For the three months ended March 31, 2024, net cash used in our operating activities was $6.7 million. We have suffered recurring losses from operations and negative cash flows from operating activities. When considered in aggregate, these factors raise substantial doubt about our ability to continue as a going concern for the one-year period from the date of issuance of these financial statements. We will need to raise additional funds to support our operating and capital needs in addition to our existing cash resources, cash to be generated from future milestones related to IXINITY sales and regulatory approvals achieved by Medexus Pharmaceuticals ("Medexus"), and exercise of common warrants. 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) whether and to what extent potential milestones are received from Medexus with respect to IXINITY; (e) macroeconomic conditions such as rising interest rates, inflation and costs; and (f) other items affecting our forecasted level of expenditures and use of cash resources. We may attempt to obtain other public or private financing, collaborative or licensing arrangements with strategic partners, or through credit lines or other debt financing sources to increase the funds available to fund operations. However, we may not be able to secure such funding in a timely manner or on favorable terms, if at all. Furthermore, if we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences, and privileges senior to those of our existing stockholders. If we raise additional funds through collaboration, licensing, or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. Without additional funds, we may be forced to delay, scale back, or eliminate some of our research and development activities or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development goals may be adversely affected. Given the continuing global economic and geopolitical climate, including rising interest rates and stock market volatility, we may experience delays or difficulties in the financing environment and raising capital due to economic uncertainty.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). These unaudited condensed consolidated financial statements include all adjustments, which include normal recurring adjustments, necessary for the fair presentation of the Company’s financial position. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2023, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and changes in these estimates are recorded when known.

The unaudited condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiary, Aptevo Research and Development LLC. All intercompany balances and transactions have been eliminated.

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the unaudited condensed financial statements and accompanying notes. Estimates are used for, but not limited to, clinical accruals, useful lives of equipment, commitments and contingencies, stock-based compensation, and incremental borrowing rate (IBR) used for our lease. Given the global economic and geopolitical climate, these estimates are becoming more challenging, and actual results could differ materially from those estimates.

Significant Accounting Policies

Gain Related to Sale of Nonfinancial Asset to XOMA (US) LLC

On March 29, 2023, we entered into and closed a payment interest purchase agreement (the “Purchase Agreement”) with XOMA (US) LLC (“XOMA”) pursuant to which we sold to XOMA our right, title and interest in all of the deferred payments and a portion of the milestone payments from Medexus pursuant to our LLC Purchase Agreement with Medexus, dated February 28, 2020 (the "LLC Agreement"). Under the terms of the Purchase Agreement, we received $9.6 million at closing (the “Closing Payment”) and an additional post-closing payment of $0.05.

We accounted for the $9.6 million Closing Payment and the $0.05 million post-closing payment from XOMA as other income in accordance with Accounting Standards Codification ("ASC") 610-20 Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets in the first quarter of 2023. Contractual rights sold to XOMA represent an intangible asset under ASC 610-20 Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets for which XOMA bears all benefit and Aptevo has no obligations going forward. The Company will continue to account for its portion of future milestones under our LLC Purchase Agreement with Medexus as contingent consideration under ASC 450-30 Gain Contingencies and will record income when proceeds are received.

Other Significant Accounting Policies

Our other significant accounting policies were reported in our Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the SEC on March 5, 2024. Our other significant accounting policies have not changed materially from the policies previously reported.

Note 2. Discontinued Operations

The accompanying unaudited condensed consolidated financial statements include discontinued operations from the sale of business products and segments.

The following table represents the components attributable to income from discontinued operations in the unaudited condensed consolidated statements of operations (in thousands):

 

 

 

For the Three Months Ended

 

 

 

March 31, 2023

 

Deferred payment from Medexus

 

$

523

 

Gain on contingent consideration from release of escrow related to sale of Aptevo BioTherapeutics

 

 

163

 

Gain on contingent consideration from Kamada

 

 

260

 

Income from discontinued operations

 

$

946

 

 

For the three months ended March 31, 2024, we did not record income from discontinued operations. For the three months ended March 31, 2023, we collected $0.5 million in deferred payments from Medexus related to IXINITY sales and $0.2 million related to funds released from escrow from the sale of Aptevo BioTherapeutics in 2020. Additionally, we received $0.3 million related to the sale of hyperimmune business to Saol (later acquired by Kamada, Ltd.) as a result of the collection of certain accounts receivable.

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Note 3. XOMA Transaction

On March 29, 2023, we entered into and closed a Purchase Agreement with XOMA pursuant to which we sold to XOMA our right, title and interest in and to all of the deferred payments and a portion of the milestone payments from Medexus under our LLC Purchase Agreement. Under the terms of our Purchase Agreement with XOMA, we received $9.6 million at closing and an additional post-closing payment of $0.05 million. In exchange for the Closing Payment, we sold to XOMA our right, title and interest to the following payments under the LLC Purchase Agreement: (i) 100% of the Company’s entitlement to receive the deferred payments that may become due and payable following March 29, 2023 (including, for avoidance of doubt, any and all payments earned during Q1 2023), (ii) 25% of the Company’s entitlement to receive the Canadian Approval Milestone Payment; and (iii) 50% of the Company’s entitlement to receive the European Approval Milestone Payments and Net Sales Milestone Payment.

We accounted for the $9.6 million Closing Payment and the $0.05 million post-closing payment from XOMA as other income in accordance with ASC 610-20 Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets in the first quarter of 2023. Contractual rights sold to XOMA represent an intangible asset under ASC 610-20 Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets for which XOMA bears all benefit and Aptevo has no obligations going forward. The Company will continue to account for its portion of future milestones under our LLC Purchase Agreement with Medexus as contingent consideration under ASC 450-30 Gain Contingencies and will record income when proceeds are received.
 

