1. Nature of the Business and Basis of Presentation

Aileron Therapeutics, Inc. (“Aileron” or the “Company”) is a clinical stage chemoprotection oncology company. The Company's product candidate, ALRN-6924, is a MDM2/MDMX dual inhibitor that leverages our proprietary peptide drug technology.

On February 21, 2023, the Company decided to terminate its Phase 1b chemoprotection trial of ALRN-6924 in patients with p53-mutated breast cancer and further development of ALRN-6924. The Company determined to reduce the Company’s remaining workforce from nine to three full-time employees. The Company also announced that it is exploring a range of strategic alternatives to maximize stockholder value. The Company has engaged a third party to act as a strategic advisor for this process. Strategic alternatives that are being evaluated may include, but are not limited to, an acquisition, a merger, a business combination, a sale of assets or other transaction. There is no set timetable for this process and there can be no assurance that this process will result in the Company pursuing a transaction or that any transaction, if pursued, will be completed.

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. The Company 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.

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, uncertainties in the clinical development of product candidates and in the ability to obtain needed additional financing. ALRN-6924 will require significant additional research and development efforts, including 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.

On November 10, 2022, the Company effected a one-for-twenty reverse stock split on its common stock (the “Reverse Stock Split”). The Reverse Stock Split was reflected on the Nasdaq Capital Market beginning with the opening of trading on November 11, 2022. Pursuant to the Reverse Stock Split, every 20 shares of the Company's issued and outstanding shares of common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share of the common stock. The Reverse Stock Split reduced the authorized number of shares of common stock from 300,000,000 to 15,000,000 and, pursuant to the certificate of amendment, such reduced authorized number of shares of common stock was subsequently multiplied by three, such that following the Reverse Stock Split the Company has 45,000,000 shares of common stock authorized. The Reverse Stock Split affected all issued and outstanding shares of the Company's common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding stock options, outstanding warrants and the Company's equity incentive plans were proportionately adjusted. All share and per share amounts of the common stock included in the accompanying financial statements have been retrospectively adjusted to give effect to the Reverse Stock Split for all periods presented.

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, 2023, the Company has financed operations primarily through $145,467 in net proceeds from sales of common stock and warrants, $131,211 from sales of preferred stock prior to its IPO, and $34,910 from a collaboration agreement in 2010.

As of March 31, 2023, the Company had cash, cash equivalents and investments of $16,721. The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $277,564 as of March 31, 2023. The Company expects to continue to generate losses for the foreseeable future.

While the Company has cash, cash equivalents and investments of $16,721 as of March 31, 2023, due to the inherent uncertainty in the timing and cost of potential strategic alternatives, including their impact on its cash consumption, the Company has concluded that as of the date of this Quarterly Report on Form 10-Q there is substantial doubt about its ability to continue as a going concern for a period of twelve months from the issuance of these interim financial statements.

The Company would need substantial funding to support its continuing operations. There can be no assurance that a strategic transaction will be completed and the Company’s board of directors may decide to pursue a dissolution and liquidation. If the Company is unable to enter into a strategic transaction, on a timely basis or at all, the Company may consider seeking protection under the bankruptcy laws. If the Company decides to seek protection under the bankruptcy laws, the Company would expect that it would file for bankruptcy at a time that is earlier than when it would otherwise exhaust its cash resources. If the Company decides to dissolve and liquidate its assets or to seek protection under the bankruptcy laws, it is unclear to what extent the Company will be able to pay its obligations, and, it is further unclear whether and to what extent any resources will be available for distributions to its stockholders. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

3. Fair Value of Financial Assets

As of March 31, 2023 and December 31, 2022, the Company’s cash equivalents and investments were invested in money market funds, commercial paper and treasury bills and valued based on Level 1 and Level 2 inputs. In determining the fair value of its 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, 2023 and the year ended December 31, 2022, there were no transfers in or out of Level 3.

