Avalo Therapeutics Inc.

05/13/2026 | Press release | Distributed by Public on 05/13/2026 05:02

Quarterly Report for Quarter Ending March 31, 2026 (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 23, 2026, 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, 2025 appearing in our Annual Report on Form 10-K filed with the SEC on March 23, 2026.
Overview
We are a clinical stage biotechnology company fully dedicated to developing IL-1β-based treatments for immune-mediated inflammatory diseases. Our lead asset, abdakibart (AVTX-009), is an anti-IL-1β monoclonal antibody ("mAb"). Positive topline data was recently reported for abdakibart in a Phase 2 clinical trial in hidradenitis suppurativa ("HS"). We're also exploring additional opportunities to make an impact in prevalent indications that have significant remaining unmet needs.
Management's primary evaluation of our success is the ability to progress its programs towards commercialization or opportunistically out-licensing rights to indications or geographies. The following chart represents the achievement of our most recent milestone of the positive topline data release of the Phase 2 clinical trial in HS.
The LOTUS trial (NCT06603077), which enrolled 253 adults, was a randomized, double-blind, placebo-controlled parallel-group Phase 2 trial to evaluate the efficacy, safety and tolerability of abdakibart across two dose regimens and placebo in a 1:1:1 ratio over a 16-week treatment period. Subjects received either a 600mg loading dose of abdakibart followed by 300mg every four weeks or a 300mg loading dose followed by 150mg every two weeks. The trial's primary efficacy endpoint was the proportion of patients achieving Hidradenitis Suppurativa Clinical Response (HiSCR75) at Week 16.
Recent Developments
On May 5, 2026, the Company announced positive topline results from its Phase 2 LOTUS trial evaluating the efficacy and safety of abdakibart in adults with moderate to severe HS. The trial successfully met its primary endpoint at both doses studied. Based on these data, we plan to advance abdakibart into a registrational phase 3 program. The Phase 2 LOTUS trial successfully met its primary endpoint at both doses studied (p=0.018 150mg, p=0.015 300mg and p=0.004 combined), demonstrating a 42.2% and 42.9% absolute improvement in HiSCR75 response rates at Week 16, respectively (42.5% combined, placebo rate 25.6%). This was the highest absolute improvement in HiSCR75 and HiSCR50 in clinical trials of this size or larger at each individual dose and on a combined dose basis. Abdakibart regimens also demonstrated statistically significant benefit across the key secondary endpoints in HiSCR50, change in IHS4 and change in draining tunnel count. Numerically favorable responder rates were observed across all other key secondary endpoints. The HiSCR75 response was similar in patients with and without prior biologic exposure. On May 7, 2026, Avalo completed a follow-on offering of its common stock and pre-funded warrants to purchase shares of common stock. Refer to additional information in the "Liquidity and Capital Resources, including Capital Expenditure and Cash Requirements" section below.
On April 26, 2026, the Company entered into a Milestone Buyout Option and Amendment Agreement to the Agreement and Plan of Merger and Reorganization (the "Buyout Agreement") pursuant to which the Company agreed to pay $2.25 million to the former AlmataBio, Inc. ("AlmataBio") stockholders for an option, exercisable within 90 days of the effective date, to pay an additional $5.125 million in cash or shares of Avalo common stock, or a combination thereof at the election of Avalo, in lieu of a $15.0 million contingent milestone payment due upon the first patient being dosed in a Phase 3 trial pursuant to the original Agreement and Plan of Merger and Reorganization dated March 27, 2024. The upfront $2.25 million payment was made in April 2026.
Liquidity and Capital Resources, including Capital Expenditure and Cash Requirements
Since inception, we have incurred significant operating losses and negative cash flows from our operations. We have primarily funded our operations to date through sales of equity securities, out-licensing transactions and sales of assets.
For the three months ended March 31, 2026, Avalo generated a net loss of $19.6 million and negative cash flows from operations of $17.7 million. As of March 31, 2026, Avalo had $82.0 million in cash and cash equivalents and short-term investments.