Note 4. Collaboration Agreements

Alligator Bioscience AB

On July 20, 2017, our wholly owned subsidiary Aptevo Research and Development LLC ("Aptevo R&D"), entered into a collaboration and option agreement (the "Collaboration Agreement") with Alligator Bioscience AB ("Alligator"), pursuant to which Aptevo and Alligator have been collaboratively developing ALG.APV-527, a first-in-class 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 three months ended March 31, 2024 and 2023, we recorded approximately $0.6 million and $0.8 million, which represent our 50% cost share, in our research and development expense related to the Collaboration Agreement, respectively.

Note 5. Fair Value Measurements

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, it gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The level in the fair value hierarchy within which the fair value measurement is reported is based on the lowest level input that is significant to the measurement in its entirety. The three levels of the hierarchy are as follows:

Level 1— Quoted prices in active markets for identical assets and liabilities;

Level 2— Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

At March 31, 2024 and December 31, 2023, we had $9.6 million and $13.2 million in Level 1 money market funds, respectively. The carrying amounts of our money market funds approximate their fair value. At March 31, 2024 and December 31, 2023, we did not have any Level 2 or Level 3 assets.

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Note 6. Cash and Cash Equivalents

 

The Company’s 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.

The following table shows our cash and cash equivalents as of March 31, 2024 and December 31, 2023:

 

 

 

March 31,

 

 

December 31,

 

(in thousands)

 

2024

 

 

2023

 

Cash

 

$

663

 

 

$

3,732

 

Cash equivalents

 

 

9,587

 

 

 

13,171

 

Total cash and cash equivalents

 

$

10,250

 

 

$

16,904

 

 

Note 7. Leases

 

Office Space Lease - Operating

We have an operating lease related to our office and laboratory space in Seattle, Washington with a term through April 2030 and two options to extend the lease term, each by five years. As of March 31, 2024, we are not reasonably certain to exercise the two options to extend the lease term and our lease liability is recorded through April 30, 2030.

For the three months ended March 31, 2024 and 2023, we recorded $0.2 million related to variable lease expense.

 

Components of lease expense:

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Operating lease cost

 

$

297

 

 

$

297

 

Total lease cost

 

$

297

 

 

$

297

 

 

Right of use assets acquired under operating leases:

 

 

 

As of March 31,

 

 

As of December 31,

 

(in thousands)

 

2024

 

 

2023

 

Seattle office lease, including amendment

 

$

4,766

 

 

$

4,881

 

Total operating leases

 

$

4,766

 

 

$

4,881

 

 

Lease payments:

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

For operating leases

 

$

344

 

 

$

115

 

 

As of March 31, 2024, the long-term and current portion of the lease liabilities is $5.2 million and $0.7 million, respectively. As of March 31, 2023, the long-term and current portion of the lease liabilities were $5.9 million and $0.6 million, respectively.

As of March 31, 2024, the weighted-average remaining lease term and weighted-average discount rate for operating leases was 6.08 years and 12.03%.

Note 8. Reverse Stock Split

On February 5, 2024, we held a Special Meeting of Stockholders at which our stockholders approved a series of alternate amendments to the Amended and Restated Certificate of Incorporation to effect, at the option of our Board of Directors (the "Board"), a reverse split of Aptevo's common stock at a ratio ranging from 1-for-15 to 1-for-44, inclusive, with the effectiveness of one of such amendments and the abandonment of the other amendments, or the abandonment of all amendments, to be determined by the Board in its sole discretion following the Special Meeting. The specific 1-for-44 reverse split ratio was subsequently approved by the Board on February 27, 2024. On March 5, 2024, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a 1-for-44 reverse stock split of the Company's outstanding common stock (the "Reverse Stock Split"). The Reverse Stock Split became effective on March 5, 2024 at 5:01 p.m. Eastern Time, and our common stock began trading on the Nasdaq Capital Market, on a split-adjusted basis, at market open on March 6, 2024.

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No fractional shares were issued as a result of the Reverse Stock Split. Stockholders of record who would otherwise be entitled to receive a fractional share received a cash payment in lieu thereof.

We have adjusted all common stock and stock equivalent figures retroactively in this Form 10-Q for all periods presented to reflect the Reverse Stock Split.

Note 9. 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. Shares of the Company's common stock underlying pre-funded warrants and shares held in abeyance resulting from the previous exercise of warrants are included in the calculation of basic and diluted earnings per share because there is little to no consideration required for delivery of shares. 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.

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 income (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.

Common stock equivalents include warrants, stock options and unvested RSUs.

The following table presents the computation of basic and diluted net (loss) income per share (in thousands, except share and per share amounts):

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Net (loss) income from continuing operations

 

$

(6,834

)

 

$

1,827

 

Income from discontinued operations

 

 

 

 

 

946

 

Net (loss) income

 

$

(6,834

)

 

$

2,773

 

 

 

 

 

 

 

Basic and diluted net (loss) income per share from continuing operations:

 

 

 

 

 

 

Basic

 

$

(9.95

)

 

$

11.45

 

Diluted

 

$

(9.95

)

 

$

11.45

 

Basic and diluted net income per share from discontinued operations:

 

 

 

 

 

 

Basic

 

$

 

 

$

5.93

 

Diluted

 

$

 

 

$

5.93

 

Basic and diluted net (loss) income per share:

 

 

 

 

 

 

Basic

 

$

(9.95

)

 

$

17.38

 

Diluted

 

$

(9.95

)

 

$

17.38

 

Shares used in calculation:

 

 

 

 

 

 

Basic

 

 

686,735

 

 

 

159,597

 

Diluted

 

 

686,735

 

 

 

159,597

 

 

The following table represents all potentially dilutive shares:

 

 

 

As of March 31,

 

(in thousands)

 

2024

 

 

2023

 

Warrants

 

 

689

 

 

 

7

 

Outstanding options to purchase common stock

 

 

10

 

 

 

10

 

Unvested RSUs

 

 

6

 

 

 

7

 

 

We use the treasury stock method when determining dilutive shares. For the three months ended March 31, 2024, the Company was in a net loss position, therefore the share number used to calculate diluted earnings per share is the same as the basic earnings per share. As of March 31, 2023, we determined that outstanding warrants, options, and RSUs are not dilutive as the exercise and grant prices were higher than our average share price for the three.

