Avalo Therapeutics Inc.
11/06/2025 | Press release | Distributed by Public on 11/06/2025 06:05
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q and the information incorporated herein by reference contain forward-looking statements that involve a number of risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can be identified by the use of forward-looking words such as "projects," "may," "might," "will," "could," "would," "should," "continue," "seeks," "aims," "predicts," "believes," "expects," "anticipates," "estimates," "intends," "plans," "potential," "pro forma" or other similar words (including their use in the negative), or by discussions of future matters such as: the future financial and operational outlook; the development of product candidates; and other statements that are not historical. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those set out in our Annual Report on Form 10-K filed with the SEC on March 20, 2025, and in our other filings with the SEC. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2024 appearing in our Annual Report on Form 10-K filed with the SEC on March 20, 2025.
Overview
Avalo Therapeutics, Inc. (the "Company," "Avalo" or "we") is a clinical stage biotechnology company fully dedicated to developing IL-1β-based treatments for immune-mediated inflammatory diseases. Our lead asset, AVTX-009, is in a Phase 2 clinical trial for hidradenitis suppurativa ("HS"). The Company is also exploring additional opportunities to make an impact in prevalent indications that have significant remaining unmet needs.
Our focus in 2025 is continuing to execute operationally on the development of AVTX-009, most notably the progression of the Phase 2 ("LOTUS") trial of AVTX-009, an anti-IL-1β (mAb), in HS. We expect to release topline results from this trial in mid-2026.
Management's primary evaluation of the success of the Company is the ability to progress its pipeline forward toward commercialization or opportunistically out-licensing rights to indications or geographies. We believe the ability to achieve the anticipated milestone as presented in the following chart represents our most immediate evaluation point as to the progress of our goal to move the pipeline forward.
The Company's Phase 2 LOTUS trial in HS, is a randomized, double-blind, placebo-controlled, parallel-group Phase 2 trial with two AVTX-009 dose regimens to evaluate the efficacy, safety and tolerability of AVTX-009 in approximately 250 adults with moderate to severe HS. Subjects were randomized (1:1:1) to receive either one of two doses of AVTX-009 or placebo. The primary efficacy endpoint is the proportion of subjects achieving Hidradenitis Suppurativa Clinical Response (HiSCR75) at Week 16. Avalo is the study sponsor and the current trial locations include the United States, Canada, France, Germany, Italy, Spain, Bulgaria, Czech Republic, Greece, Poland, Australia, Turkey, and Slovakia.
Recent Developments
In October 2025, the Company announced that it has completed enrollment in its Phase 2 LOTUS trial of AVTX-009 for the treatment of HS.
In September 2025, the Company announced the appointment of Kevin Lind to its Board of Directors. Further, in October 2025, we announced the expansion of our leadership team with key appointments in business development and human resources.
Liquidity
Since inception, we have incurred significant operating and cash losses from operations. We have primarily funded our operations to date through sales of equity securities, out-licensing transactions and sales of assets.
For the nine months ended September 30, 2025, Avalo generated a net loss of $64.5 million and negative cash flows from operations of $37.2 million. As of September 30, 2025, Avalo had $111.6 million in cash and cash equivalents and short-term investments.
Based on our current operating plans, we expect that our existing cash and cash equivalents and short-term investments are sufficient to fund operations for at least twelve months from the filing date of this Quarterly Report on Form 10-Q and we expect to fund operations into 2028. The Company closely monitors its cash and cash equivalents and short-term investments and seeks to balance the level of cash and cash equivalents with our projected needs to allow us to withstand periods of uncertainty relative to the availability of funding on favorable terms. We may satisfy any future cash needs through sales of equity securities under the Company's at-the-market program or other equity financings, out-licensing transactions, strategic alliances/collaborations, sale of programs, and/or mergers and acquisitions. There can be no assurance that any financing or business development initiatives can be realized by the Company, or if realized, what the terms may be. To the extent that we raise capital through the sale of equity, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Further, if the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company might have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates.
Our Strategy
Our strategy for increasing stockholder value includes:
•Advancing our pipeline through development to regulatory approval. Most notably and in the near term, completing our Phase 2 LOTUS trial in HS, preparing for the next stage of development for that indication and considering further indication expansion for AVTX-009;
•Acquiring or in-licensing rights to and/or developing targeted, complementary differentiated preclinical and clinical stage compounds that treat immune mediated disease; and
•Opportunistically out-licensing rights to compounds, indications or geographies.
