Aptevo Therapeutics: IXINITY Revenue Still The Focus

Aug. 22, 2019 4:02 PM ETAptevo Therapeutics Inc. (APVO)12 Comments6 Likes
George Kesarios profile picture
George Kesarios
12.05K Followers

Summary

  • IXINITY revenue increased for the quarter, which is what I wanted to see.
  • With pediatric expansion and international sales, it is conceivable the company might become cash flow positive in 12-24 months.
  • My theme that IXINITY revenue might transform APVO shares into a never expiring option on the company's pipeline is intact.
  • Insiders continue to purchases shares on no news, but we have to assume positive developments will emerge.

As I said in the previous article on the company, my metric for Aptevo Therapeutics (NASDAQ:APVO) having a good Q2'19 quarter was even a slight increase in IXINITY revenue (the company's commercial Hemophilia B drug). The company reported IXINITY revenue of $7.4 million, which was up by $0.4M sequentially. As such, I consider the quarter good.

The company lost $13.3M for the quarter or $0.30 per share, beating slightly on revenue but missing adjusted EPS by $0.04. However it's important to note that the company had significant one time costs relating to the multi-batch manufacturing of IXINITY, as well as costs related to its upcoming pediatric expansion trial of IXINITY.

For example, approximately $0.9M was a one time cost associated with the testing of the company's new 3,000 IU IXINITY assay launched at the end of June 2019, and $0.5M in inventory write-offs.

In spite of the loss for the quarter the company reiterates a cash burn of $36-40M for 2019, because is will not have these significant expenses in the second half. As such its cash burn will fall significantly.

As for the company's pediatric expansion for IXINITY, it's important for investors to understand just how much it might contribute to the company's revenue in the future.

According to the company,

Approximately 33% of people treated for Hemophilia B in the U.S. are under the age of 13 years, representing a sizeable new addressable market, should IXINITY receive a pediatric label expansion.

IXINITY is currently marketed exclusively in the United States by Aptevo. The global Hemophilia B market in 2016 is estimated to be approximately $1.02 billion and projected to grow to $1.3 billion by 20262. Approximately 59% of the estimated Factor IX global market is concentrated outside the United States as measured by volume (international units).

In other words, the company is currently no able to sell to 1/3 of its addressable market.

Please note something else; if the addressable market for hemophilia B in the U.S. is about $400M, with the pediatric portion being 1/3, it means that the current addressable market for the company's IXINITY drug is only about $270M.

If we assume IXINITY's current forward yearly run-rate will prove to be about $30M, it means the company has already taken over 10% of the U.S. market is a very small amount of time. Which leaves hope that when pediatric expansion for IXINITY is approved, it will also get over 10% of this market segment. If it does, even without further grow in the U.S., revenue from IXINITY could potentially be $40M over the next 12-24 months.

However please note that the international market is even bigger. While no international collaborations have been announced yet, I am assuming that even as I write these words, the company is working with international partners towards that end.

So let's put some numbers together. If the company's total addressable international market is about $1B, and the company penetrated more than 10% of the U.S. market in such a short amount of time, there is a good probability that it might do the same internationally. This could mean $100M in revenue, if the company is as successful intentionally as it has been in the U.S..

How long might this take? This is not an easy answer, however I am modeling pediatric expansion by Q2'20, and perhaps international partnerships by then. So it might take 12-24 months or more for the company to reach such penetration, based on its current revenue for IXINITY in the U.S..

This also means cash burn will likely fall like a rock over the next 12-24 months also.

If we look at the balance sheet dated June 30th, 2019, the company has $21M in cash and $43.7M in current assets. However a few days ago the company received a $4.3M milestone payment when it divested its 3 three hyperimmune products in August of 2017. So the balance sheet currently has about $25M in cash and almost $49M in total current assets. If the company delivers on its guidance for cash burn to be the range between $36-40M, then the current balance sheet could carry the company for the next 12 months or so.

