alrn-10q_20200331.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-38130

 

Aileron Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

13-4196017

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

490 Arsenal Way, Suite 210

Watertown, MA

 

02472

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 995-0900

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

ALRN

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

  

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 8, 2020, the registrant had 29,086,467 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

 

Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

2

Item 1.

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Balance Sheets

 

2

 

 

Condensed Statements of Operations and Comprehensive Loss

 

3

 

 

Condensed Statement of Stockholders’ Equity (Deficit)

 

4

 

 

Condensed Statements of Cash Flows

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

 

Controls and Procedures

 

28

PART II.

 

OTHER INFORMATION

 

29

Item 1.

 

Legal Proceedings

 

29

Item 1A.

 

Risk Factors

 

29

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

74

Item 5.

 

Other Information

 

74

Item 6.

 

Exhibits

 

74

 

 

Signatures

 

75

 

1


 

 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

AILERON THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,697

 

 

$

5,311

 

Investments

 

 

1,998

 

 

 

12,967

 

Prepaid expenses and other current assets

 

 

967

 

 

 

1,247

 

Restricted cash

 

 

25

 

 

 

25

 

Total current assets

 

 

13,687

 

 

 

19,550

 

Operating lease, right-of-use asset

 

 

5,893

 

 

 

6,060

 

Property and equipment, net

 

 

225

 

 

 

295

 

Restricted cash, non-current

 

 

568

 

 

 

568

 

Total assets

 

$

20,373

 

 

$

26,473

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,088

 

 

$

1,452

 

Accrued expenses and other current liabilities

 

 

4,587

 

 

 

3,941

 

Operating lease liability, current portion

 

 

468

 

 

 

446

 

Total current liabilities

 

 

6,143

 

 

 

5,839

 

Operating lease liability, net of current portion

 

 

4,461

 

 

 

4,586

 

Total liabilities

 

 

10,604

 

 

 

10,425

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized and no shares

   issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

 

 

 

 

Common stock, $0.001 par value; 150,000,000 shares authorized at

   March 31, 2020 and December 31, 2019; 27,810,358 shares issued

   and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

28

 

 

 

28

 

Additional paid-in capital

 

 

214,625

 

 

 

214,148

 

Accumulated other comprehensive gain/(loss)

 

 

(1

)

 

 

7

 

Accumulated deficit

 

 

(204,883

)

 

 

(198,135

)

Total stockholders’ equity

 

 

9,769

 

 

 

16,048

 

Total liabilities and stockholders’ equity

 

$

20,373

 

 

$

26,473

 

 

The accompanying notes are an integral part of these financial statements.

2


 

 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenue

 

$

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

4,069

 

 

 

4,174

 

General and administrative

 

 

2,807

 

 

 

3,139

 

Total operating expenses

 

 

6,876

 

 

 

7,313

 

Loss from operations

 

 

(6,876

)

 

 

(7,313

)

Gain on sale of property and equipment

 

 

66

 

 

 

 

Interest income

 

 

62

 

 

 

100

 

Net loss

 

 

(6,748

)

 

 

(7,213

)

Net loss per share — basic and diluted

 

$

(0.24

)

 

$

(0.49

)

Weighted average common shares outstanding—basic and diluted

 

 

27,810,358

 

 

 

14,816,253

 

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,748

)

 

$

(7,213

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax of $0

 

 

(8

)

 

 

5

 

Total other comprehensive gain (loss)

 

 

(8

)

 

 

5

 

Total comprehensive loss

 

$

(6,756

)

 

$

(7,208

)

 

The accompanying notes are an integral part of these financial statements.

3


 

 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(In thousands, except share and per share data)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Par

Value

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Stockholders'

Equity

 

Balances at December 31, 2019

 

 

27,810,358

 

 

$

28

 

 

$

214,148

 

 

$

7

 

 

$

(198,135

)

 

$

16,048

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance costs of $28

 

 

 

 

 

 

 

 

(28

)

 

 

 

 

 

 

 

 

(28

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

505

 

 

 

 

 

 

 

 

 

505

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,748

)

 

 

(6,748

)

Balances at March 31, 2020

 

 

27,810,358

 

 

$

28

 

 

$

214,625

 

 

$

(1

)

 

$

(204,883

)

 

$

9,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

 

14,748,475

 

 

$

15

 

 

$

188,083

 

 

$

(5

)

 

$

(168,493

)

 

$

19,600

 

Exercise of stock options

 

 

126,560

 

 

 

 

 

 

165

 

 

 

 

 

 

 

 

 

165

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

563

 

 

 

 

 

 

 

 

 

563

 

Adoption of ASC 842, Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(273

)

 

 

(273

)

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,213

)

 

 

(7,213

)

Balances at March 31, 2019

 

 

14,875,035

 

 

$

15

 

 

$

188,811

 

 

$

 

 

$

(175,979

)

 

$

12,847

 

 

4


 

AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,748

)

 

$

(7,213

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

70

 

 

 

31

 

Net amortization of premiums and discounts on investments

 

 

(30

)

 

 

(34

)

Stock-based compensation expense

 

 

505

 

 

 

563

 

Gain on sale of property and equipment

 

 

(66

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

280

 

 

 

(50

)

Other assets

 

 

167

 

 

 

533

 

Accounts payable

 

 

(365

)

 

 

(872

)

Operating lease liabilities

 

 

(104

)

 

 

(85

)

Accrued expenses and other current liabilities

 

 

619

 

 

 

(374

)

Net cash used in operating activities

 

 

(5,672

)

 

 

(7,501

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

 

 

 

(127

)

Proceeds from sale of property and equipment

 

 

66

 

 

 

 

Proceeds from sales or maturities of investments

 

 

10,992

 

 

 

8,100

 

Net cash provided by (used in) investing activities

 

 

11,058

 

 

 

7,973

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

 

 

 

165

 

Net cash provided by financing activities

 

 

 

 

 

165

 

Net decrease in cash, cash equivalents and restricted cash

 

 

5,386

 

 

 

637

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

5,904

 

 

 

11,228

 

Cash, cash equivalents and restricted cash at end of period

 

$

11,290

 

 

$

11,865

 

 

The accompanying notes are an integral part of these financial statements.

