Avalo Therapeutics, Inc.
For the period ended Sep 30, 2026. Filed Nov 5, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Nov 5, 2026
AVTX$6.93+4.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-06-30; filed 2026-08-06.
0001534120-26-000049
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-11-05.
0001534120-26-000057
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 70 previous paragraphs and 70 current paragraphs.
36 unchanged; 28 reworded; 6 added; 6 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 7 previous and 7 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (6)
Current report
Other Income (Expense), Net
Current report
Comparison of the Nine Months Ended September 30, 2026 and 2025
Current report
Other Income (Expense), Net
Current report
Goodwill
Current report
The Company’s goodwill relates to historical acquisitions that were accounted for as business combinations and represents the excess of the purchase price over the fair value of the net assets acquired when accounted for using the acquisition method of accounting. In accordance with ASC 350, Intangibles - Goodwill and Other, goodwill is not amortized but is evaluated for impairment on an annual basis or more frequently if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the Company’s reporting unit below its carrying amount. A reporting unit is an operating segment or one level below the operating segment. As standalone discrete and detailed financial information is not available or regularly reviewed below the company-wide level, the Company consists of one reporting unit. The Company performs its annual goodwill impairment test on the last day of the fiscal year. The fair value of the reporting unit is estimated using the market approach. The Company utilizes its closing stock price on the date of the impairment test, which is considered a Level 1 input pursuant to ASC 820, Fair Value Measurements and Disclosures, to calculate the reporting unit’s fair value.
Current report
Throughout the year, we consider whether any events or changes in the business environment have occurred that could indicate that goodwill may be impaired. Accordingly, we monitor changes in our stock price during interim periods between annual impairment tests and consider overall stock market conditions, the underlying reasons for declines in our stock price, the significance of the decline, and the duration of time that securities have been trading at a lower value. As of September 30, 2026 there were no impairment indicators present and our goodwill balance was $10.5 million. Subsequent to September 30, 2026, there has been a decline in the closing stock price of our common stock likely due to a deterioration in market conditions paired with clinical trial data readouts of competitors. Depending on the stock price and other relevant factors in the fourth quarter of 2026, we may be at risk for future goodwill impairment in the near-term.
Removed paragraphs (6)
Previous report
Recent Developments
Previous report
In the second quarter of 2026, we reported positive topline Phase 2 LOTUS results for abdakibart in adults with moderate to severe HS. The trial successfully met its primary endpoint at both doses studied (p=0.018 150 mg, p=0.015 300mg and p=0.004, combined), demonstrating a 42.2% and 42.9% absolute improvement in HiSCR75 response rates at Week 16, respectively (42.5% combined, placebo rate 25.6%). Abdakibart also demonstrated statistically significant benefit across the key secondary endpoints, including HiSCR50, change in IHS4, and change in draining tunnel count. Additionally, in the second quarter of 2026, we completed an equity offering for net proceeds of $405.0 million.
Previous report
In June 2026, we announced the appointment of Ron Philip to our Board of Directors. Mr. Philip contributes deep strategic and commercial expertise, with a proven track record of bringing novel therapeutics to market.
Previous report
Other Expense, Net
Previous report
Comparison of the Six Months Ended June 30, 2026 and 2025
Previous report
Other (Expense) Income, Net
Reworded paragraphs (28)
Previous wording
For the six months ended June 30, 2026, we generated a net loss of $56.0 million and negative cash flows from operations of $37.7 million. As of June 30, 2026, we had $472.2 million in cash and cash equivalents and investments.
Current wording
For the nine months ended September 30, 2026, we generated a net loss of $74.9 million and negative cash flows from operations of $49.2 million. As of September 30, 2026, we had $462.8 million in cash and cash equivalents and investments.
Previous wording
•Acquiring or in-licensing rights to and/or developing targeted, complementary differentiated preclinical and clinical stage compounds that treat immune-mediated inflammatory disease; and
Current wording
•Acquiring or in-licensing rights to and/or developing targeted, complementary differentiated nonclinical and clinical stage compounds that treat immune-mediated inflammatory disease; and
Previous wording
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. 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. Human clinical trials typically include: Phase 1 studies to evaluate the safety and tolerability of the drug, generally in normal, healthy volunteers (although for biologics and certain serious or inflammatory diseases, first-in-human studies may be conducted in patients); Phase 2 studies to evaluate safety and efficacy, as well as appropriate doses; these studies are typically conducted in patient volunteers who suffer from the particular disease condition that the drug is designed to treat; and Phase 3 studies to evaluate the safety and efficacy of the product at specific doses in one or more larger pivotal trials.
