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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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.

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 ~~7(a)(2)(B)~~13(a) of the ~~Securities Act ). Yes~~ Exchange Act). ☐ No ☒

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 ~~November 6, 2017,~~August 10, 2023, the number of shares of ~~Registrant’s~~the registrant’s common stock outstanding was ~~21,428,468.~~11,523,716.

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.

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

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY

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

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short term leases) at the commencement date. Lessor accounting under ASU 2016-02 is largely unchanged. ASU 2016-02 is effective for annual and interim periods beginning on or after December 15, 2018 and early adoption is permitted. Under ASU 2016-02, lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Lessees and lessors may not apply a full retrospective transition approach. Note 2. Discontinued Operations

The ~~ASU will be effective for the Company starting on January 1, 2019. Aptevo is continuing to evaluate the impact of the application of this ASU on our~~accompanying unaudited condensed consolidated financial statements ~~and disclosures. We expect~~include discontinued operations from two separate transactions: the sale of our hyperimmune business to ~~recognize right of use assets and lease liabilities~~.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies the accounting for share-based payment award transactions including the financial statement presentation of excess tax benefits and deficiencies, classification of awards as either equity or liabilities, accounting for forfeitures and classification on the statement of cash flows. Aptevo adopted this standard effective January 1, 2017. Upon adoption of the standard, excess tax benefits and deficiencies resulting from stock-based compensation awards vesting and exercises are now recognized as discrete items in the statement of operations. Aptevo has elected to maintain its current forfeitures policy and will continue to include an estimate of forfeitures when recognizing stock-based compensation expense. Additionally, cash paid by Aptevo when directly withholding shares for tax withholding purposes will continue to be classified as a financing activity in the condensed consolidated statement of cash flows as required by the standard. The adoption of this standard did not have a material impact on Aptevo’s consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which clarifies the classification and presentation of eight specific cash flow issues in the statement of cash flows. This standard is effective beginning January 1, 2018, with early adoption permitted. The new standard requires a retrospective transition. Aptevo is aware the adoption of this standard will have an impact for restricted cash, and evaluating further impacts on its consolidated financial statements.

~~On August 31, 2017, Aptevo entered into a sale agreement with~~ Saol International Limited ~~(Saol) whereby Aptevo agreed to sell its~~ ~~Hyperimmune Business. The sale was completed on~~(subsequently acquired by Kamada Ltd.) in September ~~28, 2017.~~

~~At the closing of the sale, Saol paid an amount equal to $65.0 million, including $3.3 million~~2017, from which ~~was deposited~~we received a payment in an escrow account for the purposes of satisfying any indemnification claims brought by Saol pursuant to the LLC sale agreement. In addition, Aptevo may receive (1) an additional potential milestone payment totaling up to $7.5 millionMarch 2023 related to the ~~achievement of certain gross profit milestones and (2) up to $2.0 million related to~~ collection of certain accounts receivable, ~~after the closing.~~

~~The net gain on sale of the~~ ~~Hyperimmune Business~~ ~~totaling, $52.5 million, was calculated as the difference between the fair value of the consideration received for the~~ ~~Hyperimmune Business, the carrying value of the net assets transferred to Saol, less the transaction costs incurred~~ and a working capital adjustment. The net gain on sale of the business may be adjusted in future periods by the contingent consideration based upon the achievement of certain gross profit milestones and collection of certain outstanding accounts receivable.

~~As a result of Aptevo’s decision to sell the~~ ~~Hyperimmune Business~~, the condensed consolidated balance sheets for the year ended December 31, 2016, the condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and September 30, 2017, have been revised to reflect the results from the sale of ~~the~~ ~~Hyperimmune Business~~,our Aptevo BioTherapeutics LLC business to Medexus in February 2020. In March 2023, we sold our rights to deferred payments and ~~related assets and liabilities, as discontinued operations. The amounts calculated for the discontinued operations include certain allocations that management believes fairly reflect the~~ ~~Hyperimmune Business~~ ~~operations.~~a percentage of potential future milestones from Medexus to XOMA.

The following table presents a reconciliation of the carrying amounts of assets and liabilities of the hyperimmune assets held for sale, net in the unaudited condensed consolidated balance sheet (in thousands):

ASSETS
December 31, 2016

Accounts receivable
$
3,977

Inventories

6,178

Total current assets, held for sale

10,155

Intangible assets, net

7,624

Total assets held for sale
$
17,779

LIABILITIES

Accounts payable and other accrued liabilities
$
3,928

Total current liabilities
$
3,928

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

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016

2017

2016

Revenues:

Product sales

$
6,380

$
6,589

$
18,886

$
20,462

Total revenues

6,380

6,589

18,886

20,462

Costs and expenses:

Cost of product sales

2,586

2,053

7,730

8,848

Research and development

3

37

44

92

Selling, general and administrative

189

540

944

2,008

Income from operations

3,602

3,959

10,168

9,514

Gain on sale of Hyperimmune Business

52,538

—

52,538

—

Income from discontinued operations, before income taxes

56,140

3,959

62,706

9,514

Income tax expense

(21,257
)

(2,291
)

(23,076
)

(3,250
)
Income from discontinued operations

$
34,883

$
1,668

$
39,630

$
6,264


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Deferred payment from Medexus		—		149		523		327
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	$	—	$	149	$	946	$	327

~~Amortization~~The LLC Purchase Agreement with Medexus entitled us to future deferred payments and milestones. For the six months ended June 30, 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 as a result of the collection of certain accounts receivable. For the six months ended June 30, 2022, we collected $0.3 million in deferred payment from Medexus related to IXINITY sales. As a result of our Purchase Agreement with XOMA, we no longer receive deferred payments from Medexus. We are still entitled to receive a percentage of future milestones based on Medexus' achievement of certain IXINITY net sales and regulatory approvals. The proceeds from the income from discontinued operations is included within net income in the operating section of the unaudited condensed consolidated statements of cash flows.

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 2020 LLC Purchase Agreement. Under the terms of our Purchase Agreement with XOMA, we received $9.6 million at closing (the “Closing Payment”) and an additional post-closing payment of $0.05 million (the “Post-Closing Payment”). In exchange for the ~~Hyperimmune Business was $0.3 million~~Closing Payment, we sold to XOMA our right, title and ~~$0.9 million~~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 ~~three~~$9.6 million Closing Payment and ~~nine months ended September 30, 2017~~the $0.05 million post-closing payment from XOMA as other income in accordance with ASC 610-20 Other Income - Gains and ~~September 30, 2016, respectively. There was~~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 ~~depreciation, capital expenditures or other significant operating or investing non-cash items~~obligations going forward. The Company will continue to account for ~~the three~~ its portion of future milestones under our LLC Purchase Agreement with Medexus as contingent consideration under ASC 450-30 Gain Contingencies and ~~nine months ended September 30, 2017 and 2016.~~will record income when proceeds are received.

Note 3.4. Collaboration Agreements

Alligator Bioscience AB

On July 20, 2017, our wholly owned subsidiary Aptevo Research and Development LLC ~~(Aptevo~~("Aptevo R~~&D)~~&D"), entered into a collaboration and option agreement ~~(Collaboration Agreement)~~(the "Collaboration Agreement") with Alligator Bioscience AB ~~(Alligator)~~("Alligator"), pursuant to which Aptevo and Alligator ~~will~~have been collaboratively ~~develop~~developing ALG.APV-527, a ~~lead~~ bispecific antibody candidate simultaneously targeting 4-1BB (CD137), a member of the TNFR superfamily of a costimulatory receptor found on activated T cells, and 5T4, a tumor antigen widely overexpressed in a number of different types of cancer. ~~This product candidate~~

We assessed the arrangement in accordance with ASC 606 and concluded that the contract counterparty, Alligator, is ~~built on our novel ADAPTIR platform, which~~not a customer. As such the arrangement is ~~designed to expand on~~not in the ~~utility~~scope of ASC 606 and ~~effectiveness of therapeutic antibodies. Under this Collaboration Agreement, Alligator also granted to Aptevo~~is instead treated as a ~~time-limited option to enter into a second~~collaborative agreement with Alligator for the joint development of a separate bispecific antibody candidate simultaneously targeting 4-1BB (CD137) and 5T4 a tumor antigen that Aptevo R&D and Alligator will collaboratively select.

under ASC 808 – Collaborative Arrangements (ASC 808). In accordance with ~~the terms of~~ASC 808, we concluded that because the Collaboration Agreement is a cost sharing agreement, there is no revenue.

For the ~~parties intend~~six months ended June 30, 2023 and 2022, we recorded approximately $1.5 million and $0.3 million, which represent 50% of our cost share, in our research and development expense related to develop the lead bispecific antibody candidate targeting 4-1BB (CD137) and 5T4 through the completion of Phase II clinical trials in accordance with an agreed upon development plan and budget. Subject to certain exceptions for Aptevo’s manufacturing and platform technologies, the parties will jointly own intellectual property generated in the performance of the development activities under the Collaboration Agreement.

~~Following the completion of the anticipated development activities under~~ the Collaboration Agreement, the parties intend to seek a third-party commercialization partner for this product candidate, or, in certain circumstances, may elect to enter into a second agreement granting rights to either Aptevo R&D or Alligator to allow such party to continue the development and commercialization of this product candidate. Under the terms of this Collaboration Agreement, the parties intend to share revenue received from a third-party commercialization partner equally, or, if the development costs are not equally shared under this Collaboration Agreement, in proportion to the development costs borne by each party.respectively.

The Collaboration Agreement also contains several points in development at which either party may elect to “opt-out” (i.e., terminate without cause) and, following a termination notice period, cease paying development costs for this product candidate, which would be borne fully by the continuing party. Following an opt-out by a party, the continuing party will be granted exclusive rights to continue the development and commercialization of the product candidate, subject to a requirement to pay a percentage of revenue received from any future commercialization partner for this product, or, if the continuing party elects to self-commercialize, tiered royalties on the net sales of the product by the continuing party ranging from the low to mid-single digits, based on the point in development at which the ‘opt-out’ occurs. The parties have also agreed on certain technical criteria or ‘stage gates’ related to the development of this product candidate that, if not met, will cause an automatic termination and wind-down of this Collaboration Agreement and the activities thereunder, provided that the parties do not agree to continue.

~~The Collaboration Agreement contains industry standard termination rights, including for material breach following a specified cure period, and in the case of a party’s insolvency.~~

In August 2014, Aptevo entered into a collaboration agreement with MorphoSys AG (MorphoSys Agreement) for the joint development of MOR209/ES414, a targeted immunotherapeutics protein, which activates host T-cell immunity specifically against cancer cells expressing prostate specific membrane antigen, an antigen commonly overexpressed on prostate cancer cells. Effective August 31, 2017, MorphoSys terminated the MorphoSys Agreement. As a result of the termination, Aptevo has no ongoing obligation related to this agreement and therefore recognized the total remaining deferred revenue balance of $3.7 million as Collaborations revenue in the third quarter of 2017.

Note 4.5. 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.

~~The Company’s financial assets measured at fair value consisted of the following as of September~~At June 30, ~~2017~~2023 and December 31, ~~2016:~~

September 30, 2017

(in thousands)

Level 1

Level 2

Level 3

Total

Financial Assets:

Money market funds

$
16,778

$
—

$
—

$
16,778

Corporate bonds

—

8,973

—

8,973

US government and agency debt securities

—

11,973

—

11,973

Total assets

$
16,778

$
20,946

$
—

$
37,724

December 31, 2016

(in thousands)

Level 1

Level 2

Level 3

Total

Financial Assets:

Money market funds

$
5,215

$
—

$
—

$
5,215

Corporate bonds

—

9,951

—

9,951

US government and agency debt securities

—

34,898

—

34,898

Total assets

$
5,215

$
44,849

$
—

$
50,064

~~If quoted market prices in active markets for identical assets are not available to determine fair value, then the Company uses quoted prices of similar instruments~~2022, we had $17.0 million and ~~other significant inputs derived from observable market data obtained from third-party data providers. These investments are included~~$21.6 million in Level ~~2 and consist of debt securities of U.S government agencies and corporate bonds. There were no transfers between Levels~~ 1 ~~and 2 during the three and nine months ended September 30, 2017.~~

~~Cash held in demand deposit accounts of $69.1 million and $4.4 million is excluded from our fair-value hierarchy disclosure as of September 30, 2017 and December 31, 2016,~~money market funds, respectively. The carrying amounts ~~for receivables, accounts payable and other current monetary assets and liabilities~~of our money market funds approximate their fair ~~value because of the immediate or short-term maturity of these financial instruments.~~

~~Note 5. Investments~~

Investments are classified as available-for-sale securities and are carried at fair value with unrealized temporary holding gains and losses excluded from net income or loss and reported in other comprehensive income or loss and also as a net amount in accumulated other comprehensive income or loss until realized. Available-for-sale securities are written down to fair value through income whenever it is necessary to reflect other than temporary impairments. The Company determined that the unrealized losses on its investments as of Septembervalue. At June 30, ~~2017~~2023 and December 31, ~~2016 were temporary in nature.~~ 2022, we did not have any Level 2 or Level 3 assets.

Note 6. Cash and Cash Equivalents

The ~~Company currently has the ability but does not intend to sell these~~Company’s cash equivalents are highly liquid investments ~~before recovery of their amortized cost basis. All short-term investments are limited to~~with a ~~final~~ maturity of 90 days or less ~~than one year from~~at the ~~reporting date.~~

date of purchase and include time deposits and investments in money market funds.

September 30, 2017

(in thousands)

Amortized
Cost

Gross Unrealized
Holding Gains

Gross Unrealized
Holding (Losses)

Estimated Fair
Value

Cash equivalents:

Money market fund

$
16,778

$
—

$
—

$
16,778

Total cash equivalents

$
16,778

$
—

$
—

$
16,778

Short-term investments:

Corporate bonds

$
8,978

$
—

$
(5
)

$
8,973

US government and agency debt securities

11,978

—

(5
)

11,973

Total short-term investments

$
20,956

$
—

$
(10
)

$
20,946

December 31, 2016

(in thousands)

Amortized
Cost

Gross Unrealized
Holding Gains

Gross Unrealized
Holding (Losses)

Estimated Fair
Value

Cash equivalents:

Money market fund

$
5,215

$
—

$
—

$
5,215

Total cash equivalents

$
5,215

$
—

$
—

$
5,215

Short-term investments:

Corporate bonds

$
9,959

$
1

$
(9
)

$
9,951

US government and agency debt securities

34,923

—

(25
)

34,898

Total short-term investments

$
44,882

$
1

$
(34
)

$
44,849

~~Note 6. Inventories~~

~~Inventories consist of the following:~~

September 30,

December 31,

(in thousands)

2017

2016⁽¹⁾

Raw materials and supplies

$
240

$
260

Work-in-process

57

4

Finished goods

940

197

Total inventories

$
1,237

$
461

⁽¹⁾The ~~2016 inventory balances have been updated to reflect the impact of the sale of the~~ ~~Hyperimmune Business. See Note 2 -Sale of Hyperimmune Business~~

~~Due to the sale of Aptevo’s Hyperimmune Business, the remaining inventory is solely related to IXINITY. CMC ICOS Biologics, Inc. (CMC) is the sole manufacturer of the bulk drug substance for~~following table shows our ~~IXINITY product. During 2015, we ordered nine manufacturing lots of bulk drug substance from CMC~~cash, cash equivalents and only one of those lots was successfully manufactured and released in 2015. On October 4, 2016, we provided a Notice of Interruption in Manufacturing, or Notice, to the U.S. Food and Drug Administration (FDA), notifying the FDA of a potential interruption in the supply of IXINITY due to the ongoing manufacturing challenges with the manufacturer of the bulk drug substance. On March 15, 2017, we announced the successful manufacture of a new bulk drug substance batch of IXINITY, providing new supply of IXINITY for the commercial market in May 2017.

On June 17, 2017, the Company and CMC entered into a new non-exclusive Amended and Restated Commercial Supply, or Restated Supply Agreement, for the commercial development and manufacture of IXINITY. Pursuant to the terms of the Restated Supply Agreement, CMC agreed to manufacture IXINITY in the quantity of batches provided to CMC on a twenty-four month rolling forecast. Beginning 2018, the minimum and maximum batches will be four and ten, respectively, in a calendar year. Multiple batches ordered in succession with no changeover to another product between batches, or a campaign, shall receive an incremental discounted price.

In accordance with the Restated Supply Agreement, a $7.0 million reserve held by CMC will be applied to, at a minimum, the next seven batches manufactured through the end of 2017 as a price concession. As a result, at least the next seven batches will have reduced raw materials or other related CMC costs associated with the inventory. Aptevo will also see an impact on the Company’s statement of operations due to a lower costs of goods sold associated with this inventory, which will also result in higher gross margins as sales are recognized. Any portion of the $7.0 million reserve held by CMC that remains unutilizedrestricted cash as of ~~December 25, 2017 shall be paid to the Company in cash on or before~~June 30, 2023 and December 31, 2017. As of September 30, 2017, $2.6 million has been applied against the reserve and recorded as a reduced cost to inventory. The Restated Supply Agreement has a five-year term renewable with twenty-four months’ prior notice before the expiry of the term for successive two-year terms.2022:


	June 30,		December 31,
(in thousands)	2023		2022
Cash	$	4,034	$	1,066
Cash equivalents		16,972		21,569
Total cash and cash equivalents	$	21,006	$	22,635

Note 7. Debt

Credit ~~Facility~~Agreement

On August ~~4, 2016,~~5, 2020, we entered into a ~~$35.0 million~~ Credit ~~and Security~~ Agreement, ~~(the Credit Agreement)~~ with MidCap Financial ~~Trust.~~(the "Credit Agreement"). The Credit Agreement ~~prior to the amendments described below,~~ provided us with up to ~~$35.0~~$25.0 million of available borrowing capacity ~~available (subject to certain conditions) in two tranches of $20.0 million and $15.0 million. Amounts drawn~~ under ~~the Credit Agreement bear interest at~~ a ~~rate of LIBOR plus 7.60% per annum.~~term loan facility. The ~~first tranche of $20.0~~full $25.0 million was ~~funded~~drawn on the closing date of the Credit Agreement.

On March 29, 2023, we used a portion of the proceeds from our Purchase Agreement with XOMA to fully repay the ~~second tranche~~$2.8 million outstanding principal of ~~$15.0~~our MidCap debt, including payment of $0.3 million in exit fees. The pre-payment was not considered an amendment to ~~become available (subject~~our Credit Agreement since we were required to ~~certain conditions) following~~fully repay the ~~date Aptevo~~remaining principal balance if we sold IXINITY deferred payment stream and ~~its subsidiaries: (1) achieve~~milestones. As of June 30, 2023, we do not have any outstanding debt on the balance sheet.

Note 9. Leases

Office Space Lease - Operating

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 through April 2030 and provide 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. We had previously determined we should not include any periods after the termination option when evaluating this amendment as we were not reasonably certain to not exercise the option, therefore we recorded our liability through April 30, 2023.

On May 26, 2022, we amended our office and laboratory lease to remove the one-time termination option. In exchange for removing the ~~twelve~~termination option, we received six months ~~ended March 31, 2017.~~

of free rent. As a result, we recorded an additional $4.4 million of lease liability and right-of-use asset on ~~May 11, 2017, we and MidCap Financial Trust entered into an amendment to~~ the ~~Credit Agreement to, among other things, waive~~consolidated balance sheet on the existing event of default and revise the financial covenants pertaining to the minimum required commercial product revenue for the twelve months ended March 31, 2017 and future rolling twelve month periods. As a resultdate of the amendment. As of June 30, 2023, we are not reasonably certain to exercise the two options to extend the lease term. Therefore, pursuant to our May 26, 2022 amendment, ~~the Company was in compliance with the modified minimum net revenue covenant for~~we recorded our lease liability through April 30, 2030.

For the three and six months ended June 30, ~~2017.~~ 2023 and 2022, we recorded $0.2 million and $0.4 million, respectively, related to variable lease expense.

Components of lease expense:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Operating lease cost	$	297	$	319	$	594	$	679
Total lease cost	$	297	$	319	$	594	$	679

Right of use assets acquired under operating leases:


	As of June 30,		As of December 31,
(in thousands)	2023		2022
Seattle office lease, including amendment		5,098		5,303
Total operating leases	$	5,098	$	5,303

Lease payments:


	For the Six Months Ended June 30,
(in thousands)	2023		2022
For operating leases	$	459	$	547

As ~~such, amounts owed under~~of June 30, 2023, the ~~Credit Facility are classified based on their contractual maturities.~~

~~This first amendment revised the provisions~~long-term and current portion of the ~~Credit Agreement to: (1) extend~~lease liabilities is $5.7 million and $0.6 million, respectively. As of June 30, 2022, the ~~time period through which the Company could draw the second tranche from August 2017 to March 2018, (2) increase the exit fee of 5.75%~~long-term and current portion of the ~~aggregate principal amount under the Credit Agreement for repayment or prepayment other than scheduled amortization payments~~lease liabilities were $6.4 million and ~~the final payment~~$0.03 million.

As of principal to 6.75% and (3) permit MidCap Financial Trust to obtain an affirmative lien on the intellectual property of the Company, upon the earlier of (i) the Company’s draw down of the second tranche or (ii) the Company’s cash, cash equivalents, and short-term investments balance descend below a minimum cash threshold of $25 million.

On September 28, 2017, the Company entered into a second amendment of the Credit Agreement (Amendment No. 2) in order to permit the sale under the LLC purchase agreement described in Note 2 Sale of Hyperimmune Business, and to reflect changes in the remaining business as a result of such sale.

Pursuant to the Amendment No. 2, the agent and the lenders consented to the LLC purchase agreement and the consummation of the sale transaction, released the agent’s liens on the assets transferred to Venus Bio Therapeutics Sub LLC (Venus) prior to the sale, and agreed that no prepayment of the term loans under the credit agreement would be required as a result the sale.

In addition, as part of the Amendment No. 2, the agent and the lenders agreed that: (i) the commitments of the lenders to make the remaining $15 million tranche of loans under the credit agreement were terminated, (ii) the covenant levels set forth in the minimum net commercial product revenue covenant were revised, (iii) a new covenant was added requiring the Company to maintain a minimum $10.0 million unrestricted cash balance, and (iv) the date on which the term loans begin to amortize will be extended to February 1, 2019 if the Company achieves net commercial product revenues of $16 million for the twelve month period ending June 30, ~~2018~~2023, the weighted-average remaining lease term and ~~maintains such level~~weighted-average discount rate for operating leases was 6.84 years and 12.03%. As of ~~net commercial product revenues~~June 30, 2022, the weighted-average remaining lease term and weighted-average discount rate for ~~each quarter prior to February 1, 2019 thereafter.~~operating leases was 7.83 years and 12.03%.

Note 8.10. Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the ~~weighted average~~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~~weighted-average number of common share equivalents outstanding for the period using the as-if converted method. For the purpose of this calculation, warrants, stock options and restricted stock units ("RSUs") are only included in the calculation of diluted net income (loss) per share when their effect is dilutive.

~~Prior~~We utilize the control number concept in the computation of diluted earnings per share to ~~the spin-off, Aptevo did not operate as a separate entity and as a result did not have any~~determine whether potential common stock ~~outstanding other than 1,000 shares held by Emergent.~~instruments are dilutive. The ~~calculation~~control number used is income (loss) from continuing operations or income from discontinued operations. The control number concept requires that the same number of ~~basic and~~potentially dilutive securities applied in computing diluted ~~net loss~~earnings per share ~~assumes that the 20,229,849 ordinary shares issued~~from continuing operations be applied to ~~Aptevo stockholders in connection with the spin-off were outstanding from the beginning~~all other categories of ~~the periods presented.~~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 ~~(loss)~~ per share (in thousands, except share and per share amounts):


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2023			2022		2023			2022
Net (loss) income from continuing operations	$	(7,948	)	$	27,861	$	(6,121	)	$	19,986
Income from discontinued operations		—			149		946			327
Net (loss) income	$	(7,948	)	$	28,010	$	(5,175	)	$	20,313

Basic and diluted net (loss) income per share from continuing operations:
Basic	$	(1.23	)	$	5.55	$	(0.85	)	$	4.01
Diluted	$	(1.23	)	$	5.55	$	(0.85	)	$	4.01
Basic and diluted net income per share from discontinued operations:
Basic	$	—		$	0.03	$	0.13		$	0.07
Diluted	$	—		$	0.03	$	0.13		$	0.07
Basic and diluted net (loss) income per share:
Basic	$	(1.23	)	$	5.58	$	(0.72	)	$	4.08
Diluted	$	(1.23	)	$	5.58	$	(0.72	)	$	4.08
Shares used in calculation:
Basic		6,482,158			5,023,321		7,190,701			4,980,625
Diluted		6,482,158			5,023,321		7,190,701			4,980,970

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2017

2016
Restated

2017

2016
Restated

Net income (loss)

$
37,867

$
(71,741
)

$
16,733

$
(97,469
)

Basic net income (loss) per share:

Net loss from continuing operations

$
0.14

$
(3.63
)

$
(1.08
)

$
(5.13
)
Net income from discontinued operations

$
1.63

$
0.08

$
1.87

$
0.31

Net income (loss)

$
1.77

$
(3.55
)

$
0.79

$
(4.82
)
Weighted-average shares used to compute per share
calculation

21,385,381

20,235,987

21,138,332

20,231,910

Diluted net income (loss) per share:

Net loss from continuing operations

$
0.14

$
(3.63
)

$
(1.08
)

$
(5.13
)
Net income from discontinued operations

$
1.61

$
0.08

$
1.87

$
0.31

Net income (loss)

$
1.75

$
(3.55
)

$
0.79

$
(4.82
)
Weighted-average shares used to compute per share
calculation

21,672,269

20,235,987

21,138,332

20,231,910

The following table represents all potentially dilutive shares:


	As of June 30,
(in thousands)	2023		2022
Warrants		351		351
Outstanding options to purchase common stock		467		362
Unvested RSUs		340		151

We use the treasury stock method when determining dilutive shares. For the three months ended June 30, 2023, 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 June 30, 2022, we determined RSUs were the only dilutive shares, therefore included in the diluted earnings per share calculation.

Note 11. Equity

Equity Distribution Agreement

On December 14, 2020, we entered into an Equity Distribution Agreement with Piper Sandler (the "Equity Distribution Agreement"). The Equity Distribution Agreement provides that, upon the terms and subject to the conditions set forth therein, we may issue and sell through Piper Sandler, acting as sales agent, shares of our common stock, $0.001 par value per share having an aggregate offering price of up to $50.0 million. This offering supersedes and replaces the program we commenced in December 2017. We have no obligation to sell any such shares under the Equity Distribution Agreement. The shares of common stock by Piper Sandler will be sold pursuant to a Registration Statement on Form S-3 which ~~were all anti-dilutive and therefore excluded~~we filed on December 14, 2020. In the six months ended June 30, 2023, the Company issued 730,913 shares of common stock at an average price of $2.26 under the Equity Distribution Agreement. We received $1.6 million in proceeds from the ~~calculation~~issuance of ~~diluted net loss~~these shares. In the six months ended June 30, 2022, the Company issued 78,285 shares of common stock at an average price of $5.75 under the Equity Distribution Agreement. We received $0.4 million in proceeds from the issuance of these shares.

Lincoln Park Purchase Agreement

On February 16, 2022, we entered into a Purchase Agreement ("2022 Purchase Agreement") and a Registration Rights Agreement with Lincoln Park (the "Registration Rights Agreement"). The 2022 Purchase Agreement and Registration Rights Agreement replaced our 2018 Purchase Agreement and Registration Rights Agreement with Lincoln Park. Under the 2022 Purchase Agreement, Lincoln Park committed to purchase up to $35.0 million of our common stock over a 36-month period commencing after the satisfaction of certain conditions, which are within our control, as set forth in the 2022 Purchase Agreement. The purchase price per ~~share:~~share will be based on prevailing market prices; provided, however, that the prevailing market price is not below $1.00. We agreed to and issued 99,276 shares of our common stock to Lincoln Park for no cash consideration as an initial fee for its commitment to purchase shares of our common stock under the 2022 Purchase Agreement. For the six months ended June 30, 2023, we issued 300,000 shares of our common stock to Lincoln Park under the 2022 Purchase Agreement and we received $0.5 million in proceeds from issuance of these shares. We did not issue any shares of our common stock for cash consideration to Lincoln Park under the 2022 Purchase Agreement in the six months ended June 30, 2022.

For the Nine Months Ended September 30,

(in thousands, except for per share amounts)

2017

2016

Outstanding options to purchase common stock

2,989

2,053

Unvested RSUs

1,256

3,324

~~Note 9. Equity~~Rights Plan

~~Capitalization Upon Spin-off~~

On ~~August 1, 2016, in connection with~~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 ~~spin-off~~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 from Emergent, we issued 20.2 million shares to Emergent~~Company’s common stock held by stockholders and recorded a contribution from Emergent of $71.2 million. The transactions recorded in 2016 included a one-time payment of $45.0 million, and a working capital reimbursement for outstanding payments of $1.4 million, a noncash transfer of an intangible asset of $0.7 million, and a net transfer of cash from Emergent of $24.2 million. In addition, in the first quarter of 2017 we received $20.0 million as ~~payment for a promissory note issued at the time~~ of the ~~spin-off.~~

C~~onverted Equity Awards Incentive Plan~~

~~The Company had no stock-based compensation plans~~close of its own prior to the spin-off from Emergent; however certain Aptevo employees participated in Emergent’s stock-based compensation plans (Emergent Plans), which provided for the grants of stock options and restricted stock units (RSUs). The expense associatedbusiness on November 23, 2020. One Right also will be issued together with ~~Aptevo employees who participated in the Emergent Plans was allocated to~~each Common Share issued by the Company after November 23, 2020, but before the Distribution Date (as defined below) (or the earlier redemption or expiration of the Rights) and, in certain circumstances, after the ~~accompanying Statements of Operations for~~Distribution Date. When exercisable, each Right initially would represent the ~~associated periods prior~~right to ~~the spin off.~~

~~In connection with the spin-off~~purchase from the Company adopted the Converted Equity Awards Incentive Plan (Converted Plan) and outstanding equity awards of Emergent held by Aptevo employees were converted into or replaced with equity awards of Aptevo (Conversion Awards) under the Converted Plan and were adjusted to maintain the economic value before and after the distribution date using the relative fair market value of the Emergent and Aptevo common stock based on the closing prices as of August 1, 2016. There was no significant incremental stock-based compensation expense recorded as a result of the equity award conversion. A total of 1.3 million shares of Aptevo common stock have been authorized for issuance under the Converted Plan. Options issued as Conversion Awards were priced according to the Converted Plan. RSUs issued as part of the Converted Plan provide for the issuanceone one-thousandth of a share of a newly-designated series of preferred stock, Series A Junior Participating Preferred Stock, par value $0.001 per share, of the Company, at an exercise price of $400.00 per one one-thousandth of a Series A Junior Participating Preferred Share, subject to adjustment. Subject to various exceptions, the Rights become exercisable in the event any person (excluding certain exempted or grandfathered persons) becomes the beneficial owner of ten percent (10%) or more of the Company’s common stock ~~at no cost~~without the approval of the Board. The Rights Agreement was amended on November 4, 2021 to extend the ~~holder.~~expiration date of such agreement from November 8, 2021 to November 5, 2022 and further amended on November 4, 2022 to extend the expiration of such agreement to November 4, 2023.

2016 Stock Incentive Plan

On August 1, 2016, the Company adopted the 2016 Stock Incentive Plan ~~(2016 SIP)~~("2016 SIP"). A total of ~~3.1~~0.2 million shares of Aptevo common stock have been authorized for issuance under the 2016 SIP in the form of ~~incentive~~equity stock options.

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 0.3 million shares of Aptevo common stock authorized for issuance. The 2018 Plan became effective immediately upon stockholder approval at the 2018 Annual Meeting of the Stockholders. Any shares subject to outstanding stock awards granted under the 2016 SIP that (a) expire or terminate for any reason prior to exercise or settlement; (b) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; or (c) otherwise would have returned to the 2016 SIP for future grant pursuant to the terms of the 2016 Plan (such shares, the “Returning Shares”) will immediately be added to the share reserve under the 2018 SIP as and when such shares become Returning Shares, up to a maximum of 0.3 million shares.