5


 

 

AILERON THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in thousands, except share and per share data)

1. Nature of the Business and Basis of Presentation

Aileron Therapeutics, Inc. (“Aileron” or the “Company”) is advancing a product candidate called ALRN-6924, which is based on its proprietary technology of stabilized cell-permeating alpha-helical peptides. The stabilized helical structure of its peptides allows the design of cell-permeating therapeutic agents with large molecular surfaces for optimal target binding properties. The Company’s focus is to improve the standard of care for patients with cancer by developing safe and effective therapies that leverage the Company’s proprietary peptide platform.

Based on its mechanism of action, preclinical data and preliminary evidence from its Phase 1b clinical trial evaluating ALRN-6924 as a chemoprotection agent in patients with small cell lung cancer (“SCLC”) being treated with the chemotherapy topotecan, the Company believes that there may be a significant opportunity to develop ALRN-6924 as an agent that reduces the toxic side effects of chemotherapy in the bone marrow of cancer patients without adversely impacting the anti-cancer activity of chemotherapy against p53-mutant tumors. The Company refers to this concept as “chemoprotection” or “myelopreservation.”

The Company also believes that ALRN-6924 may be used as an anti-cancer agent, alone or in combination with other drugs, for several cancer indications.

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. The Company’s product candidate currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance-reporting capabilities.

The Company’s product candidate is in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary governmental regulatory approval or that any approved products will be commercially viable. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its key employees and consultants.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Liquidity

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

The Company’s interim financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through March 31, 2020, the Company has funded its operations with net proceeds of $23,825 from its private placement on April 2, 2019, $50,009 from its initial public offering on July 5, 2017, $131,211 from sales of preferred stock prior to the Company’s initial public offering, $552 from the exercise of stock options and $34,910 from a collaboration agreement. As of March 31, 2020, the Company had cash, cash equivalents

6


 

and investments of $12,695. The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $204,883 as of March 31, 2020. The Company expects to continue to generate losses for the foreseeable future.

As of May 11, 2020, the date of issuance of these unaudited interim condensed financial statements, the Company expects that its cash, cash equivalents and investments of $12,695 as of March 31, 2020, will be sufficient to fund its current business plan including related operating expenses and capital expenditure requirements into the first quarter of 2021. Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern as the Company does not believe that its cash, cash equivalents and investments will be sufficient to fund such business plan for at least twelve months from the date of issuance of these interim financial statements. The Company plans to seek to address this condition by raising additional capital to finance its operations. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing and therefore it is not considered probable, as defined in accounting standards ASU No. 2014-15 (subtopic 205-40), that the Company’s plans to raise additional capital will alleviate the substantial doubt regarding its ability to continue as a going concern.

On July 12, 2019, the Company received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market notifying it 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 Global Market, (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A) (the “Compliance Period Rule”), the Company was provided an initial period of 180 calendar days, or until January 8, 2020, to regain compliance with the Bid Price Rule. On December 20, 2019, the Company applied to transfer the listing of its stock from the Nasdaq Global Market to the Nasdaq Capital Market. The Nasdaq Capital Market is a continuous trading market that operates in substantially the same manner as the Nasdaq Global Market and listed companies must meet certain financial requirements and comply with Nasdaq’s corporate governance requirements.

On December 27, 2019, Nasdaq approved the Company’s transfer application. This transfer became effective at the opening of business on December 30, 2019. The Company’s common stock continues to trade under the symbol “ALRN.” Nasdaq has advised the Company that following the effectiveness of transfer of its listing, the Company was granted an additional 180-day period, or until July 6, 2020, to regain compliance with Bid Price Rule. On April 17, 2020 Nasdaq notified the Company that its date to regain compliance with the Bid Price Rule was extended to September 21, 2020 (the “Compliance Date”), pursuant to Nasdaq’s proposed rule change to extend the period of time for companies to regain compliance with the bid price and market value of publicly held shares continued listing requirements by tolling the compliance periods through and including June 30, 2020. If, at any time before the Compliance Date, the bid price for the Company’s common stock closes at $1.00 or more for a minimum of 10 consecutive business days as required under the Compliance Period Rule, the Staff will provide written notification to the Company that it complies with the Bid Price Rule, unless the Staff exercises its discretion to extend this 10 day period pursuant to Nasdaq Listing Rule 5810(c)(3)(F).

The Company intends to seek stockholder approval at its annual meeting of stockholders scheduled for June 17, 2020 of an amendment to the Company’s restated certificate of incorporation to effect a reverse stock split as a potential measure to regain compliance with the Bid Price Rule. If the Company is unable to regain compliance with the Bid Price Rule within the prescribed period set forth above, the Company’s common stock may be delisted, subject to certain appeal rights. If its common stock is delisted, the Company’s ability to raise additional capital or to enter into strategic transactions could be adversely affected.

