Avalo Therapeutics Inc

Previous wording

This Quarterly Report on Form 10-Q and the information incorporated herein by reference contain forward-looking statements that involve a number of risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can be identified by the use of forward-looking words such as “projects,” “may,” “might,” “will,” “could,” “would,” “should,” “continue,” “seeks,” “aims,” “predicts,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “potential,” “pro forma” or other similar words (including their use in the negative), or by discussions of future matters such as: the future financial and operational outlook; the development of product candidates; and other statements that are not historical. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those set out elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II – Item 1A, “Risk Factors,” as well as in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 29, 2024, and in our other filings with the SEC. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

Current wording

This Quarterly Report on Form 10-Q and the information incorporated herein by reference contain forward-looking statements that involve a number of risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can be identified by the use of forward-looking words such as “projects,” “may,” “might,” “will,” “could,” “would,” “should,” “continue,” “seeks,” “aims,” “predicts,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “potential,” “pro forma” or other similar words (including their use in the negative), or by discussions of future matters such as: the future financial and operational outlook; the development of product candidates; and other statements that are not historical. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those set out in our Quarterly Report on Form 10-Q, Part II – Item 1A, “Risk Factors,” filed with the Securities and Exchange Commission, or SEC, on August 12, 2024, as well as in our Annual Report on Form 10-K filed with the SEC on March 29, 2024, and in our other filings with the SEC. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

Previous wording

In July 2024, Avalo announced that its Investigational New Drug (“IND”) for AVTX-009, an anti-IL-1β (mAb), for the treatment of hidradenitis suppurativa (“HS”) is now active, permitting the Company to commence its Phase 2 (“LOTUS”) clinical trial. Avalo expects to enroll its first patient in its Phase 2 LOTUS Trial, in the second half of 2024. 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. Avalo is the study sponsor and the current proposed trial locations include United States, Canada, France, Germany, Italy, Spain, Bulgaria, Czech Republic, Greece, Poland, Australia and Turkey. Subjects will be randomized (1:1:1) to receive either one of two doses of AVTX-009 or placebo. The primary efficacy endpoint is the proportion of subjects achieving Hidradenitis Suppurativa Clinical Response (HiSCR75) at Week 16.

Current wording

In October 2024, Avalo announced that its first patient had been dosed in the Company’s Phase 2 (“LOTUS”) trial of AVTX-009, an anti-IL-1β (mAb), in hidradenitis suppurativa (“HS”). 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 will be randomized (1:1:1) to receive either one of two doses of AVTX-009 or placebo. The primary efficacy endpoint is the proportion of subjects achieving Hidradenitis Suppurativa Clinical Response (HiSCR75) at Week 16. Avalo is the study sponsor and the current proposed trial locations include the United States, Canada, France, Germany, Italy, Spain, Bulgaria, Czech Republic, Greece, Poland, Australia and Turkey.

Previous wording

For the six months ended June 30, 2024, Avalo generated a net loss of $22.8 million and negative cash flows from operations of $22.5 million. As of June 30, 2024, Avalo had $93.4 million in cash and cash equivalents. In the first quarter of 2024, the Company closed a private placement investment consisting of an initial upfront gross investment of $115.6 million (net proceeds were $108.1 million after deducting transaction costs) and potentially up to an additional $69.4 million of gross proceeds upon the exercise of warrants issued in the financing.

Current wording

For the nine months ended September 30, 2024, Avalo generated net income of $0.2 million and negative cash flows from operations of $34.0 million. As of September 30, 2024, Avalo had $81.9 million in cash and cash equivalents. In the first quarter of 2024, the Company closed a private placement investment consisting of an initial upfront gross investment of $115.6 million (net proceeds were $108.1 million after deducting transaction costs) and up to an additional $69.4 million of gross proceeds upon the exercise of 11,967,526 warrants issued in the financing, which expire on November 8, 2024. Subsequent to September 30, 2024 and through November 6, 2024, the Company received gross proceeds of $58.1 million from the exercise of the warrants issued in the private placement.

