Avalo Therapeutics, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Avalo is a clinical-stage biotechnology company focused on immune dysregulation. Its lead asset is AVTX-009, a Phase 2-ready anti-IL-1β antibody acquired in March; its pipeline also includes quisovalimab and AVTX-008. Dollar figures below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior balance-sheet date |
|---|---|---|
| Revenue | $0 | $0.5 |
| Operating expenses | $32.8 | $9.3 |
| Net loss | $121.3 | $10.0 |
| Net loss per common share | $141 | $204 |
| Net cash used in operating activities | $6.2 | $10.1 |
| Cash and cash equivalents | $110.2 | $7.4 at Dec. 31, 2023 |
| Total assets | $123.7 | $21.0 at Dec. 31, 2023 |
| Total liabilities | $224.8 | $13.7 at Dec. 31, 2023 |
There was no product revenue in Q1 2024 after the Millipred license and supply agreement expired in September 2023. The $27.5 million acquired in-process research and development charge related to AVTX-009 was expensed because it had no alternative future use. R&D expense fell to $2.1 million from $6.0 million, primarily because the AVTX-002 PEAK trial had concluded and CMC activity declined. G&A expense increased to $3.2 million from $2.7 million.
The $121.3 million net loss included $79.3 million of noncash expense from the initial fair value of financing warrants exceeding private-placement proceeds, and $9.2 million of private-placement transaction costs. The warrant liability was valued at $194.9 million at March 31 and is remeasured each reporting period; future fair-value changes may materially affect reported earnings. The company reported no gross-margin figure, and product sales were absent in the quarter.
March’s private placement generated $115.6 million gross proceeds and approximately $108.1 million net proceeds. Avalo had $110.2 million of cash and cash equivalents at quarter-end. Management expects existing cash to fund operations into 2027 and for at least twelve months from the filing date, based on current plans. Financing cash flow was $108.6 million; investing cash flow was $0.4 million, primarily cash acquired with AlmataBio. Operating cash use was $6.2 million. The company’s former $35 million venture loan was fully repaid in September 2023; no outstanding loan debt was reported. Operating lease liabilities totaled $1.8 million.
Material developments and changes
- Avalo acquired AlmataBio on March 27, 2024, adding AVTX-009. Consideration included common and Series C preferred shares and potential milestones. The company recorded $12.5 million of current contingent consideration, including a $7.5 million payment made April 1 and a $5.0 million Phase 2 dosing milestone deemed probable.
- The March 28 financing issued Series C preferred stock and warrants exercisable for up to 11,967,526 common shares at approximately $5.80 per share. Avalo could receive up to an additional $69.4 million gross upon warrant exercise; that amount is not assured.
- Series C preferred shares are generally convertible into 1,000 common shares each subject to stockholder approval and beneficial ownership limits. No Series C shares had converted as of March 31. The preferred shares issued in the Almata transaction were recorded as $11.5 million of mezzanine equity.
- Compared with Q1 2023, revenue disappeared with the end of Millipred sales; R&D declined, while the reported loss rose sharply due principally to the acquisition charge, warrant valuation and financing costs. The company expects R&D and operating cash use to increase in 2024 as AVTX-009 development advances.
Outlook, risks and contingencies
Management plans to advance its pipeline, particularly AVTX-009, and expects related R&D spending to rise. The stated cash runway depends on current operating plans; Avalo may seek additional funding through equity, licensing, collaborations, asset sales or other transactions. Such funding may not be available on favorable terms, could dilute shareholders, or require relinquishing valuable rights. The warrant liability is a Level 3 fair-value estimate sensitive to share price and other unobservable assumptions.
AVTX-009 carries potential payments to licensors of up to $70 million in development and regulatory milestones, up to $720 million in sales milestones, and mid-single-digit to low-double-digit royalties on sales. Separate milestones to former AlmataBio holders include $5 million upon first patient dosing in a Phase 2 hidradenitis suppurativa trial and $15 million upon first patient dosing in a Phase 3 trial; payment form may be cash, stock or a combination. The filing also describes possible milestone and royalty obligations on other licensed programs. Management stated risk factors had not materially changed from the 2023 Form 10-K. No material adverse outcome from ordinary-course litigation was anticipated; the Apollo dispute was settled for $0.2 million and paid in Q1.
Important facts for investors to verify
- Whether stockholders approve conversion of Series C preferred stock and exercise of warrants for common shares, and the resulting dilution and warrant proceeds.
- Actual AVTX-009 development timing, trial costs, and whether the Phase 2 and Phase 3 milestone triggers are reached.
- Quarterly cash burn and whether management’s projected runway into 2027 remains supported as development spending increases.
- Changes in the $194.9 million warrant liability and resulting noncash income-statement volatility.
- Potential Millipred commercial-liability reconciliations and other contingent, royalty, or milestone obligations.
- Common shares outstanding: 1,034,130 as of May 8, 2024; compare this with potential preferred-stock conversion and warrant issuance.