avtx-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 2022
OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 001-37590

AVALO THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State of incorporation)			45-0705648 (I.R.S. Employer Identification No.)
540 Gaither Road, Suite 400 Rockville, Maryland 20850 (Address of principal executive offices)			(410) 522-8707 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	AVTX	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.


Large accelerated filer ☐						Accelerated filer ☐
Non-accelerated filer ☑						Smaller reporting company ☑
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☑

As of May 2, 2022, the registrant had 112,794,203 shares of common stock outstanding.

AVALO THERAPEUTICS, INC.

FORM 10-Q

For the Quarter Ended March 31, 2022

TABLE OF CONTENTS

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of March 3 1 , 202 2 (Unaudited) and December 31, 202 1

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three Months Ended March 3 1 , 202 2 and 202 1

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 3 1 , 202 2 and 202 1

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 3 1 , 202 2 and 202 1

Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AVALO THERAPEUTICS, INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)


	March 31, 2022		December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	38,469	$	54,585
Accounts receivable, net	938		1,060
Other receivables	1,445		3,739
Inventory, net	25		38
Prepaid expenses and other current assets	2,682		2,372
Restricted cash, current portion	100		51
Total current assets	43,659		61,845
Property and equipment, net	2,604		2,695
Other long-term asset	1,000		1,000
Intangible assets, net	—		38
Goodwill	14,409		14,409
Restricted cash, net of current portion	227		227
Total assets	$	61,899	$	80,214
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,757	$	3,369
Accrued expenses and other current liabilities	14,136		16,519
Total current liabilities	17,893		19,888
Notes payable	33,183		32,833
Royalty obligation	2,000		2,000
Deferred tax liability, net	122		113
Other long-term liabilities	2,358		2,298
Total liabilities	55,556		57,132
Stockholders’ equity:
Common stock—$0.001 par value; 200,000,000 shares authorized at March 31, 2022 and December 31, 2021; 112,794,203 shares issued and outstanding at March 31, 2022 and December 31, 2021	113		113

Additional paid-in capital	290,447		285,135
Accumulated deficit	(284,217)		(262,166)
Total stockholders’ equity	6,343		23,082
Total liabilities and stockholders’ equity	$	61,899	$	80,214

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

AVALO THERAPEUTICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(In thousands, except per share data)


	Three Months Ended
	March 31,
	2022		2021
Revenues:
Product revenue, net	$	1,173	$	473

Total revenues, net	1,173		473

Operating expenses:
Cost of product sales	720		77
Research and development	9,584		25,206
General and administrative	9,756		4,911
Sales and marketing	1,928		435
Amortization expense	38		424
Total operating expenses	22,026		31,053
	(20,853)		(30,580)
Other (expense) income:
Other expense, net	(20)		—
Interest (expense) income, net	(1,169)		17
Total other (expense) income, net from continuing operations	(1,189)		17
Loss from continuing operations before taxes	(22,042)		(30,563)
Income tax expense	9		11
Loss from continuing operations	$	(22,051)	$	(30,574)
Loss from discontinued operations	—		(106)
Net loss	$	(22,051)	$	(30,680)

Net loss per share of common stock, basic and diluted:
Continuing operations	$	(0.20)	$	(0.32)
Discontinued operations	0.00		0.00
Net loss per share of common stock, basic and diluted	$	(0.20)	$	(0.32)

Net loss per share of preferred stock, basic and diluted:
Continuing operations			$	(1.61)
Discontinued operations			(0.01)
Net loss per share of preferred stock, basic and diluted			$	(1.62)

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

AVALO THERAPEUTICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands, except share amounts)


	Common stock			Preferred Stock			Additional paid-in		Accumulated		Total stockholders’
	Shares	Amount		Shares	Amount		capital		deficit		equity
Three Months Ended March 31, 2022
Balance, December 31, 2021	112,794,203	$	113	—	$	—	$	285,135	$	(262,166)	$	23,082
Stock-based compensation	—	—		—	—		5,312		—		5,312
Net loss	—	—		—	—		—		$	(22,051)	(22,051)
Balance, March 31, 2022	112,794,203	$	113	—	$	—	$	290,447	$	(284,217)	$	6,343


	Common stock			Preferred Stock			Additional paid-in		Accumulated		Total stockholders’
	Shares	Amount		Shares	Amount		capital		deficit		equity
Three Months Ended March 31, 2021
Balance, December 31, 2020	75,004,127	$	75	1,257,143	$	1	$	202,276	$	(177,790)	$	24,562
Issuance of shares of common stock and pre-funded warrants in underwritten public offering, net	13,971,889	14		—	—		37,639		—		37,653
Exercise of stock options and warrants	128,800	—		—	—		172		—		172
Stock-based compensation	—	—		—	—		1,448		—		1,448
Net loss	—	—		—	—		—		(30,680)		(30,680)
Balance, March 31, 2021	89,104,816	$	89	1,257,143	$	1	$	241,535	$	(208,470)	$	33,155