Current wording
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. Prior to submitting a new drug application (“NDA”) or biologics license application (“BLA”), the FDA approval process typically involves the following: nonclinical laboratory and animal testing, submission of an Investigational New Drug (“IND”) application, and human clinical trials to establish safety and efficacy. Human clinical trials typically include: Phase 1 studies to evaluate the safety and tolerability of the drug, generally in normal, healthy volunteers (although for biologics and certain serious or inflammatory diseases, first-in-human studies may be conducted in patients); Phase 2 studies to evaluate safety and efficacy, as well as appropriate doses; these studies are typically conducted in patient volunteers who suffer from the particular disease condition that the drug is designed to treat; and Phase 3 studies to evaluate the safety and efficacy of the product at specific doses in one or more larger pivotal trials.
Previous wording
Research and development expenses increased by $9.3 million in the second quarter of 2026 as compared to the second quarter of 2025. The increase was driven by the recognition of a $10.0 million development milestone for abdakibart payable upon the dosing of the first patient in a phase 3 trial, as achievement of the milestone was determined to be probable as of June 30, 2026. Additionally, CMC expenses increased $1.8 million primarily due to manufacturing preparation activities for AVTX-010. In addition, stock-based compensation expense increased $0.6 million due to the annual employee equity grants and salary and related expenses increased $0.4 million primarily due to higher headcount. These increases were partially offset by a $3.5 million decrease in clinical expenses as LOTUS trial activities declined in the current period leading up to and following the release of topline data in May 2026, compared to significant ongoing trial activities in the prior year.
Current wording
Research and development expenses increased by $1.4 million in the third quarter of 2026 as compared to the third quarter of 2025. The increase was primarily driven by a $5.2 million increase to CMC expenses due to manufacturing activities for AVTX-010, which were not incurred in the prior year period, and increased manufacturing activities for abdakibart in preparation for our registrational studies. In addition, stock-based compensation expense increased $0.6 million due to the annual employee equity grants and salary and related expenses increased $0.4 million due to increased headcount, salaries and other compensation costs. These increases were partially offset by a $5.0 million decrease in clinical expenses due to reduced LOTUS trial and related activities following the release of topline data in May 2026, compared to significant ongoing trial activities in the prior year.
Previous wording
Given the positive Phase 2 LOTUS topline results in HS, we expect research and development expenses to increase over time as we advance abdakibart into a registrational Phase 3 program in HS.
Current wording
We expect research and development expenses to increase over time as we advance abdakibart into a registrational Phase 3 program in HS.
Previous wording
General and administrative expenses increased by $2.9 million in the second quarter of 2026 compared to the second quarter of 2025. The increase was primarily driven by a $2.0 million increase in stock-based compensation expense related to additional equity awards granted since the prior year period as well as $0.8 million of modification expense associated with the accelerated vesting of equity awards held by former directors. Salaries and related expenses increased $0.6 million due to higher headcount. In addition, legal, consulting and other professional expenses increased $0.4 million primarily due to increased activity supporting Company’s operational and development activities.
Current wording
General and administrative expenses increased by $2.8 million in the third quarter of 2026 compared to the third quarter of 2025. The increase was primarily driven by a $1.5 million increase in stock-based compensation expense primarily resulting from grants issued since the prior year period and expense related to performance stock units deemed probable of vesting in the second quarter of 2026. Salaries and related expenses increased $0.9 million primarily due to higher headcount. In addition, legal, consulting and other professional expenses increased $0.4 million due to increased costs to support the Company’s expanded operations and development activities.
Previous wording
Given the positive Phase 2 LOTUS topline results in HS, we expect general and administrative expense to increase over time as we support the advancement of abdakibart into a registrational Phase 3 program in HS and expand the infrastructure required to support our operations.
Current wording
We expect general and administrative expenses to increase over time as we support the advancement of abdakibart into a registrational Phase 3 program in HS and expand the infrastructure required to support our operations.
Previous wording
The following table summarizes our other expense, net for the three months ended June 30, 2026 and 2025 (in thousands):
Current wording
The following table summarizes our other income (expense), net for the three months ended September 30, 2026 and 2025 (in thousands):
Previous wording
Other expense, net increased $3.4 million for the three months ended June 30, 2026 as compared to the prior year period, primarily driven by a $6.6 million charge related to the contingent consideration recognized under the AlmataBio Buyout Agreement. The increase was partially offset by a $1.5 million favorable change in the fair value of the derivative liability associated with AVTX-007 milestone and royalty payments as compared to the three months ended June 30, 2025 (refer to Note 4 - Fair Value Measurements of the unaudited condensed and consolidated financial statements for more information). Interest income increased $1.7 million due to higher average cash and investment balances from the prior year.