To execute its business plans, the Company will need substantial funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can generate significant revenue from product sales, if ever, it expects to finance its operations through the sale of common stock in public offerings and/or private placements, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. The Company may not be able to obtain financing on acceptable terms or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion plans or commercialization efforts, which could adversely affect its business prospects.

 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of common stock and stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has made estimates of the impact

7


 

of COVID-19 within its financial statements and there may be changes to those estimates in future periods. As of the date of issuance of these unaudited condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results could differ from the Company’s estimates.

Unaudited Interim Financial Information

The accompanying unaudited condensed financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 that was filed with the SEC on March 30, 2020.

 

The unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2020, the results of its operations for the three months ended March 31, 2020 and 2019 and its cash flows for the three months ended March 31, 2020 and 2019. The financial data and other information disclosed in these notes related to the three months ended March 31, 2020 and 2019 are unaudited. The results for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. The accompanying balance sheet as of December 31, 2019 has been derived from the Company’s audited financial statements for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 30, 2020.

 

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which consist of money market accounts, corporate notes and commercial paper, are stated at fair value.

Restricted Cash

As of March 31, 2020 and December 31, 2019, current restricted cash consisted of $25 of cash deposited in a separate restricted bank account as a security deposit for the Company’s corporate credit cards. As of March 31, 2020 and December 31, 2019, non-current restricted cash consisted of $568 of cash deposited in a separate restricted bank account as a security deposit for the lease of the Company’s facility.

Investments

The Company classifies its available-for-sale debt security investments as current assets on the balance sheet if they mature within one year from the balance sheet date.

The Company classifies its investments as available-for-sale securities. The Company’s investments are measured and reported at fair value using quoted prices in active markets for similar securities or using other inputs that are observable or can be corroborated by observable market data. Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income (loss), which is a separate component of stockholders’ equity (deficit). The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense) within the statements of operations and comprehensive loss.

The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general. If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary”, the Company reduces the investment to fair value through a charge to the statements of operations and comprehensive loss. No such adjustments were necessary during the periods presented.

8


 

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable.

 

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair value due to the short-term nature of these liabilities.

Net Loss per Share

The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) is computed by adjusting income (loss) per share to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share is computed by dividing the diluted net income (loss) by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding options to purchase common stock are considered potential dilutive common shares.

The Company’s redeemable convertible preferred stock contractually entitled the holders of such shares to participate in dividends but contractually did not require the holders of such stock to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Risks and Uncertainties

In December 2019, an outbreak of respiratory illness caused by a strain of novel coronavirus, COVID-19, began in China. That outbreak has led to numerous confirmed cases worldwide, including in the United States and other countries where we are conducting clinical trials or activities in support thereof. The World Health Organization declared the outbreak a global pandemic on March 11, 2020. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Potential impacts to the Company’s business include disruptions in supply of product candidates and/or procuring items that are essential for the Company’s research and development activities.  While the Company believes that it currently has sufficient supply of the Company’s product candidates to continue the Company’s on-going clinical trials, some of the Company’s product candidates, or materials contained therein, come from facilities located in areas impacted by COVID-19 such as Europe. Additionally, the Company has enrolled, and will seek to enroll, cancer patients in the Company’s clinical trials at sites located both in the United States and internationally. Some of the Company’s clinical trial sites are outside of the United States, including Europe which is an area recently noted as being impacted by COVID-19. In the event that clinical trial sites are slowed down or closed to enrollment in the Company’s trials, this could impact the Company’s clinical trial plans, timelines and costs. 

Any negative impact that the COVID-19 outbreak has on the ability of the Company’s suppliers to provide materials necessary for the Company’s product candidates or on recruiting or retaining patients in the Company’s clinical trials could cause costly delays to clinical trial activities, which could adversely affect the Company’s ability to obtain regulatory approval for and to commercialize the Company’s product candidates, increase the Company’s operating expenses, affect the Company’s ability to raise additional capital, and

9


 

impact the Company’s operating and financial results. The capital markets have experienced significant volatility as a result of the pandemic and the Company’s ability to access the capital markets in the future could be impacted if disruptions in the capital markets continue.

 

 

Recently Adopted Accounting Pronouncements

 

Fair Value of Financial Instruments

 

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which aims to improve the effectiveness of fair value measurement disclosures. This ASU removes the requirement to disclose: the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level 3 fair value measurements. This ASU became effective for the Company on January 1, 2020. There was no impact on the Company’s financials as a result of this change for the quarter ended March 31, 2020.

 

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The standard also establishes additional disclosure requirements related to credit risks. This guidance was originally effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption was permitted. In November 2019, the FASB subsequently issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, whereby the effective date of this standard for smaller reporting companies was deferred to annual reporting periods beginning after December 15, 2022, including interim periods within those annual reporting periods, and early adoption is still permitted. Accordingly, the Company will now adopt this standard effective January 1, 2023, and it is currently evaluating the potential impact that ASU 2016-13 may have on the condensed consolidated financial statements.