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 June 30, 2023, there are approximately 0.1 million 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 and~~ 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 ~~options~~awards granted to non-employee directors ~~also~~will vest over a ~~three-year~~one-year period. Option exercise and RSU grant prices for new ~~options~~awards granted by the Company equal the closing price of the Company’s common stock on the ~~NASDAQ Global~~Nasdaq Capital Market on the date of grant.

RSUs issued under the 2016 SIP provide for the issuance of a share of the Company’s common stock at no cost to the holder. RSUs granted to employees under the 2016 SIP generally provide for time-based vesting over an eighteen-month to three-year period, although certain employees may be awarded RSUs with different time-based vesting criteria. Prior to vesting, RSUs granted under the 2016 SIP do not have dividend equivalent rights, do not have voting rights and the shares underlying the RSUs are not considered issued or outstanding.

The equity compensation awards granted by the Company generally vest only if the employee is employed by the Company (or in the case of directors, the director continues to serve on the Board) on the vesting date.

On May 31, 2017, at the 2017 Annual Meeting of Stockholders (Annual Meeting), the Company’s stockholders approved the amendment and restatement of the Company’s 2016 SIP (Restated 2016 Plan) to, among other things, increase the number of authorized shares issuable by 1.3 million shares of Aptevo common stock. The Restated 2016 Plan was previously approved, subject to stockholder approval, by the Board of Directors of the Company. The Restated 2016 Plan became effective immediately upon stockholder approval at the Annual Meeting.

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 ~~Condensed Consolidated Statements~~unaudited condensed consolidated statements of ~~Operations~~operations as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2017		2016		2017		2016		2023		2022		2023		2022
Research and development	$	555	$	1,027	$	1,791	$	1,761	$	112	$	53	$	422	$	77
Selling, general and administrative		485		306		2,028		306
General and administrative										353		431		958		1,008
Total stock-based compensation expense	$	1,040	$	1,333	$	3,819	$	2,067	$	465	$	484	$	1,380	$	1,085

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, recognizing~~date. The Company recognizes the compensation expense ~~for that fair value, reduced for an estimate of forfeitures,~~ 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.

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 Nine Months Ended September 30,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2023		2022		2023		2022
Expected dividend yield		0.00%		0.00%		—		—		—		—
Expected volatility		75.00%		75.00%		—		—	103.63%		106.30%
Risk-free interest rate		1.91%		1.00%		—		—	4.18%		1.60%
Expected average life of options	6 years		3 years			—		—	5 years		5 years

~~Management~~For the six months ended June 30, 2023, management has applied an estimated forfeiture rate of ~~10%~~30%. For the three and six months ended June 30, 2022, management has applied an estimated forfeiture rate of 31% and 30%, respectively. Expected volatility slightly decreased as our stock price fluctuated from a low of $1.34 to a high of $2.08 for the six months ended June 30, 2023, compared to a low of $3.26 to a high of $6.30 for the six months ended June 30, 2022.

Note 12. Subsequent Events

The impact of the restatement on the Company’s consolidated statements of operations, including the impact of discontinued operations, is reflected and quantified for interim periods affected, as applicable, in the below tables.

Three Months Ended

Nine Months Ended

(in thousands)

September 30,
2016
(As previously
reported)

Restatement
Adjustment

September 30,
2016
(Restated)

September 30,
2016
(As previously
reported)

Restatement
Adjustment

September 30,
2016
(Restated)

Impairment expense

$
55,702

$
15,311

$
71,013

$
55,702

$
15,311

$
71,013

Loss from operations

(71,254
)

(19,271
)

(90,525
)

(97,081
)

(24,825
)

(121,906
)
Loss before
income taxes

(71,747
)

(19,270
)

(91,017
)

(97,498
)

(24,825
)

(122,323
)
Benefit from
income taxes

6

17,602

17,608

29

18,561

18,590

Net loss

$
(71,741
)

$
(1,668
)

$
(73,409
)

$
(97,469
)

$
(6,264
)

$
(103,733
)

~~The following table sets forth our unaudited quarterly consolidated statement of operations data for the three and nine months ended September 30, 2016:~~

(in thousands, except per share amounts)

Three Months Ended
September 30,
(Restated)⁽¹⁾

Nine Months Ended
September 30,
(Restated)⁽¹⁾

Revenue

$
2,816

$
7,203

Loss from operations

(90,525
)

(121,906
)
Loss before income taxes

(91,017
)

(122,323
)
Benefit from income taxes

17,608

18,590

Net loss

$
(73,409
)

$
(103,733
)
Net loss per share - basic and diluted

$
(3.55
)

$
(4.82
)

⁽¹⁾ ~~These amounts reflect~~On August 4, 2023, we completed a benefit from income taxes after giving effect to the goodwill and deferred tax liability restatement discussed above. The impairment of the Company’s IPR&D in the quarter ended September 30, 2016 resulted in a benefit from income taxes of $15.3 millionpublic offering related to the ~~reversal~~issuance and sale of 8,064,517 shares of our common stock (or pre-funded warrant in lieu thereof) at a purchase price of $0.62. We received $5 million in gross proceeds from issuance of these shares. Our net proceeds from the ~~associated deferred tax liability~~offering amounted to $4.5 million after placement agent and other fees. Additionally, we issued Series A Common Warrants to purchase up to an aggregate of 8,064,517 shares of common stock and Series B Common Warrants to purchase up to an aggregate of 8,064,517 shares of common stock. The Series A and Series B Common Warrants have an exercise price of $0.62 per share, are exercisable immediately following the date of issuance and will expire in ~~that quarter. The Company’s interim financial statements included~~August 2028 and February 2025, respectively. If the warrants are exercised, we may receive up to an additional $10 million in ~~Form 10-Q for the quarter ended September 30, 2016 did not reflect this benefit from income taxes or the increase in impairment of goodwill.~~proceeds.

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

This ~~quarterly report~~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.~~amended (the Exchange Act). All statements in this ~~quarterly report,~~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,” ~~“pursuing,~~“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 ~~may not actually achieve the plans, intentions, expectations or objectives disclosed in our~~have based these forward-looking statements largely on our current assumptions, expectations, projections, intentions, objectives and/or beliefs about future events or occurrences and ~~the assumptions underlying our~~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 ~~prove incorrect.~~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. Actual results or events could differ materially from the plans, intentions, expectations and objectives disclosed in the forward-looking statements that we make. Factors that we believe could cause actual results or events to differ materially from our forward-looking statements include, but are not limited to, those discussed in “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this quarterly report. Our forward-looking statements in this ~~quarterly report~~Quarterly Report on Form 10-Q are based on current ~~expectations~~information and we do not assume any obligation to update any forward-looking ~~statements.~~statements except as required by the federal securities laws.

You should read the following ~~discussion and analysis together with the financial statements and the related notes to those statements included elsewhere in this report.~~

~~Restatement~~

~~The accompanying Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~gives effect to~~(this MD&A) together with the ~~restatement adjustments made to the previously reported~~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 ~~discussed in Note 10- Restatement~~subject to risks and uncertainties, such as those set forth in the ~~accompanying financial~~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 ~~oncology (cancer)~~immuno-oncology candidates for the treatment of different forms of cancer. We have developed two versatile and ~~hematology (blood disease) therapeutics~~enabling platform technologies for rational design of precision immune modulatory drugs. Our clinical candidates, APVO436 and ALG.APV-527 (in collaboration with Alligator), 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.

Our ADAPTIR and ADAPTIR-FLEX platforms are designed to ~~meaningfully improve patients’ lives. Our core technology is~~generate monospecific, bispecific, and multi-specific antibody candidates capable of enhancing the ~~ADAPTIR™ (modular protein technology) platform. We currently have one revenue-generating product~~human immune system against cancer cells. ADAPTIR and ADAPTIR-FLEX are both modular platforms, which gives us the flexibility to generate immunotherapeutic candidates with a variety of mechanisms of action. This flexibility in ~~the areas of hematology,~~design allows us to potentially generate novel therapeutic candidates that may provide effective strategies against difficult to treat, as well as ~~various investigational stage~~advanced forms of cancer. We have successfully designed and constructed numerous investigational-stage product candidates inbased 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 immuno-oncology candidates that are designed to engage immune effector cells and ~~autoimmune~~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 ~~inflammatory diseases.~~

~~In August 2015, Emergent BioSolutions Inc., or Emergent, announced a plan to separate into two independent publicly traded companies, one a biotechnology company focused on novel oncology~~subsequent preclinical and ~~hematology therapeutics to meaningfully improve patients’ lives~~clinical development using the ADAPTIR platform and the ADAPTIR-FLEX platform to generate multi-specific candidates or other candidates to our platform capabilities. We have developed a ~~global specialty life sciences company focused~~preclinical candidate based on ~~providing specialty products~~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.

Recent Developments:

Raised $5 million through public offering on August 4, 2023, by issuing 8,064,517 shares of our common stock (or common stock equivalents in lieu thereof) at a purchase price of $0.62. We received $4.5 million in net proceeds after placement agent and other fees. Additionally, we issued Series A Warrants to purchase up to an aggregate of 8,064,517 shares of common stock and Series B Warrants to purchase up to an aggregate of 8,064,517 shares of common stock. The Series A and Series B Warrants will have an exercise price of $0.62 per share, will be exercisable immediately following the date of issuance and will expire in 2028 and 2025, respectively. In addition to the $5 million raised, we may receive up to an additional $10 million upon exercise of the warrants.

Positive and clinically meaningful DOR results were observed from the Company's bispecific AML drug candidate APVO436 in combination with the emerging standard of care (venetoclax + azacitidine) in venetoclax treatment naïve patients. Duration, the length of remission time following treatment with the triplet of venetoclax and azacitidine plus APVO436, is an important measure of clinical success as it shows how long treatment benefit lasts for ~~civilian~~each patient and ~~military populations that address intentional~~for each group of patients.

Outcomes are as follows:

•

9 of 11 (82%) patients responded sufficiently for inclusion in the DOR analysis.

•

3 of the 9 patients moved to stem cell transplant with treatment. This is the best outcome for patients because stem cell transplant offers the best probability for survival.

•

One patient experienced a sustained complete remission and ~~naturally emerging public health threats. To accomplish this separation,~~remained on study drug for eight cycles, the maximum allowed per the protocol.

•

The duration of remission data is clinically meaningful because a substantial number of patients either stayed on treatment or moved to transplant and did not experience a relapse event.

Comparison of the three and six months ended June 30, 2023 and 2022

Royalty Revenue

For the six months ended June 30, 2023 and 2022, royalty revenue was $0.0 and $3.1 million, respectively. We did not recognize royalty revenue in 2023 due to our Amendment to Royalty Purchase Agreement with HCR. As a result of the amendment, we ceased reporting as royalty revenue, royalties paid by Pfizer to HCR related to Pfizer’s sales of RUXIENCE beginning in the second quarter of 2022. The royalty revenue from Pfizer related to a Collaboration and License Agreement ("Definitive Agreement") acquired by Aptevo as part of our spin-off from Emergent ~~created a new company, Aptevo Therapeutics Inc., or Aptevo, to be the parent company for the development-based biotechnology business focused on novel oncology, hematology,~~in 2016. The Definitive Agreement was originally executed by Trubion Pharmaceuticals, which was subsequently acquired by Emergent, and ~~autoimmune and inflammatory therapeutics. We were incorporated in Delaware in February 2016 as~~Wyeth, a wholly owned subsidiary of ~~Emergent. To effect~~Pfizer (see Note 8).

We received the ~~separation, Emergent made a pro rata distribution~~2022 milestone payment of ~~Aptevo’s common stock to Emergent’s stockholders~~$2.5 million on ~~August 1, 2016.~~

~~In connection with~~February 28, 2023. The proceeds from the ~~separation, we received certain assets from Emergent’s biosciences division, including commercial products and development programs,~~2022 milestone payment were recorded as well as the ADAPTIR platform technology. Certain historical operations that were included by Emergent in its biosciences segment have been reallocated to Emergent’s continuing operations, and as a result the financial statements and discussion and analysis contained herein differ from Emergent’s historically reportable biosciences segment.

Our historical consolidated financial statements for the periods prior to August 1, 2016 have been prepared on a standalone basis and are derived from Emergent’s consolidated financial statements and accounting records. The consolidated financial statements reflect our financial position, results of operations, and cash flows as our business was operated as part of Emergent prior to the separation, in conformity with U.S. Generally Accepted Accounting Principles (GAAP).

The consolidated financial statements include the allocation of certain assets and liabilities that have historically been held at the Emergent corporate level but which are specifically identifiable or allocable to us. Cash and cash equivalents held by Emergent were not allocated to us unless the cash was held by an entity that was transferred to us in the distribution. All of our intracompany transactions and accounts for the periods prior to August 1, 2016 have been eliminated. Most intercompany transactions between us and Emergent for the periods prior to August 1, 2016 were considered to be effectively settled in the consolidated financial statements at the time the transaction was recorded but for those transition related services. The total net effect of the settlement of these intercompany transactions is reflectedother income in the consolidated statement of cash flows as payment from former parent upon spin-off, net of receivable and net transfer from former parent, prior to spin-off as a financing activity and in the consolidated balance sheet as former parent investment in subsidiary.

The historical financial statements do not necessarily include all of the expenses that would have been incurred had we been a separate, standalone entity and may not necessarily reflect our results of operations ~~financial position and cash flows had we been a standalone company during the periods presented. Our consolidated financial statements~~ for the ~~periods prior~~year ended December 31, 2022. We are eligible to August 1, 2016 include an allocation of expenses related to certain Emergent corporate functions, including senior management, legal, human resources, finance, information technology, and quality assurance. These expenses have been allocated to us based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of expenses, headcount, square footage, or other measures. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for the periods presented.

~~On August 31, 2017, we entered into an LLC purchase agreement with Saol International Limited (Saol) whereby we agreed to sell our~~ Hyperimmune Business, which consisted of the following 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 following hepatitis B exposure; and VARIZIG® for treatment following exposure to varicella zoster virus for individuals with compromised immune systems.

~~On September 28, 2017, the Company announced that it completed the sale of its Hyperimmune Business to Saol for total consideration of up to $74.5 million.~~ At the closing of the acquisition, Saol paid us an upfront payment totaling $65 million, including $3.25 million which was deposited in an escrow account for the purposes of satisfying any indemnification claims brought by Saol pursuant to the LLC purchase agreement. In addition, we may receive ~~(1)~~ an additional ~~potential~~ milestone payment ~~totaling up to $7.5~~of $10 million ~~related to~~based on the achievement of ~~certain gross profit milestones~~sales milestone in 2023.

Research and ~~(2) up~~Development Expenses

We expense research and development costs as incurred. These expenses relate primarily to ~~$2.0 million~~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 ~~collection~~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 ~~certain accounts receivable after~~reimbursement of research and development spending, the ~~closing.~~ ~~As a result~~number of product candidates under development, the ~~sale~~size, structure and duration of ~~our Hyperimmune Business, we anticipate that our future product revenue will decline and~~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 ~~reduction~~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 ~~overhead.~~discovery until the program enters the clinic.

~~Net income~~Our research and development expenses by program for the three and six months ended June 30, 2023 and 2022 are shown in the following table:


	For the Three Months Ended June 30,
(in thousands)	2023		2022		Change
Clinical programs:
APVO436		2,473		1,215		1,258
ALG.APV-527		765		—		765
Preclinical program, general research and discovery		2,224		2,650		(426	)
Total	$	5,462	$	3,865	$	1,597

	For the Six Months Ended June 30,
(in thousands)	2023		2022		Change
Clinical programs:
APVO436	$	3,521	$	2,802	$	719
ALG.APV-527		1,467		—		1,467
Preclinical program, general research and discovery		4,642		5,929		(1,287	)
Total	$	9,630	$	8,731	$	899

Research and development expenses increased by $1.6 million, from $3.9 million for three months ended June 30, 2022 to $5.5 million for the three months ended ~~September~~June 30, ~~2017,~~2023. Research and development expenses increased by $0.9 million, from $8.7 million for the six months ended June 30, 2022 to $9.6 million for the six months ended June 30, 2023. The increase was ~~$37.9~~primarily due to higher spending on the ALG.APV-527 Phase 1 clinical trial and APVO436 Phase 1b clinical trial. The increase was partially offset by lower spending on preclinical projects and employee 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.

General and administrative expenses decreased by $1.0 million, ~~and the net loss~~from $3.7 million for the three months ended ~~September~~June 30, ~~2016~~2022 to $2.7 million for the three months ended June 30, 2023. General and administrative expenses decreased by $1.3 million, from $7.6 million for three months ended June 30, 2023 to $6.3 million for the six months ended June 30, 2023. The decrease is primarily due to lower employee and consulting costs.

Other Income (Expense), Net

Other income (expense), net consists primarily of a gain related to the sale of a nonfinancial asset, costs related to debt extinguishment, accrued exit fees on debt, non-cash interest on financing agreements, and interest on debt.

Other Income (Expense), Net

Other income, net was ~~$71.7 million. Net~~$0.2 million and $0.1 million for the three and six months ended June 30, 2023, respectively. Other expense, net was $1.8 million and $4.0 million for the three and six months ended June 30, 2022, respectively. The change in other income (expense), net is primarily due to lower interest expense related to our MidCap term loan due to principal paydown and full repayment of the outstanding balance in the first quarter of 2023. Additionally, beginning Q2 2022, we no longer record non-cash interest expense due to our Amendment to the Royalty Purchase Agreement in the second quarter of 2022, which eliminated the liability related to the sale of royalties and the related non-cash interest expense.

Gain Related to Sale of Nonfinancial Asset

We recorded $9.7 million in other income for the ~~nine~~six months ended June 30, 2023, due to the sale of the deferred payments and milestones to XOMA during the quarter (see Note 3). We did not have any such gain for the comparative period in the prior year.

Gain on Extinguishment of Liability Related to Royalties

We recorded $37.2 million in other income for the six months ended June 30, 2022, due to our Amendment to Royalty Purchase Agreement (see Note 8). We did not have any such gain for the comparative period in the current year.

Discontinued Operations

The accompanying unaudited condensed consolidated financial statements include discontinued operations from two separate transactions: the sale of hyperimmune business to Saol International Limited in September 2017, from which we received a payment in 2021 related to the collection of a certain accounts receivable, and the sale of Aptevo BioTherapeutics in 2020.

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


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Deferred payment from Medexus		—		149		523		327
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	$	—	$	149	$	946	$	327

For the six months ended June 30, 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 Saol as a result of the collection of certain accounts receivable. For the six months ended June 30, 2022, we collected $0.3 million in deferred payments from Medexus related IXINITY sales. The proceeds from the income from discontinued operations is included within net income in the operating section of the unaudited condensed consolidated statements of cash flows.

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 six months ended June 30, 2023 and 2022:


	For the Six Months Ended June 30,
(in thousands)	2023			2022
Net cash used in:
Operating activities	$	(237	)	$	(8,187	)
Investing activities		—			(25	)
Financing activities		(1,392	)		(8,114	)
Decrease in cash, cash equivalents, and restricted cash	$	(1,629	)	$	(16,326	)

Net cash used in operating activities of $0.2 million for the six months ended June 30, 2023 was primarily due to our net loss of $5.2 million for the period and changes in working capital accounts. Net cash used in operating activities of $8.2 million for the six months ended June 30, 2022 was primarily due to changes in working capital accounts.

Net cash used in investing activities for the six months ended June 30, 2023 was $0. Net cash used in investing activities for the six months ended June 30, 2022 was due to purchases of property and equipment.

Net cash used in financing activities of $1.4 million for the six months ended June 30, 2023 was primarily due to the $3.5 million of repayments of the MidCap term loan, which included the remaining outstanding principal balance and loan prepayment fees. This was offset by the $2.1 million proceeds received from issuance of common stock pursuant to our Equity Distribution Agreement with Piper Sandler and our 2022 Purchase Agreement with Lincoln Park. Net cash used in financing activities for the six months ended June 30, 2022 was primarily due to the $11.3 million of repayments of the MidCap term loan, and $6.8 million royalties received from Pfizer by HCR pursuant to our Royalty Purchase Agreement. This was offset by the $10 million milestone received by Aptevo from

HCR related to the sale of royalties, net of $0.5 million transaction costs, and $0.4 million proceeds received from issuance of common stock pursuant to our Equity Distribution Agreement with Piper Sandler.

Sources of Liquidity

Royalty Purchase Agreement and Milestone Payments

On March 30, 2021, we entered into and closed a Royalty Purchase Agreement with HCR pursuant to which we sold to HCR the right to receive royalty payments made by Pfizer in respect of global net sales of RUXIENCE. Under the terms of the Royalty Purchase Agreement, we have received $47.5 million through June 30, 2023 ($35 million at closing and $12.5 million in milestone payments) and we are eligible to receive an additional $10 million based on the achievement of sales milestone 2023.

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. 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 six months ended June 30, 2023, Aptevo received $0.5 million in deferred payments from Medexus related to IXINITY sales for the fourth quarter of 2022.

Registration Statement

On December 14, 2020, we filed a Registration Statement on Form S-3 covering the offering, issuance, and sale of up to $200 million in common stock, preferred stock, and various series of debt securities and/or warrants to purchase any of such securities, which included the unsold securities from the Prior Registration Statement. On March 29, 2022, we filed an amendment to the prospectus supplement 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 updates the amount of shares that we are eligible to sell under the Equity Distribution Agreement. So long as the aggregate market value of our common stock held by non-affiliates is less than $75 million, we will not sell any registered shares under this 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 current public float of our common stock. In the last 12 months, we have sold $8.8 million worth of shares of our common stock pursuant to our Equity Distribution Agreement. If our public float increases such that we may sell additional amounts under the Equity Distribution Agreement and the prospectus than is mentioned in our last prospectus supplement to the Registration Statement on Form S-3 filed on December 13, 2020, we will file another amendment to the prospectus supplement prior to making additional sales. The limitations of General Instruction I.B.6 do not apply to sales of our shares under our Purchase Agreement with Lincoln Park Financial LLC as those sales were committed prior to us being subject to the limitations of General Instruction I.B.6.

Equity Distribution Agreement

On December 14, 2020, we entered into an Equity Distribution Agreement with Piper Sandler & Co ("Piper Sandler"). The Equity Distribution Agreement provides that, upon the terms and subject to the conditions set forth therein, we may issue and sell through Piper Sandler, acting as sales agent, shares of our common stock having an aggregate offering price of up to $50 million. We have no obligation to sell any such shares under the Equity Distribution Agreement. The sale of the shares of our common stock by Piper Sandler, if any, will be effected pursuant to a Registration Statement on Form S-3 which we filed on December 14, 2020. In the six months ended June 30, 2023, the Company issued 730,913 shares of common stock at an average price of $2.26 under the Equity Distribution Agreement. These shares were issued in the first quarter of 2023. We received $1.6 million in proceeds from the issuance of these shares. In the six months ended June 30, 2022, the Company issued 78,285 shares of common stock at an average price of $5.75 under the Equity Distribution Agreement. We received $0.4 million in proceeds from the issuance of these shares.

The Equity Distribution Agreement will terminate upon the issuance and sale of all shares under the Equity Distribution Agreement or upon the earlier termination thereof at any time by us or Piper Sandler upon notice to the other party.

Lincoln Park Purchase Agreement

On February 16, 2022, we entered into a new Purchase Agreement and a Registration Rights Agreement with Lincoln Park ("2022 Purchase Agreement"). The 2022 Purchase Agreement and Registration Rights Agreement replaced our 2018 Purchase Agreement and Registration Rights Agreement with Lincoln Park. Under the 2022 Purchase Agreement, Lincoln Park committed to purchase up to $35.0 million worth of our common stock over a 36-month period commencing after the satisfaction of certain conditions, which are within our control, as set forth in the Purchase Agreement. The purchase price per share will be based on prevailing market price; provided, however, that the prevailing market price is not below $1.00. The Company issued 99,276 shares of our common stock to

Lincoln Park for no cash consideration as an initial fee for its commitment to purchase shares of our common stock under the Purchase Agreement. The aggregate number of shares that we can sell to Lincoln Park under the Purchase Agreement may not exceed 981,103 shares, unless shareholder approval is obtained or the average price of all applicable sales of our common stock sold to Lincoln Park equals or exceeds $6.14 per share. For the six months ended June 30, 2023, we issued 300,000 shares of our common stock to Lincoln Park under the 2022 Purchase Agreement. We received $0.5 million in proceeds from issuance of these shares. We did not issue any shares of our common stock for cash consideration to Lincoln Park under the 2022 Purchase Agreement in the six months ended June 30, 2022.

Actual sales of shares of our common stock to Lincoln Park under the Purchase Agreement will occur at our discretion from time to time and depend on a variety of factors, including, among others, market conditions, the trading price of our common stock and additional determinations as to the appropriate sources of funding for our operations. Lincoln Park has no right to require any sales, but is obligated to make purchases as we direct, in accordance with the Purchase Agreement.

Warrants - March 2019

On March 11, 2019, in connection with the completion of a public offering of common stock, we issued warrants to purchase 1,571,429 shares of common stock at a price of $18.20. As of June 30, 2023 and 2022, there were warrants to purchase 350,589 shares of common stock outstanding. These warrants have a 5-year life, and expire in March 2024.

Series A and Series B Common Warrants - August 2023

On August 4, 2023, we completed a public offering related to the issuance and sale of 8,064,517 shares of our common stock (or pre-funded warrant in lieu thereof) at a purchase price of $0.62. We received $5 million in gross proceeds from issuance of these shares. Our net proceeds from the offering amounted to $4.5 million after placement agent and other fees. Additionally, we issued Series A Common Warrants to purchase up to an aggregate of 8,064,517 shares of common stock and Series B Common Warrants to purchase up to an aggregate of 8,064,517 shares of common stock. The Series A and Series B Common Warrants have an exercise price of $0.62 per share, are exercisable immediately following the date of issuance and will expire in August 2028 and February 2025, respectively. If the warrants are exercised, we may receive up to an additional $10 million in proceeds.

Liquidity and Capital Resources

We have financed our operations to date primarily through revenue generated from our commercial products, the Royalty Purchase Agreement with HCR, royalty payments from Pfizer, deferred payments from Medexus, the Purchase Agreement with XOMA, the sale of our hyperimmune products business in September 2017, ~~was $16.7~~the sale of Aptevo BioTherapeutics on February 28, 2020, public offerings of our common stock, loan proceeds, milestone payments, research and development funding from strategic partners, and funds received at the date of our spin-off from Emergent. We had cash and cash equivalents of $21.0 million and ~~the net loss for the nine months ended September 30, 2016 was $97.5 million. We had~~ an accumulated deficit of ~~$64.0~~$211.2 million as of ~~September~~June 30, ~~2017.~~ 2023.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, net cash ~~provided by~~used in our operating activities was ~~$26.2~~$0.2 million. Although we expect our existing cash and cash equivalents will be sufficient to fund our operations for at least fifteen months from the date of this filing, if we are unable to obtain additional financing when needed, we may have to delay, reduce the scope of, suspend or eliminate one or more of our research and development programs. Following the sale of the Hyperimmune Business, our sole marked product

Our future success is ~~IXINITY~~^®~~, and therefore IXINITY will be our only source of product revenue. As such, our results of operations will be highly~~ dependent on ~~IXINITY sales unless or until~~our ability to develop our product candidates. We anticipate that we ~~develop any of~~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 ~~product candidates.~~assets. We will not generate revenues from our development stage product candidates unless ~~and~~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.

~~Pipeline Highlights~~

~~We have one marketed product, IXINITY coagulation factor IX (recombinant), indicated~~Due to the current macroeconomic environment, we may experience delays in ~~adults and children 12 years of age and older with Hemophilia B for control and prevention of bleeding episodes, and management of bleeding during operations.~~

~~We also have numerous investigational stage~~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 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. Additionally, we may experience potential impacts on our future milestones, which are based on ~~our ADAPTIR~~^TM ~~(modular protein technology) platform. The ADAPTIR platform technology can produce monospecific and multispecific immunotherapeutic proteins that specifically bind~~global net sales of RUXIENCE, from HCR due to ~~one or more targets, for example, bispecific therapeutic molecules,~~the effects of the macroeconomic environment, which may ~~have structural and functional~~

advantages over monoclonal antibodies. The structural differences of ADAPTIR molecules over monoclonal antibodies allow for the development of other ADAPTIR immunotherapeutics that engage immune effector cells and disease targets in a novel manner to produce unique signaling responses and ultimately kill tumors or modulate the immune system to kill tumors. We are skilled at product candidate generation, validation and subsequent preclinical and clinical development using the ADAPTIR platform. We have theimpact Pfizer’s ability to ~~progress ADAPTIR molecules~~continue to successfully commercialize the RUXIENCE business. We believe that our existing cash resources, milestone payments related to the Royalty Purchase Agreement with HCR, funds available under Purchase Agreement with Lincoln Park and the Equity Distribution Agreement with Piper Sandler, cash to be generated from ~~concept~~future milestones related to ~~commercialization~~IXINITY sales and approvals by ~~way of~~Medexus, will be sufficient to meet our ~~protein engineering, preclinical development and process development capabilities, cGMP manufacturing oversight and clinical development capabilities. We also have~~projected operating requirements for at least twelve months from the ~~ability to launch, market and commercialize these product candidates upon approval.~~

~~Our investigational stage product candidates are:~~

APVO414 (formerly known as MOR209/ES414), a bispecific immunotherapeutic ADAPTIR protein, currently in Phase 1, that simultaneously targets prostate specific membrane antigen, or PSMA, an enzyme that is expressed on the surface of prostate cancer cells and, CD3, a component of the T-cell receptor complex expressed on all T-cells. The mechanism of action of APVO414 is redirected T-cell cytotoxicity (RTCC), We are developing this candidate for metastatic castration-resistant prostate cancer, which is advanced prostate cancer that has spread to other organs and no longer responds to hormone blocking therapies.

~~otlertuzumab, a monospecific ADAPTIR protein therapeutic that is currently in Phase 2 clinical development for chronic lymphocytic leukemia, or CLL.~~

APVO436, a bispecific ADAPTIR protein therapeutic currently in preclinical development targeting CD123, a cell surface receptor highly expressed on several hematological malignancies and CD3. APVO436 utilizes redirected RTCC to redirect T-cells to specifically kill tumor bearing CD123.

APVO210, a bispecific ADAPTIR protein therapeutic the employs targeted cytokine delivery. This candidate targets monomeric IL-10 to CD86 expressing cells (primarily antigen presenting cells) and is currently in pre-clinical development for inflammatory bowel disease and other autoimmune and inflammatory diseases.

~~ALG.APV-527 a bispecific antibody candidate, featuring a novel mechanism of action designed to simultaneously target 4-1BB (CD137) and 5T4, a tumor antigen widely expressed on several solid tumors.~~

an immunotherapeutic protein targeting ROR1, an antigen found on several solid tumors and hematologic, or blood-related, malignancies. One pair of binding domains bind to ROR1 on tumors; the other pair of binding domains bind to CD3.

~~Other therapeutic protein product candidates primarily targeting cancer based on mechanisms of action that modulate the immune system (immuno-oncology based mechanism of action).~~

~~Collaboration with Alligator Bioscience AB~~

On July 20, 2017, our wholly owned subsidiary, Aptevo Research and Development LLC, or Aptevo R&D, entered into a collaboration and option agreement with Alligator Bioscience AB, or Alligator, pursuant to which Aptevo R&D and Alligator will collaboratively develop ALG.APV-527, a lead bispecific antibody candidate simultaneously targeting 4-1BB (CD137), a member of the TNFR superfamily of a costimulatory receptor found on activated T cells, and 5T4, a tumor antigen widely overexpressed in a number of different types of cancer. This product candidate is built on our novel ADAPTIR platform, which is designed to expand on the utility and effectiveness of therapeutic antibodies. Under this collaboration agreement, Alligator also granted to Aptevo R&D a time-limited option to enter into a second agreement with Alligator for the joint development of a separate bispecific antibody candidate simultaneously targeting 4-1BB (CD137) and a different tumor antigen.

