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What changed in Avalo Therapeutics, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Avalo Therapeutics, Inc.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+925 added−644 removedSource: 10-K (2026-03-23) vs 10-K (2025-03-20)

Top changes in Avalo Therapeutics, Inc.'s 2025 10-K

925 paragraphs added · 644 removed · 434 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

81 edited+141 added−65 removed14 unchanged
Biggest changeThese include the following: 6 Table of Contents • The federal Anti-Kickback laws and implementing regulations, which prohibit persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual, or furnishing or arranging for a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; • Other Medicare laws, regulations, rules, manual provisions and policies that prescribe the requirements for coverage and payment for pharmaceutical products and services, including the amount of such payment; • The federal False Claims Act, which imposes civil and criminal liability on individuals and entities who submit, or cause to be submitted, false or fraudulent claims for payment to the government; • The Foreign Corrupt Practices Act (“FCPA”), which prohibits certain payments made to foreign government officials; and • State and foreign law equivalents of the foregoing and state laws regarding pharmaceutical company marketing compliance, reporting and disclosure obligations.
Biggest changeThe applicable federal, state and foreign healthcare laws and regulations that can affect a pharmaceutical company’s operations include without limitation: • The federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under the Medicare and Medicaid programs, or other federal healthcare programs.
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.
Regulatory 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.
The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off‑label uses, and a company that improperly markets or promotes off‑label uses may be subject to significant liability, including criminal and civil penalties under the FDCA and False Claims Act, exclusion from participation in federal healthcare programs, debarment from government contracts, refusal of future orders under existing contracts and mandatory compliance programs under corporate integrity agreements or deferred prosecution agreements.
The FDA and other agencies enforce the laws and regulations prohibiting the promotion of off‑label uses, and a company that improperly markets or promotes off‑label uses may be subject to significant liability, including criminal and civil penalties under the FDCA and False Claims Act, exclusion from participation in federal healthcare programs, debarment from government contracts, refusal of future orders under existing contracts and mandatory compliance programs under corporate integrity agreements or deferred prosecution agreements.
Foreign Regulation In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries regarding drug development, approval and commercialization. The approval process varies by country and can involve additional product testing and additional administrative review periods.
Foreign Regulation In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries regarding biologic and drug development, approval and commercialization. The approval process varies by country and can involve additional product testing and additional administrative review periods.
The data exclusivity period prevents generic applicants from relying on the preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU.
The data exclusivity period prevents generic applicants from relying on the preclinical and clinical trial data contained in the dossier of the reference product when applying for a follow-on marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU.
Further, a portion of the consideration for the AlmataBio Transaction includes development milestones to the former AlmataBio stockholders including $5.0 million due upon the first patient dosed in a Phase 2 trial in patients with hidradenitis suppurativa for AVTX-009 and $15.0 million due upon the first patient dosed in a Phase 3 trial for AVTX-009, both of which are payable in cash or Avalo stock at the election of the former AlmataBio stockholders, subject to the terms and conditions of the definitive merger agreement.
Further, a portion of the consideration for the AlmataBio Transaction includes development milestones to the former AlmataBio stockholders including $5.0 million due upon the first patient dosed in a Phase 2 trial in patients with hidradenitis suppurativa for abdakibart (AVTX-009) and $15.0 million due upon the first patient dosed in a Phase 3 trial for abdakibart (AVTX-009), both of which are payable in cash or our stock at the election of the former AlmataBio stockholders, subject to the terms and conditions of the definitive merger agreement.
The centralized procedure is compulsory for medicines produced by specified biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of specified diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions and viral diseases.
The centralized procedure is compulsory for medicines produced by specified biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of specified diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune 14 Table of Contents dysfunctions and viral diseases.
Other potential consequences include, among other things: • restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market or product recalls; • fines, warning letters or holds on post-approval clinical studies; • refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals; • product seizure or detention, or refusal of the FDA to permit the import or export of products; • consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; • mandated modification of promotional materials and labeling and the issuance of corrective information; • the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or • injunctions or the imposition of civil or criminal penalties.
Other potential consequences include, among other things: • restrictions on the marketing or manufacturing of a product or product recalls; • fines, warning letters or holds on post-approval clinical studies; 8 Table of Contents • refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals; • product seizure or detention, or refusal of the FDA to permit the import or export of products; • consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; • mandated modification of promotional materials and labeling and the issuance of corrective information; • the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or • injunctions or the imposition of civil or criminal penalties.
License: AVTX-009 is subject to a world-wide exclusive license from Eli Lilly and Company (“Lilly”) (the “Lilly License Agreement”), as well as an agreement under which AlmataBio, Inc. (“AlmataBio”) purchased rights to the compound from Leap Therapeutics, Inc. (“Leap” and the “Leap Agreement”).
Licensing and Partnerships Eli Lilly License Agreement Abdakibart (AVTX-009) is subject to a world-wide exclusive license from Eli Lilly and Company (“Lilly”) (the “Lilly License Agreement”), as well as an agreement under which AlmataBio, Inc. (“AlmataBio”) purchased rights to the compound from Leap Therapeutics, Inc. (“Leap” and the “Leap Agreement”).
Intellectual Property Overview Our success depends in part on our ability to obtain and maintain proprietary protection for the technology and know-how upon which our product candidates are based, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights.
Intellectual Property Overview Our success depends in part on our ability to obtain and maintain proprietary protection for the technology and know-how upon which our product candidates are based, to operate without infringing the proprietary rights of third parties and to prevent third parties from infringing our proprietary rights.
The Securities and Exchange Commission maintains a website ( www.sec.gov ) that includes our reports, proxy statements and other information. 11 Table of Contents
The Securities and Exchange Commission maintains a website ( www.sec.gov ) that includes our reports, proxy statements and other information. 15 Table of Contents
After approval, most changes to the approved product, such as manufacturing changes and adding new indications or other labeling claims, are subject to FDA review and approval. There are also annual user fee requirements for any marketed product and new application fees for supplemental applications with clinical data.
After approval, many changes to the approved product, such as manufacturing changes and adding new indications or other labeling claims, are subject to FDA review and approval. There are also annual user fee requirements for marketed products and application fees for supplemental applications with clinical data.
Similarly, upon approval by the FDA, biologics are entitled to reference product exclusivity for a period of twelve years from the date of FDA approval, even if the related patents have expired.
Similarly, upon approval by the FDA, biologics are entitled to reference product exclusivity, also called regulatory exclusivity, for a period of twelve years from the date of FDA approval, even if the related patents have expired.
Additionally, Avalo is required to pay royalties to Lilly of between 5% and 15% of Avalo or its sublicenees’ annual net sales, beginning on first commercial sale of a licensed product in a given territory and expiring on a county-by-country basis, on the latest of (a) the tenth (10 th ) anniversary of the date of the first commercial sale, (b) the expiration of the last-to-expire licensed patent in the given country, or (c) the expiration of any data exclusivity period for the licensed product in the given territory.
Additionally, we are required to pay royalties to Lilly of between 5% and 15% of Avalo or its sublicensees’ annual net sales, beginning on first commercial sale of a licensed product in a given territory and expiring on a country-by-country basis, on the latest of (a) the tenth (10 th ) anniversary of the date of the first commercial sale, (b) the expiration of the last-to-expire licensed patent in the given country, or (c) the expiration of any data exclusivity period for the licensed product in the given territory.
The preparation of an NDA or BLA requires the expenditure of substantial funds and the commitment of substantial resources. Additionally, at the time of an NDA or BLA submission a user fee is required to be paid unless the product has orphan drug designation (“ODD”).
The preparation of an NDA or BLA requires the expenditure of substantial funds and the commitment of substantial resources. Additionally, at the time of an NDA or BLA submission a user fee is required to be paid unless the product has orphan drug designation (“ODD”) or another waiver or reduction applies.
Interchangeability, on the other hand, requires that a product is biosimilar to the reference product and must further show that it is expected to produce the same clinical results in any given patient.
Interchangeability requires that a product is biosimilar to the reference product and must further show that it is expected to produce the same clinical results in any given patient.
The market exclusivity period prevents a successful generic applicant from commercializing its product in the EU until ten years have elapsed from the initial authorization of the reference product in the EU.
The market exclusivity period prevents a successful follow-on applicant from commercializing its product in the EU until ten years have elapsed from the initial authorization of the reference product in the EU.
United States Government Regulation In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. The process of obtaining marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources.
United States Government Regulation In the United States, the FDA regulates biologics under the Federal Food, Drug, and Cosmetic Act (“FDCA”), the Public Health Service Act, and its implementing regulations. The process of obtaining marketing approvals and subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources.
Additionally, the FDA strictly regulates the labeling, advertising and promotion of products under an approved NDA or BLA.
Additionally, the FDA strictly regulates the labeling, advertising and promotion of products under an approved BLA.
As of the date of this report, five additional companies have phase 3 development programs in HS with IL-17 inhibitors (Moonlake Immunotherapies, Inc.), JAK inhibitors (Incyte Corporation, AbbVie), BTK inhibitors (Novartis), and dual IL-1α/β inhibitors (AbbVie). There are multiple additional companies pursuing phase 2, phase 1, and preclinical development programs in HS.
As of the date of this report, six additional companies have ongoing or completed phase 3 development programs in HS with IL-17 inhibitors (Moonlake Immunotherapies, Inc.), JAK inhibitors (Incyte Corporation, AbbVie), BTK inhibitors (Novartis), and dual IL-1α/β inhibitors (AbbVie). There are multiple additional companies pursuing phase 2, phase 1, and preclinical development programs in HS.
FDA Marketing Approval Obtaining FDA marketing approval for new products may take many years and require the expenditure of substantial financial resources. For the FDA to determine that a product is safe and effective for the proposed indication, the product must first undergo testing in animals (nonclinical studies).
Clinical Development in the U.S. Obtaining FDA marketing approval for a new product may take many years and require the expenditure of substantial financial resources. For the FDA to determine that a product is safe and effective for the proposed indication, the product must first undergo testing in animals (nonclinical studies).
Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, or other actions, such as the FDA’s delay in review of or refusal to approve a pending new NDA or BLA, withdrawal of an approval, imposition of a clinical hold or study termination, issuance of Warning Letters or Untitled Letters, mandated modifications to promotional materials or issuance of corrective information, requests for product recalls, consent decrees, corporate integrity agreements, deferred prosecution agreements, product seizures or detentions, refusal to allow product import or export, total or partial suspension, restriction, or imposition of other requirements relating to production or distribution, injunctions, consent decrees, fines, debarment from government contracts and refusal of future orders under existing contracts, exclusion from participation in federal and state healthcare programs, FDA debarment, restitution, disgorgement or civil or criminal penalties, including fines and imprisonment.
Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve a pending NDA or BLA, withdrawal of an approval, imposition of a clinical hold or study termination, issuance of Warning Letters or Untitled Letters, mandated modifications to promotional materials or issuance of corrective information, product recalls, consent decrees, corporate integrity agreements, deferred prosecution agreements, product seizures or detentions, refusal to allow product import or export, total or partial suspension, restriction, or imposition of other requirements relating to production or distribution, injunctions, consent decrees, fines, debarment from government contracts and refusal of future orders under existing contracts, exclusion from participation in federal and state healthcare programs, FDA debarment, restitution, disgorgement or civil or criminal penalties, including fines and imprisonment (and, in certain cases, the imposition of compliance obligations pursuant to settlements or similar arrangements).
Biosimilarity is established by demonstrating that there are no clinically meaningful differences between the biological product and its reference product in terms of safety, purity, and potency. This determination is typically based on analytical studies, animal studies, and one or more clinical studies.
Biosimilarity is established by demonstrating that there are no clinically meaningful differences between the biological product and its reference product in terms of safety, purity, and potency. This determination is typically based on analytical studies, animal studies, and in some cases, clinical studies.
Avalo has not paid any milestones, royalties or any other amounts under the Lilly License Agreement or the Leap Agreement as of the date of this report. Additionally, there are no annual or maintenance fees payable under the Lilly License Agreement or the Leap Agreement.
We have not paid any milestones, royalties or any other amounts under the Lilly License Agreement or the Leap Agreement as of the date of this report. Additionally, there are no annual or maintenance fees payable under the Lilly License Agreement or the Leap Agreement.
In addition, at the state level, legislatures have passed and implemented, and may in the future pass and implement legislation and regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Employees and Human Capital Management As of December 31, 2024, we had twenty-three employees, all of whom were full-time. Thirteen of our employees are primarily engaged in research and development activities. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Employees and Human Capital Management As of December 31, 2025, we had 33 employees, all of whom were full-time. 18 of our employees are primarily engaged in research and development activities. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Each party may terminate for cause, and though the Company may terminate at its sole discretion by giving one-hundred twenty 2 Table of Contents (120) days’ prior written notice to Lilly, all licenses and rights granted pursuant to the agreement shall automatically terminate and revert to Lilly. There are no termination or expiration provisions under the Leap Agreement.
Each party may terminate for cause, and though we may terminate at our sole discretion by giving one-hundred twenty (120) days’ prior written notice to Lilly, all licenses and rights granted pursuant to the agreement shall automatically terminate and revert to Lilly. There are no termination or expiration provisions under the Leap Agreement.
Pediatric Exclusivity Pediatric exclusivity is another type of non‑patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non‑patent exclusivity period described above. A biological product can also obtain pediatric market exclusivity in the United States.
Pediatric Exclusivity Pediatric exclusivity is another type of non‑patent regulatory and marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non‑patent exclusivity period described above.
European Union Drug Approval Process To obtain a marketing authorization of a drug in the European Union, we may submit marketing authorization applications (“MAAs”) either under the so‑called centralized, decentralized, mutual recognition or national authorization procedures.
European Union Drug Approval Process To obtain a marketing authorization for a medicinal product, including a biologic,in the European Union, we may submit marketing authorization applications (“MAAs”) either under the so‑called centralized, decentralized, mutual recognition or national authorization procedures.
Human clinical trials typically include: Phase 1 studies to evaluate the safety and tolerability of the drug, generally in normal, healthy volunteers; 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.
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.
Some of these competitors are pursuing the development of pharmaceuticals that target the same diseases and conditions that our research and development programs target or might target. Some of these competitors also have greater resources and more experience than we do in research and development and marketing. Competition for AVTX-009 is discussed above.
Some of these competitors are pursuing the development of pharmaceuticals that target the same diseases and conditions that our research and development programs target or might target. Some of these competitors also have greater resources and more experience than we do in research and development and marketing.
Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials. • Phase 3: The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites.
Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive Phase 3 clinical trials; and • Phase 3: Studies in an expanded patient population to provide statistically significant evidence of clinical efficacy and to further test for safety, generally conducted at multiple geographically dispersed clinical trial sites.
Upon approval by the FDA, NCEs are entitled to market and data exclusivity in the United States with respect to generic drug competition for a period of five years from the date of FDA approval, even if the related patents have expired.