There is no guarantee that our products will obtain regulatory approval by the United States Food and Drug Administration (the "FDA") or comparable foreign regulatory authorities. The FDA approval process is complex, time-consuming, and expensive. It typically involves the following prior to submitting a new drug application ("NDA") or biologics license application ("BLA"): preclinical laboratory and animal testing, submission of an Investigational New Drug ("IND") application, and human clinical trials to establish safety and efficacy. Human clinical trials typically include: Phase 1 studies to evaluate the safety and tolerability of the drug, generally in normal, healthy volunteers; Phase 2 studies to evaluate safety and efficacy, as well as appropriate doses; these studies are typically conducted in patient volunteers who suffer from the particular disease condition that the drug is designed to treat; and Phase 3 studies to evaluate safety and efficacy of the product at specific doses in one or more larger pivotal trials. Upon submission of an NDA or BLA, the FDA reviews the application including potentially an FDA advisory committee review and typically inspects manufacturing facilities and clinical study sites prior to FDA approval or rejection of the application. Even if a product receives FDA approval, the agency may impose post-approval requirements or withdraw approval if safety or efficacy issues arise. The processes for obtaining marketing approvals in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.
Results of Operations
Comparison of the Three Months Ended September 30, 2025 and 2024
Product Revenue, Net
The Company recognized no product revenue for the three months ended September 30, 2025 compared to minimal revenue for the three months ended September 30, 2024. The Company's license and supply agreement for Millipred®, an oral prednisolone indicated across a wide variety of inflammatory conditions, expired on September 30, 2023, as planned. The Company continues to monitor estimates for commercial liabilities, such as sales returns. As additional information becomes available, the Company could recognize expense (or benefit) for differences between actuals or updated estimates to the reserves previously recognized.
Cost of Product Sales
We recognized nocost of product sales for the three months ended September 30, 2025 and a benefit of $0.7 million for the three months ended September 30, 2024, which related to the change in an estimate of commercial liabilities related to the Millipred®product. The Company ceased selling Millipred® in September 2023.
The Company will continue to monitor estimates for commercial liabilities related to the Millipred® product, such as sales returns and profit share with the supplier pursuant to the reconciliation process. As additional information becomes available, the Company could recognize expense (or a benefit) for differences between actuals or updated estimates to the reserves previously recognized, which could be recognized in cost of product sales.
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended September 30, 2025 and 2024 (in thousands):
| Three Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Nonclinical expenses | $ | 184 | $ | 154 | ||||||||||
| Clinical expenses | 7,250 | 5,078 | ||||||||||||
| CMC expenses | 2,556 | 1,978 | ||||||||||||
| Internal expenses: | ||||||||||||||
| Salaries, benefits and related costs | 2,383 | 1,511 | ||||||||||||
| Stock-based compensation expense | 1,189 | 761 | ||||||||||||
| Other | 59 | 56 | ||||||||||||
| $ | 13,621 | $ | 9,538 | |||||||||||
Research and development expenses increased $4.1 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was mainly driven by a $2.2 million increase in clinical expenses, $0.9 million increase in salaries, benefits and related costs, and $0.6 million in chemistry, manufacturing, and controls ("CMC") expenses.
Clinical expenses increased due to the ongoing activities related to the Phase 2 LOTUS trial in HS incurred in the third quarter of 2025, including patient trial costs and clinical trial work performed by our contract research organization ("CRO"), compared to limited expenses for trial initiation activities in the third quarter of 2024. CMC expenses increased due to continued drug manufacturing activities to support the trial, compared to raw materials purchases in the prior year period.
Salaries, benefits and related costs increased $0.9 million compared to the three months ended September 30, 2024 due primarily to headcount additions during the current year. Stock-based compensation expense increased $0.4 million related to option and restricted stock unit grants made in the second half of 2024 and in 2025, including the annual employee grants in August 2024 and January 2025, as well as headcount additions throughout 2025.