Previous wording

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 Quarterly Report on Form 10-Q and we expect current cash on hand to fund operations into 2027. The Company closely monitors its cash and cash equivalents and seeks to balance the level of cash and cash equivalents with our projected needs to allow us to withstand periods of uncertainty relative to the availability of funding on favorable terms. We 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. To the extent that we raise capital through the sale of equity, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Further, if the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company might have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates.

Current wording

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 Quarterly Report on Form 10-Q and we expect current cash on hand to fund operations into at least 2027. The Company closely monitors its cash and cash equivalents and seeks to balance the level of cash and cash equivalents with our projected needs to allow us to withstand periods of uncertainty relative to the availability of funding on favorable terms. We 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. To the extent that we raise capital through the sale of equity, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Further, if the Company raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, the Company might have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates.

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. It typically involves the following prior to submitting a new drug application (NDA) or biologics license application (BLA): preclinical laboratory and animal testing, submission of an 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; 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 safety and efficacy of the product at specific doses in one or more larger pivotal trials. Upon submission of an NDA or BLA, the FDA reviews the application including potentially an FDA advisory committee review and inspects manufacturing facilities prior to FDA approval or rejection of the application. Even if a product receives FDA approval, the agency may impose post-approval requirements or withdraw approval if safety or efficacy issues arise. 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.

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. It typically involves the following prior to submitting a new drug application (NDA) or biologics license application (BLA): preclinical laboratory and animal testing, submission of an 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; 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 safety and efficacy of the product at specific doses in one or more larger pivotal trials. Upon submission of an NDA or BLA, the FDA reviews the application including potentially an FDA advisory committee review and typically inspects manufacturing facilities and clinical study sites prior to FDA approval or rejection of the application. Even if a product receives FDA approval, the agency may impose post-approval requirements or withdraw approval if safety or efficacy issues arise. 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.

Previous wording

We do not expect gross product revenue for Millipred®, which the Company considered a non-core asset. 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.

Current wording

The Company’s license and supply agreement for Millipred®, an oral prednisolone indicated across a wide variety of inflammatory conditions expired, as planned, on September 30, 2023. The Company continues 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 such, the Company recognized minimal revenue for both the three months ended September 30, 2024 and 2023 and we expect minimal to no revenue going forward.

Previous wording

The Company will continue to monitor estimates for commercial liabilities, such as sales returns, profit share with the supplier pursuant to the reconciliation process, and commercial activity with Aytu, who previously managed Millipred® commercial operations on our behalf for an interim period. 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.

Current wording

The Company will continue to monitor estimates for commercial liabilities, such as sales returns, profit share with the supplier pursuant to the reconciliation process, and commercial activity with Aytu, who previously managed Millipred® commercial operations on our behalf. 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.

Previous wording

Research and development expenses decreased $0.1 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This decrease was mainly driven by a $0.9 million decrease in chemistry, manufacturing, and controls (“CMC”) expenses and a $0.1 million decrease in clinical expenses, partially offset by a $1.1 million increase in salaries, benefits and related costs.

Current wording

Research and development expenses increased $8.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This increase was mainly driven by a $4.2 million increase in clinical expenses and a $3.2 million increase in chemistry, manufacturing, and controls (“CMC”) expenses.

Previous wording

Salaries, benefits and related costs increased compared to the three months ended June 30, 2023 due to increased non-equity incentive plan compensation expense incurred in the current period.

Current wording

Salaries, benefits and related costs increased $0.7 million compared to the three months ended September 30, 2023 due to increased non-equity incentive plan compensation expense and headcount additions.

Previous wording

We expect future research and development expenses to increase in 2024 as a result of our development plans for AVTX-009, including planned commencement of the Phase 2 LOTUS Trial in the second half of 2024.

