Avalo Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Avalo is a clinical-stage biotechnology company developing therapies focused on the LIGHT signaling network. Unless stated otherwise, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $0.236 million | $14.949 million | $1.353 million | $17.155 million |
| Operating income (loss) | $(3.750) million | $4.095 million | $(19.693) million | $(28.585) million |
| Net income (loss) | $(5.228) million | $3.192 million | $(23.376) million | $(31.846) million |
| Basic and diluted EPS | $(0.11) | $0.34 | $(0.96) | $(3.39) |
| Operating cash flow | Not stated for quarter | $(27.914) million | $(22.811) million |
- Q3 2022 revenue included $14.517 million of license revenue; Avalo reported no license revenue in 2023. Product revenue was $0.236 million in Q3 and $1.353 million for the nine months, down from $0.432 million and $2.638 million, respectively.
- Product cost exceeded product revenue in both 2023 periods: $0.247 million versus $0.236 million in Q3, and $1.505 million versus $1.353 million year to date. The Millipred license and supply agreement expired September 30; the company does not expect future product revenue.
- At September 30, cash and cash equivalents were $10.180 million; cash, cash equivalents and restricted cash totaled $10.312 million. Total assets were $29.270 million, total liabilities $14.575 million, and stockholders’ equity $14.695 million.
- Avalo had no notes payable at quarter-end after repaying $14.3 million, including the final payment fee and interest, on September 22. It reported $2.0 million in royalty obligations and $4.950 million in derivative liabilities.
- Q3 and nine-month operating expenses were $3.986 million and $21.046 million, respectively. Nine-month R&D was $11.917 million and SG&A was $7.624 million.
Changes and financing
- Compared with Q3 2022, the company moved from net income to a net loss, chiefly reflecting the absence of the prior-year $14.517 million license revenue. R&D and SG&A fell year over year, reflecting lower clinical and manufacturing activity, cost reductions, reduced headcount, and nonrecurring 2022 separation-related expense.
- For the nine months, net loss narrowed versus 2022, but operating cash use increased to $27.914 million from $22.811 million. Cash flow included substantial reductions in accrued expenses and accounts payable.
- Financing cash flow was $25.041 million for the nine months: $32.470 million of net ATM proceeds and $13.748 million from a February public offering, offset partly by $21.244 million of note principal payments. The ATM generated approximately $25.9 million net in Q3.
- Share count rose from 9.4 million at December 31, 2022 to 192.4 million at September 30, 2023, principally from ATM issuance. The company reported 192,382,419 shares outstanding as of November 7, 2023.
Outlook, risks and unusual items
- Going concern: Management stated that Avalo will need additional financing within one year after issuance of the statements and concluded substantial doubt exists about its ability to continue as a going concern. Potential sources include financing, licensing or collaborations, asset sales, and mergers or acquisitions; none is assured. Failure to obtain funding could force reductions, delays, suspensions, or elimination of programs.
- Nasdaq listing: Nasdaq had notified Avalo of deficiencies in minimum bid price and market value, and staff had determined to delist after the stock closed at $0.10 or less for ten consecutive trading days. Avalo appealed; the hearing took place November 2, 2023, and the Panel’s written decision was pending when the filing was signed. The stated compliance period for the bid-price and market-value requirements ran through February 5, 2024.
- Pipeline and spending: The PEAK trial of quisovalimab (AVTX-002) concluded in June 2023. Management cited prior study results and said it was pursuing funding, including to consider a randomized trial in ulcerative colitis or other inflammatory conditions. Advancement of AVTX-008 toward an IND is also subject to funding. No quantified financial guidance was provided.
- Subsequent event: On October 27, 2023, Avalo sold AVTX-801, AVTX-802 and AVTX-803 to AUG Therapeutics for $150,000 upfront, with potential contingent milestone payments up to $45 million, plus a possible share of certain priority review voucher proceeds. The company said it would assess the accounting impact in Q4.
- Contingency: Apollo AP43 alleged a breach involving $837,522 owed to a service provider. Possible loss was estimated at $0–$837,522; Avalo did not consider a loss probable and recorded no liability at September 30.
- Other items: The company’s approximately $0.9 million Aytu receivable remained fully reserved. A Level 3 derivative liability of $4.950 million relates to rights sold to ES Therapeutics; valuation depends on unobservable assumptions, including probabilities of success and future sales. The loan payoff accelerated $0.9 million of debt-discount amortization into interest expense; management expected no loan interest expense in Q4 or later.
- The filing reported effective disclosure controls at the reasonable assurance level and no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Cash runway, subsequent cash use, and progress or terms of any financing or business-development transactions.
- Nasdaq Panel decision and the company’s ability to satisfy listing requirements and obtain stockholder approval for the proposed reverse split.
- Actual proceeds, dilution, and remaining capacity under equity financing arrangements; the filing also warned that authorized common shares available for future issuance were limited.
- Post-expiration Millipred returns and royalty reconciliation, and the status of the Apollo dispute and reserved Aytu receivable.
- Terms, accounting treatment, and any milestone or voucher proceeds from the AVTX-800 Series divestiture; contingent proceeds are not assured.
- Clinical and regulatory plans for AVTX-002 and AVTX-008, including whether funding is secured to advance them.