Avalo Therapeutics, Inc.

Item 1A. Risk Factors.

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, 2023, filed with the SEC on March 29, 2024 (the 2023 10-K), which could materially affect our business, financial condition, or future results. Our risk factors as of t and the date of this Quarterly Report on Form 10-Q have not changed materially from those described in for the Form 10-K referenced above except as follows. These risks and those described in the Form 10-K referenced above, however, 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.

If we are unable to obtain or maintain intellectual property rights, or if the scope of patent protection is not sufficiently broad, competitors could develop and commercialize products similar or identical to ours, and we might not be able to compete effectively in our market. Furthermore, certain of our composition of matter patents for AVTX-009 and AVTX-002 currently expire in 2026quarter ended June 30, 2027, or 2028.

Our success depends in significant part on our and our licensors, licensees or collaborators ability to establish, maintain and protect patents and other intellectual property rights and operate without infringing the intellectual property rights of others. We have filed numerous patent applications both in the United States and in foreign jurisdictions to obtain patent rights to inventions we have discovered. We have also licensed from third parties rights to patent portfolios.

The patent prosecution process is expensive and timeconsuming, and we and our current or future licensors, licensees or collaborators might not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our licensors, licensees or collaborators will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Moreover, in some circumstances, we might not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third parties and are reliant on our licensors, licensees or collaborators. Therefore, these patents and applications might not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors, licensees or collaborators fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors, licensees or collaborators are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our current or future licensors, licensees or collaborators patent rights are highly uncertain. Our and our licensors, licensees or collaborators pending and future patent applications might not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. The patent examination process may require us or our licensors, licensees or collaborators to narrow the scope of the claims of our or our licensors, licensees or collaborators pending and future patent applications, which may limit the scope of patent protection that may be obtained. Our and our licensors, licensees or collaborators patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications, and then only to the extent the issued claims cover the technology.

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Furthermore4, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio might not provide us with sufficient rights to exclude others from commercializing products similar or identical to our products. We expect to seek extensions of patent terms where these are available in any countries where we are prosecuting patents. This includes in the United States under the Drug Price Competition and Patent Term Restoratiofiled with the SEC on Act of 1984, which permits a patent term extension of up to five years beyond the expiration of the patent. However, the applicable authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, might not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request.

Certain of our composition of matter patents for AVTX-009 and AVTX-002 currently expire in 2026,ugust 12, 2024 (the Q2 2027, or 2028. If we are unable to obtain extensions to our patents or other means of regulatory exclusivity for our products, the expiration of patents might create opportunities for competitors to enter the market for our target indications, 4 10-Q), which could have a material negative impact on our financial results. Without patent protection, we are susceptible to competitors bringing similar products to market, obtaining FDA approval, and achieving regulatory exclusivity prior to us.

Both AVTX-009 and AVTX-002 are biologic products, which would allow the Company to receive biologics reference product exclusivity in both the United States (twelve years) and Europe (ten years) if and upon receiving marketing approval for the products. Once our composition of matter patents expire, we plan to rely on such exclusivity to protect our intellectual property, which has its associated risks. See the risk factor below titled As appropriate, we intend to seek all available periods of regulatory exclusivity for our product candidates. However, there is no guarantee that we will be granted these periods of regulatory exclusivity or that we will be able to maintain these periods of exclusivity for more information regarding the risks of relying on regulatory exclusivity.

As appropriate, we intend to seek all available periods of regulatory exclusivity for our product candidates. However, there is no guarantee that we will be granted these periods of regulatory exclusivity or that we will be able to maintain these periods of exclusivity.

The Biologics Price Competition and Innovation Act of 2009 (BPCIA) created an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The regulatory pathway establishes legal authority for the FDA to review and approve biological products that are biosimilar to or interchangeable with an FDA-licensed reference biologic.

