Business Overview and History
Avalo Therapeutics, Inc. is a clinical-stage biotechnology company focused on the treatment of immune dysregulation. The company's lead asset, AVTX-009, an anti-IL-1β monoclonal antibody, has demonstrated promising potential in the treatment of hidradenitis suppurativa (HS), a chronic and debilitating skin condition.
Avalo Therapeutics was incorporated in Delaware and commenced operations in 2011, initially focusing on developing novel drug candidates through internal research and development efforts, as well as through acquisitions and licensing agreements. In 2013, the company in-licensed a compound called AVTX-301 from an affiliate of Merck & Co., Inc. However, in 2021, Avalo out-licensed the rights for AVTX-301 to Alto Neuroscience, Inc., receiving an upfront payment and becoming eligible for future milestone and royalty payments.
In 2019, Avalo entered into an exclusive license agreement with Astellas Pharma, Inc. for the worldwide development and commercialization of a novel, second-generation mTORC1/2 inhibitor called AVTX-6, which the company considers a non-core asset. A significant development occurred in 2020 when Avalo consummated a merger with Aevi Genomic Medicine, Inc., acquiring the rights to several drug candidates, including quisovalimab (anti-LIGHT mAb) and AVTX-6.
In 2021, Avalo faced financial challenges and implemented cost-cutting measures while exploring strategic alternatives to enhance shareholder value. Despite these challenges, the company continued to advance its pipeline, focusing on quisovalimab and AVTX-8, a BTLA agonist fusion protein. Avalo also out-licensed its non-core asset, AVTX-406, to a related party, ES Therapeutics, LLC, in 2021.
In March 2024, Avalo took a significant step forward by acquiring AlmataBio, Inc. and its lead asset, AVTX-009. This anti-IL-1β monoclonal antibody was already in Phase 2-ready status, and Avalo quickly moved to initiate a Phase 2 trial, dubbed the LOTUS trial, to evaluate the efficacy and safety of AVTX-009 in patients with moderate-to-severe hidradenitis suppurativa. Concurrently, the company executed a private placement financing of up to $185 million, including an initial upfront investment of $115.6 million, which is expected to extend Avalo's cash runway into 2027.
Financials and Liquidity
Avalo's financial performance in recent years has been marked by significant research and development expenses as the company has advanced its pipeline. In 2023, the company reported total revenue of $1.92 million, with a net loss of $31.54 million. Operating cash flow for the year was negative $30.68 million, and free cash flow was also negative $30.68 million.
For the nine months ended September 30, 2024, Avalo generated minimal net product revenue of $0.2 million, compared to $1.4 million in the same period in 2023. This decrease was due to the expiration of the company's license and supply agreement for its Millipred product in September 2023.
In the third quarter of 2024, Avalo reported revenue of $249,000 and a net income of $23.04 million. The significant improvement in net income compared to the prior year quarter was primarily driven by a $36.02 million gain recognized on the change in fair value of the warrant liability associated with the warrants issued in the March 2024 financing.
As of September 30, 2024, Avalo had $81.86 million in cash and cash equivalents. The company's liquidity position is further characterized by a debt-to-equity ratio of 0.026, a current ratio of 1.42, and a quick ratio of 1.42. Avalo has no available credit lines.
The acquisition of AVTX-009 and the recent financing have strengthened Avalo's balance sheet and positioned the company to focus on the development of this promising anti-IL-1β candidate. The initiation of the Phase 2 LOTUS trial in HS is a significant milestone, with topline results expected in 2026. Avalo expects its current cash on hand to fund operations into at least 2027, based on its current operating plans. Subsequent to the quarter end, Avalo received an additional $58.1 million in proceeds from the exercise of warrants issued in the March 2024 private placement.
AVTX-009 in Hidradenitis Suppurativa
Hidradenitis suppurativa is a chronic, inflammatory skin condition characterized by painful, recurrent abscesses and nodules, primarily in the armpits, groin, and other areas with apocrine glands. The disease can have a significant impact on a patient's quality of life, and current treatment options are limited.
AVTX-009, Avalo's lead asset, is a humanized monoclonal antibody that binds to interleukin-1β (IL-1β) with high affinity and neutralizes its activity. The role of IL-1β in the pathogenesis of HS has been well-established, making AVTX-009 a promising candidate for the treatment of this condition.
The Phase 2 LOTUS trial, which commenced enrollment in the fourth quarter of 2024, is a randomized, double-blind, placebo-controlled study evaluating the efficacy and safety of two dose regimens of AVTX-009 in approximately 180 adults with moderate-to-severe HS. The primary endpoint is the proportion of subjects achieving Hidradenitis Suppurativa Clinical Response (HiSCR75) at Week 16. Topline results from this trial are expected in 2026.
