AILERON THERAPEUTICS, INC. The following discussion and analysis is meant to provide material information
relevant to an assessment of the financial condition and results of operations
of our company, including an evaluation of the amounts and certainty of cash
flows from operations and from outside sources, so as to allow investors to
better view our company from management's perspective. You should read the
following discussion and analysis of our financial condition and results of
operations together with our audited financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K. In addition to
historical information, this discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors. We discuss factors that we believe could cause
or contribute to these differences below and elsewhere in this report, including
those set forth under Item 1A. "Risk Factors" in this Annual Report on Form
10-K. Unless otherwise indicated, all information in this Annual Report on Form
10-K gives effect to a 1-for-20 reverse stock split of our common stock that
became effective on
Announcement of Exploration of Strategic Alternatives
In
We also announced that we are exploring a range of strategic alternatives to
maximize shareholder value. We have engaged
In addition, we have determined to reduce our workforce from nine to three full-time employees, which we expect to complete in the second quarter of 2023. We plan to retain the remaining employees to assist in executing the strategic alternative review process.
Overview
ALRN-6924 is a MDM2/MDMX dual inhibitor that leverages our proprietary peptide drug technology.
When used as a chemoprotective agent, ALRN-6924 is designed to activate p53, which in turn upregulates p21, a known inhibitor of the cell replication cycle. ALRN-6924 was the only reported chemoprotective agent in clinical development to employ a biomarker strategy, in which we exclusively focused on treating patients with p53-mutated cancers. We originally initiated development of ALRN-6924 as an anti-cancer agent to restore p53-dependent tumor suppression in p53 wild-type tumors. When used as an anti-cancer agent, ALRN-6924 is designed to disrupt the interaction of p53 suppressors MDM2 and MDMX with tumor suppressor p53 to reactivate tumor suppression in non-mutant, or wild-type, p53 cancers.
Our clinical development program for ALRN-6924 as a selective chemoprotective agent in patients with p53-mutated cancer included the following clinical trials:
•
A Phase 1b open-label clinical trial that evaluated ALRN-6924 as a chemoprotective agent in patients with p53-mutated breast cancer undergoing either neoadjuvant or adjuvant treatment with TAC chemotherapy;
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•
A Phase 1b open-label clinical trial that evaluated ALRN-6924 as a chemoprotective agent in patients with p53-mutated small cell lung cancer, or SCLC, undergoing treatment with second-line topotecan;
•
A Phase 1 pharmacology study of ALRN-6924 in healthy volunteers that evaluated the safety and tolerability of ALRN-6924, in addition to its cell cycle arrest mechanism of action, pharmacokinetic, and pharmacodynamic effects, including time to onset, magnitude and duration of cell cycle arrest; and
•
A Phase 1b randomized, double-blind, placebo-controlled clinical trial that evaluated ALRN-6924 as a chemoprotective agent in patients with p53-mutated non-small cell lung cancer, or NSCLC, undergoing first-line treatment with carboplatin plus pemetrexed with or without immune checkpoint inhibitors.
Our clinical development program for ALRN-6924 as an anti-cancer agent in patients with wild-type p53 included the following clinical trials:
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A single-agent Phase 1 clinical trial that evaluated ALRN-6924 for the treatment of patients with solid tumors and patients with lymphoma;
•
A single-agent Phase 2a clinical trial that evaluated ALRN-6924 for the treatment of patients with peripheral T-cell lymphoma
•
A single-agent and Ara-C-combination Phase 1/1b trial that evaluated ALRN-6924 for the treatment of patients with acute myeloid leukemia and myelodysplastic syndrome; and
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A combination trial that evaluated ALRN-6924 in combination with palbociclib for the treatment of patients with tumors harboring MDM2 amplifications.
Since our inception, we have devoted a substantial portion of our resources to developing our product candidates, including ALRN-6924, developing our proprietary stabilized cell-permeating peptide platform, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations.
To date, we have financed operations primarily through
Since our inception, we have incurred significant losses on an aggregate basis.
Our net losses were
Subject to the outcome of our exploration of strategic alternatives, we believe
that, based on our current operating plan, our cash, cash equivalents and
investments of
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Reverse Stock Split
On
Components of our Results of Operations
Revenue
We have not generated any revenue from product sales and, as we do not have any product candidates under development, we do not expect to generate any revenue from the sale of products in the future.
Operating Expenses
Our expenses since inception have consisted solely of research and development costs and general and administrative costs.
