Avalo Therapeutics, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Avalo is a clinical-stage biotechnology company developing therapies targeting the LIGHT network; Millipred is its only commercial product and is described as non-core. Amounts below are in U.S. dollars unless noted.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0.643m | $1.033m | $1.117m | $2.206m |
| Operating expenses | $7.793m | $12.861m | $17.060m | $34.886m |
| Net loss | $8.193m | $12.987m | $18.148m | $35.038m |
| Basic and diluted loss per share | $0.59 | $1.38 | $1.41 | $3.73 |
| Cash used in operating activities | Not presented quarterly | $21.078m | $28.537m |
Product gross loss was $0.065m in Q2 2023 versus $0.534m in Q2 2022, and $0.142m for the first half versus $0.080m in the prior-year period. This equates to negative product gross margins of approximately 10% and 52% for Q2, and 13% and 4% for the respective six-month periods. These are product-level calculations, not overall company margins.
At June 30, 2023, cash and cash equivalents were $6.307m ($6.453m including restricted cash); current assets were $7.519m and current liabilities $22.454m. Total liabilities were $31.204m, including $14.115m of current notes payable and a $5.050m derivative liability. Stockholders’ deficit was $6.969m. The notes’ gross balance, including the final payment fee, was $15.244m; its estimated fair value was approximately $10m.
Material changes and developments
- Revenue fell about 38% year over year in Q2 and 49% for the first half, primarily due to lower Millipred unit sales. Avalo’s Millipred license and supply agreement with Teva expires September 30, 2023; management expects product revenue and related costs to decrease in 2023.
- Net loss narrowed year over year, alongside lower R&D and SG&A expenses. The filing attributes lower spending to reduced headcount, cost-saving measures, lower activity in non-core programs, and the 2022 expenses for severance and executive stock awards not recurring. R&D was also lower following the AVTX-007 out-license.
- On June 26, Avalo reported that the Phase 2 PEAK trial of AVTX-002 in non-eosinophilic asthma did not meet its primary endpoint. The company reported a favorable safety and tolerability profile, target engagement, and an exploratory positive trend in a subgroup with elevated baseline LIGHT levels.
- Financing raised $13.748m net from a February public offering and $6.531m net through the ATM program in Q2. After quarter-end and through the filing date, Avalo sold another 6.2m ATM shares for approximately $1.3m gross proceeds. Shares outstanding were 14.037m at June 30 and 20.249m as of August 2.
Liquidity, outlook, and risks
- Management concluded that substantial doubt exists about Avalo’s ability to continue as a going concern within one year after the financial statements were issued. The company reported first-half net loss of $18.1m and operating cash outflow of $21.1m. It stated that, assuming it could negotiate extensions to the lender forbearance and absent new financing or payment changes, it had approximately 60 days of cash on hand as of the filing date.
- Avalo prepaid $6.0m of loan principal in June. On July 20, 2023, it and its lenders agreed that a default had occurred due to a material adverse change in the business. The lenders agreed to forbear from exercising remedies, including acceleration of approximately $15.2m plus accrued amounts, only until the earliest of August 15, another specified default, or breach of the forbearance agreement. Avalo was required to maintain at least $3.0m in controlled accounts plus all proceeds from future equity sales while the agreement remained in effect.
- The company said it intends to seek capital through equity sales, licensing, collaborations, asset sales, or strategic transactions; it also warned financing may not be available or sufficient. Failure to secure funding or extend/resolve forbearance could lead to acceleration, additional spending cuts, or delays, suspension, or termination of R&D programs. No formal financial or product-development guidance is provided.
- Two customers represented approximately 65% and 35% of Q2 net product revenue. The company also fully reserved a roughly $1.0m receivable due from Aytu in December 2024 and continues to reassess collectability.
Important facts for investors to verify
- Whether Avalo obtained an extension or waiver of the forbearance/default terms and how it addressed the lender’s repayment rights.
- Cash runway, subsequent financing proceeds and share dilution, and whether available capital is sufficient to fund planned operations.
- Any revised operating plans or pipeline priorities following PEAK’s missed primary endpoint and the Millipred agreement’s expiration.
- Whether the highly concentrated Millipred customer base and the reserved Aytu receivable affect future collections or revenue.