3. Fair Value of Financial Assets

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

Fair Value Measurements as of

March 31, 2020 using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

9,258

 

 

$

 

 

$

 

 

$

9,258

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

 

 

 

 

750

 

 

 

 

 

 

750

 

Commercial paper

 

 

 

 

 

1,248

 

 

 

 

 

 

1,248

 

 

 

$

9,258

 

 

$

1,998

 

 

$

 

 

$

11,256

 

 

 

 

Fair Value Measurements as of

December 31, 2019 using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

4,208

 

 

$

 

 

$

 

 

$

4,208

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

 

 

 

 

5,491

 

 

 

 

 

 

5,491

 

Commercial paper

 

 

 

 

 

7,476

 

 

 

 

 

 

7,476

 

 

 

$

4,208

 

 

$

12,967

 

 

$

 

 

$

17,175

 

 

As of March 31, 2020 and December 31, 2019, the Company’s cash equivalents and investments were invested in money market funds, corporate notes and commercial paper and were valued based on Level 1 and Level 2 inputs. In determining the fair value of its corporate notes and commercial paper at each date presented above, the Company relied on quoted prices for similar securities in active markets or using other inputs that are observable or can be corroborated by observable market data. The Company’s cash equivalents have original maturities of less than 90 days from the date of purchase. All available-for-sale investments have contractual maturities of less than one year. During the three months ended March 31, 2020 and the year ended December 31, 2019, there were no transfers in and out of Level 3.

10


 

4. Investments

As of March 31, 2020 and December 31, 2019, the fair value of available-for-sale investments by type of security was as follows:

 

 

 

March 31, 2020

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

750

 

 

$

 

 

$

 

 

$

750

 

Commercial paper

 

 

1,247

 

 

 

1

 

 

 

 

 

 

1,248

 

 

 

$

1,997

 

 

$

1

 

 

$

 

 

$

1,998

 

 

 

 

 

December 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gain

 

 

Gross

Unrealized

Loss

 

 

Fair

Value

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

5,489

 

 

$

2

 

 

$

 

 

$

5,491

 

Commercial paper

 

 

7,470

 

 

 

6

 

 

 

 

 

 

7,476

 

 

 

$

12,959

 

 

$

8

 

 

$

 

 

$

12,967

 

 

5. Property and Equipment, Net

Property and equipment, net consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Laboratory equipment

 

$

406

 

 

$

451

 

Computer equipment and software

 

 

177

 

 

 

177

 

Furniture and fixtures

 

 

189

 

 

 

189

 

 

 

 

772

 

 

 

817

 

Less: Accumulated depreciation and amortization

 

 

(547

)

 

 

(522

)

 

 

$

225

 

 

$

295

 

Depreciation and amortization expense for the quarter ended March 31, 2020 was $70. During the quarter ended March 31, 2020, fully depreciated assets with a cost of $45 was sold for $66, resulting in a gain of $66. During the year ended December 31, 2019, fully depreciated assets with a cost of $723 were disposed of for no proceeds, resulting in neither a gain nor a loss. However, assets with a cost of $26 and accumulated depreciation of $21 were disposed of for no proceeds, resulting in a loss on disposal of $5.

 

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

External research and development services

 

$

2,233

 

 

$

1,673

 

Payroll and payroll-related costs

 

 

1,480

 

 

 

1,281

 

Professional fees

 

 

593

 

 

 

635

 

Other

 

 

281

 

 

 

352

 

 

 

$

4,587

 

 

$

3,941

 

 

7. Stockholders’ Equity

On April 2, 2019, the Company issued and sold in a private placement an aggregate of (i) 11,838,582 units, consisting of 11,838,582 shares of its common stock and associated warrants, (the “common warrants”), to purchase an aggregate of 11,838,582 shares of common stock, for a combined price of $2.01 per unit and (ii) 1,096,741 units, consisting of (a) pre-funded warrants to purchase 1,096,741 shares of the Company’s common stock and (b) associated common warrants to purchase 1,096,741 shares of common stock, for a combined price of $2.01 per unit. The pre-funded warrants had an exercise price of $0.01 per share and had no

11


 

expiration. The common warrants are exercisable at an exercise price of $2.00 per share and expire five years from the date of issuance. The securities were sold pursuant to a securities purchase agreement entered into with accredited investors on March 28, 2019. The Company received aggregate gross proceeds from the private placement of approximately $26,000 before deducting placement agent fees and offering expenses of $2,175 and excluding the exercise of any warrants.

The Company evaluated the terms of the common warrants issued and determined that they should be classified as equity instruments. The grant date fair value of the common warrants was estimated to be $1.78 per share, for a total of approximately $23,025. The Company estimated the fair value of the common warrants using a Black-Scholes model utilizing the following key valuation assumptions: the Company’s stock price, a risk free rate of 2.23%, an expected life of five years and an expected volatility of 76%. The Company evaluated the terms of the pre-funded warrants and classified them as equity.

The pre-funded warrants were exercised in full in July 2019.  

8. Stock-Based Awards

2017 Stock Incentive Plan

The Company’s 2017 Stock Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 16, 2017 and became effective on June 28, 2017. Under the 2017 Plan, the Company may grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, awards of restricted stock units and other stock-based awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2017 Plan; however, incentive stock options may only be granted to employees. The 2017 Plan is administered by the board of directors or, at the discretion of the board of directors, by a committee of the board. The number of shares of common stock covered by options and the date those options become exercisable, type of options to be granted, exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or its committee if so delegated.

Stock options granted under the 2017 Plan with service-based vesting conditions generally vest over four years and may not have a duration in excess of ten years, although options have been granted with vesting terms of less than four years.

The total number of shares of common stock that may be issued under the 2017 Plan was 4,156,459 as of March 31, 2020, of which 204,519 shares remained available for grant. The Company initially reserved 1,244,816 shares of common stock plus the number of shares equal to the sum of the number of shares of common stock then available for issuance under the Company’s 2016 Stock Incentive Plan (the “2016 Plan”), which was 424,601 shares, and the number of shares of common stock subject to outstanding awards under the Company’s 2006 Stock Incentive Plan, as amended, (the “2006 Plan”) and the 2016 plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right. Under the 2017 Plan, the number of shares of common stock that may be issued under the 2017 Plan will automatically increase on each January 1, beginning with the fiscal year ending December 31, 2018 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 1,244,816 shares, (ii) 4% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors. On January 1, 2019 and January 1, 2020, the number of shares issuable under the 2017 Plan automatically increased by 589,939 shares and 1,112,414 shares, respectively.