Under the BPCIA, a reference biological product is granted twelve years of exclusivity in the United States from the time of first licensure of the product (ten years of data and marketing exclusivity in Europe), and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four yearly affect our business, financial condition, or future results. Our risk factors after the date of first licensure s of the reference product. In addition, the licensure date of a biosimilar product may not be made effective by the FDA until twelve years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still develop and receive approval for a competing versithis Quarterly Report on of the reference product if the FDA approves a full biologics license application for the competing product containing the sponsors own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product.

We believe that our current and any future product candidates we develop as biologic products should qualify for the twelve-year period of exclusivity in the United States (ten years in Europe). While we intend to apply for all periods of exclusivity that we may be eligible for, there is no guarantee that we will receive all such periods of exclusivity. Additionally, under certain circumstances, the FDA may revoke the period of exclusivity. As a result, there is no guarantee that we will be able to maintain a period of exclusivity, even if granted. Further, there is a risk that any exclusivity we receive is shortened due to Congressional action or otherwise, or that the FDA will not consider subject product candidates to be reference products for competing products, potentially creating tForm 10-Q have not changed materially from those described in the opportunity for biosimilar competition sooner than anticipated.

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Pursuant to the terms of the securities purchase agreement for the March 2024 financing, we are required to recommend that our stockholders approve the conversion of all outstanding shares of our Series C non-voting convertible preferred stock into shares of our common stock and the ability to issue shares of common stock upon the exercise of the Warrants. We cannot guarantee that our stockholders will approve this matter, and if they fail to do so, it might have an adverse impact on our operations and the value and liquidity of your investment might be impaired.

Under the terms of the securities purchase agreement for the March 2024 financing, we agreed to use our best efforts to obtain the Required Stockholder Approval to allow (i) the conversion of all outstanding shares of Series C Preferred Stock issued in the AlmataBio Transaction and the March 3 10-K and Q2 2024 private placement and (ii) the ability of all Warrants issued in the March 2024 financing to be exercised for shares of common stock, as required by the Nasdaq listing rules, at a meeting of our stockholders and, if such approval is not obtained at that meeting, to seek to obtain such approval at a stockholders meeting to be held at least every 90 days thereafter until such approval is obtained. If the Required Stockholder Approval is not obtained at a meeting, the need to hold one or more additional meetings would be time consuming and costly. In addition, the failure to receive the Required Stockholder Approval could impair the public perception of our Company and our securities and could have an adverse impact on the liquidity and value of the Series C Preferred Stock and the Warrants, as well as on the value of our common stock.

The Series C non-voting convertible pre10-Q referred stock and the Warrants are not convertible or exercisable for shares of our common stock without the approval of our stockholders and therefore may not have any value.

The Series C non-voting convertible preferred stock is convertible into shares of our common stock and the Warrants are exercisable for shares of our common stock only upon receipt of the Required Stockholder Approval. If we do not obtain the Required Stockholder Approval, then the Series C Preferred Stock will remain outstanding in accordance with its terms, the Warrants will remain outstanding and exercisable for shares of Series C Preferred Stock, and the AlmataBio Transaction milestone payments would only be payable in cash. If the Series C Preferred Stock cannot convert to shares of common stock, there may be less reason for the holders of the Warrants to exercise them as to our knowledge there currently is no market for the Series C Preferred Stock nor do we expect a robust market to develop. This would reduce the ability of the Company to benefit from tenced above. The risks described in the receipt of cash proceeds from the exercise of the Warrants.

A substantial number of shares of our common stock may be sold upon the conversion of our Series C Preferred Stock, which could cause the price of our common stock to decline.

If we receive the Required Stockholder Approval, the up to 34,325,42023 shares of common stock issuable upon conversion of the Series C Preferred Stock and upon the exercise of the Warrants, subject to beneficial ownership limitations, will represent approximately 97% of the shares of common stock outstanding on August 5, 10-K and Q2 2024 on an as converted-basis. The sale of a substantial number of shares of our securities in the public market, or the perception that such sales may occur, coul10-Q referenced adversely affect the price of our common stock on the Nasdaq Capital Market. We cannot predict the effect, if any, that market sales of those shares of common stock or the availability of those shares of common stock for sale will have on the market price of our common stock.