Current wording
The $15.9 million change in other income (expense), net compared to the prior year period was primarily driven by a $12.7 million favorable change in fair value of the derivative liability associated with the AVTX-007 milestone and royalty payments driven by a significant change in the prior year valuation that did not repeat (refer to Note 4 - Fair Value Measurements of the unaudited condensed consolidated financial statements for more information). Interest income increased $3.1 million due to higher average cash and investment balances from the prior year.
Previous wording
The following table summarizes our research and development expenses for the six months ended June 30, 2026 and 2025 (in thousands):
Current wording
The following table summarizes our research and development expenses for the nine months ended September 30, 2026 and 2025 (in thousands):
Previous wording
Research and development expense increased by $14.3 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. The increase was driven by the recognition of a $10.0 million development milestone for abdakibart payable upon the dosing of the first patient in a phase 3 trial, as achievement of the milestone was determined to be probable as of June 30, 2026. CMC expenses increased $3.9 million primarily due to drug manufacturing activities and preparations for our planned pivotal HS trial of abdakibart as well as manufacturing preparation activities related to AVTX-010. These increases were partially offset by a $1.7 million decrease in clinical expenses as LOTUS trial activities declined in the current period leading up to and following the release of topline data in May 2026, compared to significant ongoing trial activities in the prior year. Additionally, salaries, benefits and related costs increased $1.2 million primarily due to higher headcount.
Current wording
Research and development expenses increased by $15.7 million for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. The increase was primarily driven by the recognition of a $10.0 million development milestone for abdakibart payable upon the dosing of the first patient in a phase 3 trial, as achievement of the milestone was initially determined to be probable as of June 30, 2026, as well as a $9.1 million increase in CMC expenses due to manufacturing activities for AVTX-010, which were not incurred in the prior year, and increased manufacturing activities for abdakibart in preparation for our registrational studies. In addition, salaries, benefits and related costs increased $1.6 million primarily due to higher headcount, salaries and other compensation costs and stock-based compensation expense increased $1.1 million primarily due to grants issued during the year. These increases were partially offset by a $6.8 million decrease in clinical expenses as LOTUS trial and related activities declined in the current period leading up to and following the release of topline data in May 2026, compared to significant ongoing trial activities in the prior year.
Previous wording
Given the positive Phase 2 LOTUS topline results in HS, we expect research and development expenses to increase over time as we advance abdakibart into a registrational Phase 3 program in HS.
Current wording
We expect research and development expenses to increase over time as we advance abdakibart into a registrational Phase 3 program in HS.
Previous wording
The following table summarizes our general and administrative expenses for the six months ended June 30, 2026 and 2025 (in thousands):
Current wording
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2026 and 2025 (in thousands):
Previous wording
General and administrative expenses increased $4.2 million in six months ended June 30, 2026 as compared to the six months ended June 30, 2025. The increase was primarily driven by a $2.4 million increase in stock-based compensation expense related to additional equity awards granted since the prior period as well as $0.8 million of modification expense related to the accelerated vesting of equity awards held by former directors. Salaries, benefits and related costs increased $1.2 million primarily due to higher headcount. Additionally, legal, consulting, and other professional expenses increased $0.7 million primarily due to increased activity supporting the Company’s operational and development activities.
Current wording
General and administrative expenses increased $6.9 million for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. The increase was primarily driven by a $3.9 million increase in stock-based compensation expense related to grants issued since the prior year period, as well as modification expense related to the accelerated vesting of equity awards held by former directors, and expense related to performance stock units deemed probable of vesting in the second quarter of 2026. Salaries, benefits and related costs increased $2.0 million primarily due to higher headcount, salaries and other compensation costs. Additionally, legal, consulting, and other professional expenses increased $1.1 million due to increased costs to support the Company’s expanded operations and development activities.
Previous wording
Given the positive Phase 2 LOTUS topline results in HS, we expect general and administrative expense to increase over time as we support the advancement of abdakibart into a registrational Phase 3 program in HS and expand the infrastructure required to support our operations.
Current wording
We expect general and administrative expenses to increase over time as we support the advancement of abdakibart into a registrational Phase 3 program in HS and expand the infrastructure required to support our operations.
