# Avalo Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Avalo Therapeutics, Inc.](/companies/avtx.md) (CIK 1534120)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 07:21 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038036
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1534120/000162828023038036/avtx-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1534120/000162828023038036/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $236.0k | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $247.0k | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.5m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $2.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $7.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$3.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$19.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $8.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $23.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$5.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$23.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.96 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.96 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 46,764,117 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 24,281,306 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$27.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $10.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $12.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $29.3m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $6.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $14.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $14.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,770 characters.

*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 below and 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, 2023, 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.*

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2022 appearing in our Annual Report on Form 10-K filed with the SEC on March 29, 2023.

### Overview

Avalo Therapeutics, Inc. (the “Company” or “Avalo” or “we”) is a clinical stage biotechnology company focused on the treatment of immune dysregulation by developing therapies that target the LIGHT network.

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) is an immunoregulatory cytokine. LIGHT and its signaling receptors, HVEM (TNFRSF14), and lymphotoxin β receptor (TNFRSF3), form an immune regulatory network with two co-receptors of herpesvirus entry mediator, checkpoint inhibitor B and T Lymphocyte Attenuator (“BTLA”), and CD160 (collectively, the “LIGHT-signaling network” or the “LIGHT network”). Accumulating evidence points to the dysregulation of the LIGHT-signaling network as a disease-driving mechanism in autoimmune and inflammatory reactions in barrier organs. Therefore, we believe reducing LIGHT levels can moderate immune dysregulation in many acute and chronic inflammatory disorders.

Management’s primary evaluation of the success of the Company is the ability to progress its pipeline assets forward towards commercialization or opportunistically out-licensing rights to indications or geographies. This success depends not only on the operational execution of the programs, but also the ability to secure sufficient funding to support the programs. The Company is pursuing funding for its programs, including financings and out-licensing, strategic alliances/collaborations or sale of its core and non-core programs, as well as evaluating new opportunities to further argument its immunology pipeline.

#### Pipeline Summary

**Quisovalimab (AVTX-002): Anti-LIGHT monoclonal antibody (“mAb”) targeting immune-inflammatory diseases.**

- 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 in a randomized placebo-controlled trial. Quisovalimab also demonstrated positive trends in an open-label study in Crohn’s Disease.
- A post-hoc analysis of the PEAK Trial showed a sub-population of NEA patients with baseline LIGHT levels over 125 pg/mL, which represented over 50% of patients, had an approximate 50% reduction in asthma-related events (“AREs”) for patients treated with quisovalimab compared to placebo.
- Avalo is pursuing funding for the program and is considering a randomized placebo-controlled trial in patients with ulcerative colitis or other inflammatory conditions.

### AVTX-008: BTLA agonist fusion protein targeting immune dysregulation disorders.

- AVTX-008 is uniquely positioned as a fusion protein with high-binding affinity and serum stability. It utilizes the natural ligand thus it may avoid the potential problems with agonist mAbs.
- Avalo previously identified a lead molecule, is evaluating several immune dysregulation disorders to pursue and plans to rapidly progress the asset to IND, subject to funding.

### Recent Developments

The Company raised approximately $25.9 million of net proceeds under its “at-the-market” (or “ATM”) program in the third quarter of 2023. Further, in September of 2023, the Company announced that it paid off the remainder of its debt in the aggregate amount of $14.3 million and as a result all payments and obligations under that debt were deemed satisfied and terminated.

On October 27, 2023, the Company divested its rights, title and interest in, assets relating to AVTX-801, AVTX-802 and AVTX-803 to AUG Therapeutics, LLC for an upfront payment of $150,000 and contingent milestone payments of up to an aggregate of $45.0 million.