On May 7, 2026, the Company completed a follow-on offering of its common stock and pre-funded warrants to purchase shares of common stock. The Company issued and sold 22,899,500 shares of common stock, including full exercise of the underwriters' option to purchase an additional 3,169,500 shares, at a public offering price of $17.75 per share and pre-funded warrants to purchase 1,400,000 shares of common stock at a public offering price of $17.749 per pre-funded warrant, which represents the per share public price of each share of common stock, less the $0.001 per share exercise price for each pre-funded warrant. The aggregate gross proceeds before deducting underwriting discounts and commissions, and other estimated offering expenses payable by the Company were approximately $431.3 million. Net proceeds are expected to be approximately $405.0 million.
Based on our current operating plans, we expect that our existing cash, cash equivalents and short-term investments, together with the net proceeds from the offering, are sufficient to fund operations for at least twelve months from the filing date of this Quarterly Report on Form 10-Q and into 2029. We closely monitor our cash and cash equivalents and seek 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 our 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 us, 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 we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we might have to relinquish valuable rights to our 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-notably and in the near term by preparing to initiate our pivotal trial(s) and considering further indication expansion for abdakibart;
•Acquiring or in-licensing rights to and/or developing targeted, complementary differentiated preclinical and clinical stage compounds that treat immune-mediated inflammatory 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. Prior to submitting a new drug application ("NDA") or biologics license application ("BLA"), the FDA approval process typically involves the following: 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 (although for biologics and certain serious or inflammatory diseases, first-in-human studies may be conducted in patients); 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 the safety and efficacy of the product at specific doses in one or more larger pivotal trials.
As a biologics-focused company, our product candidates are subject to additional regulatory scrutiny, including requirements related to manufacturing process validation, product consistency, immunogenicity, and ongoing comparability assessments, and the FDA may require extensive chemistry, manufacturing and controls ("CMC") data both before and after approval. Because biologics are derived from living systems, changes to manufacturing processes, facilities or suppliers may require additional regulatory review or approval.
Upon submission of an NDA or BLA, the FDA reviews the application, which potentially involves an FDA advisory committee review, and typically inspects manufacturing facilities and clinical study sites. The FDA has substantial discretion in the approval process and may require additional clinical studies, new or modified endpoints, expanded safety data, or longer follow-up periods as a condition to approval, even if earlier trials produce favorable results. Even if the FDA approves a product, it may impose post-approval requirements, such as risk evaluation and mitigation strategies, post-marketing studies or enhanced pharmacovigilance obligations, or withdraw approval if safety or efficacy issues arise.
We are currently conducting clinical development programs and success in earlier-stage trials does not ensure that later-stage trials will be successful or that regulatory approval will be obtained. The FDA may determine that additional studies are required prior to advancing to later-stage trials or submitting an NDA or BLA.
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. Regulatory approval in foreign jurisdictions is generally independent of FDA approval and may require additional clinical data, different endpoints, or separate manufacturing inspections. Regulatory authorities in the European Union, the United Kingdom and other jurisdictions may apply standards that differ from those of the FDA, and clinical trial data generated in one jurisdiction may not be accepted by regulatory authorities in another. Delays or failures in obtaining foreign regulatory approvals could adversely affect the timing and scope of any potential commercialization outside the United States.
Results of Operations
Comparison of the Three Months Ended March 31, 2026 and 2025
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended March 31,
2026 2025 Change
Nonclinical expenses $ 419 $ 83 $ 336
Clinical expenses 5,603 3,850 1,753
CMC expenses 4,126 1,979 2,147
Internal expenses:
Salaries, benefits and related costs 2,586 1,850 736
Stock-based compensation expense 1,243 1,301 (58)
Other 70 60 10
$ 14,047 $ 9,123 $ 4,924
CMC expenses increased during the first quarter of 2026 compared to the prior year period due to drug manufacturing activities and related preparations for our pivotal trials(s) of abdakibart in HS paired with continued drug manufacturing activities to support the LOTUS trial. Clinical expenses increased in the first quarter of 2026 compared to the prior year period related to the maturing status of the LOTUS trial and ongoing patient trial costs and clinical trial work performed by our contract research organization.
