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What changed in Avalo Therapeutics, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Avalo Therapeutics, Inc.'s 2023 and 2024 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 2024 report.

+398 added−367 removedSource: 10-K (2025-03-20) vs 10-K (2024-03-29)

Top changes in Avalo Therapeutics, Inc.'s 2024 10-K

398 paragraphs added · 367 removed · 232 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

50 edited+39 added−33 removed71 unchanged
Biggest changeThese include the following: • 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. 6 Table of Contents If our operations are found to be in violation of any of these laws, regulations, rules or policies or any other law or governmental regulation, or if interpretations of the foregoing change, we may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations.
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.
The preparation of a NDA or BLA requires the expenditure of substantial funds and the commitment of substantial resources. Additionally, at the time of a 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”).
In addition to the cumulative safety and efficacy data generated from the clinical trials described above, chemistry, manufacturing and control (“CMC”) information, nonclinical study data and proposed labeling form the basis to support approval of a NDA or BLA to the FDA.
In addition to the cumulative safety and efficacy data generated from the clinical trials described above, chemistry, manufacturing and control (“CMC”) information, nonclinical study data and proposed labeling form the basis to support approval of an NDA or BLA to the FDA.
In addition, many of our competitors and their collaborators have substantially greater advantages in the following areas: • capital resources; • research and development resources; • manufacturing capabilities; and • sales and marketing resources. 4 Table of Contents Smaller companies might also prove to be significant competitors, particularly through proprietary research discoveries and collaborative arrangements with large pharmaceutical and established biotechnology companies.
In addition, many of our competitors and their collaborators have substantially greater advantages in the following areas: • capital resources; • research and development resources; • manufacturing capabilities; and • sales and marketing resources. Smaller companies might also prove to be significant competitors, particularly through proprietary research discoveries and collaborative arrangements with large pharmaceutical and established biotechnology companies.
Further, the Center for Medicare & Medicaid Services (“CMS”), the agency that administers the Medicare and Medicaid programs, also has authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products.
Further, the Center for Medicare & Medicaid Services (“CMS”), the agency that administers the Medicare and Medicaid 7 Table of Contents programs, also has authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products.
Similar extensions to patent term may be available in other countries for particular patents in our portfolio. 3 Table of Contents 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.
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.
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 drug application (“NDA”) or biologics license application (“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, 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.
The ACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new 7 Table of Contents taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms.
The ACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms.
The data exclusivity period prevents generic applicants from relying on the preclinical and clinical trial data contained in the dossier of the reference 10 Table of Contents 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 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 FDA conducts a preliminary administrative review upon receipt 5 Table of Contents 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, the Sponsor of the application must resolve the deficiencies and re-submit the application, re-starting the review clock.
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, 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 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.
Specifically, the applicant must certify with respect to each patent that: • the required patent information has not been filed; • the listed patent has expired; • the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or 8 Table of Contents • the listed patent is invalid, unenforceable, or will not be infringed by the new product.
Specifically, the applicant must certify with respect to each patent that: • the required patent information has not been filed; • the listed patent has expired; • the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or • the listed patent is invalid, unenforceable, or will not be infringed by the new product.
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 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 .
Pursuant to the Almata Transaction, the Company will make 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.
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.
Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug.
Drugs approved in this way are commonly referred to as 8 Table of Contents “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug.
The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “Affordable Care Act” or “ACA”), substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry.
The Patient Protection and Affordable Care Act of 2010, as amended (the “Affordable Care Act” or “ACA”), substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry.
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.
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.
Further, a portion of the consideration for the Almata Transaction includes development milestones to the former AlmataBio stockholders including $5 million due upon the first patient dosed in a Phase 2 trial in patients with hidradenitis suppurativa for AVTX-009 and $15 million due upon the first patient dosed in a Phase 3 trial for AVTX-009, both of which are payable in cash or stock of Avalo (or a combination thereof) at the election of the former AlmataBio stockholders.
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.
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 development and marketing.
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.
Competition for specific pipeline assets is discussed above within the “Pipeline Assets” section. 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.
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.
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.
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.
The data generated from nonclinical studies is used to support the filing of an investigational new drug application (“IND”) under which human studies are conducted.
The data generated from nonclinical studies is used to support the filing of an IND under which human studies are conducted.
Pipeline — Overview, Competition, and Intellectual Property AVTX-009: Anti-IL-1β monoclonal antibody (“mAb”) targeting inflammatory diseases. 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.
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.
Under the BPCIA, a reference biologic is granted 12 9 Table of Contents years of exclusivity from the time of first licensure of the reference product. This 12-year period includes 4 years before the FDA may accept for filing an application for a biologic that references a branded (reference) product. Pediatric Exclusivity.
Under the BPCIA, a reference biologic is granted 12 years of exclusivity from the time of first licensure of the reference product. This 12-year period includes 4 years before the FDA may accept for filing an application for a biologic that references a branded (reference) product. The BPCIA is complex and continues to be interpreted and implemented by the FDA.
Other legislative changes have been proposed and adopted since passage of the ACA. These have, among other things, reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers. Further legislative and regulatory changes under the ACA remain possible.
Since its passage, there have been persistent efforts to modify or eliminate the ACA. These have, among other things, reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers.
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 value diversity and inclusiveness at all levels.
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.
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. Intellectual property for specific pipeline assets, if applicable, are discussed above within the “Pipeline - Overview, Competition and Intellectual Property” section.
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.
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. Our competitors may also develop alternative therapies that could limit the market for any approved drugs that we may develop.
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.
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.
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.
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.
Our competitors may also develop alternative therapies that could limit the market for any approved drugs that we may develop. 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.
Item 1. Business. Overview Avalo Therapeutics, Inc. (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. Avalo’s pipeline also includes quisovalimab (anti-LIGHT mAb) and AVTX-008 (BTLA agonist fusion protein).
Item 1. Business. Overview Avalo Therapeutics, Inc. (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. Avalo was incorporated in Delaware and commenced operation in 2011, and completed its initial public offering in October 2015.
The information on, or that can be accessed through, our website is not part of this report.
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.
Pursuant to this, the CMS announced in August 2023 that it had selected the first ten drugs covered under Medicare Part D for negotiation. It is unknown what this negotiation will yield or what form any future changes or any law would take, and how or whether it may affect our business in the future.
It is unknown what this negotiation will yield or what form any future changes or any law would take, and how or whether it may affect our business in the future.
Market, Data, and Patent Exclusivity: If we receive marketing approval, we expect to receive biologics data exclusivity in the United States, which may provide twelve years of data exclusivity in the United States from the date of FDA approval. Additionally, patents exclusively licensed from Sanford Burnham Prebys may provide exclusivity in the United States through 2036 absent any extension.
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.
Overview: Quisovalimab is a fully human mAb, directed against human LIGHT ( L ymphotoxin-like, exhibits I nducible expression, and competes with HSV G lycoprotein D for H erpesvirus Entry Mediator (“HVEM”), a receptor expressed by T lymphocytes; also referred to as TNFSF14).
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.
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 application of the approved product.
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.
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 instances may delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all.
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.
In addition, the Affordable Care Act has also been subject to challenges in the courts, which remain ongoing. Payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives as well.
Payment methodologies may be subject to further changes in healthcare legislation and regulatory initiatives as well.
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.
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.
Each EU Member State has its own national authorization procedures. • Decentralized procedure.
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.
Eleven 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. We believe that our future success largely depends upon our ability to attract and retain highly skilled and qualified personnel.
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.
The Biden administration has signaled that it plans to build on the ACA and has expanded the number of people who are eligible for subsidies under it. The Inflation Reduction Act of 2022, enacted on August 16, 2022, includes several provisions to lower prescription drug costs for Medicare patients and reduce drug spending by the federal government.
The Inflation Reduction Act of 2022, enacted on August 16, 2022 (“IRA”), includes several provisions to lower prescription drug costs for Medicare patients and reduce drug spending by the federal government, which could affect the pricing and reimbursement of our product candidates if they are approved for commercial sale.
(“AlmataBio”) in the first quarter of 2024 (the “Almata Transaction”). AlmataBio had previously purchased the rights, title and interest in the asset from Leap Therapeutics, Inc. (“Leap”) in 2023. Avalo is required to pay up to $70 million based on the achievement of specified development and regulatory milestones.
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.
Biosimilarity to an approved reference product requires that there be no differences in conditions of use, route of administration, dosage form, and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency.
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.
Currently, worldwide there are two drugs approved for hidradenitis suppurativa (“HS”). License: AVTX-009 is being developed through a world-wide exclusive license from Eli Lilly and Company (“Lilly”) (the “Lilly License Agreement”). Avalo obtained the rights to AVTX-009, including the world-wide exclusive license from Lilly, pursuant to its acquisition of AlmataBio, Inc.
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”).
In order to meet the higher hurdle of interchangeability, a sponsor must demonstrate that the biosimilar product can be expected to produce the same clinical result as the reference product, and for a product that is administered more than once, that the risk of switching between the reference product and biosimilar product is not greater than the risk of maintaining the patient on the reference product.
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.
Avalo is also required to pay KKC up to an aggregate of $112.5 million based on the achievement of specified development and regulatory milestones. Upon commercialization, the Company is required to make milestone payments to KKC aggregating up to $75 million tied to the achievement of annual net sales targets.
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.