Research and Development Expenses
For the periods presented in this Annual Report on Form 10-K, research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of ALRN-6924, and include:
•
expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical studies and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture ALRN-6924 for use in our preclinical studies and clinical trials
•
salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•
costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
•
the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
•
third-party license fees;
•
costs related to compliance with regulatory requirements; and
•
facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
For the periods presented in this Annual Report on Form 10-K, our employee and infrastructure resources are primarily devoted to the development of ALRN-6924. We expense research and development costs as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.
In addition, we typically use our employee and infrastructure resources across our development programs. We track outsourced development costs and milestone payments made under our licensing arrangements by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates.
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Research and development activities were central to our business model. We
expect our research and development expenses to decrease beginning in the first
half of 2023 as our result of our
If we had continued development of ALRN-6924, we could not determine with certainty the duration and costs of any clinical trials of ALRN-6924 or if, when, or to what extent we would generate revenue from the commercialization and sale of any of our product candidate for which we obtained marketing approval. We may never have been successful in obtaining marketing approval for any product candidate. If we had continued development of ALRN-6924, the duration, costs and timing of clinical trials and development of ALRN-6924 would depend on a variety of factors, including:
•
the scope, rate of progress, expense and results of clinical trials of ALRN-6924, or other product candidates that we may have developed and other research and development activities that we may have conducted;
•
uncertainties in clinical trial design and patient enrollment rates;
•
significant and changing government regulation and regulatory guidance;
•
the timing and receipt of any marketing approvals; and
•
the expense of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to have required us to conduct clinical trials beyond those that we anticipated would be required for the completion of clinical development of a product candidate, or if we experienced significant trial delays due to patient enrollment or other reasons, we would have been required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in our
executive, finance and corporate and administrative functions. General and
administrative expenses are comprised of professional fees associated with being
a public company including costs of accounting, auditing, legal, regulatory, tax
and consulting services associated with maintaining compliance with exchange
listing and
We anticipate that our general and administrative expenses will decrease
beginning in the first half of 2023 following our
Interest Income
Interest income consists of interest income earned on our cash, cash equivalents and investments. Historically, our interest income had not been significant due to low investment balances and low interest earned on those balances. We anticipate that our interest income will fluctuate in the future in response to our cash, cash equivalents and investments, and the interest rate environment.
Other Income, net
Other income, net consists of gains or losses recognized from non-routine items such as debt forgiveness under the Paycheck Protection Program and gains or losses recognized from the disposal of fixed assets.
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Income Taxes
Since our inception in 2001, we have not recorded any
Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 and similar state statutes due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.
We have not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. We may have experienced such ownership changes in the past and may experience such ownership changes in the future as a result of any strategic transaction. If we have experienced, or do experience, a change of control, as defined by Section 382 and similar state statutes, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382 and similar state statutes, which is determined by first multiplying the value of our common stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with generally accepted accounting principles in
While our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contract and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and
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circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
•
CROs in connection with performing research activities on our behalf and conducting preclinical studies and clinical trials on our behalf;
•
investigative sites or other service providers in connection with clinical trials;
•
vendors in connection with preclinical and clinical development activities; and
•
vendors related to product manufacturing and development and distribution of preclinical and clinical supplies.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. We apply the straight-line method of expense recognition to all awards with only service-based vesting conditions and apply the graded-vesting method to all awards with performance-based vesting conditions or to awards with both service-based and performance-based vesting conditions.
We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield.
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Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years ended
Year Ended December 31, Increase
2022 2021 (Decrease)
Revenue $ - $ - $ -
Operating expenses:
Research and development 17,967 17,008 959
General and administrative 9,680 9,597 83
Total operating expenses 27,647 26,605 1,042
Loss from operations (27,647 ) (26,605 ) (1,042 )
Other income (expense), net 318 441 (123 )
Net loss $ (27,329 ) $ (26,164 ) $ (1,165 ) Research and Development Expenses
Research and development expenses for the year ended
General and Administrative Expenses
General and administrative expenses were
Other Income (Expense), net
Other income, net of
Liquidity and Capital Resources
Since our inception, we have incurred significant losses on an aggregate basis.
We have not yet commercialized any product candidate, including ALRN-6924, and,
as we do not have any product candidates under development, we do not expect to
generate revenue from sales of any products. We have financed our operations
through sales of common stock in our initial public offering and follow-on
public offerings, sales of common stock and warrants in a private placement,
sales of common stock in "at-the-market" offerings, sales of common stock under
our equity line with
Public Offerings
On
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per share and expire in
In
At-the-Market Offering
In
In
Equity Line Financing
On
Upon entering into the Purchase Agreement, we issued and sold 18,382 shares of
common stock, or the Initial Purchase Shares, to LPC at a price per share of
Under the Purchase Agreement, we may, at our discretion, direct LPC to purchase
on any single business day, or a Regular Purchase, up to (i) 12,500 shares of
common stock if the closing sale price of our common stock is not below
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The purchase price per share for each such Regular Purchase will be based on
prevailing market prices of our common stock immediately preceding the time of
sale as computed under the Purchase Agreement. Under the Purchase Agreement, we
may not effect any sales of shares of common stock on any purchase date that the
closing sale price of our common stock on Nasdaq is less than the floor price of
In addition to Regular Purchases, we may also direct LPC to purchase other amounts as accelerated purchases or as additional accelerated purchases on the terms and subject to the conditions set forth in the Purchase Agreement.