~~In accordance with the terms~~date of this ~~Collaboration Agreement, the parties intend to develop the lead bispecific antibody candidate targeting 4-1BB (CD137) through the completion~~filing of ~~Phase II clinical trials in accordance~~this Quarterly Report on Form 10-Q.

There are numerous risks and uncertainties associated with an agreed upon development plan and budget. Subject to certain exceptions for Aptevo R&D’s manufacturing and platform technologies, the parties will jointly own intellectual property generated in the performance of the development activities under the Collaboration Agreement.

Following the completion of the anticipated development activities under the Collaboration Agreement, the parties intend to seek a third-party commercialization partner for this product candidate, or, in certain circumstances, may elect to enter into a second agreement granting rights to either Aptevo R&D or Alligator to allow such party to continue theresearch, development, and commercialization of ~~this product. Under~~ 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 ~~terms~~timing of, the Collaboration Agreement, the parties intend to share revenue received from a third-party commercialization partner equally, or, if the development costs are not equally shared under the Collaboration Agreement, in proportion to the development costs borne by each party.

The Collaboration Agreement also contains several points in development at which either party may elect to “opt-out” (i.e., terminate without cause) and, following a termination notice period, cease paying development costs for this product candidate, which would be borne fully by the continuing party. Following an opt-out by a party, the continuing party will be granted exclusive rights to continue the development and commercialization of this product candidate, subject to a requirement to pay a percentage of revenue received from any future commercialization partner for this product, or, if the continuing party elects to self-commercialize, tiered royalties on the net sales of this product by the continuing party ranging from the low to mid-single digits, based on the point in development at which the ‘opt-out’ occurs. The parties have also agreed on certain technical criteria or ‘stage gates’ related to the development of this product that, if not met, will cause an automatic termination and wind-down of the Collaboration Agreement and the ~~activities thereunder, provided that the parties do not agree to continue.~~

~~The Collaboration Agreement contains industry standard termination rights, including for material breach following a specified cure period, and~~costs involved in, ~~the case of a party’s insolvency.~~

~~IXINITY~~

~~IXINITY~~^® is our commercial product. It is a coagulation factor IX (recombinant) therapeutic indicated in adults and children 12 years of age and older with hemophilia B for control and prevention of bleeding episodes, and management of bleeding during operations. CMC ICOS Biologics, Inc., or CMC, is the sole manufacturer of bulk drug substance for IXINITY. Patheon UK Limited, acquired by Thermo Fischer Scientific, is currently the sole source fill-finish service manufacturer for IXINITY.

On October 4, 2016, we provided a Notice of Interruption in Manufacturing, or Notice, to the FDA, notifying the FDA of a potential interruption in the supply of IXINITY due to the ongoing manufacturing challenges associated with the manufacturer of the bulk drug substance. On March 15, 2017, we announced the successful manufacture of a new bulk drug substance batch of IXINITY, providing new supply of IXINITY for the commercial market in May 2017.

On June 17, 2017, we entered into a new non-exclusive Amended and Restated Commercial Supply, or Restated Supply Agreement, with CMC for the commercial development and manufacture of IXINITY. Pursuant to the terms of the Restated Supply Agreement, CMC agreed to manufacture IXINITY in the quantity of batches provided to CMC on a twenty-four month rolling forecast. Beginning 2018, the minimum and maximum batches will be four and ten, respectively in a calendar year. Multiple batches ordered in succession with no changeover to another product between batches, or a campaign, shall receive an incremental discounted price.

In accordance with the Restated Supply Agreement, a $7.0 million reserve held by CMC will be will be applied to, at a minimum, the next seven batches manufactured through the end of 2017 as a price concession. As a result, at least the next seven batches will have reduced raw materials or other related CMC costs associated with the inventory. We will also see an impact onour statement of operations due to a lower costs of goods sold associated with this inventory, which will also result in higher gross margins as sales are recognized. Any portion of the $7 million reserve held by CMC that remains unutilized as of December 25, 2017 shall be paid to us in cash on or before December 31, 2017. As of September 30, 2017, $2.6 million has been applied against the reserve and recorded as a reduced cost to inventory. The Restated Supply Agreement has a five-year term renewable with twenty-four months’ prior notice before the expiry of the term for successive two-year terms.

While we do not currently anticipate or foresee a supply shortage or supply interruption occurring, any supply shortage interruption of IXINITY would adversely affect its sales and could adversely affect its market position, commercial viability and the trading price of our common stock.

~~Results of Operations~~

Except as otherwise stated below, the following discussions of our results of operations reflect the results of our continuing operations, excluding the results related to the Hyperimmune Business. The Hyperimmune Business has been separated from continuing operations and reflected as a discontinued operation. See Note 2 – Sale of Hyperimmune Business, to the accompanying financial statements for additional information.

~~Comparison of the three and nine months ended September 30, 2017 and September 30, 2016~~

~~Financial Summary~~

We recognized total net income of $37.9 million for the three months ended September 30, 2017 and a net loss of $71.7 million for the three months ended September 30, 2016, and net income of $16.7 million for the nine months ended September 30, 2017 and a net loss of $97.5 million for the nine months ended September 30, 2017. The increase in net income for the three and nine month periods was primarily attributable to the proceeds from the Hyperimmune Business. We recognized net income from continuing operations of $3.0 million for the three months ended September 30, 2017 and a net loss from continuing operations of $73.4 million for the three months ended September 30, 2016. We recognized a net loss from continuing operations of $22.9 million for the nine months ended September 30, 2017 and a net loss from continuing operations of $103.7 million for the nine months ended September 30, 2016. The increase in net income (or decrease in net loss) during the 2017 periods was primarily attributable to an impairment of goodwill and intangible assets charge of $71.0 million during the three and nine months ended September 30, 2016. Our income from discontinued operations for the three months ended September 30, 2017 was $34.9 million, compared to income from discontinued operations for the three months ended September 30, 2016 of $1.7 million. Our income from discontinued operations for the nine months ended September 30, 2017 was $39.6 million, compared to income from discontinued operations for the nine months ended September 30, 2016 of $6.3 million. The increase during the 2017 periods was primarily attributable to the proceeds from the Hyperimmune Business.

~~Revenue~~

Product sales of IXINITY decreased by $0.3 million, to $2.5 million for the three months ended September 30, 2017 from $2.8 million for the three months ended September 30, 2016. This decrease was primarily related to decreased volumes shipped in the third quarter of 2017 as customers increased stock levels with increased orders in the second quarter of 2017 when additional IXINITY product came back to market.

Product sales of IXINITY increased by $1.0 million, to $8.1 million for the nine months ended September 30, 2017 from $7.1 million for the nine months ended September 30, 2016. This increase was primarily related to the expansion of our current Hemophilia B patient base.

In addition to product sales in the third quarter 2017, we recognized $3.7 million of deferred collaboration revenue due to the termination of our collaboration agreement with MorphoSys. Previously we recognized this revenue as services that were performed. As a result of the termination of the collaboration agreement with MorphoSys, we will not recognize any additional revenue under such agreement in any future periods.

~~Cost of Product Sales~~

The primary expense we incur to deliver IXINITY, our sole marketed products to our customers is manufacturing costs consisting of fixed and variable costs. Variable product costs consist primarily of costs for materials and personnel-related expenses for direct and indirect manufacturing support staff, contract manufacturing and filling operations. Fixed product costs include facilities, utilities and amortization of intangible assets. We determine the cost of product sales for products sold during a reporting period based on the average cost per unit.

~~The following table provides information regarding our cost of products sales, including gross margin for the three months and nine months ended September 30, 2017 and 2016:~~

For the Three Months Ended September 30,

2017

2016

Change

Percent

Product sales

$
2,506

$
2,816

$
(310
)

-11%

Cost of product sales

1,872

4,110

(2,238
)

-54%

Gross profit

$
634

$
(1,294
)

$
1,928

Gross margin percent

25
%

-46
%

For the Nine Months Ended September 30,

2017

2016

Change

Percent

Product sales

$
8,131

$
7,050

$
1,081

15%

Cost of product sales

3,114

7,387

(4,273
)

-58%

Gross profit

$
5,017

$
(337
)

$
5,354

Gross margin percent

62
%

-5
%

Cost of product sales decreased by $2.2 million, or 54%, to $1.9 million for the three months ended September 30, 2017 from $4.1 million for the three months ended September 30, 2016 and decreased by $4.3 million, or 58%, to $3.1 million for the nine months ended September 30, 2017 from $7.4 million for the nine months ended September 30, 2016. The decrease the three-month period was due to a $2.9 million third quarter 2016 write-off of unsaleable IXINITY product. The year-to-date decrease is due to a one-time $3.0 million settlement in the first six months of 2017 related to a dispute between Aptevo and CMC in regards to certain IXINITY batches from 2015 that did not meet manufacturing specifications. Under the terms of the settlement agreement, Aptevo will not pay any additional amounts to CMC for the batches in question, as this was settled for non-cash consideration. This settlement satisfies the monies owed by Aptevo under a 2015 invoice and resolves any claims.

Due to the ongoing challenges with the manufacture of our IXINITY product that meets release specifications for the final drug product, in the third quarter of 2016, we wrote off approximately $2.9 million in unsaleable IXINITY inventory that was in process of being manufactured. This cost is included in cost of product sales.

~~Research and Development Expenses~~

We expense research and development costs as incurred. These expenses consist primarily of the costs associated with our research and discovery activities, including conducting preclinical studies and clinical trials, fees to professional service providers for analytical testing, independent monitoring or other administration ofcompleting our clinical trials, and obtaining ~~and evaluating data from~~regulatory approvals for our product candidates;

•

our ability to obtain regulatory clearance to commence 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 primarily consist of:~~

~~employee salaries and related expenses, including stock-based compensation and benefits for our employees involved in our drug discovery and development activities;~~

product candidates;

•

~~external research~~our ability to establish and ~~development expense incurred under agreements with third-party contract research organizations (CRO’s)~~maintain strategic partnerships, licensing or other arrangements and ~~investigative sites;~~

the financial terms of such agreements;

•

~~manufacturing material expense for third-party manufacturing;~~

the effects of macroeconomic conditions, including rising and fluctuating inflation, interest rates and supply chain constraints;

•

~~overhead costs such as rent, utilities and depreciation~~

our ability to successfully develop our ADAPTIR or ADAPTIR-FLEX platforms;

~~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. While programs are still in the preclinical trial phase, we do not provide a breakdown of the initial associated expenses as we are often evaluating multiple product candidates simultaneously. Costs are reported in preclinical research and discovery until the program enters the clinic.

~~Our principal research and development expenses by program for the three and nine months ended September 30, 2017 and 2016 are shown in the following table:~~

For the Three Months Ended September 30,

(in thousands)

2017

2016

Change

Clinical programs:

APVO414

$
1,425

$
562

$
863

otlertuzumab

334

16

318

Total clinical programs

1,759

578

1,181

Preclinical program, general research and discovery

5,135

5,365

(230
)
IXINITY

281

1,134

(853
)
Total

$
7,175

$
7,077

$
98

For the Nine Months Ended September 30,

(in thousands)

2017

2016

Change

Clinical programs:

APVO414

$
2,792

$
2,572

$
220

otlertuzumab

999

1,294

(295
)
Total clinical programs

3,791

3,866

(75
)

Preclinical program, general research and discovery

14,326

13,627

699

IXINITY

1,718

5,266

(3,548
)
Total

$
19,835

$
22,759

$
(2,924
)

Research and development expenses did not change meaningfully between the three months ended September 30, 2016 and 2017 and decreased by $2.9 million, or 13%, to $19.8 million for the nine months ended September 30, 2017 from $22.8 million for the nine months ended September 30, 2016. This decrease was primarily comprised of:

~~a decrease in expense for otlertuzumab related to the timing of clinical trial activities; and~~

~~a decrease in expense for IXINITY, our commercial product, resulting from decreased manufacturing process development activities and the timing of clinical trial activities; offset in part by~~

~~an increase in expense for APVO414 primarily due to the timing of manufacturing activities; and~~

an increase in the expenses for our preclinical program, general research and discovery programs is primarily related to research and development activities as new pipeline product candidates or programs are being evaluated.

~~Selling, General and Administrative Expenses~~

~~Selling, general and administrative expenses consist primarily of personnel-related costs and professional fees in support~~ of our ~~executive, sales~~current and ~~marketing, business development, finance, accounting, information technology, legal~~planned preclinical studies and ~~human resource functions. Other costs include facility costs not otherwise included in cost of product sales or research and development expenses.~~

For the three months ended September 30, 2017 selling, general and administrative expenses decreased by $3.6 million, or 33%, to $7.5 million for 2017 from $11.1 million for 2016. This decrease was primarily due to decreased personnel costs in the period.

For the nine months ended September 30, 2017 selling, general and administrative expenses decreased by $1.9 million, or 7%, to $26.0 million for 2017 from $27.9 million for 2016. This decrease was primarily due to lower marketing costs for IXINITY and reduced personnel costs.

~~Other Income (Expense), net~~

Other income (expense), net, consists primarily of interest on debt financing. For the three months ended September 30, 2017, other income (expense) remained flat at an expense of $0.4 million, and for the nine months ended September 30, 2017, increased by $0.9 million, both due to the interest on the loan entered into with Midcap Financial Trust in the last half of 2016.

~~Income Taxes~~

Benefit from income taxes decreased for the three months ended September 30, 2017 to $13.8 million from $17.6 million for the three months ended September 30, 2016, and decreased to $15.6 million in the nine months ended September 30, 2017 from $18.6 million in the nine months ended September 30, 2016. This tax impact is due to the restatement of our tax liability (see Note 10 – Restatement), as well as the exception to the Intraperiod Tax Allocation rules in accordance with ASC 740-20-45-7. The exception requires that all items (including discontinued operations) be considered in determining the amount of the tax benefit that results for the loss in continuing operations. This deferred tax liability was released to benefit from income taxes upon the impairment of the related IPR& D.

Income tax expense increased to $21.3 million for the three months ended September 30, 2017, from $2.3 million for the three months ended September 30, 2016, and increased to $23.1 million in the nine months ended September 30, 2017 from $3.3 million in the nine months ended September 30, 2016. This income tax expense is due to the impact of the sale of our Hyperimmune Business (see Note 2 – Sale of Hyperimmune Business) and is expected to be reversed in the fourth quarter of 2017.

~~Critical Accounting Policies and Significant Judgements and Estimates~~

The preparation of our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States, or 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 that we believe are reasonable under the circumstances; however, actual results could differ from those estimates. 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. Although we believe that our judgments and estimates are appropriate, actual results may differ materially from our estimates.

~~We believe the judgments, estimates and assumptions associated with the following critical accounting policies have the greatest potential impact on our consolidated financial statements:~~

~~Revenue recognition;~~

clinical trials;

•

~~Collaborations;~~

~~Research and development; and~~

~~Stock-based compensation~~

For a detailed discussion of these critical accounting policies and significant judgments and estimates, refer to “Critical Accounting Policies and Significant Judgments and Estimates” within “Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016 that was filed with the SEC on March 31, 2017. There have not been any material changes in our critical accounting policies and significant judgments and estimates as disclosed in our Annual Report Form 10-K for the year ended December 31, 2016.

~~Off-Balance Sheet Arrangements~~

~~We did not have any off-balance sheet arrangements as of September 30, 2017.~~

~~Liquidity and Capital Resources~~

~~Sources of Liquidity~~

~~As of September 30, 2017, we had cash, cash equivalents and investments in the amount of $96.8 million.~~

On August 1, 2016, in connection with the spin-off of the Company from Emergent, we issued 20.2 million shares of our common stock to Emergent stockholders and recorded a contribution from Emergent of $71.2 million. The transactions recorded in 2016 included a one-time payment of $45.0 million, and a working capital reimbursement for outstanding payments of $1.4 million, a noncash transfer of an intangible asset of $0.7 million, and a net transfer of cash from Emergent of $24.2 million. In addition, in the first quarter of 2017 we received $20.0 million as payment for a promissory note issued at the time of the spin-off.

In addition, on August 4, 2016, we entered into a $35.0 million Credit and Security Agreement (Credit Agreement), with MidCap Financial Trust. The original Credit Agreement provided us with up to $35.0 million of available borrowing capacity composed of two tranches of $20.0 million and $15.0 million. The first tranche of $20.0 million was made available to us, and drawn,

on the closing date of the Credit Agreement and the second tranche of $15.0 million to become available (subject to certain conditions) following the date we: (1) achieve net commercial product revenue of $40.0 million on a trailing twelve-month basis, and (2) receive payment of the additional $20.0 million in cash committed by Emergent. Emergent’s promise to pay such $20.0 million in cash was evidenced by a non-negotiable, unsecured promissory note issued to us and was paid in the first quarter of 2017. Once drawn, interest would be paid monthly while principal would have been paid on a monthly basis commencing in August 2018. The credit agreement will mature on February 1, 2021. Amounts drawn under the Credit Agreement accrue interest at a rate of LIBOR plus 7.60% per annum.

The Credit Agreement covenants require us and our subsidiaries to maintain increasing minimum net commercial product revenue for each twelve-month period ending on the last day of each calendar quarter. An event of default could result in the acceleration of the amounts owed under the Credit Agreement, and we may not have sufficient funds or be able to obtain additional financing to make any accelerated payments. Under these circumstances, our lenders could seek to enforce security interests in our assets securing our indebtedness.

On May 11, 2017, we and MidCap Financial Trust entered into an amendment to the Credit Agreement to, among other things, waive the existing event of default and revise the financial covenants pertaining to the minimum required commercial product revenue. The amendment revises the following covenants of the Credit Agreement to: (1) extend the time period through which we can draw the second tranche from August 2017 to March 2018, (2) increase the exit fee of 5.75% of the aggregate principal amount under the Credit Agreement for repayment or prepayment other than scheduled amortization payments and the final payment of principal to 6.75% and (3) permit MidCap Financial Trust to obtain an affirmative lien on our intellectual property, upon the earlier of (i) our draw down of the second tranche or (ii) our cash balance descending below a minimum cash threshold of $25 million.

On September 28, 2017, we and MidCap Financial Trust entered into a second amendment to the Credit Agreement in order to permit the sale under the LLC purchase agreement, and to reflect changes in the remaining business as a result of such sale. Pursuant to the second Amendment, the agent and the lenders consented to the LLC purchase agreement and the consummation of the sale transaction, released the agent’s liens on the assets transferred to one of our subsidiaries prior to the sale, and agreed that no prepayment of the term loans under the credit agreement would be required as a result the sale. As part of the second amendment, the agent and the lenders agreed that: (i) the commitments of the lenders to make the remaining $15.0 million tranche of loans under the credit agreement were terminated, (ii) the covenant levels set forth in the minimum net commercial product revenue covenant were revised, (iii) a new covenant requiring us to maintain a minimum $10.0 million unrestricted cash balance, and (iv) the date on which the term loans begin to amortize will be extended to February 1, 2019 if we achieve net commercial product revenues of $16.0 million for the twelve month period ending June 30, 2018 and maintains such level of net commercial product revenues for each quarter prior to February 1, 2019 thereafter.

On September 28, 2017, Saol paid us an upfront payment totaling $65.0 million, including $3.3 million which was deposited in an escrow account for the purposes of satisfying any indemnification claims brought by Saol pursuant to the LLC purchase agreement.

~~Capital Requirements~~

We expect to incur losses from operations for the foreseeable future primarily due to research and development expenses, including expenses related to conducting clinical trials. The Company’s future capital requirements will depend on a number of factors, including:

~~the level, timing and cost of product sales;~~

~~the collection of accounts receivable from customers;~~

~~the extent to which we invest in products or technologies;~~

~~capital improvements to new or existing facilities;~~

~~the payment obligations under any future indebtedness;~~

the scope, progress, results, and costs of researching and developing our ~~development activities;~~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 ~~product~~ marketing, sales, and ~~distribution;~~

distribution costs;

•

whether and to what extent future milestones are received under our Royalty Purchase Agreement with HCR; and

•

the timing, receipt and amount of any milestone payments from Medexus with respect to IXINITY.

~~We expect our cash, cash equivalents and investments will support our operations for~~If we are unable to raise substantial additional capital in the next ~~twelve months,~~year, whether on terms that are acceptable to us or at ~~least, based~~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 ~~current operating plans~~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 ~~financial forecasts.~~

~~Cash Flows~~

~~The following table provides information regarding~~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 ~~cash flows for the nine months ended September 30,~~ ~~2017 and 2016:~~

For the Nine Months Ended September 30,

(in thousands)

2017

2016

Net cash provided by (used in):

Operating activities

(26,152
)

(30,197
)
Investing activities

83,299

(51,735
)
Financing activities

9,007

88,189

Increase in cash and cash equivalents

$
66,154

$
6,257

~~Net cash used in operating activities of $26.2 million for the nine months ended September 30, 2017 was primarily~~product candidates, due to financial and other impacts on potential partners.

Contractual Obligations

We have an operating lease related to our office and laboratory space in Seattle, Washington. This lease was amended in March 2019 to extend the ~~gain on sale~~term of the ~~Hyperimmune Business. Net cash used in operating activities of $30.2 million for~~amended lease is through April 2030 and provided two options to extend the ~~nine months ended September 30, 2016 was primarily due to our net loss of $97.5 million, which included a one-time impairment of goodwill and intangible assets of $71.0 million.~~

~~Net cash provided~~lease term, each by investing activities was primarily due to the cash proceeds from the sale of the Company’s Hyperimmune Business and the maturity and redemption of investments of $53.2 million, offset by investment purchases of $29.3 million in the nine months ended September 30, 2017. For the nine months ended September 30, 2016, the largest component of the cash used in investing was $49.8 million in purchases of corporate bonds and US government and agency debt securities.

Net cash provided by financing activities for the nine months ended September 30, 2017 includes the net proceeds received from Emergent at the time of the spin-off in support of a promissory note to support the operations of the Company, offset by $10.0 million in restricted cash in accordance with loan agreement. The net cash provided by financing activities for the nine months ended September 30, 2016 includes $18.0 million in proceeds from long-term debt,five years, as well as ~~$70.5~~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 ~~two contributions from Emergent.~~

~~Contractual Obligations~~

certain transgenic rodents of OMT's OmniAb platform. Our ~~future minimum contractual commitments~~OMT License Agreement obligates us to make milestone and ~~obligations were reported~~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 our ~~Annual Report~~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 ~~Form 10-K for~~ the ~~year ended December 31, 2016 that was filed with~~timing of termination and the ~~SEC on March 14, 2017. Our future minimum contractual obligations~~terms of the agreement. The actual amounts and ~~commitments have not changed materially from~~timing of payments under these agreements are uncertain and contingent upon the ~~amounts previously reported.~~initiation and completion of the services to be provided.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Our exposure~~As of June 30, 2023, there were no material changes to ~~market risk is primarily confined to our investment securities~~the information provided under Item 7A, Quantitative and notes payable. The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in high-credit-quality securities. In accordance with our investment policy, we invest funds in highly liquid, investment-grade securities. These securitiesQualitative Disclosures About Market Risk in our ~~investment portfolio are not leveraged and are classified as available-for-sale. We currently do not hedge interest rate exposure. Because of~~Annual Report on Form 10-K for the ~~short-term maturities of our investments, we do not believe that an increase in market rates would have a material negative impact~~year ended December 31, 2022 filed on the realized value of our investment portfolio. We actively monitor changes in interest rates and, with our current portfolio of short term investments, we are not exposed to potential loss due to changes in interest rates.March 30, 2023.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

~~Based on~~As of June 30, 2023, 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~~as defined in Rules 13a-15(e) and 15d-15(e)~~) under the Securities Exchange Act~~ of ~~1934, or~~ the Exchange ~~Act) required by Rules 13a-15(b) or 15d-15(b) under the Exchange Act,~~Act. Based on this evaluation, our Chief Executive Officer and ~~our~~ Chief Financial Officer ~~have~~ concluded that, as of June 30, 2023, the ~~end~~design and operation of ~~the period covered by this report,~~ our disclosure controls and procedures were effective ~~at a~~to provide reasonable assurance ~~level~~.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 ~~September~~June 30, ~~2017,~~2023, 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.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We may from time to time be named as a party to legal claims, actions and complaints, including matters involving employment claims, our intellectual property or other third-party claims. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.

Item 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~~Quarterly Report on Form 10-Q in evaluating us and our common stock. ~~Any~~

RISK FACTOR SUMMARY

The following is a summary of the ~~following~~material risks ~~could materially~~to our business, operations, and ~~adversely affect Aptevo’s results~~ownership of ~~operations, financial condition or financial prospects.~~our common stock:

~~RISKS RELATED TO OUR BUSINESS~~

~~Financial Risks~~

•

We have a history of losses and may not be profitable in the future.

Our historical consolidated financial data prior to August 1, 2016 was prepared on a “carve-out” basis from the financial information of Emergent and shows that had we been a standalone company, we would have had a history of losses, and we may be unable to achieve profitability going forward.

Although for the three and nine months ended September 30, 2017, we had net income of $37.9 million and $16.7 million, respectively this net income was the result of our receipt of proceeds from the sale of the Hyperimmune Business in September 2017. We have experienced net losses in all other periods since our spinout from Emergent and as of September 30, 2017, we had an accumulated deficit of $64.0 million as of September 30, 2017. If we cannot achieve profitability or generate positive cash from operating activities, our business operations may be adversely impacted and the trading value of our common stock may decline.

•

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.

•

Our future cash flow will depend, in part, on the ability of Pfizer to successfully sell RUXIENCE and our receipt of milestone payments from HCR in connection therewith. If Pfizer is unable, or does not devote sufficient resources, to maintain or continue increasing sales of RUXIENCE, or if HCR does not comply with the Royalty Purchase Agreement, our results of operations will be adversely affected.

•

The 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 may be volatile.

•

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 six months ended June 30, 2023, we had net loss of $5.2 million compared to $20.3 million net income for the same period in 2022. The net income for the six months ended June 30, 2022 was due to a one-time $37.2 million gain recognized as a result of Amendment to Royalty Purchase Agreement with HCR. As of ~~September~~June 30, ~~2017,~~2023, we had an accumulated deficit of $211.2 million. We expect to continue to incur annual net operating losses for the foreseeable future, and will require substantial resources over the next several years as we expand our efforts to discover, develop and commercialize immunotherapeutic candidates. While we believe our existing cash and cash equivalents and the funding provided by our Purchase Agreement with XOMA, the ability to receive a potential future milestone payment under the Royalty Purchase Agreement with HCR, potential future milestone payments from Medexus under our LLC Purchase Agreement, our ability to issue securities under the Equity Distribution Agreement with Piper Sandler and our Purchase Agreement with Lincoln Park Capital, and exercises of warrants will provide us with sufficient liquidity to meet our cash requirements through at least next twelve months, our future success and ability to attain profitability will depend upon our ability to develop and commercialize our product candidates.

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

As of June 30, 2023, we had cash and cash equivalents ~~and investments~~ in the amount of ~~$96.8~~$21.0 million. We will require additional funding to grow 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 could harm our business, results of operations and future prospects. Our future capital requirements will depend on many factors, including:

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the level, timing and ~~cost~~receipt of ~~product sales;~~

any milestone payments under our agreements with Medexus with respect to the sales of IXINITY;

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~~the collection of accounts receivable from customers;~~

whether and to what extent future milestone payments are received under our Amendment to Royalty Purchase Agreement with HCR;

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the extent to which we invest in products or technologies;

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the ability to satisfy the payment obligations and covenants under ~~such credit facility;~~

any future indebtedness;

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the ability to secure partnerships and/or collaborations that generate additional cash;

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capital improvements to ~~new or existing~~our facilities;

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~~the payment obligations under our current or any future indebtedness;~~

the scope, progress, results, and costs of our development activities;

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~~the~~clinical development costs, timing, and other requirements to complete dosing of ~~commercialization activities, including product marketing, sales~~our Phase 1b clinical trial for APVO436 and ~~distribution;~~

Phase 1 clinical trial of ALG.APV-527, as well as future clinical trials;

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the ~~ongoing costs associated with the separation from Emergent~~cost of preparing, filing and ~~performance under agreements with Emergent;~~

prosecuting patent applications, obtaining, maintaining, enforcing and protecting our intellectual property rights and defending intellectual property-related claims; and

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~~the ongoing costs associated with replicating or outsourcing from other providers’ certain facilities, systems, operational and administrative infrastructure,~~macroeconomic conditions, including ~~information technology infrastructure, and personnel, to which we no longer have access after our separation from Emergent; and~~

the ~~ability to collect the milestone payments totaling up to $7.5 million related to the achievement~~impact of ~~certain gross profit milestones~~inflation and ~~up to $2.0 million related to collection~~cost of ~~certain accounts receivable from Saol.~~

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, ~~a sale of commercial assets,~~ 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, 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 8,064,517 shares of our common stock (or pre-funded warrant in lieu thereof) at a purchase price of $0.62. We received $5 million in gross proceeds from issuance of these shares. Our net proceeds from the offering amounted to $4.5 million after placement agent and other fees. Future issuances of common stock may include, but not be limited to, (i) any sale of up to $50.0 million worth of shares of our common stock pursuant to our Equity Distribution Agreement with Piper Sandler, (ii) any sale of up to $35 million worth of shares of our common stock to issue from our Purchase Agreement with Lincoln Park, (iii) the issuance of up to 350,589 remaining outstanding shares of common stock upon the exercise of warrants issued in connection with our March 2019 public offering of common stock and warrants, (iv) the issuance of up to 16,129,034 remaining outstanding shares of common stock upon the exercise of warrants issued in connection with our August 2023 public offering of common stock and warrants or (v) 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 ~~declaring dividends.~~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.

~~Current economic conditions may make it difficult to obtain additional financing on attractive terms, or at all.~~ If financing is unavailable or lost, our business, results of operations, financial condition and financial prospects would be adversely affected and we could be forced to delay, reduce the scope of or eliminate many of our planned activities.

Further, SEC regulations limit the amount of funds we can raise during any 12-month period pursuant to our shelf registration statement on Form S-3. 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 updates the amount of registered shares that we are eligible to sell. So long as the aggregate market value of our common stock held by non-affiliates is less than $75 million, we will not sell any registered shares under this 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 current public float of our common stock. In the last 12 months, we have sold $8.8 million worth of shares of our common stock pursuant to our Equity Distribution Agreement. The limitations of General Instruction I.B.6 do not apply to sales of our shares under our Purchase Agreement with Lincoln Park Financial LLC as those sales were committed prior to us being subject to the limitations of General Instruction I.B.6. 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 ~~depends~~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 ~~continued success~~Company's product development and operations. If inflation or other factors were to significantly increase our business costs, our ability to develop our current pipeline and new therapeutic products may be negatively affected. Interest rates, the liquidity of ~~IXINITY.~~

~~We currently have only one revenue-generating product, IXINITY, following~~ the ~~sale~~credit markets and the volatility of the capital markets could also affect the operation of our ~~three hyperimmune products, WinRho SDF, HepaGam B~~business and ~~VARIZIG.~~ our ability to raise capital on favorable terms, or at all, in order to fund our operations.

We ~~expect revenues~~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. For example, on March 10 and March 12, 2023, the Federal Deposit Insurance Corporation (“FDIC”) took control and was appointed receiver of Silicon Valley Bank (“SVB”) and Signature Bank, respectively, after each bank was unable to continue their operations. These events exposed vulnerabilities in the banking sector, including legal uncertainties, significant volatility and contagion risk, and caused market prices of regional bank stocks to plummet. As of the date of this filing, we don’t have any exposure to SVB and Signature Bank, however, we are unable to predict the extent or nature of the impacts of these evolving circumstances at this time. If, for example, other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened. While it is not possible at this time to predict the extent of the impact that the failure of

SVB and Signature Bank or the high market volatility and instability of the banking sector could have on economic activity and our business in particular, the failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response to these events could adversely impact our business, financial condition and results of operations.