4. Investments

5. Property and Equipment, Net

Depreciation and amortization expense for the three months ended March 31, 2023 and 2022 was $13 and $15 respectively. During the three months ended March 31, 2023 assets with a cost of $16 and accumulated depreciation of $10 were disposed of for no proceeds, resulting in a loss on disposal of $6.

6. Accrued Expenses and Other Current Liabilities

7. Lease

On March 26, 2021, the Company entered into a sublease agreement (the “Sublease”) by and among the Company, Vittoria Industries North America, Inc. (the “Sublessor”) and Waterfront Equity Partners, LLC (the “Lessor”), under which the Company was leasing approximately 3,365 square feet of office space located at 285 Summer Street, Unit 101, Boston, Massachusetts (the “Premises”). The Sublease was subject and subordinate to a lease agreement, dated as of July 13, 2012, by and between the Sublessor and Lessor (the “Prime Lease”), pursuant to which the Sublessor is leasing the Premises from the Lessor. The Sublease expired March 31, 2023 and we did not renew the Sublease. Following expiration of the Sublease, we are operating virtually, and expect to do so for the foreseeable future.

8. Restructuring and Other Costs

On February 16, 2023, the Board of Directors of the Company determined to reduce the Company’s remaining workforce from nine to three full-time employees. The determination to effect the workforce reduction was made in connection with the Company’s decision to terminate its Phase 1b breast cancer trial of ALRN-6924 and further development of ALRN-6924.

As a result of the above restructuring initiatives, the Company incurred restructuring-related charges of $1,022 for the three months ended March 31, 2023. Restructuring-related charges were comprised of one-time termination costs in connection with the reduction-in-workforce, including severance, benefits, and related costs.

As of March 31, 2023, the short-term portion of the accrued restructuring balance, or $992, is included in “Accrued expenses and other current liabilities” in the accompanying balance sheets. The Company has paid immaterial amounts for the three months ended March 31, 2023, and expects that payment of these remaining costs will be made through the second quarter of 2023.

9. Common Stock

On June 16, 2021, the Company filed a certificate of amendment to its restated certificate of incorporation which increased the authorized number of shares of common stock from 7,500,000 shares of $0.001 par value common stock to 15,000,000 shares of common stock.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Company’s board of directors, if any, subject to the preferential dividend rights of the preferred stock. As of March 31, 2023 and December 31, 2022, no dividends had been declared.

Reverse Stock Split

The Company’s stockholders approved a reverse stock split of the Company’s common stock on June 15, 2022. The Company effected the Reverse Stock Split on November 10, 2022. Pursuant to the Reverse Stock Split, every 20 shares of the Company's issued and outstanding shares of common stock were automatically combined into one issued and outstanding share of common stock,

without any change in the par value per share of the common stock. The Reverse Stock Split reduced the authorized number of shares of common stock from 300,000,000 to 15,000,000 and, pursuant to the certificate of amendment, such reduced authorized number of shares of common stock was subsequently multiplied by three, such that following the Reverse Stock Split the Company has 45,000,000 shares of common stock authorized. The Reverse Stock Split affected all issued and outstanding shares of the Company's common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding stock options, outstanding warrants and the Company’s equity incentive plans were proportionately adjusted. All share and per share amounts disclosed give effect to the Reverse Stock Split on a retroactive basis.

Sales of Common Stock

On January 6, 2021, the Company entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company issued and sold, in a registered direct offering (the “Offering”), an aggregate of 1,631,549 shares of common stock, $0.001 par value per share, at a purchase price per share of $22.00 (the “Shares”). The aggregate gross proceeds of the Offering were $35,894, before deducting $2,887 of fees payable to the placement agent and other offering expenses payable by the Company. The Offering closed on January 8, 2021.

Between January 1, 2021 and January 28, 2021, the Company issued and sold an aggregate 358,749 shares of its common stock pursuant to its sales agreement with JonesTrading Institutional Services LLC (“JonesTrading”), resulting in gross proceeds of $9,658, before deducting expenses of $290. The Company terminated its sales agreement with Jones Trading in January 2021.