The net proceeds under the Purchase Agreement to us will depend on the frequency of sales and the number of shares sold to LPC and prices at which we sell shares to LPC.
The Purchase Agreement contains customary representations, warranties,
covenants, indemnification and termination provisions. LPC has covenanted not to
cause or engage in any manner whatsoever, any direct or indirect short selling
or hedging of our common stock. There are no limitations on use of proceeds,
financial or business covenants, restrictions on future financings (other than
restrictions on our ability to enter into additional "equity line" or a
substantially similar transaction whereby a specific investor is irrevocably
bound pursuant to an agreement with us to purchase securities over a period of
time from us at a price based on the market price of the common stock at the
time of such purchase), rights of first refusal, participation rights, penalties
or liquidated damages in the Purchase Agreement. The Purchase Agreement may be
terminated by us at any time, at our sole discretion, without any cost or
penalty. During any "event of default" under the Purchase Agreement, LPC does
not have the right to terminate the Purchase Agreement; however, we may not
initiate any purchase of shares by LPC until such event of default is cured. In
the year ended
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Year Ended December 31,
2022 2021
(in thousands)
Cash used in operating activities $ (24,865 ) $ (23,754 )
Cash (used in) provided by investing activities 26,459 (35,917 )
Cash provided by financing activities - 55,657
Net increase (decrease) in cash, cash equivalents
and restricted cash$ 1,594 $ (4,014 ) Operating Activities.
During the year ended
During the year ended
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expense. Changes in our operating assets and liabilities during the year ended
Investing Activities.
During the year ended
During the year ended
Financing Activities.
During the year ended
During the year ended
Funding Requirements
We expect our operating expenses to decrease significantly beginning in the
first half of 2023 following our
Our future capital requirements will depend on many factors, including:
•
whether we realize the anticipated cost savings in connection with our
•
our ability to consummate a strategic transaction and the nature and type of such transaction;
•
the time and costs necessary to close out our Phase 1b breast cancer trial; and
•
the costs associated with operating as a public company.
If we continued to pursue development of ALRN-6924, our capital requirements would have depended on many factors, including:
•
the scope, progress, results and costs of our preclinical studies, CMC, and clinical trials and ALRN-6924;
•
the costs, timing and outcome of regulatory review of ALRN-6924;
•
our ability to establish and maintain collaborations with third parties on favorable terms, if at all;
•
the success of any collaborations that we may have entered into with third parties;
•
the extent to which we acquired or invested in businesses, products and technologies, including entering into licensing or collaboration arrangements for ALRN-6924, although we currently have no commitments or agreements to complete any such transactions;
•
the costs and timing of commercialization activities, including drug sales, marketing, manufacturing and distribution, for any product candidates for which we receive marketing approval; and
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•
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims.
Until such time, if ever, as we can generate substantial revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, or other third-party funding. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include liens or other restrictive covenants limiting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.
There can be no assurance that a strategic transaction will be completed and our
board of directors may decide to pursue a dissolution and liquidation. In such
an event, the amount of cash available for distribution to our stockholders will
depend heavily on the timing of such decision and, as with the passage of time
the amount of cash available for distribution will be reduced as we continue to
fund our operations. In addition, if our board of directors were to approve and
recommend, and our stockholders were to approve, a dissolution and liquidation,
we would be required under
If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our strategic process and we may consider seeking protection under the bankruptcy laws in order to continue to pursue potential strategic alternatives. If we decide to seek protection under the bankruptcy laws, we would expect that we would file for bankruptcy at a time that is significantly earlier than when we would otherwise exhaust our cash resources. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what extent we will be able to pay our obligations, and, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.
Contractual Obligations
We lease 3,365 square feet of office space at our corporate headquarters in
Emerging Growth Company Status
Prior to
We are a "smaller reporting company" as defined in Rule 12b-2 under the Exchange
Act. We may continue to be a smaller reporting company if either (i) the market
value of our shares held by non-affiliates is less than
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market value of our shares held by non-affiliates is less than
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our financial statements appearing at the end of this Annual Report on Form 10-K, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.
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