Upon approval by the FDA, new biologics are entitled to marketing exclusivity in the United States with respect to generic drug competition for a maximum period of five years from the date of FDA approval, even if the related patents have expired.
The FDA conducts a preliminary administrative review upon receipt of the NDA or BLA submission and decides whether to accept the NDA or BLA submission. If the application is not accepted for review by the FDA, the Sponsor of the application must resolve the deficiencies and re-submit the application, re-starting the review clock.
The FDA conducts a preliminary administrative review upon receipt of the NDA or BLA submission and decides whether to accept the NDA or BLA submission. If the application is not accepted for review by the FDA through a “refuse-to-file” determination, the Sponsor of the application must resolve the deficiencies and resubmit the application, restarting the review clock.
Approval of Biosimilars and Biologic Exclusivity The Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which was enacted as part of the ACA, created an abbreviated approval pathway for biological products that are demonstrated to be “biosimilar” or “interchangeable” with an FDA-licensed reference biological product via an approved BLA.
Exclusivity and Approval of Competing Products Approval of Biosimilars and Biologic Exclusivity The Biologics Price Competition and Innovation Act of 2009 (“BPCIA”) created an abbreviated approval pathway for biological products that are demonstrated to be “biosimilar” or “interchangeable” with an FDA-licensed reference biological product.
Pursuant to the AlmataBio Transaction, the Company made a cash payment of $7.5 million due to the former AlmataBio stockholders upon the initial closing of the private placement investment, which closed on March 28, 2024.
AlmataBio Transaction Pursuant to the AlmataBio Transaction, we paid $7.5 million to the former AlmataBio stockholders upon the initial closing of the private placement investment, which closed on March 28, 2024.
In October 2024, the first development milestone was met and the Company made the $5.0 million payment in cash.
In October 2024, the first development milestone was met and we paid $5.0 million in cash.
We believe that our future success largely depends upon our ability to attract and retain highly skilled and qualified personnel. We believe that we provide our employees with competitive salaries and bonuses, opportunities for equity ownership, and an employment package that promotes well-being across all aspects of their lives, including health care, retirement planning and paid time off.
We believe that we provide our employees with competitive salaries and bonuses, opportunities for equity ownership, and an employment package that promotes well-being across all aspects of their lives, including health care, retirement planning and paid time off.
As of the date of this report, and to our knowledge, there is one company with an approved anti-IL-1β antibody (Novartis AG or “Novartis”) and Avalo is one of four additional companies with novel, non-biosimilar antibodies specifically targeting IL-1β in clinical development worldwide (such as Novartis and Sunshine Guojian Pharmaceutical Co Ltd, or “Sunshine Guojian”), inclusive of all approved indications and indications in development.
As of the date of this report, and to our knowledge, there are two companies with approved anti-IL-1β antibodies (Novartis AG or “Novartis” and Changchun GeneScience Pharmaceuticals Co., Ltd. or “GenSci”) and we are one of three additional companies with novel, non-biosimilar antibodies specifically targeting IL-1β in clinical development worldwide (Sunshine Guojian Pharmaceutical Co Ltd, or “Sunshine Guojian”, and TavoTek), inclusive of all approved indications and indications in development.
Government Regulation and Product Approval 4 Table of Contents Government authorities in the United States and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, packaging, storage, recordkeeping, labeling, advertising, promoting, distributing, marketing, importing and exporting, pricing, and government contracting related to pharmaceutical products such as those we are developing.
Government Regulation and Product Approval Government authorities in the United States and in other countries extensively regulate, among other things, the research, development, testing, manufacturing, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and export, pricing, and government contracting related to biological products such as those we are developing.
A CRL generally contains a statement of specific conditions that must be met to secure final approval of the NDA or BLA and may require additional clinical or nonclinical studies, or other information, in order for FDA approval.
A CRL generally contains a statement of specific conditions that must be met to secure final approval of the NDA or BLA and may require additional clinical or nonclinical studies, or other information. Even with submission of this additional information, the FDA may decide that the NDA or BLA does not satisfy the regulatory criteria for approval.
Quisovalimab (AVTX-002) : Quisovalimab is fully human mAb, directed against human LIGHT (Lymphotoxin-like, exhibits Inducible expression, and competes with HSV Glycoprotein D for Herpesvirus Entry Mediator, a receptor expressed by T lymphocytes; also referred to as TNFSF14). AVTX-006 : AVTX-006 is a dual mTORc1/c2 small molecule inhibitor.
Quisovalimab (AVTX-002) : Quisovalimab is fully human mAb, directed against human LIGHT (Lymphotoxin-like, exhibits Inducible expression, and competes with HSV Glycoprotein D for Herpesvirus Entry Mediator, a receptor expressed by T lymphocytes; also referred to as TNFSF14). • AVTX-006 : AVTX-006 is a dual mTORc1/c2 small molecule inhibitor. • AVTX-008 : AVTX-008 is a fully human B and T Lymphocyte Attenuator agonist fusion protein. • AVTX-913 : AVTX-913 is a nucleotide prodrug for the treatment of a mitochondrial disorder and is a preclinical asset.
During the approval process, the FDA and the sponsor may agree that specific studies or clinical trials should be conducted as post-marketing commitments, but they are not required by statute or regulation. The FDA may also impose post-marketing requirements as a condition of approval of an NDA or BLA.
During the approval process, the FDA and the sponsor may agree that specific studies or clinical trials should be conducted as post-marketing commitments or post-marketing requirements as a condition of approval of a BLA.
Intellectual property for AVTX-009 is discussed above. 3 Table of Contents Competition Overview We face, and will continue to face, intense competition from pharmaceutical and biotechnology companies, as well as numerous academic and research institutions and governmental agencies, both in the United States and abroad. We compete, or will compete, with existing and new products being developed by our competitors.
Overall Competitive Climate and Regulatory Risks Competition We face, and will continue to face, intense competition from pharmaceutical and biotechnology companies, as well as numerous academic and research institutions and governmental agencies, both in the United States and abroad. We compete, or will compete, with existing and new products being developed by our competitors.
Most notably and in the near term, completing our Phase 2 LOTUS trial in hidradenitis suppurativa, preparing for the next stage of development for that indication and considering further indication expansion for AVTX-009; • Acquiring or in-licensing rights to and/or developing targeted, complementary differentiated preclinical and clinical stage compounds that treat immune mediated disease; and • Opportunistically out-license rights to compounds, indications or geographies.
Our Strategy Our strategy for increasing stockholder value includes: • Advancing our pipeline through development to regulatory approval—notably and in the near term, by completing our Phase 2 LOTUS trial in HS, preparing to initiate our pivotal trial(s) pending the readout of the Phase 2 LOTUS trial results and considering further indication expansion for abdakibart (AVTX-009); • 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.
Note that AVTX-009 has previously been referred to as FL-101 and LY2189102, when rights in it were held by Leap Therapeutics (previously Flame Biosciences) and Eli Lilly and Company, respectively. In October 2024, Avalo dosed its first patient in its Phase 2 (“LOTUS”) trial of AVTX-009 in HS.
Abdakibart (AVTX-009) has previously been referred to as FL-101 and LY2189102, when rights in it were held by Leap Therapeutics (previously Flame Biosciences) and Eli Lilly and Company, respectively. Abdakibart (AVTX-009) is currently being studied in the LOTUS Phase 2 trial in participants with HS.
Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
This six-month exclusivity may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
There are additional companies developing and/or marketing known or investigational therapeutic agents that target IL-1α as well as IL-1β through interactions with IL-1 receptors, engineered bispecific antibodies, or through adjacent mechanistic targets (such as IL-1RAP and NLRP3).
There are additional companies developing and/or marketing known or investigational therapeutic agents that target IL-1β and/or IL-1α through interactions with IL-1 receptors, engineered bispecific antibodies, or through adjacent mechanistic targets (such as IL-1RAP and NLRP3). 4 Table of Contents Worldwide, several companies currently market TNF alpha inhibitors (such as AbbVie Inc., or “AbbVie”, and additional companies marketing biosimilars) and IL-17 inhibitors (such as Novartis and UCB) for HS.
During this 12-year exclusivity period, a competing product may still be marketed if the FDA approves a full BLA containing the applicant’s own preclinical and clinical trial data demonstrating safety, purity, and potency. Additionally, the BPCIA provides certain exclusivity periods for biosimilars designated as interchangeable products.
Furthermore, the FDA cannot approve a biosimilar until 12 years after the reference product's initial approval. During this 12-year exclusivity period, a competing product may still be marketed if the FDA approves a full BLA containing the applicant’s own preclinical and clinical trial data demonstrating safety, purity, and potency.
These instances may delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing any approved product candidates.
We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing any approved product candidates. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial opportunity of the approved product.
Additionally, for products administered multiple times, the reference biologic and the interchangeable biologic must be able to be switched or alternated without increasing safety risks or compromising efficacy compared to exclusive use of the reference biologic. 9 Table of Contents A product designated as biosimilar or interchangeable to an FDA-approved reference biological product may rely on the FDA’s prior determination of safety and effectiveness for that reference product.
For products administered multiple times, the reference biologic and the interchangeable biologic must be able to be switched or alternated without increasing safety risks or compromising efficacy compared to exclusive use of the reference biologic.
We hold ownership, trademark rights and/or exclusivity to develop and commercialize our product candidates covered by patents and patent applications. Our portfolio of patents includes patents or patent applications with claims directed to compositions of matter, including compounds, pharmaceutical formulations, methods of use, methods of manufacturing the compounds, or a combination of these claims.
Our intellectual property portfolio includes patent applications with claims directed to compositions of matter, including compounds, pharmaceutical formulations of compounds, and methods of use of such compounds, or a combination of these claims.
The LOTUS Trial is a randomized, double-blind, placebo-controlled, parallel-group Phase 2 trial with two AVTX-009 dose regimens to evaluate the efficacy and safety of AVTX-009 in approximately 180 adults with moderate to severe HS. Subjects are randomized (1:1:1) to 1 Table of Contents receive either one of two doses of AVTX-009 or placebo during a 16-week treatment phase.
Phase 2 LOTUS Trial The LOTUS trial (NCT06603077) is a randomized, double-blind, placebo-controlled, parallel-group Phase 2 trial with two abdakibart (AVTX-009) dosing regimens to evaluate the efficacy, safety and tolerability of abdakibart (AVTX-009) in approximately 250 adults with moderate to severe hidradenitis suppurativa.
If we develop our own sales force, we may complement it with co‑promotion agreements with partners in and outside of the United States. Overall Competitive Climate and Risks Competitors may have a variety of drugs in development or awaiting FDA approval that could reach the market and become established before we have an approved product to sell.
Competitors may have a variety of drugs in development or awaiting FDA approval that could reach the market and become established before we have an approved product to sell. Our competitors may also develop alternative therapies that could limit the market for any approved drugs that we may develop.
The information on, or that can be accessed through, our website is not part of this report. We have included our website address in this report solely as an inactive textual reference.
We have included our website address in this report solely as an inactive textual reference.
Similar extensions to patent term may be available in other countries for particular patents in our portfolio. We plan to augment our portfolio of compounds by focusing on the development (when possible) of new chemical entities (“NCEs”) or biologics, which have not previously received FDA approval.
When possible, we plan to augment our portfolio of product candidates by focusing on the development of new biologics which have not previously received FDA approval.
Competition: We face substantial competition from major pharmaceutical companies and biotechnology companies worldwide. In particular, pharmaceutical and biotechnology companies that develop and/or market products targeting IL-1β or the indications we are pursuing, including HS, are likely to represent substantial competition.
Many of our competitors are using technologies or methods different or similar to ours to identify and validate drug targets and to discover novel small compound drugs. In particular, pharmaceutical and biotechnology companies that develop and/or market products targeting IL-1β or the indications we are pursuing, including HS, are likely to represent substantial competition.
Upon commercialization, the Company is required to pay sales-based milestones aggregating up to $650 million payable to Lilly and up to $70 million to Leap.
We are responsible for the development and commercialization of the program. 2 Table of Contents We are required to pay Lilly up to $70 million based on the achievement of specified development and regulatory milestones. Upon commercialization, we are required to pay sales-based milestones aggregating up to $650 million payable to Lilly and up to $70 million to Leap.
Even with submission of this additional information, the FDA may decide that the NDA or BLA does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA may issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
Failure to respond to a complete response letter may be considered by the FDA as a request to withdraw the application. If and when those conditions have been met to the FDA’s satisfaction, the FDA may issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
Depending upon the timing, duration and specifics of FDA approval of the use of a compound for a specific indication, some of our U.S. patents may be eligible for a limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act.
Depending upon the timing, duration and specifics of FDA approval of the use of a compound for a specific indication, some of our U.S. patents may be eligible for a limited patent term extension, also called marketing exclusivity, under U.S. patent term extension provisions including under the Drug Price Competition and Patent Term Restoration Act of 1984 and related statutory authority, and similar patent term extensions or supplementary protection may be available in other countries for particular patents in our portfolio including, where applicable, Supplementary Protection Certificates (“SPCs”) in Europe (including the EU and the UK).
For example, the FDA may require post-marketing testing, including Phase 4 clinical trials and surveillance, to further assess and monitor the product’s safety and effectiveness after commercialization. Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product becomes available in the market.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product becomes available in the market.
The centralized procedure is optional for products that represent a significant therapeutic, scientific or technical innovation, or whose authorization would be in the interest of public health. 10 Table of Contents National authorization procedures There are also three other possible routes to authorize medicinal products in several European Union countries, which are available for investigational medicinal products that fall outside the scope of the centralized procedure. • National authorization procedure.
National authorization procedures There are also three other possible routes to authorize medicinal products in several European Union countries, which are available for investigational medicinal products that fall outside the scope of the centralized procedure. • National authorization procedure. This procedure involves submitting an MAA to an individual EU country’s competent authority for approval.
Avalo obtained the rights to AVTX-009, including the Lilly License Agreement and Leap Agreement, pursuant to its acquisition of AlmataBio in the first quarter of 2024 (the “AlmataBio Transaction”). Avalo is responsible for the development and commercialization of the program. Avalo is required to pay Lilly up to $70 million based on the achievement of specified development and regulatory milestones.
We obtained the rights to abdakibart (AVTX-009), including the Lilly License Agreement and Leap Agreement, pursuant to our acquisition of AlmataBio in the first quarter of 2024 (the “AlmataBio Transaction”).
This procedure involves submitting an MAA to an individual EU country’s competent authority for approval. Each EU Member State has its own national authorization procedures. • Decentralized procedure.
Each EU Member State has its own national authorization procedures. • Decentralized procedure.
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. Even if the FDA approves a product, it may impose post-approval requirements or withdraw approval if safety or efficacy issues arise.
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 data generated from nonclinical studies is used to support the filing of an IND under which human studies are conducted.
The data generated from nonclinical studies is used to support the filing of an Investigational New Drug application (“IND”), which must become effective before human clinical studies may begin.