We expect future research and development expenses in 2025 to increase as compared to the comparable period in 2024 due to the ongoing execution of the Phase 2 LOTUS trial in HS and supporting activities. Research and development expenses beyond mid-2026 are difficult to predict given they will be highly dependent on the outcome of the Phase 2 LOTUS trial.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended September 30, 2025 and 2024 (in thousands):
| Three Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Salaries, benefits and related costs | $ | 1,449 | $ | 1,160 | ||||||||||
| Legal, consulting and other professional expenses | 1,794 | 1,461 | ||||||||||||
| Stock-based compensation expense | 1,964 | 1,086 | ||||||||||||
|
Commercial planning and marketing expenses
|
22 | 142 | ||||||||||||
| Other | 348 | 437 | ||||||||||||
| $ | 5,577 | $ | 4,286 | |||||||||||
General and administrative expenses increased $1.3 million for the three months ended September 30, 2025 compared to the prior year period. The increase was driven by a $0.9 million increase in stock-based compensation expense due to option and restricted stock unit grants made in the second half of 2024 and in 2025, including the annual employee grants in August 2024 and January 2025, as well as headcount additions throughout 2025. Salaries, benefits and related costs increased $0.3 million compared to the prior year period due to headcount additions.
Although we expect most of the increase in operating expenses in 2025 to be attributable to increased research and development activities to progress AVTX-009, we also expect moderate increases to general and administrative expenses for the remainder of 2025 as compared to the comparable period in 2024, related to supporting the AVTX-009 program. General and administrative expenses beyond mid-2026 are difficult to predict given they will be highly dependent on the outcome of the Phase 2 LOTUS trial in HS.
Other (Expense) Income, Net
The following table summarizes our other (expense) income, net for the three months ended September 30, 2025 and 2024 (in thousands):
| Three Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Change in fair value of derivative liability | (12,530) | (1,100) | ||||||||||||
|
Interest income, net
|
1,117 | 964 | ||||||||||||
| Change in fair value of warrant liability | - | 36,025 | ||||||||||||
| Other expense, net | (3) | (5) | ||||||||||||
| $ | (11,416) | $ | 35,884 | |||||||||||
Other expense, net was $11.4 million for the three months ended September 30, 2025 compared to other income, net of $35.9 million for the prior year period. The $47.3 million change was primarily driven by (i) the accounting impact of the warrant liability associated with the warrants issued in the March 2024 financing that were subsequently exercised in the fourth quarter of 2024, and (ii) the change in the fair value of the derivative liability in the current period driven by changes in assumptions related to the AVTX-007 Milestones and Royalties (as defined in Note 6 to the unaudited condensed consolidated financial statements). Refer to Note 6 - Fair Value Measurements of the unaudited condensed consolidated financial statements for more information.
Income Tax Expense
The Company recognized minimal income tax expense for both the three months ended September 30, 2025 and 2024.
Comparison of the Nine Months Ended September 30, 2025 and 2024
Product Revenue, Net
The Company recognized no product revenue for the nine months ended September 30, 2025 compared to minimal revenue for the nine months ended September 30, 2024. The Company's license and supply agreement for Millipred® expired on September 30, 2023 as planned. The Company continues to monitor estimates for commercial liabilities, such as sales returns. As additional information becomes available, the Company could recognize expense (or benefit) for differences between actuals or updated estimates to the reserves previously recognized.
Cost of Product Sales
We recognized no cost of product sales for the nine months ended September 30, 2025 compared to a benefit of $0.5 million for the same period in 2024, which related to the change in an estimate of commercial liabilities related to the Millipred® product. The Company ceased selling Millipred® in September 2023.
The Company will continue to monitor estimates for commercial liabilities related to the Millipred® product, such as sales returns and profit share with the supplier pursuant to the reconciliation process. As additional information becomes available, the Company could recognize expense (or a benefit) for differences between actuals or updated estimates to the reserves previously recognized, which could be recognized in cost of product sales.
Research and Development Expenses
The following table summarizes our research and development expenses for the nine months ended September 30, 2025 and 2024 (in thousands):
| Nine Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Nonclinical expenses | $ | 445 | $ | 501 | ||||||||||
| Clinical expenses | 18,315 | 6,719 | ||||||||||||
| CMC expenses | 7,802 | 2,971 | ||||||||||||
| Internal expenses: | ||||||||||||||
| Salaries, benefits and related costs | 6,414 | 4,644 | ||||||||||||
| Stock-based compensation expense | 3,606 | 1,250 | ||||||||||||
| Other | 235 | 169 | ||||||||||||
| $ | 36,817 | $ | 16,254 | |||||||||||
Research and development expenses increased $20.6 million for the nine months ended September 30, 2025. The increase was driven by increases in clinical and CMC expenses of $11.6 million and $4.8 million, respectively. Clinical expenses increased due to progress in the current year for the Phase 2 LOTUS trial in HS, including site activations, patient trial costs and clinical trial work performed by our CRO, as compared to trial enabling and activation activities incurred in the prior year period. CMC expenses increased due to raw material purchases and drug manufacturing activities to support the trial during the current year.