 

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Note 10. Equity

August 2023 Public Raise

 

On August 4, 2023, we completed a public offering of common stock and warrants, which included the following:

50,488 shares of common stock at a price of $27.28 per share.
Pre-funded warrants to purchase up to 132,793 shares of common stock at a price of $27.28 per with an exercise price of $0.001 per share. As of March 31, 2024, all pre-funded warrants have been exercised.
Series A and Series B common warrants to purchase up to an aggregate of 366,562 shares of common stock at an exercise price of $27.28 per share.

We received net proceeds of $4.3 million, net of transaction costs, as a result of this offering. In the fourth quarter of 2023, an aggregate of 322,691 Series A and Series B common warrants were exercised as part of our November 2023 warrant inducement agreement with certain holders of our common warrants. As of March 31, 2024, there were 42,555 Series A and 1,316 Series B common warrants outstanding with an exercise price of $27.28 which will expire on August 4, 2028 and February 4, 2025, respectively.

 

If these warrants are exercised, we will receive up to an additional $1.2 million in gross proceeds.

November 2023 Warrant Inducement

On November 9, 2023, we entered into a warrant inducement agreement (the "Inducement Agreement") with certain holders of our Series A and Series B common warrants issued in connection with our August 2023 public offering to exercise for cash 140,726 Series A and 181,965 Series B common warrants at a reduced exercise price of $10.25. We received $3.3 million in gross proceeds from the exercise of these warrants and issued an aggregate of 645,382 new Series A and new Series B warrants as follows:

281,452 Series A common warrants to purchase an aggregate of up to 281,452 shares of common stock at $10.25 per share, of which 140,726 Series A-1 common warrants were immediately exercisable and 140,726 Series A-2 common warrants were exercisable at any time on or after February 5, 2024. The Series A-1 and Series A-2 common warrants have terms of four years and eight months, and five years, respectively.
363,930 Series B common warrants to purchase an aggregate of up to 363,930 shares of common stock at $10.25 per share, of which 181,965 Series B-1 common warrants were immediately exercisable and 181,695 Series B-2 common warrants were exercisable at any time on or after February 5, 2024. The Series B-1 and Series B-2 common warrants have terms of fourteen months and twenty-four months, respectively.

As of March 31, 2024, there were 140,726 Series A-1, 140,726 Series A-2, 181,965 Series B-1 and 181,965 Series B-2 common warrants outstanding with an exercise price of $10.25 per share, and 4,798 shares remain held in abeyance.

If these new warrants are exercised, we will receive up to an additional $6.6 million in gross proceeds.

Equity Distribution Agreement

 

The Company previously entered into an Equity Distribution Agreement with Piper Sandler (the "Equity Distribution Agreement") under which we could issue and sell through Piper Sandler shares of our common stock pursuant to a Registration Statement on Form S-3 which we filed on December 14, 2020, and expired in December 2023. In the three months ended March 31, 2023, the Company issued 16,611 shares of common stock at an average price of $99.43 under the Equity Distribution Agreement. We received $1.6 million in proceeds from the issuance of these shares.

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Rights Plan

On November 8, 2020, our Board of Directors (the "Board") approved and adopted a Rights Agreement (the "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. One Right also will be issued together with each Common Share issued by the Company after November 23, 2020, but before the Distribution Date (as defined in the Rights Agreement) (or the earlier redemption or expiration of the Rights) and, in certain circumstances, after the Distribution Date. 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. 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. On November 2, 2023, we entered into Amendment No. 3 to the Rights Agreement and extended the expiration of such agreement to November 4, 2024 and changed the exercise price to $2.02 per one one-thousandth of a Series A Junior Participating Preferred Share, subject to adjustment.

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 (the "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 0.02 million shares of Aptevo common stock authorized for issuance. The 2018 SIP 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 0.02 million shares.

On June 7, 2022, at the 2022 Annual Meeting of Stockholders, our stockholders approved the Amended and Restated 2018 SIP to increase the number of shares authorized for issuance under the 2018 SIP by 500,000 shares of common stock. As of March 31, 2024, there are 1,558 shares available to be granted under the 2018 SIP.

Stock options and RSUs under the Amended and Restated 2018 SIP generally vest pro rata over a one-year or three-year period. Stock options terminate ten years from the grant date, though the specific terms of each grant are determined individually. The Company’s executive officers, members of our board of directors, and certain other employees and consultants may be awarded options and/or RSUs with different vesting criteria, and awards granted to non-employee directors will vest over a one-year period. Option exercise and RSU grant prices for new awards 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 unaudited condensed consolidated statements of operations as follows:

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Research and development

 

$

242

 

 

$

310

 

General and administrative

 

$

477

 

 

$

605

 

Total stock-based compensation expense

 

$

719

 

 

$

915

 

 

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 non-employee equity awards are generally consistent with the assumptions used for equity awards granted to employees. In the event the Company terminates any of its consulting agreements, the unvested equity underlying the agreements would also be forfeited.

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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:

 

 

 

For the Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Expected dividend yield

 

 

 

 

 

 

Expected volatility

 

 

 

 

103.63%

 

Risk-free interest rate

 

 

 

 

4.18%

 

Expected average life of options

 

 

 

 

5 years

 

 

The Company did not grant stock options for the three months ended March 31, 2024. For the three months ended March 31, 2023, management has applied an estimated forfeiture rate of 30%.

