AVTX — Q2 2026 Financial Report Analysis

Overview

Avalo Therapeutics' second quarter of 2026 was defined by two events outside the income statement: its lead drug, abdakibart (formerly AVTX-009, an antibody that blocks the inflammatory signal IL-1β), met its main goal in the Phase 2 LOTUS trial in hidradenitis suppurativa (HS), a chronic, painful inflammatory skin disease; and Avalo used that result to sell $431.3 million of new stock in May. Cash, cash equivalents and investments rose from $98.3 million at the end of 2025 to $472.2 million at June 30, 2026, and management now says that covers operations into 2029. Avalo has no product sales, so the income statement is all spending: the net loss widened to $36.4 million from $20.8 million, but more than $16 million of that came from two milestone-related charges tied to the drug's move toward Phase 3 rather than from day-to-day costs.

At a glance

• $472.2M in cash and investments, runway "into 2029" — up from $98.3M at year-end, when the 10-K only promised enough cash for at least twelve months. The funding question that hangs over most small biotechs is answered for roughly the next two and a half years.
• $36.4M net loss, but ~$19.8M before two one-off charges — a $10.0M milestone owed to Eli Lilly when the first Phase 3 patient is dosed, and a $6.6M charge for buying out a $15.0M milestone owed to abdakibart's former owners. Without them the loss was slightly smaller than a year ago.
• Loss per share fell to $0.83 from $1.92 — not because the business lost less (it lost more), but because the share count roughly quadrupled after the offering and preferred-stock conversions. Existing holders now own a smaller slice of a much better-funded company.

The numbers

Avalo reports no revenue, so the usual revenue, margin and growth lines do not apply. The table shows what does.

Source: Avalo Form 10-Q for the quarter ended June 30, 2026. "n/m" = not meaningful.

What drove the quarter

The trial result. LOTUS met its primary endpoint at both doses. The measure was HiSCR75 at week 16: the share of patients whose count of painful nodules and abscesses fell by at least 75% without new abscesses or draining tunnels appearing. Per the 10-Q, response rates were 42.2% on the 150 mg dose (p=0.018) and 42.9% on 300 mg (p=0.015), 42.5% for the two doses combined (p=0.004), against 25.6% on placebo. A p-value below 0.05 means the difference is unlikely to be chance. The filing adds that key secondary measures (HiSCR50, change in the IHS4 severity score, change in draining tunnel count) were also statistically significant.

Research and development rose $9.3M, and a $10.0M milestone explains all of it. Under the license from Eli Lilly, Avalo owes Lilly $10.0 million when the first patient is dosed in a Phase 3 trial. Accounting rules require the cost to be booked once the payment becomes "probable," which Avalo decided it was at June 30, so the full $10.0M sits in Q2 R&D and in accrued liabilities even though the trial has not started and no cash has gone out. Underneath that:

• Clinical trial costs fell $3.5M (to $3.7M from $7.2M) as LOTUS wound down around the May data release.
• Manufacturing costs (CMC: chemistry, manufacturing and controls) rose $1.8M to $5.1M, mainly to prepare production of AVTX-010, a longer-acting follow-on antibody.
• Staff costs rose $0.4M and stock-based pay $0.6M.

General and administrative costs rose $2.9M, of which $2.0M was higher stock-based compensation, including $0.8M from speeding up the vesting of equity held by departing directors. Salaries rose $0.6M on more headcount.

A $6.6M non-operating charge for clearing an old obligation. When Avalo bought AlmataBio (the company that held abdakibart) in 2024, it promised the sellers $15.0 million once the first Phase 3 patient was dosed. Because a Phase 3 trial was not considered probable, that obligation was carried at nothing. In April 2026, just before the data, Avalo agreed to pay $2.25 million upfront plus an option to settle the whole milestone for $5.125 million instead; it paid the $2.25M and exercised the option (half cash, half 128,189 new shares). The total cost was booked as a $6.6M loss. With hindsight the deal looks sensible: about $7.4M of cash and stock in place of a $15.0M payment that the positive trial would soon have triggered.

Interest income rose to $2.8M from $1.1M on the larger cash pile, which offsets a small part of the spending.

What the headline numbers hide

• Most of the wider loss is non-recurring, and most of it was not cash in the quarter. Strip out the $10.0M Lilly milestone and the $6.6M AlmataBio charge and the Q2 net loss is about $19.8M, slightly below last year's $20.8M (which itself included a $2.5M non-cash loss on a derivative tied to an older program, AVTX-007). Stock-based pay, also non-cash, was $5.3M in the quarter. The Lilly $10.0M will become a real cash payment when Phase 3 dosing starts.
• Cash burn is running below the accounting loss for now. Six-month operating cash outflow was $37.7M against a $56.0M net loss. The gap is the unpaid $10.0M accrual, $8.9M of stock pay, and $3.2M of higher payables from invoice timing. That flatters cash flow this half; the milestone payment and a large Phase 3 will reverse it.
• The per-share improvement is a share-count effect. Weighted shares jumped from 10.8M to 43.6M. The May offering sold 22.9M shares at $17.75 plus 1.4M pre-funded warrants (essentially shares with a $0.001 exercise price), and holders converted more than half of the Series C preferred stock (about 10.4M shares' worth) into common. At June 30 there were 52.9M common shares, plus 1.4M pre-funded warrants and about 8.4M more shares available from converting the remaining preferred, before 5.5M stock options. Measured that way, roughly 62.7M shares stand behind the $472.2M.
• Expenses will go up from here, by management's own account. The 10-Q says both R&D and G&A are expected to rise as abdakibart moves into a registrational Phase 3 (one designed to support an approval filing) and AVTX-010 heads toward clinical testing. Today's quarterly burn of roughly $15–20M is not a good guide to 2027–2028 spending; the "into 2029" runway already assumes that increase.
• Future obligations to Lilly are large. Beyond the $10.0M, Avalo owes Lilly up to $70.0M in total development and regulatory milestones, up to $650.0M in sales milestones (plus $70.0M to Leap Therapeutics), and royalties of between 5% and 15% of net sales. Those only bite if the drug succeeds, but they reduce how much of any eventual sales Avalo keeps.

Takeaway: This was the quarter Avalo went from a cash-constrained company with one mid-stage drug to a funded Phase 3 company. The $36.4M loss mostly reflects milestone charges triggered by that progress, and the $472.2M raise removes the near-term need to raise more money, at the cost of quadrupling the share count. The next real test is whether abdakibart's Phase 2 result holds up in larger Phase 3 trials.

Outlook

Management guidance from the 10-Q and the Q2 earnings release:

• Phase 3 start: a registrational Phase 3 program for abdakibart in HS is planned to begin in the first half of 2027. Dosing the first patient triggers the $10.0M Lilly payment.
• AVTX-010: an Investigational New Drug (IND) application, the filing needed to start human trials in the US, is planned for the first half of 2027.
• Cash runway: existing cash and investments are expected to fund operations into 2029.

Our read: on the numbers, financing risk is low until Phase 3 data arrive, which on a 2027 start are unlikely before 2028. The risks that matter now are clinical and competitive. LOTUS was a Phase 2 trial, and the placebo response of 25.6% shows how much HS patients' symptoms vary on their own; Phase 3 trials are larger and often show narrower gaps. Avalo will also be entering a disease where other antibody treatments are already approved, so how abdakibart's efficacy, safety and dosing schedule compare will decide its commercial value. Watch in the coming quarters for: the Phase 3 design and dose chosen, whether the timeline holds at "first half of 2027," the quarterly cash burn as manufacturing and trial start-up costs build, and the AVTX-010 IND.