IL-1β is a major, validated target for therapeutic intervention. There is evidence that inhibition of IL-1β could be effective in HS and a variety of inflammatory diseases in dermatology, gastroenterology, and rheumatology. Competition: As of the date of this report, and to our knowledge, AVTX-009 is one of three anti-IL-1β antibodies in clinical development worldwide.
There is evidence that inhibition of IL-1β could be effective in hidradenitis suppurativa, a chronic, often debilitating inflammatory skin disease that causes painful lumps, abscesses and tunnels to form under the skin (“HS”), and a variety of other inflammatory diseases in dermatology, gastroenterology, and rheumatology.
Our Strategy Our strategy for increasing stockholder value includes: • Advancing our pipeline of compounds through development to regulatory approval; • Developing the go-to-market strategy to quickly and effectively market, launch, and distribute each of our compounds that receive regulatory approval; • Opportunistically out-licensing rights to indications or geographies; and • Acquiring or in-licensing rights to targeted, complementary differentiated preclincal and clinical stage compounds.
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.
AVTX-008: Fully human B and T Lymphocyte Attenuator agonist fusion protein targeting immune dysregulation disorders. Overview: AVTX-008 is a fully human B and T Lymphocyte Attenuator (“BTLA”) agonist fusion protein. • AVTX-008 is uniquely positioned as a fusion protein with high-binding affinity and serum stability.
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.
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Avalo was incorporated in Delaware and commenced operation in 2011, and completed its initial public offering in October 2015.
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Our Strategy Our strategy for increasing stockholder value includes: • Advancing our pipeline through development to regulatory approval.
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Upon commercialization, the Company is required to pay sales-based milestones aggregating up to $720 million. Additionally, Avalo 1 Table of Contents is required to pay royalties during a country-by-country royalty term equal to a mid-single digit-to-low double digit of Avalo or its sublicensees’ annual net sales.
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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.
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Avalo is responsible for the development and commercialization of the AVTX-009 program. Market, Data, and Patent Exclusivity: If we receive marketing approval, we expect to receive biologics data exclusivity in the United States, which may provide twelve years of data exclusivity in the United States from the date of FDA approval. Quisovalimab (AVTX-002): Anti-LIGHT mAb targeting immune-inflammatory diseases.
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Prior to submitting a new drug application (“NDA”) or biologics license application (“BLA”), the FDA approval process typically involves the following: preclinical laboratory and animal testing, submission of an Investigational New Drug (“IND”) application, and human clinical trials to establish safety and efficacy.
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There is increasing evidence that the dysregulation of the LIGHT-signaling network which includes LIGHT, its receptor HVEM and LTβR and the downstream checkpoint BTLA, is a disease-driving mechanism in autoimmune and inflammatory reactions in barrier organs.
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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.
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Therefore, Avalo believes reducing LIGHT levels can moderate immune dysregulation in many acute and chronic inflammatory disorders. • Quisovalimab has shown a rapid and sustained reduction of LIGHT levels, as well as a favorable safety and tolerability profile, in all indications studied including COVID-19 acute respiratory distress syndrome (“ARDS”), Crohn’s Disease and non-eosinophilic asthma (“NEA”). • Quisovalimab was statistically significant in reducing respiratory failure and mortality in patients hospitalized with COVID-19 ARDS.
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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.
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Quisovalimab also demonstrated positive trends in an open-label study of Crohn’s Disease. • A post-hoc analysis of the Company’s Phase 2 randomized, double-blind placebo-controlled trial in patients with poorly controlled NEA showed a sub-population of NEA patients with baseline LIGHT levels of over 125 pg/mL, which represented over 50% of patients, and had an approximate 50% reduction in asthma-related events for patients treated with quisovalimab compared to placebo. • Avalo is conducting a strategic review of the quisovalimab program.
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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.
Removed
Competition: As of the date of this report, and to our knowledge, quisovalimab is the only anti-LIGHT mAb in clinical development in the United States. License: On March 25, 2021, the Company entered into a license agreement with Kyowa Kirin Co., Ltd. (“KKC”) for exclusive worldwide rights to develop, manufacture and commercialize quisovalimab for all indications (the “KKC License Agreement”).
Added
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.
Removed
The KKC License Agreement replaced the Amended and Restated Clinical Development and Option Agreement between the Company and KKC dated May 28, 2020. Under the KKC License Agreement, the Company paid KKC an upfront license fee of $10 million.
Added
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.
Removed
Additionally, the Company is required to pay KKC royalties during a country-by-country royalty term equal to a mid-teen percentage of annual net sales. The Company is required to pay KKC a double-digit percentage (less than 30%) of the payments that the Company receives from sublicensing its rights under the KKC License Agreement, subject to certain exclusions.
Added
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.
Removed
Avalo is responsible for the development and commercialization of quisovalimab in all indications worldwide (other than the option in the KKC License Agreement that, upon exercise by KKC, allows KKC to develop, manufacture and commercialize quisovalimab in Japan).
Added
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.
Removed
In addition to the KKC License Agreement, Avalo is responsible for making additional royalty payments upon commercialization of up to an amount of less than 10% of net sales. 2 Table of Contents Market, Data, and Patent Exclusivity: If we receive marketing approval, we expect to receive biologics data exclusivity in the United States, which would provide twelve years of data exclusivity in the United States from the date of FDA approval.
Added
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.
Removed
Additionally, patents exclusively licensed from KKC may provide exclusivity in the United States through 2028 absent any extension, and additional patent applications filed by us covering certain methods of using quisovalimab, if issued and properly maintained, should provide additional exclusivity in certain indications through 2043, absent any extension.
Added
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.
Removed
AVTX-008 is differentiated by having specific binding to BTLA, with no binding to LIGHT or CD160. • Avalo is conducting a strategic review of the AVTX-008 program. Competition: As of the date of this report, and to our knowledge, worldwide there are a total of five BTLA agonist antibodies in clinical development for the treatment of autoimmune diseases.
Added
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).
Removed
License: On June 21, 2021, the Company entered into an Exclusive Patent License Agreement with Sanford Burnham Prebys Medical Discovery Institute (the “Sanford Burnham Prebys License Agreement” or the “SBP License Agreement”) under which Avalo obtained an exclusive license to a portfolio of issued patents and patent applications covering AVTX-008.
Added
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.
Removed
Under the Sanford Burnham Prebys License Agreement, Avalo paid a mid-six digit upfront license fee and pays mid-five digit annual maintenance fees. Avalo is also required to pay Sanford Burnham Prebys up to approximately $24 million based on the achievement of specified development and regulatory milestones.
Added
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

133 edited+66 added−61 removed318 unchanged
Biggest changeOur 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 our product candidates and any future product candidates we may develop; 12 Table of Contents • The level of research and development investment required to develop product candidates; • 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 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 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; and • 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.
Biggest changeOur 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 relationship with any future collaborations may pose several risks, including the following: 28 Table of Contents • Collaborators have significant discretion in determining the amount and timing of the efforts and resources that they will apply to these collaborations; • Collaborators might not perform their obligations as expected; • The nonclinical studies and clinical trials conducted as part of these collaborations might not be successful; • Collaborators might not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on nonclinical study or clinical trial results, changes in the collaborators’ strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities; • Collaborators may delay nonclinical studies and clinical trials, provide insufficient funding for nonclinical studies and clinical trials, stop a nonclinical study or clinical trial or abandon a product candidate, repeat or conduct new nonclinical studies or clinical trials or require a new formulation of a product candidate for nonclinical studies or clinical trials; • Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; • Product candidates developed in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; • A collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval might not commit sufficient resources to the marketing and distribution of any such product candidate; • Disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development of any product candidates, may cause delays or termination of the research, development or commercialization of such product candidates, may lead to additional responsibilities for us with respect to such product candidates or may result in litigation or arbitration, any of which would be time consuming and expensive; • Collaborators might not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; • Disputes may arise with respect to the ownership or inventorship of intellectual property developed pursuant to our collaborations; • Collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; • The terms of our collaboration agreement may restrict us from entering into certain relationships with other third parties, thereby limiting our opportunities; and • Collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.
Our relationship with any future collaborations may pose several risks, including the following: • Collaborators have significant discretion in determining the amount and timing of the efforts and resources that they will apply to these collaborations; • Collaborators might not perform their obligations as expected; • The nonclinical studies and clinical trials conducted as part of these collaborations might not be successful; • Collaborators might not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on nonclinical study or clinical trial results, changes in the collaborators’ strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities; • Collaborators may delay nonclinical studies and clinical trials, provide insufficient funding for nonclinical studies and clinical trials, stop a nonclinical study or clinical trial or abandon a product candidate, repeat or conduct new nonclinical studies or clinical trials or require a new formulation of a product candidate for nonclinical studies or clinical trials; • Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; 29 Table of Contents • Product candidates developed in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; • A collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval might not commit sufficient resources to the marketing and distribution of any such product candidate; • Disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development of any product candidates, may cause delays or termination of the research, development or commercialization of such product candidates, may lead to additional responsibilities for us with respect to such product candidates or may result in litigation or arbitration, any of which would be time consuming and expensive; • Collaborators might not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; • Disputes may arise with respect to the ownership or inventorship of intellectual property developed pursuant to our collaborations; • Collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; • The terms of our collaboration agreement may restrict us from entering into certain relationships with other third parties, thereby limiting our opportunities; and • Collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.