Under the BPCIA, an application for a biosimilar cannot be submitted to the FDA until four years after the reference product was first licensed. Furthermore, the FDA cannot approve a biosimilar until 12 years after the reference product's initial approval.
However, due to the larger and more complex structures of biological products and the intricate manufacturing processes involved, the biosimilar pathway remains challenging to implement. Under the BPCIA, an application for a biosimilar cannot be submitted to the FDA until four years after the reference product was first licensed.
The manufacture of pharmaceuticals is subject to extensive cGMP regulations, which impose various procedural and documentation requirements and govern all areas of record keeping, production processes and controls, personnel and quality control. Sales and Marketing We may retain or partner with third parties on the commercialization rights and develop sales and marketing capabilities, when needed.
The manufacture of biological products is subject to extensive cGMP regulations, which impose various procedural and documentation requirements and also govern record keeping, production processes and controls, personnel and quality control. Sales and Marketing Given our stage of development as a company, we have limited resources dedicated to sales, distribution and marketing.
We plan to primarily rely on biologics data or market exclusivity; however, the table below sets forth details of a patent related to AVTX-009 that might provide additional protection that the Company considers material: Product Jurisdiction Owned/Licensed Status Expiration Date Protection Type AVTX-009 United States Licensed Issued 2026 Composition of Matter Legacy Programs We are not currently pursuing the clinical development of the following Company legacy programs and are exploring strategic alternatives for them.
As the composition of matter patent covering abdakibart (AVTX-009) expired in February 2026, we plan to primarily rely on biologics regulatory exclusivity for abdakibart (AVTX-009); however, the table 3 Table of Contents below sets forth details of patent applications related to abdakibart (AVTX-009) that might provide additional protection that we consider material: Jurisdiction Owned/Licensed Status Expiration Date Protection Type United States Non-Provisional Owned Pending 2045 Methods of Treating HS Worldwide (PCT) Owned Pending 2045 Methods of Treating HS United States Non-Provisional Owned Pending 2045 Formulations Worldwide (PCT) Owned Pending 2045 Formulations Manufacturing We do not have any manufacturing facilities.
The primary efficacy endpoint is the proportion of subjects achieving Hidradenitis Suppurativa Clinical Response (HiSCR75) at Week 16. We are the study sponsor and the current trial locations include the United States, Canada, France, Germany, Italy, Spain, Bulgaria, Czech Republic, Greece, Poland, Australia, Turkey, and Slovakia.
We are the study sponsor and current trial site locations include the United States, Canada, France, Germany, Italy, Spain, Bulgaria, Czech Republic, Greece, Poland, Australia, Turkey, and Slovakia. Development Opportunity in HS IL-1β is a pro-inflammatory cytokine that plays a central role in the pathogenesis of a wide range of human diseases.
Market, Data, and Patent Exclusivity: If we receive marketing approval, we expect to receive biologics reference product exclusivity in the United States, which may provide twelve years of data exclusivity in the United States from the date of FDA approval and ten years of combined data and market exclusivity in Europe (the EU and UK) from the date of approval.
If we receive marketing approval for abdakibart (AVTX-009), we expect to receive biologics reference product exclusivity in the United States, which may provide twelve years of regulatory exclusivity in the United States from the date of FDA approval and a period of regulatory data protection, as well as a minimum of 9 years, and potentially up to 11 years based certain criteria as required, of regulatory exclusivity legislation in Europe , the scope and duration of which is jurisdiction-specific and may be subject to legislative or regulatory change.
Payment methodologies may be subject to further changes in healthcare legislation and regulatory initiatives as well.
Further, these prices for drugs may be reduced by mandatory discounts or rebates required by 9 Table of Contents government healthcare programs. Payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives.
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. Pipeline — Overview, Competition, and Intellectual Property AVTX-009: Anti-IL-1β monoclonal antibody (“mAb”) targeting inflammatory diseases.
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.
Overview: AVTX-009 is a humanized monoclonal antibody (IgG4) that binds to interleukin-1β (“IL-1β”) with high affinity and neutralizes its activity. IL-1β is a central driver in the inflammatory process. Overproduction or dysregulation of IL-1β is implicated in many autoimmune and inflammatory diseases. IL-1β is a major, validated target for therapeutic intervention.
Our lead product candidate, abdakibart (AVTX-009), is a high affinity, highly potent humanized IgG mAb designed to specifically inhibit IL-1β and block downstream inflammatory pathways. Abdakibart (AVTX-009) is a humanized monoclonal antibody (IgG4) that binds to interleukin-1β (“IL-1β”) with high affinity and neutralizes its activity.
These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval. The development and approval of new drugs requires substantial time, effort and financial resources. Data obtained from a development program is not always conclusive and may be susceptible to varying interpretations.
These clinical 6 Table of Contents trials are intended to establish the overall risk/benefit ratio of an investigational product and to provide an adequate basis for labeling and product approval. Post‑approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval.
Secondary endpoints include the following: • Incidence of adverse events (“AEs”), and changes from Baseline in vital signs, physical examinations, and clinical laboratory tests • The proportion of subjects achieving HiSCR50 by visit • The proportion of subjects achieving HiSCR90 by visit • Change from Baseline in International HS Severity Score System (“IHS4”) • Change from Baseline in Abscess and Inflammatory Nodule (“AN”) count • Change from Baseline in draining fistula count • Percentage of subjects achieving at least a 30% reduction and at least a 1 unit reduction from Baseline on a Numerical Rating Scale (“NRS”) in Patient’s Global Assessment of Skin Pain (“PGA Skin Pain”) among subjects with Baseline NRS ≥3 (“NRS30”) • Percentage of subjects with flares defined as ≥25% increase in AN count plus an increase of ≥2 in AN count compared to Baseline • Incidence of AVTX-009 anti-drug antibodies (“ADA”) at specified timepoints In addition to HS, Avalo intends to develop AVTX-009 in at least one other chronic inflammatory indication.
Secondary objectives include but are not limited to: the proportion of patients achieving HiSCR50 and HiSCR90 as well as 1 Table of Contents change from baseline in: International HS Severity Score System (IHS4), draining fistula count, abscess and inflammatory nodule (AN) count, and patients achieving at least a 30% reduction on a numerical rating scale in Patient's Global Assessment of Skin Pain (PGA Skin Pain).
Manufacturing We do not have any manufacturing facilities. We rely on contract manufacturing organizations to produce our drug candidates in accordance with applicable provisions of the FDA’s and EMA’s current good manufacturing practices (“cGMP”) regulations for use in our clinical studies.
We currently rely on a single CDMO to manufacture clinical supply for abdakibart (AVTX-009). Further, we rely on and expect to continue to rely on such CDMOs to produce our biologic candidates in accordance with applicable regulations, including manufacturing activities performed in accordance with FDA’s current good manufacturing practices (“cGMP”) regulations, and similar regulations and standards in other jurisdictions.
Healthcare Reform The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system.
Healthcare Reform and Other Regulatory Changes In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing or lowering the cost of healthcare.
However, it remains uncertain whether FDA-approved interchangeable products will be readily substituted by pharmacies, as state pharmacy laws ultimately govern substitution practices.
Additionally, the BPCIA provides certain exclusivity periods for biosimilars designated as interchangeable products. State pharmacy laws govern whether FDA-approved interchangeable products can be readily substituted for the reference product .
We value diversity and inclusiveness at all levels. Corporate Information We were incorporated in Delaware in 2011 and commenced operations in the second quarter of 2011. Our principal executive offices are located at 540 Gaither Road, Suite 400, Rockville, Maryland 20850, and our phone number is (410) 522-8707. Our website address is www.avalotx.com .
We completed our initial public offering in October 2015. Our principal executive offices are located at 1500 Liberty Ridge Drive, Suite 321, Wayne, PA 19087, and our phone number is (410) 522-8707. Our website address is www.avalotx.com . The information on, or that can be accessed through, our website is not part of this report.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe expect that we would be subject to additional risks related to entering into international business relationships, including: • Different regulatory requirements for approval, advertising and promotion of drugs in foreign countries; • Challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States; • Foreign reimbursement, pricing and insurance regimes; • Unexpected changes in tariffs, trade barriers and regulatory requirements; • Economic weakness, including inflation, or political instability in particular foreign economies and markets; • Compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • Foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; • Foreign taxes; • Difficulties staffing and managing foreign operations; • Workforce uncertainty in countries where labor unrest is more common than in the United States; • Potential liability under the FCPA or comparable foreign regulations; • Production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and • Business interruptions resulting from geopolitical actions, including war and terrorism, natural disasters, including earthquakes, typhoons, floods and fires, or pandemics.
Biggest changeIf we obtain approval of our current or future product candidates and ultimately commercialize our current or future product candidates in foreign markets, we would be subject to additional risks and uncertainties, including: • Differing regulatory requirements in foreign countries, such that obtaining regulatory approvals outside of the U.S. may take longer and be more costly than obtaining approval in the U.S.; • Challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the U.S.; • Our customers’ ability to obtain reimbursement for our current or future product candidates in foreign markets; • The burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements; • Foreign reimbursement, pricing and insurance regimes; • Unexpected changes in tariffs, trade barriers and regulatory requirements; • Different medical practices and customs in foreign countries affecting acceptance in the marketplace; • Import or export licensing requirements; • Longer accounts receivable collection times; • Longer lead times for shipping; • Language barriers for technical training; • Reduced protection of intellectual property rights in some foreign countries; • The existence of additional potentially relevant third-party intellectual property rights; • Economic weakness, including inflation, or political instability in particular foreign economies and markets; • Compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • Foreign taxes, including withholding of payroll taxes; • Foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country; • Difficulties staffing and managing foreign operations; 30 Table of Contents • Workforce uncertainty in countries where labor unrest is more common than in the U.S.; • Potential liability under the Foreign Corrupt Practices Act of 1977 (the “FCPA”) or comparable foreign regulations; • The interpretation of contractual provisions governed by foreign laws in the event of a contract dispute; • Production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and • Business interruptions resulting from geo-political actions, including war and terrorism.
Our suppliers are subject to regulatory requirements covering manufacturing, testing, quality control, manufacturing, and record keeping relating to our product candidates, and subject to ongoing inspections by the regulatory agencies.
Our suppliers are subject to regulatory requirements covering manufacturing, testing, quality control, and record keeping relating to our product candidates, and subject to ongoing inspections by the regulatory agencies.
The proceedings can be expensive and time‑consuming and many of our or our licensors’ or collaborators’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors or collaborators can.
These proceedings can be expensive and time‑consuming and many of our or our licensors’ or collaborators’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors or collaborators can.
Debt financing could impose restrictive covenants, increase fixed payment obligations, or introduce other constraints that could affect our business operations. If we secure additional funds through upfront or milestone payment as part of future collaborations with third parties, we may be required to relinquish valuable rights to AVTX-009 or grant licenses under terms that are not favorable to us.
Debt financing could impose restrictive covenants, increase fixed payment obligations, or introduce other constraints that could affect our business operations. If we secure additional funds through upfront or milestone payment as part of future collaborations with third parties, we may be required to relinquish valuable rights to abdakibart (AVTX-009) or grant licenses under terms that are not favorable to us.
If we, our product candidates, our contractors, the manufacturing facilities for our product candidates or others working on our behalf fail to comply with applicable regulatory requirements, either before or after marketing approval, a regulatory agency may: 22 Table of Contents • Issue Warning Letters, Untitled Letters, or FDA Form 483s, all of which document compliance issues identified by the FDA; • Mandate modifications to promotional materials or labeling, or require us to provide corrective information to healthcare practitioners; • Require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance; • Seek an injunction or impose civil or criminal penalties or monetary fines, restitution or disgorgement, as well as imprisonment; • Suspend or withdraw marketing approval; • Suspend or terminate any ongoing clinical studies; • Refuse to approve pending applications or supplements to applications filed by us; • Debar us from submitting marketing applications, exclude us from participation in federal healthcare programs, require a corporate integrity agreement or deferred prosecution agreements, debar us from government contracts and refuse future orders under existing contracts; • Suspend or impose restrictions on operations, including restrictions on marketing, distribution or manufacturing of the product, or the imposition of costly new manufacturing requirements or use of alternative suppliers; or • Seize or detain products, refuse to permit the import or export of products, or request that we initiate a product recall.
If we, our product candidates, our contractors, the manufacturing facilities for our product candidates or others working on our behalf fail to comply with applicable regulatory requirements, either before or after marketing approval, a regulatory agency may: • Issue Warning Letters, Untitled Letters, or FDA Form 483s, all of which document compliance issues identified by the FDA; • Mandate modifications to promotional materials or labeling, or require us to provide corrective information to healthcare practitioners; • Require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance; • Seek an injunction or impose civil or criminal penalties or monetary fines, restitution or disgorgement, as well as imprisonment; • Suspend or withdraw marketing approval; • Suspend or terminate any ongoing clinical studies; • Refuse to approve pending applications or supplements to applications filed by us; • Debar us from submitting marketing applications, exclude us from participation in federal healthcare programs, require a corporate integrity agreement or deferred prosecution agreements, debar us from government contracts and refuse future orders under existing contracts; • Suspend or impose restrictions on operations, including restrictions on marketing, distribution or manufacturing of the product, or the imposition of costly new manufacturing requirements or use of alternative suppliers; or • Seize or detain products, refuse to permit the import or export of products, or request that we initiate a product recall.
Our product candidates could fail to receive regulatory approval from the FDA or a other regulatory authorities for many reasons, including: • Such regulatory authorities may disagree on the design or conduct of our key phase 2 and pivotal phase 3 clinical trials, including the overall study design, primary and secondary endpoints, number of patients, statistical analysis plan, or our proposed product indication.
Our product candidates could fail to receive regulatory approval from the FDA or other regulatory authorities for many reasons, including: • Such regulatory authorities may disagree on the design or conduct of our key phase 2 and pivotal phase 3 clinical trials, including the overall study design, primary and secondary endpoints, number of patients, statistical analysis plan, or our proposed product indication.
Any such delays or costs could have a material adverse effect on our financial condition and results of operations and could require us to raise more capital, turn to third-party collaborators to continue the development of AVTX-009 or cease operations. In addition, our focus on AVTX-009 may negatively impact the planned development of our other product candidates.
Any such delays or costs could have a material adverse effect on our financial condition and results of operations and could require us to raise more capital, turn to third-party collaborators to continue the development of abdakibart (AVTX-009) or cease operations. In addition, our focus on abdakibart (AVTX-009) may negatively impact the planned development of our other product candidates.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us and our licensors or collaborators to stop the infringement of our and our licensors’ or collaborators’ patents or marketing of competing products in violation of our and our licensors’ or collaborators’ proprietary rights generally.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us and our licensors or collaborators to stop the infringement of our and our licensors’ or collaborators’ patents or marketing of competing products in such countries in violation of our and our licensors’ or collaborators’ proprietary rights generally.
Manufacturing biologics is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions.
Manufacturing biologics is susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions.