The following is a summary of option activity for the three months ended March 31, 2024:

 

 

 

Number of
Shares

 

 

Weighted-
Average
Exercise Price

 

 

Weighted-
Average
Remaining Term

 

Balance at December 31, 2023

 

 

9,946

 

 

$

563.19

 

 

 

7.38

 

Granted

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(34

)

 

 

709.25

 

 

 

 

Outstanding at March 31, 2024

 

 

9,912

 

 

 

561.59

 

 

 

7.14

 

Exercisable March 31, 2024

 

 

7,209

 

 

 

679.55

 

 

 

6.64

 

Vested and expected to vest at March 31, 2024

 

 

9,195

 

 

 

593.56

 

 

 

7.03

 

 

As of March 31, 2024, we had $0.4 million of unrecognized compensation expense related to options expected to vest over a weighted-average remaining vesting period of 0.9 years. The weighted-average grant date fair value per share of options granted during the three months ended March 31, 2023 was $73.83. The total fair value of stock options vested for the three months ended March 31, 2024 and 2023 was $0.8 million and $0.9 million, respectively.

The aggregate intrinsic value is the total pretax intrinsic value (the difference between the closing stock price of Aptevo’s common stock on the last trading day of March 2024 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 quarter.

Restricted Stock Units

The following is a summary of RSU activity for the three months ended March 31, 2024:

 

 

 

Number of
Units

 

 

Weighted
Average Fair
Value per Unit

 

Balance at December 31, 2023

 

 

6,342

 

 

$

205.08

 

Granted

 

 

1,643

 

 

 

7.24

 

Vested

 

 

(2,070

)

 

 

287.68

 

Forfeited

 

 

(56

)

 

 

69.21

 

Outstanding and expected to vest at March 31, 2024

 

 

5,859

 

 

$

121.72

 

 

As of March 31, 2024, there was $0.5 million unrecognized stock-based compensation expense related to unvested RSUs expected to vest over the weighted-average period of 1.21 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.

 

Note 11. Subsequent Events

On April 10, 2024, we completed a public offering of (i) 926,666 shares of our common stock and accompanying common warrants ("Common Warrants") to purchase up to 1,853,332 shares of common stock at a public offering price of $1.35 per share and accompanying Common Warrants and (ii) pre-funded warrants ("Pre-Funded Warrants") to purchase 2,473,334 shares of common stock and accompanying Common Warrants to purchase up to 4,946,668 shares of common stock at a combined public offering price of

14


$1.3499 per Pre-funded Warrant and accompanying Common Warrants, which is equal to the public offering price per share of Common Stock and accompanying Common Warrant less the $0.0001 per share exercise price of each such Pre-funded Warrant. We received $4.6 million in gross proceeds from the offering. Our net proceeds from the offering amounted to approximately $4.0 million after deducting offering expenses payable by us, including placement agent and other fees. The Common Warrants have an exercise price of $1.35 per share and are exercisable immediately following the date of issuance and will expire in April 2029. If the Common Warrants are exercised, we will receive up to an additional $9.2 million in proceeds.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q 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). All statements in this Quarterly Report on Form 10-Q other than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenues, the achievement of milestones and receipt of future payments, projected costs, prospects, plans, intentions, expectations, clinical trial results, compliance with listing requirements, future macroeconomic conditions and objectives could be forward-looking statements. The words “anticipates,” “believes,” “could,” “designed,” “estimates,” “expects,” “goal,” “intends,” “may,” “plans,” “projects,” “should,” “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.

We have based these forward-looking statements largely on our current assumptions, expectations, projections, intentions, objectives and/or beliefs about future events or occurrences and these forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, but not limited to, those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. The timing of certain events and circumstances and known and unknown risks and uncertainties could cause actual results to differ materially from those anticipated or implied in the forward-looking statements that we make. Therefore, you should not place undue reliance on our forward-looking statements. Our forward-looking statements in this Quarterly Report on Form 10-Q are based on current information and we do not assume any obligation to update any forward-looking statements except as required by the federal securities laws.

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (this MD&A) together with the unaudited condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q. This MD&A contains forward-looking statements that are subject to risks and uncertainties, such as those set forth in the sections of this Quarterly Report on Form 10-Q, “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 immunotherapy 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 and have two clinical candidates and three preclinical candidates currently in development. Clinical candidate APVO436 is a CD3xCD123 T-cell engager currently being clinically evaluated for the treatment of acute myelogenous leukemia (AML). Clinical candidate ALG.APV-527 targets 4-1BB (co-stimulatory receptor) and 5T4 (tumor antigen). The compound is designed to reactivate antigen-primed T-cells to specifically kill tumor cells and is currently being evaluated for the treatment of multiple solid tumor types.

Preclinical candidates, APVO603 and APVO711, were also developed using our ADAPTIR™ modular protein technology platform. Our preclinical candidate APVO442 was developed using our ADAPTIR-FLEX™ modular protein technology platform.

Our ADAPTIR and ADAPTIR-FLEX platforms are designed to generate monospecific, bispecific, and multi-specific antibody candidates capable of enhancing the human immune system against cancer cells. ADAPTIR and ADAPTIR-FLEX are both modular platforms, which gives us the flexibility to potentially generate immunotherapeutic candidates with a variety of mechanisms of action. This flexibility in design allows us to generate novel therapeutic candidates that may provide effective strategies against difficult to treat, as well as advanced forms of cancer. We have successfully designed and constructed numerous investigational-stage 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 immunotherapies that are designed to engage immune effector cells and disease targets to produce signaling responses that modulate the immune system to kill tumor cells.

We believe we are skilled at candidate generation, validation, and subsequent preclinical and clinical development using the ADAPTIR platform and the ADAPTIR-FLEX platform to generate bispecific and multi-specific candidates or other candidates to our platform capabilities. We have developed a preclinical candidate based on the ADAPTIR-FLEX platform which is advancing in our pipeline. We are developing our ADAPTIR and ADAPTIR-FLEX molecules using our protein engineering, preclinical development, process development, and clinical development capabilities.