Reliance on third‑party manufacturers subjects us to risks that would not affect us if we manufactured the product candidates ourselves, including: • Reliance on the third parties for regulatory compliance and quality assurance; • The possible breach of the manufacturing agreements by the third parties because of factors beyond our control; • The possible misappropriation of our proprietary information, including trade secrets and know‑how; • The possibility of termination or nonrenewal of the agreements by the third parties because of our breach of the manufacturing agreement or based on our own business priorities; • The disruption and costs associated with changing suppliers, including additional regulatory filings. • Failure to satisfy our contractual duties or obligations; 27 Table of Contents • Inability to meet our product specifications and quality requirements consistently; • Delay or inability to procure or expand sufficient manufacturing capacity; • Manufacturing and/or product quality issues related to manufacturing development and scale‑up; • Costs and validation of new equipment and facilities required for scale‑up; • Failure to comply with applicable laws, regulations, guidance and standards, including cGMP and similar foreign standards; • Deficient or improper record‑keeping; • Contractual restrictions on our ability to engage additional or alternative manufacturers; • Inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; • Termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; • Reliance on a limited number of sources, and in some cases, single sources for product components, such that if we are unable to secure a sufficient supply of these product components, we would be unable to manufacture and sell our product candidates or any future product candidate in a timely fashion, in sufficient quantities or under acceptable terms; • Lack of qualified backup suppliers for those components that are currently purchased from a sole or single source supplier; • Lack of access or licenses to proprietary manufacturing methods used by third‑party manufacturers to make our product candidates; • Operations of our third‑party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier or regulatory sanctions related to the manufacturer; • Carrier and import disruptions or increased costs that are beyond our control; and • Failure to deliver our products under specified storage conditions and in a timely manner.
Reliance on third‑party manufacturers subjects us to risks that would not affect us if we manufactured the product candidates ourselves, including: • Reliance on the third parties for regulatory compliance and quality assurance; • The possible breach of the manufacturing agreements by the third parties because of factors beyond our control; • The possible misappropriation of our proprietary information, including trade secrets and know‑how; • The possibility of termination or nonrenewal of the agreements by the third parties because of our breach of the manufacturing agreement or based on our own business priorities; • The disruption and costs associated with changing suppliers, including additional regulatory filings. • Failure to satisfy our contractual duties or obligations; • Inability to meet our product specifications and quality requirements consistently; • Delay or inability to procure or expand sufficient manufacturing capacity; • Manufacturing and/or product quality issues related to manufacturing development and scale‑up; • Costs and validation of new equipment and facilities required for scale‑up; • Failure to comply with applicable laws, regulations, guidance and standards, including cGMP and similar foreign standards; • Deficient or improper record‑keeping; • Contractual restrictions on our ability to engage additional or alternative manufacturers; • Inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; • Termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; • Reliance on a limited number of sources, and in some cases, single sources for product components, such that if we are unable to secure a sufficient supply of these product components, we would be unable to manufacture and sell our product candidates or any future product candidate in a timely fashion, in sufficient quantities or under acceptable terms; • Lack of qualified backup suppliers for those components that are currently purchased from a sole or single source supplier; 28 Table of Contents • Lack of access or licenses to proprietary manufacturing methods used by third‑party manufacturers to make our product candidates; • Operations of our third‑party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier or regulatory sanctions related to the manufacturer; • Carrier and import disruptions or increased costs that are beyond our control; and • Failure to deliver our products under specified storage conditions and in a timely manner.
Restrictions under applicable federal and state healthcare related laws and regulations include but are not limited to the following: • The federal Anti-Kickback Statute, which prohibits any person from, among other things, knowingly and willfully soliciting, offering, receiving or providing anything of value, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, the referral of an individual for the furnishing or arranging for the furnishing, or the purchase, lease or order, or arranging for or recommending purchase, lease or order, of any good or service for which payment may be made under a federal healthcare program; • The Veterans Health Care Act, which requires manufacturers of covered drugs to offer them for sale on the Federal Supply Schedule and requires compliance with applicable federal procurement laws and regulations; • The civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent; • The false claims act, which imposes liability and significant civil penalties on any person who submits or causes to be submitted a claim to the federal government that he or she knows (or should know) is false; • Federal transparency laws, including the federal Physician Sunshine Act (PSA), which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare and Medicaid Services (CMS), information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members; and • Analogous or similar state, federal, and foreign laws, regulations, and requirements which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; laws, regulations, and requirements applicable to the award and performance of federal contracts and grants and state, federal and foreign laws that govern the privacy and security of health and other information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal law, thus complicating compliance efforts.
Restrictions under applicable federal and state healthcare related laws and regulations include but are not limited to the following: • The federal Anti-Kickback Statute, which prohibits any person from, among other things, knowingly and willfully soliciting, offering, receiving or providing anything of value, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, the referral of an individual for the furnishing or arranging for the furnishing, or the purchase, lease 36 Table of Contents or order, or arranging for or recommending purchase, lease or order, of any good or service for which payment may be made under a federal healthcare program; • The Veterans Health Care Act, which requires manufacturers of covered drugs to offer them for sale on the Federal Supply Schedule and requires compliance with applicable federal procurement laws and regulations; • The civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent; • The false claims act, which imposes liability and significant civil penalties on any person who submits or causes to be submitted a claim to the federal government that he or she knows (or should know) is false; • Federal transparency laws, including the federal Physician Sunshine Act (PSA), which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare and Medicaid Services, information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate family members; and • Analogous or similar state, federal, and foreign laws, regulations, and requirements which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; laws, regulations, and requirements applicable to the award and performance of federal contracts and grants and state, federal and foreign laws that govern the privacy and security of health and other information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal law, thus complicating compliance efforts.
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; 19 Table of Contents • 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; • 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.
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.
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.
Our product candidates could fail to receive regulatory approval from the FDA or a other regulatory authorities for many reasons, including: • The FDA or other 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 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.
We might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses. Our intended reliance on AVTX-009 might make the attraction of personnel who may be concerned with employment exposure due to one principal product candidate more difficult.
We might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses. Our reliance on AVTX-009 might make the attraction of personnel who may be concerned with employment exposure due to one principal product candidate more difficult.
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.
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.
Consequently, currently stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any gains on their investment.
Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any gains on their investment.
The FDA also might not agree with the proposed quality of life scales and other evaluation tools that we may use in a clinical trial to assess the efficacy of a product candidate; • The FDA or other regulatory authorities may disagree with our development plans, specifically the number of studies and types of studies planned to support approval for each product and indication; • Our failure to demonstrate to the satisfaction of the FDA or other regulatory authorities that a product candidate is safe and effective for each proposed indication; • Our clinical trials may fail to meet statistical significance required for a positive study; • We may fail to demonstrate that a product candidate’s benefits outweigh its risks; • The FDA or other regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; • Data collected from clinical trials of our product candidates may be insufficient to support the submission of a marketing application, other submission or to obtain marketing approval, and the FDA or other regulatory authority may require additional studies to show a product candidate is safe and/or effective; • We may fail to obtain approval of the manufacturing processes or facilities of third‑party manufacturers with whom we contract for clinical and commercial supplies; or • There may be changes in precedence, regulatory guidance, laws and regulations that render our preclinical and clinical data insufficient for approval.
The FDA also might not agree with the proposed quality of life scales and other evaluation tools that we may use in a clinical trial to assess the efficacy of a product candidate; • Such regulatory authorities may disagree with our development plans, specifically the number of studies and types of studies planned to support approval for each product and indication; • Our failure to demonstrate to the satisfaction of the FDA or other regulatory authorities that a product candidate is safe and effective for each proposed indication; • Our clinical trials may fail to meet statistical significance required for a positive study; • We may fail to demonstrate that a product candidate’s benefits outweigh its risks; • The FDA or other regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; • Data collected from clinical trials of our product candidates may be insufficient to support the submission of a marketing application, other submission or to obtain marketing approval, and the FDA or other regulatory authority may require additional studies to show a product candidate is safe and/or effective; 21 Table of Contents • We may fail to obtain approval of the manufacturing processes or facilities of third‑party manufacturers with whom we contract for clinical and commercial supplies; or • There may be changes in precedence, regulatory guidance, laws and regulations that render our preclinical and clinical data insufficient for approval.
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.
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.
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 near-term 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 AVTX-009 or cease operations. In addition, our focus on AVTX-009 may negatively impact the planned development of our other product candidates.
Although to date, privacy and security incidents have not been material, they could expose us to significant expense, legal liability, and harm to our reputation, which might result in an adverse impact our operating results. We are subject to certain laws and regulations governing the privacy and security of personal information, including regulations pertaining to health information.
Although to date, privacy and security incidents have not been material, they could expose us to significant expense, legal liability, and harm to our reputation, which might result in an adverse impact our operating results. We might be subject to certain laws and regulations governing the privacy and security of personal information, including regulations pertaining to health information.
If the FDA does not accept the data from any of our clinical trials that we decide to conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time‑consuming and delay or permanently halt our development of the product candidate.
If the FDA does not accept the data from any of our clinical trials that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time‑consuming and delay or permanently halt our development of the product candidate.
Among other things, the Executive Order also directs HHS to provide a report on actions to combat excessive pricing of prescription drugs, enhance the domestic drug supply chain, reduce the price that the Federal government pays for drugs, and address price gouging in the industry; and directs the FDA to work with states and Indian Tribes that propose to develop section 804 Importation Programs in accordance with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and the FDA’s implementing regulations.