As previously reported on Form 8-K filed on August 8, 2023, on August 8, 2023, Nasdaq Stock Market LLC (“Nasdaq”) notified the Company that for the last 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”) and that for the last 30 consecutive business days, the Company’s minimum Market Value of Listed Securities (“MVLS”) was below the minimum of $35 million required for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2) (the “MVLS Rule”). Therefore, in accordance with Listing Rules 5810(c)(3)(A) and 5810(c)(3)(C), the Company was provided 180 calendar days, or until February 5, 2024, to regain compliance with both the Bid Price Rule and the MVLS Rule. Also as previously reported on Form 8-K filed on September 13, 2023, on September 12, 2023, the Company received notice from Nasdaq as of September 11, 2023, the Company’s securities had a closing bid price of $0.10 or less for ten consecutive trading days triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part: if during any compliance period specified in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security. As a result, the Staff determined to delist the Company’s securities from Nasdaq, unless the Company timely requests an appeal of the Staff’s determination to a Hearings Panel (the “Panel”). The Company timely requested an appeal of the Staff’s determination to the Panel and the hearing took place on November 2, 2023. The Panel will issue a written decision, generally within 30 days of the hearing, that will determine whether the shares of the Company’s common stock will remain listed on Nasdaq. The Company will timely report the decision of the Panel on Form 8-K upon receiving the written decision.

### Liquidity

For the nine months ended September 30, 2023, Avalo generated a net loss of $23.4 million and negative cash flows from operations of $27.9 million. As of September 30, 2023, Avalo had $10.2 million in cash and cash equivalents. In the three months ended September 30, 2023, the Company raised approximately $25.9 million of net proceeds under its “at-the-market” (or “ATM”) program. On September 22, 2023, the Company and its lenders entered into a Payoff Letter (the “Payoff Letter”), pursuant to which the Company repaid all outstanding principal, inclusive of the final payment fee, and interest under the Loan Agreement (as defined in Note 9 of the unaudited condensed consolidated financial statements) in the aggregate amount of $14.3 million. As a result of the payment, all obligations of the parties under the Loan Agreement were deemed satisfied and terminated.

The Company will require additional financing to fund its operations and to continue to execute its business strategy within one year after the date the unaudited condensed consolidated financial statements included herein were issued. To mitigate these conditions and to meet the Company’s capital requirements, management plans to use its current cash on hand along with some combination of the following: (i) financings, (ii) out-licensing, strategic alliances/collaborations or sale of core and non-core programs, and (iii) 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, or that any amount that the Company is able to raise will be adequate. Raising capital would be more difficult if our common stock is delisted from Nasdaq. The Company is currently in the delisting hearings process with Nasdaq (for more information refer to the “Recent Developments” section above). 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. If the Company requires but is unable to obtain additional funding, the Company may be forced to make further reductions in spending, delay, suspend, reduce or eliminate some or all of its planned research and development programs, or liquidate assets where possible. Due to the uncertainty regarding future financing and other potential options to raise funds, management has concluded that substantial doubt exists with respect to the Company’s ability to continue as a going concern within one year after the date that the financial statements in this Quarterly Report on Form 10-Q were issued.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional capital as described above. The unaudited financial statements as of September 30, 2023 do not include any adjustments that might result from the outcome of this uncertainty.

### Our Strategy

Our strategy for increasing stockholder value includes:

- Advancing our pipeline of compounds through development and 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 licensing rights to targeted, complementary differentiated preclinical and clinical stage compounds.

As noted above under “Liquidity”, we need to raise money in the near term in order to continue as a going concern and be able to execute on this strategy.

### Results of Operations

### Comparison of the Three Months Ended September 30, 2023 and 2022

#### Product Revenue, Net

Net product revenue was $0.2 million for the three months ended September 30, 2023, compared to $0.4 million for the three months ended September 30, 2022. The decrease was mainly attributable to a decrease in units sold.

Avalo’s license and supply agreement for its only commercial pharmaceutical product, Millipred®, which we consider non-core, expired on September 30, 2023. Therefore, we do not expect gross product revenue going forward. 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 a benefit) for differences between actuals or updated estimates to the reserves previously recognized.

#### Cost of Product Sales

Cost of product sales were $0.2 million for the three months ended September 30, 2023, compared to $0.5 million for the same period in 2022. The decrease was mainly attributable to a decrease in units sold, as discussed above.

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.

#### Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended September 30, 2023 and 2022 (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Preclinical expenses | $269 | $479 |
| Clinical expenses | 915 | 3,003 |
| CMC expenses | (1,191) | 1,687 |
| Internal expenses: |  |  |
| Salaries, benefits and related costs | 826 | 1,533 |
| Stock-based compensation expense | 371 | 279 |
| Other | 59 | 61 |
|  | $1,249 | $7,042 |

Research and development expenses decreased $5.8 million for the three months ended September 30, 2023. This decrease was mainly driven by a $2.9 million decrease in chemistry, manufacturing, and controls (“CMC”) expenses and $2.1 million decrease in clinical expenses. CMC expenses decreased due to the timing of manufacturing runs. Further, in the second quarter of 2023, the Company canceled its next manufacturing run for AVTX-002 and as a result incurred a cancelation fee of approximately $1.0 million. In the third quarter of 2023, the Company and manufacurer agreed to a reduced cancelation fee, which resulted in a reversal of the expense. Clinical expenses decreased due to decreased activities as a result of the AVTX-002 PEAK trial concluding in June of 2023. Additionally, salaries, benefits and related costs decreased $0.7 million primarily due to reduced headcount and reduced salary related costs.

Future research and development expenses are difficult to predict given they are highly dependent on the Company’s ability to obtain additional capital to fund its programs and operations, including but not limited to financings and/or out-licensing, strategic alliance/collaborations or sale of its core and non-core programs.

#### Selling, General and Administrative Expenses

The following table summarizes our selling, general and administrative expenses for the three months ended September 30, 2023 and 2022 (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Salaries, benefits and related costs | $582 | $839 |
| Legal, consulting and other professional expenses | 1,146 | 1,687 |
| Stock-based compensation expense | 582 | 452 |
| Advertising and marketing expense | 7 | 6 |
| Other | 173 | 300 |
|  | $2,490 | $3,284 |

Selling, general and administrative expenses decreased $0.8 million for the three months ended September 30, 2023 compared to the prior period. The decrease was driven by the impact of cost savings initiatives across legal, consulting and other professional expenses and salaries, benefits, as well as reduced headcount and reduced salary related costs. The decrease was partially offset by increased stock-based compensation expense during the period related to the options granted to employees in the second half of 2022 and first half of 2023.

Future selling, general and administrative expenses are difficult to predict given they are highly dependent on the Company’s ability to obtain additional capital to fund its programs and operations, including but not limited to financings and/or out-licensing, strategic alliance/collaborations or sale of its core and non-core programs.

#### Other Expense, Net

The following table summarizes our other expense, net for the three months ended September 30, 2023 and 2022 (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Interest expense, net | (1,553) | (898) |
| Change in fair value of derivative liability | 100 | — |
| Other expense, net | (17) | — |
|  | $(1,470) | $(898) |

Other expense, net was mainly comprised of interest expense related to the Loan Agreement for the three months ended September 30, 2023 and 2022. On September 22, 2023, the Company and its lenders entered into a Payoff Letter, pursuant to which the Company repaid all outstanding principal, inclusive of the final payment fee, and interest under the Loan Agreement.

Interest expense, net increased $0.6 million mainly due to the acceleration of the remaining $0.9 million amortization of the debt discount recognized as a result of the Company’s payoff of the debt in September of 2023. Prior to the payoff, the Company incurred lower interest expense as compared to the prior period due to a lower principal balance from previous prepayments.

As a result of the full payoff of the loan, we do not expect to recognize interest expense in the fourth quarter of 2023 or beyond.

#### Income Tax Expense

The Company recognized minimal income tax expense for both the three months ended September 30, 2023 and 2022.

### Comparison of the Nine Months Ended September 30, 2023 and 2022

#### Product Revenue, Net

Net product revenue was $1.4 million for the nine months ended September 30, 2023, compared to $2.6 million for the nine months ended September 30, 2022. The decrease was mainly attributable to a decrease in units sold.

Avalo’s license and supply agreement for our only commercial pharmaceutical product, Millipred®, which we consider non-core, expired on September 30, 2023. Therefore, we do not expect product revenue going forward. 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 a benefit) for differences between actuals or updated estimates to the reserves previously recognized.

#### Cost of Product Sales

Cost of product sales were $1.5 million for the nine months ended September 30, 2023, compared to $2.8 million for the same period in 2022. The decrease was mainly attributable to a decrease in units sold, as discussed above, paired with the $1.0 million reserve of the receivable due from Aytu in December 2024 that was recognized in cost of product sales for the nine months ended September 30, 2022.