 

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Recent Development

On March 7, 2024, the Company announced interim data from the ALG.APV-527 Phase 1 dose escalation trial for the treatment of multiple solid tum 5T4.
Planning for initiation of the Company’s APVO436 Phase 1b/2 dose optimization trial for frontline AML in combination with venetoclax and azacitidine is ongoing.
On April 10, 2024, Aptevo closed a public offering for $4.6 million that included healthcare-focused institutional investors.

Comparison of the three months ended March 31, 2024 and 2023

Research and Development Expenses

We expense research and development costs as incurred. These expenses relate primarily to 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;
consulting costs related to our clinical and pre-clinical programs;
external research and development expense incurred under agreements with third-party contract research organizations (CRO’s) and investigative sites;
manufacturing material expense 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 site initiation, patient enrollment and clinical trial site monitoring, and key non-clinical activities. While a number of our 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 three months ended March 31, 2024 and 2023 are shown in the following table:

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Clinical programs:

 

 

 

 

 

 

APVO436

 

 

684

 

 

 

1,048

 

ALG.APV-527

 

 

827

 

 

 

702

 

Preclinical program, general research and discovery

 

 

2,241

 

 

 

2,418

 

Total

 

$

3,752

 

 

$

4,168

 

 

 

 

 

 

 

 

 

Research and development expenses decreased by $0.4 million, from $4.2 million for the three months ended March 31, 2023 to $3.8 million for the three months ended March 31, 2024. The decrease was primarily due to lower spending on APVO436 clinical trial as we concluded the Phase 1b study and are preparing to initiate Phase 1b/2 study and lower spending on preclinical projects and employee costs. The decrease was partially offset by higher spending on ALG.APV-527 Phase 1 clinical trial costs.

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.

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General and administrative expenses decreased by $0.4 million, from $3.6 million for the three months ended March 31, 2023 to $3.2 million for the three months ended March 31, 2024. The decrease is primarily due to lower employee and consulting costs.

Other Income (Expense), Net

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income from our cash equivalents and interest expense related to debt financing, which was paid off in Q1 2023.

Other income, net was $0.2 million and other expense, net was $0.1 million for the three months ended March 31, 2024 and 2023, respectively. The change in other income (expense), net is primarily due to the repayment of our MidCap term loan in the first quarter of 2023.

Gain Related to Sale of Nonfinancial Asset

We recorded $9.7 million in other income for the three months ended March 31, 2023, due to the sale of the deferred payments and milestones to XOMA during the quarter (see Note 3).

Discontinued Operations

We did not record income from discontinued operations for the three months ended March 31, 2024. For the three months ended March 31, 2023, we recorded $0.9 million of contingent gain consideration from previous discontinued operations.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our unaudited condensed 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.

Refer to Note 1 for discussion of our accounting policies, significant judgments, and estimates.

Liquidity and Capital Resources

Cash Flows

The following table provides information regarding our cash flows for the three months ended March 31, 2024 and 2023:

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Net cash (used in) provided by:

 

 

 

 

 

 

Operating activities

 

$

(6,651

)

 

$

4,566

 

Investing activities

 

 

 

 

 

 

Financing activities

 

 

(3

)

 

 

(1,873

)

Change in cash and cash equivalents

 

$

(6,654

)

 

$

2,693

 

 

Net cash used in operating activities of $6.7 million for the three months ended March 31, 2024 was primarily due to our net loss of $6.8 million for the period and changes in working capital accounts. Net cash provided by operating activities of $4.6 million for the three months ended March 31, 2023 was primarily due to our net income of $2.8 million for the period and changes in working capital accounts.

Net cash used in financing activities for the three months ended March 31, 2024 was $3 thousand. Net cash used in financing activities of $1.9 million for the three months ended March 31, 2023 was primarily due to the $3.5 million of repayments of the MidCap Financial term loan, which included the remaining outstanding principal balance and loan prepayment fees. This was offset by the $1.6 million proceeds received from issuance of common stock pursuant to our Equity Distribution Agreement with Piper Sandler.

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Sources of Liquidity

IXINITY Milestone 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 (the "LLC Purchase Agreement"). On March 29, 2023, we entered into and closed a Purchase Agreement with XOMA pursuant to which we sold to XOMA our right, title, and interest to all future deferred payments from Medexus and a portion of potential milestones. As consideration, we received $9.6 million at closing from XOMA and an additional $0.05 million post-closing payment. Aptevo continues to be eligible to receive up to $5.8 million in milestone payments from Medexus upon achievement of certain regulatory and IXINITY net sales threshold. For the three months ended March 31, 2023, Aptevo received $0.5 million in deferred payments from Medexus related to IXINITY sales for the fourth quarter of 2022.

Series A and Series B Common Warrants - August 2023

On August 4, 2023, in connection with the completion of a public offering, we issued Series A Common Warrants to purchase up to an aggregate of 183,281 shares of common stock and Series B Common Warrants to purchase up to an aggregate of 183,281 shares of common stock. The Series A and Series B Common Warrants have an exercise price of $27.28 per share, are exercisable immediately following the date of issuance and will expire on August 4, 2028 and February 4, 2025, respectively. As of March 31, 2024, we have 42,555 Series A and 1,316 Series B Common Warrants outstanding from our August 2023 public offering with an exercise price of $27.28 per share. If the remaining August 2023 warrants are exercised, we will receive up to an additional $1.2 million in gross proceeds.

Series A and Series B Common Warrants – November 2023

On November 9, 2023, we entered into a warrant inducement agreement (the "Inducement Agreement") with certain holders of our Series A and Series B common warrants issued in connection with our August 2023 public offering to exercise for cash 140,726 Series A and 181,965 Series B common warrants at a reduced exercise price of $10.25. We received $3.3 million in gross proceeds from the exercise of these warrants and issued an aggregate of 645,382 new Series A and new Series B warrants. As of March 31, 2024, we have 281,452 Series A and 363,930 Series B Common Warrants outstanding from our November 2023 warrant inducement with an exercise price of $10.25 per share. If the warrants are exercised, we will receive up to an additional $6.6 million in gross proceeds.