Current wording

We expect future research and development expenses to increase as a result of our development plans for AVTX-009, including the execution of the Phase 2 LOTUS Trial which commenced in October 2024.

Previous wording

General and administrative expenses increased $2.6 million for the six months ended June 30, 2024 compared to the prior period. The increase was driven by a $1.7 million increase in legal, consulting and other professional expenses incurred related to the Almata Transaction and corresponding private placement investment. Additionally, salaries, benefits and related costs increased $1.1 million due primarily to non-equity incentive plan compensation expense incurred in the current period.

Current wording

General and administrative expenses increased $1.8 million for the three months ended September 30, 2024 compared to the prior period. The increase was driven by a $0.6 million increase in salaries benefits and related costs due to increased non-equity incentive plan compensation expense and headcount additions, as well as a $0.5 million increase to stock compensation expense due to option and restricted stock unit grants during the period, including the annual grant in August 2024. In addition, legal, consulting and other professional expenses increased by $0.5 million for reporting, compliance and transition work incurred following the Almata Transaction and March 2024 private placement financing, as well as increased consulting services to support market research.

Previous wording

Other income, net increased $109.1 million for the three months ended June 30, 2024 compared to prior period. The increase was primarily driven by a $112.0 million gain recognized on the change of fair value of the warrant liability associated with the warrants issued in the March 2024 financing. The warrant liability fair value was $82.9 million as of June 30, 2024, as compared to $194.9 million as of March 31, 2024. The decrease in the fair value was mainly driven by the decrease in the closing stock price on the last trading day of the second quarter of 2024 of $12.47 per share compared to the closing stock price on the last trading day of the first quarter of 2024 of $21.75 per share. As of June 30, 2024, the Company estimated the expected term based on thirty-one days post-expected Dosing Date (as defined below), which also assumes that the Required Stockholder Approval (as defined below) will be obtained at its upcoming annual meeting of stockholders on August 13, 2024.

Current wording

Other income, net increased $37.4 million for the three months ended September 30, 2024 compared to the prior period. The increase was primarily driven by a $36.0 million gain recognized on the change of fair value of the warrant liability associated with the warrants issued in the March 2024 financing. The warrant liability fair value was $46.8 million as of September 30, 2024, as compared to $82.9 million as of June 30, 2024. The decrease in the fair value was mainly driven by the decrease in the closing stock price on the last trading day of the third quarter of 2024 of $9.50 per share compared to the closing stock price on the last trading day of the second quarter of 2024 of $12.47 per share, paired with a shorter term as the warrants approach expiration on November 8, 2024. Avalo expects no warrant liability as of December 31, 2024 following the exercise and/or expiration of the warrants during the fourth quarter of 2024. Refer to Note 6 - Fair Value Measurements of the unaudited condensed and consolidated financial statements for more information.

Previous wording

Finally, interest income increased by $3.1 million given the Company’s increased cash position compared to the prior period, paired with no interest expense incurred in the current period given the Company’s full payoff of its former loan in the prior year.

Current wording

Interest income increased by $2.5 million given the Company’s increased cash position compared to the prior period, paired with no interest expense incurred in the current period given the Company’s full payoff of its former loan in the prior year.

Previous wording

We do not expect future gross product revenue for Millipred®, which the Company considered a non-core asset. 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.

Current wording

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. As additional information becomes available, the Company could recognize expense (or benefit) for differences between actuals or updated estimates to the reserves previously recognized. For the nine months ended September 30, 2024, the Company recognized minimal net product revenue of $0.2 million compared to $1.4 million for the nine months ended September 30, 2023 for sales of Millipred® during the period. We do not expect future gross product revenue for Millipred®.

Previous wording

The following table summarizes our research and development expenses for the six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table summarizes our research and development expenses for the nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

We expect future research and development expenses to increase in 2024 as a result of our development plans for AVTX-009, including planned commencement of the Phase 2 LOTUS Trial in the second half of 2024.