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. For example, on February 9, 2021, Tang Capital Partners LP, Tang Capital Management, LLC and Kevin Tang (collectively, “Tang”) submitted an advisory stockholder proposal for consideration at our 2021 annual meeting of stockholders to commence a process to sell Aptevo to the highest bidder ("Tang Proposal"). 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 additional 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 ~~account for~~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 ~~portion~~result of ~~our revenue. The commercial success~~a variety of ~~IXINTY depends upon:~~factors, including:

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the ~~continued acceptance by regulators, physicians, patients~~level and ~~other key decision-makers~~timing of any milestone payments with respect to sales of IXINITY ~~as safe, therapeutic~~by Medexus;

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whether and ~~cost-effective options;~~

~~our ability to further develop IXINITY and obtain marketing approval for their use in additional patient populations and the clinical data we generate to support expansion of the product label;~~

~~the ability of CMC ICOS Biologics Inc. and our third-party service providers to provide us with sufficient saleable quantities of IXINITY;~~

~~the impact of competition from existing competitive products and from competitive products that may be approved in the future;~~

~~the continued safety and efficacy IXINITY;~~

to what extent ~~and in what amount government and third-party payors cover or reimburse for the costs IXINITY; and~~

future milestone payments are received under our Amendment to Royalty Purchase Agreement with HCR;

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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

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the timing, cost, and level of investment in our ~~success~~research and ~~the success of our third-party distributors in selling~~development and ~~marketing IXINITY.~~

clinical activities as well as expenditures we will or may incur to acquire or develop additional technologies, products and product candidates.

~~The failure~~Due to ~~maximize~~ the macroeconomic and geopolitical environment, we may experience delays in opportunities to partner our product candidates, due to financial ~~contribution of~~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 ~~could~~businesses. These and other factors may have a material adverse effect on our business, ~~financial condition,~~ results of operations and growth prospects. We may choose to increase the price of IXINITY, and these price adjustments may negatively affect our sales volumes. In addition, our product sales may fluctuate significantly from quarter to quarter, dependingfinancial condition.

Our future cash flow will depend, in part, on the ~~number~~ability of ~~patients receiving treatment, the availability~~Pfizer to successfully sell RUXIENCE and our receipt of ~~supply~~milestone payments from HCR in connection therewith. If Pfizer is unable, or does not devote sufficient resources, to ~~meet the demand for IXINITY, the dosing requirements of treated patients and other factors. If~~maintain or continue increasing sales of ~~IXINTY were to decline, we could be required to make an allowance for excess~~RUXIENCE, or ~~obsolete inventory, increase our provision for product returns, or we could incur other costs related to operating our business, each of which could negatively impact~~if HCR does not comply with the Royalty Purchase Agreement, our results of operations ~~and our financial condition. We are constantly evaluating commercial and strategic transactions~~will be adversely affected.

On June 25, 2020, we announced that we were entitled to ~~generate revenue that include any current collaborations and collaborations or a sale of assets in the future.~~

~~We may not be able to engage in certain corporate transactions.~~

~~To preserve the tax-free treatment of the distribution~~royalty payments from Pfizer related to the separation, together with certain related transactions, we are restricted under the tax matters agreement that we entered into with Emergent, from taking any action that prevents such transactions from being tax-free for U.S. federal income tax purposes. In particular, for a period of two years following the separation, we are restricted from taking certain actions (including restrictions on share issuances, business combinations, sales of ~~assets, amendments to organizational documents~~a rituximab biosimilar product, RUXIENCE (Rituximab-pvvr), which was approved by the U.S. Food and similar transactions) that could cause the distribution, together with certain related transactions, to fail to qualify as a tax-free transaction for U.S. federal income tax purposes. These restrictions may limit our ability to pursue certain strategic transactions or engageDrug Administration in ~~other transactions that might increase the value of our business, including use of our common stock to make acquisitions~~July 2019 and equity capital market transactions. In addition, under the tax matters agreement, we are required to indemnify Emergent against any tax liabilities and related expenses arising from the failure of the distribution, together with certain related transactions, to be tax-free to the extent such failure is attributable to actions, events or transactions relating to our stock, assets or business, including the acquisition of our stock even if we did not participate in or otherwise facilitate the acquisition.

~~We may not achieve profitability in future periods or on a consistent basis.~~

Although for the three and nine months ended September 30, 2017, we had net income of $37.9 million and $16.7 million, respectively, this net income was the result of our receipt of proceeds from the sale of our three hyperimmune products in September 2017. Our ability to become profitable in future periods will be substantially dependent on our product sales revenues from the sales of IXINITY and revenues from any current collaboration and licensing arrangements and any arrangements entered into in the future. Accordingly, our ability to become profitable may be adversely affected as we progress through various stages of ongoing or planned clinical trials for our product candidates. We may not be able to achieve profitability. We anticipate needing to generate greater revenue in future periods from IXINITY or our product candidates in development. If we are unable to generate greater revenue, we may not achieve profitability in future periods, and may not be able to maintain any profitability we do achieve. If we are unable to generate sufficient revenues, we will not become profitable and may be unable to continue operations without additional funding.

~~The terms of our credit agreement may restrict the operation of our business and limit the cash available for investment in our business operations.~~

~~On August 4, 2016, we entered into a Credit and Security Agreement, or the Credit Agreement,~~launched by and among us and certain our subsidiaries as borrowers, MidCap Financial Trust, as agent, and the lenders from time to time party thereto. The terms of the Credit Agreement, and its subsequent amendments, and borrowings we may make under the Credit Agreement in the future, could have significant adverse consequences for our business, including:

~~requiring us to dedicate a substantial portion of any cash flow from operations to payment on our debt, which would reduce the amounts available to fund other corporate initiatives;~~

~~increasing the amount of interest that we have to pay on borrowings under the Credit Agreement if market rates of interest increase;~~

not complying with restrictive covenants restricting, among other things, indebtedness, liens, dividends and other distributions, repayment of subordinated indebtedness, mergers, dispositions, investments (including licensing), acquisitions, transactions with affiliates and modification of organizational documents or certain other agreements;

~~not complying with affirmative covenants including payment, reporting and revenue covenants; and~~

~~placing us at a competitive disadvantage compared to our competitors that have less debt, better debt servicing options or stronger debt servicing capacity.~~

As of March 31, 2017, our net commercial product revenue did not meet the required minimum for the twelve months ended March 31, 2017. As a result, on May 11, 2017, we and MidCap Financial Trust entered into an amendment to the Credit Agreement to, among other things, waive the existing event of default and revise the financial covenants pertaining to the minimum required commercial product revenue. The amendment revises the following covenants of the Credit Agreement to: (1) extend the time period through which we can draw the second tranche from August 2017 to March 2018 (2) increase the exit fee of 5.75% of the aggregate principal amount under the Credit Agreement for repayment or prepayment other than scheduled amortization payments and the final payment of principal to 6.75% and (3) permit MidCap Financial Trust to obtain an affirmative lien on our intellectual property, upon the earlier of (i) our draw down of the second tranche or (ii) our cash balance descending below a minimum cash threshold of $25 million.

On September 28, 2017, we entered into a second amendment of the Credit Agreement (Amendment No. 2) in order to permit the sale of the Hyperimmune Business under the LLC purchase agreement (described in Note 2 - Sale of Hyperimmune Business, in the notes to the financial statements), and to reflect changes in the remaining business as a result of such sale.

Pursuant to the amendment, the agent and the lenders consented to the LLC purchase agreement and the consummation of the sale transaction, released Midcap Financial Trust’s liens on the assets transferred to Venus BioTherapeutics Sub LLC (Venus), one of our subsidiaries, prior to the sale, and agreed that no prepayment of the term loans under the credit agreement would be required as a result the sale.

As part of the amendment, the agent and the lenders agreed that: (i) the commitments of the lenders to make the remaining $15.0 million tranche of loans under the credit agreement were terminated, (ii) the covenant levels set forth in the minimum net commercial product revenue covenant were revised, (iii) a new covenant requiring us to maintain minimum unrestricted cash balances was added to the credit agreement, and (iv) the date on which the term loans begin to amortize will be extended to February 1, 2019 if we achieve commercial product revenues of $16.0 million for the twelve month period ending June 30, 2018 and maintain such level of net commercial product revenues for each quarter prior to February 1, 2019 thereafter.

We may not have sufficient funds or be able to obtain additional financing to pay the amounts due under any future borrowings under the Credit Agreement. In addition, failure to comply with the covenants, including but not limited to the revenue covenants, under the Credit Agreement could result in an event of default. An event of default could result in the acceleration of amounts due under the Credit Agreement, and we may not be able to obtain additional financing to make any accelerated payments. Under these circumstances, our lenders could seek to enforce security interests in our assets securing our indebtedness.

~~Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturns.~~

~~Our results of operations could be materially negatively affected by general economic conditions, both~~Pfizer in the United States and ~~elsewhere around the world. Continuing concerns over inflation, energy costs, geopolitical issues,~~Japan in early 2020, and the ~~availability~~European Union in the third quarter of 2020. The payments from Pfizer relate to a Collaboration and ~~cost~~License Agreement acquired by us as part of ~~credit~~our spin-off from Emergent in 2016, which applies a fixed royalty rate of 2.5% on global net sales of RUXIENCE. The agreement was originally executed by Trubion Pharmaceuticals (which was subsequently acquired by Emergent) and Wyeth (a wholly-owned subsidiary of Pfizer).

On March 30, 2021, we entered into and closed a Royalty Purchase Agreement with HCR pursuant to which we sold to HCR the right to receive royalty payments made by Pfizer in respect of global net sales of RUXIENCE. Under the terms of the Royalty Purchase Agreement, we have ~~contributed~~received $47.5 million through June 30, 2023 ($35 million at closing and $12.5 million in milestone payments) and we are eligible to ~~increased volatility~~receive an additional $10 million based on the achievement of sales milestone 2023.

We have no control over the sales of RUXIENCE and ~~diminished expectations~~are therefore dependent on the efforts and ability of Pfizer to generate net sales of RUXIENCE sufficient for us to receive Milestone Payments under the ~~economy~~Royalty Purchase Agreement. The failure of Pfizer to successfully generate such net sales could negatively impact our future financial and ~~the markets going forward. Domestic~~operating results and international equity markets continue to experience heightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on us. In the event of a continuing market downturn, our results of operations could therefore be adversely ~~affected by those factors in many ways, including making it more difficult~~affected. Additionally, even if Pfizer is able to generate net sales of RUXIENCE sufficient for us to ~~raise funds,~~receive such milestone payments, if ~~necessary, and our stock price~~HCR breaches the Royalty Purchase Agreement (for example, by not making required payments when due, or at all), disputes or litigation may ~~further decline.~~

~~The way that we account for our operational and business activities is based on estimates and assumptions that may differ from actual results.~~

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, our management evaluates its critical estimates and judgments, including, among others: those related to revenue recognition, including product rebates, chargeback and return accruals; inventory; clinical research costs; business combinations; intangible assets and impairment; income taxes; stock-based compensation; and contingent consideration. Those critical estimates and assumptions are based on our historical experience, future projections, our observance of trends in the industry, and various other factors that are believed to be reasonable under the circumstances, and they form the basis for making judgments about the carrying values and fair values of assets and liabilities that may not be readily apparent from other sources. If actual results differ from these estimates as a result of unexpected conditionsarise. Such disputes or ~~events occurring which cause us to have to reassess our assumptions, there~~litigation could be ~~a material adverse impact on~~time-consuming and expensive and could adversely affect our ~~financial results and the performance of our stock.~~business.

We face product liability exposure, which could cause us to incur substantial liabilities and negatively affect our business, financial condition, and results of operations.

The nature of our business exposes us to potential liability inherent in pharmaceutical products, including with respect to the ~~sale of IXINITY, any other product candidates that we successfully develop and the~~ testing of our product candidates in clinical ~~trials.~~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 ~~our products.~~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 ~~possess~~receive regulatory approval for study or commercial ~~sale or study.~~sale. We cannot predict the frequency, outcome or cost to defend any such claims.

If we cannot successfully defend ourselves against future claims that ~~IXINITY or~~ our product candidates caused injuries, we may incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

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~~decreased demand or withdrawal of a product;~~

adverse publicity and/or injury to our reputation;

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withdrawal of clinical trial participants;

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costs to defend the related litigation;

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substantial monetary awards to trial participants or patients;

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decreased demand or withdrawal of an approved product;

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loss of revenue; and

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anthe 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 ~~products~~product liability litigation or other proceeding, even if resolved in our favor, could be substantial. Uncertainties resulting from the initiation and continuation of ~~products~~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 ~~our products and/or~~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.

Product recalls may be issued at our discretion or at the discretion of our suppliers, government agencies and other entities that have regulatory authority for pharmaceutical sales. Any recall of IXINITY could materially adversely affect our business by rendering us unable to sell IXINITY for some time and by adversely affecting our reputation. A recall could also result in product liability claims by individuals and third-party payors. In addition, product liability claims could result in an investigation of the safety or efficacy of IXINITY, our manufacturing processes and facilities, or our marketing programs conducted by the FDA, the European Medicines Agency, or EMA, or the competent authorities of the EU Member States. Such investigations could also potentially lead to a recall of IXINITY or more serious enforcement actions, limitations on the indications for which they may be used, or suspension, variation, or withdrawal of approval. Any such regulatory action by the FDA, the EMA or the competent authorities of the EU Member States could lead to product liability lawsuits as well.

We rely significantly on information technology systems and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively or result in data leakage of proprietary and confidential business and employee information.

Our business is increasingly dependent on critical, complex and interdependent information technology systems, including Internet-based systems, to support business processes as well as internal and external communications. The size and complexity of our computer systems make them potentially vulnerable to interruption, invasion, computer viruses, destruction, malicious intrusion and additional related disruptions, which may result in the impairment of production and key business processes.

In addition, our systems are potentially vulnerable to data security breaches—whether by employee error, malfeasance or other disruption—which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information, including sensitive personal information, of our employees, clinical trial patients, customers and others. A significant business disruption or a breach in security resulting in misappropriation, theft or sabotage with respect to our proprietary and confidential business and employee information could result in financial, legal, business or reputational harm to us, any of which could adversely affect our business, financial condition and operating results.

Our success is dependent on our continued ability to attract, motivate and retain key personnel, and any failure to attract or retain key personnel may negatively affect our business.

Because of the specialized scientific nature of our business, our ability to develop products and to compete with our current and future competitors largely depends upon our ability to attract, retain and motivate highly qualified managerial and key scientific and technical personnel. If we are unable to retain the services of one or more of the principal members of senior management, including our Chief Executive Officer, Marvin L. White, our Chief ~~Financial~~Operating Officer, Jeffrey G. Lamothe, ~~and~~ our Chief ~~Medical~~Financial Officer, ~~Scott C. Stromatt,~~Daphne Taylor, our General Counsel, SoYoung Kwon, or other key employees, our ability to implement our business strategy could be materially harmed. ~~Our industry has experienced a high rate of turnover of management personnel in recent years.~~ 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.

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 November 2020 is 0.89%). Any unused annual limitation may generally be carried over to subsequent years until the pre-ownership change net operating loss carryforwards and certain other tax attributes expire or are fully utilized by the corporation. Similar provisions of state tax law may also apply to limit the use of state net operating loss carryforwards and certain other tax attributes.

Additionally, Section 382 of the Code includes special rules that apply to a corporation with a significant amount of net unrealized built-in gains or net unrealized built-in losses in its assets immediately prior to ownership change under Section 382 of the Code. In general, certain built-in gains recognized during the five-year period beginning on the date of the ownership change increases the corporation’s annual limitation under 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 ~~periodic litigation,~~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, 2022, we had approximately $156.2 million and $71.1 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, 2021. 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 ~~losses~~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 ~~unexpected~~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 ~~time~~the Code. Such change to the deductibility of our research and ~~resources.~~development expenditures could increase the amount of taxes to which we are subject and our effective tax rate.

~~From~~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 geopolitical tension, such as a deterioration in the bilateral relationship between the US and China 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.

The COVID-19 pandemic, reoccurrences of COVID-19 or other pandemics, or other future widespread public health epidemics could adversely impact our business, including our clinical trials.

The COVID-19 pandemic caused severe global economic and societal disruptions and uncertainties. Although the COVID-19 pandemic has ended, 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; supply constraints; delays in opportunities to partner our product candidates, due to financial and other impacts on potential partners; diversion of healthcare resources away from the conduct of clinical trials; potential impacts on our future milestone payments from Medexus due to the environment which may impact Medexus’ ability to continue to successfully commercialize the IXINITY business or Pfizer to successfully commercialize RUXIENCE; and negative impacts on suppliers and licensees. The ultimate impact of COVID-19 reoccurrences or other pandemics on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of any pandemic and the related length of its impact on the United States and global economies, which are uncertain and cannot be predicted at this time. The impact of the COVID-19 pandemic, recurrences, or future other pandemics may also exacerbate many of the other risks described in this “Risk Factors” section. Despite our efforts to manage these impacts, their ultimate impact depends on factors beyond our knowledge or control, including the duration and severity of any outbreak and actions taken to contain its spread and mitigate its public health effects. The foregoing and other continued disruptions in our business as a result of COVID-19 could result in a material adverse effect on our business, results of operations, financial condition, prospects and the trading prices of our securities in the near-term and beyond 2023.

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 concluded enrollment in our Phase 1b clinical trial with APVO436 and are in the process of initiating a Phase 2 study in the second half of 2023. Additionally, we initiated a first-in-human Phase 1 clinical study of ALG.APV-527 in the first quarter of 2023. 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, 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. For example, we released preliminary data regarding our APVO436 Phase 1b clinical trial study which may change or be inconsistent with future results. Even in situations where a clinical stage candidate appears to be benefiting a patient, that benefit may not be of a permanent nature. Top line and interim data also remain subject to audit and verification procedures, that may result in the final data being materially different from the preliminary data we previously published. In addition, the achievement of one primary endpoint for a trial does not guarantee that additional co-primary endpoints or secondary endpoints will be achieved. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.

Our future clinical trials may not be successful. Moreover, should there be a flaw in a clinical trial, it may not become apparent until the clinical trial is well advanced. We may also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

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regulators or Institutional Review Boards ("IRBs") may not authorize us or our investigators to commence or continue a clinical trial, conduct a clinical trial at a prospective trial site, or amend trial protocols, or regulators or IRBs may require that we modify or amend our clinical trial protocols;

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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");

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regulators may require us to perform additional or unanticipated clinical trials to obtain approval or we may be ~~called~~subject to additional post-marketing testing, surveillance, or Risk Evaluation and Mitigation Strategy ("REMS") requirements to maintain regulatory approval;

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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;

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changes in marketing approval policies, laws, regulations, or the regulatory review process during the development period rendering our data insufficient to obtain marketing approval;

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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;

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the supply or quality of our product candidates or other materials necessary to ~~defend ourselves against lawsuits relating~~conduct clinical trials of our product candidates may be insufficient or inadequate;

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we may fail to reach an agreement with regulators or IRBs regarding the scope, design, or implementation of our ~~business.~~clinical trials;

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we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal of clinical trial sites;

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there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may emerge regarding our product candidates;

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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;

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the FDA or comparable foreign regulatory authorities may not accept data from studies with clinical trial sites in foreign countries;

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the FDA or comparable regulatory authorities may disagree with our intended indications;

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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

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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 ~~litigation, regardless~~ of ~~its merits,~~these regulatory authorities may also approve a product candidate for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. The FDA or other non-U.S. regulatory authorities may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our product candidates.

We may not be able to file 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 submitted an IND for ALG.APV-527 to the FDA in the second half of 2022 for which we received a “may proceed” notification from the FDA. 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.

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:

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the severity of the disease under investigation;

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the design of the clinical trial, including the patient eligibility criteria for the study in question;

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the perceived risks and benefits of the product candidate under study;

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our payments for conducting clinical trials;

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the patient referral practices of physicians;

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our ability to recruit clinical trial investigators with the appropriate competencies and experiences;

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our ability to obtain and maintain patient consents;

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the ability to monitor patients adequately during and after treatment;

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reporting of preliminary results of any of our clinical trial sites; and

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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 ~~substantial~~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 or undesirable side effects caused by, or other unexpected properties of any of our product candidates, either when used alone or in combination with other approved or investigational therapies, could cause us or regulatory authorities to interrupt, delay or halt our development activities and manufacturing and distribution operations and could result in a more restrictive label, the imposition of a clinical hold, suspension, distribution or use restrictions or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. If any of our product candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the compound.

As we continue developing our product candidates and conduct clinical trials of our product candidates, serious adverse events, or SAEs, undesirable side effects, relapse of disease or unexpected characteristics may emerge causing us to abandon these product candidates or limit their development to more narrow uses or subpopulations in which the SAEs or undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective or in which efficacy is more pronounced or durable. Undesirable side effects, or other unexpected adverse events or properties of any of our product candidates, could arise or become known either during clinical development or, if approved, after the approved product has been marketed. If such an event occurs during development, the FDA or comparable foreign regulatory authorities could suspend or terminate a clinical trial or deny approval of our product candidates. Furthermore, we 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:

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regulatory authorities may require us to conduct additional clinical trials or abandon our research efforts for our other product candidates;

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regulatory authorities may require additional warnings on the label or impose distribution or use restrictions;

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regulatory authorities may require one or more post-market studies;

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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

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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;

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we could be sued and held liable for harm caused to patients; and

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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 ~~a diversion~~expenses, which could delay or prevent us from generating revenue from the sale of ~~management’s attention~~our products and materially harm our business and results of operations.

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 providers are not our employees, and except for remedies available to us under our agreements with such third parties we cannot control whether or not they devote sufficient time and resources to our ongoing clinical, and non-clinical programs. Our third-party service providers may also have relationships with other entities, some of which may be our competitors, for whom they may also be conducting trials or other therapeutic development activities that could harm our competitive position. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our non-clinical studies or clinical trials in accordance with regulatory requirements or our stated protocols, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our trials may be repeated, extended, delayed, or terminated, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates, we may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates, or we or they may be subject to regulatory enforcement actions.

Our reliance on third-party service providers does not relieve us of our regulatory responsibilities, including ensuring that our trials are conducted in accordance with the FDA-approved good clinical practices, or GCPs, and the plans and protocols contained in the relevant regulatory application. In addition, these organizations and individuals may not complete these activities on our anticipated or desired timeframe. We also may experience unexpected cost increases that are ~~needed~~beyond our control. Problems with the timeliness or quality of the work of a contract research organization may lead us to ~~successfully run~~seek to terminate the relationship and use an alternative service provider, which may prove difficult and/or costly and result in a delay of our trials. In addition, business disruptions arising from circumstances out of our control, could negatively affect the ability of some of the independent clinical investigators, contract research organizations and other third-party service providers that conduct our clinical and preclinical trials of our product candidates. Any delay in or inability to complete our trials could delay or prevent the development, approval, and commercialization of our product candidates.

If CROs or other third parties assisting us or our study sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or its non-U.S. counterparts may require us to perform additional clinical trials before approving our marketing applications. We or they may also face regulatory enforcement action. We cannot assure you that, upon inspection, the FDA or non-U.S. regulatory agencies will determine that any of our clinical trials comply with GCP. In addition, our clinical trials must be conducted with product produced under GMP and similar regulations outside of the United States. Our failure, or the failure of our product candidate manufacturers, to comply with these regulations may require us to repeat or redesign clinical trials, or conduct additional trials, which would increase our development costs and delay or impact the conduct of our preclinical studies, clinical trials, and the likelihood of regulatory approval.

If third parties do not carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols, including dosing requirements, or regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials may be extended, delayed, suspended or terminated.

Agreements with third parties conducting or otherwise assisting with our clinical or non-clinical studies might terminate for a variety of reasons, including a failure to perform by the third parties. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative providers or to do so on commercially reasonable terms. Switching or adding

additional third parties involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, if we need to enter into alternative arrangements, it could delay our product development activities and adversely affect our business. ~~Due to~~Though we carefully manage our relationships with our third parties, there can be no assurance that we will not encounter challenges or delays in the ~~inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome in any such proceedings could~~future or that these delays or challenges will not have ana material adverse impact on our business, financial condition and prospects, and results of operations.

If any of these events occur, we may not be able to obtain regulatory approval of our product candidates or succeed in our efforts to create approved line extensions for certain of our existing products or generate additional useful clinical data in support of these products. Moreover, if we are unable to obtain any necessary third-party services on acceptable terms or if these service providers do not successfully carry out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals for our product candidates may be delayed or prevented.

Manufacture of our product candidates, especially in large quantities, is complex and time consuming. The loss of any of our third-party manufacturers, or delays or problems in the manufacture of our product candidates, could result in product shortages and/or delays in clinical development.

We do not have manufacturing capabilities and do not plan to develop such capacity in the foreseeable future. We depend on a limited number of third-party suppliers for the production of our product candidates. Accordingly, our ability to develop and deliver product candidates in a timely and competitive manner and to enable us to conduct our development programs depends on our third-party manufacturers being able to continue to meet our ongoing clinical trial needs and perform their contractual obligations. In order to successfully develop and commercialize our product candidates in a timely manner, we and our third-party manufacturers must be able to develop and execute on manufacturing processes and reach agreement on contract terms.

Our current and anticipated future dependence upon others for the manufacture of our product candidates or any product that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis. In addition, any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.

If these third-party manufacturers do not successfully carry out their contractual duties, meet expected deadlines or manufacture our product candidates in accordance with regulatory requirements, if there are disagreements between us and such parties, or if such parties are unable to expand capacities to support commercialization of any of our product candidates for which we obtain marketing approval, we may not be able to produce, or may be delayed in producing sufficient product candidates to meet our supply requirements. Any delays in obtaining adequate supplies with respect to our product candidates and components may delay the development or commercialization of our product candidates.

We may not succeed in our efforts to establish manufacturing relationships or other alternative arrangements for any of our product candidates, components, and programs. Our product candidates may compete with other products and product candidates for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that are both capable of manufacturing for us and willing to do so.

If our ~~stock price is volatile,~~existing third-party manufacturers, or the third parties that we engage in the future to manufacture a product or component for commercial sale or for our clinical trials should cease to continue to do so for any reason, we likely would experience delays in obtaining sufficient quantities of our product candidates for us to meet commercial demand or to advance our clinical trials while we identify and qualify replacement suppliers. These third-party facilities may also be affected by natural disasters, such as floods or fire, or such facilities could face manufacturing issues, such as contamination or regulatory findings following a regulatory inspection of such facility. In such instances, we may ~~become involved~~need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptable terms, which would cause additional delay and increased expense. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to an alternate supplier in ~~securities class action lawsuits~~a timely fashion if at all. The addition of a new or alternative manufacturer may also require FDA approvals and may have a material adverse effect on our business.

If for any reason we are unable to obtain adequate supplies of our product candidates or the components used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively. Further, even if we do establish such collaborations or arrangements, our third-party manufacturers may breach, terminate, or not renew these agreements.

We or our third-party manufacturers may also encounter shortages in the ~~future.~~raw materials or therapeutic substances necessary to produce our product candidates in the quantities needed for our clinical trials or, if our product candidates are approved, in sufficient quantities for commercialization or to meet an increase in demand. Such shortages may occur for a variety of reasons, including capacity constraints, delays or disruptions in the market, and shortages caused by the purchase of such materials by our competitors or others. We may also not be able to obtain such materials on favorable terms as a result of global trade policies. Our third-party manufacturers’ failure to obtain the raw materials, therapeutic substances, or active pharmaceutical ingredients necessary to manufacture sufficient quantities of our product candidates may have a material adverse effect on our business.

All of our current product candidates are biologics. Our product candidates must be made consistently and in compliance with a clearly defined manufacturing process. Problems may arise during manufacturing for a variety of reasons, including problems with raw materials, equipment malfunction or replacement and failure to follow specific protocols and procedures. Slight deviations anywhere in the manufacturing process, including obtaining materials, maintaining master seed or cell banks and preventing genetic drift, seed or cell growth, fermentation and contamination including from, among other things, particulates, filtration, filling, labeling, packaging, storage and shipping, and quality control testing, may result in lot failures or manufacturing shut-down, delays in the release of lots, product recalls, spoilage or regulatory action.

Additionally, our development and commercialization strategy involves entering into arrangements with corporate and academic collaborators, contract research organizations, distributors, third-party manufacturers, licensors, licensees and others to conduct development work, manage or conduct our clinical trials, manufacture our product candidates and market and sell our products outside of the United States and maintain our existing arrangements with respect to the commercialization or manufacture of our products. We may not have the expertise or the resources to conduct all of these activities for all products and product candidates on our own and, as a result, are particularly dependent on third parties in many areas. Any current or future arrangements for development and commercialization may not be successful, as the amount and timing of resources that third parties devote to developing, manufacturing, and commercializing our products candidates are not within our control. If we are not able to establish or maintain agreements relating to our product candidates in development, our results of operations and prospects would be materially and adversely affected.

Any loss of a third-party manufacturer, any delays, or problems in the manufacture of our products, or termination of any arrangements for development and commercialization of our products could have a material adverse effect on our business, operations, results of operations and financial condition. We may be required to replace our manufacturer and if this were to occur, we may incur added costs and delays in identifying and qualifying any such replacements. We may also not be able to enter into such arrangements on favorable commercial terms.

Changes in product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates are developed through preclinical studies to late-stage clinical trials toward approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, manufacturing sites, and formulation, are altered along the way in an effort to optimize processes and results. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require additional testing, clinical trials, FDA notification, or FDA approval. Any of the foregoing could limit our future revenues and growth.

Failure of our third-party manufacturers to successfully manufacture material that conforms to our specifications and the FDA’s or foreign regulatory authorities’ strict regulatory requirements, may prevent regulatory approval of those manufacturing facilities.

We rely on third parties to manufacture all clinical trial materials for our product candidates, and we will rely on third parties to manufacture commercial supplies, if any such product candidates are ultimately approved for commercial sale. Manufacturers of our product candidates and therapeutic substances must comply with GMP requirements enforced by the FDA that are applicable to both finished products and their active components used both for clinical and commercial supply. The FDA enforces these requirements through its facilities inspection program. Our product candidates, including APVO436 and ALG.APV-527, will not be approved for marketing by the FDA or other foreign regulatory authorities unless the FDA or their foreign equivalents also approve the facilities used by our third-party manufacturers to produce them for commercialization. If our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA’s or foreign regulatory authorities’ strict regulatory requirements, the FDA or their foreign counterparts will not approve their manufacturing facilities, which would result in significant delays in obtaining FDA or foreign marketing approvals for our product candidates. If this were to occur, we may also never receive marketing approval, we may need to repeat clinical trials, we may need to undertake costly corrective actions, including product recalls, we may risk harm to subjects or patients, and we may face enforcement actions.

While we are ultimately responsible for the manufacture of our product candidates, other than through our contractual arrangements, we have little control over our manufacturers’ compliance with these regulations and standards. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain and maintain regulatory approval for or market our product candidates, if approved. Additionally, we may be unable to contract with alternative manufacturers on favorable or reasonable terms. Any new manufacturers would need to either obtain or develop the necessary manufacturing know-how, and obtain the necessary equipment and materials, which may take substantial time and investment. In some cases, the technical skills required to manufacture our products or product candidates may be unique or proprietary to the original manufacturer and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. In addition, if we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process will produce our product candidate according to the specifications previously

submitted to the FDA or any other regulatory authority. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates or commercialize our products in a timely manner or within budget. Furthermore, a manufacturer may possess technology related to the manufacture of our product candidate that such manufacturer owns independently. This would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another manufacturer produce our product candidates. In addition, changes in manufacturers often involve changes in manufacturing procedures and processes, which could require that we conduct bridging studies between our prior clinical supply used in our clinical trials and that of any new manufacturer. We may be unsuccessful in demonstrating the comparability of clinical supplies which could require the conduct of additional clinical trials. We must also receive FDA approval for the use of any new manufacturers for commercial supply.

We and our third-party manufacturers may not be able to meet these manufacturing process requirements for any of our current product candidates, all of which have complex manufacturing processes, which make meeting these requirements even more challenging. If we are unable to develop manufacturing processes for our clinical product candidates that satisfy these requirements, we will not be able to supply sufficient quantities of test material to conduct our clinical trials in a timely or cost-effective manner, and as a result, our development programs will be delayed, our financial performance will be adversely impacted and we will be unable to meet our long-term goals.

Certain of our product candidates have received orphan drug designation from the FDA. However, there is no guarantee that we will be able to maintain this designation, receive this designation for any of our other product candidates, or receive or maintain any corresponding benefits, including periods of exclusivity.