During the three months ended March 31, 2020, pursuant to the terms of the 2017 Plan, the Company granted options to employees and directors to purchase 1,535,000 shares of common stock at a weighted average exercise price of $0.65 per share.      

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

The exercise price for stock options granted may not be less than the fair market value of the common stock as of the date of grant.

2017 Employee Stock Purchase Plan

On June 16, 2017, the Company’s stockholders approved the 2017 Employee Stock Purchase Plan (the “2017 ESPP”), which became effective on June 28, 2017. A total of 150,000 shares of common stock were initially reserved for issuance under this plan. Under the 2017 ESPP, the number of shares of common stock that may be issued under the 2017 ESPP will automatically increase on each January 1, beginning with the fiscal year ending December 31, 2018 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 622,408 shares, (ii) 1% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors. The compensation committee of the board of directors has determined that the number of shares of common stock that may be issued under the 2017 ESPP would not be increased on January 1, 2019 or January 1, 2020. The Company has not issued any shares under the 2017 ESPP.

12


 

2016 Stock Incentive Plan

The 2016 Plan provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock, restricted stock units and other equity awards to employees, directors and consultants of the Company. The 2016 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated.

Stock options granted under the 2016 Plan with service-based vesting conditions vest over four years and expire after ten years.

As of the effective date of the 2017 Plan, the board of directors determined to grant no further awards under the 2016 Plan. No stock options or other awards have been made under the 2016 Plan since the adoption of the 2017 Plan.  

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards under the 2017 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards under the 2017 Plan.

2006 Stock Incentive Plan

The 2006 Plan provided for the Company to grant incentive stock options or nonqualified stock options, restricted stock, restricted stock units and other equity awards to employees, directors and consultants of the Company. The 2006 Plan was administered by the board of directors or, at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated.

Stock options granted under the 2006 Plan with service-based vesting conditions generally vest over four years and expire after ten years, although options have been granted with vesting terms of less than four years.

The 2006 Plan expired in 2016. Since its expiration no further awards have been made under the 2006 Plan.

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards under the 2017 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards under the 2017 Plan.

Stock Option Valuation

The assumptions that the Company used to determine the grant-date fair value of the stock options granted to employees and directors during the three months ended March 31, 2020 and 2019 were as follows, presented on a weighted average basis:

 

 

 

Three Months Ended

March 31, 2020

 

 

Three Months Ended

March 31, 2019

 

Risk-free interest rate

 

 

1.29

%

 

 

2.53

%

Expected term (in years)

 

 

6.3

 

 

 

6.2

 

Expected volatility

 

 

76.0

%

 

 

76.0

%

Expected dividend yield

 

 

0

%

 

 

0

%

 

13


 

Stock Options

The following table summarizes the Company’s stock option activity since January 1, 2020:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

 

 

 

 

 

 

 

 

 

 

(in years)

 

 

 

 

 

Outstanding at December 31, 2019

 

 

3,320,706

 

 

$

3.87

 

 

 

7.4

 

 

$

 

Granted

 

 

1,535,000

 

 

 

0.65

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

0.00

 

 

 

 

 

 

 

 

 

Canceled

 

 

(11,857

)

 

 

8.90

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

0.00

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2020

 

 

4,843,849

 

 

$

2.84

 

 

 

8.0

 

 

$

 

Options exercisable at March 31, 2020

 

 

1,657,713

 

 

$

5.07

 

 

 

5.6

 

 

$

 

Options vested and expected to vest at March 31, 2020

 

 

4,733,797

 

 

$

2.87

 

 

 

8.0

 

 

$

 

Options exercisable at December 31, 2019

 

 

1,415,900

 

 

$

5.56

 

 

 

5.2

 

 

$

 

Options vested and expected to vest at December 31, 2019

 

 

3,264,851

 

 

$

3.89

 

 

 

7.4

 

 

$

 

 

The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2020 and 2019 was $0.44 and $0.99, respectively.

The aggregate fair value of stock options that vested during the three months ended March 31, 2020 and 2019 was $447 and $509, respectively.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2020 and 2019 was $0 and $109, respectively.

 

Restricted Stock Units

On April 15, 2019, the Company granted restricted stock units under the 2017 Stock Incentive Plan. The following table summarizes the Company’s restricted stock unit activity during the three months ended March 31, 2020:

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant Date

 

 

 

Units

 

 

per Unit

 

Outstanding, non-vested at December 31, 2019

 

 

50,000

 

 

$

1.75

 

Issued

 

 

 

 

 

 

Vested

 

 

 

 

 

 

Canceled/forfeited

 

 

 

 

 

 

Outstanding, non-vested at March 31, 2020

 

 

50,000

 

 

$

1.75

 

Stock-Based Compensation

The Company recorded stock-based compensation expense related to stock options and restricted stock units in the following expense categories of its statements of operations and comprehensive loss:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development expenses

 

$

149

 

 

$

81

 

General and administrative expenses

 

 

356

 

 

 

482

 

 

 

$

505

 

 

$

563

 

 

During the three months ended March 31, 2020 and 2019 the Company recognized stock-based compensation expense of $49 and $0, respectively, included in the table above, related to performance-based awards for which achievement of such performance-based conditions were deemed probable.

