Aptevo Therapeutics: Positive Trial Results, Tang Capital Offer, Proxy Fight

This write-up is incomplete, it is a strange situation I don't fully understand but figured it was worth sharing in case any readers have a better idea of what's going on here, please comment.

Aptevo Therapeutics (APVO) is an early clinical stage biotechnology company (~$165MM market cap) that was originally a spinoff of Emergent Biosolutions (EBS) in 2016, which is how it came on my watchlist.  Aptevo was spun with a few commercial assets that were designed to provide a source of funding to pursue their primary platform, called ADAPTIR, I won't pretend to know much about it, but Aptevo has since mostly monetized any legacy assets and focused on developing cancer treatments utilizing their ADAPTIR technology.

An interesting series of events happened in a two week timeframe back in November for Aptevo:

• On 11/3/20, Aptevo announced positive news on their primary asset's (APVO436) ongoing phase 1 clinical trial, a patient went into complete remission.
• On the same day, 11/3/20, Tang Capital Partners started from zero and began buying stock indiscrimately at prices from $9.65 to $23.87, not stopping until they had purchased 42.5% the company in the span of 4 trading days.
  
• On 11/8/20, Aptevo adopted a poison pill plan (too late!).
• On 11/9/20, Aptevo announced a second complete remission in the same APVO436 phase 1 trial.
• Then on 11/18/20, Tang Capital Partners offers $50/share for the remainder of the company they hadn't bought up the previous week, wild stuff.  Aptevo acknowledged the offer but has been mostly silent since then.
• In December, they did update their shelf registration that includes an at-the-money issuance program, the stock took that news negatively as a sign management might pursue a go-it-alone strategy, or it could be negotiating tactics.

Tang Capital and their founder Kevin Tang are life-science focused investors, Kevin Tang is the CEO of Odonate Therapeutics (ODT) and chairman of La Jolla Pharamceuticals (LJPC), and those are only a couple of his current roles, he's had a long history of investing in, building, and running biotech companies both publicly and privately.  Clearly he has some expertise in the field and thought enough of Aptevo's positive clinical news to rush in and swoop it up (again, on the same day results were announced).

Today (2/9/21), news came out that Tang Capital is going to run a proxy contest to add Kevin Tang and one of his lieutenants to the board of directors and get the company to run a sales process.  

TCP is seeking to: (i) nominate, and hereby nominates, each of Kevin Tang and Thomas Wei (together, the “Nominees”) as directors for election at the 2021 annual meeting of stockholders of Aptevo, and at any other meeting of stockholders held in lieu thereof, and at any adjournments, postponements, reschedulings or continuations thereof (the “Annual Meeting”); and (ii) put forward the following advisory proposal for stockholder approval at the Annual Meeting (the “Sale Process Proposal”):

 

RESOLVED, that Stockholders of Aptevo Therapeutics Inc. (“Aptevo”) request that, in light of the pending offer to acquire the outstanding stock of Aptevo for $50 per share, the Aptevo Board of Directors immediately commence a process to sell Aptevo to the highest bidder, consistent with its fiduciary duty to maximize stockholder value.

Management owns about 5% of the company, they did re-strike their options earlier in 2020 and $50 would put all of those in the money.  Clearly, Tang thinks it is worth more than $50, I doubt he could get out of the position without crushing the stock and thus his investment, pot committed at this point and isn't going away.  There's a lot of execution and financing risk if management tries to go it alone, but I can see the view that if you've spent the last 4+ years getting to this point, you want to see it through on your own terms.  But then again, you're a public company and have a fiduciary duty to your shareholders.  This one is worth following, it's highly speculative with considerable downside, but I started a small position in it recently.

**2/10/20 Edit

I asked for some feedback and got it (thank you!), couple things I missed in the write-up as I thought they weren't material but potentially are very material to the APVO story:

• Aptevo has a 7-year 2.5% royalty on the Pfizer's sales of Ruxience (in the US, Europe and Japan), a biosimilar drug of Roche's cancer drug Rituxan (top 10 selling drug of all time), sales just begun in Q2 2020, and have the potential to be quite significant.  Some light Googling and some expect peak sales of Ruxience to hit $1B by 2026 (towards the end of Aptevo's royalty agreement), depending how you think of the ramp to that point (or if that's realistic at all) the NPV of that royalty stream could be substantial.
• Aptevo also has a 15-year royalty on the Medexus Pharmaceuticals' sales of IXINITY, a hemophilia treatment, in the United States and Canada.  The company received $30MM upfront and estimates the total proceeds (inclusive of the $30MM) will be $100MM.  Again, depending how you run a scenario analysis on the NPV of those milestones/royalty fee streams, could be quite significant to a company the size of Aptevo.
• Aptevo has hired bankers to monetize both of these royalty/milestone payment streams, together they could be worth much of today's market cap, and potentially de-risking the downside if a deal fails to occur.
• Aptevo has 436,844 remaining warrants with a strike price of $18.20, which if exercised would raise the ~$8MM in cash, and put the share count at ~4.8 million shares assuming the company hasn't raised additional capital through their ATM.  Tang's ownership percentage would then be approximately 37%.

Disclosure: I own shares of APVO