Certain of our product candidates have received orphan drug designation. We may also seek orphan drug designation for our other product candidates, as appropriate. While orphan drug designation does provide us with certain advantages, it neither shortens the development time or regulatory review time of a product candidate nor gives the product candidate any advantage in the regulatory review or approval process.

Generally, if a product candidate with orphan drug designation subsequently receives marketing approval before another product considered by the FDA to be the same for the same orphan indication, the product is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug or biologic for the same indication for a period of seven years in the United States.

We may not be able to obtain any future orphan drug designations that we apply for. Orphan drug designations do not guarantee that we will be able to successfully develop our product candidates, and there is no guarantee that we will be able to maintain any orphan drug designations that we receive. For instance, orphan drug designations may be revoked if the FDA finds that the request for designation contained an untrue statement of material fact or omitted material information, or if the FDA finds that the product candidate was not eligible for designation at the time of the submission of the request.

Moreover, even if we are able to receive and maintain orphan drug designations, we may ultimately not receive any period of regulatory exclusivity if our product candidates are approved. For instance, we may not receive orphan product regulatory exclusivity if the indication for which we receive FDA approval is broader than the orphan drug designation. Orphan exclusivity may also be lost for the same reasons that orphan drug designation may be lost. Orphan exclusivity may further be lost if we are unable to assure a sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

Even if we obtain orphan exclusivity for any of our current or future product candidates, that exclusivity may not effectively protect the product from competition as different products can be approved for the same condition or products that are the same as ours can be approved for different conditions. Even after an orphan product is approved, the FDA can also subsequently approve a product containing the same principal molecular features for the same condition if the FDA concludes that the later product is clinically superior. The FDA may further grant orphan drug designation to multiple sponsors for the same compound or active molecule and for the same indication. If another sponsor receives FDA approval for such product before we do, we would be prevented from launching our product in the United States for the orphan indication for a period of at least seven years, unless we can demonstrate clinical superiority. Moreover, third-party payors may reimburse for products off-label even if not indicated for the orphan condition.

We may seek Breakthrough Therapy designation by the FDA for a product candidate that we develop, and we may be unsuccessful. If we are successful, the designation may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.

We may seek Breakthrough Therapy designation for any product candidate that we develop. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can

help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval and priority review.

Even if we believe a product candidate we develop meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of Breakthrough Therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if the product candidates we develop qualify as breakthrough therapies, the FDA may later decide that the drugs no longer meet the conditions for qualification and rescind the designation.

We may seek designation for our ADAPTIR and ADAPTIR-FLEX platform technologies as a designated platform technology, but we might not receive such designation, and even if we do, such designation may not lead to a faster development, regulatory review or approval process.

We may seek designation for our ADAPTIR and ADAPTIR-FLEX platform technologies as a designated platform technology. Under the FDORA, a platform technology incorporated within or utilized by a biologic is eligible for designation as a designated platform technology if (1) the platform technology is incorporated in, or utilized by, a product approved under a BLA; (2) preliminary evidence submitted by the sponsor of the approved or licensed product, or a sponsor that has been granted a right of reference to data submitted in the application for such product, demonstrates that the platform technology has the potential to be incorporated in, or utilized by, more than one product without an adverse effect on quality, manufacturing, or safety; and (3) data or information submitted by the applicable person indicates that incorporation or utilization of the platform technology has a reasonable likelihood to bring significant efficiencies to the drug development or manufacturing process and to the review process. A sponsor may request the FDA to designate a platform technology as a designated platform technology concurrently with, or at any time after, submission of an IND application for a product that incorporates or utilizes the platform technology that is the subject of the request. If so designated, the FDA may expedite the development and review of any subsequent original BLA for a product that uses or incorporates the platform technology. Even if we believe our platform technology meets the criteria for such designation, the FDA may disagree and instead determine not to grant such designation. In addition, the receipt of such designation for a platform technology does not ensure that a product will be developed more quickly or receive a faster FDA review process or ultimate FDA approval. Moreover, the FDA may revoke a designation if the FDA determines that a designated platform technology no longer meets the criteria for such designation.

We have in the past and may in the future conduct clinical trials for our product candidates outside the United States, and the FDA or non-U.S. regulatory authorities may not accept data from such trials in the development or approval of our product candidates in those jurisdictions.

We have in the past and may in the future conduct clinical trials outside the U.S. and the FDA and foreign regulatory authorities may not accept those data in support of the further development or approval of our product candidates. The acceptance of trial data from clinical trials conducted outside the United States by the FDA or applicable foreign regulatory authority may be subject to certain conditions. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the United States population and United States medical practice; (ii) the trials were performed by clinical investigators of recognized competence; and (iii) the data may be considered valid without the need for an on-site inspection by the FDA, or if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory bodies have similar approval requirements.

In addition, such foreign trials will be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any applicable foreign regulatory authority will accept data from trials conducted outside of the United States. If the FDA or any applicable foreign regulatory authority does not accept such data, it would result in the need to conduct additional trials beyond those we have planned, which would be costly and time-consuming and delay aspects of our business plan, and which may result in our product candidates not receiving marketing approval for commercialization in the applicable jurisdiction.

Commercialization Risks

Our ability to grow revenues and execute on our long-term strategy depends heavily on our ability to discover, develop, and obtain marketing approval for ~~additional products or~~our product candidates.

We currently have no products approved for commercial distribution. We have invested a significant portion of our efforts and financial resources in the development of our product candidates. Our business depends on the successful development and commercialization of our product candidates, which will require additional clinical and preclinical development, regulatory approval, commercial manufacturing arrangements, establishment of a commercial organization, significant marketing efforts, and further investment, which may never occur. Our ability to generate revenues is substantially dependent on our ability to develop, obtain regulatory approval for, and then successfully commercialize our product candidates. Except for the revenues from previously sold

products, we currently generate no revenues from sales of any products, and we may never be able to develop or commercialize a marketable product.

In order for us to achieve our long-term business objectives, we will need to successfully discover and/or develop and commercialize ~~additional products or~~our product candidates. Although we have made, and expect to continue to make, significant investments in research and development, we have had only a limited number of our internally-discovered product candidates reach the clinical development stage. We currently have two clinical-stage candidates, APVO436 and ALG.APV-527, which were built on the ADAPTIR platform. Drug discovery and development is a complex, time-consuming and expensive process that is fraught with risk and a high rate of failure. Our product candidates are susceptible to the risks of failure inherent at any stage of product development, including the appearance of unexpected or unacceptable adverse events or failure to demonstrate efficacy in clinical trials. Failure to successfully discover and/or develop, obtain marketing approval for and commercialize additional products and product candidates would likely have a material adverse effect on our ability to grow revenues and improve our financial condition. If we are required to conduct additional clinical trials or other testing of our product candidates that we develop beyond those that we currently expect, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive, or if there are safety concerns, we may be delayed in obtaining marketing approval for our product candidates, not obtain marketing approval at all, obtain approval for limited indications or patient populations, with a label without claims necessary for us to successfully market our products, or with significant labeled warnings. We may also be subject to additional post-marketing testing requirements, surveillance requirements, or REMS. To the extent any of the foregoing should occur, our business may be materially harmed.

We may not be successful in our efforts to use and further develop our ADAPTIR ~~platform.~~or ADAPTIR-FLEX platforms.

A key element of our strategy is to expand our product pipeline of ~~immunotherapeutics~~immuno-oncology candidates based on our ADAPTIR and ADAPTIR-FLEX platform ~~technology.~~technologies. We plan to select and create product candidates for early development, potentially with other collaborative partners. We expect to continue to develop the platform to address unmet medical needs through directed cytokine delivery via monospecifics and bispecifics in areas including oncology, and ~~multispecific~~multi-specific molecules in oncology ~~autoimmune disease~~ and other therapeutic areas. Our goal is to leverage this technology to make targeted investment in monospecific, bispecific, and multi-specific ADAPTIR and ADAPTIR-FLEX therapeutics. Even if we are successful in continuing to build our pipeline, the potential product candidates that we identify may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize product candidates based on our ADAPTIR and ADAPTIR-FLEX platform ~~technology,~~technologies, our ability to obtain product revenues in future periods may be adversely affected, which likely would result in harm to our financial position and our financial prospects, and adversely affect our stock price.

We face and will continue to face substantial ~~competition.~~competition and our failure to effectively compete may prevent us from achieving significant market penetration for our product candidates, if approved.

The development and commercialization of new biotechnology products is highly competitive and subject to rapid technological advances. We may face future competition with respect to ~~IXINITY,~~ our current product candidates and any product candidates we may seek to develop or commercialize in the future obtained from other companies and governments, universities, and other non-profit research organizations. Our competitors may develop products that are safer, more effective, more convenient, or less costly than any products that we may develop or market, or may obtain marketing approval for their products from the ~~U.S. Food and Drug Administration, or the~~ FDA, or equivalent foreign regulatory bodies more rapidly than we may obtain approval for our ~~products.~~product candidates. Our competitors may have greater resources and may devote greater resources to ~~market or sell~~research and develop their products, research and development capabilities, adapt more quickly to new technologies, scientific advances or patient preferences and needs, initiate or withstand substantial price competition or macroeconomic impacts more successfully, or more effectively negotiate third-party licensing and collaborative arrangements.

We believe that our most significant competitors in the ~~hematology/~~oncology ~~inflammation and transplantation markets~~market include: AbbVie Inc., ~~Affirmed,~~Adagene, Affimed, Agenus, ALX Oncology Holdings Inc., Alligator Bioscience, Amgen Inc., ~~Astellas~~Arcellx, BioNTech, AvenCell Therapeutics, Inc., Bio-Path, Bristol Myers Squibb, Cellectis, Compass Therapeutics, CStone Pharmaceuticals, Crescendo Bioscience, Elpiscience Biopharmaceuticals, Faron Pharma, ~~Inc., Baxalta US Inc., Bayer AG, Biogen Idec Inc., Boehringer Ingelheim GmbH, CSL Behring, a subsidiary of CSL Limited, Dendron Corp.,~~F-star Therapeutics, FutureGen BioPharma, Genentech Inc. (a subsidiary of F. Hoffmann-La Roche Ltd.), Genmab A/S, Incyte, Gilead Sciences, Inc., GlaxoSmithKline plc, ~~Grifols USA LLC,~~Harpoon Therapeutics, ImmunoGen, Inc., InhibRX Inc., Innate Pharma, Innovent Biotech, invoX Pharma, Janssen BioTech ~~Inc.,~~Inc (a subsidiary of Johnson & ~~Johnson,~~Johnson), LAVA Therapeutics, Macrogenics, Inc., Merus N.V. and its subsidiary Merus US, Inc., Molecular Partners, Novartis, ~~International AG,~~Numab, Pieris Pharmaceuticals, Inc., Regeneron Pharma, Sanofi-Aventis US LLC, Shattuck Labs, Syros Pharmaceuticals, Inc., Pfizer Inc., ~~Sanofi-Adventis US LLC,~~Servier Laboratories, Takeda Pharmaceuticals U.S.A., Inc. Menarini Group, University of Pennsylvania, University of North Carolina , Xencor, Inc., and Zymeworks Biopharmaceuticals, Inc. We ~~compete, in the case of IXINITY, and~~ expect to compete ~~in the cases of our product candidates in development,~~ on the basis of product efficacy, safety, ease of administration, price and economic value compared to drugs used in current practice or currently being developed. If we are not successful in demonstrating these attributes, physicians and other key healthcare decision makers may choose other products over ~~our~~any products we successfully develop, switch from our products to new products or choose to use our products only in limited circumstances, which could adversely affect our business, financial condition and results of operations.

In addition, many of our competitors are able to deploy more personnel to market and sell their products than we do. We currently have a relatively small number of sales representatives compared with the number of sales representatives of most other biotechnology companies with marketed products. Each of our sales representatives is responsible for a territory of significant size. The continued growth of IXINITY and the launch of any future products may require expansion of our sales force and sales support organization internationally, and we may need to commit significant additional funds, management and other resources to the growth of our sales organization. We may not be able to achieve any necessary growth in a timely or cost-effective manner or realize a positive return on our investment, and we may not have the financial resources to achieve the necessary growth in a timely manner or at all. We also have to compete with other biotechnology and life sciences companies to recruit, hire, train and retain sales and marketing personnel, and turnover in our sales force and marketing personnel could negatively affect sales IXINITY. If our specialty sales force and sales organization are not appropriately-sized to adequately promote any current or potential future products, the commercial potential of IXINITY and any future products may be diminished. We compete with a significant number of pharmaceutical and life sciences companies with extensive sales, marketing and promotional experience in the hematology/oncology markets, and our failure to compete effectively in this area could negatively affect our sales of IXINITY.41

~~IXINITY and our product candidates may also compete in the future with new products currently under development by others.~~ Any products that we develop are likely to be in a highly competitive market, and many of our competitors may succeed in developing products before we do or in developing products that may render our products obsolete or noncompetitive.

~~IXINITY may face risks of competition from biosimilar manufacturers.~~

Competition for IXINITY, may be affected by follow-on biologics, or biosimilars, in the United States and other jurisdictions. Biologics are medical products made from a variety of natural sources (human, animal or microorganism) intended to prevent, diagnose or treat diseases and medical conditions.

In the United States, biosimilars are biologics that are highly similar to licensed reference biological products, notwithstanding minor differences in clinically inactive components, and for which there are no clinically meaningful differences between the biosimilar and the reference product in terms of safety, purity and potency. Regulatory and legislative activity in the United States and other countries may make it easier for our competitors to manufacture and sell biosimilars of IXINITY, which might affect our results of operations or commercial viability of our IXINITY. Under the Biologics Price Competition and Innovation Act of 2010, the FDA cannot approve an application for a biosimilar until the 12-year exclusivity period for the reference product has expired. Thus, if a competitor were to seek regulatory approval for a biosimilar product citing IXINITY as the reference product, such approval could not be granted until April 2027.

Regulators in the EU review biosimilar products using a similar regulatory process. IXINITY has not received marketing authorization by the European Medicines Agency, or EMA, and is not sold in Europe.

~~If a biosimilar version of IXINTY is approved, it could have a material adverse effect on the sales and gross profits of IXINTY and could adversely affect our business and operating results.~~

~~The commercial success of IXINITY and any~~ of our product candidates, ~~will depend upon the degree of market acceptance by physicians, patients,~~if approved, may become subject to unfavorable pricing regulations or third-party ~~payors~~coverage and ~~others in the medical community.~~reimbursement policies, which would harm our business.

The success of ~~IXINITY and~~ our product candidates, if approved, will depend upon, among other things, their acceptance by physicians, patients, third-party payors, and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If ~~IXINITY or~~ any of our product candidates do not achieve and maintain an adequate level of acceptance, we may not generate material revenues from sales of these products. The degree of market acceptance of our products will depend on a number of factors, including: our ability to provide acceptable evidence of safety and efficacy; the prevalence and severity of any side effects; availability, relative cost and relative efficacy of alternative and competing treatments; the ability to offer our products for sale at competitive prices; our ability to continuously supply the market without interruption; the relative convenience and ease of administration; the willingness of the target patient population to try new products and of physicians to prescribe these products; the strength of marketing and distribution support; publicity concerning our products or competing products and treatments; and the sufficiency of coverage or reimbursement by third parties.

~~If IXINITY and our product candidates do not gain~~Legislative or ~~maintain market acceptance, or do not become widely accepted, by physicians, patients, third-party payors and other members of the medical community,~~healthcare reform measures may have a material adverse effect on our business ~~financial condition~~ and ~~operating~~ results ~~could be materially and adversely affected.~~of operations.

~~Changes in health care systems and payor reimbursement policies could result in a decline in our potential sales and a reduction in our expected revenue from IXINITY and our product candidates.~~

The revenues and profitability of biotechnology companies like ours may be affected by the continuing efforts of government payors, including Medicare and Medicaid, and other third-party payors to contain or reduce the costs of health care through various means. For example, in certain foreign markets, the pricing or profitability of therapeutic and other pharmaceutical products is subject to governmental control. In the United States, there have been and ~~we expect that there will~~ continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the ACA was enacted, which substantially changed the way health care is financed by both governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. However, some provisions of the ACA have yet to be fully implemented and certain provisions have been subject to legal and political challenges, as well as efforts to repeal, replace delay, circumvent, or loosen certain aspects of the ACA or mandates required thereby. Additionally, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA, such as removing penalties as of January 1, 2019 for not complying with the ACA’s individual mandate to carry health insurance, delaying the implementation of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. It is unclear how other healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or replace the ACA will impact our business. In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted:

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On August 2, 2011, the Budget Control Act of 2011 among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic. Following the temporary suspension, a 1% payment reduction occurred beginning April 1, 2022 through June 30, 2022, and the 2% payment reduction will resume on July 1, 2022.

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On May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2 percent per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 unless additional Congressional action is taken.

Additionally, there has been heightened governmental scrutiny recently over the manner in which manufacturers set prices for their marketed products. For example, there have been several recent Congressional inquiries and proposed and enacted federal and state ~~proposals~~legislation designed to, ~~implement similar governmental control. Recent U.S. legislation, rules~~among other things, bring more transparency to drug pricing, review the relationship between pricing and ~~regulations instituted significant changes~~manufacturer patient programs, and reform government program reimbursement methodologies for drug products, including by tying reimbursement to the price of products in other developed countries. For example, proposals have been made to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out-of-pocket costs of drug products paid by consumers. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legislative and regulatory agendas, as they relate to the healthcare and pharmaceutical industries and the economy as a whole, of the

Biden administration and the U.S. Congress currently remain uncertain. One example of President Biden’s priorities came via an executive order that he issued on July 9, 2021 directing the FDA to, among other things, continue to clarify and improve the approval framework for biosimilars, including the standards for interchangeability of biological products, facilitate the development and approval of biosimilar and interchangeable products, clarify existing requirements and procedures related to the review and submission of BLAs, and identify and address any efforts to impede biosimilar competition. Any new laws and initiatives may result in additional reductions in Medicare and other healthcare ~~system that~~funding or impose additional regulatory requirements on drug development or approval, which could have a material adverse effect on our ~~business,~~future customers and accordingly, our financial ~~condition and results of~~ operations. The trend toward managed health care in the United States, as well as the implementation of the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act), collectively referred to as the Affordable Care Act, and the concurrent growth of organizations such as managed care organizations, accountable care organizations and integrated delivery networks, may result in increased pricing pressures for pharmaceutical products, including any products

We expect that may be offered by us in the future. Cost-cutting measures that health care providers are instituting, and the implementation of health care reform, could adversely affect our ability to sell any drug products that are successfully developed by us. We cannot predict what effects, if any, this legislation might have on our company and IXINITY and our product candidates as this legislation continues to be further implemented over the next few years, nor can we predict whether additional ~~legislative or regulatory proposals may be adopted.~~

In the United States and internationally, sales of IXINITY and our ability to generate revenues on such sales are dependent, in significant part, on the availability and level of reimbursement from third-party payors, including state and federal ~~governments and private insurance plans. Insurers have implemented cost-cutting~~healthcare reform measures ~~and other initiatives to enforce more stringent reimbursement standards and likely~~ will ~~continue to do so~~be adopted in the ~~future. These measures include~~future, any of which could limit the ~~establishment of more restrictive formularies~~amounts that federal and ~~increases in the out-of-pocket obligations of patients~~state governments will pay for ~~such products. Third-party payors are also increasingly challenging the prices charged for medical~~healthcare products and services. Third-party payors may limit access to biotechnology products through the use of prior authorizations and step therapy. Any reimbursement granted may not be maintained, or limits on reimbursement available from third parties, may reduce the demand for or negatively affect the price and potential profitability of those products. If these payors do not provide sufficient coverage and reimbursement for IXINITY or any future drug product we may market, these products may be too costly for general use, and physicians may prescribe them less frequently. Our ability to successfully commercialize our products and product candidates and the demand for our products depends, in part, on the extent toservices, which ~~reimbursement and access is available from such third-party payors.~~

In addition, particularly in the United States and increasingly in other countries, we are required to provide discounts and pay rebates to state and federal governments and agencies in connection with purchases IXINITY that are reimbursed by such entities. Various provisions of the Affordable Care Act increased the levels of rebates and discounts that we have to provide in connection with sales of IXINITY that are paid for, or reimbursed by, certain state and federal government agencies and programs. It is possible that future legislation and regulatory changes in the United States and other jurisdictions could be enacted, which could potentially impact the reimbursement rates for IXINITY and also could further impact the levels of discounts and rebates we are required to pay to state and federal government entities.

Certain government pricing programs, including Medicare Part B, the Medicaid rebate program, the 340B/PHS drug pricing program and Federal Supply Schedule, affect the revenues that we derive from IXINITY and product candidates. Any future legislation or regulatory actions altering these programs or imposing new ones could have an adverse impact on our business. There have been, and we expect there will continue to be, a number of legislative and regulatory actions and proposals to control and reduce health care costs. These measures may, among other things: negatively impact the level of reimbursement for pharmaceutical products; require higher levels of cost-sharing by beneficiaries; change the discounts required to be provided to government payors and/or providers; extend government discounts to additional government programs and/or providers; or reduce the level of reimbursement for health care services and other non-drug items. Any such measures could indirectly affect demand for pharmaceutical products because they can cause payors and providers to apply heightened scrutiny and/or austerity actions to their entire operations, including pharmacy budgets.

~~Our revenues also depend on the availability outside the United States of adequate pricing and reimbursement from third-party payors for IXINITY and future drug products, if any.~~

Outside the United States, certain countries, including a number of EU Member States, set prices and reimbursement for pharmaceutical products, or medicinal products as they are commonly referred to in the EU, with limited participation from the marketing authorization holders. We cannot be sure that these prices and reimbursement will be acceptable to us or our collaborative partners. If the regulatory authorities in these foreign jurisdictions set prices or reimbursement that are not commercially attractive for us or our collaborative partners, our revenues from sales, and the potential profitability of our drug products, in those countries would be negatively affected. An increasing number of countries are taking initiatives to attempt to reduce large budget deficits by focusing cost-cutting efforts on pharmaceuticals for their state-run health care systems. These international price control efforts have impacted all regions of the world, but have been most drastic in the EU.

~~An inability to convince hospitals and managed care organizations to include IXINITY on their approved formulary lists, may result in our failure to meet revenue expectations.~~

Hospitals and managed care organizations establish formularies, which are lists of drugs approved for use in the hospital or under a managed care plan. If a drug is not included on the formulary, the ability of our engagement partners and engagement managers to promote and sell the drug may be limited or denied. If we fail to secure and maintain formulary inclusion for IXINITY on favorable terms or are significantly delayed in doing so, we may have difficulty achieving market acceptance of IXINITY and our business, results of operations and financial condition could be materially adversely affected.

~~If we are unable to negotiate and maintain satisfactory arrangements with group purchasing organizations our financial condition could be adversely affected.~~

Our ability to sell IXINITY, to hospitals and clinics in the United States depends in part on our relationships with group purchasing organizations, or GPOs. GPOs negotiate pricing arrangements and contracts, sometimes on an exclusive basis, with medical supply manufacturers and distributors. These negotiated prices are then made available to a GPO’s affiliated hospitals and clinics and other members. If we are not one of the providers selected by a GPO, affiliated hospitals, clinics and other members may be less likely to purchase IXINITY, and if the GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer’s products, we may be precluded from making sales to members of the GPO for the duration of the contractual arrangement. Our failure to renew contracts with GPOs may cause us to lose market share and could have a material adverse effect on our sales, financial condition and results of operations. We cannot assure you that we will be able to renew these contracts on the current or substantially similar terms. If we are unable to keep our relationships and develop new relationships with GPOs, our competitive position may suffer.

~~We rely on third parties to distribute~~ ~~IXINITY~~ ~~and those third parties may not perform.~~

We rely on the sales and marketing strength of these distributors and the distribution channels through which they operate for a portion of our revenues. If third parties do not successfully carry out their contractual duties, or if there is a delay or interruption in the distribution of our products, it could negatively impact our revenues from product sales.

~~The loss of any of our sole source manufacturers, or delays or problems in the manufacture of~~ ~~IXINITY~~ ~~or our product candidates,~~ could result in ~~product shortages and loss in revenue or delays in clinical development.~~

We do not have manufacturing capabilities and do not plan to develop such capacity in the foreseeable future. We depend on a limited number of sole source third-party manufacturers, including CMC ICOS Biologics, Inc., for our products and product candidates. Accordingly, our ability to develop and deliver products in a timely and competitive manner depend on our third-party manufacturers being able to continue to meet our ongoing commercial and clinical trial needs and perform their contractual obligations. We have a limited ability to control the manufacturing process or costs related to the manufacture of IXINITY and our product candidates. Increases in the prices we pay our manufacturers, interruptions in the supply of raw materials or IXINITY themselves or lapses in quality could adversely impact our margins, profitability, cash flows and prospects.

~~If,~~reduced demand for any reason, CMC, sole manufacturer of bulk drug substance for our IXINITY product, does not continue to supply us with IXINITY in a timely fashion and in compliance with applicable quality and regulatory requirements, or otherwise fails or refuses to comply with its obligations to us under our manufacturing arrangement, we may not have adequate remedies for any breach of contract, and its failure to supply us could result in a shortage of IXINITY, which could lead to lost revenue and otherwise adversely affect our business, financial condition, results of operations and growth prospects. In addition, if CMC fails or refuses to supply us for any reason, we may be forced to consider entering into additional manufacturing arrangements with other third-party manufacturers. In each case, we will incur significant costs and time in obtaining the regulatory approvals for these third-party facilities and in taking the necessary steps to prepare these third parties for the manufacture of IXINITY. Because of contractual restraints and the lead-time necessary to obtain FDA approval of a new manufacturer, replacement of any of these manufacturers may be expensive and time consuming and may cause interruptions in our supply of IXINITY to our customers or an inability to manufacture.

For example, during 2015, we ordered nine manufacturing lots of bulk drug substance from CMC and only one of those lots was successfully manufactured and released in 2015. During 2016, we ordered five manufacturing lots of bulk drug substance from CMC and none of these lots satisfied product release specifications.

In accordance with the Restated Supply Agreement, a $7.0 million reserve held by CMC will be will be applied to, at a minimum, the next four batches manufactured through the end of 2017 as a price concession in the form of no raw materials or other related costs associated with the inventory. As this reserve is utilized, Aptevo will also see an impact on the Company’s income statement due to a lower costs of goods sold associated with this inventory, which will also result in higher gross margins as sales are recognized. Any remaining reserve amount outstanding as of December 25, 2017 shall be paid to the Company on or before December 31, 2017. The Restated Supply Agreement has a five-year term renewable with twenty-four months’ prior notice before the expiry of the term for successive two-year terms.

While we do not currently anticipate or foresee a supply shortage or supply interruption occurring, any supply shortage or supply interruption of IXINITY would adversely affect its sales and could adversely affect its market position, commercial viability and the trading price of our common stock.

~~Manufacturing biologic products, especially in large quantities, is complex and time consuming.~~

~~IXINITY and all of our current~~ product candidates are biologics. IXINITY and our product candidates must be made consistently and in compliance with a clearly defined manufacturing process. Problems may arise during manufacturing for a variety of reasons, including problems with raw materials, equipment malfunction or replacement and failure to follow specific protocols and procedures. Slight deviations anywhere in the manufacturing process, including obtaining materials, maintaining master seed or cell banks and preventing genetic drift, seed or cell growth, fermentation and contamination including from, among other things, particulates, filtration, filling, labeling, packaging, storage and shipping, and quality control testing, may result in lot failures or manufacturing shut-down, delays in the release of lots, product recalls, spoilage or regulatory action.

~~We rely on third parties to manufacture all clinical trial materials for our product candidates, and~~ we will rely on third parties to manufacture commercial supplies, if any such product candidates are ultimately approved for commercial sale. Our product candidates, including APVO414, APVO210, otlertuzumab, APVO436 and ALG.APV-527, will not be approved for marketing by the FDA or other foreign regulatory authorities unless the FDA or their foreign equivalents also approve the facilities used by our third-party manufacturers to produce them for commercialization. If our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the FDA’s or foreign regulatory authorities’ strict regulatory requirements, the FDA or their foreign counterparts will not approve their manufacturing facilities, which would result in significant delays in obtaining FDA or foreign marketing approvals for our product candidates. In order to successfully develop ~~and commercialize our product candidates in a timely manner, we and our third-party manufacturers must be able to develop and execute on manufacturing processes, and reach agreement on contract terms.~~or additional pricing pressures.

We and our third-party manufacturers may not be able to meet these manufacturing process requirements for any of our current product candidates, all of which have complex manufacturing processes, which make meeting these requirements even more challenging. If we are unable to develop manufacturing processes for our clinical product candidates that satisfy these requirements, we will not be able to supply sufficient quantities of test material to conduct our clinical trials in a timely or cost effective manner, and as a result, our development programs will be delayed, our financial performance will be adversely impacted and we will be unable to meet our long-term goals.

~~Development and commercialization of IXINITY and our product candidates may be terminated or delayed.~~

Our development and commercialization strategy involves entering into arrangements with corporate and academic collaborators, contract research organizations, distributors, third-party manufacturers, licensors, licensees and others to conduct development work, manage or conduct our clinical trials, manufacture IXINITY and our product candidates and market and sell our products outside of the United States and maintaining our existing arrangements with respect to the commercialization or manufacture of our products. We may not have the expertise or the resources to conduct all of these activities for all products and product candidates on our own and, as a result, are particularly dependent on third parties in many areas. Any current or future arrangements for development and commercialization may not be successful. If we are not able to establish or maintain agreements relating to IXINITY and our product candidates in development, our results of operations would be materially and adversely affected.

Third parties may not perform their contractual obligations as expected. The amount and timing of resources that third parties devote to developing, manufacturing and commercializing our products candidates are not within our control. Our collaborative partners may develop, manufacture or commercialize, either independently or with others, products and services that are similar to or competitive with the products that are the subject of the collaboration with us. Furthermore, our interests may differ from those of third parties that manufacture or commercialize our products. Our collaborative partners may reevaluate their priorities from time to time, including following mergers and consolidations, and change the focus of their development, manufacturing or commercialization efforts. Disagreements that may arise with these third parties could delay or lead to the termination of the development or commercialization of our product candidates, or result in litigation or arbitration, which would be time consuming and expensive.

If any third-party that manufactures or supports the development or commercialization of IXINITY and our product candidates breaches or terminates its agreement with us, or fails to commit sufficient resources to our collaboration or conduct its activities in a timely manner, or fails to comply with regulatory requirements, such breach, termination or failure could delay or otherwise adversely impact the manufacturing, development or commercialization of IXINITY, our products in development or any additional products or product candidates that we may develop; require us to seek a new collaborator or undertake unforeseen additional responsibilities or devote unforeseen additional resources to the manufacturing, development or commercialization IXINITY and our product candidates; or result in the termination of the development or commercialization of IXINITY and our product candidates.

~~If we are unable to successfully develop our business infrastructure and operations, our ability to generate future product revenue will be adversely affected.~~

To manage our existing and planned future growth, including our ability to support the sales and marketing of IXINITY and our product candidates in the United States and globally, and the increasing breadth and complexity of our activities, we need to properly invest in personnel, infrastructure, information management systems and other operational resources. Developing our business infrastructure and operations may be more difficult, more expensive or take longer than we anticipate. We may also need to revise our strategy for developing the proper infrastructure and operations periodically.

~~We are subject to a number of risks and uncertainties associated with our international activities and operations.~~

We currently have limited operations outside of the United States. However, we have manufacturing, collaboration, clinical trial and other relationships outside the United States, and our products are marketed internationally through collaborations. We may seek to grow our international operations significantly over the next several years. Our future results of operations will depend in part on our ability to grow our product sales in foreign markets, particularly in Europe. Our foreign operations subject us to additional risks and uncertainties, particularly because we have limited experience in marketing, servicing and distributing our products or otherwise operating our business outside of the United States and Canada. These risks and uncertainties include: political and economic determinations that adversely impact pricing or reimbursement policies; our customers’ ability to obtain reimbursement for procedures using our products in foreign markets; export licensing requirements, political and economic instability, trade restrictions, and changes in tariffs and difficulties in staffing and managing foreign operations; cross border restrictions on the movement of cash funds and repatriation of earnings; foreign currency fluctuations; longer accounts receivable collection times; reduced protection of intellectual property rights in some foreign countries; the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute; and compliance with foreign or U.S. laws, rules and regulations, including data privacy requirements, labor relations laws, tax laws, anti-competition regulations, anti-bribery/anti-corruption laws, including but not limited to the U.S. Foreign Corrupt Practices Act, or FCPA, and the U.K. Bribery Act of 2010, which could subject us to investigation or prosecution under such U.S. or foreign laws.