14


 

 

The Company used an estimated forfeiture rate of 2.43% to calculate its stock compensation expense for each of the three months ended March 31, 2020 and 2019.

 

As of March 31, 2020, the Company had an aggregate of $3,235 of unrecognized stock-based compensation expense, which it expects to recognize over a weighted average period of 2.5 years.

 

9. Net Loss per Share

Basic and diluted net loss per share was calculated as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,748

)

 

$

(7,213

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding—basic

   and diluted.

 

 

27,810,358

 

 

 

14,816,253

 

Total

 

 

27,810,358

 

 

 

14,816,253

 

 

 

 

 

 

 

 

 

 

Net loss per share —basic and diluted

 

$

(0.24

)

 

$

(0.49

)

 

The Company’s potential dilutive securities, which include stock options and warrants, have been excluded from the computation of diluted net loss per share whenever the effect of including them would be to reduce the net loss per share. In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The following potential shares of common stock, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Warrants to purchase common stock

 

 

12,935,323

 

 

 

 

Stock options to purchase common stock

 

 

4,843,849

 

 

 

2,446,487

 

Restricted stock units to purchase common stock

 

 

50,000

 

 

 

 

Total

 

 

17,829,172

 

 

 

2,446,487

 

 

10. Commitments and Contingencies

 

Intellectual Property Licenses

Harvard and Dana-Farber Agreement

In August 2006, the Company entered into an exclusive license agreement with President and Fellows of Harvard College (“Harvard”) and Dana-Farber Cancer Institute (“DFCI”). The agreement granted the Company an exclusive worldwide license, with the right to sublicense, under specified patents and patent applications to develop, obtain regulatory approval for and commercialize specified product candidates based on cell-permeating peptides. Under the agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize one or more licensed products and to achieve specified milestone events by specified dates. In connection with entering into the agreement, the Company paid an upfront license fee and issued to Harvard and DFCI shares of its common stock.

15


 

In February 2010, the agreement was amended and restated (the “Harvard/DFCI agreement”) under which additional patent rights were added to the scope of the license agreement and the annual license maintenance fees were increased. Under the Harvard/DFCI agreement, the Company is obligated to make aggregate milestones payments of up to $7,700 per licensed therapeutic product upon the Company’s achievement of specified clinical, regulatory and sales milestones with respect to such product and up to $700 per licensed diagnostic product upon the Company’s achievement of specified regulatory and sales milestones with respect to such product. In addition, the Company is obligated to pay royalties of low single-digit percentages on annual net sales of licensed products sold by the Company, its affiliates or its sublicensees. The royalties are payable on a product-by-product and country-by-country basis, and may be reduced in specified circumstances. In addition, the agreement obligates the Company to pay a percentage, up to the mid-twenties, of fees received by the Company in connection with its sublicense of the licensed products. In accordance with the terms of the agreement, the Company’s sublicense payment obligations may be subject to specified reductions.

The Harvard/DFCI agreement requires the Company to pay annual license maintenance fees. Any payments made in connection with the annual license maintenance fees will be credited against any royalties due.

The Company incurred license fees of $145 during each of the three months ended March 31, 2020 and 2019. In addition, the Company did not make any milestone payments during the three months ended March 31, 2020 and 2019. As of March 31, 2020, no additional milestones had been achieved and no liabilities for additional milestone payments had been recorded in the Company’s financial statements. Through March 31, 2020 and December 31, 2019, the Company had made non-refundable cash payments, consisting of license and maintenance fees, milestone payments and sublicense fees, totaling $4,863 and $4,718, respectively.

As of March 31, 2020, the Company had not developed a commercial product using the licensed technologies and no royalties under the agreement had been paid or were due.

Under the Harvard/DFCI agreement, the Company is responsible for all patent expenses related to the prosecution and maintenance of the licensed patents and applications in-licensed under the agreement as well as cost reimbursement of amounts incurred for all documented patent-related expenses. The agreement will expire on a product-by-product and country-by-country basis upon the last to expire of any valid patent claim pertaining to licensed products covered under the agreement.

Umicore Agreement

In December 2006, the Company entered into a license agreement with Materia, Inc. (“Materia”), under which it was granted a non-exclusive worldwide license, with the right to sublicense, under specified patent and patent applications to utilize Materia’s catalysts to develop, obtain regulatory approval for and commercialize specified peptides owned or controlled by Materia and the right to manufacture specified compositions owned or controlled by Materia. In February 2017, Materia assigned the license agreement (the “Umicore agreement”) to Umicore Precious Metals Chemistry USA, LLC (“Umicore”), and Umicore agreed to continue to supply the Company under the agreement.

Under the Umicore agreement, the Company is obligated to make aggregate milestone payments to Umicore of up to $6,400 upon the Company’s achievement of specified clinical, regulatory and sales milestones with respect to each licensed product. In addition, the Company is obligated to pay tiered royalties ranging in the low single-digit percentages on annual net sales of licensed products sold by the Company or its sublicensees. The royalties are payable on a product-by-product and country-by-country basis and may be reduced in specified circumstances.

The Umicore agreement requires the Company to pay annual license fees of $50. The Company incurred license fees of $50 during the three months ended March 31, 2020 and 2019. In addition, the Company did not make any milestone payments during the three months ended March 31, 2020 and 2019. As of March 31, 2020, no additional milestones had been achieved and no liabilities for additional milestone payments had been recorded in the Company’s financial statements.