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

AVALO THERAPEUTICS, INC. and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Amounts in thousands)


	Three Months Ended March 31,
	2022		2021
Operating activities
Net loss	$	(22,051)	$	(30,680)
Adjustments to reconcile net loss used in operating activities:
Depreciation and amortization	67		451
Stock-based compensation	5,312		1,448
Accretion of debt discount	350		—
Deferred taxes	9		21
Changes in assets and liabilities:
Accounts receivable, net	123		(953)
Other receivables	2,294		152

Inventory, net	13		3
Prepaid expenses and other assets	(310)		195
Accounts payable	388		9,339

Accrued expenses and other liabilities	(2,287)		1,724
Lease liability, net	25		(16)
Net cash used in operating activities	(16,067)		(18,316)
Investing activities
Purchase of property and equipment	—		(21)
Net cash used in investing activities	—		(21)
Financing activities
Proceeds from issuance of common stock and pre-funded warrants in underwritten public offering, net	—		37,653





Proceeds from exercise of stock options and warrants	—		172
Net cash provided by financing activities	—		37,825
(Decrease) increase in cash, cash equivalents and restricted cash	(16,067)		19,488
Cash, cash equivalents, and restricted cash at beginning of period	54,863		19,106
Cash, cash equivalents, and restricted cash at end of period	$	38,796	$	38,594
Supplemental disclosures of cash flow information
Cash paid for interest	$	831	$	—

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):


	March 31,
	2022		2021

Cash and cash equivalents	$	38,469	$	38,292
Restricted cash, current	100		153
Restricted cash, non-current	227		149
Total cash, cash equivalents and restricted cash	$	38,796	38,594

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

AVALO THERAPEUTICS, INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1. Business

Avalo Therapeutics, Inc. (the “Company” or “Avalo”) is a leading clinical-stage precision medicine company that discovers, develops, and commercializes targeted therapeutics for patients with significant unmet clinical need in immunology and rare genetic diseases. The Company has built a diverse portfolio of innovative therapies to deliver meaningful medical impact for patients in urgent need. Avalo’s clinical candidates commonly have a proven mechanistic rationale, biomarkers and/or an established proof-of-concept to expedite and increase the probability of success.

Avalo was incorporated in Delaware and commenced operation in 2011, and completed its initial public offering in October 2015.

Liquidity

In order to meet its cash flow needs, the Company applies a disciplined decision-making methodology as it evaluates the optimal allocation of the Company’s resources between investing in the Company’s existing pipeline assets and acquisitions or in-licensing of new assets. As of March 31, 2022, Avalo had $38.5 million in cash and cash equivalents. For the three months ended March 31, 2022, Avalo generated a net loss of $22.1 million and negative cash flows from operations of $16.1 million. As of March 31, 2022, Avalo had an accumulated deficit of $284.2 million.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern; however, losses are expected to continue as the Company continues to invest in its research and development pipeline assets. The Company will require additional financing to fund its operations and to continue to execute its business strategy at least one year after the date the condensed consolidated financial statements included herein were issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

To mitigate these conditions and to meet the Company’s capital requirements, management plans to use its current cash on hand along with some combination of the following: (i) dilutive and/or non-dilutive financings, (ii) federal and/or private grants, (iii) other out-licensing or strategic alliances/collaborations of its current pipeline assets, and (iv) out-licensing or sale of its non-core assets. 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. Subject to limited exceptions, our venture debt financing agreement prohibits us from incurring certain additional indebtedness, making certain asset dispositions, and entering into certain mergers, acquisitions or other business combination transactions without prior consent of the Lenders. Additionally, our venture debt financing agreement contains certain covenants and certain other specified events that could result in an event of default, which if not cured or waived, could result in the immediate acceleration of all or a substantial portion of the Notes (as defined in Note 9). As of the filing date of this Quarterly Report on Form 10-Q, the Company was not aware of any breach of covenants or occurrence of material adverse change, nor had it received any notice of event of default from the Lenders (refer to Note 9 for more information).

If the Company requires but is unable to obtain additional funding, the Company may be forced to make reductions in spending, delay, suspend, reduce or eliminate some or all of its planned research and development programs, or liquidate assets where possible. Due to the uncertainty regarding future financing and other potential options to raise additional funds, management has concluded that substantial doubt exists with respect to the Company’s ability to continue a

SEC Form 10-Q filed by Avalo Therapeutics Inc.