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.

#### Research and Development Expenses

The following table summarizes our research and development expenses for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Preclinical expenses | $844 | $2,047 |
| Clinical expenses | 5,388 | 9,037 |
| CMC expenses | 1,787 | 6,800 |
| Internal expenses: |  |  |
| Salaries, benefits and related costs | 2,699 | 6,093 |
| Stock-based compensation expense | 1,028 | 931 |
| Other | 171 | 228 |
|  | $11,917 | $25,136 |

Research and development expenses decreased $13.2 million for the nine months ended September 30, 2023 as compared to the prior period. Notably, CMC and clinical expenses decreased $5.0 million and $3.6 million, respectively, as a result of reduced manufacturing and clinical trial activities for AVTX-002 driven by 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 decreased spend on non-core programs in 2023.

Additionally, salaries, benefits and related costs decreased $3.4 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.

Future research and development expenses are difficult to predict given they are highly dependent on the Company’s ability to obtain additional capital to fund its programs and operations, including but not limited to financings and/or out-licensing, strategic alliance/collaborations or sale of its core and non-core programs.

#### Selling, General and Administrative Expenses

The following table summarizes our selling, general and administrative expenses for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Salaries, benefits and related costs | $1,768 | $5,435 |
| Legal, consulting and other professional expenses | 3,399 | 5,484 |
| Stock-based compensation expense | 1,673 | 5,780 |
| Advertising and marketing expense | 26 | 64 |
| Other | 758 | 989 |
|  | $7,624 | $17,752 |

Selling, general and administrative expenses decreased $10.1 million for the nine months ended September 30, 2023 due to severance and stock-based compensation recognized in the first quarter of 2022 from headcount reductions, paired with decreased headcount and cost savings initiatives realized in 2023. Notably, we recognized $4.3 million of stock-based compensation in the first half of 2022 as a result of the acceleration and modification of certain separated employees’ stock options that did not repeat. Additionally, salaries, benefits and related costs decreased $3.7 million due to $2.4 million of severance expense recognized in the first half of 2022 from headcount reductions that did not repeat, paired with lower salary costs in the first half of 2023 driven by the reduced headcount. Legal, consulting and other professional expenses decreased $2.1 million due to cost savings initiatives.

Future selling, general and administrative expenses are difficult to predict given they are highly dependent on the Company’s ability to obtain additional capital to fund its programs and operations, including but not limited to financings and/or out-licensing, strategic alliance/collaborations or sale of its core and non-core programs.

#### Amortization Expense

The following table summarizes our amortization expense for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Amortization of intangible assets | $— | $38 |

The acquired assembled workforce was fully amortized in the first quarter of 2022, thus driving the decrease as compared to the prior period.

#### Other Expense, Net

The following table summarizes our other expense, net for the nine months ended September 30, 2023 and 2022 (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Interest expense, net | (3,498) | (3,221) |
| Change in fair value of derivative liability | (120) | — |
| Other expense, net | (42) | (20) |
|  | $(3,660) | $(3,241) |

Other expense, net was mainly comprised of interest expense related to the Loan Agreement for the nine months ended September 30, 2023 and 2022. On September 22, 2023, the Company and its lenders entered into a Payoff Letter, pursuant to which the Company repaid all outstanding principal, inclusive of the final payment fee, and interest under the Loan Agreement.

Interest expense, net increased $0.3 million mainly due to the acceleration of the remaining $0.9 million amortization of the debt discount recognized as a result of the Company’s payoff of the debt in September of 2023. This increase was partially offset by lower interest expense incurred prior to the final payoff due to a lower principal balance from previous prepayments.

As a result of the full payoff of the loan, we do not expect to recognize interest expense in the fourth quarter of 2023 or beyond.

#### Income Tax Expense

The Company recognized minimal income tax expense for both the nine months ended September 30, 2023 and 2022.

### Liquidity and Capital Resources

### Uses of Liquidity

The Company uses cash to primarily fund the ongoing development of its research and development pipeline assets and costs associated with its organizational infrastructure. Future operating cash flows are difficult to predict given they are highly dependent on the Company’s ability to obtain additional capital to fund its programs and operations, including but not limited to financings and/or out-licensing, strategic alliance/collaborations or sale of its core and non-core programs.

### Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):

| Net cash (used in) provided by: | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $(27,914) | $(22,811) |
| Investing activities | (133) | (95) |
| Financing activities | 25,041 | (14,781) |
| Net decrease in cash and cash equivalents | $(3,006) | $(37,687) |

#### Net cash used in operating activities

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 net loss to net cash used in operating activities including stock-based compensation 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.

Net cash used in operating activities was $22.8 million for the nine months ended September 30, 2022, and consisted primarily of a net loss of $31.8 million and non-cash adjustments to reconcile net loss to net cash used in operating activities including stock-based compensation of $6.7 million and the full $1.0 million reserve on the Aytu receivable due December 2024.

Future operating cash flows are difficult to predict given they are highly dependent on the Company’s ability to obtain additional capital to fund its programs and operations, including but not limited to financings and/or out-licensing, strategic alliance/collaborations or sale of its core and non-core programs.

#### Net cash used in investing activities

Net cash used in investing activities was minimal for the nine months ended September 30, 2023 and nine months ended September 30, 2022.

#### Net cash provided by (used in) financing activities

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 and therefore we do not expect any future principal payment outflows.

### Critical Accounting Policies, Estimates, and Assumptions

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 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, 2022 filed with the SEC on March 29, 2023. There have been no material changes to our critical accounting policies during the nine months ended September 30, 2023.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by applicable SEC rules and regulations.

## Controls and procedures

As filed, 1,800 characters.

### Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 3,966 characters.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 29, 2023 (the “2022 10-K”), as updated by our Quarterly Report on Form 10-Q filed with the SEC on August 3, 2023 (the “2023 Q2 10-Q”), which could materially affect our business, financial condition, or future results. The risks described in this Quarterly Report on 10-Q and the 2022 10-K and 2023 Q2 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, or future results of operations and the trading price of our common stock.

Except for such additional information and the updated risk factor set forth below, we believe there have been no other material changes in our risk factors from those disclosed in our 2022 10-K and 2023 Q2 10-Q.

### Risks Related to Our Financial Position and Capital Needs

***The Company has a limited number of unissued and unreserved shares available for future issuance, which might impair its ability to conduct future financing and other transactions.***

The Company’s amended and restated certificate of incorporation, as amended, currently authorizes the Company to issue up to 200,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of November 7, 2023, there was a total of 7,617,581 shares of common stock that were authorized but unissued, and the Company has currently reserved a significant number of these shares for future issuance pursuant to its outstanding warrants, equity awards and equity plans. As a result, the Company’s ability to issue shares of common stock other than pursuant to existing arrangements will be limited until such time, if ever, that it is able to amend its amended and restated certificate of incorporation, as amended, to increase the amount of authorized but unissued shares of common stock. As described in the Company’s definitive proxy statement filed with the SEC on October 19, 2023, the Company is presenting a proposal for stockholder vote at the annual meeting of stockholders to be held on December 5, 2023 to approve an amendment to its amended and restated certificate of incorporation, as amended, to effect a reverse stock split of its common stock at a ratio of between 1-for-5 and 1-for-250 as determined by its board. This proposal would provide the Company sufficient flexibility in regards to having enough shares of common stock available for future needs. There is no guarantee that this proposal will be approved by the Company’s stockholders.

If the Company is unable to effect a reverse stock split, its ability to complete equity-based financings or other transactions that involve the potential issuance of its common stock or securities convertible or exercisable into its common stock, will be limited. In lieu of issuing common stock or securities convertible into the Company’s common stock in any future equity financing transactions, the Company might need to issue some or all of our authorized but unissued shares of preferred stock, which would likely have superior rights, preferences and privileges to those of its common stock. If the Company is unable to issue additional shares of common stock or securities convertible or exercisable into its common stock, its ability to enter into strategic transactions such as acquisitions of companies or intellectual property, might also be limited. If the Company is unable to complete financing, strategic or other transactions due to its inability to issue additional shares of common stock or securities convertible or exercisable into its common stock, the Company’s financial condition and business prospects may be materially harmed.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038036. Last ingested by Listed: Oct 29, 2026, 16:18 ET. No prices; not investment advice.