Regulatory and Compliance Risks

Our ~~long term~~long-term success depends, in part, upon our ability to develop, receive regulatory approval for and commercialize our product candidates.

Our product candidates and the activities associated with their development, including testing, manufacture, recordkeeping, storage, and approval, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. ~~Generally, failure~~Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate. We have limited resources for use in preparing, filing, and supporting the applications necessary to gain regulatory approvals and expect to rely on third-party contract research organizations and consultants to assist us in this process.

The FDA and other comparable regulatory agencies in foreign countries impose substantial and rigorous requirements for the development, production, marketing authorization and commercial introduction of drug products. These requirements include ~~preclinical,~~non-clinical, laboratory and clinical testing procedures, sampling activities, clinical trials, and other costly and time-consuming procedures. In addition, regulation is not static, and regulatory authorities, including the FDA evolve in their staff interpretations and practices and may impose more stringent or different requirements than currently in effect, which may adversely affect our planned and ongoing drug development and/or our sales and marketing efforts.

In the United States, to obtain approval from the FDA to market any of our future biologic products, we will be required to submit a ~~biologics license application, or~~ BLA to the FDA. Ordinarily, the FDA requires a sponsor to support a BLA with substantial evidence of the product’s safety, purity, and potency in treating the targeted indication based on data derived from adequate and well-controlled clinical trials, including Phase ~~III~~3 safety and efficacy trials conducted in patients with the disease or condition being targeted.

The process of obtaining these regulatory approvals is expensive, often takes many years if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidate involved. Changes in the regulatory approval process during the development period, changes in or the enactment of additional statutes or regulations, or changes in the regulatory review for a submitted product application may cause delays in the approval or rejection of an application.

The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient to support approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate.

~~We have a pipeline of clinical and preclinical stage product candidates, including:~~

APVO414, a bispecific immunotherapeutic ADAPTIR protein, currently in Phase 1, targeting prostate specific membrane antigen, or PSMA, an enzyme that is expressed on the surface of prostate cancer cells and, a component of the T-cell receptor complex expressed on all T-cells. The mechanism of action of APVO414 is RTCC;

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~~otlertuzumab, a monospecific ADAPTIR protein therapeutic currently in Phase 2 clinical development for chronic lymphocytic leukemia, or CLL;~~

APVO436, a bispecific ADAPTIR protein therapeutic currently in preclinical development targeting CD123, a cell surface receptor highly expressed on several hematological malignancies and CD3, a component of the T-cell receptor. Similar to APVO414 and the ROR1 preclinical program, APVO436 utilizes redirected RTCC to initiate killing of tumor cells;

~~ALG.APV-527 a bispecific antibody candidate, featuring a novel mechanism of action targeting 4-1BB (CD137) and 5T4, a tumor antigen widely expressed on several solid tumors;~~

an immunotherapeutic ADAPTIR protein targeting ROR1 (preclinical candidate) built on our novel ADAPTIR platform, which is designed to expand on the utility and effectiveness of therapeutic antibodies and an antigen found on solid tumors and hematologic or blood-related, malignancies; and

~~other protein therapeutic product candidates primarily targeting tumor based on mechanisms of action that modulate the immune system (immuno-oncology based mechanism of action).~~

Developing and obtaining regulatory approval for product candidates is a lengthy process, often taking a number of years, is uncertain and is expensive. All of the product candidates that we are developing, or may develop in the future, require research and development, ~~preclinical~~non-clinical studies, ~~nonclinical~~non-clinical testing, and clinical trials prior to seeking regulatory approval, and commencing commercial sales. In addition, we may need to address a number of technological challenges in order to complete development of our product candidates. As a result, the development of product candidates may take longer than anticipated or not be successful at all.

Our product candidate development costs will also increase if we experience delays in testing or approvals, and we may not have sufficient funding to complete the testing and approval process for any of our product candidates. We may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any non-clinical tests or clinical trials above what we currently have planned will be required, will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Significant delays relating to any preclinical or clinical trials also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do. This may prevent us from receiving marketing approvals and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays in clinical trials may ultimately lead to the denial of marketing approval of any of our product candidates. If any of this occurs, our business, financial condition, results of operations, and prospects will be materially harmed.

Generally, no product can receive FDA approval, marketing authorization from the European Commission or the competent authorities of the EU Member States, or approval from comparable regulatory agencies in foreign countries unless data generated in human clinical trials demonstrates both safety and efficacy for each target indication in accordance with such authority’s standards.

The large majority of product candidates that begin human clinical trials fail to demonstrate the required safety and efficacy characteristics necessary for marketing approval. Failure to demonstrate the safety and efficacy of any of our product candidates for each target indication in clinical trials would prevent us from obtaining required approvals from regulatory authorities, which would prevent us from commercializing those product candidates. Negative or inconclusive results from the clinical trials or adverse medical events during the trials could lead to requirements that trials be repeated or extended, or that additional trials be conducted, any of which may not be clinically feasible or financially practicable, that the conduct of trials be suspended, or that a program be terminated.

Any regulatory approval we ultimately obtain may limit the indicated uses for the product or subject the product to restrictions or post-approval commitments that render the product commercially non-viable. Securing regulatory approval requires the submission of extensive non-clinical and clinical data, information about product manufacturing processes and inspection of facilities and supporting information to the regulatory authorities for each therapeutic indication to establish the product’s safety and efficacy. If we are unable to submit the necessary data and information, for example, because the results of clinical trials are not favorable, or if the applicable regulatory authority delays reviewing or does not approve our applications, we will be unable to obtain regulatory approval.

Delays in obtaining or failure to obtain regulatory approvals ~~may:~~may delay or prevent the successful commercialization of any of the products or product candidates in the jurisdiction for which approval is sought; diminish our competitive advantage; and defer or decrease our receipt of revenue.

~~Certain~~Some of our ~~products~~product candidates previously in development ~~have~~ experienced regulatory and/or clinical ~~setbacks~~setbacks. Clinical development has been discontinued for product candidates otlertuzumab, APVO414, and APVO210. Both APVO414 and APVO210 were discontinued after patients developed ADA. Most recently, in 2019, we elected to discontinue the ~~past. For example, in December 2015, after a joint~~APVO210 development program following the review of data from the Phase 1 multiple ascending dose ~~escalation~~(MAD) clinical study of ~~APVO414~~APVO210 in ~~prostate cancer patients, Aptevo and MorphoSys concluded~~healthy volunteers that suggests that APVO210 would not meet the ~~dosing regimen and administration required adjustment. Patients receiving weekly~~desired target product profile for future commercialization. Specifically, the clinical data showed evidence of increasing titers of ADA with repeated doses of ~~APVO414 developed antibodies against~~APVO210, which had varying impact on APVO210 drug levels in subjects’ blood. The cause of the ~~drug; which are called anti-drug antibodies, or ADA.~~ ADA ~~developed in most patients including those receiving the maximum tolerated dose~~is uncertain; however, we believe that appearance of drug that could be given safely on a weekly basis. These antibodies bind to the drug and reduce the concentration of active APVO414 in the blood and thus could potentially reduce its efficacy. However, we observed no safety issuesADA is related to the ~~development~~mechanism of ~~ADA. The cause~~action of ~~these antibodies is unclear but could be~~APVO210, and not due to the ~~weekly administration~~structure, or sequences characteristic of the ~~drug. Hence,~~ADAPTIR platform. Although we have re-designed certain components of the ~~protocol has been amended to continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA. There~~ADAPTIR platform based on what we have learned in prior clinical trials, there is no guarantee that ~~this change~~the occurrence of ADA or other clinical setbacks will not occur in ~~administration will enable higher dosing and/or prevent~~ the development of ~~ADA.~~ our existing and future ADAPTIR product candidates.

The procedures to obtain marketing approvals vary among countries and can involve additional clinical trials or other pre-filing requirements. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all the risks associated with obtaining FDA approval, or different or additional risks. Regulatory agencies may have varying interpretations of the same data, and approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. Accordingly, approval by the FDA does not ensure approval by the regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by the FDA or regulatory authorities in other foreign countries. Failure to obtain regulatory approval in one jurisdiction, however, may impact the decision of other jurisdictions. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products and products in development in any market on a timely basis, if at all.

Inadequate funding for the FDA, the SEC and other government agencies, including from government shutdowns, or other disruptions to these agencies’ operations, could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ~~APVO414 Phase I clinical trial under~~ability of the ~~amended protocol, providing continuous intravenous infusion~~FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, the ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a ~~way to administer higher levels of drug and prevent the development of ADA, commenced December 2016. As a result~~result. In addition, government funding of the ~~required dosing regimen change~~SEC and ~~the impact~~other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the ~~overall development timeline~~political process, which is inherently fluid and ~~technical risk,~~unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new product candidates to be reviewed and/or approved by necessary government agencies, which would adversely affect our ~~co-development agreement with MorphoSys was restructured. Under~~business. If a prolonged government shutdown occurs, it could significantly impact the ~~terms~~ability of the ~~restructured agreement, MorphoSys’ cost sharing in the years 2016~~FDA to ~~2018 was reduced~~timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future milestone payments payable by MorphoSys to us were reduced to a total of up to $74.0 million. As a result of the required change in dosing regimen for APVO414, the lead RTCC candidate, the termination provisions under the MorphoSys collaboration agreement were amended to give MorphoSys a one-time right to terminate the collaboration agreement, without notice, at either the end of 2016 or after review of clinical data from the first six patients enrolled and dosed in the Phase 1 trial. The requirement for further adjustments to the dosing regimen or other parts of the programgovernment shutdowns could ~~delay our development timeline or delay or prevent~~impact our ability to ~~receive~~access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

Our product candidates are and will continue to be subject to ongoing obligations and continued regulatory approval for APVO414. In December 2016, the agreement was modified to adjust the allocation of certain manufacturing and development costs and extend MorphoSys’ convenience termination rights. Under the amendment, the timeframe for a one-time right to terminate the collaboration agreement by MorphoSys has been extended from December 31, 2016 to June 30, 2017, or after review, ~~of clinical data from the first six patients enrolled and dosed~~which may result in the APVO414 Phase I clinical trial. Effective August 31, 2017, MorphoSys terminated the MorphoSys collaboration agreement with Company in accordance with the terms of the Fourth Amendment which was effective December 7, 2015.

~~The procedures to obtain marketing approvals vary among countries and can involve~~significant additional clinical trials or other pre-filing requirements. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all the risks associated with obtaining FDA approval, or different or additional risks. Regulatory agencies may have varying interpretations of the same data, and approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. Accordingly, approval by the FDA does not ensure approval by the regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by the FDA or regulatory authorities in other foreign countries.expense. We may ~~not~~ be ~~able~~subject to ~~file for regulatory approvals and may not receive necessary approvals to commercialize our products and products in development in any market on a timely basis,~~penalties if ~~at all.~~

Biotechnology company stock prices have declined significantly in certain instances where companies have failed to obtain FDA or foreign regulatory authority approval of a product candidate or if the timing of FDA or foreign regulatory authority approval is delayed. If the FDA’s or any foreign regulatory authority’s response to any application for approval is delayed or not favorable for any of our product candidates, our stock price could decline significantly.

~~Regulatory approval for any approved product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy have been demonstrated, and~~ we ~~may incur significant liability if it is determined that we are promoting the “off-label” use of any of our products.~~

Any regulatory approval is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. For example, the FDA-approved label for IXINITY is not approved for use in patients younger than twelve years old. In addition to the FDA approval required for new formulations, any new indication for an approved product also requires FDA approval. If we are not able to obtain FDA approval for any desired future indications for our products and product candidates, our ability to effectively market and sell our products may be reduced and our business may be adversely affected.

While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specifically approved by the FDA. These “off-label” uses are common across medical specialties and may constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States generally do not regulate the behavior of physicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical companies on the subject of off-label use. If our promotional activities fail to comply with ~~the FDA’s regulations~~regulatory requirements or ~~guidelines, we may be~~experience unanticipated problems with our products.

We and our product candidates are subject to ~~warnings from, or enforcement action~~extensive and ongoing requirements of and review by these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to issue warning letters or untitled letters, suspend or withdraw an approved product from the market, require a recall or institute fines, which could result in the disgorgement of money, operating restrictions, injunctions or civil or criminal enforcement, any of which could harm our business.

~~Notwithstanding the regulatory restrictions on off-label promotion,~~ the FDA and other regulatory authorities, ~~allow companies~~including requirements related to ~~engage in truthful, non-misleading~~the conduct of clinical and non-promotional scientific exchange concerning their products. We engage in medical education activities and communicate with investigators and potential investigators regarding our clinical trials. If the FDA or another regulatory or enforcement authority determines that our communications regarding our marketed products are not in compliance with the relevant regulatory requirements and that we have improperly promoted off-label uses, we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.

~~Our products may face regulatory, legal or commercial challenges even after approval.~~

~~Any drug or, biologic for which we receive FDA approval, along with the~~non-clinical studies, manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such products. These requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements, the payment of annual fees, continued compliance with GMP-requirements relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians. Manufacturers and manufacturers’

facilities are required to comply with extensive FDA, and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to GMP requirements and applicable product tracking and tracing requirements.

FDA and comparable foreign regulatory authorities will ~~be subject~~continue to ~~continuing regulation by~~closely monitor the safety profile of any product even after approval. If the FDA including, among other things, record keeping requirements, reporting of adverse experiences, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, current good manufacturing practices, or cGMP, and restrictions on advertising and promotion. Adverse events that are reported after marketing approval can result in additional limitations being placed on the product’s distribution or use and, potentially, withdrawal or suspension of the product from the market. In addition, various state laws require that companies that manufacture and/or distribute drug products within the state obtain and maintain a manufacturer or distributor license, as appropriate. Because of the breadth of these laws, it is possible that some of our business activities, or those of our third-party manufacturers and distributors, could be subject to challenge under one or more of such laws.

~~In addition, the FDA has post-approval authority to require post-approval clinical trials and/or safety labeling changes if warranted by the appearance~~comparable foreign regulatory authorities become aware of new safety ~~information. In certain circumstances,~~information after approval of any of our product candidates, they may, among other actions, withdraw approval, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any such restrictions could limit sales of the ~~FDA may impose a Risk Evaluation~~product.

We and ~~Mitigation Strategy, or REMS, after a product has been approved. Facilities involved in the manufacture and distribution~~any of ~~approved products are required to register their establishments with the FDA and certain state agencies and are~~our collaborators could be subject to periodic unannounced inspections by the FDA ~~for~~to monitor and ensure compliance with ~~cGMP~~GMPs and other ~~laws. The~~ FDA ~~also closely monitors advertising~~regulatory requirements. Application holders must further notify the FDA, and ~~promotional materials we may disseminate~~depending on the nature of the change, obtain FDA pre-approval for product and manufacturing changes. In addition, later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with our products, for compliance with restrictions on off-label promotion and other laws. We may not promote our products for conditions of use that are not included in the approved package inserts for our products. Certain additional restrictions on advertising and promotion exist for products that have so-called boxed warnings in their approved package inserts.

~~Failure by CMC~~manufacturers or ~~our other third-party manufacturers~~manufacturing processes, or failure to comply with regulatory requirements ~~could adversely affect their ability~~both before and after approval, may yield various results, including:

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restrictions on manufacturing or distribution, or marketing of such products;

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modifications to ~~supply products~~promotional pieces and product labels;

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issuance of corrective information;

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requirements to conduct post-marketing studies or ~~ingredients~~other clinical trials;

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clinical holds or termination of clinical trials;

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requirements to ~~us. All facilities and manufacturing techniques used~~establish or modify a REMS or a similar strategy;

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changes to the way the product is administered;

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liability for harm caused to patients or subjects;

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reputational harm;

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the ~~manufacture~~product becoming less competitive;

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warning, untitled, or cyber letters;

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suspension of pharmaceutical products must be operated in conformity with the FDA’s current cGMP requirements. The FDA enforces its cGMP and other requirements through periodic unannounced inspections of manufacturing facilities. If, in connection with any future inspection, the FDA finds that any of our third-party manufacturers is not in substantial compliance with cGMP requirements, or if the FDA is not satisfied with the corrective actions such manufacturer may take, the FDA may undertake certain enforcement actions, including product seizuremarketing or withdrawal of the ~~product~~products from the ~~market, imposition~~market;

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regulatory authority issuance of ~~restrictions on~~safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings or other safety information about the ~~marketing or manufacturing of a product and suspension or withdrawal of regulatory approvals or~~ product;

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refusal to approve pending applications or ~~supplements.~~

supplements to approved applications that we submit;

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recalls of products;

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fines, restitution or disgorgement of profits or revenues;

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suspension or withdrawal of marketing approvals;

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refusal to permit the import or export of our products;

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product seizure or detention;

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FDA debarment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements; or

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injunctions or the imposition of civil or criminal penalties, including imprisonment.

~~Similar actions may be taken against~~Any of these events could prevent us ~~should we fail to comply with regulatory requirements,~~from achieving or ~~later discover previously unknown problems with our products. Even if regulatory~~maintaining product approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and ~~surveillance to monitor the safety or efficacy~~market acceptance of the ~~product. If we experience any~~particular product candidate, if approved, or could substantially increase the costs and expenses of developing and commercializing such product, which in turn could delay or prevent us from generating significant revenues from its sale. Any of these ~~post-approval~~ events could further have other material and adverse effects on our operations and business and could adversely impact our stock price and could significantly harm our business, financial condition, results of operations, and prospects.

The FDA’s policies may change and additional government laws and regulations may be enacted that could prevent, limit, or delay regulatory approval of our product candidates, that could limit the marketability of our product candidates, or that could impose additional regulatory obligations on us. For example, the current administration may implement new or revised laws, regulatory requirements, and associated compliance obligations, as well as postponed or frozen regulatory requirements. Changes in medical practice and standard of care may also impact the marketability of our product candidates. If we are slow or unable to adapt to changes

in existing requirements, standards of care, or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and be subject to regulatory enforcement action.

Should any of the above actions take place, they could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results ~~could be materially~~ and ~~adversely affected.~~financial condition.

If we fail to comply with foreign, federal, state, and ~~state~~local healthcare laws, including fraud and abuse and health information privacy and security laws, we could face substantial penalties and our business, results of operations, financial condition and prospects could be adversely affected.

As a biotechnology company, even though we do not provide healthcare services or receive payments directly from or bill directly to Medicare, Medicaid, or other third-party payors for our products, certain federal, state, local and ~~state~~foreign healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are ~~and will be~~ applicable to our business. We are subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

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the federal Anti-Kickback Statute ~~which constrains~~makes it illegal for any person or entity, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, receive, offer or pay remuneration, directly or indirectly, overtly or covertly, to induce, or in return for, either the referral of an individual, or the purchase, lease, prescribing or recommendation of an item, good, facility or service reimbursable by a federally funded healthcare program, such as the Medicare or Medicaid program. The term “remuneration” has been interpreted broadly and may constrain our marketing practices, educational programs, pricing policies and relationships with healthcare providers or other entities, ~~by prohibiting,~~ among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase, prescribing or recommendation of an item or service reimbursable under federally funded healthcare programs, such as the Medicare and Medicaid programs;

activities;

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federal civil and criminal false claims, including the federal False Claims Act, and false statement laws and civil monetary penalty laws, which ~~prohibit,~~impose criminal and civil penalties, including through civil whistleblower or qui tam actions, on individuals or entities for, among other things, ~~individuals or entities from~~ knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other ~~payors~~federal health care programs that are false or fraudulent or knowingly making any materially false statement in connection with the delivery or payment for healthcare benefits, items or services;

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the U.S. federal Health Insurance Portability and Accountability Act of 1996, as amended, or HIPAA, which ~~creates federal~~imposes criminal and civil ~~statutes that prohibit~~liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit ~~program;~~program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health, or HITECH, and ~~its~~their respective implementing regulations ~~which imposes certain requirements~~mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy, security and transmission of individually identifiable health ~~information;~~

information, which require the adoption of administrative, physical and technical safeguards to protect such information. Among other things, HITECH makes HIPAA's security standards directly applicable to "business associates", or independent contractors or agents of covered entities that create, receive or obtain protected health information in connection with providing a service for or on behalf of a covered entity;

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~~federal physician self-referral laws, such as~~ the ~~Stark law,~~Physician Payments Sunshine Act and its implementing regulations, which ~~prohibit a physician from making a referral to a provider~~requires certain manufacturers of ~~certain health services with~~drugs, biologics, medical devices and medical supplies for which ~~the physician~~payment is available under Medicare, Medicaid or the ~~physician’s family member has a financial interest,~~CMS, certain payments and ~~prohibit submission~~transfers of ~~a claim for reimbursement pursuant to a prohibited referral;~~

~~the Physician Payment Sunshine Act, which imposes disclosure requirements on pharmaceutical manufacturers of payments~~value made to physicians ~~healthcare providers~~ and ~~institutions;~~teaching hospitals, and

ownership or investment interests held by physicians and their immediate family members. Effective January 1, 2022, applicable manufacturers are required to report information regarding payments and transfers of value provided to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives; and,

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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial ~~insurers,~~insurers; state and ~~state~~foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance ~~efforts.~~

efforts; state, local and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, obtain pharmaceutical agent licensure, and/or otherwise restrict payments that may be made to healthcare providers and entities; and state, local and foreign laws and industry codes that require drug manufacturers to report information related to payments and other transfers of value to healthcare providers or entities, or marketing expenditures.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the U.S. federal Anti-Kickback Statute, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Moreover, recent health care reform legislation has strengthened these laws. For example, the ~~Affordable Care Act,~~ACA, among other things, amends the intent requirement of the federal ~~anti-kickback~~Anti-Kickback Statute and criminal health care fraud statutes, so that a person or entity no longer needs to have actual knowledge of ~~this~~the statute or specific intent to violate it. In addition, the ~~Affordable Care Act~~ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid.False Claims Act.

Recently, several pharmaceutical and other healthcare companies have been prosecuted under the federal false claims laws for allegedly inflating drug prices they report to pricing services, which in turn are used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition, certain marketing practices, including off-label promotion, interactions with specialty pharmacies, and patient assistance programs may also violate ~~false claims~~fraud and abuse laws. To the extent that any product we make is sold in a foreign country, we may be subject to similar foreign laws and regulations.

Further, there has been a recent trend in the increase of federal and state laws and regulations regarding financial arrangements with physicians. The Affordable Care Act imposes new requirements to report certain financial arrangements with physicians and others, including reporting any “transfer of value” made or distributed to prescribers and other healthcare providers and reporting any ownership or investment interests held by physicians and their immediate family members during each calendar year, subject to federal implementation and enforcement policies.

In addition, certain ~~states~~state and local laws mandate that we comply with a state code of conduct, adopt a company code of conduct under state criteria, disclose marketing payments made to ~~physicians,~~health care professionals and entities, disclose drug pricing information and/or report compliance information to the state authorities. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply in multiple jurisdictions with different compliance and reporting requirements increase the possibility that a pharmaceutical company may violate one or more of the requirements. Any failure to comply with these reporting requirements could result in significant fines and penalties.

The risks of complying with these laws cannot be entirely eliminated. The risk of violation of such laws is also increased because many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal, state, local and ~~state~~foreign privacy, security, fraud and ~~fraud~~transparency laws may prove costly. If our past or present operations, or those of our distributors are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to ~~penalties,~~sanctions, including civil and administrative penalties, criminal ~~penalties,~~fines, damages, ~~fines,~~disgorgement, exclusion from participation in U.S. federal or state health care programs, individual imprisonment, integrity obligations, and the curtailment or restructuring of our operations, any of which could materially adversely affect our ability to operate our business and our financial results. Similarly, if healthcare providers, distributors or other entities with whom we do business are found to be out of compliance with applicable laws and regulations, they may be subject to sanctions, which could also have a negative impact on us.

If we fail to comply with our obligations under U.S. governmental pricing programs, we could be required to reimburse government programs for underpayments and could pay penalties, sanctions and fines.

On August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposalsOur employees, independent contractors, consultants, commercial partners, principal investigators, or CROs may engage in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering mandatory reductions in federal spending by as much as $1.1 trillion from 2013 through 2021, referred to as sequestration. The Bipartisan Budget Act of 2013 and subsequent legislation provide billions in sequester relief, but also extends the 2% reduction in Medicare payments, discussed below through fiscal year 2025. Sequestration-related spending reductions may have a significant adverse impact on our business.

The issuance of regulations and coverage expansion by various governmental agencies relating to the Medicaid rebate program will continue to increase our costs and the complexity of compliance and will be time-consuming. Changes to the definition of “average manufacturer price,” or AMP, and the Medicaid rebate amount under the Affordable Care Act and Centers for Medicare & Medicaid Services’, or CMS’s, issuance of final regulations implementing those changes also has affected and could further affect our 340B “ceiling price” calculations. Because we participate in the Medicaid rebate program, we are required to report “average sales price,” or ASP, information to CMS for certain categories of drugs that are paid for under Part B of the Medicare program, including IXINITY. Future statutory or regulatory changes or CMS binding guidance could affect the ASP calculations for our products and the resulting Medicare payment rate, and could negatively impact our results of operations.

Pricing and rebate calculations vary among products and programs, involve complex calculations and are often subject to interpretation by us, governmental or regulatory agencies and the courts. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current AMP and “best price” for the quarter. If we become aware that our reporting for a prior quarter was incorrect, or has changed as a result of recalculation of the pricing data, we are obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which the data originally were due. Any such revisions could have the impact of increasing or decreasing our rebate liability for prior quarters, depending on the direction of the revision. Such restatements and recalculations increase our costs for complying with the laws and regulations governing the Medicaid rebate program. Price recalculations also may affect the “ceiling price” at which we are required to offer our products to certain covered entities, such as safety-net providers, under the 340B/PHS drug pricing program.

In addition to retroactive rebate liability and the potential for 340B program refunds, if we are found to have made a misrepresentation in the reporting of ASP, we are subject to civil monetary penalties for each such price misrepresentation and for each day in which such price misrepresentation was applied. If we are found to have knowingly submitted false AMP or “best price” information to the government, we may be liable for civil monetary penalties per item of false information. Any refusal of a request for information or knowing provision of false information in connection with an AMP survey verification also would subject us to civil monetary penalties. In addition, our failure to submit monthly/quarterly AMP or “best price” information on a timely basis could result in a civil monetary penalty per day for each day the information is late beyond the due date. Such failure also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we participate in the Medicaid program. In the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for our covered outpatient drugs. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. We cannot assure you that our submissions will not be found by CMS to be incomplete or incorrect.

In order for our products to be reimbursed by the primary federal governmental programs, we report certain pricing data to the U.S. federal government. Compliance with reporting and other requirements of these federal programs is a pre-condition to: (i) the availability of federal funds to pay for our products under Medicaid and Medicare Part B; and (ii) procurement of our products by the Department of Veterans Affairs, or DVA, and by covered entities under the 340B/PHS program. The pricing data reported are used as the basis for establishing Federal Supply Schedule, or FSS, and 340B/PHS program contract pricing and payment and rebate rates under the Medicare Part B and Medicaid programs, respectively. Pharmaceutical companies have been prosecuted under federal and state false claims laws for submitting inaccurate and/or incomplete pricing information to the government that resulted in increased payments made by these programs. The rules governing the calculation of certain reported prices are highly complex. Although we maintain and follow strict procedures to ensure the maximum possible integrity for our federal pricing calculations, the process for making the required calculations involves some subjective judgments and the risk of errors always exists, which creates the potential for exposure under the false claims laws. If we become subject to investigationsmisconduct or other ~~inquiries concerning our compliance~~improper activities, including noncompliance with ~~price reporting laws~~regulatory standards and regulations, and our methodologies for calculating federal prices are found to include flaws or to have been incorrectly applied, we could be required to pay or be subject to additional reimbursements, penalties, sanctions or fines,requirements, which could have a material adverse effect on our business.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, independent contractors, consultants, commercial partners, manufacturers, investigators, or CROs could include intentional, reckless, negligent, or unintentional failures to comply with FDA regulations or applicable fraud and abuse laws, provide accurate information to the FDA, properly calculate pricing information required by federal programs, comply with federal procurement rules or contract terms, report financial information or data accurately or disclose unauthorized activities to us. This misconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter this type of misconduct, and the precautions we take to detect and prevent this activity may not

be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Moreover, it is possible for a whistleblower to pursue a False Claims Act case against us even if the government considers the claim unmeritorious and declines to intervene, which could require us to incur costs defending against such a claim. Further, due to the risk that a judgment in a False Claims Act case could result in exclusion from federal health programs or debarment from government contracts, whistleblower cases often result in large settlements. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, and results of ~~operations.~~

~~To be eligible to have our products paid for with federal funds under~~operations, including the Medicaid and Medicare Part B programs as well as to be purchased by certain federal agencies and certain federal grantees, we also must participate in the DVA FSS pricing program. To participate, we are required to enter into an FSS contract with the DVA, under which we must make our innovator “covered drugs” available to the “Big Four” federal agencies—the DVA, the U.S. Departmentimposition of Defense, or the DoD, the Public Health Service (including the Indian Health Service), and the Coast Guard—at pricing that is capped pursuant to a statutory federal ceiling price, or FCP, formula set forth in Section 603 of the Veterans Health Care Act of 1992, or VHCA. The FCP is based on a weighted average wholesale price known as the Non-Federal Average Manufacturer Price, or Non-FAMP, which manufacturers are required to report on a quarterly and annual basis to the DVA. Pursuant to the VHCA, knowing provision of false information in connection with a Non-FAMP filing can subject us to penalties of $100,000 for each item of false information. If we overcharge the government in connection with our FSS contract or Section 703 Agreement, whether due to a misstated FCP or otherwise, we are required to disclose the error and refund the difference to the government. The failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

~~The failure to obtain or maintain regulatory approval in international jurisdictions could prevent us from marketing our products abroad and could limit the growth of our business.~~

We currently sell and intend to continue to sell our products outside the United States. To market our products in the EU and many other foreign jurisdictions, we may need to obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. Approval by the FDA does not ensure approval by foreign regulatory authorities. The approval procedures in foreign jurisdictions can vary widely and can involve additional clinical trials and data review. We and our collaborative partners may not be able to obtain foreign regulatory approvals on a timely basis, if at all, and therefore we may be unable to commercialize our products internationally. The failure to obtain these approvals could harm our business.

~~Our international operations increase our risk of exposure to potential claims of bribery and corruption.~~

As we expand our commercialization activities outside of the United States, we are subject to an increased risk of inadvertently conducting activities in a manner that violates the FCPA, the U.K. Bribery Act of 2010, Canada’s Corruption of Foreign Public Officials Act,significant fines or other similar foreign laws, which prohibit corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. In the course of establishing and expanding our commercial operations and seeking regulatory approvals outside of the United States, we will need to establish and expand business relationships with various third parties and will interact more frequently with foreign officials, including regulatory authorities and physicians employed by state-run healthcare institutions who may be deemed to be foreign officials under the FCPA or similar foreign laws. If our business practices outside the United States are found to be in violation of the FCPA or similar foreign laws, we and our senior management may be subject to significant civil and criminal penalties, potential debarment from public procurement and reputational damage, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.sanctions.

Our operations, including our use of hazardous materials, chemicals, bacteria, and viruses, require us to comply with regulatory requirements and expose us to significant potential liabilities.

Our operations involve the use of hazardous materials, including chemicals, and may produce dangerous waste products. Accordingly, we, along with the third parties that conduct clinical trials and manufacture our products and product candidates on our behalf, are subject to federal, state, local and foreign laws and regulations that govern the use, manufacture, distribution, storage, handling, exposure, disposal and recordkeeping with respect to these materials. We are also subject to a variety of environmental and occupational health and safety laws. Compliance with current or future laws and regulations can require significant costs and we could be subject to substantial fines and penalties in the event of noncompliance. In addition, the risk of contamination or injury from these materials cannot be completely eliminated. In such event, we could be held liable for substantial civil damages or costs associated with the cleanup of hazardous materials.

