For the full investment case on APVO, please refer to my original write-up:

In this post, I wanted to share a few thoughts on APVO’s current portfolio of commercial products and then its pipeline.

Current Commercial Products

I view the current portfolio of approved products in two buckets. Bucket 1: the legacy products. Bucket 2: XINITY. The legacy products consist of Winrho SDF ($14mm in 2015 sales), HepGam B ($10mm in 2015 sales), and Varizag ($2mm in 2015 sales). These products have been on the market for a number of years, and have been neglected within Emergent Biosolutions as they really didn’t move the needle for the company. There is some low hanging fruit to grow revenue from these legacy products in the form of price increases and expansion to serve different geographies. With regard to price increases, Emergent hasn’t raised the price of these products since they were launched. This is pretty rare in the biopharma world. Now given heightened scrutiny given publicity regarding egregious price hikes (Mylan, Valeant, etc), APVO needs to be careful. But I believe the company does have the ability to raise prices moderately. Additionally, APVO plans to launch these products in additional geographies. Finally, APVO doesn’t have patent protection on these products. Rather the products are protected by manufacturing trade secrets. There are high manufacturing barriers to enter the market, and the products target niche or ultra-niche markets so it is unlikely that there would be increased competition or generic competition.

With regard to IXINITY (hemophilia B), the drug is carving out a niche for lifestyle hemophilia patients. The drug has a half-life of 24 hours. Thus, patients who choose XINITY inject themselves every day and are able be relatively active for the next 24 hours. They can bike or participate in other activities and not worry about contact that would result in serious internal or external bleeding. The other products on the market have longer half-lives. This is convenient from a dosing perspective. But the inconvenience is patients on these longer half-life drugs cannot be as active as if they were on XINITY. Let me explain. If a patient chooses to use the drug with a longer half-life, the active ingredient of the drug will last for three days in the patient’s bloodstream. He can be very active on day one because 100% of the medicine remains in his blood. But on day 2 and 3, he has to be less active as only 50% and 25% of the active ingredient in the medicine remains in his blood. Thus, if he were to get a bruise or cut, it might be difficult to stop the bleeding. XINITY sales grew from $1.7mm in Q1 2016 to $2.5mm in Q2 2016. Thus, APVO saw good sequential growth. Sales have grown sequentially in every quarter since launch. Assuming XINITY is eventually able to take 10% market share, it would generate ~$45mm in sales by 2019.


Regarding APVO’s pipeline, I don’t have a strong view. I’m just assuming it’s not worth zero. The company has spent $193.5mm on R&D from 2011 through June 30, 2016 to develop the current pipeline and has many different shots on goal, both clinical and pre-clinical. Aptevo currently has a market cap of $46mm. It has $45mm in net cash and a commitment from EMS to provide an additional $20mm within the next twelve months. So effectively, APVO has $65mm of net cash with a market cap $46mm. Meanwhile, it has an approved product portfolio that will generate $40mm in revenue this year and is growing. It has a pipeline that it has spent $193.5mm to develop. I get that it is burning a lot of cash, but this is par for the course in biotech land. Its biotech peers who are also burning a ton of cash trade at a median valuation of 2.8x book value and 13.2x on an EV / Revenue basis. APVO trades 0.38x book value and a negative EV/ Revenue multiple (because it has so much cash on its balance sheet). This seems ridiculously cheap. As Josh Schimmer (Piper Analyst wrote): “What is unique about APVO is that the valuation, in our view, doesn’t even account for the approved product portfolio, let alone any optionality from the bispecifics…..As a spin-off from a company that many investors don’t follow, it’s flying below radar screens as arguably the best way to invest in the bispecific space.”