Considering our near-term focus on the progression of the LOTUS Phase 2 Trial of AVTX-009 in hidradenitis suppurativa, we will need to increase our research and development infrastructure. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties.
Considering our near-term focus on the progression of the LOTUS Phase 2 Trial of abdakibart (AVTX-009) in hidradenitis suppurativa, we will need to increase our research and development infrastructure. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties.
Any failure to develop or commercialize a product candidate in our current clinical pipeline could require us to raise additional financing. Risks Related to Development of Our Product Candidates We are substantially dependent on the success of AVTX-009, and our ongoing and anticipated clinical trials of AVTX-009 may not be successful.
Any failure to develop or commercialize a product candidate in our current clinical pipeline could require us to raise additional financing. Risks Related to Development of Our Product Candidates We are substantially dependent on the success of abdakibart (AVTX-009), and our ongoing and anticipated clinical trials of abdakibart (AVTX-009) may not be successful.
We are not allowed to market or promote AVTX-009 until we receive marketing approval from the FDA, and other comparable foreign regulatory authorities, and we may never obtain such approvals. The success of AVTX-009 will depend on various factors, many of which are beyond our control.
We are not allowed to market or promote abdakibart (AVTX-009) until we receive marketing approval from the FDA and other comparable foreign regulatory authorities, and we may never obtain such approvals. The success of abdakibart (AVTX-009) will depend on various factors, many of which are beyond our control.
In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that we or our licensors’ or collaborators’ patents do not cover the technology in question.
In addition, in a patent infringement proceeding, a court may decide that a patent owned by or licensed to us is invalid, unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that we or our licensors’ or collaborators’ patents do not cover the technology in question.
Our business could be harmed if the prevailing party does not offer us or our licensors or collaborators a license on commercially reasonable terms or at all. Even if we or our licensors or collaborators obtain a license, it may be non‑exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensors or collaborators.
Our business could be harmed if the prevailing party does not offer us or our licensors or collaborators a license on commercially reasonable terms or at all. Even if we or our licensors or collaborators obtain such a license, it may be non‑exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensors or collaborators.
Competitors may use our and our licensors’ or collaborators’ technologies in jurisdictions where we or our licensors or collaborators have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we and our licensors or collaborators have patent protection, but enforcement is not as strong as that in the United States.
Competitors may use our and our licensors’ or collaborators’ technologies in jurisdictions where we or our licensors or collaborators have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we and our licensors or collaborators have patent protection, but in countries where patent enforcement is not as strong as that in the United States.
If we do not successfully complete nonclinical testing and clinical development of our product candidates or experience delays in doing so, our business may be materially harmed. Our focus and reliance on AVTX-009 increases the risk of such exposure.
If we do not successfully complete nonclinical testing and clinical development of our product candidates or experience delays in doing so, our business may be materially harmed. Our focus and reliance on abdakibart (AVTX-009) increases the risk of such exposure.
We are conducting clinical trials for AVTX-009 at sites in foreign jurisdictions, and the FDA might not accept data from trials conducted in such locations. In addition to our sites within the United States, we are conducting our phase 2 trial of AVTX-009 for the treatment of HS at sites in foreign jurisdictions.
We are conducting clinical trials for abdakibart (AVTX-009) at sites in foreign jurisdictions, and the FDA might not accept data from trials conducted in such locations. In addition to our sites within the United States, we are conducting our phase 2 trial of abdakibart (AVTX-009) for the treatment of HS at sites in foreign jurisdictions.
The patent prosecution process is expensive and time‑consuming, and we and our current or future licensors, licensees or collaborators might not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
The patent prosecution process is expensive, time‑consuming, and uncertain, and we and our current or future licensors, licensees or collaborators might not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
Any of the above could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay regulatory approval of our product candidates and jeopardize our ability to commence product sales and generate revenue.
Any of the above could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay regulatory approval of our product candidates and jeopardize our ability to commence product sales and generate revenue.
For product candidates for which we decide to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including: • Our inability to recruit and retain adequate numbers of effective sales and marketing personnel; • Inability of marketing personnel to develop effective marketing materials; • The inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the clinical benefits of our products to achieve market acceptance; 26 Table of Contents • The lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; • The costs associated with training sales personnel on legal compliance matters and monitoring their actions; • Liability for sales personnel failing to comply with applicable legal requirements; and • Unforeseen costs and expenses associated with creating an independent sales and marketing organization.
For product candidates for which we decide to perform sales, marketing and distribution functions ourselves, we could face a number of additional risks, including: • Our inability to recruit and retain adequate numbers of effective sales and marketing personnel; • Inability of marketing personnel to develop effective marketing materials; • The inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the clinical benefits of our products to achieve market acceptance; • The lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; • The costs associated with training sales personnel on legal compliance matters and monitoring their actions; • Liability for sales personnel failing to comply with applicable legal requirements; and • Unforeseen costs and expenses associated with creating an independent sales and marketing organization.
Also, third parties may initiate legal proceedings against us or our licensors or collaborators to challenge the validity or scope of intellectual property rights we own or control.
Also, third parties may initiate legal proceedings against us or our licensors or collaborators to challenge the validity or scope of intellectual property rights we license, own or control.
The regulatory pathway establishes legal authority for the FDA to review and approve biological products that are biosimilar to or interchangeable with an FDA-licensed reference biologic.
This regulatory pathway establishes legal authority for the FDA to review and approve biological products that are biosimilar to or interchangeable with an FDA-licensed reference biologic.
In that event that we fail to detect or timely report a data breach it may be subject to significant penalties under federal and state law.
In the event that we fail to detect or timely report a data breach it may be subject to significant penalties under federal and state law.
If we experience delays in clinical testing, we will be delayed in obtaining regulatory approvals and commercializing our product candidates, our costs may increase and our business may be harmed. Our product development costs will increase if we experience delays in clinical testing.
If we experience delays in clinical testing, we will be delayed in obtaining regulatory approvals and commercializing our product candidates, our costs may increase and our business may be harmed.
Biologic products are highly complex and expensive, and if the third-party manufacturers we contract with are unable to provide quality and timely offerings to our clinical trial sites, our clinical trials might be delayed. Our product candidate, AVTX-009, is a biologic. The process of manufacturing biologics and their components is complex, expensive, highly-regulated and subject to multiple risks.
Biological products are highly complex and expensive, and if the third-party manufacturers we contract with are unable to provide quality and timely offerings to our clinical trial sites, our clinical trials might be delayed. Our product candidate, abdakibart (AVTX-009), is a biologic. The process of manufacturing biologics and their components is complex, expensive, highly-regulated and subject to multiple risks.
Proceedings to enforce our and our licensors’ or collaborators’ patent rights in foreign jurisdictions could result in substantial costs and divert our and our licensors’ or collaborators’ efforts and attention from other aspects of our business, could put our and our licensors’ or collaborators’ patents at risk of being invalidated or interpreted narrowly and our and our licensors’ or collaborators’ patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors or collaborators.
Proceedings to enforce our and our licensors’ or collaborators’ patent rights in any of these foreign jurisdictions could result in substantial costs and divert our and our licensors’ or collaborators’ efforts and attention from other aspects of our business, could put our and our licensors’ or collaborators’ patents at risk of being invalidated or interpreted narrowly and our and our licensors’ or collaborators’ patent applications at risk of not issuing and could provoke third parties to assert claims against us or our licensors or collaborators.
We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively. Such third parties may also not comply with the applicable regulatory requirements, which could potentially expose us to regulatory and legal enforcement actions.
We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively. Such third parties may also not comply with the applicable regulatory requirements, which could potentially expose us to regulatory and legal enforcement actions and reputational harm.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non‑compliance with these requirements. Periodic maintenance and annuity fees on any issued patent are due to be paid to the U.S.
Obtaining and maintaining our patent protection depends on our complying with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies worldwide, and our patent protection could be reduced or eliminated for non‑compliance with these requirements. Periodic maintenance and annuity fees on any issued patent are due to be paid to the U.S.
Many factors affect subject enrollment, including: • The size and nature of the subject population; • The number and location of clinical sites we enroll; • The proximity of subjects to clinical sites; • Perceived risks and benefits of the product candidate under trial; • Competition with other companies for clinical sites or subjects; • The eligibility and exclusion criteria for the trial; • The design of the clinical trial; • Doctor, patient and public awareness of the clinical trials; • Inability to obtain and maintain subject consent; • Ability to monitor subjects adequately during and after the administration of the product candidate and the ability of subjects to comply with the clinical trial requirements; • Risk that enrolled subjects will drop out or be withdrawn before completion; and • Clinicians’ and subjects’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
Many factors affect subject enrollment and retention, including: • The size and nature of the subject population; • The number and location of clinical sites we activate; • The proximity of subjects to clinical sites; • Perceived risks and benefits of the product candidate under trial; • Competition with other companies for clinical sites or subjects; • The eligibility and exclusion criteria for the trial; • The design of the clinical trial; • Doctor, patient and public awareness of the clinical trials; • Ability to obtain and maintain subject consent; • Ability to monitor subjects adequately during and after the administration of the product candidate and the ability of subjects to comply with the clinical trial requirements; • Risk that enrolled subjects will drop out or be withdrawn before completion; and • Clinicians’ and subjects’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
Such volatility, including any stock run-ups, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our common stock. Volatility in our common stock price may subject us to securities litigation.
Such volatility, including any stock run-ups, may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our common stock. Volatility in our common stock price may subject us to securities litigation or regulatory scrutiny.
Low trading volume could also cause the price of our stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low trading volume.
This low volume of trades could also cause the price of our common stock to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our common stock may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading.
If we are unable to obtain extensions to our patents or other means of regulatory exclusivity for our products, the expiration of patents might create opportunities for competitors to enter the market for our target indications, which could have a material negative impact on our financial results.
If we are unable to obtain extensions to our patents or other means of regulatory exclusivity for our products, the expiration of patents might create opportunities for competitors to enter the market with similar products for our target indications, which could have a material negative impact on our financial results.
The degree of market acceptance of any of our approved product candidates will depend on a number of factors, including: • The efficacy and safety profile of our product candidates, including relative to marketed products and product candidates in development by third parties; • Prevalence and severity of any side effects of our product candidates; • Relative convenience and ease of administration of our product candidates; • Cost effectiveness of our product candidates; • The claims we may make for our product candidates based on the approved label or any restrictions placed upon our marketing and distribution of our product candidates; • The time it takes for our product candidates to complete clinical development and receive marketing approval; • How quickly and effectively we alone, or with a partner, can market, launch, and distribute any of our product candidates that receive marketing approval; • The ability to commercialize any of our product candidates that receive marketing approval; • The price of our approved product candidates, including in comparison to branded or generic competitors and relative to alternative treatments; • Potential or perceived advantages or disadvantages of our approved product candidates over alternative treatments; • The ability to collaborate with others in the development and commercialization of new products; • Whether coverage and adequate levels of reimbursement are available under private and governmental health insurance plans, including Medicare; • The ability to establish, maintain and protect intellectual property rights related to our product candidates; • The entry of generic versions of any of our approved products onto the market; • The number of products in the same therapeutic class as our product candidates; • The effect of current and future healthcare laws on our drug candidates; • The ability to secure favorable managed care formulary positions for our approved product candidates, including federal healthcare program formularies; • The ability to manufacture commercial quantities of any of our product candidates that receive marketing approval; • Acceptance of any of our product candidates that receive marketing approval by physicians and other healthcare providers; and • Potential post‑marketing commitments and post-marketing requirements imposed on an approved product candidate by regulatory authorities, such as patient registries.
The degree of market acceptance of any of our approved product candidates will depend on a number of factors, including: • The efficacy and safety profile of our product candidates, including relative to marketed products and product candidates in development by third parties; • Prevalence and severity of any side effects of our product candidates; • Relative convenience and ease of administration of our product candidates; • Cost effectiveness of our product candidates; • The claims we may make for our product candidates based on the approved label or any restrictions placed upon our marketing and distribution of our product candidates; • The time it takes for our product candidates to complete clinical development and receive marketing approval; • How quickly and effectively we alone, or with a partner, can market, launch, and distribute any of our product candidates that receive marketing approval relative to competing products; • The ability to commercialize any of our product candidates that receive marketing approval; • The adequacy of our or our partners’ sales, medical affairs, and market-access capabilities; • The price of our approved product candidates, including in comparison to branded or generic competitors and relative to alternative treatments; • Potential or perceived advantages or disadvantages of our approved product candidates over alternative treatments; • The ability to collaborate with others in the development and commercialization of new products; • Whether coverage and adequate levels of reimbursement are available under private and governmental health insurance plans, including Medicare; • The ability to establish, maintain and protect intellectual property rights related to our product candidates; • The entry of generic versions of any of our approved products onto the market; • The number of products in the same therapeutic class as our product candidates; • The effect of current and future healthcare laws on our drug candidates; • The ability to secure favorable managed care formulary positions for our approved product candidates, including federal healthcare program formularies; • The ability to manufacture commercial quantities of any of our product candidates that receive marketing approval; • Acceptance of any of our product candidates that receive marketing approval by physicians and other healthcare providers; and • Potential post‑marketing commitments and post-marketing requirements imposed on an approved product candidate by regulatory authorities, such as patient registries.
Accordingly, despite our or our licensors’ or collaborators’ efforts, we or our licensors or collaborators might not prevent third parties from infringing upon or misappropriating intellectual property rights we own or control, particularly in countries where the laws might not protect those rights as fully as in the United States.
Accordingly, despite our or our licensors’ or collaborators’ efforts, we or our licensors or collaborators might not prevent third parties from infringing or misappropriating intellectual property rights we license, own or control, particularly in countries where the laws might not protect those rights as fully as in the United States.
Unused NOLs generated after December 31, 2017 of $183.0 million, will not expire and may be carried forward indefinitely, but will be only deductible to the extent of 80% of current year taxable income in any given year.
Unused NOLs generated after December 31, 2017 of $255.0 million, will not expire and may be carried forward indefinitely, but will be only deductible to the extent of 80% of current year taxable income in any given year.
We or our licensors or collaborators might not prevail in any lawsuits that we or our licensors or collaborators initiate and the damages or other remedies awarded, if any, might not be commercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries.
We or our licensors or collaborators might not prevail in any lawsuits in foreign jurisdictions that we or our licensors or collaborators initiate and the damages or other remedies awarded, if any, might not be commercially meaningful. The requirements for patentability may differ in certain countries, particularly developing countries.
Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, prospects, financial condition and results of operations. 27 Table of Contents We use third parties to manufacture all of our product candidates.
Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, prospects, financial condition and results of operations. We use third parties to manufacture all of our product candidates.
During this 12-year period of exclusivity, another company may still develop and receive approval for a competing version of the reference product if the FDA approves a full biologics license application for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product.
During this 12-year period of exclusivity, another company may still develop and receive approval for a competing version of the reference product if the FDA approves a full biologics license application for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to 42 Table of Contents demonstrate the safety, purity and potency of their product.