Among other things, the Executive Order also directs HHS to provide a report on actions to combat excessive pricing of prescription drugs, enhance the domestic drug supply chain, reduce the price that the Federal government pays for drugs, and address price gouging in the industry; and directs the FDA to work with states and Indian Tribes that propose to develop section 804 Importation Programs in accordance with the Medicare Prescription Drug, Improvement, and Modernization Act 35 Table of Contents of 2003, and the FDA’s implementing regulations.
Events which may result in a delay or unsuccessful completion of clinical development include: • Delays in reaching an agreement with or failure in obtaining authorization from the FDA, other regulatory authorities or institutional review boards (“IRBs”) or ethics committees (“ECs”) to commence or amend a clinical trial; • Delays in reaching agreements with the FDA or other regulatory authorities regarding requisite trial design or endpoints sufficient to establish a clinically meaningful benefit of our product candidates given there might not be well-established development paths and outcomes; 15 Table of Contents • Inability to agree with the FDA or other regulatory authorities on operationally viable endpoints or trial design; • Imposition of a clinical hold or trial termination following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities, or due to concerns about trial design, or a decision by the FDA, other regulatory authorities, IRBs, ECs or us, or recommendation by a data safety monitoring board, to place the trial on hold or otherwise suspend or terminate clinical trials at any time for safety issues or for any other reason; • Delays in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical trial sites; • Deviations from the trial protocol by clinical trial sites and investigators, or failing to conduct the trial in accordance with regulatory requirements; • Failure of our third parties, such as CROs, to satisfy their contractual duties or meet expected deadlines; • Failure to enter into agreements with third parties to obtain the results of clinical trials; • Delays in the importation and manufacture of clinical supply; • Delays in the testing, validation and delivery of the clinical supply of the product candidates to the clinical sites; • For clinical trials in selected subject populations, delays in identification and auditing of central or other laboratories and the transfer and validation of assays or tests to be used to identify selected subjects; • Delays due to the world-wide shortage of animal testing subjects, including monkeys; • Delays in recruiting suitable subjects to participate in a trial; • Delays in having subjects complete participation in a trial or return for post‑treatment follow‑up; • Delays caused by subjects dropping out of a trial due to side effects or disease progression; • Delays in adding new investigators and clinical trial sites; • Delays resulting from national or global health or geopolitical situations; • Withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials; or • Changes in government regulations or administrative actions or lack of adequate funding to continue the clinical trials.
Events which may result in a delay or unsuccessful completion of clinical development include: • Delays in reaching an agreement with or failure in obtaining authorization from the FDA, other regulatory authorities or institutional review boards (“IRBs”) or ethics committees (“ECs”) to commence or amend a clinical trial; • Delays in reaching agreements with the FDA or other regulatory authorities regarding requisite trial design or endpoints sufficient to establish a clinically meaningful benefit of our product candidates given there might not be well-established development paths and outcomes; • Inability to agree with the FDA or other regulatory authorities on operationally viable endpoints or trial design; • Imposition of a clinical hold or trial termination following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities, or due to concerns about trial design, or a decision by the FDA, other regulatory authorities, IRBs, ECs or us, or recommendation by a data safety monitoring board, to place the trial on hold or otherwise suspend or terminate clinical trials at any time for safety issues or for any other reason; • Delays in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and clinical trial sites; • Deviations from the trial protocol by clinical trial sites and investigators, or failing to conduct the trial in accordance with regulatory requirements; • Failure of our third parties, such as CROs, to satisfy their contractual duties or meet expected deadlines; • Failure to enter into agreements with third parties to obtain the results of clinical trials; • Delays in the importation and manufacture of clinical supply; • Delays in the testing, validation and delivery of the clinical supply of the product candidates to the clinical sites; • For clinical trials in selected subject populations, delays in identification and auditing of central or other laboratories and the transfer and validation of assays or tests to be used to identify selected subjects; • Delays due to the world-wide shortage of animal testing subjects, including monkeys; • Delays in recruiting suitable subjects to participate in a trial; • Delays in having subjects complete participation in a trial or return for post‑treatment follow‑up; • Delays caused by subjects dropping out of a trial due to side effects or disease progression; • Delays in adding new investigators and clinical trial sites; • Delays resulting from national or global health or geopolitical situations, including military conflict, trade barriers, or governmental budget dynamics; • Withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials; or • Changes in government regulations or administrative actions or lack of adequate funding to continue the clinical trials.
Our supply and license agreement for our only commercial pharmaceutical product, Millipred ® , which the Company considered a non-core asset, expired on September 30, 2023. The product revenue from Millipred ® was not sufficient to provide adequate capital for the continued development of our product candidates.
Our supply and license agreement for our only commercial pharmaceutical product, Millipred ® , which the Company considered a non-core asset, expired, as planned, on September 30, 2023. The product revenue from Millipred ® was not sufficient to provide adequate capital for the continued development of our product candidates.
If we are unable to obtain or maintain intellectual property rights, or if the scope of patent protection is not sufficiently broad, competitors could develop and commercialize products similar or identical to ours, and we might not be able to compete effectively in our market.
Risks Related to Intellectual Property If we are unable to obtain or maintain intellectual property rights, or if the scope of patent protection is not sufficiently broad, competitors could develop and commercialize products similar or identical to ours, and we might not be able to compete effectively in our market.
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 near-term 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 AVTX-009 increases the risk of such exposure.
Regulatory authorities may approve a product candidate for fewer or more limited indications than requested, may 21 Table of Contents impose significant limitations in the form of narrow indications, warnings, including black‑box warnings, precautions or contra‑indications with respect to conditions of use, additional adverse reactions information or may grant approval subject to the performance of post‑marketing clinical trials or other post‑marketing requirements, including a REMS.
Regulatory authorities may approve a product candidate for fewer or more limited indications than requested, may impose significant limitations in the form of narrow indications, warnings, including black‑box warnings, precautions or contra‑indications with respect to conditions of use, additional adverse reactions information or may grant approval subject to the performance of post‑marketing clinical trials or other post‑marketing requirements, including a REMS.
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.
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.
Each of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues for us. If we fail to comply with applicable laws and regulations, we could be subject to lawsuits, penalties, or sanctions. The HHS Office for Civil Rights, which enforces HIPAA, remains active in its enforcement of the law.
Each of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues for us. If we fail to comply with applicable laws and regulations, we could be subject to lawsuits, 43 Table of Contents penalties, or sanctions. The HHS Office for Civil Rights, which enforces HIPAA, remains active in its enforcement of the law.
Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A product liability claim or series of claims brought against us, 25 Table of Contents whether or not successful, but particularly if judgments exceed our insurance coverage, could decrease our cash and adversely affect our reputation and business.
Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A product liability claim or series of claims brought against us, whether or not successful, but particularly if judgments exceed our insurance coverage, could decrease our cash and adversely affect our reputation and business.
Violations, including promotion of products for off‑label uses, are subject to enforcement letters, inquiries, investigations, civil and criminal sanctions by the government, corporate integrity agreements, deferred prosecution agreements, debarment from government contracts and refusal of future orders under existing 22 Table of Contents contracts, and exclusion from participation in federal healthcare programs.
Violations, including promotion of products for off‑label uses, are subject to enforcement letters, inquiries, investigations, civil and criminal sanctions by the government, corporate integrity agreements, deferred prosecution agreements, debarment from government contracts and refusal of future orders under existing contracts, and exclusion from participation in federal healthcare programs.
Net prices for drugs may be further reduced by mandatory discounts or rebates required by government healthcare programs and demanded by private payors, and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Net prices for drugs may be further 25 Table of Contents reduced by mandatory discounts or rebates required by government healthcare programs and demanded by private payors, and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Therefore, these patents and applications might not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors, licensees or collaborators fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated.
Therefore, these patents and applications might not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors, licensees or collaborators fail to establish, maintain or protect such patents 30 Table of Contents and other intellectual property rights, such rights may be reduced or eliminated.
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.
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.
Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further, clinical 23 Table of Contents trials conducted in one country might not be accepted by regulatory authorities in other countries.
Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further, clinical trials conducted in one country might not be accepted by regulatory authorities in other countries.
Risks Related to Legal Compliance Ongoing changes to healthcare laws and regulations may increase the difficulty of and costs associated with commercializing our products and may affect the prices we are paid for those products. 33 Table of Contents The Healthcare sector is heavily regulated in the United States and abroad.
Risks Related to Legal Compliance Ongoing changes to healthcare laws and regulations may increase the difficulty of and costs associated with commercializing our products and may affect the prices we are paid for those products. The Healthcare sector is heavily regulated in the United States and abroad.
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.
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.
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.
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.
Our research efforts may initially show promise in identifying potential therapeutic targets or candidates, yet fail to yield product candidates for clinical development for a number of reasons, including: • Our methodology, including our screening technology, might not successfully identify medically relevant potential product candidates; • Our competitors may develop alternatives that render our product candidates obsolete; • We may encounter product manufacturing difficulties that limit yield or produce undesirable characteristics that increase the cost of goods, cause delays or make the product candidates unmarketable; • Our product candidates may cause adverse effects in subjects, even after successful initial toxicology studies, or not be tolerable, which may make the product candidates unmarketable; • Other drugs in the same drug class as our product candidates could develop unforeseen adverse effects that could negatively impact development, approval and/or future sales of our product candidates; • Our product candidates might not be capable of being produced in commercial quantities at an acceptable cost, or at all; • Our product candidates might not demonstrate a meaningful benefit to subjects; • Our potential collaboration partners may change their development profiles or plans for potential product candidates or abandon a therapeutic area or the development of a partnered product candidates; and • Our reliance on third party clinical trials may cause us to be denied access to clinical results that may be significant to further clinical development.