Common Warrants - April 2024

On April 10, 2024, we completed a public offering related to the issuance and sale of 3,400,000 shares of our common stock (or pre-funded warrants in lieu thereof) at a purchase price of $1.35 per share. We received $4.6 million in gross proceeds from the issuance of these shares. Our net proceeds from the offering amounted to $4.0 million after placement agent and other fees. Additionally, we issued common warrants to purchase up to an aggregate of 6,800,000 shares of common stock. The common warrants have an exercise price of $1.35 per share, are exercisable immediately following the date of issuance and will expire in April 2029. If the warrants are exercised, we will receive up to an additional $9.2 million in proceeds.

Liquidity

We have financed our operations to date primarily through royalty and purchase agreements with various partners, sale of business products and segments, public offerings of our common stock, loan proceeds, milestone payments, research and development funding from strategic partners, revenue generated from our previously owned commercial products, and funds received at the date of our spin-off from Emergent. We had cash and cash equivalents of $10.3 million and an accumulated deficit of $230.3 million as of March 31, 2024.

For the three months ended March 31, 2024, net cash used in our operating activities was $6.7 million.

Our future success is dependent on our ability to develop our product candidates. 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.

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 milestones from Medexus due to effects of macroeconomic

19


impacts, including, but not limited to, bank failure, and the rising and fluctuating inflation, which may impact Medexus’ ability to continue to successfully commercialize the IXINITY businesses.

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 raise additional capital when needed or on acceptable terms;
future profitability given our historical losses;
our ability to attract, motivate and retain key personnel;
the timing of, and the costs involved in, completing our clinical trials, and obtaining regulatory approvals for our product candidates;
our ability to obtain regulatory clearance to commence clinical trials for product candidates;
our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;
the effects of macroeconomic conditions, including rising and fluctuating inflation, interest rates and supply chain constraints;
our ability to successfully develop our ADAPTIR or ADAPTIR-FLEX platforms;
the results of our current and planned preclinical studies and clinical trials;
the scope, progress, results, and costs of researching and developing our product candidates, and of conducting preclinical and clinical trials, including whether clinical trial results will be consistent with the past data;
our reliance on third parties to effectively conduct our clinical and non-clinical trials, and to effectively carry out their contractual duties, comply with regulatory requirements or meet expected deadlines;
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 timing, receipt and amount of any milestone payments from Medexus with respect to IXINITY; and
our ability to continue as a going concern.

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 macroeconomic factors, 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.

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Contractual Obligations

We have an operating lease related to our office and laboratory space in Seattle, Washington. This lease was amended in March 2019 to extend the term of the amended lease is through April 2030 and provided 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, with nine months’ notice, or by July 2022. On May 26, 2022, we further amended our office and laboratory lease to remove the one-time termination option in April 2023. In exchange for removing the termination option, we received six months of free rent. As a result, we recorded an additional $4.4 million of lease liability and right-of-use asset on the consolidated balance sheet in May 2022.

We have a non-exclusive Commercial Platform License Agreement with OMT ("OMT License Agreement") for certain transgenic rodents of OMT's OmniAb platform. Our OMT License Agreement obligates us to make milestone and royalty payments upon achievement of certain regulatory approvals and commercialization of our product candidates. APVO436 and APVO603 are the product candidates currently subject to this agreement. Pursuant to our agreement, we are required to make a $2.0 million milestone payment upon dosing the first patient in a Phase 2 clinical trial of APVO436.

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of March 31, 2024, there were no material changes to the information provided under Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2023 filed on March 5, 2024.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of March 31, 2024, management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation 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 March 31, 2024, 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.

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 March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of inherent limitations, 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.

22


PART II—OTHER INFORMATION

 

 

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 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 Quarterly Report on Form 10-Q 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:

We have a history of losses and may not be profitable in the future.
Our ability to continue as a going concern.
We will require additional capital and may be unable to raise capital when needed or on acceptable terms.
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.
If we experience delays or difficulties in the commencement, site initiation, 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.
Our long-term success depends, in part, upon our ability to develop, receive regulatory approval for and commercialize our product candidates.
We may not be successful in establishing and maintaining collaborations that leverage our capabilities in pursuit of developing and commercializing our product candidates.
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.
Our business is affected by macroeconomic conditions, including rising and fluctuating inflation, interest rates, market volatility, economic uncertainty, bank failure, and supply chain constraints.
We may not be successful in our efforts to use and further develop our ADAPTIR or ADAPTIR-FLEX platforms.
If we are unable to protect our intellectual proprietary rights, our business could be harmed.
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.
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 deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
Our stock price is and may continue to be volatile.

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Our common stock may be at risk for delisting from the Nasdaq Capital Market in the future if we do not maintain compliance with Nasdaq’s continued listing requirements. Delisting could adversely affect the liquidity of our common stock and the market price of our common stock could decrease.
We may be subject to periodic litigation, which could result in losses or unexpected expenditure of time and resources.
Our future income will depend, in part, on the ability of Medexus to successfully further develop, market and commercialize IXINITY, resulting in milestone payments to the Company by Medexus.

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 in the past and may not be profitable in the future. For the three months ended March 31, 2024, we had net loss of $6.8 million compared to $2.8 million net income for the same period in 2023. The net income for the three months ended March 31, 2023 was due to a one-time $9.7 million gain recognized as a result the sale of deferred payments and milestones to XOMA during the period. As of March 31, 2024, we had an accumulated deficit of $230.3 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. Our future success and ability to attain profitability will depend upon our ability to develop and commercialize our product candidates.

Our management and board of directors have concluded that a substantial doubt is deemed to exist concerning our ability to continue as a going concern.