To the extent that a secondary market for the Series C non-voting convertible preferred stock or the warrants develops, we believe that the market price of the Series C non-voting convertible preferred stock and the warrants would be significantly affected by the market price of our common stock.
To the extent that a secondary market for the Series C non-voting convertible preferred stock or the warrants develops, we believe that the market price of the Series C non-voting convertible preferred stock and the warrants would be significantly affected by the market price of our common stock and overall market conditions.
Although we are working with third parties to develop reproducible and commercially viable manufacturing processes for our biologic product candidates, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials.
Although we are working with third parties to develop reproducible and commercially viable manufacturing processes for our biological product candidates, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials.
Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to administrative sanctions or penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.
Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and we may be subject to administrative sanctions or penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.
Additional delays may result if the FDA or other regulatory authority, or an FDA Advisory Committee recommends non‑approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and the review process.
Additional delays may result if the FDA or other regulatory authority recommends non‑approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical trials and the review process.
Some of these employees executed proprietary rights, 38 Table of Contents non‑disclosure and non‑competition agreements in connection with such previous employment. We may be subject to claims that we or these employees have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer.
Some of these employees executed proprietary rights, non‑disclosure and non‑competition agreements in connection with such previous employment. We may be subject to claims that we or these employees have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer.
Disruptions to the FDA, the SEC and other governmental agencies and regulatory authorities caused by funding shortages or global health concerns could hinder the ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
Disruptions to the FDA, the SEC and other governmental agencies and regulatory authorities caused by funding shortages, changes in leadership and policy, or global health concerns could hinder the ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business and results of operations.
For instance, the FDA may find that the study designs we are utilizing in a planned clinical trial do not support an adequate and well‑controlled study supportive of approval.
For instance, the FDA may find that the study designs we are utilizing in a planned clinical trial do not constitute an adequate and well‑controlled study supportive of approval.
In addition to increasing uncertainty with regard to our and our licensors’ or collaborators’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.
In addition to increasing uncertainty with regard to our and our licensors’ or collaborators’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of U.S. patents, once obtained.
In the United States, there are numerous federal and state privacy and data security laws and regulations that govern the collection, use, disclosure, and protection of personal information, including federal and state health information privacy laws, federal and state security breach notification laws, and federal and state data security laws.
In the United States, numerous federal and state privacy and data security laws and regulations that govern the collection, use, disclosure, and protection of personal information, including federal and state health information privacy laws, federal and state security breach notification laws, and federal and state data security laws.
In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues.
In addition, any delays in completing our clinical trials may increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues.
In addition, even if we were to obtain approval, regulatory authorities may approve any or all of our product candidates for fewer or more limited indications than we request, may require that contraindications, warnings or precautions be included in the product labeling, including a black‑box warning, may grant approval with a requirement of post‑marketing clinical trials or other post‑market requirements, or post-marketing commitments or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate.
In addition, even if we were to obtain approval, regulatory authorities may approve any or all of our product candidates for fewer or more limited indications than we request, may require that contraindications, warnings or precautions be included in the product labeling, including a black‑box warning, may grant approval with a requirement of post‑marketing clinical trials or other post‑market requirements, or post-marketing commitments or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate or impose restrictions that materially limit market adoption.
In addition, any marketing approvals that we obtain for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval or contain requirements for potentially costly post‑marketing testing and other requirements, including phase 4 clinical trials, imposition of a REMS and surveillance to monitor the safety and efficacy of the product candidate.
In addition, any marketing approvals that we obtain for our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval or contain requirements for potentially costly post‑marketing testing and other requirements, including phase 4 clinical trials, imposition of a REMS and surveillance to monitor the safety and efficacy of the product candidate for an extended period of time.
The outcome of preclinical studies and earlier clinical trials might not predict the success of future clinical trials. Preclinical data and 15 Table of Contents clinical trial data may be susceptible to varying interpretations and analyses, and many product candidates that performed satisfactorily in preclinical studies and early clinical trials have nonetheless failed in later clinical development.
The outcome of preclinical studies and earlier clinical trials might not predict the success of future clinical trials. Preclinical data and clinical trial data may be susceptible to varying interpretations and analyses, and many product candidates that performed satisfactorily in preclinical studies and early clinical trials have nonetheless failed in later clinical development.
Generally, the patient population for any clinical trials conducted outside of 23 Table of Contents the United States must be representative of the population for whom we intend to seek approval in the United States and the data must be applicable to the U.S. population and medical practice in ways that the FDA deems clinically meaningful.
Generally, the patient population for any clinical trials conducted outside of the United States must be representative of the population for whom we intend to seek approval in the United States and the data must be applicable to the U.S. population and medical practice in ways that the FDA deems clinically meaningful.
We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, we must conduct our clinical trials with product produced under applicable cGMP requirements for drug manufacturing.
We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, we must conduct our clinical trials with current or future product produced under applicable cGMP requirements for drug manufacturing.
The success of our business has in the past and is expected to continue depend in part upon our ability to identify and validate new therapeutic targets and identify, develop and commercialize therapeutics, which we may develop ourselves, in‑license or acquire from 17 Table of Contents others.
The success of our business has in the past and is expected to continue depend in part upon our ability to identify and validate new therapeutic targets and identify, develop and commercialize therapeutics, which we may develop ourselves, in‑license or acquire from others.
Risks Related to the Commercialization of Our Product Candidates We might not be successful in our efforts to develop and commercialize our product candidates. Our continued development of our product candidates will be dependent on receiving positive data that, in our judgment, merits advancing such programs.
Risks Related to the Commercialization of Our Product Candidates We might not be successful in our efforts to develop and commercialize our product candidates. 34 Table of Contents Our continued development of our product candidates will be dependent on receiving positive data that, in our judgment, merits advancing such programs.
If an active market does not develop, holders of our Series C non-voting convertible preferred stock or the warrants may be unable to readily sell the securities they hold or may not be able to sell their securities at all.
If an active market does not develop, holders of our Series C non-voting convertible preferred stock or the warrants may be unable to readily sell the securities they hold or may not be able to sell their securities at all at prices they consider acceptable.
Also, it may be difficult for us to raise additional capital if we are not listed on an exchange. A delisting would also likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so.
Also, it may be difficult for us to raise additional capital if we are not listed on an exchange on a timely basis or at all. A delisting would also likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so.
We have invested a significant portion of our efforts and financial resources in the identification and preclinical and clinical development of product candidates, including AVTX-009. Our ability to generate significant product revenues will depend on our ability to advance our clinical product candidates toward approval and our preclinical product candidates into clinical development.
We have invested significant efforts and financial resources in the identification and preclinical and clinical development of product candidates, including abdakibart (AVTX-009). Our ability to generate significant product revenues will depend on our ability to advance our clinical product candidates toward approval and our preclinical product candidates into clinical development.
To the extent there is a limitation, there could be a reduction in the $7.0 million deferred tax asset related to Federal loss carryforwards and tax credits that may have expired unutilized with an offsetting reduction in the valuation allowance. Our operating results fluctuate from quarter to quarter and year to year, making future operating results difficult to predict.
To the extent there is a limitation, there could be a reduction in the $8.4 million deferred tax asset related to Federal loss carryforwards and tax credits that may have expired unutilized with an offsetting reduction in the valuation allowance. Our operating results fluctuate from quarter to quarter and year to year, making future operating results difficult to predict.
If we or a regulatory agency discover previously unknown problems with the facility where the product is manufactured, we may be subject to reporting obligations and a regulatory agency may impose restrictions on that product, the manufacturing facility, us, or our suppliers, including requesting recalls or withdrawal of the product from the market or suspension of manufacturing.
If we or a regulatory agency discover previously unknown problems with the facility where the product is manufactured, we may be subject to reporting obligations and a regulatory agency may impose restrictions on that product, the manufacturing facility, us, or our suppliers, including requesting recalls 27 Table of Contents or withdrawal of the product from the market or suspension of manufacturing or distribution.
We might not succeed in our efforts to establish development collaborations or other alternative arrangements for any of our existing or future product candidates and programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early a stage of development for collaborative effort and/or third parties might not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy.
We might not succeed in our efforts to establish development collaborations or other alternative arrangements for any of our existing or future product candidates and programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early a stage of development for collaborative effort and/or third parties might not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy or a commercially attractive risk-return profile.
We have incurred significant net losses in most periods since our inception and we expect to continue to incur net losses in the future.
We have incurred significant net losses in most periods since our inception and we expect to continue to incur net losses for the foreseeable future.
Our future funding requirements, both short and long term, will depend on many factors, including: • The initiation, progress, timing, costs and results of preclinical and clinical studies for AVTX-009 and any future product candidates we may develop; • The level of research and development investment required to develop product candidates; • The rate and level of patient recruitment into clinical trials, including particularly the ongoing LOTUS Trial; • The timing and amount of milestone payments we are required to make under license agreements; • Changes in product development plans needed to address any difficulties that may arise in manufacturing, preclinical activities, clinical trials or commercialization; • The outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and other regulatory authorities, including the potential for such authorities to require that we perform more studies than currently expected; • The initiation and completion of all required safety and efficacy studies necessary for obtaining regulatory approval in the U.S. including additional clinical trials or studies beyond those currently planned to support AVTX-009’s approval and commercialization; • Providing sufficient evidence to the FDA, and other global regulatory bodies demonstrating the safety, efficacy, and an acceptable risk-benefit profile of AVTX-009 or any future other product candidates; • Our ability to promptly submit and secure approval of IND applications for our programs to initiate planned or future clinical trials; • Effectively monitor and manage the occurrence, duration, and severity of any potential side effects or safety concerns associated with our product candidates, if any arise; • Securing timely marketing approvals from the FDA, and other relevant regulatory authorities; • The cost to establish, maintain, expand and defend the scope of our intellectual property portfolio and patent claims, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights; • The effect of competing technological and market developments; • The cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial‑scale manufacturing; • The cost of future commercialization activities including, developing our sales, marketing. manufacturing and distribution capabilities to accommodate any of our product candidates for which we receive marketing approval and that we determine to commercialize ourselves or in collaboration with our partners; • Market acceptance of any approved product candidates; • The effect of competing product and market developments; • The ability and willingness to enter into new agreements with strategic partners, and the terms of these agreements; and • The costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies.
Our future funding requirements, both short and long term, will depend on many factors, including: • The initiation, progress, timing, costs and results of preclinical and clinical studies for abdakibart (AVTX-009) and any future product candidates we may develop; • The level of research and development investment required to develop product candidates through clinical development and prepare for later stage trials; • The rate and level of patient recruitment into clinical trials; • The timing and amount of milestone payments we are required to make under license agreements; • Changes in product development plans needed to address any difficulties that may arise in manufacturing, preclinical activities, clinical trials, regulatory interactions, or commercialization; • The outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and other regulatory authorities, including the potential for such authorities to require that we perform more studies than currently expected; • The initiation and completion of all required safety and efficacy studies necessary for obtaining regulatory approval in the U.S. including additional clinical trials or studies beyond those currently planned to support abdakibart (AVTX-009)’s approval and commercialization; • Providing sufficient evidence to the FDA, and other global regulatory bodies demonstrating the safety, efficacy, and an acceptable risk-benefit profile of abdakibart (AVTX-009) or any future other product candidates; • Our ability to promptly submit and secure clearance of IND applications for our programs to initiate planned or future clinical trials; • Effectively monitor and manage the occurrence, duration, and severity of any potential side effects or safety concerns associated with our product candidates, if any arise; • Securing timely marketing approvals from the FDA, and other relevant regulatory authorities; • The cost to establish, maintain, expand and defend the scope of our intellectual property portfolio and patent claims, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights; • Competitive dynamics, including the timing of competitor data readouts, approvals, and commercial launches; • The cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial‑scale manufacturing; • The cost of future commercialization activities including, developing our sales, marketing, manufacturing and distribution capabilities to accommodate any of our product candidates for which we receive marketing approval and that we determine to commercialize ourselves or in collaboration with our partners; • Market acceptance of any approved product candidates; • The effect of competing product and market developments; • The ability and willingness to enter into new agreements with strategic partners, and the terms of these agreements; and • The costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies.
It is also possible that, due to the surreptitious nature of certain data breaches and other incidents, they may remain undetected for an extended period, which may exacerbate harm to the company.
It is also possible that, due to the surreptitious nature of certain data breaches and other cybersecurity incidents, such incidents may remain undetected for an extended period, which may exacerbate harm to the company.
The ability of the FDA to review regulatory filings and our ability to commence human clinical trials can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes.
The ability of the FDA to review regulatory filings and our ability to commence human clinical trials can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and contractors, the FDA’s ability to accept and process the payment of user fees and accept the payment of user fees, and statutory, regulatory, leadership and policy changes.
Depending on decisions by Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our and our licensors’ or collaborators’ ability to 33 Table of Contents obtain new patents or to enforce existing patents and patents we and our licensors or collaborators may obtain in the future.
Depending on decisions by Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our and our licensors’ or collaborators’ ability to obtain new patents or to enforce existing patents and patents that we and our licensors or collaborators may obtain in the future.
If we are not able to comply with the applicable continued listing requirements or standards of The Nasdaq Stock Market, Nasdaq could delist our common stock. Our common stock is currently listed on The Nasdaq Stock Market.
If we are not able to comply with the applicable continued listing requirements or standards of The Nasdaq Stock Market, Nasdaq could delist our common stock. 49 Table of Contents Our common stock is currently listed on The Nasdaq Stock Market.
We currently have limited, and might not sustain, research coverage by securities and industry analysts. If we do not sustain coverage of ourselves, the trading price for our securities would be negatively impacted.
We currently have limited, and might not sustain, research coverage by securities and industry analysts. If we do not sustain coverage of ourselves, the trading price for our securities would be negatively impacted and volatility could increase.
Under the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction.
Under the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction or the transaction otherwise satisfies statutory exceptions.
Any delay in entering into development collaboration agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market. Additionally, collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party.
Any delay in entering into development collaboration agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market. Additionally, collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party sometimes for reasons outside our control.
Our competitors may also develop drugs that are more effective, more convenient, more widely used and less costly or have a better safety profile and better 19 Table of Contents tolerability than our products and these competitors may also be more successful than us in manufacturing and marketing their products.
Our competitors may also develop drugs that are more effective, more convenient, more widely used and less costly or have a better safety profile and better tolerability than our products and these competitors may also be more successful than us in manufacturing and marketing their products.
Even if we are successful in our efforts to establish development collaborations, the terms that we agree upon might not be favorable to us and we might not be able to maintain such development collaborations if, for example, development or approval of a product candidate is delayed or sales of an approved product candidate are disappointing.
Even if we are successful in our efforts to establish development collaborations, the terms that we agree upon might not be favorable to us and we might not be able to maintain such development collaborations if, for example, development or approval of a product candidate is delayed or sales of an approved product candidate are disappointing or fail to meet the collaborator’s internal expectations.