Our research efforts may initially show promise in identifying potential therapeutic targets or candidates, yet fail to yield product candidates for clinical development for a number of reasons, including: • Our methodology, including our screening technology, might not successfully identify medically relevant potential product candidates; • Our competitors may develop alternatives that render our product candidates obsolete; • We may encounter product manufacturing difficulties that limit yield or produce undesirable characteristics that increase the cost of goods, cause delays or make the product candidates unmarketable; • Our product candidates may cause adverse effects in subjects, even after successful initial toxicology studies, or not be tolerable, which may make the product candidates unmarketable; • Other drugs in the same drug class as our product candidates could develop unforeseen adverse effects that could negatively impact development, approval and/or future sales of our product candidates; • Our product candidates might not be capable of being produced in commercial quantities at an acceptable cost, or at all; • Our product candidates might not demonstrate a meaningful benefit to subjects; and • Our reliance on third party clinical trials may cause us to be denied access to clinical results that may be significant to further clinical development.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates. 32 Table of Contents As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates. As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
For example, the General Data Protection Regulation (“GDPR”) has imposed stringent obligations and restrictions on the ability to collect, analyze, and transfer personal information, including health data from clinical trials and substantial fines for breaches of the data protection rules in the European Economic Area (“EEA”).
For example, the General Data Protection Regulation (“GDPR”) has imposed stringent obligations and restrictions on the ability to process and transfer personal information, including health data from clinical trials and substantial fines for breaches of the data protection rules in the European Economic Area (“EEA”).
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.
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.
We might face challenges to employee retention and attraction due to our reliance and intended focus on AVTX-009. In addition, from time to time, there may be changes to our executive management team resulting from the hiring or departure of other executives, which could disrupt our business. For example, our executive management changed in February 2022.
We might face challenges to employee retention and attraction due to our reliance and focus on AVTX-009. In addition, from time to time, there may be changes to our executive management team resulting from the 37 Table of Contents hiring or departure of other executives, which could disrupt our business. For example, our executive management changed in February 2022.
In addition, federal programs impose penalties on drug manufacturers in 24 Table of Contents certain instances, in the form of mandatory additional rebates and/or discounts, which can be substantial, and could impact our ability to raise commercial prices.
In addition, federal programs impose penalties on drug manufacturers in certain instances, in the form of mandatory additional rebates and/or discounts, which can be substantial, and could impact our ability to raise commercial prices.
In the future, we or our licensors or collaborators may initiate legal proceedings to enforce or defend our or our licensors’ or collaborators’ intellectual property rights, to protect our or our licensors’ or collaborators’ trade secrets or to determine the validity or scope of intellectual property rights we own or control.
In the future, we or our licensors or collaborators may initiate legal proceedings to enforce or defend our or our licensors’ or collaborators’ intellectual property rights, to protect our or our licensors’ or collaborators’ 32 Table of Contents trade secrets or to determine the validity or scope of intellectual property rights we own or control.
In some circumstances, changes in manufacturing operations, including to our protocols, processes, materials or facilities used, may require us to perform additional preclinical or comparability studies, or to collect additional clinical data from 18 Table of Contents patients prior to undertaking additional clinical studies or filing for regulatory approval for a product candidate.
In some circumstances, changes in manufacturing operations, including to our protocols, processes, materials or facilities used, may require us to perform additional preclinical or comparability studies, or to collect additional clinical data from patients prior to undertaking additional clinical studies or filing for regulatory approval for a product candidate.
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 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 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.
Future legislation and regulation may result in further changes in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
Future legislation and regulation is likely to result in further changes in Medicare and other healthcare funding, perhaps significantly, and to otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
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 candidates AVTX-009, AVTX-002 and AVTX-008 are biologics. The process of manufacturing biologics and their components is complex, expensive, highly-regulated and subject to multiple risks.
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.
Our CROs and clinical trial site personnel are not our employees, and, except for remedies available to us under our agreements with such CROs and clinical trial sites, we cannot control whether they devote sufficient time and resources to our ongoing clinical, 26 Table of Contents nonclinical and preclinical programs.
Our CROs and clinical trial site personnel are not our employees, and, except for remedies available to us under our agreements with such CROs and clinical trial sites, we cannot control whether they devote sufficient time and resources to our ongoing clinical, nonclinical and preclinical programs.
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.
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.
Consequently, our future financial condition and results of operations will be primarily dependent on AVTX-009. Any setback for or failure of AVTX-009 during its planned clinical development could cause material delays in and costs to its further development and commercialization.
Consequently, our future financial condition and results of operations will primarily depend on AVTX-009. Any setback for or failure of AVTX-009 during its clinical development could cause material delays in and costs to its further development and commercialization.
If we or our licensors or collaborators fail to maintain the patents and patent 31 Table of Contents applications covering our product candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business.
If we or our licensors or collaborators fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business.
If we do not raise additional capital when required or on acceptable terms, we may need to: • Significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or cease operations altogether; • Seek strategic alliances for research and development programs at an earlier stage than we would otherwise desire or on terms less favorable than might otherwise be available; or • Relinquish, or license on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize ourself.
If we do not raise additional capital when required or on acceptable terms, we may need to: 12 Table of Contents • Significantly delay, scale back or discontinue the development or commercialization of AVTX-009 or other product candidates or cease operations altogether; • Seek strategic alliances for research and development programs at an earlier stage than we would otherwise desire or on terms less favorable than might otherwise be available; or • Relinquish, or license on unfavorable terms, our rights to technologies or any future product candidates that we otherwise would seek to develop or commercialize ourself.
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 43 Table of Contents information, including federal and state health information privacy laws, federal and state security breach notification laws, and federal and state consumer protection laws.
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.
Neil, Chief Executive Officer and Chairman of the Board, Christopher Sullivan, Chief Financial Officer, Lisa Hegg Ph.D., Senior Vice President of Program Management, Corporate Infrastructure, and Clinical Operations, Colleen Matkowski, Senior Vice President of Global Regulatory Affairs and Quality Assurance, and Dino Miano, Senior Vice President, CMC and Technical Operations, and on our ability to continue to attract and retain highly skilled and qualified personnel.
Neil, Chief Executive Officer and Chairman of the Board, Jennifer Riley, Chief Strategy Officer, Christopher Sullivan, Chief Financial Officer, Paul Varki, Chief Legal Officer, Lisa Hegg Ph.D., Senior Vice President of Program Management and Corporate Infrastructure, Colleen Matkowski, Senior Vice President of Global Regulatory Affairs and Quality Assurance, and Dino Miano, Senior Vice President, CMC and Technical Operations, and on our ability to continue to attract and retain highly skilled and qualified personnel.
We have invested a significant portion of our efforts and financial resources in the identification and preclinical and clinical development of product candidates. Our ability to generate significant product revenues will depend on our ability to advance our clinical product candidates towards approval and our preclinical product candidates into clinical development.
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.
Any of these occurrences may harm our business, financial condition and prospects significantly. 17 Table of Contents Additionally, if one or more of our product candidates receives marketing approval, and we or others (regulatory agencies, consumers, etc.) later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including: • We may suspend marketing of, or withdraw or recall, such product; • Regulatory authorities may withdraw approvals of such product; • Regulatory authorities may require additional warnings on the label or other label modifications; • Regulatory authorities may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product; • Regulatory authorities may require the establishment or modification of a REMS or other restrictions on marketing and distribution, or may require the establishment or modification of a similar strategy that may, for instance, require us to issue a medication guide outlining the risks of such side effects for distribution to patients or restrict distribution of our products and impose burdensome implementation requirements on us; • Regulatory authorities may require that we conduct post‑marketing studies; and • We could be sued and held liable for harm caused to subjects or patients.
Additionally, if one or more of our product candidates receives marketing approval, and we or others (regulatory agencies, consumers, etc.) later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including: • We may suspend marketing of, or withdraw or recall, such product; • Regulatory authorities may withdraw approvals of such product; • Regulatory authorities may require additional warnings on the label or other label modifications; • Regulatory authorities may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product; • Regulatory authorities may require the establishment or modification of a REMS or other restrictions on marketing and distribution, or may require the establishment or modification of a similar strategy that may, for instance, require us to issue a medication guide outlining the risks of such side effects for distribution to patients or restrict distribution of our products and impose burdensome implementation requirements on us; • Regulatory authorities may require that we conduct post‑marketing studies; and • We could be sued and held liable for harm caused to subjects or patients. 18 Table of Contents Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate or otherwise materially harm the commercial prospects for the product candidate, if approved, and could significantly harm our business, financial condition, results of operations and prospects.
We incurred a net loss of $31.5 million for the year ended December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $335.1 million. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development program and from general and administrative costs associated with our operations.
We incurred a net loss of $35.1 million for the year ended December 31, 2024. As of December 31, 2024, we had an accumulated deficit of $370.3 million. Substantially all of our operating losses have resulted from costs incurred in connection with our research and development program and from general and administrative costs associated with our operations.
However, the applicable authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, might not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request.
However, the applicable authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, might not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. Our composition of matter patent for AVTX-009 expires in 2026.
Failure to obtain any necessary capital could force us to delay, limit or terminate our product development efforts or cease our operations. At December 31, 2023, we had $7.4 million in cash and cash equivalents and $4.6 million in current liabilities.