On January 29, 2021, the Company entered into a Capital on Demand™ Sales Agreement (the “ATM Sales Agreement”) with JonesTrading and William Blair & Company, L.L.C. (“William Blair” and, collectively with JonesTrading, the “Agents”), pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $30,000 from time to time through or to the Agents (the “ATM Offering”). During the year ended December 31, 2021, the Company issued and sold an aggregate of 261,270 shares of its common stock pursuant to the ATM Sales Agreement, resulting in gross proceeds of $10,922 before deducting expenses of $329. Pursuant to a prospectus relating to the ATM Sales Agreement filed by the Company with the SEC on June 21, 2022, the Company may from time to time offer and sell shares of its common stock having an aggregate offering price of up to $14,024 under the ATM Sales Agreement. There were no sales under the ATM Sales Agreement during the three months ended March 31, 2023, or the year ended December 31, 2022.

During the year ended December 31, 2021, the Company issued and sold an aggregate of 68,750 shares of its common stock to Lincoln Park Capital, LLC pursuant to a purchase agreement entered into between Lincoln Park Capital, LLC and the Company in September 2020, resulting in gross proceeds of $2,614. During the year ended December 31, 2020, the Company issued and sold 29,411 shares to LPC under the purchase agreement for proceeds of $500. There were no sales under the purchase agreement during the three months ended March 31, 2023, or the year ended December 31, 2022. Under the purchase agreement, the Company may not effect any sales of shares of common stock on any purchase date that the closing sale price of its common stock on Nasdaq is less than the floor price of $6.00 per share, which will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction

In June 2020, the Company issued and sold in an underwritten public offering an aggregate of 508,102 shares of common stock, including an additional 53,557 shares of common stock upon the partial exercise of an option of the underwriter to purchase additional shares, for a purchase price to the public of $22.00 per share. The Company received aggregate gross proceeds from the public offering of approximately $11,178, before deducting underwriting discounts and commissions and offering expenses of $932.

On April 2, 2019, the Company issued and sold in a private placement an aggregate of (i) 591,922 units, consisting of 591,922 shares of its common stock and associated warrants, or the common warrants, to purchase an aggregate of 591,922 shares of common stock, for a combined price of $40.20 per unit and (ii) 54,837 units, consisting of (a) pre-funded warrants to purchase 54,837 shares of our common stock and (b) associated common warrants to purchase 54,837 shares of common stock, for a combined price of $40.20 per unit. The pre-funded warrants had an exercise price of $0.20 per share and had no expiration. In July 2019, all outstanding pre-funded warrants were exercised for 54,837 shares of common stock. At March 31, 2023, there were 646,759 common warrants outstanding with an exercise price of $40.00 per share.

The Company has assessed the warrants for appropriate equity or liability classification and determined the warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to ASC 815. The warrants are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815. Accordingly, the warrants are classified as equity and accounted for as a component of additional paid-in capital at the time of issuance.

10. Stock-Based Awards

2021 Stock Incentive Plan

The Company’s 2021 Stock Incentive Plan (the “2021 Plan”) was approved by the Company’s stockholders on June 15, 2021 and became effective on June 16, 2021. Under the 2021 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 2021 Plan; however, incentive stock options may only be granted to employees. The 2021 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 2021 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 2021 Plan was 758,811 as of March 31, 2023, of which 346,074 shares remained available for grant. The Company initially reserved 625,000 shares of common stock, plus the number of shares of common stock subject to outstanding awards under the Company’s 2017 Stock Incentive Plan (the “2017 Plan”), and the Company’s 2016 Stock Incentive Plan (“the 2016 Plan”) and the Company’s 2006 Stock Incentive Plan, as amended (the “2006 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 up to 314,006 shares.

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 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 could 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 were eligible to receive awards under the 2017 Plan; however, incentive stock options could 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 granted, 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 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 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.

As of the effective date of the 2021 Plan, the board of directors determined to grant no further awards under the 2017 Plan.

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards under the 2021 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 2021 Plan.

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 7,500 shares of common stock were initially reserved for issuance under this plan. Under the 2017 ESPP, the number