Accounting Standards Update, or ASU 2014-15, requires management to assess our ability to continue as a going concern for one year after the date the financial statements are issued. As further discussed in Note 1, Nature of Business and Significant Accounting Policies to our condensed consolidated financial statements in this Form 10-Q, substantial doubt is deemed to exist about the company’s ability to continue as a going concern through May 2025. Our financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern will require us to generate positive cash flow from operations, obtain additional financing, enter into strategic alliances and/or sell assets in addition to our existing cash and cash equivalents and the funding provided by our Purchase Agreement with XOMA, potential future milestone payments from Medexus under our LLC Purchase Agreement and exercise of warrants. The reaction of investors to the inclusion of a going concern statement in this report on Form 10-Q, our current lack of cash resources and our potential inability to continue as a going concern may materially adversely affect our share price and our ability to raise new capital and enter into strategic alliances. If we become unable to continue as a going concern, we may have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.

We will require additional capital and may be unable to raise capital when needed or on acceptable terms.

As of March 31, 2024, we had cash and cash equivalents in the amount of $10.3 million. We will require additional funding to continue our business including to support the ongoing clinical development of APVO436 and ALG.APV-527, 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 reductions in spending. This may include extending payment terms with suppliers, liquidating assets, and suspending or curtailing planned programs. We may also have to delay, reduce the scope of, suspend or eliminate one or more research and development programs. We may also be forced to grant rights to develop and market our product candidates that we would otherwise prefer to develop or market ourselves or we may be unable to take advantage of future business opportunities. A failure to raise the additional funding or to effectively implement cost reductions would harm our business, results of operations and future prospects. Our future capital requirements will depend on many factors, including:

the cost to attract, motivate and retain key personnel;
the level, timing and receipt of any milestone payments under our agreements with Medexus with respect to the sales of IXINITY;
the extent to which we invest in products or technologies;
the ability to satisfy the payment obligations and covenants under any future indebtedness;
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;

24


clinical development costs, timing, and other requirements to initiate and complete our Phase 1b/2 clinical trial for APVO436 and Phase 1 clinical trial of ALG.APV-527, as well as future clinical trials;
the cost of preparing, filing and prosecuting patent applications, obtaining, maintaining, enforcing and protecting our intellectual property rights and defending intellectual property-related claims; and
macroeconomic conditions, including the impact of inflation and cost of capital.

Further, changing circumstances, some of which may be beyond our control, such as macroeconomic conditions, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.

We cannot guarantee that future financing will be available in sufficient amounts, or on commercially reasonable terms, or at all. 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. Our ability to raise future capital on acceptable terms or at all will be impacted by the macroeconomic environment, including rising and fluctuating interest rates, economic uncertainty and volatility in the capital market, geopolitical tensions, including the ongoing war between Ukraine and Russia and the rising conflict in the Middle East, reoccurrences of COVID-19 or other pandemics, or other future widespread public health epidemics, or other factors could also adversely impact our ability to access capital as and when needed or increase our costs in order to raise capital. Current capital market conditions, including the impact of inflation, have increased borrowing rates and can be expected to significantly increase our cost of capital as compared to prior periods. On August 4, 2023, we completed a public offering related to the issuance and sale of 183,281 shares of our common stock (or pre-funded warrant in lieu thereof) at a purchase price of $27.28. We received $5 million in gross proceeds from issuance of these shares. Our net proceeds from the offering amounted to $4.3 million after placement agent and other fees. On November 9, 2023, we entered into a warrant inducement agreement with certain Holders of existing common warrants ("Existing Warrants") issued to Holders on August 4, 2023, to exercise for cash their Existing Warrants to purchase shares of our common stock at a purchase price of $10.25. In consideration of the Holders' agreement to exercise their Existing Warrants, we agreed to issue new common warrants ("New Warrants") to purchase a number of shares of common stock equal to 200% of the number of shares of common stock issued upon exercise of the Existing Warrants. We received $3.3 million in gross proceeds from the exercise of 322,691 common warrants and issued 645,382 New Warrants. Our net proceeds from the offering amounted to $3.0 million after placement agent and other fees. On April 10, 2024, we completed a public offering related to the issuance and sale of 3,400,000 shares of our common stock (or pre-funded warrants in lieu thereof) at a purchase price of $1.35. We received $4.6 million in gross proceeds from issuance of these shares. Our net proceeds from the offering amounted to $4.0 million after placement agent and other fees. Future issuances of common stock may include, but not be limited to, (i) the issuance of the remaining outstanding shares of common stock upon the exercise of warrants issued in connection with our August and November 2023 and April 2024 public offering of common stock and warrants that would result in gross proceeds of $17.0 million, or (ii) the issuance of common stock in a firm commitment offering or private placement. 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, declaring dividends, our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. 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. 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 shelf registration statement on Form S-3 expired on December 18, 2023. SEC regulations limit the amount of funds we can raise during any 12-month period pursuant to a shelf registration statement on Form S-3. Prior to expiration of our shelf registration statement, on March 29, 2022, we filed an amendment to the prospectus related to the Registration Statement on Form S-3 filed on December 14, 2020 pursuant to General Instruction I.B.6 of Form S-3 (General Instruction I.B.6), which updated the amount of registered shares that we were eligible to sell. So long as the aggregate market value of our common stock held by non-affiliates was less than $75 million, we would not be permitted to sell any registered shares under such Form S-3 with a value of more than one-third of the aggregate market value of our common stock held by non-affiliates in any 12-month period due to the limitations of General Instruction I.B.6 of Form S-3 and the then-current public float of our common stock. If we are required to file a new registration statement on another form, we may incur additional costs and be subject to delays in raising capital due to review by SEC staff.

Our business is affected by macroeconomic conditions, including rising and fluctuating inflation, interest rates, market volatility, economic uncertainty, and supply chain constraints.

Various macroeconomic factors have in the past and could adversely affect in the future 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 has negatively impacted the Company by increasing our labor costs, through higher wages and higher interest rates, and operating costs. 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

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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 on favorable terms, or at all, in order to fund our operations.