Failure to obtain any necessary capital could force us to delay, limit or terminate our product development efforts or cease our operations. At December 31, 2024, we had $134.5 million in cash and cash equivalents and $7.0 million in current liabilities.
We have also licensed from third parties’ rights to patent portfolios. 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 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.
Any of these occurrences may harm our business, financial condition and prospects significantly. We may be required to make significant payments in connection with our license and development agreements. We are party to license and development agreements with various third parties.
Any of these occurrences may harm our business, financial condition and prospects significantly. We may be required to make significant payments in connection with our license and development agreements. We are party to license and development agreements with various third parties. For example, for our programs we are party to the Lilly License Agreement and the Leap Agreement.
Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the optimized materials. Such changes may also require additional testing, FDA or other regulatory authorities’ notification or approval.
Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the optimized materials. Such changes may also require additional testing, FDA or other regulatory authorities’ notification or approval.
The time required to develop and to obtain approval from regulatory authorities to market a new drug is unique to each product. It typically takes many years in nonclinical and clinical development and depends upon numerous factors.
Our inability to obtain regulatory approval for our product candidates would substantially harm our business. The time required to develop and to obtain approval from regulatory authorities to market a new drug is unique to each product. It typically takes many years in nonclinical and clinical development and depends upon numerous factors.
If a company is found to be in violation of any of these laws or any other laws, regulations or other requirements, it may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, restitution exclusion from government funded healthcare programs, corporate integrity agreements, deferred prosecution agreements, debarment from government contracts and grants and refusal of future orders under existing contracts, contractual damages, the curtailment or restructuring of our operations and other consequences. 36 Table of Contents The availability of any federal grant funds which we may receive or for which we may apply is subject to federal appropriations law.
If a company is found to be in violation of any of these laws or any other laws, regulations or other requirements, it may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, restitution exclusion from government funded healthcare programs, corporate integrity agreements, deferred prosecution agreements, debarment from government contracts and grants and refusal of future orders under existing contracts, contractual damages, the curtailment or restructuring of our operations and other consequences.
Identifying, developing, obtaining regulatory approval and commercializing product candidates are prone to the risks of failure inherent in clinical development. Developing product candidates is expensive, and we expect to spend substantial amounts as we fund our product development.
Our ability to increase revenue in the future will depend on developing and commercializing our current and future product candidates. Identifying, developing, obtaining regulatory approval and commercializing product candidates are prone to the risks of failure inherent in clinical development. Developing product candidates is expensive, and we expect to spend substantial amounts as we fund our product development.
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. 16 Table of Contents We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and while we have agreements governing their committed activities, we have limited influence over their actual performance.
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.
Our common stock is currently listed on The Nasdaq Stock Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, a minimum closing bid price of $1.00 per share, and certain corporate governance requirements.
In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, a minimum closing bid price of $1.00 per share, and certain corporate governance requirements.
Our success will depend on the retention of our directors and members of our management and leadership team including Dr. Garry A.
Our success will depend on the retention of our directors and members of our management and leadership team including Dr. Mittie Doyle, Chief Medical Officer, Dr. Garry A.
There are also laws, regulations, and requirements applicable to the award and performance of federal grants and contracts. 35 Table of Contents Our business operations and any current or future arrangements with third-party payors, healthcare providers and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we develop, market, sell and distribute any drugs for which we obtain marketing approval.
Our business operations and any current or future arrangements with third-party payors, healthcare providers and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we develop, market, sell and distribute any drugs for which we obtain marketing approval.
Such a license might not be available on commercially reasonable terms or at all. Even if we successfully prosecute or defend against such claims, litigation could result in substantial costs and distract management. Risks Related to our Stock The market price of our stock is volatile, and you could lose all or part of your investment.
Such a license might not be available on commercially reasonable terms or at all. Even if we successfully prosecute or defend against such claims, litigation could result in substantial costs and distract management. Risks Related to our Stock The price of our common stock could be subject to rapid and substantial volatility.
In addition, many of the factors that could cause a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of any of our product candidates. We may fail to successfully identify, in‑license, acquire, develop or commercialize potential product candidates.
In addition, many of the factors that could cause a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of any of our product candidates.
These types of investments are not insured against loss of principal and there is no guarantee that investments in these funds will be redeemable at par value. Once invested, if we cannot liquidate our investments, or redeem them at par, we could incur losses and experience liquidity issues.
There is no guarantee that investments in these assets will be redeemable at par value. Once invested, if we cannot liquidate our investments, or redeem them at par, we could incur losses and experience liquidity issues.
While we have experience with anti-inflammatory product candidates and AVTX-009 is an anti-inflammatory product candidate, we only have recently begun incorporating it into our operations. This could pose challenges to us in developing AVTX-009. In addition, our focus on AVTX-009 could negatively impact the planned development of our other product candidates.
While we have experience with anti-inflammatory product candidates and AVTX-009 is an anti-inflammatory product candidate, we only have recently begun incorporating it into our operations. This could pose challenges to us in developing AVTX-009.
The Royalty Agreement was entered into in July 2019 and we assumed the agreement in the Aevi Merger. The Investors will be entitled to an aggregate amount equal to a low-single digit percentage of the aggregate net sales of AVTX-006 products.
Garry Neil, our Chief Executive Officer, are parties to a Royalty Agreement with us relating to AVTX-006. The Royalty Agreement was entered into in July 2019 and we assumed the agreement in the Aevi Merger. The Investors will be entitled to an aggregate amount equal to a low-single digit percentage of the aggregate net sales of AVTX-006 products.
We rely on these parties for execution of our clinical trials and, while we have agreements governing their activities, we have limited influence over their actual performance and control only certain aspects of their activities.
We rely upon third‑party CROs to monitor and manage data for our clinical programs. We rely on these parties for execution of our clinical trials and, while we have agreements governing their activities, we have limited influence over their actual performance and control only certain aspects of their activities.
If we fail to comply with the obligations under these agreements, including payment terms, our licensors may have the right to terminate any of these agreements, in which event we might not be able to develop, market or sell the relevant product candidate.
In particular, we are party to the following agreements for AVTX-009: • The Lilly License Agreement; and • The Leap Agreement If we fail to comply with the obligations under these agreements, including payment terms, our licensors may have the right to terminate any of these agreements, in which event we might not be able to develop, market or sell the relevant product candidate.
Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth efficiently and effectively.
Any future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth efficiently and effectively.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success. Our near-term focus and reliance on AVTX-009 increases the risk of such exposure.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Our products might not achieve adequate market acceptance among physicians, patients, third‑party payors and others in the medical community necessary for commercial success. Even if our product candidates have or receive marketing approval, they might not gain adequate market acceptance among physicians, patients and others in the medical community.
Even if our product candidates have or receive marketing approval, they might not gain adequate market acceptance among physicians, patients and others in the medical community.
As of December 31, 2023, there were 450 shares available for future issuance under the Third Amended and Restated 2016 Equity Incentive Plan (the “2016 Amended Plan”).
As of December 31, 2024, there were 1,301,050 shares available for future issuance under the Fourth Amended and Restated 2016 Equity Incentive Plan (the “2016 Fourth Amended Plan”).
These laws constrain the business or financial arrangements and relationships through which we would market, sell, and distribute our product candidates and will impact, among other things, any of our future sales, marketing and educational programs.
These laws constrain the business or financial arrangements and relationships through which we would market, sell, and distribute our product candidates and will impact, among other things, any of our future sales, marketing and educational programs. There are also laws, regulations, and requirements applicable to the award and performance of federal grants and contracts.
Our intended near-term focus and reliance on AVTX-009 increases the risk of this exposure. Our intended near-term focus and reliance on AVTX-009 exposes us to risk if AVTX-009 does not perform in clinical trials or receive FDA approval and market acceptance. We acquired AVTX-009 in March 2024 and intend to focus our resources in the near-term primarily on AVTX-009.
Our focus and reliance on AVTX-009 increases the risk of this exposure. Our focus and reliance on AVTX-009 exposes us to risk if AVTX-009 does not perform in clinical trials or receive FDA approval and market acceptance. We acquired AVTX-009 in March 2024 and have focused our resources on AVTX-009 at the expense of allocating those resources to other assets.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
Our amended and restated certificate of incorporation provides that unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. 41 Table of Contents Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine.
We may encounter difficulties in managing our growth, including the focus on AVTX-009 and the resources necessary for its development, and expanding our operations successfully. In March 2024, we acquired AVTX-009 and intend to focus our business primarily on AVTX-009 in the near future at least.
We may encounter difficulties in managing our growth, including the focus on AVTX-009 and the resources necessary for its development, and expanding our operations successfully. In March 2024, we acquired AVTX-009 and AVTX-009 is currently the primary focus of our business.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe group meets quarterly to 44 Table of Contents 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. The Audit Committee (the “Committee”) is primarily responsible for oversight of the Program.
Biggest changeThe 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.
Hegg provides information technology and cybersecurity reports a 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.
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.
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, Program Management, Corporate Infrastructure, and Clinical Operations. Ms.
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.
Members of the ISWG include: the Chief Financial Officer, the head of the Company’s Human Resource department, the Senior Vice President of Program Management, Corporate Infrastructure, and Clinical Operations, 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 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.

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. 45 Table of Contents Item 3. Legal Proceedings. None.
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.
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 January 31, 2030. The Company also occupies approximately 11,000 square feet of administrative office space in Chesterbrook, Pennsylvania. The lease expires on February 28, 2027.