Current wording

We expect future research and development expenses to increase as a result of our development plans for AVTX-009, including the execution of the Phase 2 LOTUS Trial which commenced in October 2024.

Previous wording

In the first quarter of 2024, we acquired AVTX-009 pursuant to the Almata Transaction, resulting in us acquiring $27.6 million of acquired IPR&D. The fair value of the IPR&D, substantially all of which is related to AVTX-009, was recognized as acquired IPR&D expense for the six months ended June 30, 2024 as there is no alternative future use. There was no acquired IPR&D for the six months ended June 30, 2023.

Current wording

In the first quarter of 2024, we acquired AVTX-009 pursuant to the Almata Transaction, resulting in us acquiring $27.6 million of acquired IPR&D. The fair value of the IPR&D, substantially all of which is related to AVTX-009, was recognized as acquired IPR&D expense for the nine months ended September 30, 2024 as there is no alternative future use. There was no acquired IPR&D for the nine months ended September 30, 2023.

Previous wording

The following table summarizes our general and administrative expenses for the six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table summarizes our general and administrative expenses for the nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

General and administrative expenses increased $2.1 million for the three months ended June 30, 2024 compared to the prior period. The increase was primarily driven by a $1.4 million increase in legal, consulting and other professional expenses for activities incurred related to the legal, accounting, and reporting requirements following the Almata Transaction and private placement investment, which closed in late March 2024. Additionally, salaries, benefits and related costs increased $0.9 million due to increased non-equity incentive plan compensation expense incurred in the current period.

Current wording

General and administrative expenses increased $4.4 million for the nine months ended September 30, 2024 compared to the prior period. The increase was driven by a $2.2 million increase in legal, consulting and other professional expenses incurred for accounting and reporting work incurred as well as increased consulting services following the Almata Transaction and March 2024 private placement financing. Additionally, salaries, benefits and related costs increased $1.7 million primarily due to increased non-equity incentive plan compensation expense incurred in the current period.

Previous wording

The following table summarizes our other income (expense), net for the six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table summarizes our other income (expense), net for the nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

Other income, net increased $21.7 million for the six months ended June 30, 2024 as compared to the prior period primarily driven by the impact of the warrant liability associated with the warrants issued in the March 2024 financing. For the six months ended June 30, 2024, we recognized a $79.3 million loss at issuance on the excess of initial warrant liability fair value ($194.9 million) over the private placement proceeds ($115.6 million). The loss was more than offset by a $112.0 million gain recognized on the change of fair value of the warrant liability from March 31, 2024 to June 30, 2024. The fair value of the warrant liability was estimated using a Black-Scholes option-pricing model and they key variable input driving the decrease in fair value as of June 30, 2024 compared to March 31, 2024 was the stock price movement ($12.47 as of the last trading day of the second quarter and $21.75 as of the last trading day of the first quarter). As of June 30, 2024, the Company estimated the expected term based on thirty-one days post-expected Dosing Date, which also assumes that the Required Stockholder Approval will be obtained at its upcoming annual meeting of stockholders on August 13, 2024.

Current wording

Other income, net increased $59.1 million for the nine months ended September 30, 2024 as compared to the prior period primarily driven by the impact of the warrant liability associated with the warrants issued in the March 2024 financing. For the nine months ended September 30, 2024, we recognized a $79.3 million loss at issuance on the excess of initial warrant liability fair value ($194.9 million) over the private placement proceeds ($115.6 million). The loss was more than offset by a $148.1 million gain recognized on the change of fair value of the warrant liability from March 31, 2024 to September 30, 2024. The decrease in the fair value was mainly driven by the decrease in the closing stock price on the last trading day of the third quarter of $9.50 per share compared to the closing stock price on the last trading day of the first quarter of $21.75 per share, paired with a shorter term as the warrants approach expiration on November 8, 2024. Avalo expects no warrant liability as of December 31, 2024 following the exercise and/or expiration of the warrants during the fourth quarter of 2024. Refer to Note 6 - Fair Value Measurements of the unaudited condensed and consolidated financial statements for more information.