Any such termination or expiration would adversely affect us financially and could harm our business reputation.
Any such termination or expiration would adversely affect us financially and could harm our business reputation and stock price.
These exclusive‑forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.
These exclusive‑forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees and may result in increased costs to a stockholder to bring a claim.
Any such access, inappropriate disclosure of confidential or proprietary information or other loss of information, including our data being breached at third-party providers, could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information, disruption of our operations or the development of our pipeline assets and damage to our reputation, which could adversely affect our business.
Any such access, inappropriate disclosure of confidential or proprietary information or other loss of information, including a cybersecurity incident or data breach at third-party providers, could result in legal claims or proceedings, liability or financial loss under laws that protect the privacy of personal information, disruption of our operations or the development of our pipeline assets and damage to our reputation, which could adversely affect our business.
Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates. Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain marketing approval to commercialize a product candidate or the approval may be for a narrower indication than we expect.
Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates. Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain marketing approval to commercialize a product candidate or the approval may be for a narrower indication than we expect or may be conditioned on costly post-approval obligations.
We continually evaluate our capital allocation for each product candidate, and, in the future, may de-prioritize or cancel the development of certain product candidates.
We continually evaluate our capital allocation for each product candidate, and, in the 25 Table of Contents future, may de-prioritize or cancel the development of certain product candidates.
If one or more of the analysts who covers us downgrades our securities or publishes inaccurate or unfavorable research about our business, our securities prices would likely decline.
If one or more of the analysts who covers us 51 Table of Contents downgrades our securities or publishes inaccurate or unfavorable research about our business, our securities prices would likely decline.
Changes in product candidate manufacturing or formulation may result in additional costs or delay. As product candidates are developed through preclinical studies to late‑stage clinical trials toward regulatory approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered in an effort to optimize processes and results.
Changes in product candidate manufacturing or formulation may result in additional costs or delay. 23 Table of Contents As product candidates are developed through preclinical studies to late‑stage clinical trials toward regulatory approval and commercialization, it is common that various aspects of the manufacturing process, such as methods and formulation, are altered in an effort to optimize processes and results.
Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions. Approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. Also, regulatory approval for any of our product candidates may be withdrawn.
Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions. Approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. Also, regulatory approval for any of our product candidates may be withdrawn or conditioned on post-approval obligations.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeItem 1C. Cybersecurity. Avalo’s management and Board of Directors recognize the importance of information security and managing cybersecurity risks across the enterprise. We have strategically designed our robust Information Security Program (the “Program”) to assess, identify, and manage these cybersecurity risks, protect the Company from such risks, and respond to, and recover from, cybersecurity incidents.
Biggest changeItem 1C. Cybersecurity. As part of our overall risk management process, we have established an Information Security Program (the “Program”) designed to assess, identify, and manage cybersecurity risks as well as support efforts in responding to, and recovering from, cybersecurity threats and incidents. Governance Our Board of Directors has delegated Program oversight to the Audit Committee (the “Committee”).
These third parties include cybersecurity managed security service providers (MSSPs), consultants, advisors, and auditors, who we engage to evaluate our controls, whether through penetration testing, independent audits, or consulting on best practices to address new threats or challenges.
These third parties include cybersecurity managed security service providers (“MSSPs”), consultants, advisors, and auditors, who we engage to evaluate our controls, whether through penetration testing, independent audits, or consulting on best practices to address new threats or challenges.
We also engaged internal auditors to conduct a walkthrough of our information technology control environment, test our information technology controls, and report to us any findings. External security service firms monitor the Company’s networks at all times, and Company laptops are patched weekly with up-to-date antivirus and real time threat-monitoring protection.
We also engage internal auditors to audit our information technology control environment, test our information technology controls, and report to us any findings. External security service firms monitor Avalo’s networks at all times, and Avalo laptops are patched frequently with up-to-date antivirus and real time threat-monitoring protection.
The group meets semi-annually to review the effectiveness of the Program, discuss any new developments and potential improvements to the Program, and evaluate internal and external security-related events to determine how Avalo can take appropriate steps to mitigate such risks. 44 Table of Contents The Audit Committee (the “Committee”) is primarily responsible for oversight of the Program.
The ISWG meets semi-annually to review the effectiveness of the Program, discuss any new developments and potential improvements to the Program, and evaluate internal and external security-related events to determine how Avalo can take appropriate steps to mitigate such risks.
Members of the ISWG include: the Chief Financial Officer, the Chief Legal Officer, the head of the Company’s Human Resource department, the Senior Vice President of Program Management and Corporate Infrastructure, the Senior Vice President of Regulatory and Quality Assurance, and the Company’s head of Information Technology.
Members of the ISWG include: the Chief Financial Officer, the Chief Legal Officer, the Senior Vice President of Human Resources, the Senior Vice President of Regulatory and Quality Assurance, and the Vice President of Information Technology.
Further, we actively engage with key vendors, industry participants, and law enforcement officials as part of our continuing efforts to evaluate and improve our Program. Our regular interactions with third-party vendors and suppliers pose a cybersecurity risk that could adversely impact our business or employees.
Further, we actively engage with key vendors, industry participants, and law enforcement officials as part of our continuing efforts to evaluate and improve our Program. As part of the Program, we maintain processes related to third-party vendor cybersecurity risk management.
These reports include the following on an as-needed basis: updates on the Program; assessment of the Program; emerging risks or concerns; policies, procedures, and training; and risk mitigation strategies. The underlying controls of our Program are based on recognized best practices and standards for cybersecurity and information technology, including the National Institute of Standards and Technology (NIST) Cybersecurity Framework (CSF).
These reports include the following on an as-needed basis: updates on the Program; assessment of the Program; emerging risks or concerns; policies, procedures, and training; and risk mitigation strategies. The SVP of HR provides information technology and cybersecurity reports as necessary at meetings of management’s Disclosure Committee. These reports are also communicated to the Audit Committee, as necessary.
Ms. Zhang is responsible for developing enterprise-wide cybersecurity strategy, architecture, policies, processes, and controls, and is directly responsible for our cybersecurity program. We use various tools and methodologies to identify, manage, and test for cybersecurity risk on a regular cadence both at the enterprise level and using third-party service providers.
Risk Management and Strategy The underlying controls of our Program incorporate elements of recognized industry standards for cybersecurity and information technology, including the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework. 58 Table of Contents We use various tools and methodologies designed to identify, manage, and test for cybersecurity risk on a regular cadence both at the enterprise level and through our use of third-party service providers.
All Avalo employees and contractors are required to participate in annual security awareness training, which includes phishing simulations.
All Avalo employees and contractors are required to participate in annual security awareness training, which includes phishing simulations. Avalo employees are also trained on our written information security policies and the acceptable usage of systems, as well as procedures related to electronic record management.
To ensure we use reputable vendors for our information systems, we review and confirm SOC 1 reports for vendors providing critical business services. For vendors handling Avalo’s clinical and manufacturing information, we employ quality agreements and vendor audits to ensure vendor compliance with our Program and all applicable regulatory requirements.
We review and confirm controls for vendors providing critical business services and employ quality agreements and vendor audits designed to ensure vendor compliance with our Program and applicable regulatory requirements. Further, we conduct information security assessments before onboarding new vendors and upon detection of an increase in risk profile for existing vendors.
We conduct information security assessments before onboarding and upon detection of an increase in risk profile. In addition, we require providers to meet appropriate security requirements, controls and responsibilities and include additional security and privacy addenda to our contracts where applicable. Internally, our employees are a key part of our Program.
We also require our third-party service providers to meet appropriate security requirements, controls and responsibilities via additional security and privacy addenda which we include in our contracts where applicable. As part of our Program, we maintain written information security policies, including an incident response plan.
Notwithstanding our vigilance and our Program, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us. For further information, refer to Section 1A, Risk Factors, for a discussion of risks related to cybersecurity and technology.
For further information, refer to Section 1A, Risk Factors, for a discussion of risks related to cybersecurity and technology.
Hegg provides information technology and cybersecurity reports as necessary at meetings of management’s Disclosure Committee, which is communicated quarterly to the Audit Committee, with greater frequency as necessary. Ms. Zhang regularly informs Ms. Hegg, our Chief Executive Officer (CEO) and other members of the leadership team, about the Program, best practices, current cybersecurity threats, the risk landscape, and mitigation strategies.
Our VP of IT reports to the Senior Vice President of Human Resources (“SVP of HR”). The VP of IT regularly informs the SVP of HR, and other members of the leadership team, about the Program, best practices, current cybersecurity threats, the cyber-risk landscape, and mitigation strategies.
The Company’s Information Security Working Group (“ISWG”) is actively engaged in managing cybersecurity risks and overseeing the design, implementation, and evaluation of the Program. The purpose of the ISWG is to define cybersecurity risk tolerance, guide implementation of the Program, monitor Program development and effectiveness, and validate investments in cybersecurity measures and infrastructure.
The Committee is composed of directors with expertise in technology, audit, finance, and compliance. The Company’s Information Security Working Group (“ISWG”) manages cybersecurity risks and oversees the design, implementation, and evaluation of the Program.
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The Committee is composed of directors with expertise in technology, audit, finance, and compliance, equipping them to effectively oversee the program. Yingping Zhang serves as our Vice President of Information Technology, and she also helps oversee the implementation and effectiveness of the Program as a member of the ISWG. Ms.
Added
The responsibilities of the ISWG include defining cybersecurity risk tolerance, guiding implementation of the Program, monitoring Program development and effectiveness, and validating investments in cybersecurity measures and infrastructure.
Removed
Zhang graduated from the University of Pittsburgh with a Master of Science in Electrical Engineering and has over thirty years of experience as an information technology professional. Prior to Avalo, Ms.
Added
Our Vice President of Information Technology (“VP of IT”), is responsible for Avalo’s enterprise-wide cybersecurity strategy, architecture, policies, processes, and controls, and is directly responsible for the day-to-day management of the Program. The individual serving in this role has over 20 years of experience with information technology and over 8 years of experience managing cybersecurity risk management programs.
Removed
Zhang worked as an Executive Consultant for Insightful Group, the Vice President of Information Technology at Horizon, and the Vice President of Informational Technology and Information Services at Viela Bio, among other positions within biopharma companies. Ms. Zhang reports to Lisa Hegg, Senior Vice President of Program Management and Corporate Infrastructure. Ms.
Added
Although risks from cybersecurity threats have not materially affected, and are not reasonably likely to materially affect our company, including our business strategy, results of operations, or financial condition, to date, we may, from time to time, experience threats to and security incidents related to our and our third-party vendors’ information systems.
Removed
Company Employees are also trained on policies of information security and acceptable usage of systems, as well as procedures related to electronic record management, and Avalo regularly reviews and updates user accounts and permissions and ensures that only approved applications are installed on Company devices.
Removed
The Company manages endpoints centrally and content can be deleted remotely in the event of stolen devices or terminated users. To date, Avalo has not identified any cyber event or risks from cybersecurity threats that could be considered material, individually or in the aggregate.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our existing facilities are adequate to meet our current needs, and that suitable spaces will be available in the future on commercially reasonable terms.
Biggest changeItem 2. Properties. Our headquarters are located in Wayne (Chesterbrook), Pennsylvania, where we occupy approximately 11,000 square feet of administrative office space. The lease expires on February 28, 2027. We believe that our existing facilities are adequate to meet our current needs, and that suitable spaces will be available in the future on commercially reasonable terms. Item 3. Legal Proceedings.
Removed
Item 2. Properties. Our headquarters are located in Rockville, Maryland, where we occupy approximately 5,000 square feet of administrative office space. The lease expires on January 31, 2026. The Company also occupies approximately 11,000 square feet of administrative office space in Chesterbrook, Pennsylvania. The lease expires on February 28, 2027.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed and publicly traded on The Nasdaq Capital Market under the symbol “AVTX.” Holders As of March 17, 2025, there were approximately 149 holders of record of our common stock.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed and publicly traded on The Nasdaq Capital Market under the symbol “AVTX.” Holders As of March 18, 2026 , there were approximately 145 holders of record of our common stock.
Equity Compensation Plans Information regarding securities authorized for issuance under equity compensation plans is set forth in Item 12 of this report is under the section captioned “Equity Compensation Plan Information”. Issuer Purchases of Equity Securities None. 47 Table of Contents
Equity Compensation Plans Information regarding securities authorized for issuance under equity compensation plans is set forth in Item 12 of this report is under the section captioned “Equity Compensation Plan Information”. Issuer Purchases of Equity Securities None. 60 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOther Income (Expense), net The following table summarizes our other income (expense), net for the years ended December 31, 2024 and 2023: 51 Table of Contents Year Ended December 31, 2024 2023 (in thousands) Excess of initial warrant fair value over private placement proceeds $ (79,276) $ — Change of fair value of warrant liability 121,611 — Private placement transaction costs (9,220) — Change in fair value of derivative liability (2,930) (720) Interest income (expense), net 3,317 (3,417) Other expense, net (5) (42) $ 33,497 $ (4,179) Other income, net increased $37.7 million for the year ended December 31, 2024 as compared to the prior period in 2023, primarily driven by the accounting impact of the warrant liability associated with the warrants issued in the March 2024 financing that were subsequently exercised in the fourth quarter of 2024.
Biggest changeOther (Expense) Income, net The following table summarizes our other (expense) income, net for the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 2024 (in thousands) Change in fair value of derivative liability (9,520) (2,930) Interest income, net 4,351 3,312 Excess of initial warrant fair value over private placement proceeds $ — $ (79,276) Change of fair value of warrant liability — 121,611 Private placement transaction costs — (9,220) $ (5,169) $ 33,497 Other expense, net was $5.2 million for the year ended December 31, 2025 compared to other income, net of $33.5 million for the prior year period ended December 31, 2024.
Net cash provided by financing activities Net cash provided by financing activities for the year ended December 31, 2024 consisted of gross proceeds of $115.6 million from the private placement that closed on March 28, 2024 and $69.4 million of gross proceeds from the exercise of warrants in the fourth quarter of 2024.
Net cash provided by financing activities for the year ended December 31, 2024 consisted of gross proceeds of $115.6 million from the private placement that closed on March 28, 2024 and $69.4 million of gross proceeds from the exercise of warrants in the fourth quarter of 2024.
The use of the Black‑Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk‑free interest rates and expected dividend yields of the common stock.
The use of the Black‑Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected term of the option, risk‑free interest rates and expected dividend yields of the common stock.
Prepaid expenses increased $2.9 million from December 31, 2023 due to the increased research and development activity for AVTX-009.
Prepaid expenses increased $2.9 million from December 31, 2023 due to the increased research and development activity for abdakibart (AVTX-009).
In the event that J&J and/or Apollo are required to make payment(s) to ES Therapeutics pursuant to the underlying agreements, Avalo will recognize revenue under its existing contracts with those customers for that amount when it is no longer probable there would be a significant revenue reversal with any differences between the fair value of the derivative liability related to that payment immediately prior to the revenue recognition and revenue recognized to be recorded as other expense.