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 changeEquity 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”. 47 Table of Contents
Biggest changeEquity 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
Item 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 27, 2024, there were approximately 157 holders of record of our common stock.
Item 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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeOther Expense, net 51 Table of Contents The following table summarizes our other expense, net for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (in thousands) Interest expense, net (3,417) (4,170) Change in fair value of derivative liability (720) — Other expense, net (42) (20) $ (4,179) $ (4,190) Other expense, net was consistent for the years ended December 31, 2023 and 2022.
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.
In the event that Janssen 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, 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.
Income Tax Expense The following table summarizes our income tax expense for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (in thousands) Income tax expense 14 28 $ 14 $ 28 The Company recognized minimal income tax expense for the years ended December 31, 2023 and 2022.
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.
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 2023 2022 Expected term of options (in years) 5 — 6.25 5 — 6.25 Expected stock price volatility 89.8% — 146.0% 84.0% — 93.5% Risk-free interest rate 3.43% — 4.13% 1.50% — 4.25% 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 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.
We may need to satisfy our future cash needs through sales of equity securities under the Company’s ATM program or otherwise, 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 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.
In addition, Avalo waived all its rights to AVTX-611 sales-based payments of up to $20.0 million that were payable by ES (refer to Note 3 of the consolidated financial statements). The exchange of the economic rights of the AVTX-501 Milestone and AVTX-007 Milestones and Royalties for cash meets the definition of a derivative instrument.
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.
However, given Avalo is no longer entitled to collect these payments, the potential ultimate settlement of the payments in the future from Janssen and/or Apollo to ES Therapeutics (and the future mark-to-market activity each reporting period) will not impact Avalo’s future cash flows. Goodwill Impairment The Company consists of one reporting unit.
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.
Net cash provided by (used in) financing activities 53 Table of Contents 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.
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.
At the time of the transaction, Armistice was a significant stockholder of the Company and whose chief investment officer, Steven Boyd, and managing director, Keith Maher, served on Avalo’s Board until August 8, 2022.
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.
Goodwill Impairment The Company recognized $3.9 million of goodwill impairment loss for its sole reporting unit for the year ended December 31, 2023 as part of its annual goodwill impairment test performed on the last day of the fiscal year.
The Company recognized $3.9 million of goodwill impairment loss for its sole reporting unit for the year ended December 31, 2023 as part of its annual goodwill impairment test performed on the last day of the fiscal year. The impairment loss recognized represented the difference between the reporting unit’s carrying value and its fair value as of December 31, 2023.
Derivative Liability On November 7, 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, in exchange for $5.0 million (the “ES Transaction”).
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”).
Uses of Liquidity The Company uses cash to primarily fund the ongoing development of our research and development pipeline assets and costs associated with its organizational infrastructure. As of December 31, 2023, Avalo had $7.4 million in cash and cash equivalents, representing a $5.8 million decrease compared to December 31, 2022.
Uses of Liquidity The Company primarily uses cash to fund the ongoing development of our research and development pipeline assets and costs associated with its organizational infrastructure. 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.
License and Other Revenue Avalo recognized $0.5 million of license and other revenue for the year ended December 31, 2023 as a result of the sale of its rights, title and interest in assets relating to the 800 Series to AUG Therapeutics, LLC (“AUG”).
The Company recognized $0.5 million for the year ended December 31, 2023 as a result of the sale of its rights, title and interest in assets relating to the 800 Series (as defined in Note 4 to the consolidated financial statements) to AUG Therapeutics, LLC (“AUG”).
(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 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”).
Research and Development Expenses The following table summarizes our research and development expenses for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (in thousands) Nonclinical expenses $ 1,029 $ 2,439 Clinical expenses 5,780 12,030 CMC expenses 1,855 8,087 License and milestone expenses — — Internal expenses: Salaries, benefits and related costs 3,576 7,218 Stock-based compensation expense 1,318 1,249 Other 226 285 $ 13,784 $ 31,308 Research and development expenses decreased $17.5 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.
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.
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 Avalo. Certain information used in the valuation is inherently limited in nature and could differ from Janssen and Apollo’s internal estimates.
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 “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. Avalo’s pipeline also includes quisovalimab (anti-LIGHT mAb) and AVTX-008 (BTLA agonist fusion protein).
(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.
As discussed above, these unobservable inputs were estimated by Avalo based on limited publicly available information and therefore could differ from Janssen’s and Apollo’s respective internal development plans. Any changes to these inputs may result in significant changes to the fair value measured.
We estimated these unobservable inputs based on limited publicly available information and therefore could differ from J&J’s and Apollo’s respective internal development plans, assessments of probability of success and other inputs of our fair value calculation. Any changes to these inputs may result in significant changes to the fair value measurement.
However, the Company will continue to monitor estimates for commercial liabilities, such as sales returns. 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 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.
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. 56 Table of Contents
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
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. Subsequent to the transaction date, at each reporting period, the derivative liability is remeasured at fair value.
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.
Cash Flows The following table summarizes our cash flows for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (in thousands) Net cash (used in) provided by: Operating activities $ (30,680) $ (26,751) Investing activities (133) (95) Financing activities 25,042 (14,699) Net decrease in cash and cash equivalents $ (5,771) $ (41,545) Net cash used in operating activities 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.
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.
Liquidity and Capital Resources, including Capital Expenditure and Cash Requirements Since inception, we have incurred significant operating and cash losses from operations. We have primarily funded our operations to date through sales of equity securities, out-licensing transactions and sales of assets.
Liquidity and Capital Resources, including Capital Expenditure and Cash Requirements Since inception, we have incurred significant operating and cash losses from operations.
We believe the ability to achieve the anticipated milestones as presented in the section entitled “Business” in Item 1 of this Annual Report on Form 10-K represents our most immediate evaluation points as to the progress of our goal to move the pipeline forward. 2023 Financial Operations Overview Net loss for the year ended December 31, 2023 decreased $10.1 million as compared to the prior year.
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.
As of December 31, 2023, the fair value of the derivative liability was $5.6 million, of which $3.8 million was attributable to the AVTX-501 Milestone and $1.7 million was attributable to the AVTX-007 Milestones and Royalties.
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.
For the year ended December 31, 2023, Avalo generated a net loss of $31.5 million and negative cash flows from operations of $30.7 million. As of December 31, 2023, Avalo had $7.4 million in cash and cash equivalents. For the year ended December 31, 2023, the Company raised approximately $46.2 million of net proceeds from equity offerings.
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.
We expect future cash used in operating activities to increase in 2024 as a result of acquiring AVTX-009 in March 2024 and our associated development plans.
We expect cash used in operating activities, excluding the milestone payments made to the former AlmataBio stockholders, to increase in future periods as a result of our development plans for AVTX-009, including the execution of the LOTUS Trial which commenced in October 2024.
We expect future research and development expenses and cash used in operating activities to increase in 2024 as a result of our development plans to initiate and progress a Phase 2 trial in HS. 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.
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.
Selling, General and Administrative Expenses The following table summarizes our selling, general and administrative expenses for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 (in thousands) Salaries, benefits and related costs $ 2,003 $ 6,152 Legal, consulting and other professional expenses 4,852 6,611 Stock-based compensation expense 2,157 6,305 Advertising and marketing expenses 33 76 Other 1,255 1,567 $ 10,300 $ 20,711 Selling, general and administrative expenses decreased $10.4 million for the year ended December 31, 2023, compared to the year ended December 31, 2022 due to severance and stock-based compensation expense recognized in the first quarter of 2022 from headcount reductions, paired with decreased headcount and cost savings initiatives realized in 2023.
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.
In the prior year, Avalo recognized $14.7 million of revenue for the upfront consideration received pursuant to the out-license of AVTX-007. Cost of Product Sales Cost of product sales were $1.3 million for the year ended December 31, 2023, as compared to $3.4 million for the year ended December 31, 2022.
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.
Refer to Note 5 to the consolidated financial statements for more information. We do not expect to incur future interest expense as a result of the full loan payoff in September of 2023, and therefore expect future other expense, net to decrease.
Given the full exercise of the warrants in the fourth quarter of 2024, there was no warrant liability as of December 31, 2024, and we therefore do not expect related future activity in other income (expense), net. Refer to Note 6 - Fair Value Measurements of the consolidated financial statements for more information.
We expect future research and development expenses to increase in 2024 as a result of acquiring AVTX-009 in March 2024 and our associated development plans.
We expect future research and development expenses and cash used in operations, excluding the milestone payments made to the former AlmataBio stockholders, to increase in 2025 as a result of our development plans for AVTX-009, including the continued execution of the LOTUS Trial which commenced in October 2024.
The fair value of AVTX-007 Milestones and Royalties were primarily driven by approximately 17% probability of success, time to commercialization of approximately 4.8 years, and sales forecasts with peak annual net sales reaching $300 million.
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.
Notably, the probability of success is the largest driver of the fair value and therefore changes to such input would likely result in significant changes to such 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 the fair value.
Avalo fully retired its debt in 2023, which included principal payments of $21.2 million. In March 2024, Avalo acquired AVTX-009, an anti-IL-1β mAb, through its acquisition of AlmataBio Inc. (“AlmataBio”). Additionally, in March 2024, the Company closed a private placement financing for up to $185 million in gross proceeds, including initial upfront gross investment of $115.6 million.
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.
Results of Operations 49 Table of Contents Comparison of the Years Ended December 31, 2023 and 2022 Product Revenue, net Net product revenue was $1.4 million for the year ended December 31, 2023, compared to $3.4 million for the year ended December 31, 2022.