In addition, in the future, we may also issue shares of our common stock in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could substantially increase our shares of common stock outstanding, which could adversely affect the price of our common stock on the Nasdaq Capital Market.

If we are not able to comply with the applicable continued listing requirements or standards of The Nasdaq Stock Market, Nasdaq could delist our common stock.

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Our common stock is currentlbove, however, are not the only listed on The Nasdaq Stock Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders equity, a minimum closing bid price of $1.00 per share, and certain corporate governance requirements. There can be no assurances that we will be able to comply with the applicable listing standards. For example, on August 8, 2023, Nasdaq notified us that we failed the $1.00 minimum bid price requirement and the $35 million minimum Market Value of Listed Securities (MVLS) requirement. The Company affected a 1-for-240 reverse stock split on December 28, 2023, which has allowed its common stock to trade above $1.00 since December 29, 2023. On January 30, 2024, the Company received written notification from Nasdaq confirming that the Company had regained compliance with the Bid Price Rule. Nasdaq also risks facing our Company. Additional risks and uncertainties notified the Company that it is subject to a mandatory panel monitor for a period of one year from January 30, 2024. If, within the one-year monitoring period, Nasdaq finds the Company again out of compliance with the Bid Price Rule, then notwithstanding Nasdaq Rule 5810(c)(2), the Company will not be permitted to provide Nasdaq with a plan of compliance with respect to that deficiency and Nasdaq will not be permitted to grant additional time for the Company to regain compliance with respect to that deficiency, nor will the Company be afforded an applicable cure or compliance period pursuant to Nasdaq Rule 5810(c)(3). Instead, Nasdaq will issue a Delist Determination Letter and the Company will have an opportunity to request a new hearing with the initial Nasdaq panel assigned to the Company for its recent noncompliance or newly convened hearings panel if the initial panel is unavailable. The Company will have the opportunity to respond to the hearings panel as provided by Nasdaq Rule 5815(d)(4)(C). If the Company fails  currently known to us or that we currently deem to satisfy the Nasdaq panel, its securities would be delisted from Nasdaq. There can be no assurance that we will continue to maintain such requirement or remain in compliance with any other Nasdaq listing requirements.

Further, on Mimmaterial may 20, 2024, we received a written notice from Nasdaq indicating that the Company no longer complies with the requirement under Nasdaq Listing Rule 5550(b)(1) talso maintain a minimum of $2,500,000 in stockholders equity for continued listing on the Nasdaq Capital Market (the Stockholders Equity Requirement) because the Company reported stockholders equity of negative $112.6 million in its Form 10-Q for the period ended March 31, 2024, and, as of the date of the written notice, the Company did not meet the alternatives of market value of listed securities or net income from continuing operations (together with the Stockholders Equity Requirement, the Listing Rule). In accordance with the Nasdaq Listing Rules, the Company submitted a plan to regain compliance (the Plan of Compliance) on July 1, 2024. On July 29, 2024, Nasdaq accepted the Companys Plan of Compliance and granted the Company a 180-day extension (until November 18, 2024) to regain compliance with the Listing Rule. If the Company is unable to regain compliance within the extension period granted by the Staff, the Staff would be required to issue a delisting determination. There can be no assurance that the Company will evidence compliance with the Listing Rule by November 18, 2024.

In the event that our common stock is delisted from The Nasdaq Stock Market and is not eligible for quotation or listing on another market or exchange, trading of our common stock could be conducted only in the overthecounter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to disposeterially adversely affect our business, financial condition, or future results of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities operations analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on an exchange.

A delisting would also likely have a negative effect on the trading price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we may take actions to restore our compliance with The Nasdaq Stock Markets listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below The Nasdaq Stock Market minimum bid price requirement or prevent noncompliance with The Nasdaq Stock Markets listing. .

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