In the event that J&J and/or Apollo are required to make payment(s) to ES Therapeutics pursuant to the underlying agreements, we will recognize revenue under our existing contracts with those customers for that amount when it is no longer probable there would be a significant revenue reversal with any differences between the fair value of the derivative liability related to that payment immediately prior to the revenue recognition and revenue recognized to be recorded as other expense.
We may satisfy any future cash needs through sales of equity securities under the Company’s 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 the Company, or if realized, what the terms may be.
We may satisfy any future cash needs through sales of equity securities under the 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.
Notably, the peak annual net sales forecast (for the AVTX-007 Milestones and Royalties) and the probability of success (for both the AVTX-501 Milestone and the AVTX-007 Milestone and Royalties) are the largest drivers of the fair value, so changes to either would likely result in significant changes to the fair value.
Notably, the peak annual net sales forecast (for the AVTX-007 Milestones and Royalties) and the probability of success (for both the AVTX-501 Milestone and the AVTX-007 Milestone and Royalties) are the largest drivers of the fair value, so changes to either would likely result in significant changes to their respective fair values.
The economic rights sold include (a) rights to a milestone payment of $20.0 million upon the filing and acceptance of an NDA for AVTX-501 pursuant to an agreement with Janssen Pharmaceuticals, Inc., now Johnson & Johnson Innovative Medicine (“J&J”) (the “AVTX-501 Milestone”) and (b) rights to any future milestone payments and royalties relating to AVTX-007 under a license agreement with Apollo AP43 Limited, including up to $6.25 million of development milestones, up to $67.5 million in sales-based milestones, and royalty payments of a low single digit percentage of annual net sales (which percentage increases to another low single digit percentage if annual net sales exceed a specified threshold) (the “AVTX-007 Milestones and Royalties”).
The economic rights sold include (a) rights to a milestone payment of $20.0 million upon the filing and acceptance of an NDA for AVTX-501 pursuant to an agreement with Janssen Pharmaceutics, Inc., now Johnson & Johnson Innovative Medicine (“J&J”) (the “AVTX-501 Milestone”) and (b) rights to any future milestone payments and royalties relating to AVTX-007 under a license agreement with Apollo AP43 Limited (“Apollo”), including up to $6.25 million of development milestones, up to $67.5 million in sales-based milestones, and royalty payments over a ten year period of a low single digit percentage of annual net sales (which percentage increases to another low single digit percentage if annual net sales exceed a specified threshold) (the “AVTX-007 Milestones and Royalties”).
You should review the “Risk Factors” section in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview Avalo Therapeutics, Inc.
You should review the “Risk Factors” section in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors, such as clinical research organizations, with respect to their actual costs incurred.
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to us by our vendors, such as clinical research organizations, with respect to their actual costs incurred.
In addition, Avalo waived all its rights to AVTX-611 sales-based payments of up to $20.0 million that were payable by ES. The exchange of the economic rights of the AVTX-501 Milestone and AVTX-007 Milestones and Royalties for cash met the definition of a derivative instrument.
In addition, we waived all of our rights to AVTX-611 sales-based payments of up to $20.0 million that were payable by ES. The exchange of the economic rights of the AVTX-501 Milestone and AVTX-007 Milestones and Royalties for cash met the definition of a derivative instrument.
At the time of the transaction, Armistice was a significant stockholder of the Company whose chief investment officer, Steven Boyd, and managing director, Keith Maher, served on Avalo’s Board until August 8, 2022. The ES Transaction was approved in accordance with Avalo’s related party transaction policy.
At the time of the transaction, Armistice was a significant stockholder of ours whose chief investment officer, Steven Boyd, and managing director, Keith Maher, served on our Board until August 8, 2022. The ES Transaction was approved in accordance with our related party transaction policy.
As typical in the biotechnology industry, each milestone has its own unique risks that the Company evaluates when determining the probability of achieving each milestone and the probability of success evolves over time as the programs progress and additional information is obtained.
As typical in the biotechnology industry, each milestone has its own unique risks that we evaluate when determining the probability of achieving each milestone and the probability of success evolves over time as the programs progress and additional information is obtained.
The Company considers numerous factors when evaluating whether a given milestone is probable including (but not limited to) the regulatory pathway, development plan, ability to dedicate sufficient funding to reach a given milestone and the probability of success.
We consider numerous factors when evaluating whether a given milestone is probable including (but not limited to) the regulatory pathway, development plan, ability to dedicate sufficient funding to reach a given milestone and the probability of success.
Stock-Based Compensation The Company applies the provisions of ASC 718, Compensation—Stock Compensation , which requires the measurement and recognition of compensation expense for all stock‑based awards made to employees, including employee stock options, in the statements of operations and comprehensive loss.
Stock-Based Compensation We apply the provisions of ASC 718, Compensation—Stock Compensation , which requires the measurement and recognition of compensation expense for all stock‑based awards made to employees, including employee stock options, in the statements of operations and comprehensive loss.
For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black‑Scholes option pricing model.
For stock options issued to employees and members of the board of directors for their services, we estimate the grant date fair value of each option using the Black‑Scholes option pricing model.
Off‑Balance Sheet Arrangements The Company does not have any off‑balance sheet arrangements, as defined by applicable SEC rules and regulations. Recently Adopted Accounting Pronouncements For a discussion of new accounting standards, see Note 2 to consolidated financial statements contained in this Annual Report on Form 10-K. 57 Table of Contents
Off‑Balance Sheet Arrangements We do not have any off‑balance sheet arrangements, as defined by applicable SEC rules and regulations. Recently Adopted Accounting Pronouncements For a discussion of new accounting standards, see Note 2 to consolidated financial statements contained in this Annual Report on Form 10-K. 69 Table of Contents
The Company determines accrual estimates by taking into account discussions with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates.
We determine accrual estimates by taking into account discussions with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ from its estimates.
Derivative Liability In the fourth quarter of 2022, Avalo sold its economic rights to future milestone and royalty payments for previously out-licensed assets AVTX-501, AVTX-007, and AVTX-611 to ES Therapeutics, LLC (“ES”), an affiliate of Armistice Capital Master Fund Ltd. (an affiliate of Armistice Capital, LLC, and collectively “Armistice”), in exchange for $5.0 million (the “ES Transaction”).
Derivative Liability In the fourth quarter of 2022, we sold our economic rights to future milestone and royalty payments for previously out-licensed assets AVTX-501, AVTX-007, and AVTX-611 to ES Therapeutics, LLC (“ES”), an affiliate of Armistice Capital LLC (“Armistice”), in exchange for $5.0 million (the “ES Transaction”).
The Company’s objective is to reflect the appropriate trial expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial.
Our objective is to reflect the appropriate trial expenses in our financial statements by matching those expenses with the period in which services are performed and efforts are expended. We account for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial.
The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third‑party vendors.
We make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known at that time. Our clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third‑party vendors.
Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed might vary and might result in it reporting amounts that are too high or too low for any particular period.
Although we do not expect our estimates to be materially different from amounts 68 Table of Contents actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed might vary and might result in reporting amounts that are too high or too low for any particular period.
The Company closely monitors its cash and cash equivalents and seeks 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 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.
Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.
Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be. We are party to license and development agreements for in-licensed research and development assets with third parties.
However, given Avalo is no longer entitled to collect these payments, the potential ultimate settlement of the payments in the future from J&J and/or Apollo to ES Therapeutics (and the future mark-to-market activity each reporting period) will not impact Avalo’s future cash flows.
However, given we are no longer entitled to collect these payments, the potential ultimate settlement of the payments in the future from J&J and/or Apollo to ES Therapeutics (and the future mark-to-market activity each reporting period) will not impact our future cash flows. Research and Development Costs Research and development costs are expensed as incurred.
For awards subject to service‑based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock‑based compensation expense equal to the grant date fair value of stock options on a straight‑line basis over the requisite service period, which is generally the vesting term.
For awards subject to service‑based vesting conditions, 66 Table of Contents including those with a graded vesting schedule, we recognize stock‑based compensation expense equal to the grant date fair value of stock options on a straight‑line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred.
Based on our current operating plans, we expect that our existing cash and cash equivalents are sufficient to fund operations into at least 2027.
Based on our current operating plans, we expect that our existing cash, cash equivalents and short-term investments are sufficient to fund operations into 2028.
We believe the ability to achieve the next anticipated milestone as presented in the section entitled “Business” in Item 1 of this Annual Report on Form 10-K represents our most immediate evaluation point as to the progression of our pipeline. 2024 Financial Operations Overview As of December 31, 2024, Avalo had $134.5 million in cash and cash equivalents, representing a $127.1 million increase compared to December 31, 2023.
We believe the ability to achieve the next anticipated milestone as presented in the section entitled “Business” in Item 1 of this Annual Report on Form 10-K represents our most immediate evaluation point as to the progression of our pipeline. 2025 Financial Operations Overview As of December 31, 2025, we had $98.3 million in cash and cash equivalents and short-term investments.
Net cash provided by (used in) investing activities 53 Table of Contents Net cash provided by investing activities for the year ended December 31, 2024 consisted of the cash acquired as part of the AlmataBio Transaction. Net cash used in investing activities was minimal for the year ended December 31, 2023.
Net cash provided by investing activities for the year ended December 31, 2024 consisted of the cash acquired as part of the AlmataBio Transaction.
Income Tax Expense The following table summarizes our income tax expense for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 (in thousands) Income tax expense $ 114 $ 14 The Company recognized minimal income tax expense for the years ended December 31, 2024 and 2023.
Income Tax Expense The following table summarizes our income tax expense for the years ended December 31, 2025 and 2024: 64 Table of Contents Year Ended December 31, 2025 2024 (in thousands) Income tax expense $ 165 $ 114 We recognized minimal income tax expense for the years ended December 31, 2025 and 2024.
As a result, if factors change and we use significantly different assumptions or estimates when valuing our stock options, our stock‑based compensation expense could be materially different. We recognize compensation expense for only the portion of awards that are expected to vest.
As a result, if factors change and we use significantly different assumptions or estimates when valuing our stock options, our stock‑based compensation expense could be materially different.
General and Administrative Expenses The following table summarizes our general and administrative expenses for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 (in thousands) Salaries, benefits and related costs $ 4,634 $ 2,340 Legal, consulting and other professional expenses 7,096 4,959 Stock-based compensation expense 3,450 2,157 Commercial planning and marketing expenses 789 33 Other 1,272 811 $ 17,241 $ 10,300 General and administrative expenses increased $6.9 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.
General and Administrative Expenses The following table summarizes our general and administrative expenses for the years ended December 31, 2025 and 2024: 63 Table of Contents Year Ended December 31, 2025 2024 (in thousands) Salaries, benefits and related costs $ 6,558 $ 4,634 Legal, consulting and other professional expenses 6,786 7,096 Stock-based compensation expense 7,629 3,450 Commercial planning and marketing expenses 470 789 Other 1,457 1,272 $ 22,900 $ 17,241 General and administrative expenses increased $5.7 million for the year ended December 31, 2025 compared to the prior year period.
The Company is a party to license and development agreements for in-licensed research and development assets with third parties. Such agreements often contain future payment obligations such as royalties and milestone payments. The Company recognizes a liability (and related research and development expense) for each milestone if and when such milestone is probable and can be reasonably estimated.
Such agreements often contain future payment obligations such as royalties and milestone payments. We recognize a liability (and related research and development expense) for each milestone if and when such milestone is probable and can be reasonably estimated.
Clinical Trial Expense Accruals 56 Table of Contents The Company estimates its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials.
Clinical Trial Expense Accruals We estimate our expenses resulting from our obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials.
As of December 31, 2024, the fair value of the derivative liability was $8.5 million, all of which was attributable to the AVTX-007 Milestones and Royalties and $0.4 million of which was classified as a current liability with the remainder classified as a non-current liability as of December 31, 2024.
As of December 31, 2025, the fair value of the derivative liability was $18.0 million, all of which was attributable to the AVTX-007 Milestone and Royalties and was 67 Table of Contents classified as a non-current liability.
As additional information becomes available, the Company could recognize expense (or a benefit) for differences between actuals or updated estimates to the reserves previously recognized, which could be recognized in cost of product sales.
The Company ceased selling Millipred ® in September 2023. We do not expect significant movement in estimates of commercial liabilities, however, if additional information becomes available, we could recognize expense (or a benefit) for differences between actuals or updated estimates to the reserves previously recognized, which could be recognized in cost of product sales.
Research and Development Expenses The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 (in thousands) Nonclinical expenses $ 570 $ 1,029 Clinical expenses 9,966 5,780 CMC expenses 5,106 1,855 Internal expenses: Salaries, benefits and related costs 6,164 3,576 Stock-based compensation expense 2,402 1,318 Other 229 226 $ 24,437 $ 13,784 Research and development expenses increased $10.7 million for the year ended December 31, 2024, compared to the year ended December 31, 2023.
Research and Development Expenses The following table summarizes our research and development expenses for the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 2024 (in thousands) Nonclinical expenses $ 824 $ 570 Clinical expenses 24,865 9,966 CMC expenses 9,657 5,106 Internal expenses: Salaries, benefits and related costs 8,502 6,164 Stock-based compensation expense 5,992 2,402 Other 244 229 $ 50,084 $ 24,437 Research and development expenses increased $25.6 million for the year ended December 31, 2025 compared to the prior period.
Acquired in-process research and development In the first quarter of 2024, we acquired AVTX-009 pursuant to the AlmataBio Transaction (as defined in Note 3 to the consolidated financial statements), resulting in us recording $27.6 million of acquired in-process research and development (“IPR&D”).
Acquired In-Process Research and Development In the first quarter of 2024, we acquired abdakibart (AVTX-009) through the AlmataBio Transaction (as defined in Note 3 to the consolidated financial statements included in this Annual Report on Form 10-K), resulting in us acquiring $27.6 million of in-process research and development (“IPR&D”) for the year ended December 31, 2024.
Cash Flows The following table summarizes our cash flows for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 (in thousands) Net cash provided (used in) by: Operating activities $ (49,056) $ (30,680) Investing activities 356 (133) Financing activities 175,849 25,042 Net increase (decrease) in cash and cash equivalents $ 127,149 $ (5,771) Net cash used in operating activities Net cash used in operating activities in 2024 consisted primarily of a net loss of $35.1 million and non-cash adjustments to reconcile net loss to net cash used in operating activities including the change in fair value of the warrant liability of $121.6 million, excess of initial warrant fair value over private placement proceeds of $79.3 million, acquired IPR&D of $27.6 million, $12.5 million milestone payments made to the former AlmataBio stockholders, the change in fair value of the derivative liability of $2.9 million, and stock-based compensation of $5.9 million.