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.
Topline results from a planned Phase 2 trial in HS are expected in 2026 and the upfront funding is expected to fund operations through this data readout and into 2027. 52 Table of Contents Based on our current operating plans, we expect that our existing cash and cash equivalents are sufficient to fund operations for at least twelve months from the filing date of this Annual Report on Form 10-K.
Based on our current operating plans, we expect that our existing cash and cash equivalents are sufficient to fund operations into at least 2027.
Additionally, changes in net liabilities increased by $4.8 million. We expect future cash used in operating activities to increase in 2024 as a result of acquiring AVTX-009 in March 2024 and our associated development plans. Net cash used in investing activities Net cash used in investing activities was minimal for the years ended December 31, 2023 and 2022.
Accrued expenses and accounts payable decreased an aggregate of $11.5 million from December 31, 2022. We expect cash used in operating activities, excluding the milestone payments made to the former AlmataBio stockholders, to increase in future periods as a result of our development plans for AVTX-009, including the continued execution of the LOTUS Trial which commenced in October 2024.
For the year ended December 31, 2023, the $0.7 million change in fair value was recognized in other expense, net in the accompanying condensed consolidated statement of operations and comprehensive loss. The fair value of the AVTX-501 Milestone was primarily driven by an approximate 23% probability of success to reach the milestone in approximately 3.8 years.
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.
Avalo estimates upfront net proceeds of approximately $105 million after deducting estimated transaction fees and expenses from both the private placement financing and the acquisition of AlmataBio. The Company could receive an additional $69.4 million of gross proceeds upon the exercise of warrants issued in the financing. Our focus in 2024 is executing operationally on the development of AVTX-009.
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”).
We do not expect major changes to selling, general and administrative expenses in the near-term given we expect that the majority of operating expense increases from the acquisition and development of AVTX-009 will be focused on research and development activities. However, there could be increases if the development of AVTX-009 requires more supporting general and administrative infrastructure needs than anticipated.
Although we expect the majority of our future operating expense increases will be focused on research and development activities to progress AVTX-009, we also expect moderate increases to general and administrative expenses to support the AVTX-009 program. Goodwill Impairment There was no goodwill impairment loss recognized for the year ended December 31, 2024.
Removed
Our focus in 2023 was completing and delivering topline data from our phase 2 trial evaluating AVTX-002 in poorly controlled non-eosinophilic asthma (the “PEAK Trial”), strengthening our balance sheet to enable us to execute our strategy to progress our immunology drug candidates, and continuing to evaluate new opportunities to augment our immunology pipeline.
Added
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”).
Removed
In the second quarter of 2023, we announced the PEAK Trial did not meet its primary endpoint, however the drug candidate showed strong target engagement in the trial, as well as in previous trials in other acute and chronic inflammatory diseases.
Added
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.
Removed
In the second half of 2023, we strengthened our balance sheet to pave the way for future growth and innovation. This included raising $46.2 million from equity financings during the year and paying off the remaining $14.3 million of the original $35 million debt owed to Horizon Technology Finance Corporation in September of 2023.
Added
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.
Removed
Further, we completed the divestiture of our rights, titles, and interests in AVTX-801, AVTX-802 and AVTX-803 (collectively, the “800 Series”) to AUG Therapeutics, LLC, further focusing our pipeline while also maintaining substantial upside for Avalo upon any 800 Series program’s successes, including up to an aggregate of $45 million of contingent milestone payments.
Added
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.
Removed
Finally, we evaluated new opportunities to augment our immunology pipeline, including identifying and acquiring a new lead asset that targets autoimmune indications, which we acquired in March 2024 through our acquisition of AlmataBio, Inc. (“AlmataBio”). Our new lead asset, AVTX-009, is a Phase 2-ready anti-IL-1β mAb.
Added
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.
Removed
There is evidence that inhibition of IL-1β could be effective in hidradenitis suppurativa (“HS”) and a variety of inflammatory diseases in dermatology, gastroenterology, and rheumatology. In March 2024, we closed a private placement financing for up to $185 million in gross proceeds, including initial upfront gross investment of $115.6 million.
Added
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.
Removed
We intend to pursue the development of AVTX-009 in HS and we expect topline data from a planned Phase 2 trial in 2026. In addition to HS, Avalo intends to pursue AVTX-009 in at least one other chronic inflammatory indication.
Added
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.
Removed
The decrease in net loss was primarily attributable to a $26.2 million decrease in operating expenses driven by significantly reduced research and development expenses and selling, general and administrative expenses, partially offset by a decrease of $14.2 million in license and other revenue.
Added
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.
Removed
The significant reduction of research and development expenses was driven by fewer development programs ongoing during 2023 (due to divestitures in both 2022 and 2023), the AVTX-002 PEAK Trial reading out in June of 2023 with no new trials initiated in the second half of the year, and a reduction of manufacturing costs due to the timing of manufacturing runs.
Added
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.
Removed
Selling, general and administrative expenses decreased due to a smaller infrastructure to support the focused pipeline, severance in 2022 that did not repeat, as well as cost savings initiatives. As of December 31, 2023, Avalo had $7.4 million in cash and cash equivalents, representing a $5.8 million decrease compared to December 31, 2022.
Added
Operating expense increases were partially offset by a $37.7 million increase to other income, primarily related to the warrants that were issued in 2024.
Removed
We raised approximately $46.2 million of net proceeds from equity financings during the year. We fully retired our original $35 million of debt with principal payments of $21.2 million in 2023.
Added
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.
Removed
The $2.0 million decrease was attributable to a decrease in units sold, mainly driven by the planned expiration of our license and supply agreement for our only commercially marketed product, Millipred ® on September 30, 2023. We do not expect future gross product revenue for Millipred ® , which the Company considered a non-core asset.
Added
We do not expect future gross product revenue for Millipred ® . License and Other Revenue Avalo recognized no license and other revenue for the year ended December 31, 2024.
Removed
The decrease was mainly attributable to a decrease in Millipred ® units sold, as discussed above. Additionally, for the year ended December 31, 2022, we fully reserved the $1.0 million receivable due from Aytu in December 2024, which was recognized in cost of product sales.
Added
The benefit recognized in the current period was mainly driven by the reversal of a $1.0 million reserve against the receivable due from Aytu BioScience, Inc.
Removed
As of December 31, 2023, the total receivable balance was approximately $0.7 million and remains fully reserved. We continue to assess collectability of the receivable each reporting period and any change in our assessment of collectability could impact cost of product sales. Refer to Note 3 of the consolidated financial statements for more information.
Added
(“Aytu”) in December 2024 given that Avalo expected the receivable to be collectible as of December 31, 2024, partially offset by additional royalty on the profit share as a result of a change in estimate for commercial liabilities. Avalo collected the receivable from Aytu in January 2025.
Removed
Avalo’s license and supply agreement for Millipred ® expired on September 30, 2023. Therefore, we do not expect material cost of product sales going forward.
Added
The cost of product sales incurred in the prior period was driven by units sold. The Company will continue to monitor estimates for commercial liabilities, such as sales returns and profit share with the supplier pursuant to the reconciliation process.
Removed
Notably, clinical expenses and chemistry, manufacturing, and control (“CMC”) expenses decreased $6.3 million and $6.2 million, respectively.
Added
Notably, clinical expenses increased $4.2 million in the current period due to LOTUS Trial activities including expenses incurred to activate the IND and trial initiation and execution expenses. Additionally, chemistry, manufacturing, and control (“CMC”) expenses increased $3.3 million as a result of AVTX-009 raw material purchases and manufacturing.
Removed
Such decreases were driven by reduced clinical trial activities and manufacturing for AVTX-002 due to timing of study completion in June of 2023, paired with decreased expenses as a result of the out-license of AVTX-007 in July of 2022 and the divestiture of the 800 Series in the fourth quarter of 2023. 50 Table of Contents Salaries, benefits and related costs decreased $3.6 million due to severance expense recognized in the first quarter of 2022 from headcount reductions that did not repeat, paired with lower salary costs in 2023 driven by the reduced headcount.
Added
Clinical and CMC expense increases were partially offset by clinical development and manufacturing activity ongoing in the prior year for quisovalimab that did not repeat in the current year given the conclusion of the Phase 2 trial of quisovalimab in June 2023. 50 Table of Contents Salaries, benefits and related costs increased $2.6 million in the current period primarily due to increased non-equity incentive plan compensation expense incurred.
Removed
Notably, we recognized $4.3 million of stock-based compensation expense in 2022 from the acceleration and modification of certain separated employees’ stock options that did not repeat.
Added
Stock-based compensation expense increased $1.1 million due to option and restricted stock unit grants during the period, including the annual grant in August 2024. We expect future research and development expenses to increase as a result of our development plans for AVTX-009, including the continued execution of the LOTUS Trial which commenced in October 2024.
Removed
Additionally, salaries, benefits and related costs decreased $4.1 million due to $2.4 million of severance expense recognized in 2022 from headcount reductions that did not repeat, paired with lower salary costs in 2023 driven by the reduced headcount. Legal, consulting and other professional expenses decreased $1.8 million due to cost savings initiatives.
Added
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”).
Removed
The Company’s market capitalization decreased 69% from September 30, 2023 to December 31, 2023, which occurred primarily in the second half of the fourth quarter and on December 28, 2023, Avalo effected a reverse stock split of the Company’s common stock.

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Other AVTX 10-K year-over-year comparisons