Avalo Therapeutics, Inc. is a clinical-stage biotechnology company dedicated to advancing the treatment of immune dysregulation. With a focus on innovative therapies, Avalo is poised to make significant strides in addressing complex autoimmune and inflammatory conditions.
Business Overview and Company History
Avalo Therapeutics was founded in 2011 and commenced operations that year, originally incorporated in Delaware. The company’s journey began with the mission of developing novel therapeutics to tackle unmet medical needs. In its early years, Avalo primarily funded its operations through sales of equity securities, out-licensing transactions, and sales of assets.
A significant milestone was reached in 2015 when Avalo completed its initial public offering, marking its transition to a publicly-traded company. In 2019, the company entered into an exclusive license agreement with Astellas Pharma, Inc. for the worldwide development and commercialization of AVTX-6.00, a novel, second-generation mTORC1/2 inhibitor. However, Avalo has since considered AVTX-6.00 a non-core asset and has been exploring strategic alternatives for it.
The year 2020 marked a transformative moment for Avalo when it consummated a merger with Aevi Genomic Medicine, Inc. This merger brought several key assets into Avalo’s portfolio, including the rights to quisovalimab, AVTX-6.00, and AVTX-7.00. The acquisition also included future contingent development milestones as part of the consideration.
In 2021, Avalo further expanded its portfolio through strategic licensing agreements. The company entered into a license agreement with Kyowa Kirin Co., Ltd. for exclusive worldwide rights to develop, manufacture, and commercialize quisovalimab, Kyowa Kirin’s first-in-class fully human anti-LIGHT monoclonal antibody. Additionally, Avalo secured an exclusive license from Sanford Burnham Prebys Medical Discovery Institute for a portfolio of patents and patent applications covering an immune checkpoint program, AVTX-8.00.
More recently, in March 2024, Avalo made another pivotal acquisition – that of AlmataBio, Inc. and its lead asset, AVTX-9.00, a phase 2-ready anti-IL-1β monoclonal antibody. This acquisition, coupled with a $115.6 million private placement financing, has propelled Avalo into a new phase of growth and development. The financing agreement provided for up to $185 million in gross proceeds, including the initial upfront investment.
Throughout its history, Avalo has faced significant operating and cash losses, which is common for many pre-commercial biotechnology companies. The company reported net losses of $31.5 million in 2023, $41.7 million in 2022, and $84.4 million in 2021 as it invested in advancing its pipeline.
Financial Overview
Avalo’s financial performance has been characterized by consistent year-over-year declines in net income, revenue, and operating cash flow. In 2023, the company reported a net loss of $31.5 million, with revenue of $1.9 million and negative operating cash flow of $30.7 million. The company’s free cash flow for 2023 was also negative, standing at $30.7 million.
For the most recent quarter (Q3 2024), Avalo reported revenue of $249,000, a net income of $23.04 million, and negative operating cash flow of $11.53 million. The increase in revenue compared to the prior year quarter was due to continued sales of the Millipred product. The significant increase in net income was primarily driven by a $36.02 million gain recognized on the change in fair value of the warrant liability associated with the March 2024 private placement financing. The negative operating cash flow and free cash flow were due to ongoing research and development expenses, particularly for the AVTX-9.00 program.
It’s important to note that Avalo’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. As a result, Avalo recognized minimal revenue of $0.2 million for the nine months ended September 30, 2024, compared to $1.4 million for the same period in 2023. The company expects minimal to no revenue going forward from Millipred.
Research and development expenses increased by $4.3 million for the nine months ended September 30, 2024, compared to the prior year period. This was mainly driven by a $1.9 million increase in salaries and benefits, as well as increases in clinical expenses of $1.3 million and CMC expenses of $1.2 million related to the development of AVTX-9.00. Avalo expects future R&D expenses to increase further as it executes the Phase 2 LOTUS trial for AVTX-9.00, which commenced in October 2024.
General and administrative expenses also saw an increase of $4.4 million for the nine months ended September 30, 2024, compared to the prior year period. This was driven by a $2.2 million increase in legal, consulting and professional fees, as well as a $1.7 million increase in salaries and benefits. Avalo expects moderate increases to G&A expenses to support the AVTX-9.00 program going forward.
Other income, net increased by $59.1 million for the nine months ended September 30, 2024, primarily driven by the impact of the warrant liability associated with the warrants issued in the March 2024 financing. Avalo recognized a $79.3 million loss at issuance on the excess of initial warrant liability fair value over the private placement proceeds, which was more than offset by a $148.1 million gain recognized on the change in fair value of the warrant liability.
In terms of geographic markets, AVTX currently only sells products in the United States.
Liquidity
The recent acquisition of AVTX-9.00 and the $115.6 million private placement financing have significantly improved Avalo’s liquidity position. As of September 30, 2024, the company reported a cash position of approximately $81.86 million. Subsequent to September 30, 2024, the company received an additional $58.1 million in proceeds from the exercise of warrants issued in the March 2024 financing. This improved liquidity is expected to fund operations into at least 2027, providing Avalo with the necessary resources to advance its pipeline and navigate potential challenges ahead.