Net cash used in operating activities in 2024 consisted primarily of a net loss of $35.1 million and non-cash adjustments to reconcile net loss to net cash used in operating activities including the change in fair value of the warrant liability of $121.6 million, excess of initial warrant fair value over private placement proceeds of $79.3 million, acquired IPR&D of $27.6 million, $12.5 million milestone payments made to the former AlmataBio stockholders, the change in fair value of the derivative liability of $2.9 million, and stock-based compensation of $5.9 million.
The significant inputs include probabilities of success, expected timing, and forecasted sales as well as market-based inputs for volatility, risk-adjusted discount rates and allowance for counterparty credit risk, all of which are unobservable and based on the best information available to Avalo.
The significant inputs including probabilities of success, expected timing, and forecasted sales as well as market-based inputs for volatility, risk-adjusted discount rates and allowance for counterparty credit risk are unobservable and based on the best information available to us. Certain information used in the valuation is inherently limited in nature and could differ from J&J’s and Apollo’s internal estimates.
The assumptions we used to determine the fair value of stock options granted to employees and members of the board of directors are as follows: Year Ended December 31, Service-based options 2024 2023 Expected term of options (in years) 5.81 — 6.25 5.00 — 6.25 Expected stock price volatility 113.1% — 116.9% 89.8% — 146.0% Risk-free interest rate 3.70% — 4.26% 3.43% — 4.13% Expected annual dividend yield 0% 0% The estimates involved in the valuations include inherent uncertainties and the application of our judgment.
The assumptions we used to determine the fair value of stock options granted to employees and members of the board of directors are as follows: Year Ended December 31, Service-based options 2025 2024 Expected term of options (in years) 5.00 — 6.10 5.81 — 6.25 Expected stock price volatility 99.9% — 113.1% 113.1% — 116.9% Risk-free interest rate 3.73% — 4.45% 3.70% — 4.26% Expected annual dividend yield 0% 0% Each Restricted Stock Unit (“RSU”) represents one equivalent share of our common stock to be issued after satisfying the applicable continued service-based vesting criteria over a specified period.
Further, 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.
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. Uses of Liquidity We primarily use cash to fund the ongoing development of abdakibart (AVTX-009) and costs associated with its organizational infrastructure.
The Company believes, given current facts and circumstances, our estimates and assumptions are reasonable, adhere to U.S. generally accepted accounting principles (“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.
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.
Certain information used in the valuation is inherently limited in nature and could differ from J&J and Apollo’s internal estimates. The fair value of the derivative liability as of the transaction date was approximately $4.8 million, of which $3.5 million was attributable to the AVTX-501 Milestone and $1.3 million was attributable to the AVX-007 Milestones and Royalties.
The fair value of the derivative liability as of the transaction date was approximately $4.8 million, of which $3.5 million was attributable to the AVTX-501 Milestone and $1.3 million was attributable to the AVTX-007 Milestones and Royalties. Subsequent to the transaction date, at each reporting period, the derivative liability is remeasured at fair value.
Given the full exercise of the warrants, there was no warrant liability as of December 31, 2024, resulting in the $121.6 million gain on the change in fair value recognized in other income (expense), net in the accompanying consolidated financial statements of operations and comprehensive loss for the year ended December 31, 2024.
For the year ended December 31, 2025, the $9.5 million change in fair value was recognized in other expense, net in the accompanying consolidated statements of operations and comprehensive loss.
The increase was driven by a $2.3 million increase in salaries, benefits and related costs due to increased non-equity incentive plan compensation expense, as well as a $1.3 million increase to stock-based compensation expense due to option and restricted stock unit grants during the period, including the annual grant in August 2024.
The increase was driven primarily by a $4.2 million increase in stock-based compensation expense due to option and restricted stock unit grants made during the second half of 2024 and in 2025, including the annual grants in August 2024 and January 2025 as well as new hire grants.
As additional information becomes available, the Company could recognize expense (or benefit) for differences between actuals or updated estimates to the reserves previously recognized. As such, the Company recognized $0.4 million in product revenue, net for the year ended December 31, 2024, compared to $1.4 million related to product sales for the year ended December 31, 2023.
We do not expect significant movement in estimates of commercial liabilities, however, if additional information becomes available, we could recognize expense (or a benefit) for differences between actuals or updated estimates to the reserves previously recognized, which could be recognized in net product revenue. 62 Table of Contents Cost of Product Sales We recognized no cost of product sales for the year ended December 31, 2025 compared to a benefit of $0.4 million for the same period in 2024, which related to the change in an estimate of commercial liabilities for the Millipred ® product.
Liquidity and Capital Resources, including Capital Expenditure and Cash Requirements Since inception, we have incurred significant operating and cash losses from operations.
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.
The increase was partially offset by $7.5 million of transaction costs paid related to the private placement and $1.7 million of transaction costs paid related to the warrant exercises.
The increase was partially offset by $7.5 million of transaction costs paid related to the private placement and $1.7 million of transaction costs paid related to the warrant exercises. Critical Accounting Estimates and Assumptions In preparing the financial statements, we make estimates and assumptions that have an impact on assets, liabilities, revenue and expenses reported.
For the year ended December 31, 2024, the $2.9 million loss on the change in fair value was recognized in other income (expense), net in the accompanying consolidated statements of operations and comprehensive loss. 55 Table of Contents The fair value of the AVTX-501 Milestone was deemed to be $0.0 million, driven by less than 1% probability of success based on Avalo’s interpretation of a recent announcement from J&J noting the discontinuation of the aticaprant depression program (previously referred to as AVTX-501 by Avalo), which was the only indication that we are aware they were pursuing, paired with a lack of commitment to an alternative indication.
The fair value of the AVTX-501 Milestone was deemed to be de minimis, driven by less than 1% probability of success based on our interpretation of an announcement from J&J in March 2025, noting the discontinuation of the aticaprant depression program (previously referred to as AVTX-501 by us), which was the only indication publicly disclosed, paired with a lack of commitment to an alternative indication.
In addition, legal, consulting and other professional expenses increased $2.1 million for accounting and reporting work incurred as well as increased consulting services following and largely related to the AlmataBio acquisition and March 2024 private placement.
These increases were partially offset by a $0.3 million decrease in legal, consulting and other professional expenses compared to the prior year period related to increased expenses incurred in the prior period for accounting, reporting and consulting services incurred following the AlmataBio Transaction and concurrent private placement financing in March 2024.
Management’s primary evaluation of Avalo’s success is the ability to progress its programs towards commercialization or opportunistically out-licensing rights to indications or geographies.
Our current focus is completing the Phase 2 LOTUS trial, preparing for the anticipated topline data readout in the second quarter of 2026, and planning for our Phase 3 trial(s). 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.
Results of Operations 49 Table of Contents Comparison of the Years Ended December 31, 2024 and 2023 Product Revenue, net The Company’s license and supply agreement for Millipred ® expired, as planned, on September 30, 2023. The Company continues to monitor estimates for commercial liabilities, such as sales returns.
Our license and supply agreement for Millipred ® expired on September 30, 2023 as planned and as such there was no gross revenue recognized from sales for the years ended December 31, 2025 and December 31, 2024.
The LOTUS Trial is a global study designed to enroll 180 adults with HS to assess the efficacy and safety of convenient subcutaneous bi-weekly and monthly dosing regimens of AVTX-009, compared to placebo, with topline data expected in 2026.
The global study which includes approximately 250 adults with moderate to severe hidradenitis suppurativa is designed to evaluate the efficacy and safety of subcutaneous bi-weekly and monthly dosing regimens compared to placebo.
The fair value of AVTX-007 Milestones and Royalties was primarily driven by sales forecasts with peak annual net sales reaching $1.8 billion in atopic dermatitis, which is a much larger market opportunity than adult-onset Still’s disease (the previous indication being pursued that was contemplated in valuations through the first quarter of 2024), an approximate 17% probability of success, and an estimated time to commercialization of approximately 6.0 years.
The fair value of AVTX-007 Milestones and Royalties was primarily driven by sales forecasts with peak annual net sales reaching $1.7 billion in atopic dermatitis, an approximate 41% probability of success, and an estimated time to commercialization of approximately 6.5 years, based on our interpretation of Apollo’s September 2025 announcement that the drug met the primary endpoint in its Phase 2a clinical trial in atopic dermatitis.
Net loss for the year ended December 31, 2024 was $35.1 million, representing a $3.6 million increase in net loss as compared to the prior year.
Net cash used in operating activities was $51.5 million for the year ended December 31, 2025. Our current cash, cash equivalents and short-term investments are expected to fund operations into 2028. Net loss for the year ended December 31, 2025 was $78.3 million, representing a $43.1 million increase in net loss as compared to the prior year.
Cost of Product Sales We recognized a benefit of $0.4 million to cost of product sales for the year ended December 31, 2024, compared to cost of product sales of $1.3 million for the same period in 2023.
Results of Operations Comparison of the Years Ended December 31, 2025 and 2024 Product Revenue, net We recognized minimal net product revenue for the year ended December 31, 2025 compared to $0.4 million for the year ended December 31, 2024, which related to a change in estimate of commercial liabilities, mainly sales returns, for the Millipred ® product.
Net cash used in operating activities in 2023 consisted primarily of a net loss of $31.5 million and non-cash adjustments to reconcile net loss to net cash used in operating activities, including goodwill impairment of $3.9 million, stock-based compensation of $3.5 million, accretion of debt discount of $1.8 million, and increase in fair value of the derivative liability of $0.7 million.
The non-cash charges consisted primarily of $13.6 million in stock-based compensation and a change in the fair value of the derivative liability of $9.5 million.
As of December 31, 2024, Avalo had $134.5 million in cash and cash equivalents. For the year ended December 31, 2024, the Company raised approximately $175.8 million of net proceeds from a private placement and the subsequent exercise of warrants issued in the private placement.
For the year ended December 31, 2025, we generated a net loss of $78.3 million and negative cash flows from operations of $51.5 million. As of December 31, 2025, we had $98.3 million in cash and cash equivalents and short-term investments.
Net cash provided by financing activities for the year ended December 31, 2023 consisted of net proceeds of $46.2 million from equity financings, partially offset by debt principal payments of $21.2 million, inclusive of the full payoff of the loan in September of 2023. Avalo fully retired its debt in 2023.
Net cash (used in) provided by investing activities Net cash used in investing activities for the year ended December 31, 2025 consisted of $113.7 million of purchases of available-for-sale investments, partially offset by $32.0 million of proceeds from maturities of available-for-sale investments.
We recognized the fair value of the IPR&D, substantially all of which is related to AVTX-009, for the year ended December 31, 2024 as there is no alternative future use. There was no acquired IPR&D for the year ended December 31, 2023.
There was no acquired IPR&D for the year ended December 31, 2025.
Removed
(the “Company,” “Avalo” or “we”) is a clinical stage biotechnology company focused on the treatment of immune dysregulation. Avalo’s lead asset is AVTX-009, an anti-IL-1β monoclonal antibody (“mAb”), targeting inflammatory diseases. Our initial focus in 2024 was augmenting our immunology pipeline and securing financing to develop our pipeline.
Added
Overview We are a clinical stage biotechnology company fully dedicated to developing IL-1β-based treatments for immune-mediated inflammatory diseases. Our lead product candidate, abdakibart (AVTX-009), an anti-IL-1β monoclonal antibody (“mAb”) is in a Phase 2 clinical trial for hidradenitis suppurativa (“HS”). We are also exploring additional opportunities to make an impact in prevalent indications that have significant remaining unmet needs.
Removed
In March 2024, we acquired our lead asset, AVTX-009, through our acquisition of AlmataBio, Inc. (“AlmataBio”). Concurrently, we executed a private placement of $185 million, including initial upfront investment of $115.6 million received in March 2024.
Added
In 2025, we were focused on executing operationally on the development of abdakibart (AVTX-009) in HS including progressing the Phase 2 clinical trial, which we refer to the Phase 2 LOTUS trial.
Removed
We received the remaining $69.4 million of gross proceeds in the fourth quarter of 2024 upon the full exercise of the warrants issued as part of the transaction. Immediately following the acquisition of AVTX-009, our focus shifted to executing operationally on the development of AVTX-009 for the treatment of hidradenitis suppurativa (“HS”).
Added
Research and development expenses increased $25.6 million from the prior year driven by costs related to and supporting the Phase 2 LOTUS trial. General and administrative expenses increased $5.7 million from the prior year mainly due to increased stock-based compensation. These increases were offset by a $27.6 million acquired in-process research and development charge in 2024 that did not repeat.
Removed
This included activation of the Investigational New Drug (“IND”) application in July 2024 and enrolling the first patient in our Phase 2 LOTUS trial in October 2024 (the “LOTUS Trial”).
Added
Further, we recognized $5.2 million of other expense for the year ended December 31, 2025 as compared to $33.5 million of other income in the prior year, which contributed to the increase in net loss. The other income recognized in the prior period primarily related to the accounting impact of the warrants that were issued and exercised in 2024.
Removed
Our focus in 2025 is continuing to execute operationally on the development of AVTX-009, most notably the progression of the LOTUS Trial. We are committed to executing the LOTUS Trial effectively and efficiently, as well as exploring AVTX-009’s potential broad applications for other immune-mediated diseases as we work toward the announcement of our second indication.
Added
We expect operating expenses to be largely consistent with 2025 through the Phase 2 LOTUS trial topline data readout expected in the second quarter of 2026, however, expenses beyond the data readout are difficult to predict given they will be highly dependent on the outcome of the trial.
Removed
During the year, we raised approximately $175.8 million of net proceeds from a private placement and the subsequent exercise of warrants issued in the private placement.
Added
The increase was driven by increases in clinical and CMC expenses of $14.9 million and $4.6 million, respectively.
Removed
Net cash used in operating activities were $49.1 million for the year ended December 31, 2024, which includes $12.5 million of milestone payments to AlmataBio pursuant to the terms of the acquisition in the first quarter. The Company’s current cash on hand is expected to fund operations into at least 2027.
Added
Clinical expenses increased due to progress in the current year for the Phase 2 LOTUS trial in HS, including site activations, patient trial costs and clinical trial work performed by our contract research organization, as compared to trial enabling and activation activities incurred in the prior year period.
Removed
Total operating expenses increased by $39.7 million, which was driven by the recognition of $27.6 million of acquired in-process research and development from the acquisition of AlmataBio in the first quarter of 2024, as well as a $10.7 million increase in research and development expenses and a $6.9 million increase in general and administrative expenses.
Added
CMC expenses increased due to raw material purchases and drug manufacturing activities to support the trial during the current year.
Removed
Increased research and development expenses were driven by AVTX-009 development costs, including trial initiation and progression, as well as manufacturing, partially offset by limited development costs incurred in 2024 on other legacy programs.
Added
Additionally, stock-based compensation increased $3.6 million compared to the year ended December 31, 2024 due to option and restricted stock unit grants made during the second half of 2024 and in 2025, including the annual employee grants in August 2024 and January 2025, as well as headcount additions.
Removed
Increased general and administrative costs were driven by employee compensation costs, including stock-based compensation expense, as well as increased consulting, legal and other professional expenses following acquisition and financing that took place in the first quarter of 2024.

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