Previous wording

The increase to other income, net was partially offset by the recognition of $9.2 million of private placement transaction costs, largely consisting of the placement agent fee of $7.0 million due on the transaction close date, and $1.7 million fee payable upon exercise of the warrants issued in the private placement investment.

Current wording

The increase to other income, net was partially offset by $9.2 million of private placement transaction costs, largely consisting of the placement agent fee of $7.0 million due on the transaction close date in March 2024, and $1.7 million fee payable upon exercise of the warrants issued in the private placement investment.

Previous wording

Additionally, other income, net was partially offset by a $5.2 million increase in fair value of the derivative liability (representing a loss on the change in fair value) driven by changes in assumptions utilized in the valuation of the AVTX-007 Milestones and Royalties (as defined in Note 6 of the unaudited condensed consolidated financial statements) due to updated publicly available information of the indication and status of trial activities pursued for the asset by Apollo. The main driver of this increase was a significant increase to the peak annual net sales forecast as a result of Apollo developing the asset in atopic dermatitis, which is a much larger market opportunity than adult-onset Still’s disease, the previous indication being pursued. Refer to Note 6 - Fair Value Measurements of the unaudited condensed consolidated financial statements for more information.

Current wording

Additionally, other income, net was partially offset by a $6.3 million increase in fair value of the derivative liability (representing a loss on the change in fair value) driven primarily by changes in assumptions utilized in the valuation of the AVTX-007 Milestones and Royalties (as defined in Note 6 of the unaudited condensed consolidated financial statements) due to updated publicly available information of the indication and status of trial activities pursued for the asset by Apollo. The main driver of this increase was a significant increase to the peak annual net sales forecast as a result of Apollo developing the asset in atopic dermatitis, which is a much larger market opportunity than adult-onset Still’s disease, the previous indication being pursued. Refer to Note 6 - Fair Value Measurements of the unaudited condensed consolidated financial statements for more information.

Previous wording

Finally, interest income increased by $2.0 million given the Company’s increased cash position compared to the prior period, paired with no interest expense incurred in the current period given the Company’s full payoff of its former loan in the prior year.

Current wording

Finally, interest income increased by $5.6 million given the Company’s increased cash position compared to the prior period, paired with no interest expense incurred in the current period given the Company’s full payoff of its former loan in the prior year.

Previous wording

The Company recognized minimal income tax expense for both the six months ended June 30, 2024 and 2023.

Current wording

The Company recognized minimal income tax expense for both the nine months ended September 30, 2024 and 2023.

Previous wording

The following table summarizes our cash flows for the three months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table summarizes our cash flows for the nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

Net cash used in operating activities was $22.5 million for the six months ended June 30, 2024 and consisted primarily of a net loss of $22.8 million and adjustments to reconcile net loss to net cash used in operating activities including the change in fair value of the warrant liability of $112.0 million, excess of initial warrant fair value over private placement investment proceeds of $79.3 million, acquired IPR&D of $27.6 million, $7.5 million milestone payment made to the former AlmataBio stockholders upon the closing of a private placement investment, change in fair value of the derivative liability of $5.2 million, transaction costs payable upon exercise of the warrants issued pursuant to the private placement investment of $1.7 million, and stock-based compensation of $1.1 million. Prepaid expense increased $1.6 million primarily due to advances paid for AVTX-009 contracts and the timing of insurance prepayments.

Current wording

Net cash used in operating activities was $34.0 million for the nine months ended September 30, 2024 and consisted primarily of net income of $0.2 million and adjustments to reconcile net income to net cash used in operating activities including the change in fair value of the warrant liability of $148.1 million, excess of initial warrant fair value over private placement investment proceeds of $79.3 million, acquired IPR&D of $27.6 million, $7.5 million milestone payment made to the former AlmataBio stockholders upon the closing of a private placement investment, change in fair value of the derivative liability of $6.3 million and stock-based compensation of $2.9 million. Prepaid expense increased $2.4 million primarily due to advances paid for AVTX-009 contracts and the timing of insurance prepayments. Accrued expenses and other liabilities increased $2.1 million primarily related to non-equity incentive compensation and increased research and development and general and administrative activities to support the development of AVTX-009.

