Avalo Therapeutics (NASDAQ: AVTX) stock is up 170%. AVTX stock was up 80% yesterday, 40% premarket today. The reason is that Avalo has - in essence - sold off the near term business for some cash and contingency fees. It could seem a little odd that a company rises when it sells off something that might well work - but if they’ve not the cash to develop this might be maximisation of the shareholder position.
As to what’s done at Avalo: “Avalo Therapeutics, Inc., a clinical stage biotechnology company, focuses on the development of therapies for the treatment of immune dysregulation. The company’s drug candidates include AVTX-002, a fully human anti-LIGHT monoclonal antibody, which is under Phase II clinical trial for the treatment of non-eosinophilic asthma, as well as Crohn’s disease; Phase III clinical trial for the treatment of COVID-19 acute respiratory distress syndrome; and AVTX-008, a fully human B and T Lymphocyte Attenuator (BTLA) agonist fusion protein.” Well, OK. We’d probably not place much value on the covid treatment now it’s endemic but the others could be useful.
The actual announcement is: “Avalo Therapeutics, Inc. (Nasdaq: AVTX), today announced it entered into a purchase agreement (the Purchase Agreement) with AUG Therapeutics, LLC (AUG) to sell its rights, title and interest in, assets relating to AVTX-801 (D-galactose), AVTX-802 (D-mannose) and AVTX-803 (L-fucose) (collectively, the 800 Series). AUG will pay an upfront payment of $150,000, as well as, for each compound, make a contingent milestone payment of $15,000,000 (for a potential aggregate of $45 million) if the first Food and Drug Administration (FDA) approval is for an indication other than a Rare Pediatric Disease (as defined in the Purchase Agreement),” There are further details about being able to sell on a priority review vouchers and so on.
Now we might think this a little strange, selling off the development pipeline. But with a $4 million or so (before this price rise) market capitalisation there’s no real way that further capital could be raised to pay for further testing. So, passing the drugs onto someone else - in return for promises of payment if they work of course - could well be position maximising. And it’s worth noting that current Avalo shareholders don’t have to bear any of the future development costs. Of course, the payout is capped but then so also are those costs to sunk ones.
Quite how much those future payments are going to be worth is the valuation source for Avalo now. Views will differ upon that.