Previous wording
The following table summarizes our other (expense) income, net for the six months ended June 30, 2026 and 2025 (in thousands):
Current wording
The following table summarizes our other income (expense), net for the nine months ended September 30, 2026 and 2025 (in thousands):
Previous wording
The $3.6 million change in other (expense) income, net compared to the prior year period was primarily driven by a $6.6 million charge related to the contingent consideration recognized under the AlmataBio Buyout Agreement. This increase in other (expense) income, net was partially offset by a $1.6 million favorable change in the fair value of the derivative liability associated with the AVTX-007 milestone and royalty payments as compared to the six months ended June 30, 2026 (refer to Note 4 - Fair Value Measurements of the unaudited condensed and consolidated financial statements for more information). Interest income increased $1.3 million in the current period due to higher average cash and investment balances from the prior year.
Current wording
The $12.2 million change in other income (expense), net compared to the prior year period was primarily driven by a $14.4 million favorable change in fair value of the derivative liability associated with the AVTX-007 milestone and royalty payments driven by a significant change in the prior year valuation that did not repeat (refer to Note 4 - Fair Value Measurements of the unaudited condensed consolidated financial statements for more information). Interest income increased $4.5 million due to higher average cash and investment balances compared to the prior year. These favorable changes were partially offset by a $6.6 million charge related to the contingent consideration recognized in connection with the AlmataBio Buyout Agreement.
Previous wording
The Company recognized minimal income tax expense for both the six months ended June 30, 2026 and 2025.
Current wording
The Company recognized minimal income tax expense for both the nine months ended September 30, 2026 and 2025.
Previous wording
We primarily use cash to fund the ongoing development of our pipeline, primarily abdakibart, and costs associated with our organizational infrastructure. As of June 30, 2026, we had $472.2 million in cash and cash equivalents and investments. We expect future cash used in operating activities to increase over time as we advance abdakibart into a registrational phase 3 program in HS, progress AVTX-010 toward submission of an investigational new drug application and support the infrastructure necessary for our operations.
Current wording
We primarily use cash to fund the ongoing development of our pipeline, primarily abdakibart, and costs associated with our organizational infrastructure. As of September 30, 2026, we had $462.8 million in cash and cash equivalents and investments. We expect future cash used in operating activities to increase over time as we advance abdakibart into a registrational phase 3 program in HS, progress AVTX-010 toward submission of an investigational new drug application and support the infrastructure necessary for our operations.
Previous wording
The following table summarizes our cash flows for the six months ended June 30, 2026 and 2025 (in thousands):
Current wording
The following table summarizes our cash flows for the nine months ended September 30, 2026 and 2025 (in thousands):
Previous wording
Net cash used in operating activities was $37.7 million for the six months ended June 30, 2026 and consisted primarily of net loss of $56.0 million, partially offset by net non-cash charges of $15.5 million. The non-cash charges consisted primarily of stock-based compensation of $8.9 million, change in fair value of contingent consideration of $6.6 million, and a change in the fair value of the derivative liability of $0.5 million, partially offset by $0.5 million accretion of investments. Changes in net operating liabilities increased $7.6 million and consisted primarily of a $5.1 million increase in accrued expenses and other liabilities primarily due to the $10.0 million milestone accrued as of June 30, 2026 due upon dosing the first patient in a phase 3 trial for abdakibart and partially offset by decreased research and development accruals. Additionally, accounts payable increased $3.2 million due to timing of vendor invoices. Prepaid and other assets increased $0.7 million.
Current wording
Net cash used in operating activities was $49.2 million for the nine months ended September 30, 2026 and consisted primarily of net loss of $74.9 million, partially offset by net non-cash charges of $19.8 million. The non-cash charges consisted primarily of stock-based compensation of $14.1 million, change in fair value of contingent consideration of $6.6 million, and a change in the fair value of the derivative liability of $0.3 million, partially offset by $1.2 million accretion of investments. Changes in net operating liabilities increased $10.7 million and consisted primarily of a $9.1 million increase in accrued expenses and other liabilities, which is primarily due to the $10.0 million milestone accrued in the nine months ended September 30, 2026 due upon dosing the first patient in a phase 3 trial for abdakibart. Additionally, accounts payable increased $2.3 million due to timing of vendor invoices.