Previous wording

Net cash used in operating activities was $21.1 million for the six months ended June 30, 2023, and consisted primarily of a net loss of $18.1 million and non-cash adjustments to reconcile cash used in operating activities including stock-based compensation expense of $1.7 million. Additionally, changes in net liabilities decreased $5.8 million driven by decreases in accrued expenses and other liabilities and accounts payable of $5.6 million and $2.1 million, respectively, partially offset by a $1.9 million decrease in other receivables.

Current wording

Net cash used in operating activities was $27.9 million for the nine months ended September 30, 2023 and consisted primarily of a net loss of $23.4 million and non-cash adjustments to reconcile cash used in operating activities including stock-based compensation expense of $2.7 million and accretion of the debt discount of $1.8 million. Accrued expenses and other current liabilities and accounts payable decreased $8.1 million and $2.1 million, respectively, from December 31, 2022.

Previous wording

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.

Current wording

We expect future cash used in operating activities, excluding the milestone payment 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 Phase 2 LOTUS Trial which commenced in October 2024.

Previous wording

Net cash provided by investing activities for the six months ended June 30, 2024 consisted of the cash acquired as part of the Almata Transaction. Net cash used in investing activities was minimal for the six months ended June 30, 2023.

Current wording

Net cash provided by investing activities for the nine months ended September 30, 2024 consisted of the cash acquired as part of the Almata Transaction. Net cash used in investing activities was minimal for the nine months ended September 30, 2023.

Previous wording

Net cash provided by financing activities for the six months ended June 30, 2024 consisted of gross proceeds of $115.6 million from the private placement investment that closed on March 28, 2024, partially offset by transaction costs paid related to the private placement investment of $7.5 million.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2024 consisted of gross proceeds of $115.6 million from the private placement investment that closed on March 28, 2024, partially offset by $7.5 million of transaction costs paid related to the private placement investment.

Previous wording

Net cash provided by financing activities for the six months ended June 30, 2023 consisted of net proceeds of $13.7 million from an underwritten public offering that closed in February 2023 and net proceeds of $6.5 million from the sale of common stock pursuant to the Company’s at-the-market program in the second quarter of 2023, partially offset by the $6.0 million principal prepayment under the Loan Agreement (as defined in Note 9 to the unaudited condensed consolidated financial statements).

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2023 consisted of net proceeds of $32.5 million from the sale of common stock pursuant to the Company’s at-the-market program and net proceeds of $13.7 million from an underwritten public offering that closed in February 2023, partially offset by debt principal payments of $21.2 million. In September of 2023, the Company repaid all outstanding principal, inclusive of the final payment fee, and interest under its loan agreement.

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, revenue recognition, cost of product sales, stock-based compensation, fair value measurements, the valuation of warrant liabilities, the valuation of derivative liabilities, cash flows used in management’s going concern assessment, income taxes, goodwill, and clinical trial accruals. 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, 2023 filed with the SEC on March 29, 2024 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 filed with the SEC on May 13, 2024 (as amended on July 11, 2024). There have been no significant changes to our critical accounting policies during the three months ended June 30, 2024.

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, revenue recognition, cost of product sales, stock-based compensation, fair value measurements, the valuation of warrant liabilities, the valuation of derivative liabilities, cash flows used in management’s going concern assessment, income taxes, goodwill, and clinical trial accruals. 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, 2023 filed with the SEC on March 29, 2024 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 filed with the SEC on May 13, 2024 (as amended on July 11, 2024). There have been no significant changes to our critical accounting policies during the three months ended September 30, 2024.