Avalo Therapeutics(AVTX) - 2024 Q3 - Quarterly Report

Financial Performance - Avalo generated a net income of $0.2 million and negative cash flows from operations of$34.0 million for the nine months ended September 30, 2024[170]. - For the nine months ended September 30, 2024, the company recognized minimal net product revenue of $0.2 million compared to$1.4 million for the same period in 2023, primarily due to the expiration of the license and supply agreement for Millipred[187]. - Net cash used in operating activities was $34.0 million for the nine months ended September 30, 2024, consisting primarily of net income of$0.2 million and significant adjustments related to warrant liabilities and IPR&D[199]. - The company recognized minimal income tax expense for both the nine months ended September 30, 2024, and 2023[197]. Cash and Financing - As of September 30, 2024, Avalo had $81.9 million in cash and cash equivalents, with expectations to fund operations into at least 2027[171]. - Net cash provided by financing activities for the nine months ended September 30, 2024, consisted of gross proceeds of$115.6 million from a private placement investment, partially offset by $7.5 million of transaction costs[203]. - The company expects future cash used in operating activities to increase due to development plans for AVTX-009, including the execution of the Phase 2 LOTUS Trial which commenced in October 2024[202]. Research and Development - Research and development expenses increased by$8.3 million for the three months ended September 30, 2024, primarily due to a $4.2 million increase in clinical expenses and a$3.2 million increase in chemistry, manufacturing, and controls expenses[180]. - Avalo expects future research and development expenses to increase as it progresses with the AVTX-009 development plans[181]. - Research and development expenses increased by $4.3 million for the nine months ended September 30, 2024, driven by a$1.9 million increase in salaries and benefits, and increases in clinical and CMC expenses of $1.3 million and$1.2 million, respectively[190]. - The company acquired 27.6 million of in-process research and development (IPR&D) related to AVTX-009 in the first quarter of 2024, with no acquired IPR&D for the same period in 2023[191]. General and Administrative Expenses - General and administrative expenses rose by 1.8 million for the three months ended September 30, 2024, driven by increased salaries and professional expenses[182]. - General and administrative expenses increased by $4.4 million for the nine months ended September 30, 2024, primarily due to a$2.2 million increase in legal, consulting, and other professional expenses[192]. - Salaries, benefits, and related costs in general and administrative expenses increased by $0.6 million due to headcount additions and non-equity incentive plan compensation[182]. Other Income and Warrant Liability - Other income, net increased by$37.4 million for the three months ended September 30, 2024, mainly due to a $36.0 million gain on the change in fair value of the warrant liability[184]. - 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 March 2024 financing[194]. - The fair value of the warrant liability was $46.8 million as of September 30, 2024, down from$82.9 million as of June 30, 2024[184]. - The company anticipates no warrant liability as of December 31, 2024, following the exercise and/or expiration of the warrants during the fourth quarter of 2024[194]. Internal Controls and Compliance - Management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective at a reasonable assurance level as of the end of the reporting period[209]. - No changes in internal control over financial reporting were identified that materially affected or are likely to materially affect internal control over financial reporting[211]. - The company is not required to provide quantitative and qualitative disclosures about market risk as a smaller reporting company[209]. Clinical Trials - Avalo's Phase 2 LOTUS trial for AVTX-009 commenced in October 2024, involving approximately 180 adults with moderate to severe hidradenitis suppurativa[167]. - The company received $58.1 million in additional proceeds from the exercise of warrants issued in the March 2024 private placement financing[168].