Previous wording
Net cash used in operating activities was $20.8 million for the six months ended June 30, 2025 and consisted primarily of net loss of $33.9 million, partially offset by net non-cash charges of $8.3 million and changes in operating assets and liabilities of $4.7 million. The non-cash charges consisted primarily of stock-based compensation expense of $6.0 million and a $2.2 million change in the change in the fair value of the derivative liability. Changes in our operating assets and liabilities consisted primarily of a $2.4 million decrease in prepaid expenses and other current assets due to our ongoing clinical work and a $2.1 million increase in accounts payable primarily due to continued activity related to the LOTUS trial and the timing of vendor invoices.
Current wording
Net cash used in operating activities was $37.2 million for the nine months ended September 30, 2025 and consisted primarily of net loss of $64.5 million, partially offset by net non-cash charges of $23.7 million and changes in our operating assets and liabilities of $3.7 million. The non-cash charges consisted primarily of a $14.7 million change in the change in the fair value of the derivative liability and stock-based compensation expense of $9.1 million. Changes in our operating assets and liabilities consisted primarily of a $2.2 million decrease in prepaid expenses and other current assets due to ongoing clinical work and a $1.3 million increase in accrued expenses and other liabilities primarily due to activity related to the LOTUS trial and the timing of vendor invoices.
Previous wording
Net cash used in investing activities for the six months ended June 30, 2026 consisted of $353.8 million purchases of available-for-sale investments partially offset by $49.4 million of proceeds from maturities and sales of available-for-sale investments.
Current wording
Net cash used in investing activities for the nine months ended September 30, 2026 consisted of $428.6 million purchases of available-for-sale investments partially offset by $113.0 million of proceeds from maturities and sales of available-for-sale investments.
Previous wording
Net cash used in investing activities for the six months ended June 30, 2025 consisted of $70.9 million of purchases of available-for-sale investments.
Current wording
Net cash used in investing activities for the nine months ended September 30, 2025 consisted of $94.6 million of purchases of available-for-sale investments, partially offset by $10.5 million of proceeds from maturities of available-for-sale investments.
Previous wording
Net cash provided by (used in) financing activities
Current wording
Net cash provided by financing activities
Previous wording
Net cash provided by financing activities for the six months ended June 30, 2026 consisted primarily of gross proceeds of $431.3 million from the underwritten public offering that closed in May 2026, partially offset by $26.4 million of transaction costs, and $7.4 million of proceeds from the exercises of stock options.
Current wording
Net cash provided by financing activities for the nine months ended September 30, 2026 consisted primarily of gross proceeds of $431.3 million from the underwritten public offering that closed in May 2026, partially offset by $26.4 million of transaction costs, and $10.0 million of proceeds from the exercises of stock options.
Previous wording
Net cash used in financing activities for the six months ended June 30, 2025 consisted primarily of the cash paid to tax authorities related to withholding shares to satisfy RSU vesting withholding obligations on behalf of employees.
Current wording
Net cash provided by financing activities for the nine months ended September 30, 2025 consisted of net proceeds of $14.4 million from the sales of shares under our “at-the-market” sales agreement, partially offset by $0.5 million in cash paid to tax authorities related to withholding shares to satisfy RSU vesting withholding obligations on behalf of employees.
Previous wording
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP. In preparing the financial statements in conformity with GAAP, the Company makes estimates and assumptions that have an impact on assets, liabilities, revenue and expenses reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk, and financial condition. In our unaudited condensed consolidated financial statements, estimates are used for, but not limited to, clinical trial accruals and research and development costs, stock-based compensation, fair value measurements, the valuation of derivative liabilities, and cash flows used in management’s going concern assessment. The Company believes, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates, and estimates may vary as new facts and circumstances arise. Our most critical accounting estimates and assumptions are included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 23, 2026. There have been no significant changes to our critical accounting policies during the six months ended June 30, 2026, except for the investments policy as described in Note 2 - Basis of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Current wording
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with GAAP. In preparing the financial statements in conformity with GAAP, the Company makes estimates and assumptions that have an impact on assets, liabilities, revenue and expenses reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk, and financial condition. In our unaudited condensed consolidated financial statements, estimates are used for, but not limited to, clinical trial accruals and research and development costs, stock-based compensation, fair value measurements, the valuation of derivative liabilities, and cash flows used in management’s going concern assessment. The Company believes, given current facts and circumstances, that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from estimates, and estimates may vary as new facts and circumstances arise. Our most critical accounting estimates and assumptions are included in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 23, 2026. There have been no significant changes to our critical accounting policies during the nine months ended September 30, 2026, except for the investments policy as described in Note 2 - Basis of Presentation and Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.