Our failure to comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.

EU Member States, Switzerland and other countries have adopted data protection laws and regulations, which impose significant compliance obligations. For example, European Union, or EU, member states and other foreign jurisdictions, including Switzerland, have adopted data protection laws and regulations which impose significant compliance obligations. Moreover, the ~~EU Data Protection Directive, as implemented into national laws by the EU Member States, imposes strict obligations~~collection and ~~restrictions on the ability to collect, analyze and transfer~~use of personal ~~data, including~~ health data from clinical trials and adverse event reporting. Data protection authorities from the different EU Member States may interpret the EU Data Protection Directive and national laws differently, which adds to the complexity of processing personal data in the ~~European Union,~~EU is now governed under the EU General Data Protection Regulation, or the GDPR, effective in May 2018. The GDPR, which is wide-ranging in scope, imposed several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and ~~guidance~~confidentiality of the personal data, data breach notification and the use of third-party processors in connection with the processing of personal data. The GDPR also imposes strict rules on ~~implementation~~the transfer of personal data out of the EU to the U.S., provides an enforcement authority and ~~compliance practices are often updated~~imposes large penalties for noncompliance, including the potential for fines of up to €20 million or ~~otherwise revised. Our failure~~4% of the annual global revenues of the noncompliant company, whichever is greater. The GDPR requirements apply not only to ~~comply with these laws could lead~~third-party transactions, but also to ~~government enforcement actions and significant penalties against~~transfers of information between us and ~~adversely impact~~ our ~~operating results.~~subsidiaries, including employee information. The ~~revised EU Data Protection Directive adopted in April 2016 may also increase~~GDPR increases our responsibility and liability in relation to personal data that we process, including in clinical trials, and we may be required to put in place additional mechanisms ~~ensuring~~to ensure compliance with the GDPR, which could divert management’s attention and increase our cost of doing business. In addition, new EUregulation or legislative actions regarding data privacy and security (together with applicable industry standards) may increase our costs of doing business. However, despite our ongoing efforts, we may not be successful either due to various factors within our control, such as limited financial or human resources, or other factors outside our control. It is also possible that local data protection ~~rules.~~

~~Product Development Risks~~

~~Our business depends on our success in developing and commercializing our product candidates.~~

Weauthorities may have invested significant effort and financial resources in the development of our therapeutics and product candidates. In addition to our product sales, our ability to generate revenue is dependent on a number of factors, including the success of our development programs, the interest of commercial entities and non-governmental organizations and others in funding the development of our product candidates, the ability to attract and establish external development partnerships and the commercial viability of our developed product candidates. The commercial success of our product candidates will depend on many factors, including accomplishing the following in an economical manner:

~~successful development and formulation that meets FDA requirements;~~

~~successful completion of clinical or non-clinical development, including toxicology studies;~~

~~receipt of marketing approvals from the FDA and equivalent foreign regulatory authorities;~~

~~establishment of commercial manufacturing and product supply arrangements;~~

~~training of a commercial sales force for the product, whether alone or in collaboration with others;~~

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~~successful registration and maintenance of relevant patent and/or other proprietary protection; and~~

~~acceptance~~different interpretations of the ~~product by~~GDPR, leading to potential ~~government customers, physicians, patients, healthcare payors and others in the medical community.~~

~~If we are delayed~~inconsistencies amongst various EU member states. Any failure or prevented from developing or commercializing a product candidate in a profitable manner, or if doing so requires us to incur significant unanticipated costs, our growth could be materially and adversely affected.

~~Clinical trials of product candidates are expensive and time-consuming, and their outcome is uncertain.~~

Before obtaining regulatory approval for the sale of our product candidates, we and our collaborative partners, where applicable, must conduct extensive preclinical studies and clinical trials to establish proof of concept and demonstrate the safety and efficacy of our product candidates. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. An unexpected result in one or more of our clinical trials can occur at any stage of testing.

~~We may experience unforeseen events or issues during, or~~alleged failure (including as a result of ~~preclinical testing~~deficiencies in our policies, procedures, or measures relating to privacy, data security, marketing, or communications) by us to comply with laws, regulations, policies, legal or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in governmental investigations and enforcement actions, litigation, fines and penalties or adverse publicity. In addition, we expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy and data protection in the United States, the EU and other jurisdictions, such as the California Consumer Privacy Act of 2018, which has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States, and we cannot determine the impact such future laws, regulations and standards may have on our business.

If we experience a significant disruption in our information technology systems or breaches of data security, including due to a cyber-security incident, our business could be adversely affected.

We rely on information technology systems to keep financial records, capture laboratory data, maintain clinical ~~trials. These issues~~trial data and corporate records, communicate with staff and external parties and operate other critical functions. Our information technology systems are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer viruses or other disruptive events ~~which~~including but not limited to natural disaster.

We also face the challenge of promptly detecting and remediating any cyber-security breaches. Our information technology systems security measures are focused on the prevention, detection and remediation of damage from computer viruses, unauthorized access, cyber-attack and other similar disruptions. However, our information technology systems protection measures may not be successful in preventing unauthorized access, intrusion and damage. Threats to our systems can derive from human error, fraud or malice

on the part of employees or third parties, including computer hackers, encryption by ransomware, or may result from technological failure.

If we were to experience a prolonged system disruption in our information technology systems or those of certain of our vendors, it could delay or ~~prevent~~negatively impact our ~~ability to receive regulatory approval for a product candidate, include, among others:~~

~~lack of efficacy of product candidates during the trials;~~

~~safety issues or inconclusive or incomplete testing, trial or study results;~~

~~our inability or the inability of Emergent and our other third-party manufacturers to manufacture sufficient quantities of materials for use in trials;~~

~~the unavailability or variability in the number and types of subjects for each study;~~

~~government or regulatory restrictions or delays; and~~

~~greater than anticipated costs of trials.~~

For example, in December 2015, after a joint review of data from the Phase 1 dose escalation study of APVO414 in prostate cancer patients, the Company and MorphoSys concluded that the dosing regimen and administration required adjustment. Patients receiving weekly doses of APVO414 developed ADA. ADA developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. These antibodies bind to the drug and reduce the concentration of active APVO414 in the blood and thus could potentially reduce its efficacy. However, we observed no safety issues related to the development of ADA. The cause of these antibodies is unclear but could be due to the weekly administration of the drug. We and MorphoSys amended the clinical protocol to provide continuous intravenous infusion as a way to administer higher levels of drug and prevent the development of ADA. There is no guarantee that this change in administration will enable higher dosing and/or prevent the development of ADA. Further adverse or inconclusive clinical results could require additional adjustments to the dosing regimen or other parts of the program and could delay or prevent our ability to receive regulatory approval for APVO414.

In addition, product candidates that experience success in preclinical testing and early-stage clinical trials will not necessarily experience the same success in late-stage clinical trials, which are required for marketing approval. The FDA and other countries’ regulatory authorities will allow us to begin clinical trials under an IND, or similar document in other countries only if we demonstrate in our submission that the potential product candidate will not expose humans to unreasonable risks and that the compound has pharmacological activity that justifies clinical development. It takes significant time and expense to generate the requisite data to support an IND or similar document. In many cases, companies spend the time and resources only to discover that the data are not sufficient to support an IND or similar document and therefore are unable to enter human clinical trials.

Even if we are successful in advancing a product candidate into the clinical development stage, before obtaining regulatory and marketing approvals, we must demonstrate through extensive human clinical trials that the product candidate is safe and effective for its intended use. Human clinical trials must be carried out under protocols that are acceptable to regulatory authorities and to the independent committees responsible for the ethical review of clinical studies. There may be delays in preparing protocols or receiving approval for them that may delay the start or completion of the clinical trials. This is applicable both domestically and internationally. Clinical practices vary globally, and there is a lack of harmonization among the guidance provided by various regulatory bodies of different regions and countries with respect to the data that is required to receive marketing approval, which makes designing global trials increasingly complex.

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 could cause us or regulatory authorities to interrupt, delay or halt our manufacturing and distribution operations and could result in a more restrictive label, the imposition of 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.

For example, as noted above, APVO414 is currently being tested in its first clinical trial in humans. Twenty-one patients have received the drug. One of the significant serious adverse events associated with the drug is infusion reactions. Infusion reactions are often associated with the infusion of a protein and are expected with this drug that activates T-cells. The events that have been reported with infusion of the drug include: fever, fatigue, hypertension, bronchospasm, chills and rigors. The severity of these reactions varied by patient and were managed medically and resolved. In addition, in December 2015, we discovered that patients receiving weekly doses of our product candidate APVO414 developed ADA during use. This ADA, which was not associated with safety issues, developed in most patients including those receiving the maximum tolerated dose of drug which could be given safely on a weekly basis. Undesirable side effects, such as this, or other unexpected adverse events or properties of any of our 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, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our other product candidates. If such an event occurs, a number of potentially significant negative consequences may result, including:

~~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;~~

~~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 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 harm our business and results of operations.

~~We depend on third parties to conduct our clinical and non-clinical trials.~~

We do not have the ability to independently conduct the clinical and non-clinical trials required to obtain regulatory approval for our product candidates. We depend on third parties, such as independent clinical investigators, contract research organizations and other third-party service providers to conduct the clinical and non-clinical trials of our product candidates and expect to continue to do so. We rely heavily on these third parties for successful execution of our clinical and non-clinical trials, but we do not exercise day-to-day control over their activities. Our reliance on these service providers does not relieve us of our regulatory responsibilities, including ensuring that our trials are conducted in accordance with the FDA-approved good clinical practices, or GCPs, and the plan and protocols contained in the relevant regulatory application. In addition, these organizations may not complete these activities on our anticipated or desired timeframe. We also may experience unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the work of a contract research organization may lead us to seek to terminate the relationship and use an alternative service provider, which may prove difficult, costly and result in a delay of our trials. Any delay in or inability to complete our trials could delay or prevent the development, approval and commercialization of our product ~~candidates.~~candidates, which could adversely impact our business. If operations at our facilities were disrupted, it may cause a material disruption in our business if we are not capable of restoring function on an acceptable timeframe.

~~If we, contract research organizations~~In addition, as discussed above, our information technology systems are potentially vulnerable to data security breaches—whether by employees or others, intentionally or unintentionally—which may expose sensitive or personal data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other ~~third parties assisting~~intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, customers and others, any of which could have a material adverse effect on our business, financial condition and results of operations.

Moreover, a security breach or privacy violation that leads to destruction, loss, alteration, unauthorized use or access, disclosure or modification of, personally identifiable information or personal data, could harm our reputation, compel us ~~or our study sites fail~~ to comply with ~~applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA~~ federal, state and/or ~~its non-U.S. counterparts may~~international breach notification laws, subject us to mandatory corrective or regulatory action, require us to ~~perform additional clinical trials before approving~~verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal data, including the GDPR and the California Consumer Privacy Act of 2018, which could disrupt our ~~marketing applications. We cannot assure you that, upon inspection, the FDA~~business, result in increased costs or ~~non-U.S. regulatory agencies will determine that any of our clinical trials comply with GCPs.~~loss, and/or result in significant legal and financial exposure. In addition, ~~our~~a data security breach could result in loss of clinical ~~trials must be conducted with product produced under GCPs and similar regulations outside of the United States. Our failure,~~trial data or the failure of our product manufacturers, to comply with these regulations may require us to repeat or redesign clinical trials, which would increase our development costs and delay or impact the likelihood of regulatory approval.

~~If third parties do not carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due~~damage to the failure to adhere to our clinical protocols, including dosing requirements, or regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials may be extended, delayed, suspended or terminated. If anyintegrity of these events occur, we may not be able to obtain regulatory approval of our product candidates or succeed in our efforts to create approved line extensions for certain of our existing products or generate additional useful clinical data in support of these products.that data.

In certain cases, government entities conduct studies of our product candidates, and we may seek to rely on these studies in applying for marketing approval for certain of our product candidates. These government entities have no obligation or commitment to us to conduct or complete any of these studies or clinical trials and may choose to discontinue these development efforts at any time.

If we are unable to ~~obtain~~implement and maintain adequate organizational and technical measures to prevent such security breaches or privacy violations, or to respond adequately in the event of a breach, our operations could be disrupted, and we may suffer loss of reputation, problems with regulatory authorities, financial loss and other negative consequences. In addition, these breaches and other inappropriate access can be difficult to detect, and any ~~necessary third-party services on acceptable terms~~delay in identifying them may lead to increased harm of the type described above.

If a breach of our information technology systems occurs, we may incur additional costs related to repairing or ~~if these service providers do not successfully carry out their contractual duties~~rebuilding our internal systems, complying with breach notification laws, defending legal claims or ~~meet expected deadlines, our efforts~~proceedings, responding to ~~obtain~~ regulatory ~~approvals for our product candidates~~actions, incurring penalties, and paying damages. Moreover, it may be ~~delayed or prevented.~~

~~We may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates.~~

~~We continue to evaluate our business strategy and,~~determined that as a result ~~may modify our strategy in the future. In this regard, we may, from time to time, focus our product development efforts on different product candidates~~of such a breach there was a material weakness or ~~may delay or halt the development of various product candidates. This could require changes~~significant deficiency in our ~~facilities and~~internal controls or other failure of our ~~personnel. Any product development changes that we implement~~control environment. If such a breach occurs, it may ~~not be successful. In particular, we may fail to select or capitalize~~have a material adverse effect on ~~the most scientifically, clinically or commercially promising or profitable product candidates.~~

~~Our decisions to allocate~~ our ~~research and development, management~~business, results of operations, and financial ~~resources toward particular product candidates or therapeutic areas may not lead to the development of viable commercial products~~condition, and ~~may divert resources from better opportunities. Similarly, our decisions to delay or terminate product development programs~~it may also ~~prove to be incorrect and could cause us to miss valuable opportunities.~~negatively impact our reputation.

Intellectual Property Risks

If we are unable to protect our intellectual proprietary rights, our business could be harmed.

Our commercial success will depend, in large part, on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology, products and product candidates. Obtaining and maintaining this protection is very costly. The patentability of technology in the biotechnology field generally is highly uncertain and involves complex legal and scientific questions. We cannot be certain that our patents and patent applications, including our own and those that we have rights through licenses from third parties, will adequately protect our intellectual property. Our success in protecting our intellectual property depends significantly on our ability to:

•

obtain and maintain U.S. and foreign patents, that are meaningful to our products, including defending those patents against adverse claims;

•

secure patent term extension for the patents covering our approved products;

•

protect trade secrets;

•

operate without infringing the proprietary rights of others; and,

•

prevent others from infringing our proprietary rights.

We may not be able to obtain issued patents relating to our technology or ~~products.~~product candidates. Even if issued, patents may inadvertently lapse or be challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the duration of patent protection we may have for our ~~products.~~product candidates. Further, patents may lapse prior to the regulatory approval of the underlying product in one or more territories. In the past, we have abandoned the prosecution and/or maintenance of patent applications related to patent families in the ordinary course of business. In the future, we may choose to abandon such prosecution and/or maintenance in a similar fashion. If these patent rights are later determined to be valuable or necessary to our business, our competitive position may be adversely affected. Changes in patent laws or administrative patent office rules or changes in interpretations of patent laws in the United States and in other countries may diminish the value of our intellectual property or narrow the scope of our patent protection, or result in costly defensive measures.

Our collaborative partners and licensors may not adequately protect our intellectual property rights. These third parties may have the first right to maintain or defend intellectual property rights in which we have an interest and, although we may have the right to assume the maintenance and defense of such intellectual property rights if these third parties do not do so, our ability to maintain and defend such intellectual property rights may be compromised by the acts or omissions of these third parties.

The cost of litigation to uphold the validity of patents, once obtained, to prevent infringement or to otherwise protect or enforce our proprietary rights could be substantial and, from time to time, our patents are subject to patent office proceedings. Some of our competitors may be better able to sustain the costs of complex patent litigation because they may have substantially greater financial resources. Intellectual property lawsuits are expensive and unpredictable and would consume management’s time and attention and other resources, even if the outcome were successful. In addition, there is a risk that a court would decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions covered by or incorporating them. There is also a risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the invention(s), including on the grounds that its activities do not infringe the patent. If any of these events were to occur, our business, financial condition and operating results could be materially and adversely affected.

In addition to patent litigation, we may be a party to adversarial proceedings before the Patent Trial and Appeal Board (PTAB) of the ~~US Patent and Trademark Office (USPTO),~~USPTO, or the Opposition Division of the European Patent Office (EPO). Potential proceedings before the PTAB include inter partes review proceedings, post-grant review proceedings and interference proceedings. Depending on our level of success at the PTAB and Opposition Division of the EPO, these proceedings could adversely impact our intellectual property rights with respect to our products and technology.

In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the value of patents, once obtained, and with regard to our ability to obtain patents in the future. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

~~Our collaborative partners~~ Patent and ~~licensors may not adequately protect our~~ intellectual property ~~rights. These third parties~~laws outside of the United States may ~~have the first right to maintain or defend intellectual property rights in which we have an interest~~also change and although we may have the right to assume the maintenance and defense of such intellectual property rights if these third parties do not do so, our ability to maintain and defend such intellectual property rights may be ~~compromised by the acts or omissions of these third parties.~~uncertain.

Our patents, once obtained, also may not afford us protection against competitors with similar technology. Because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that others have not filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications.

We also will rely on current and future trademarks to establish and maintain recognized ~~brands.~~brands, including APTEVO THERAPEUTICS, APTEVO BIOTHERAPEUTICS, APTEVO RESEARCH AND DEVELOPMENT, the Aptevo logo, ADAPTIR, and ADAPTIR-FLEX in relevant jurisdictions. If we fail to acquire and protect such trademarks, our ability to market and sell our products, if approved for marketing, will be harmed. In addition, our current and ~~therefore~~future trademarks may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks and we may not be able to protect our rights in these trademarks, which we need in order to build name recognition. Any of the foregoing could have a material and adverse effect on our business, financial condition and operating ~~results,~~results.

If approved, our products regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of the other company’s product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be ~~materially and adversely affected.~~shortened due to congressional action or otherwise, or that the FDA will not consider our investigational medicines to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation.

~~Status of patent opposition proceedings in Europe relating to IXINITY~~

~~A European Patent Opposition~~There is a ~~European Patent Office proceeding that allows~~similar abbreviated pathway for ~~a 3rd party (opponent) to challenge~~ the ~~validity~~approval of biosimilar products in the EU. Reference products in the EU benefit from an eight year data exclusivity period during which the data included in the dossier for the reference product may not be referenced for the purposes of an ~~issued patent. In a European Patent Opposition only~~abbreviated biosimilar application. Following the ~~validity~~expiration of the ~~patent~~data exclusivity period, there is an additional two year period of market exclusivity during which a biosimilar marketing authorization application can be ~~challenged;~~submitted, and the ~~European Patent Office cannot rule~~innovator’s data may be referenced, but no product can be placed on ~~whether~~the market until the expiration of such period. The overall 10-year period can be extended to a ~~party infringes~~maximum of 11 years in certain circumstances. As in the U.S., there is no guarantee that a ~~patent (this is a matter~~product will qualify for the ~~courts across Europe). To initiate an Opposition at the European Patent Office, an opponent files~~prescribed period of exclusivity and, even if a ~~notice that it wishes to oppose the patent within~~product does qualify, another company may market a ~~nine-month period following the publication~~competing version of the ~~patent grant. After~~reference product if such company obtained a marketing authorization with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.

Moreover, the ~~opponent files the notice, it may~~extent to which a biosimilar, once licensed, will be substituted for any one of our reference products in a ~~few years before the merits~~way that is similar to traditional generic substitution for non-biological products, and will depend on a number of ~~the opposition are heard~~marketplace and decided by the European Patent Office Opposition Division and several more years before the Boards of Appeal hears and decides on any appeals. We were previously involved in five opposition proceedings in Europe relating to factor IX proteins. Baxter International Inc. (or Baxalta) was the sole counter-party in all proceedings. Two oppositions were decided in our favor and cannot be further appealed. Of the three remaining oppositions, Baxter either withdrew its patents or withdrew its opposition of a UNC patent (a licensed patent asset). Accordingly, we are no longer involved in adversarial proceedings with Baxter (or Baxalta) relating to these assets in Europe.

International patent protection is particularly uncertain, and if we are involved in additional opposition proceedings in foreign countries, we may have to expend substantial sums and management resources.

Patent and other intellectual property laws outside the United States are even more uncertain than in the United States and are continually undergoing review and revisions in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. For example, certain countries do not grant patent claimsregulatory factors that are ~~directed~~still developing. If competitors are able to ~~business methods and processes. In addition, we may have to participate in additional opposition proceedings, like the proceedings described above, to determine the validity~~obtain marketing approval for biosimilars referencing any of our ~~foreign patents or~~products, if approved, our ~~competitors’ foreign patents,~~products may become subject to competition from such biosimilars, which ~~could result in substantial costs~~would impair our ability to successfully commercialize and ~~diversion~~generate revenues from sales of ~~our efforts.~~such products.

Third parties may choose to file patent infringement claims against us.

Our development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be claimed to infringe patents and other intellectual property rights of third parties under which we do not hold sufficient licenses or other rights. Third parties may be successful in obtaining patent protection for technologies that cover development and commercialization activities in which we are already engaged. These third parties may have substantially greater financial resources than us and could bring claims against us that could cause us to incur substantial expenses to defend against these claims and, if successful against us, could cause us to pay substantial damages. If a patent infringement or other similar suit were brought against us, we could be forced to stop or delay development, manufacturing or sales of the product or product candidate that is the subject of the suit. Intellectual property litigation in the biotechnology industry is common, and we expect this trend to continue.

As a result of patent infringement or other similar claims, or to avoid potential claims, we may choose or be required to seek a license from the third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms, if at all, or if an injunction is granted against us, which could harm our business significantly.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other adversarial proceedings such as proceedings before the ~~PTAB~~Patent Trial Appeals Board and opposition proceedings in the European Patent Office, regarding intellectual property rights ~~with respect to~~that could impact our products and technology.

Patent litigation and other proceedings may also absorb significant management time. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

Our Aptevo trademarks may be opposed which could have a material and adverse effect on our business.

We have ~~applications~~an application pending that ~~cover~~covers the APTEVO ~~APTEVO~~ THERAPEUTICS trademark and received a notice of allowance from the USPTO for the APTEVO BIOTHERAPEUTICS and APTEVO RESEARCH AND DEVELOPMENT ~~trademarks.~~trademarks in August 2022. We refer to these trademarks as our house marks. If a third party opposes any of these house marks and we are unable to reach settlement prior to the commencement of an opposition proceeding, we may incur significant expense in the course of participating in the opposition process, which can be expensive and lengthy. Any settlement with a third party may result in our agreeing to be subject to restrictions on our use of the relevant house mark. In addition, if we are unsuccessful in an opposition against a house mark, we would lose the ability to obtain trademark registration for one or more uses of the relevant mark both in the United States and in other territories which could have a material and adverse effect on our business.

Synoptis Pharma Sp. z.o.o., or Synoptis, has opposed several of our house marks in the European Union. Despite efforts to initiate discussions with Synoptis regarding use of our house marks, Synoptis has refused to enter into settlement agreements. Our foreign counsel is investigating possible cancellation of Synoptis' registrations based on nonuse, which may allow the parties to enter negotiation discussions. If the event we are unsuccessful with our efforts to negotiate a settlement with Synoptis, we may lose our ability to obtain trademark registration for one or more of the house marks in the European Union, where Synoptis has opposed the marks, which could have a material and adverse effect on our business.

The Bristol Myers Squibb Company, or BMS, previously opposed several of our house marks in and outside the United States. We entered into a settlement and co-existence agreement with BMS and its licensee, Ono Pharmaceutical Co., Ltd on July 5, 2017. BMS subsequently withdrew oppositions of our house marks. The settlement and co-existence agreement places restrictions on how we can use our house marks and how we can seek trademark protection for our house marks.

~~Third parties may file trademark infringement claim against us.~~

Defending ourselves against such trademark infringement claims could be costly, time-consuming and distracting to management, and if we are unsuccessful in our defense, we could face an injunction and damages.

Defending ourselves against claims could be costly, time-consuming and distracting to management, and if we are unsuccessful in our defense, we could face an injunction prohibiting us from using the Aptevo trademarks and damages, all which could have a material and adverse effect on our business.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Failure to comply with our obligations in our intellectual property licenses with third parties, could result in loss of license rights or other damages.

We are a party to a number of license agreements and expect to enter into additional license agreements in the future. Our existing licenses impose, and we expect future licenses will impose, various diligence, milestone payment, royalty, insurance, and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license in whole or in part, terminate the exclusive nature of the license and/or sue us for breach, which could cause us to not be able to market any product that is covered by the licensed patents and may be subject to damages.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and ~~products~~product candidates could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, information processes and know-how. These types of trade secrets can be difficult to protect. We seek to protect this confidential information, in part, through agreements with our employees, consultants and third parties as well as confidentiality policies and audits, although these may not be successful in protecting our trade secrets and confidential information. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known, including through a potential cyber security breach, or may be independently developed by competitors. If we are unable to protect the confidentiality of our proprietary information and know-how, competitors may be able to use this information to develop products that compete with our products, which could adversely impact our business.

Risks Related to Collaborations and Other Transactions

We may not be successful in establishing and maintaining collaborations and entering into other transactions that leverage our capabilities in pursuit of developing and commercializing our product ~~candidates.~~candidates and any such collaborations and transactions, if any, could result in financial results that differ from market expectations.

For each of our product candidates ~~including otlertuzumab,~~ we plan to evaluate the merits of entering into collaboration arrangements with third parties, including leading biotechnology companies or non-governmental organizations. In ~~addition, in~~ July 2017, we entered into a collaboration agreement with Alligator ~~Bioscience AB, or Alligator,~~ pursuant to which Aptevo R&D and Alligator ~~will~~have been collaboratively ~~develop~~developing ALG.APV-527, a lead bispecific antibody candidate simultaneously targeting 4-1BB (CD137), a member of the TNFR superfamily of a ~~costimulatory~~co-stimulatory receptor found on activated ~~T cells,~~T-cells, and 5T4, a tumor antigen widely overexpressed in a number of different types of cancer. We ~~expect~~intend to ~~selectively~~ pursue collaboration arrangements with third parties that have particular technology, expertise or resources for the development or commercialization of our product candidates or for accessing particular markets. We face, and will continue to face, significant competition in seeking appropriate partners for our product candidates. If we are unable to identify partners whose capabilities complement and integrate well with ours and reach collaboration arrangements with such partners on a timely basis, on acceptable terms or at all, or if the arrangements we establish are unproductive for us, we may fail to meet our business objectives for the particular product candidate. Our ability to enter into such arrangements with respect to products in development that are subject to licenses may be limited by the terms of those licenses.

~~Any~~Our collaboration ~~that we have entered into, such as agreements~~agreement with ~~MorphoSys and~~ Alligator, or any collaboration agreement we may consider entering into, may not be successful and the success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborative partners. It is likely that our collaborative partners will have significant discretion in determining the efforts and resources that they will apply to these collaborations.

The risks that we are subject to in any of our collaborations include, among others:

•

our collaborative partners may not commit adequate resources to the development, marketing and distribution of any collaboration products, limiting our potential revenues from these products;

•

our collaborative partners may experience financial difficulties and may therefore be unable to meet their commitments to us;

•

our collaborative partners may pursue a competing product candidate developed either independently or in collaboration with others, including our competitors; and,

•

our collaborative partners may terminate our relationship.

The failure of any of our current or future collaboration partners to perform as expected could place us at a competitive disadvantage and adversely affect us financially, including delay and increased costs of development, loss of market opportunities, lower than expected revenues and impairment of the value of the related product candidate. A loss of ~~Aptevo’s~~our collaboration agreement with Alligator would result in a burden of locating a replacement partner under potentially less favorable terms at an additional cost. Collaborations are a critical part of our business strategy, and any inability on our part to establish and successfully maintain such arrangements on terms favorable to us or to work successfully with our collaborative partners could have an adverse effect on our operations and financial performance.

~~Risks Related~~ Due to the ~~Separation~~

~~Emergent may fail to perform under various transaction agreements that were executed as part of the separation or~~macroeconomic factors, we may ~~fail~~experience delays in opportunities to ~~have necessary systems and services in place when certain of the transaction agreements expire.~~

In connection with the separation, we entered into a separation and distribution agreement and various other agreements with Emergent, including a transition services agreement, a tax matters agreement, an employee matters agreement, a manufacturing services agreement, a Canadian distributor agreement, a trademark license agreement and adevelop our product ~~license agreement. Certain of these agreements provide for the performance of services by Emergent for a period of time after the separation. We will rely on Emergent~~candidates, due to satisfy its performance obligations under these agreements. If Emergent is unable to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties or losses.

If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services when the transition services or longer-term agreements terminate, we may not be able to operate our business effectively and our results of operations may be adversely affected. We may not be successful in effectively or efficiently implementing these systems and services or in transitioning data from Emergent’s systems to ours. These systems and services may also be more expensive or less efficient than the systems and services Emergent is expected to provide during the transition period.

~~Our accounting~~financial and other ~~management systems~~impacts on potential partners.

In addition, in the normal course of business, the Company engages in discussions with third parties regarding possible strategic alliances, joint ventures, acquisitions, divestitures and ~~resources may not be adequately prepared~~business combinations to ~~meet the ongoing financial reporting and other requirements~~further develop or commercialize our product candidates. As a result of ~~a standalone publicly-traded company.~~

~~Prior to our separation from Emergent,~~such transactions, our financial results ~~were included within~~may differ from our own or the consolidated results of Emergent. We are now directly subject to substantial reporting and other obligations under the Securities Exchange Act of 1934, or Exchange Act. These reporting and other obligations place significant demand on our management, administrative and operational resources, including accounting resources. We may not have sufficient time to meet these obligations by the applicable deadlines.

Moreover, to comply with these requirements, we have migrated our systems, including information technology systems, implement additional financial and management controls, reporting systems and procedures. We expect to incur additional annual expenses related to these steps, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology and proceduresinvestment community's expectations in a ~~timely and effective fashion, our ability~~given fiscal quarter or over the long term. Furthermore, efforts to ~~comply with our financial reporting requirements and~~engage in such transactions require varying levels of management resources, which may divert the Company’s attention from other ~~rules that apply to reporting companies under the Exchange Act~~business operations. Any transactions we engage in could ~~be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations and cash flows.~~

~~If we do not continue to develop effective internal controls, we may not be able to accurately report~~result in our financial results ~~and our business could be harmed.~~differing materially from market expectations.

We and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting as of and for the years ended December 31, 2015 and for quarters through September 30, 2016. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Specifically, it was determined that a deferred tax liability should have been recorded associated with the difference between the book basis and the tax basis of the in-process research and development asset that was recorded as a part of an acquisition in 2010. As a result, we were required to restate our previously issued audited financial statements for the year ended December 31, 2015 and unaudited financial information for the quarter ended March 31, 2016, included in the Company’s Registration Statement on Form 10, and unaudited financial information for the quarters ended June 30, 2016 and September 30, 2016 included in the Company’s Quarterly Report on Form 10-Q for the quarters ended June 30, 2016 and September 30, 2016.

The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, beginning in 2018, Section 404 of the Sarbanes-Oxley Act, or Section 404, will require us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. As an emerging growth company, we have availed ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an emerging growth company. When our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

Investor perceptions of our company may suffer if material weaknesses are found, and this could cause a decline in the market price of our common stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could harm our operating results and reputation. If we are unable to implement these requirements effectively or efficiently, it could harm our operations, financial reporting, or financial results and could result in an adverse opinion on our internal controls from our independent registered public accounting firm.

In connection with our separation from Emergent, we and Emergent agreed to indemnify the other party for certain liabilities. The Emergent indemnity may not be sufficient to hold us harmless from the full amount of liabilities for which Emergent will be allocated responsibility, and Emergent may not be able to satisfy its indemnification obligations in the future.