But if IXINITY ramps up further with pediatric expansion and international sales, then it is possible for cash burn to be much lower, and the balance sheet to be able to support the company far more than 12 months. In fact, it is even conceivable that the company might be cash flow positive over the next 18 months or so.

How much is IXINITY worth?

Back in 2017 the company sold its 3 hyperimmune products, WinRho SDF (for autoimmune platelet disorder and hemolytic disease of the newborn), HepaGam B (for the prevention of Hepatitis B following liver transplantation and for treatment) and VARIZIG (for treatment following exposure to varicella zoster virus for individuals with compromised immune systems).

These drugs were doing a few million in revenue on an annual basis, yet the price the company received was almost $75M.

My question is, what is IXINITY worth if sold to a big pharmaceutical company who has the marketing network and the sales channels to be able to sell it better? I don't have an answer, but if IXINITY reaches a point where it does $40M in revenue, then the answer might be 4-5X that revenue (at least).

So pipeline aside, another way to think of APVO shares is that it is possible a very undervalued asset if IXINITY were to be sold. Please note Aptevo has a very long history of bringing products to market for such a small company.

What is the pipeline worth?

Some readers asked me what the company's pipeline might be worth in the future. I am not an expert on the subject, but I depend on others who know a lot more than me, to formulate an opinion.

As such, I sent an email to Aptevo's IR department and requested the most recent reports from the analysts who follow the company (you could do the same, they are very responsive).

Please note the analysts are PHDs, and I assume they know a lot about what the company is trying to do. In their reports, they are modeling several hundred millions in revenue in several years, assuming the company's portfolio receives FDA clearance in the future.

So the company could be worth a lot of money in the future, as in billions (as every biotech company in the sector which is researching immuno-oncology and autoimmune diseases drugs).

However this is still several years out, and a lot more money in research will be needed. But if the company can become cash flow positive as a result of IXINITY, then investors will have a never expiring option on the company's pipeline.

Granted there is a possibility that the company will not succeed in brining to market any of its pipeline products, but at least shareholders will not have to be diluted again and again till then.

So to me IXINITY is the key to a much higher valuation for APVO shares, if the company becomes cash flow positive over the next 12-24 months.

Where there is smoke there is fire

source

On my previous article on the company I listed the 340,000 shares that insiders had purchased as one of the reasons the be long. Since then insider purchases have continued, adding an additional 180,000 shares to their purchases. In total, since my last article insiders have purchased 520,000 shares.

Now I don't know why insiders have bought so many shares, but it is rare to see such purchases in such a small biotech concern. I am guessing that something very positive is going to be announced at some point. This could be a positive pipeline development, or very positive news on IXINITY.

Either way, these purchases are at the very least a very good sign. While there is no guarantee that these purchases mean anything, statistically speaking insiders know their company better than all of us.

The smoke is the insider purchases even if we can't see the fire. It might be a small brush fire, or it might be something much bigger that will ignite the stock to much higher levels. At some point we will find out.

Bottom line

For me the company's Q2 results were good, simply because of the revenue increase in IXINITY.

With a little help from pediatric expansion and international sales in the future, it is conceivable for the company to become cash flow positive in the next 12-24 months.

The continued insider purchases are also a positive. While I do not know the exact reason insiders are buying, an average, insiders know their company better than us. Also, insider purchases are usually a preamble to higher stock prices.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

This article was written by

George Kesarios profile picture
12.05K Followers
I only look at stocks that have the possibility to double over a twelve month period and stocks in which the risk/reward ratio payout is high. In addition I focus on swing trade opportunities. I focus more on valuations and risk/reward metrics as opposed to what make companies tick. I have been a professional investor for over 20 years and during the past several years an economics analyst and financial writer for capital.gr, the biggest economic news portal in Greece. I have managed money from time to time and have also done some seed venture capital projects in the past.
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Disclosure: I am/we are long APVO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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