We are susceptible to changes in the U.S. economy. The U.S. economy has been affected from time to time by economic downturns or recessions, supply chain constraints, rising and fluctuating inflation and interest rates, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy.

In addition, any further deterioration in the U.S. economy would likely affect the operation of our business and ability to raise capital. In addition, U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. Similarly, these macroeconomic factors could affect the ability of our third-party suppliers and manufacturers to manufacture 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. 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 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 value for our stockholders. We may choose to initiate, or may become subject to, litigation as a result of a 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 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 were earned at the rate of 2% of net revenue through June 2022. As of June 30, 2022, the royalty rate on net revenue of IXINITY increased to 5%. On March 29, 2023, we entered into and closed a Purchase Agreement with XOMA pursuant to which we sold to XOMA our right, title, and interest to all future deferred payments from Medexus and a portion of potential milestones. As consideration, we received $9.6 million at closing from XOMA and an additional $0.05 million post-closing payment. We accounted for the $9.6 million Closing Payment and the $0.05 million post-closing payment from XOMA as other income in accordance with ASC 610-20 Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets in the first quarter of 2023.

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. Medexus’ ability to continue to successfully commercialize the IXINITY business may be affected, and we may experience potential impacts on our future milestone payments from Medexus due to the macroeconomic and geopolitical environment. 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 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 payments with respect to sales of IXINITY by Medexus;
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 and clinical activities as well as expenditures we may incur to acquire or develop additional technologies, products and product candidates.

Due to the macroeconomic and geopolitical environment, 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 payments from Medexus, which may impact Medexus’ ability to continue to successfully commercialize the IXINITY businesses. These and other factors may have a material adverse effect on our business, results of operations and financial condition.

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:

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;
decreased demand or withdrawal of an approved product;
loss of revenue; and
the 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 Operating Officer, Jeffrey G. Lamothe, our Chief Financial Officer, Daphne Taylor, our General Counsel, SoYoung Kwon, 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. 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.

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We do not currently have enough shares available under our 2018 Stock Incentive Plan to grant awards to senior management and future awards to our employees, which could result in our inability to attract, retain, and motivate our key personnel.

We completed a Section 382 study and have concluded that we experienced an “ownership change” as defined in Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and thus the tax benefits of our pre-“ownership change” net operating loss carryforwards and certain other tax attributes will be subject to an annual limitation under Sections 382 and 383 of the Code.

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 stock owned by the 5% stockholders at any time during the applicable testing period, which is generally the rolling three-year period preceding the date of the potential ownership change testing event. 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 March 2024 is 3.44%). 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 Sections 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 are 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, 2023, we had approximately $168.2 million and $70.5 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 income tax purposes. We completed an IRC Section 382 study through December 31, 2023. The study concluded that we have experienced an ownership change in November of 2020 and December of 2020 and $162.6 of our NOL carry forwards are subject to an annual limitation. It is not expected that the annual limitations will result in the expiration of NOL carryforwards prior to utilization assuming sufficient income.

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.

The change to the deductibility of our research and development expenditures enacted under the Tax Cuts and Jobs Act ("TCJA") could increase the amount of taxes to which we are subject and our effective tax rate.

Beginning in 2022, the TCJA eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize these expenditures over five or fifteen years depending on the type of research and development expenditure pursuant to Section 174 of the Code. Such change to the deductibility of our research and development expenditures could increase the amount of taxes to which we are subject and our effective tax rate.

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 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, such as the current macroeconomic environment, increase these risks, potentially resulting in other-than-temporary impairment of assets in our investment portfolio. The impact of

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geopolitical tension, such as a deterioration in the bilateral relationship between the US and China, the rising conflict in the Middle East, or Russia’s invasion of Ukraine, including any additional sanctions, export controls or other restrictive actions that may be imposed by the United States 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. Severe global economic and societal disruptions and uncertainties, such as reoccurrences of COVID-19 or other pandemics, or other future widespread public health epidemics may cause disruptions that could severely impact our business, such as delays or difficulties to the financing environment and raising capital due to economic uncertainty or volatility.

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 completed our Phase 1b dose expansion clinical trial with APVO436 in 2023 and plan to initiate a dose optimization Phase 1b/2 study in the first half of 2024 to assess safety and efficacy of APVO436 and to determine an optimal dose in front line patients. Additionally, we initiated a first-in-human Phase 1 clinical study of ALG.APV-527 in the first quarter of 2023 and we are currently enrolling new patients. None of our other product candidates have entered clinical development. Clinical failure can occur at any stage of preclinical or clinical development. Preclinical studies and clinical trials may produce inconsistent, 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 preliminary data, 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.

In addition, our APVO436 clinical trial is an open-label study and is 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 an existing approved drug. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels or in combination with other drugs. 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. In addition, although the FDA issued a “may proceed” notification which allowed us and Alligator to initiate our Phase 1 clinical trial of ALG.APV-527, and the interim data from the dose escalation phase are positive, we cannot guarantee that this trial or future trials of ALG.APV-527 will show the desired safety and efficacy.

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

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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:

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 Risk Evaluation and Mitigation Strategy ("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;
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. The regulatory authorities and policies governing the development of our product candidates may also change at any time. 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.

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We may not be able to file 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 have submitted INDs and received approvals to proceed into clinical trials for multiple product candidates, including ALG.APV-527 and APVO436, 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 future INDs will result in the FDA allowing 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, site initiation, 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 acute myelogenous leukemia and thus has a relatively small patient population. Also, the eligibility criteria of our clinical trials may further limit the pool of available study 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.

Patient enrollment is affected by other factors including:

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; and
the proximity and availability of clinical trial sites for prospective patients.

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. Site initiation and 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.

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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 are currently and may in the future evaluate our product candidates in combination with approved and/or experimental therapies. These combinations may have additional or 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:

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 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, research sites, 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, Chief Medical Officer, 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 and oversight of our clinical and non-clinical 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 provider