Stock-based compensation increased $2.4 million compared to the nine months ended September 30, 2024 due to option and restricted stock unit grants made during the second half of 2024 and in 2025, including the annual employee grants in August 2024 and January 2025, as well as headcount additions. Salaries, benefits and related costs increased $1.8 million compared to the nine months ended September 30, 2024 primarily due to headcount additions.
We expect future research and development expenses in 2025 to increase as compared to the comparable period in 2024 due to the ongoing execution of the Phase 2 LOTUS trial in HS and supporting activities. Research and development expenses beyond mid-2026 are difficult to predict given they will be highly dependent on the outcome of the Phase 2 LOTUS trial.
Acquired In-Process Research and Development
In the first quarter of 2024, we acquired AVTX-009 through the AlmataBio Transaction (as defined in Note 3 to the unaudited condensed consolidated financial statements), resulting in us acquiring $27.6 million of in-process research and development ("IPR&D") in the nine months ended September 30, 2024. There was no acquired IPR&D for the nine months ended September 30, 2025.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2025 and 2024 (in thousands):
| Nine Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Salaries, benefits and related costs | $ | 4,557 | $ | 3,453 | ||||||||||
| Legal, consulting and other professional expenses | 4,986 | 5,318 | ||||||||||||
| Stock-based compensation expense | 5,507 | 1,698 | ||||||||||||
|
Commercial planning and marketing expenses
|
89 | 300 | ||||||||||||
| Other | 1,227 | 1,239 | ||||||||||||
| $ | 16,366 | $ | 12,008 | |||||||||||
General and administrative expenses increased $4.4 million for the nine months ended September 30, 2025 compared to the prior year period. The increase was driven primarily by a $3.8 million increase in stock-based compensation expense due to option and restricted stock unit grants made during the second half of 2024 and in 2025, including the annual grants in August 2024 and January 2025 as well as new hire grants. Salaries, benefits and related costs increased $1.1 million compared to the nine months ended September 30, 2024 due to headcount additions.
This increase was partially offset by a $0.3 million decrease in legal, consulting and other professional expenses compared to the prior year period related to increased expenses incurred in the prior period for accounting, reporting and consulting services incurred following the AlmataBio Transaction and concurrent private placement financing in March 2024.
Although we expect most of the increase in operating expenses in 2025 to be attributable to increased research and development activities to progress AVTX-009, we also expect moderate increases to general and administrative expenses for the remainder of 2025, as compared to the comparable period in 2024, related to supporting the AVTX-009 program. General and administrative expenses beyond mid-2026 are difficult to predict given they will be highly dependent on the outcome of the Phase 2 LOTUS trial in HS.
Other (Expense) Income, Net
The following table summarizes our other (expense) income, net for the nine months ended September 30, 2025 and 2024 (in thousands):
| Nine Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Change in fair value of derivative liability | (14,680) | (6,260) | ||||||||||||
|
Interest income, net
|
3,367 | 2,101 | ||||||||||||
| Excess of initial warrant fair value over private placement proceeds | - | (79,276) | ||||||||||||
| Change in fair value of warrant liability | - | 148,071 | ||||||||||||
| Private placement transaction costs | - | (9,220) | ||||||||||||
| Other expense, net | (8) | (5) | ||||||||||||
| $ | (11,321) | $ | 55,411 | |||||||||||
Other expense, net was $11.3 million for the nine months ended September 30, 2025 compared to other income, net of $55.4 million for the prior year period. The $66.7 million change was primarily driven by (i) the accounting impact in the prior period of the warrant liability associated with the warrants issued in the March 2024 financing that were subsequently exercised in the fourth quarter of 2024, and (ii) the change in the fair value of the derivative liability in the current period driven by changes in assumptions related to the AVTX-007 Milestones and Royalties (as defined in Note 6 to the unaudited condensed consolidated financial statements). Refer to Note 6 - Fair Value Measurements of the unaudited condensed and consolidated financial statements for more information. Further, the Company incurred $9.2 million of private placement transaction costs in the prior year period that did not repeat in the current period, largely consisting of the placement agent fee of $7.0 million, and $1.7 million fee payable upon exercise of the warrants issued in the private placement investment.