Avalo’s financial ratios reflect the company’s current position. The current ratio and quick ratio both stand at 1.42 as of September 30, 2024, indicating healthy current liquidity. The debt-to-equity ratio is 0, demonstrating a debt-free capital structure. The company had no outstanding debt as of September 30, 2024. The company’s return on assets and return on equity metrics, however, remain negative due to its continued investment in research and development.
Pipeline and Key Developments
Avalo’s pipeline is centered around three lead drug candidates: AVTX-9.00, quisovalimab (AVTX-2.00), and AVTX-8.00.
AVTX-9.00, the company’s most advanced asset, is a humanized monoclonal antibody that targets interleukin-1β (IL-1β), a key mediator of inflammation. In October 2024, Avalo announced the first patient had been dosed in the Phase 2 LOTUS trial, which is evaluating the efficacy and safety of AVTX-9.00 in approximately 180 adults with moderate to severe hidradenitis suppurativa (HS). The LOTUS Trial is a randomized, double-blind, placebo-controlled, parallel-group Phase 2 trial with two AVTX-9.00 dose regimens. Topline data from this trial is expected in 2026.
Quisovalimab (AVTX-2.00) is a first-in-class fully human anti-LIGHT (TNFSF14) monoclonal antibody. Avalo is responsible for the development and commercialization of quisovalimab in all indications worldwide, except for an option granted to Kyowa Kirin Co., Ltd. (KKC) for the development, manufacturing, and commercialization of the asset in Japan.
AVTX-8.00 is a BTLA agonist fusion protein that is being developed for the treatment of autoimmune and inflammatory diseases. The company has an exclusive license agreement with Sanford Burnham Prebys Medical Discovery Institute for this program.
In addition to advancing its pipeline, Avalo has also been actively managing its non-core assets. In 2021, the company out-licensed its rights to AVTX-301.00 to Alto Neuroscience, Inc. and assigned its rights to AVTX-406.00 to ES Therapeutics, LLC, a wholly owned subsidiary of Armistice Capital, LLC.
Risks and Challenges
Avalo Therapeutics faces several risks and challenges that investors should be aware of:
Competitive Landscape: Avalo operates in a highly competitive environment, with numerous pharmaceutical and biotechnology companies vying for market share in the autoimmune and inflammatory disease spaces. The company’s therapies may face fierce competition from both approved and investigational products.
Regulatory Approval Uncertainty: Obtaining regulatory approvals, particularly from the FDA, is a complex and time-consuming process. Any delays or setbacks in the regulatory approval process could adversely affect Avalo’s ability to commercialize its drug candidates.
Reliance on Collaborations and Partnerships: Avalo’s success is partially dependent on the success of its collaborations and partnerships, such as the agreement with KKC for quisovalimab. Failures or disputes within these collaborations could have a negative impact on the company’s operations and financial performance.
Funding and Liquidity Concerns: While Avalo’s current cash position and expected runway into 2027 provide a degree of stability, the company’s long-term success will depend on its ability to secure additional funding through equity or debt financing, partnerships, or other sources.
Conclusion
Avalo Therapeutics is a promising clinical-stage biotechnology company that is focused on addressing the unmet need in the treatment of immune dysregulation. The recent acquisition of AVTX-9.00 and the secured financing have strengthened the company’s position, providing the necessary resources to advance its pipeline and navigate the challenges ahead.
As Avalo continues to navigate the complexities of drug development, its ability to successfully execute its clinical trials, obtain regulatory approvals, and forge strategic partnerships will be crucial to its long-term success. The company’s focus on AVTX-9.00, particularly the ongoing Phase 2 LOTUS trial, represents a significant opportunity in the treatment of inflammatory diseases such as hidradenitis suppurativa.
While the expiration of the Millipred license has resulted in a decrease in product revenue, Avalo’s strategic shift towards its pipeline assets, particularly AVTX-9.00, positions the company for potential long-term growth. The substantial increase in research and development expenses reflects the company’s commitment to advancing its lead candidates through clinical development.
The financial landscape for Avalo is complex, with significant non-cash gains and losses related to warrant liabilities impacting the company’s reported net income. However, the improved cash position following the recent financing provides a solid foundation for the company’s near-term operations.
Investors should closely monitor the company’s progress, particularly the outcomes of the LOTUS trial and any advancements in the quisovalimab and AVTX-8.00 programs. The evolving financial picture, including the expected increases in R&D and G&A expenses, will be critical factors in assessing Avalo’s long-term potential.
As Avalo Therapeutics continues to pursue its goal of developing innovative treatments for immune dysregulation, it stands at a pivotal juncture in its corporate journey. The coming years will be crucial in determining whether the company can successfully translate its scientific promise into clinical and commercial success in the competitive landscape of autoimmune and inflammatory disease treatments.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.