The agreement expires upon the expiration of the Company’s obligation to pay royalties in each territory covered under the agreement.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position,

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results of operations or cash flows, and it had not accrued any liabilities related to such obligations in its financial statements as of March 31, 2020 or December 31, 2019.

11. Income Taxes

The Company did not provide for any income taxes for the three months ended March 31, 2020 and 2019. The Company has evaluated the positive and negative evidence bearing upon the realizability of its U.S. net deferred tax assets. As required by the provisions of ASC 740, Income Taxes, management has determined that it is more-likely-than-not that the Company will not utilize the benefits of federal and state U.S. net deferred tax assets for financial reporting purposes. Accordingly, the net deferred tax assets are subject to a valuation allowance at March 31, 2020 and December 31, 2019.

 

12. Subsequent Events

In July 2019, the Company entered into a Capital on DemandSM Sales Agreement (the “Sales Agreement”), with JonesTrading Institutional Services LLC (“JonesTrading”), under which the Company may issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $13,265. Sales of common stock through JonesTrading may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The Company is not obligated to make any sales of its common stock under the Sales Agreement. Pursuant to the Sales Agreement, the Company began making sales in April 2020. Since April 1, 2020 the Company has issued and sold an aggregate of 1,263,059 shares of common stock for gross proceeds of $762, before deducting commissions and fees of $24.

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019 that was filed with the Securities and Exchange Commission, or SEC, on March 30, 2020.

Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q particularly including those risks identified in Part II-Item 1A “Risk Factors” and our other filings with the SEC.

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

Overview

We are a clinical-stage biopharmaceutical company advancing a product candidate called ALRN-6924, which is based on our proprietary technology of stabilized cell-permeating alpha-helical peptides. The stabilized helical structure of our peptides allows the design of cell-permeating therapeutic agents with large molecular surfaces for optimal target binding properties. The Company’s focus is to improve the standard of care for patients with cancer by developing safe and effective therapies that leverage our proprietary peptide platform.

Based on its mechanism of action, preclinical data and preliminary evidence from our Phase 1b clinical trial, we believe that there may be a significant opportunity to develop ALRN-6924 as an agent that reduces the toxic side effects of chemotherapy in the bone marrow of cancer patients without adversely impacting the anti-cancer activity of chemotherapy against p53-mutant tumors. This is a concept known as “chemoprotection” or “myelopreservation.”

Our currently active clinical development program for ALRN-6924 currently includes an ongoing Phase 1b clinical trial evaluating ALRN-6924 as a chemoprotective agent in patients with small cell lung cancer, or SCLC, being treated with the chemotherapy topotecan.

This trial is expected to enroll approximately 40 patients with extensive disease, p53-mutated SCLC receiving second line topotecan. The trial includes a dose and schedule optimization part.

In the dose optimization part, topotecan is administered daily on days 1 through 5 of every 21-day treatment cycle. ALRN-6924 is administered 24 hours prior to each dose of topotecan (on days 0 through 4 every 21 days).  As of a data cutoff of January 22, 2020, coinciding with the most recent investigator review of this ongoing trial, preliminary results were available for patients in the first two dose levels of 0.6 and 1.2 mg/kg ALRN-6924 (n=5 and n=6 patients, respectively). In these cohorts, treatment with the combination was well-tolerated, with the most frequent safety finding consisting of topotecan-induced hematological toxicity. This toxicity was expected based on data from historical clinical trials of topotecan in this indication. While still preliminary, we are encouraged by the results of the interim data from the 0.6 mg/kg cohort and the 1.2 mg/kg cohort of the dose optimization part, we observed a protective effect of ALRN-6924 on severe anemia and thrombocytopenia but not on neutropenia in those cohorts. We recently completed enrollment in our final dose optimization cohort with a 0.3 mg/kg dose level of ALRN-6924 administered 24 hours prior to topotecan. We are further encouraged with data emerging from this cohort as it supports the trends observed with previous two cohorts. We plan

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to report interim top-line data for the dose optimization part of the trial in second quarter of 2020 and top-line final data in the fourth quarter of 2020.

Additionally, in the schedule optimization part of the trial we plan to assess an alternative schedule of ALRN-6924 administered six hours prior to each topotecan dose in the clinical trial at up to two dose levels in approximately 20 patients. The objective of this alternative schedule evaluation is to determine whether a shorter interval between ALRN-6924 and chemotherapy administration has the potential to expand the myelopreservation effect beyond anemia and thrombocytopenia to neutropenia.  Subject to enrollment delays that may occur as a result of the coronavirus pandemic, we expect to present the results of the schedule-optimization from the ongoing Phase 1b part of the myelopreservation trial in the fourth quarter of 2020.

We also believe that ALRN-6924 may potentially be used as an anti-cancer agent, alone or in combination with other drugs, for several cancer indications. Accordingly, our clinical development program for ALRN-6924 also includes a Phase 2a clinical trial combining ALRN-6924 and palbociclib (Ibrance, marketed by Pfizer, Inc.) for the treatment of patients with MDM2-amplified solid tumors. However, in light of our cash resources and the uncertainties associated with the coronavirus pandemic, we have determined to focus our efforts on the development of ALRN-6924 as a chemoprotective agent, and do not plan to advance development of ALRN-6924 for any other program at this time.

We were incorporated in 2001 and commenced principal operations in 2006. We have devoted substantially all 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.