Avalo's acquisition of AVTX-009 and the initiation of the LOTUS trial represent a significant step forward in the company's efforts to address the unmet medical needs of HS patients. If successful, AVTX-009 could become a valuable treatment option for this debilitating condition.
Pipeline and Diversification
In addition to AVTX-009, Avalo's pipeline includes two other drug candidates:
1. Quisovalimab (AVTX-002): A first-in-class fully human anti-LIGHT (TNFSF14) monoclonal antibody, licensed from Kyowa Kirin Co., Ltd. Quisovalimab is being evaluated for the treatment of various inflammatory and autoimmune conditions. Avalo obtained exclusive worldwide rights to develop, manufacture and commercialize quisovalimab through a license agreement with Kyowa Kirin Co., Ltd. (KKC) in 2021.
2. AVTX-008: A BTLA agonist fusion protein designed to modulate immune responses. Avalo is exploring the potential of AVTX-008 in autoimmune and inflammatory disorders. In 2021, the company entered into an exclusive license agreement with Sanford Burnham Prebys Medical Discovery Institute to obtain rights to a portfolio of patents and applications covering the AVTX-008 immune checkpoint program.
While AVTX-009 is Avalo's primary focus, the company's diversified pipeline provides opportunities for growth and mitigates risk by addressing multiple therapeutic areas. The successful development and potential commercialization of these assets could further strengthen Avalo's position in the treatment of immune-related diseases.
Risks and Challenges
As with any clinical-stage biotechnology company, Avalo faces several risks and challenges that investors should be aware of:
1. Clinical development risks: The success of Avalo's pipeline, particularly AVTX-009 in the ongoing LOTUS trial, is subject to the inherent uncertainties and risks associated with drug development. Failure to demonstrate efficacy or safety in clinical trials could significantly impact the company's prospects.
2. Regulatory approval risks: Even if Avalo's drug candidates successfully complete clinical trials, there is no guarantee that they will receive regulatory approval from the FDA or other governing bodies. The regulatory review process can be lengthy and complex, with no assurance of a favorable outcome.
3. Competitive landscape: Avalo's drug candidates, if approved, will face competition from other therapies targeting the same indications. The company's ability to differentiate its products and maintain a competitive edge will be crucial for commercial success.
4. Financing and cash flow: Avalo's current cash position, while improved by the recent private placement, may not be sufficient to fully fund the development of its pipeline. The company may need to raise additional capital through equity or debt offerings, which could dilute existing shareholders.
5. Reliance on third-party collaborations: Avalo's partnerships, such as the license agreement with Kyowa Kirin for quisovalimab, are essential for the development and potential commercialization of its assets. The termination or failure of these collaborations could adversely impact the company's operations.
Despite these risks, Avalo's focus on the development of AVTX-009 for the treatment of hidradenitis suppurativa, along with its diversified pipeline, positions the company as a promising player in the field of immune-related disorders. Investors should carefully evaluate Avalo's progress, milestones, and the evolving competitive landscape to make informed decisions about the company's long-term potential.
Market and Geographic Presence
Avalo Therapeutics currently operates exclusively in the United States market. The company's product sales and development efforts are concentrated within the U.S., which represents the entirety of its geographical footprint. This focused approach allows Avalo to concentrate its resources on navigating the regulatory landscape and market dynamics of a single, albeit complex, healthcare system.
Conclusion
Avalo Therapeutics has taken a significant step forward with the acquisition of AVTX-009 and the initiation of the Phase 2 LOTUS trial in hidradenitis suppurativa. The company's focused approach on this anti-IL-1β candidate, coupled with a strengthened balance sheet, provides a clear path forward as it aims to address the unmet medical needs of HS patients. While Avalo faces the typical risks associated with clinical-stage biotechnology companies, its diversified pipeline and experienced management team offer reasons for optimism. As the LOTUS trial progresses and Avalo continues to execute on its strategic priorities, investors will closely monitor the company's progress and the potential impact of AVTX-009 on the treatment landscape for hidradenitis suppurativa.
The recent financial developments, including the substantial gain from the change in fair value of warrant liabilities, have temporarily improved Avalo's bottom line. However, the company's long-term success will depend on the clinical outcomes of its pipeline candidates, particularly AVTX-009. With cash reserves expected to fund operations into 2027, Avalo appears well-positioned to advance its clinical programs and potentially bring innovative treatments to market for patients suffering from immune dysregulation disorders.