Avalo Therapeutics, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The company filed the report on March 29, 2024. Avalo is a clinical-stage biotechnology company focused on immune dysregulation. Events in March 2024, including its acquisition of AVTX-009 and a private placement, occurred after the reporting period.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $1.9 million | $18.1 million |
| Net loss | $31.5 million | $41.7 million |
| Research and development expense | $13.8 million | $31.3 million |
| Selling, general and administrative expense | $10.3 million | $20.7 million |
| Net cash used in operating activities | $30.7 million | $26.8 million |
| Cash and cash equivalents at year-end | $7.4 million | $13.2 million |
- 2023 net product revenue was $1.4 million, down from $3.4 million, primarily because Millipred sales declined before its supply and license agreement expired on September 30, 2023. Avalo expects no further gross revenue from Millipred.
- License and other revenue was $0.5 million, compared with $14.7 million in 2022, when Avalo recognized upfront proceeds from licensing AVTX-007.
- Total operating expenses were $29.3 million, including a $3.9 million goodwill impairment charge; 2022 operating expenses were $55.5 million. The lower 2023 R&D and SG&A costs reflected a narrower development portfolio, reduced activity, lower headcount and cost savings.
- Operating cash outflow increased year over year despite the smaller net loss. Avalo raised approximately $46.2 million net from equity offerings in 2023 and paid $21.2 million of debt principal. It repaid its loan in September; year-end notes payable were zero.
- At December 31, 2023, current assets were $8.4 million and current liabilities were $4.6 million. Total liabilities were $13.7 million and stockholders’ equity was $7.3 million. Lease liabilities totaled $1.9 million; the company also reported a $5.6 million derivative liability.
As a clinical-stage company with no current approved commercial products, Avalo reported no meaningful commercial operating-margin trend. The 2023 net loss narrowed by $10.1 million, but operating cash use rose by $3.9 million. The 2023 statements reflect a 1-for-240 reverse stock split effected in December 2023.
Material changes, outlook and risks
- Pipeline shift: In March 2024, Avalo acquired AVTX-009, a Phase 2-ready anti-IL-1β antibody, and identified it as its near-term lead program. The company plans a Phase 2 hidradenitis suppurativa (HS) trial, with topline results expected in 2026, and intends to pursue at least one other chronic inflammatory indication. Management expects R&D spending and operating cash use to increase in 2024.
- Post-year-end financing: Avalo closed a private placement on March 28, 2024, with $115.6 million of initial gross proceeds and warrants that could provide a further $69.4 million. Estimated upfront net proceeds were approximately $105 million after estimated transaction costs related to the financing and AlmataBio acquisition. Management expects the upfront funding to support operations through the planned Phase 2 readout and into 2027; the filing also says funds should cover at least twelve months from filing. The additional warrant proceeds are contingent on exercise.
- Potential dilution and payments: Subject to stockholder approval, preferred shares from the acquisition and placement convert into common stock; the filing estimates approximately 23.4 million common shares on an as-converted basis immediately after the transactions, excluding warrant exercise. Warrants could add up to approximately 12.0 million shares. The former AlmataBio stockholders are due a $7.5 million cash payment and may receive $5 million at first patient dosing in Phase 2 HS and $15 million at first patient dosing in Phase 3, payable in cash, stock or a combination at their election.
- Other programs and transactions: The Phase 2 PEAK trial of quisovalimab (AVTX-002) in poorly controlled non-eosinophilic asthma did not meet its primary endpoint; Avalo reported target engagement and a favorable post-hoc subgroup signal, and is conducting a strategic review. AVTX-008 is also under strategic review. Avalo sold the 800 Series assets in 2023, recognizing $0.5 million of revenue and retaining potential contingent proceeds of up to $45 million. Legacy AVTX-006 and AVTX-913 are not being pursued, and the company is exploring alternatives.
- Funding and execution risks: Avalo has a history of significant losses and expects continued losses. Its plans depend heavily on AVTX-009, which it recently acquired and has not yet advanced through its own clinical trials. Development, regulatory approval and commercialization are uncertain; Avalo also relies on third parties for clinical trials and manufacturing. Additional capital may be needed, particularly before Phase 3, and may not be available on acceptable terms.
- Other notable exposures: Avalo remains guarantor of certain Karbinal-related payment obligations assigned to Aytu if Aytu defaults; future amounts depend on unit sales. Aytu also owed Avalo approximately $0.7 million at year-end, fully reserved, with $1.0 million due under the transition arrangement by December 2024. An Apollo license dispute was settled in January 2024 for $0.2 million, accrued in 2023 and paid in Q1 2024. The filing reports no legal proceedings at the report date.
Important facts for investors to verify
- Whether AVTX-009’s Phase 2 HS trial starts as planned, meets development milestones, and reports topline data in 2026.
- How the approximately $105 million of estimated net upfront proceeds translates into actual cash runway as development spending increases, and whether the warrants are exercised.
- Stockholder approval, conversion terms and resale registration for the preferred securities, plus the resulting dilution from conversion and warrants.
- Cash or stock obligations triggered by AVTX-009 Phase 2 and Phase 3 dosing milestones, as well as Lilly royalties and development, regulatory and sales milestones.
- Quisovalimab’s strategic-review outcome, including whether the PEAK trial failure changes its prospects; any contingent proceeds from the 800 Series; and collectability of the Aytu receivable and potential guarantee exposure.