Pursuant to the separation agreement and certain other agreements with Emergent, Emergent has agreed to indemnify us for certain liabilities, and we agreed to indemnify Emergent for certain liabilities. Indemnities that we may be required to provide Emergent are not subject to any cap, may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature of the distribution. Third parties could also seek to hold us responsible for any of the liabilities that Emergent has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business. Further, the indemnity from Emergent may not be sufficient to protect us against the full amount of such liabilities, and Emergent may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Emergent any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.

If the distribution, together with certain related transactions, does not qualify as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Code, our stockholders could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify Emergent for taxes and related expenses resulting from the failure of the transaction to so qualify.

It is intended that the distribution, together with certain related transactions, will generally be tax-free to Emergent and its stockholders for U.S. federal income tax purposes. Emergent has received a favorable private letter ruling from the IRS regarding certain U.S. federal income tax matters relating to the distribution and certain related transactions. It was a condition to the distribution that (i) the private letter ruling from the IRS continue to be valid and in full force and effect and (ii) Emergent receive an opinion from WilmerHale LLP, in a form and substance satisfactory to Emergent, substantially to the effect that, for U.S. federal income tax purposes, the distribution and certain related transactions, taken together, will qualify as a transaction described under Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code, or the Code. The IRS private letter ruling is based upon certain facts and representations submitted by Emergent to the IRS. In addition, the opinion from WilmerHale LLP was based upon and rely on, among other things, the IRS private letter ruling and certain facts and assumptions, as well as certain representations and covenants of Emergent and Aptevo contained in the tax matters agreement and certain representations contained in representation letters provided by Emergent, Aptevo and certain stockholders to WilmerHale LLP, including representations and covenants relating to the past and future conduct of Emergent, Aptevo and such stockholders. If any of these facts, assumptions, representations, or covenants is, or becomes, inaccurate or incomplete, the IRS private letter ruling and/or the opinion of WilmerHale LLP may be invalid and the conclusions reached therein could be jeopardized. In addition, the IRS private letter ruling only addresses certain limited matters relevant to determining whether the distribution, together with certain related transactions, qualifies as a transaction described under Sections 355 and 368(a)(1)(D) of the Code, and the opinion of WilmerHale LLP represents the judgment of such counsel which is not binding on the IRS or any court. Accordingly, notwithstanding the IRS private letter ruling and the opinion of WilmerHale LLP, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions should be treated as a taxable transaction for U.S. federal income tax purposes or that a court would not sustain such a challenge.

If the distribution, together with certain related transactions, does not qualify as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the Code, for U.S. federal income tax purposes, in general, (i) Emergent would recognize taxable gain on the distribution equal to the amount by which the fair market value of the Aptevo common stock distributed to Emergent stockholders exceeds Emergent’s tax basis in its shares of our common stock and (ii) each Emergent stockholder would be treated as receiving a taxable distribution in an amount equal to the fair market value of the Aptevo common stock received by such stockholder.

Under the tax matters agreement that we entered into with Emergent, we may be required to indemnify Emergent against any tax liabilities and related expenses resulting from the failure of the distribution, together with certain related transactions, to qualify as a transaction described under Sections 355 and 368(a)(1)(D) of the Code to the extent that the failure to so qualify is attributable to actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations or covenants made by us in the tax matters agreement or the IRS private letter ruling or in the representation letters provided to WilmerHale LLP.

~~Certain of our executive officers and/or directors may have actual or potential conflicts of interest because of their previous positions at Emergent.~~

The ownership by our executive officers and/or directors of shares of Emergent common stock, stock options or other equity awards may create, or may create the appearance of, conflicts of interest. Because of their current or former positions with Emergent, certain of our executive officers and/or directors own shares of Emergent common stock, stock options to purchase Emergent common stock or other equity awards. Shares of Emergent common stock, stock options to purchase Emergent common stock or other equity awards may comprise a significant portion of some of these individuals’ total personal financial assets. Even though our executive officers and/or directors who were previously employees of Emergent have ceased to be employees of Emergent, some of our executive officers and/or directors continue to have a financial interest in Emergent common stock, which may create, or may create the appearance of, conflicts of interest when these individuals are faced with decisions that could have different implications for Emergent than the decisions have for us.

Risks Related to Our Common Stock and General Risks

~~We cannot be certain that an active trading market for our common stock will be sustained and our~~Our stock price may ~~fluctuate significantly.~~be volatile.

~~An active trading market for our common stock may not sustained, nor can we predict the prices at which shares of our common stock may trade in the future.~~

Our stock price has fluctuated in the past and is likely to be volatile in the future. ~~Since~~Between August 1, 2016 and up to June 30, 2023, the reported ~~sale~~closing price of our common stock has fluctuated between ~~$1.19~~$1.30 and ~~$3.33~~$83.16 per ~~share.~~share (as adjusted to reflect our 1-for-14 reverse stock split of our outstanding common stock that was effective on March 26, 2020). The stock market in general, and the market for biotechnology companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. In particular, the stock market has experienced extreme volatility in recent months as a result of the geopolitical climate, including the war in Ukraine, and macroeconomic conditions, including rising and fluctuating inflation and interest rates and reduced consumer confidence. The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control or unrelated to our operations, including, among others:

•

changes in earnings estimated by securities analysts or management, or our ability to meet those estimates;

•

investor perceptions or negative announcements by our ~~customers,~~ competitors, suppliers, or ~~suppliers~~partners regarding their own performance;

•

the success of competitive products or technologies;

•

the timing, expenses, and results of clinical and ~~non-clinical~~preclinical trials of our product candidates;

•

announcements regarding clinical trial results and product introductions by us or our competitors;

•

announcements of acquisitions, collaborations, financings or other transactions by ~~us;~~

us or our competitors;

•

public concern as to the safety of our ~~products;~~

product candidates;

•

termination or delay of a development program;

•

the recruitment or departure of key personnel;

•

estimated or actual sales of IXINITY by Medexus;

•

whether and to what extent future milestone payments are received under our Amendment to Royalty Purchase Agreement with HCR;

•

actual or anticipated variations in our ~~product revenue and~~cash flows or results of operations;

•

the operating and stock price performance of comparable companies;

•

general industry and macroeconomic conditions, ~~and~~including domestic and ~~worldwide~~global financial, economic, and ~~political~~geopolitical instability; and

•

the other factors described in this “Risk Factors” section.

In addition, when the market price of a company’s common stock drops significantly, stockholders often institute securities class action lawsuits against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

~~The restatement~~In the event that coverage under our directors’ and officers’ liability insurance is reduced or terminated as a result of an ownership change or otherwise, our indemnification obligations and limitations of our ~~previously issued~~directors’ and officers’ liability insurance may have a material adverse effect on our financial ~~statements,~~condition, results of operations and cash flows.

Under Delaware law, our certificate of incorporation, and our by-laws and certain indemnification agreements to which we are a party, we have an obligation to indemnify, or we have otherwise agreed to indemnify, certain of our current and former directors and officers with respect to past, current, and future investigations and litigation. In order to reduce the ~~misstatements~~risk of expense of these obligations, we maintain directors’ and officers’ liability insurance. A significant change in the Company’s risk profile, such as the Tang Proposal, could increase the cost to us of our directors’ and officers’ liability insurance coverage or the coverage thereunder may be reduced or terminated in full. In the event that ~~resulted~~the coverage under our directors’ and officers’ liability insurance is reduced or terminated, we will be required to pay the expenses of indemnifying our current and former directors and officers in ~~such restatement,~~their defense of current and future investigations and litigation, which expenses may be significant. The increased costs to us of our directors’ and officers’ liability insurance coverage, or our indemnification obligations if our directors’ and officers’ liability insurance coverage is reduced or terminated, could result in the diversion of our financial resources, and may have a material adverse effect on our financial condition, results of operations and cash flows.

If we do not maintain effective internal controls, we may not be able to accurately report our financial results and our business could be harmed.

The Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the ~~material weakness~~effectiveness of our disclosure controls and procedures quarterly. In particular, Section 404 of the Sarbanes-Oxley Act, or Section 404, requires us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. In the past, we were an emerging growth company and we currently are a non-accelerated filer and have availed ourselves of the exemption from the requirement that ~~has been identified~~our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. If we cease to be a non-accelerated filer and our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could ~~expose us~~decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional ~~risks that could have a~~financial and management resources.

Investor perceptions of our company may suffer if material ~~adverse effect on our business, financial condition, cash flows~~weaknesses are found, and ~~results of operations and~~this could cause a decline in the market ~~value~~price of our common ~~stock to decline.~~

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2016, and in Note 10 – Restatement, to the financial statements included in this Quarterly Report on Form 10-Q we restated our previously issued audited consolidated financial statements for the year ended December 31, 2015 and the unaudited financial information related to March 31, 2016 and June 30, 2016 and the three and nine months ended September 30, 2016. This restatement, alongstock. Irrespective of compliance with ~~the material weakness that were identified in~~Section 404, any failure of our internal control over financial reporting could ~~expose us~~harm our operating results and reputation. If we are unable to ~~potential claims and additional risks that~~implement these requirements effectively or efficiently, it could ~~have a material adverse effect on~~harm our ~~business,~~operations, financial ~~condition, cash flows and~~reporting, or financial results ~~of operations~~ and could ~~cause the market value of our common stock to decline. We have implemented actions with respect to~~result in an adverse opinion on our internal controls but to the extent these steps are not successful, we could be forced to incur additional time and expense or we may not be able to produce accurate and timely financial results. As a result of the restatement and the material weakness infrom our internal controls, we could be subject to stockholder, governmental, or other actions in connection with the restatement or related or other matters. Any such proceedings would, regardless of the outcome, consume a significant amount of management’s time and attention and would result in additional legal,independent registered public accounting and other costs. If we were not to prevail in any such proceedings, we could be required to pay substantial damages or settlement costs. In addition, the restatement and related matters could impair our reputation or could lead to a loss of investor confidence.firm.

The public announcement of data from clinical ~~studies~~trials or news of any developments related to our product pipeline may cause significant volatility in our stock price.

The announcement of data from clinical ~~studies~~trials by us or our collaborative partners or news of any developments related to our key pipeline product candidates has in the past caused and may in the future cause significant volatility in our stock price. Furthermore, the announcement of any negative or unexpected data or the discontinuation of development of any of our key pipeline product candidates, or any delay in our anticipated timelines for filing for regulatory approval, could cause our stock price to decline significantly. There can be no assurance that data from clinical ~~studies~~trials will support a filing for regulatory approval or even if approved, that any of our key pipeline products will become commercially successful.

Our common stock is currently listed on the Nasdaq Capital Market LLC (Nasdaq). Nasdaq has minimum requirements that a company must meet in order to remain listed on Nasdaq, including corporate governance standards and a requirement that we maintain a minimum closing bid price of $1.00 per share.

On April 1, 2022, the Company received a letter from Nasdaq indicating that it was not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on Nasdaq to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing. On its annual report for the year ended December 31, 2021, the Company reported stockholders’ equity of $1,216,000, and, as a result, did not satisfy Listing Rule 5550(b)(1). In the second quarter of 2022, the Company regained compliance with the Nasdaq Listing Rule.

In the future, if we fail to maintain such minimum requirements and a final determination is made by Nasdaq that our common stock must be delisted, the liquidity of our common stock would be adversely affected and the market price of our common stock could decrease. In addition, if delisted, we would no longer be subject to Nasdaq rules, including rules requiring us to have a certain number of independent directors and to meet other corporate governance standards. Our failure to be listed on Nasdaq or another established securities market would have a material adverse effect on the value of your investment in us.

If our common stock is not listed on Nasdaq or another national exchange, the trading price of our common stock is below $5.00 per share and we have net tangible assets of $6,000,000 or less, the open-market trading of our common stock will be subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended. If our shares become subject to the “penny stock” rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.

Your percentage of ownership in Aptevo may be diluted in the future.

In the future, your percentage ownership in Aptevo may be diluted because of equity issuances or securities convertible into equity for acquisitions, capital market transactions or otherwise, including, but not limited to, equity issuances under our existing Purchase Agreement with Lincoln Park, under our Equity Distribution Agreement with Piper Sandler, under our Rights Plan with Broadridge Corporate Issuer Solutions, Inc., upon the exercise of warrants issued in connection with our March 2019 public offering, and equity awards to our directors, officers and employees. Our employees have options to purchase shares of our common stock and ~~we have issued significant number of restricted stock units that will vest over time. From~~from time to time, we ~~may~~expect to issue additional options, restricted stock units, or other stock-based awards to our employees under our employee benefits plans.

In addition, our restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock.

Fuad El-Hibri, the chairman of our Board of Directors, has significant influence over us through his substantial beneficial ownership of our common stock, including an ability to influence the election of the members of our Board of Directors, or delay or prevent a change of control of us.55

Mr. El-Hibri has the ability to significantly influence the election of the members of our Board of Directors due to his substantial beneficial ownership of our common stock. As of September 30, 2017, Mr. El-Hibri was the beneficial owner of approximately 15% of our outstanding common stock. As a result, Mr. El-Hibri could delay or prevent a change of control of us that may be favored by other directors or stockholders and otherwise exercise substantial control over all corporate actions requiring board or stockholder approval, including any amendment of our certificate of incorporation or by-laws. The control by Mr. El-Hibri may prevent other stockholders from influencing significant corporate decisions. In addition, Mr. El-Hibri’s significant beneficial ownership of our shares could present the potential for a conflict of interest.

Provisions under Delaware law and in our restated certificate of incorporation, ~~and~~ amended and restated by-laws and rights agreement may discourage acquisition proposals, delay a change in control or prevent transactions that stockholders may consider favorable.

Certain provisions in our restated certificate of incorporation and amended and restated by-laws, and under Delaware law, may discourage, delay, or prevent a merger, acquisition or other changes in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our incumbent directors and management.

These provisions include:

•

the classification of our directors;

•

limitations on the removal of directors;

•

limitations on filling vacancies on the board;

•

advance notice requirements for stockholder nominations of candidates for election to the Board of Directors and other proposals;

•

the inability of stockholders to act by written consent;

•

the inability of stockholders to call special meetings; and

•

the ability of our Board of Directors to designate the terms of and issue a new series of preferred stock without stockholder approval.

The affirmative vote of holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required to amend or repeal the above provisions of our certificate of incorporation. The affirmative vote of either a majority of the directors present at a meeting of our Board of Directors or holders of our capital stock representing at least 75% of the voting power of all outstanding stock entitled to vote is required to amend or repeal our by-laws.

In addition, Section 203 of the General Corporation Law of Delaware prohibits a corporation from engaging in a business combination with an interested stockholder, generally a person which, together with its affiliates, owns or within the last three years has owned 15% or more of the corporation’s voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Section 203 may discourage, delay or prevent a change in control of us. Tang is an interested stockholder for purposes of Section 203.

~~In addition, under~~Moreover, we currently have a short-term stockholder rights agreement in effect. This rights agreement was amended on November 4, 2021 to extend the ~~tax matters~~expiration date of such agreement ~~for~~from November 8, 2021 to November 5, 2022 and further amended on November 4, 2022 to extend the expiration of such agreement to November 4, 2023. This rights agreement could render more difficult, or discourage a ~~period~~merger, tender offer, or assumption of two years following the separation, we are restricted from taking certain actions (including restrictions on business combinations and share issuances) that could cause the distribution, together with certain related transactions, to fail to qualify as a tax-free transaction for U.S. federal income tax purposes. We would be required to indemnify Emergent for any taxes and related expenses resulting from the failurecontrol of the ~~transactions to so qualify to the extent~~Company that ~~the failure~~ is ~~attributable to actions, events or transactions relating~~not approved by our ~~stock, assets or business, and this indemnity obligation might discourage, delay or prevent a change of control~~Board that ~~you~~some stockholders may consider favorable. The rights agreement, however, should not interfere with any merger, tender or exchange offer or other business combination approved by our Board. Nor does the rights agreement prevent our Board from considering any offer that it considers to be in the best interest of our stockholders.

Our by-laws include ~~an exclusive~~a forum ~~provision that could limit our stockholders’~~selection clause, which may impact your ability to ~~obtain a judicial forum viewed by stockholders as more favorable for disputes with us or~~bring actions against us.

Subject to certain limitations, our ~~directors, officers or other employees or certain stockholders.~~

~~Our by-laws~~bylaws provide that, unless we consent in writing to the ~~Chancery~~selection of an alternative forum, the Court of Chancery in the State of Delaware will be the sole and exclusive forum for ~~certain legal proceedings,~~any stockholder (including a beneficial owner) to bring: (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees or our stockholders; (c) any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or by-laws; or (d) any action asserting a claim governed by the internal affairs doctrine. In addition, our bylaws provide that unless we consent in writing to the selection of an alternative ~~forum. This~~forum, the federal district courts of the United States will be the exclusive forum ~~provision~~for resolving any complaint asserting a cause of action arising under the federal securities laws of the United States against us, our officers, directors, employees or underwriters. These limitations on the forum in which stockholders may ~~limit~~initiate action against us could create costs, inconvenience or otherwise adversely affect your ability to seek legal redress.

Section 22 of the ~~ability of~~Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, a court may decline to enforce these exclusive forum provisions with respect to suits brought to enforce any duty or liability created by the Securities Act or any other claim for which the federal and state courts have concurrent jurisdiction, and our stockholders may not be deemed to ~~bring a claim in a judicial forum that such stockholders find favorable for disputes~~have waived our compliance with ~~us or our directors or officers, which may discourage lawsuits against us or our directors or officers. Alternatively, if~~the federal securities laws and the rules and regulations thereunder. If a court ~~outside of Delaware~~ were to find ~~this~~the exclusive forum ~~provision~~provisions to be inapplicable ~~to,~~ or unenforceable in ~~respect of, one or more of the types of actions or proceedings described above,~~an action, we may incur additional costs associated with resolving such ~~matters~~action in other ~~jurisdictions,~~jurisdictions.

We may be subject to periodic litigation, which could ~~adversely affect~~result in losses or unexpected expenditure of time and resources.

From time to time, we may be called upon to defend ourselves against lawsuits relating to our business. Any litigation, regardless of its merits, could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully run our business. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome in any such proceedings could have an adverse impact on our business, financial condition orand results of operations.

~~Because~~ If our stock price is volatile, we ~~currently do not expect to pay dividends, investors will benefit from an investment~~may become involved in ~~our common stock only if it appreciates in value.~~

We anticipate that we will retain all our future earnings, if any, to support our operations and our proprietary drug development programs and product candidates and pursue other opportunities. In addition, our credit facility limits our ability to pay dividends. As a result, we currently do not expect to pay dividends for the foreseeable future. Any future determination to pay dividends will be at the sole discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, restrictions contained in future financing instruments and such other factors as our Board of Directors deems relevant. We cannot guarantee that we will pay any dividendssecurities class action lawsuits in the future or continue to pay any dividend if we were to commence paying dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.

A significant portion of our shares may be sold into the market at any time which could depress our stock ~~price~~price.

If our stockholders sell a substantial number of shares of our common stock in the public market, our market price could decline. In ~~addition, holders of an aggregate of approximately three million shares of our common stock have~~connection with the ~~right to require us to register these shares of common stock~~transaction with Lincoln Park, we registered under the Securities Act of 1933, as amended, the resale of shares of common stock that have been and may be issued under ~~specified circumstances.~~the Purchase Agreement with Lincoln Park. Any such sales or perception that such sales may occur, whether under the Lincoln Park Purchase Agreement or otherwise, could decrease the market price of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not ~~applicable.~~Applicable

Item 6. Exhibits

Exhibit Index


Exhibit Number		Description

2.1†#10.1**		~~LLC Purchase Agreement,~~Series A Common Warrant, dated ~~as of~~ August ~~31, 2017, by and among Aptevo BioTherapeutics LLC, Aptevo Therapeutics Inc., Venus Bio Therapeutics Sub LLC, and Saol International Limited.~~4, 2023.

10.2***		Series B Common Warrant, dated August 4, 2023.
~~3.1~~
10.3***		~~Amended and Restated Certificate of Incorporation of Aptevo Therapeutics Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on~~Pre-funded Warrant, dated August ~~2, 2016)~~4, 2023.
~~3.2~~
10.4***		~~Amended~~Placement Agent Agreement, dated August 1, 2023, between the Company and ~~Restated Bylaws of Aptevo Therapeutics Inc. (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, filed on August 2, 2016).~~A.G.P./Alliance Global Partners.
~~4.1~~
10.5***		~~Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to~~Securities Purchase Agreement, dated August 1, 2023, between the ~~Company's Form 10, filed on June 29, 2016).~~Company and the purchasers party thereto.
~~4.2~~		Registration Rights Agreement, dated as of August 1, 2016, by and among Aptevo Therapeutics Inc. and certain of its stockholders (incorporated by reference to Exhibit 4.0 to the Company's Current Report on Form 8-K, filed on August 2, 2016).
~~10.1~~31.1*		Amendment No. 2 to Credit and Security Agreement, dated as of September 28, 2017, by and among Aptevo Therapeutics Inc. and certain of its subsidiaries and Midcap Financial Trust (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 29, 2017).
10.2*†		~~Collaboration and Option Agreement, dated as of July 20, 2017, by and between Aptevo Research and Development LLC, and Alligator Bioscience AB.~~
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the ~~Sarbanes-Oxley~~Sarbanes Oxley Act of 2002.
31.2*
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the ~~Sarbanes-Oxley~~Sarbanes Oxley Act of 2002.
32.1*
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~.2002.
101.INS*		~~XBRL Instance Document~~
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	~~Filed herewith.~~

†	Portions of this Exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

~~Schedules to the~~ ~~LLC Purchase Agreement, dated as of August 31, 2017, by and among Aptevo BioTherapeutics LLC, Aptevo Therapeutics Inc., Venus Bio Therapeutics Sub LLC, and Saol International Limited~~ ~~have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish copies of any such schedules to the Securities and Exchange Commission upon request.~~

* Filed herewith.

** Furnished herewith.

~~SIGNATURES~~*** Filed with the Form 8-K on August 7, 2023.

+ Schedules and other similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Aptevo will furnish copies of any such schedules and attachments to the Securities and Exchange Commission upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	APTEVO THERAPEUTICS INC.

Date: ~~November 9, 2017~~August 10, 2023	By:	/s/ Marvin L. White
		Marvin L. White
		President and Chief Executive Officer

Date: ~~November 9, 2017~~August 10, 2023	By:	/s/ ~~Jeffrey G. Lamothe~~Daphne Taylor
		~~Jeffrey G. Lamothe~~Daphne Taylor
		Senior Vice President and Chief Financial Officer ~~and Treasurer~~


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)


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)


ASSETS	September 30, 2017			December 31, 2016
Current assets:
Cash and cash equivalents	$	75,830		$	9,676
Restricted cash		10,400			400
Short-term investments		20,946			44,849
Accounts receivable		528			307
Inventories		1,237			461
Current assets held for sale		—			10,155
Prepaid expenses and other current assets		6,381			5,566
Total current assets		115,322			71,414
Property and equipment, net		6,163			5,910
Intangible assets, net		6,287			6,910
Long-term assets held for sale		—			7,624
Other long-term assets		3,250			—
Total assets	$	131,022		$	91,858
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	7,512		$	10,518
Accrued compensation		3,815			4,009
Sales rebates and discounts		378			278
Due to acquirer of discontinued operations		878			—
Deferred revenue, current portion		—			811
Other short-term liabilities		2,287			—
Current liabilities held for sale		—			3,928
Total current liabilities		14,870			19,544
Deferred revenue, net of current portion		—			2,896
Long-term debt, net		17,484			18,383
Other liabilities		8,358			469
Total liabilities		40,712			41,292

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; 21,426,731 and 20,271,737 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		21			20
Additional paid-in capital		154,257			151,271
Accumulated other comprehensive loss		(10	)		(33	)
Contribution receivable from former parent		—			(20,000	)
Accumulated deficit		(63,958	)		(80,692	)
Total stockholders' equity		90,310			50,566
Total liabilities and stockholders' equity	$	131,022		$	91,858


	June 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	21,006		$	22,635
Royalty and milestone receivable		—			2,500
Prepaid expenses		910			1,571
Other current assets		764			744
Total current assets		22,680			27,450
Property and equipment, net		1,134			1,462
Operating lease right-of-use asset		5,098			5,303
Total assets	$	28,912		$	34,215
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	4,873		$	3,499
Accrued compensation		1,292			2,105
Current portion of long-term debt		—			2,000
Other current liabilities		746			1,102
Total current liabilities		6,911			8,706
Long-term debt		—			1,456
Operating lease liability		5,748			6,079
Total liabilities		12,659			16,241

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; 7,543,440 and 6,466,294 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		49			48
Additional paid-in capital		227,415			223,962
Accumulated deficit		(211,211	)		(206,036	)
Total stockholders' equity		16,253			17,974
Total liabilities and stockholders' equity	$	28,912		$	34,215


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


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


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	23
	Condensed Consolidated Statements of Operations	34
	~~Consolidated Statements of Comprehensive Loss~~	4
	Condensed Consolidated Statements of Cash Flows	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	6
	Notes to Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2825
Item 4.	Controls and Procedures	2825

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	2926
Item 1A.	Risk Factors	2926
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6057
Item 3.	Defaults Upon Senior Securities	6057
Item 4.	Mine Safety Disclosures	6057
Item 5.	Other Information	6057
Item 6.	Exhibits	6158
Signatures		6259


					Additional						Total
	Common Stock				Paid-In			Accumulated			Stockholders'
	Shares		Amount		Capital			Deficit			Equity (Deficit)
Balance at December 31, 2022		6,466,294	$	48	$	223,962		$	(206,036	)	$	17,974
Common stock issued upon vesting of restricted stock units		42,264		—		(8	)		—			(8	)
Proceeds from issuances of commons stock		730,913		1		1,601			—			1,602
Stock-based compensation		—		—		915			—			915
Net income for the period		—		—		—			2,773			2,773
Balance at March 31, 2023		7,239,471	$	49	$	226,470		$	(203,263	)	$	23,256
Common stock issued upon vesting of restricted stock units		3,969		—		(2	)		—			(2	)
Proceeds from issuance of common stock		300,000		—		482			—			482
Stock-based compensation		—		—		465			—			465
Net loss for the period		—		—		—			(7,948	)		(7,948	)
Balance at June 30, 2023		7,543,440	$	49	$	227,415		$	(211,211	)	$	16,253

					Additional						Total
	Common Stock				Paid-In			Accumulated			Stockholders'
	Shares		Amount		Capital			Deficit			Equity
Balance at December 31, 2021		4,898,143	$	47	$	215,232		$	(214,063	)	$	1,216
Common stock issued upon vesting of restricted stock units		9,822		—		(4	)		—			(4	)
Commitment shares issued pursuant to Lincoln Park Purchase Agreement		99,276		—		—			—			—
Stock-based compensation		—		—		601			—			601
Net loss for the period		—		—		—			(7,697	)		(7,697	)
Balance at March 31, 2022		5,007,241	$	47	$	215,829		$	(221,760	)	$	(5,884	)
Common stock issued upon vesting of restricted stock units		4,326		—		—			—			—
Proceeds from issuance of common stock		78,285		—		436			—			436
Stock-based compensation		—		—		485			—			485
Net income for the period		—		—		—			28,010			28,010
Balance at June 30, 2022		5,089,852		47		216,750			(193,750	)		23,047

Cash payment received	$	61,750
Escrow receivable		3,250
Total consideration		65,000
Less:
Net carrying value of assets transferred to Saol		10,315
Transaction costs		1,273
Working capital adjustment		874
Net gain on sale of business	$	52,538

	September 30, 2017
(in thousands)	Level 1		Level 2		Level 3		Total
Financial Assets:
Money market funds	$	16,778	$	—	$	—	$	16,778
Corporate bonds		—		8,973		—		8,973
US government and agency debt securities		—		11,973		—		11,973
Total assets	$	16,778	$	20,946	$	—	$	37,724

	December 31, 2016
(in thousands)	Level 1		Level 2		Level 3		Total
Financial Assets:
Money market funds	$	5,215	$	—	$	—	$	5,215
Corporate bonds		—		9,951		—		9,951
US government and agency debt securities		—		34,898		—		34,898
Total assets	$	5,215	$	44,849	$	—	$	50,064

	September 30, 2017
(in thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding (Losses)			Estimated Fair Value
Cash equivalents:
Money market fund	$	16,778	$	—	$	—		$	16,778
Total cash equivalents	$	16,778	$	—	$	—		$	16,778

Short-term investments:
Corporate bonds	$	8,978	$	—	$	(5	)	$	8,973
US government and agency debt securities		11,978		—		(5	)		11,973
Total short-term investments	$	20,956	$	—	$	(10	)	$	20,946

	December 31, 2016
(in thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding (Losses)			Estimated Fair Value
Cash equivalents:
Money market fund	$	5,215	$	—	$	—		$	5,215
Total cash equivalents	$	5,215	$	—	$	—		$	5,215

Short-term investments:
Corporate bonds	$	9,959	$	1	$	(9	)	$	9,951
US government and agency debt securities		34,923		—		(25	)		34,898
Total short-term investments	$	44,882	$	1	$	(34	)	$	44,849

	September 30,		December 31,
(in thousands)	2017		2016⁽¹⁾
Raw materials and supplies	$	240	$	260
Work-in-process		57		4
Finished goods		940		197
Total inventories	$	1,237	$	461


	For the Six Months Ended June 30,
	2022
Liability related to sale of royalties, beginning balance	$	31,045
Proceeds from milestone payments, net of transaction costs		9,500
Non-cash interest expense		3,416
RUXIENCE royalties paid by Pfizer to HCR		(6,779	)
Gain from extinguishment of liability related to sale of royalties		(37,182	)
Liability related to sale of royalties, ending balance		—

	For the Nine Months Ended September 30,
(in thousands, except for per share amounts)	2017		2016
Outstanding options to purchase common stock		2,989		2,053
Unvested RSUs		1,256		3,324

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Term		Aggregate Intrinsic Value
Balance at December 31, 2016		2,085,214	$	2.57			$	164,767
Granted		993,339		2.07				—
Forfeited		89,245		2.35				4,769
Outstanding at September 30, 2017		2,989,308	$	2.41		6.88	$	328,052
Exercisable at September 30, 2017		1,292,727	$	2.42		4.58	$	110,082

	Number of Units			Weighted Average Fair Value per Unit		Aggregate Fair Value
Balance at December 31, 2016		3,034,195		$	2.88	$	—
								Number of Units			Weighted Average Fair Value per Unit
Balance at December 31, 2022									223,775		$	8.47
Granted		19,803			2.00		—		168,168			2.09
Vested		(1,555,217	)		2.84		—		(50,525	)		12.13
Forfeited		(243,271	)		2.94		—		(1,414	)		3.43
Outstanding at September 30, 2017		1,255,510		$	2.91	$	2,875,118
Expected to Vest		1,181,266		$	2.91	$	2,705,100
Outstanding and expected to vest at June 30, 2023									340,004		$	4.79

	Three Months Ended									Nine Months Ended
(in thousands)	September 30, 2016 (As previously reported)			Restatement Adjustment			September 30, 2016 (Restated)			September 30, 2016 (As previously reported)			Restatement Adjustment			September 30, 2016 (Restated)
Impairment expense	$	55,702		$	15,311		$	71,013		$	55,702		$	15,311		$	71,013
Loss from operations		(71,254	)		(19,271	)		(90,525	)		(97,081	)		(24,825	)		(121,906	)
Loss before income taxes		(71,747	)		(19,270	)		(91,017	)		(97,498	)		(24,825	)		(122,323	)
Benefit from income taxes		6			17,602			17,608			29			18,561			18,590
Net loss	$	(71,741	)	$	(1,668	)	$	(73,409	)	$	(97,469	)	$	(6,264	)	$	(103,733	)

(in thousands, except per share amounts)	Three Months Ended September 30, (Restated)⁽¹⁾			Nine Months Ended September 30, (Restated)⁽¹⁾
Revenue	$	2,816		$	7,203
Loss from operations		(90,525	)		(121,906	)
Loss before income taxes		(91,017	)		(122,323	)
Benefit from income taxes		17,608			18,590
Net loss	$	(73,409	)	$	(103,733	)
Net loss per share - basic and diluted	$	(3.55	)	$	(4.82	)

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