Income Tax Expense
The Company recognized minimal income tax expense for both the nine months ended September 30, 2025 and 2024.
Liquidity and Capital Resources
Uses of Liquidity
The Company primarily uses cash to fund the ongoing development of AVTX-009 and costs associated with its organizational infrastructure. As of September 30, 2025, Avalo had $111.6 million in cash and cash equivalents and short-term investments.
Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2025 and 2024 (in thousands):
| Nine Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Net cash (used in) provided by: | ||||||||||||||
| Operating activities | $ | (37,212) | $ | (34,012) | ||||||||||
| Investing activities | (84,121) | 356 | ||||||||||||
| Financing activities | 13,900 | 108,140 | ||||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
$ | (107,433) | $ | 74,484 | ||||||||||
Net cash used in operating activities
Net cash used in operating activities was $37.2 million for the nine months ended September 30, 2025 and consisted primarily of net loss of $64.5 million, partially offset by net non-cash charges of $23.7 million and changes in our operating assets and liabilities of $3.7 million. The non-cash charges consisted primarily of a $14.7 million change in the fair value of the derivative liability and stock-based compensation of $9.1 million. Changes in our operating assets and liabilities consisted primarily of a $2.2 million decrease in prepaid expenses and other current assets due to our ongoing clinical work and a $1.3 million increase in accrued expenses and other liabilities primarily due to continued activity related to the LOTUS trial and the timing of vendor invoices.
Net cash used in operating activities was $34.0 million for the nine months ended September 30, 2024 and consisted primarily of net income of $0.2 million and adjustments to reconcile net income to net cash used in operating activities including the change in fair value of the warrant liability of $148.1 million, excess of initial warrant fair value over private placement investment proceeds of $79.3 million, acquired IPR&D of $27.6 million, $7.5 million milestone payment made to the former AlmataBio stockholders upon the closing of a private placement investment, change in fair value of the derivative liability of $6.3 million and stock-based compensation of $2.9 million. Prepaid expense increased $2.4 million primarily due to advances paid for AVTX-009 contracts and the timing of insurance prepayments. Accrued expenses and other liabilities increased $2.1 million primarily related to non-equity incentive compensation and increased research and development and general and administrative activities to support the development of AVTX-009.
Net cash (used in) provided by investing activities
Net cash used in investing activities for the nine months ended September 30, 2025 consisted of $94.6 million of purchases of available-for-sale investments, partially offset by $10.5 million of proceeds from maturities of available-for-sale investments.
Net cash provided by investing activities for the nine months ended September 30, 2024 consisted of the cash acquired as part of the AlmataBio Transaction.
Net cash provided by financing activities
Net cash provided by financing activities for the nine months ended September 30, 2025 consisted of net proceeds of $14.4 million from the sales of shares under our "at-the-market" sales agreement, partially offset by $0.5 million in cash paid to tax authorities related to withholding shares to satisfy RSU vesting withholding obligations on behalf of employees.
Net cash provided by financing activities for the nine months ended September 30, 2024 consisted of gross proceeds of $115.6 million from the private placement investment that closed on March 28, 2024, partially offset by transaction costs related to the private placement investment of $7.5 million.
Critical Accounting Policies, Estimates, and Assumptions
This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP. In preparing the financial statements in conformity with GAAP, the Company makes estimates and assumptions that have an impact on assets, liabilities, revenue and expenses reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk, and financial condition. In our unaudited condensed consolidated financial statements, estimates are used for, but not limited to, clinical trial accruals and research and development costs, stock-based compensation, fair value measurements, the valuation of derivative liabilities, revenue recognition, cost of product sales and cash flows used in management's going concern assessment. The Company believes, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates, and estimates may vary as new facts and circumstances arise. Our most critical accounting estimates and assumptions are included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 20, 2025. Except as described in Note 2 - Basis of Presentation and Significant Accounting Policies, there have been no significant changes to our critical accounting policies during the nine months ended September 30, 2025.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined by applicable SEC rules and regulations.
Avalo Therapeutics Inc. published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 06, 2025 at 12:05 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]