Salaries, benefits and related costs increased $0.7 million compared to the three months ended March 31, 2025 due primarily to headcount additions during the year.
Given the positive results of the Phase 2 LOTUS trial in HS, we expect future research and development expenses to increase over time as we prepare and advance abdakibart into a registrational Phase 3 program.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended March 31,
2026 2025 Change
Salaries, benefits and related costs $ 2,169 $ 1,553 $ 616
Legal, consulting and other professional expenses 1,929 1,611 318
Stock-based compensation expense 2,332 1,940 392
Commercial planning and marketing expenses
209 12 197
Other 215 430 (215)
$ 6,854 $ 5,546 $ 1,308
The increase in general and administrative expenses from the prior year period was driven by a $0.6 million increase in salaries, benefits and related costs compared to the prior year due primarily to headcount additions. Additionally, stock-based compensation expense increased $0.4 million from the prior year period due to option grants, including the annual employee grants in January 2025 and February 2026, as well as headcount additions throughout 2025 and 2026.
Given the positive results of the LOTUS trial in HS and the Company's intention to advance abdakibart into a registrational phase 3 program, we expect future general and administrative expense to increase as compared to prior periods to support the abdakibart program.
Other Income, Net
The following table summarizes our other income, net for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended March 31,
2026 2025 Change
Change in fair value of derivative liability $ 480 $ 380 $ 100
Interest income, net
803 1,148 (345)
$ 1,283 $ 1,528 $ (245)
The decrease in other income, net from the prior year period was primarily driven by decreased interest income in the current year period due to a decreased cash balance from the prior year.
Income Tax Expense
The Company recognized minimal income tax expense for both the three months ended March 31, 2026 and 2025.
Liquidity and Capital Resources
Uses of Liquidity
We primarily uses cash to fund the ongoing development of abdakibart and costs associated with its organizational infrastructure. As of March 31, 2026, we had $82.0 million in cash and cash equivalents and short-term investments. We expect future cash used in operating activities to increase over time as a result of our intention to advance abdakibart into a registrational phase 3 program.
Cash Flows
The following table summarizes our cash flows for the three months ended March 31, 2026 and 2025 (in thousands):
Three Months Ended March 31,
2026 2025 Change
Net cash (used in) provided by:
Operating activities $ (17,691) $ (9,457) $ (8,234)
Investing activities 25,505 - 25,505
Financing activities 1,399 - 1,399
Net increase (decrease) increase in cash and cash equivalents $ 9,213 $ (9,457) $ 18,670
Net cash used in operating activities
Net cash used in operating activities was $17.7 million for the three months ended March 31, 2026 and consisted primarily of net loss of $19.6 million, partially offset by net non-cash charges of $3.0 million and changes in our operating assets and liabilities of $1.1 million. The non-cash charges consisted primarily of stock-based compensation of $3.6 million partially offset by a decrease in the fair value of the derivative liability of $0.5 million. Changes in our operating assets and liabilities consisted primarily of a $1.5 million decrease 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 $9.5 million for the three months ended March 31, 2025 and consisted primarily of net loss of $13.1 million and adjustments to reconcile net loss to net cash used in operating activities including stock-based compensation of $3.2 million. Prepaid expense decreased $2.5 million primarily due to the timing of abdakibart related payments. Accrued expenses and other liabilities decreased $1.7 million primarily related the timing of non-equity incentive compensation.
Net cash provided by investing activities
Net cash provided by investing activities for the three months ended March 31, 2026 consisted of $25.5 million of proceeds from maturities and sales of available-for-sale investments.
Net cash provided by financing activities
Net cash provided by financing activities for the three months ended March 31, 2026 consisted of $2.2 million of proceeds from the exercise of stock options, partially offset by $0.8 million in cash paid to tax authorities related to withholding shares to satisfy RSU vesting withholding obligations on behalf of employees.
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, 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, 2025 filed with the SEC on March 23, 2026. There have been no significant changes to our critical accounting policies during the three months ended March 31, 2026.
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 May 13, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 13, 2026 at 11:10 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]