In July 2019, we entered into a Capital on DemandSM Sales Agreement, or the Sales Agreement, with JonesTrading Institutional Services LLC, or JonesTrading, under which we may issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $13,265. Sales of common stock through JonesTrading may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. We are not obligated to make any sales of our common stock under the Sales Agreement. Pursuant to the Sales Agreement, we began making sales in April 2020. Since April 1, 2020, we have issued and sold an aggregate of 1,263,059 shares of common stock for net proceeds of $0.7 million. On April 30, 2020 we received a loan of $0.4 million under the Payroll Protection Program of the CARES Act.

On April 2, 2019, we issued and sold in a private placement an aggregate of (i) 11,838,582 units, consisting of 11,838,582 shares of our common stock and associated warrants, or the common warrants, to purchase an aggregate of 11,838,582 shares of common stock, for a combined price of $2.01 per unit and (ii) 1,096,741 units, consisting of (a) pre-funded warrants to purchase 1,096,741 shares of our common stock and (b) associated common warrants to purchase 1,096,741 shares of common stock, for a combined price of $2.01 per unit. The pre-funded warrants had an exercise price of $0.01 per share and had no expiration. The common warrants are exercisable at an exercise price of $2.00 per share and expire five years from the date of issuance.

The securities were sold pursuant to a securities purchase agreement entered into with accredited investors on March 28, 2019. We received aggregate gross proceeds from the private placement of approximately $26.0 million before deducting placement agent fees and offering expenses of approximately $2.2 million and excluding the exercise of any warrants. In July 2019, all outstanding pre-funded warrants were exercised for 1,096,741 shares of common stock.

Since our inception through March 31, 2020, we have received $23.8 million in net proceeds from our private placement on April 2, 2019, $50.0 million in net proceeds from our initial public offering, or IPO, $131.2 million from our sales of preferred stock prior to our IPO, $0.6 million from the exercise of stock options and $34.9 million from a collaboration agreement.

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Since our inception, we have incurred significant losses on an aggregate basis. Our net losses were $6.7 million and $7.2 million for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, we had an accumulated deficit of $204.9 million. These losses have resulted primarily from costs incurred in connection with research and development activities, licensing and patent investment and general and administrative costs associated with our operations. We expect to continue to incur expenses and operating losses for at least the next several years.

As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through public or private equity offerings, collaborations and licensing arrangements, or other sources of capital. We do not have any committed external source of funds. Adequate additional financing may not be available to us on acceptable terms, if at all. In addition, while we may seek one or more collaborators for future development of our product candidates for one or more indications, we may not be able to enter into a collaboration for any of our product candidates for such indications on suitable terms, on a timely basis or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. If we are unable to raise capital when needed, or on acceptable terms, we may be forced to delay, reduce and/or eliminate our research and drug development programs and future commercialization efforts. We may also be forced to take other actions that could adversely affect our business.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

The ongoing coronavirus pandemic has created substantial uncertainties in the United States and throughout the world, including in the financial markets and in the biopharmaceutical industry. In response, we are in the process of implementing a plan to reduce additional operating expenses, which includes additional reductions in personnel as well as the elimination of previously planned research studies and advisory services.

 

 

As of March 31, 2020, we had cash, cash equivalents and investments of $12.7 million. We believe that, based on our current operating plan, our cash, cash equivalents and investments as of March 31, 2020 will enable us to fund our current business plan including related operating expenses and capital expenditure into the first quarter of 2021. Accordingly, there is substantial doubt about our ability to continue as a going concern as we do not believe that our cash, cash equivalents and investments will be sufficient to fund such business plan for at least twelve months from the date of issuance of the interim financial statements included in this Quarterly Report on Form 10-Q. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. See “Liquidity and Capital Resources.” Our future viability is dependent on our ability to raise additional capital to finance our operations.

 

Recent Developments

 

In March 2020, we began precautionary measures to protect the health and safety of our employees and partners and prospective clinical trial participants during the novel coronavirus, or COVID-19, pandemic. Because COVID-19 infections have been reported throughout the United States and worldwide, certain national, state and local governmental authorities have issued orders, proclamations and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive orders, proclamations and/or directives may be issued in the future. As a result, we have eliminated business travel and substantially reduced the number of employees working on-site at any one time at our facility by shifting to remote work. In addition, the conduct of our clinical studies with our external partners has been adjusted to institute virtual clinical trial site training and site monitoring, along with partnering with sites to minimize patient visits and institute telemedicine to minimize patient exposure.

While the COVID-19 pandemic did not significantly impact our business or results of operations during the first quarter of 2020, the ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or we, may direct, which may result in an extended period of continued business disruption, reduced patient traffic and reduced operations. In particular, the speed of the continued spread of COVID-19 globally, and the magnitude of interventions to contain the spread of the virus, such as government-imposed quarantines, including shelter-in-place mandates, sweeping restrictions on travel, mandatory shutdowns for non-essential businesses, requirements regarding social distancing, and other public health safety measures, will determine the impact of the pandemic on our business. We are continuing to monitor the latest developments regarding the COVID-19 pandemic and its impact on our business, financial condition, results of operations and prospects.

 

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Components of our Results of Operations

Revenue

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for ALRN-6924 or other product candidates that we may develop in the future are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties.

Operating Expenses

Our expenses since inception have consisted solely of research and development costs and general and administrative costs.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our product candidates, and include:

 

expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture our product candidates for use in our preclinical 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.

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.

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. These costs are included in employee, facility and other development expenses in the table below. Employee, facility and other development expenses also includes internal research relating to non-clinical and pipeline compounds in oncology and non-oncology indications.

The following table summarizes our research and development expenses by product candidate or development program: