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, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021 that was filed with the Securities and Exchange Commission, or SEC, on March 28, 2022.
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 in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 28, 2022, and elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in our Annual Report on Form 10-K, Part I-Item IA, “Risk Factors” and in this Quarterly Report on Form 10-Q, 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 Quarterly Report on 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 chemoprotection oncology company that aspires to make chemotherapy safer and thereby more effective to save more patients’ lives. ALRN-6924, our first-in-class MDM2/MDMX dual inhibitor, is designed to activate p53, which in turn upregulates p21, a known inhibitor of the cell replication cycle. ALRN-6924 is the only reported chemoprotective agent in clinical development to employ a biomarker strategy, in which we exclusively focus on treating patients with p53-mutated cancers. Our targeted strategy is designed to selectively protect multiple healthy cell types throughout the body from chemotherapy without protecting cancer cells. As a result, healthy cells are spared from chemotherapeutic destruction while chemotherapy continues to kill cancer cells. By reducing or eliminating multiple chemotherapy-induced side effects, ALRN-6924 may improve patients’ quality of life and help them better tolerate chemotherapy. Enhanced tolerability may result in fewer dose reductions or delays of chemotherapy and the potential for improved efficacy. Our vision is to bring chemoprotection to all patients with p53-mutated cancer regardless of type of cancer or chemotherapy.
Our clinical development program for ALRN-6924 as a selective chemoprotective agent includes:
•An ongoing Phase 1b open-label clinical trial to evaluate ALRN-6924 as a chemoprotective agent in patients with p53-mutated breast cancer undergoing either neoadjuvant or adjuvant treatment with docetaxel, doxorubicin and cyclophosphamide, a chemotherapy regimen also known as TAC;
•A completed Phase 1b open-label clinical trial evaluating ALRN-6924 as a chemoprotective agent in patients with p53-mutated small cell lung cancer, or SCLC, undergoing treatment with second-line topotecan;
•A completed Phase 1 pharmacology study of ALRN-6924 in healthy volunteers evaluating the safety and tolerability of ALRN-6924, in addition to its cell cycle arrest mechanism of action, pharmacokinetic, and pharmacodynamic effects, including time to onset, magnitude and duration of cell cycle arrest; and
•A completed Phase 1b randomized, double-blind, placebo-controlled clinical trial evaluating ALRN-6924 as a chemoprotective agent in patients with p53-mutated non-small cell lung cancer, or NSCLC, undergoing first-line treatment with carboplatin plus pemetrexed with or without immune checkpoint inhibitors, for which we announced on
17
June 29, 2022 that, based on interim data from the first 20 patients enrolled, we would stop further enrollment in the NSCLC trial and focus our clinical development strategy and resources on our Phase 1b breast cancer trial..
Our Phase 1b breast cancer trial is designed to evaluate the safety, tolerability and chemoprotective effect of ALRN-6924 in up to 24 patients with p53-mutated breast cancer undergoing either neoadjuvant or adjuvant treatment with TAC.
In August 2022, we announced modifications to the trial designed to improve the opportunity to demonstrate protection against chemotherapy-induced severe neutropenia, alopecia and potentially other toxicities in patients with p53-mutated breast cancer. The primary endpoints of the trial are duration and incidence of severe neutropenia (Grade 4) in cycle 1. Secondary endpoints of the trial include the chemoprotective effect of ALRN-6924 on chemotherapy-induced alopecia, as well as other hematologic and non-hematologic toxicities. We plan to report data from initial patients in this trial in the fourth quarter of 2022, data from an interim analysis on 12 patients in the second quarter of 2023 and topline results from 20 patients in the third quarter of 2023.Subject to the successful demonstration of chemoprotection in our Phase 1b breast cancer trial in the topline readout planned, we anticipate initiating preparation for a potential pivotal trial.
Additionally, upon successful completion of the Phase 1b breast cancer trial, and subject to obtaining additional funding, we may expand our clinical program to evaluate ALRN-6924 as a chemoprotective agent across additional p53-mutated tumor types and chemotherapy regimens.
In October 2022, we presented additional results from our completed Phase 1 study of ALRN-6924 in healthy volunteers, which showed that ALRN-6924 induced p53-mediated cell cycle arrest in bone marrow stem cells and hair follicles. The data from the study support the potential of ALRN-6924 to prevent chemotherapy-induced neutropenia, thrombocytopenia and anemia, as well as chemotherapy-induced alopecia.
In this study, cell cycle arrest was directly measured in the bone marrow and hair follicles of an additional 41 females. ALRN-6924 was administered as a single one-hour IV infusion or three-minute bolus injection at 0.3, 0.6, or 0.9 mg/kg to cohorts of three to nine subjects and compared to placebo. Subjects were evaluated for safety and tolerability. Plasma and serum samples were obtained to determine pharmacokinetics and levels of macrophage inhibitory cytokine-1, or MIC-1, a biomarker of p53 activation. Bone marrow was sampled 12 hours post-dose to directly measure cell cycle arrest by flow cytometry in CD34+, lineage-negative bone marrow stem cells. Occipital scalp skin was sampled by 2 mm punch biopsy for p21 immunohistochemistry in hair follicles.
ALRN-6924 continued to demonstrate a favorable safety and tolerability profile, with subjects experiencing only mild, transient adverse events, with nausea/vomiting as the most frequent related adverse events. The degree and duration of serum MIC-1 elevation was dose-dependent, indicating more durable p53 activation at higher ALRN-6924 doses. At 12 hours post-dose, the proportion of cycling bone marrow stem cells was significantly reduced at all dose levels. A blinded pathology review suggested that there was ALRN-6924-dependent p21 induction in anagen-phase hair follicles. Safety profiles, PK and PD were similar for both the three-minute bolus injection and one-hour IV infusion, providing a rationale for future development of ALRN-6924 bolus administration.
Since our inception, we have devoted a substantial portion of our resources to developing our product candidates, including ALRN-6924, developing our proprietary stabilized cell-permeating peptide platform, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations.
To date, we have financed operations primarily through $145.5 million in net proceeds from sales of common stock, $131.2 million from sales of preferred stock prior to our IPO, and $34.9 million from a collaboration agreement in 2010.
Since our inception, we have incurred significant losses on an aggregate basis. Our net losses were $22.8 million and $19.4 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $268.2 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 significant expenses and operating losses for at least the next several years.
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. Adequate additional financing may not be available to us on acceptable terms, if at all. Market conditions are volatile and may continue to be volatile for the foreseeable future, which may limit our ability to raise capital. In addition, while we may seek one or more collaborators for future development of ALRN-6924 for one or more indications, we may not be able to enter into a collaboration for ALRN-6924 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
18
acceptable terms, we may be forced to delay, reduce and/or eliminate some or all of our clinical 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.
We believe that, based on our current operating plan, our cash, cash equivalents and investments of $25.5 million as of September 30, 2022, will enable us to fund our operating expenses through the first quarter of 2024. Our funding estimates are based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate. In any event, our cash, cash equivalents and investments will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development or commercialization of ALRN-6924, see “Liquidity and Capital Resources.” Our future viability is dependent on our ability to raise additional capital to finance our operations.
COVID-19
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 COVID-19 pandemic. Because millions of 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. Additionally, more restrictive orders, proclamations and/or directives may be issued in the future. As a result, 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. We have enrolled, and are seeking to enroll, cancer patients in our clinical trials at sites located both in the United States and Europe, which are areas that continue to be impacted by the COVID-19 pandemic.
In particular, the COVID-19 pandemic impacted our ability to activate clinical trial sites and resulted in slower-than-anticipated enrollment in our Phase 1b clinical trial of ALRN-6924 in patients with advanced p53-mutated NSCLC and could result in slower than anticipated enrollment in our Phase 1b clinical trial in patients with breast cancer. The ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments. Such future events are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 pandemic, new information which may emerge concerning the severity of the COVID-19 pandemic, including the new variants and subvariants of the virus that causes COVID-19 that have been identified and are spreading in the United States and around the world, 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 continued spread of COVID-19 will determine whether the pandemic will continue to have an impact on our business, including our clinical trials. 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.
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.
19
Operating Expenses
Our expenses since inception have consisted solely of research and development costs and general and administrative costs.
We expect that our operating expenses will increase if and as we increase our level of clinical development of ALRN-6924 and hire additional personnel to carry out such clinical development.
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 ALRN-6924, and include:
•expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical studies and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture ALRN-6924 for use in our preclinical studies and clinical trials;
•salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
•the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
•third-party license fees;
•costs related to compliance with regulatory requirements; and
•facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
Our employee and infrastructure resources are primarily devoted to the development of ALRN-6924. We expense research and development costs as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.
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.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect to incur significant research and development expenses in the foreseeable future as we continue clinical development of ALRN-6924, initiate additional clinical trials of ALRN-6924, and pursue later stages of clinical development of ALRN-6924.
We cannot determine with certainty the duration and costs of the current, planned, or future clinical trials of ALRN-6924 or if, when, or to what extent we will generate revenue from the commercialization and sale of any of our product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs, and timing of clinical trials and development of ALRN-6924 will depend on a variety of factors, including:
•the scope, rate of progress, expense and results of our Phase 1b breast cancer trial, as well as of any future clinical trials of ALRN-6924 or other product candidates that we may develop and other research and development activities that we may conduct;
•uncertainties in clinical trial design and patient enrollment rates;
•significant and changing government regulation and regulatory guidance;
•the timing and receipt of any marketing approvals; and
•the expense of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights.
20
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance and corporate and administrative functions. General and administrative expenses are comprised of professional fees associated with being a public company including costs of accounting, auditing, legal, regulatory, tax, and consulting services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs; and both public and investor relations costs. General and administrative expenses also include legal fees relating to patent and corporate matters; other insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
Interest Income
Interest income consists of interest income earned on our cash, cash equivalents, and investments. Historically, our interest income had not been significant due to low investment balances and low interest earned on those balances. We anticipate that our interest income will fluctuate in the future in response to our amount of cash, cash equivalents and investments, and the interest rate environment.
Other Income, net
Other income, net consists of gains or losses recognized from non-routine items such as debt forgiveness under the Paycheck Protection Program, and gains or losses recognized from foreign currency transactions and the disposal of fixed assets.
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Increase |
|
|
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
4,239 |
|
|
|
4,278 |
|
|
|
(39 |
) |
General and administrative |
|
|
2,243 |
|
|
|
2,513 |
|
|
|
(270 |
) |
Total operating expenses |
|
|
6,482 |
|
|
|
6,791 |
|
|
|
(309 |
) |
Loss from operations |
|
|
(6,482 |
) |
|
|
(6,791 |
) |
|
|
309 |
|
Interest income |
|
|
110 |
|
|
|
21 |
|
|
|
89 |
|
Other income, net |
|
|
4 |
|
|
|
66 |
|
|
|
(62 |
) |
Net loss |
|
$ |
(6,368 |
) |
|
$ |
(6,704 |
) |
|
$ |
336 |
|
Research and Development Expenses
Research and development expenses decreased by less than $0.1 million for the three months ended September 30, 2022, which was primarily due to $0.7 million of decreased manufacturing costs for ALRN-6924, offset by $0.7 million of increased spending for our Phase 1b breast cancer trial, during the third quarter of 2022 as compared to the same period in 2021.
General and Administrative Expenses
General and administrative expenses decreased by $0.3 million for the three months ended September 30, 2022, which was primarily due to a decrease in stock compensation expense during the third quarter of 2022 as compared to the same period in 2021.
21
Interest Income
We anticipate that our interest income will fluctuate in the future in response to our then-current cash, cash equivalents and investments, and then-current interest rates.
Other Income, net
The decrease in other income, net, for the three months ended September 30, 2022, was due to payment received in 2021 for equipment sold in 2020.
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Increase |
|
|
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
|
(in thousands) |
|
Revenue |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
|
15,565 |
|
|
|
12,447 |
|
|
|
3,118 |
|
General and administrative |
|
|
7,379 |
|
|
|
7,342 |
|
|
|
37 |
|
Total operating expenses |
|
|
22,944 |
|
|
|
19,789 |
|
|
|
3,155 |
|
Loss from operations |
|
|
(22,944 |
) |
|
|
(19,789 |
) |
|
|
(3,155 |
) |
Interest income |
|
|
180 |
|
|
|
54 |
|
|
|
126 |
|
Other income, net |
|
|
(18 |
) |
|
|
370 |
|
|
|
(388 |
) |
Net loss |
|
$ |
(22,782 |
) |
|
$ |
(19,365 |
) |
|
$ |
(3,417 |
) |
Research and Development Expenses
Research and development expenses increased $3.1 million for the nine months ended September 30, 2022, primarily due to $2.3 million of increased spending for our Phase 1b clinical trial in breast cancer, $0.5 million of increased manufacturing costs for ALRN-6924, and $0.3 million of increased spending on research related to the clinical development of ALRN-6924.
General and Administrative Expenses
General and administrative increased less than $0.1 million for the nine months ended September 30, 2022, which was due to higher professional services fees.
Interest Income
We anticipate that our interest income will fluctuate in the future in response to our then-current cash, cash equivalents and investments, and then-current interest rates.
Other Income (Expense), net
The decrease in other income, net, for the nine months ended September 30, 2022, was primarily due to the forgiveness of the Paycheck Protection Program loan during the nine months ended September 30, 2021.
Liquidity and Capital Resources
Since our inception, we have incurred significant losses on an aggregate basis. We have not yet commercialized any product candidate, including ALRN-6924, which is in clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. We have financed our operations through sales of common stock in our initial public offering and follow-on public offerings, sales of common stock and warrants in a private placement, sales of common stock in “at-the-market” offerings, sales of common stock under our equity line with Lincoln Park Capital, LLC, or LPC, sales of preferred stock prior to our initial public offering and payments received under a collaboration agreement. As of September 30, 2022, we had cash, cash equivalents and investments of $25.5 million.
Private Offerings
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
22
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.
In January 2021, we issued and sold an aggregate of 32,630,983 shares of common stock in a registered direct offering at a purchase price per share of $1.10. The aggregate gross proceeds of the registered direct offering were $35.9 million, before deducting fees payable to the placement agent and other estimated offering expenses payable by us of approximately $2.9 million.
At-the-Market Offerings
In July 2019, we entered into a Sales Agreement with JonesTrading Institutional Services LLC, or JonesTrading, under which we were able to issue and sell shares of common stock, having an aggregate offering price of up to $15.0 million, or the Prior Sales Agreement. During the year ended December 31, 2020, we issued and sold an aggregate of 4,160,899 shares of common stock pursuant to the Prior Sales Agreement for gross proceeds of $4.0 million, before deducting commissions and fees. Between January 1, 2021 and January 28, 2021, we sold an additional 7,174,993 shares of common stock pursuant to the Prior Sales Agreement for gross proceeds of $9.7 million, before deducting commissions and fees. We terminated the Prior Sales Agreement in January 2021.
In January 2021, we entered into a Capital on Demand Sales Agreement, or the ATM Sales Agreement, with JonesTrading Institutional Services LLC, or JonesTrading, and William Blair & Company, L.L.C., or William Blair, as agents, under which we may issue and sell shares of common stock, having an aggregate offering price of up to $30.0 million. Sales of common stock through JonesTrading and William Blair 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 common stock under the ATM Sales Agreement. During the year ended December 31, 2021, we issued and sold an aggregate of 5,225,406 shares of common stock pursuant to the ATM Sales Agreement for proceeds of $10.6 million, after deducting commissions and fees. Pursuant to a prospectus relating to the ATM Sales Agreement we filed with the SEC on June 21, 2022, we may offer and sell shares of our common stock having an aggregate offering price of up to $14,024,100 under the ATM Sales Agreement. There were no sales under the ATM Sales Agreement during the three and nine months ended September 30, 2022.
Equity Line Financing
On September 21, 2020, we entered into a purchase agreement, or the Purchase Agreement, with LPC for an equity line financing. The Purchase Agreement provides that, subject to the terms and conditions set forth therein, we have the right, but not the obligation, to sell to LPC, and LPC is obligated to purchase up to $15.0 million of shares of common stock at our sole discretion, over a 36-month period that commenced in October 2020. We filed a registration statement on Form S-1 covering the sale of shares of common stock that are issued to LPC under the Purchase Agreement, which was declared effective on October 15, 2020.
Upon entering into the Purchase Agreement, we issued and sold 367,647 shares of common stock, or the Initial Purchase Shares, to LPC at a price per share of $1.36, or $0.5 million, which is part of the $15.0 million of shares of common stock that we may sell to LPC under the Purchase Agreement. Additionally, we issued to LPC as a commitment fee of 220,588 shares of common stock as consideration for LPC entering into the Purchase Agreement.
Under the Purchase Agreement, we may, at our discretion, direct LPC to purchase on any single business day, or a Regular Purchase, up to (i) 250,000 shares of common stock if the closing sale price of our common stock is not below $1.50 per share on Nasdaq, (ii) 200,000 shares of common stock if the closing sale price of our common stock is not below $1.00 per share on Nasdaq or (iii) 150,000 shares of common stock if the closing sale price of our common stock is below $1.00 per share on Nasdaq. In any case, LPC’s commitment in any single Regular Purchase may not exceed $1,000,000. The foregoing share amounts and per share prices will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction.
The purchase price per share for each such Regular Purchase will be based on prevailing market prices of our common stock immediately preceding the time of sale as computed under the Purchase Agreement. Under the Purchase Agreement, we may not effect any sales of shares of common stock on any purchase date that the closing sale price of our common stock on Nasdaq is less than the floor price of $0.30 per share, which will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction.
23
In addition to Regular Purchases, we may also direct LPC to purchase other amounts as accelerated purchases or as additional accelerated purchases on the terms and subject to the conditions set forth in the Purchase Agreement.
The net proceeds under the Purchase Agreement to us will depend on the frequency of sales and the number of shares sold to LPC and prices at which we sell shares to LPC.
The Purchase Agreement contains customary representations, warranties, covenants, indemnification and termination provisions. LPC has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our common stock. There are no limitations on use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on our ability to enter into additional “equity line” or a substantially similar transaction whereby a specific investor is irrevocably bound pursuant to an agreement with us to purchase securities over a period of time from us at a price based on the market price of the common stock at the time of such purchase), rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. The Purchase Agreement may be terminated by us at any time, at our sole discretion, without any cost or penalty. During any “event of default” under the Purchase Agreement, LPC does not have the right to terminate the Purchase Agreement; however, we may not initiate any purchase of shares by LPC until such event of default is cured. In the year ended December 31, 2020, we issued and sold an aggregate of 1,417,647 shares of common stock to LPC for gross proceeds of $1.8 million. In the year ended December 31, 2021, we issued and sold an aggregate of 1,375,000 shares of common stock to LPC for gross proceeds of $2.6 million. There were no sales under the Purchase Agreement during the three and nine months ended September 30, 2022.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Cash used in operating activities |
|
$ |
(20,456 |
) |
|
$ |
(17,499 |
) |
Cash provided by/(used in) investing activities |
|
|
21,695 |
|
|
|
(38,168 |
) |
Cash provided by financing activities |
|
|
— |
|
|
|
55,656 |
|
Net increase/(decrease) in cash, cash equivalents and restricted cash |
|
$ |
1,239 |
|
|
$ |
(11 |
) |
Operating Activities.
During the nine months ended September 30, 2022, operating activities used $20.5 million of cash, resulting primarily from our net loss of $22.8 million, partially offset by $1.7 million in non-cash expenses. During the nine months ended September 30, 2021 operating activities used $17.5 million of cash, resulting primarily from our net
loss of $19.4 million, partially offset by $0.4 million of decreased net operating assets and liabilities and $1.5 million in non-cash expenses.
Investing Activities.
During the nine months ended September 30, 2022, investing activities provided $21.7 million of cash primarily resulting from $41.6 million of proceeds from the sale of investments, partially offset by purchases of $19.9 million of investments. During the nine months ended September 30, 2021, investing activities used $38.2 million of cash primarily resulting from the purchase
of $70.8 million of investments and partially offset by $32.7 million of proceeds from the sale of investments.
Financing Activities.
During the nine months ended September 30, 2021, net cash provided by financing activities was $55.7 million due to the proceeds
received from the sale of common stock during the first quarter of 2021.
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing development activities related to ALRN-6924, which is still in clinical development, and any other product candidates and programs that we may pursue in the future. We expect that our expenses will increase substantially if and as we:
•conduct our current, planned, and future preclinical studies and clinical trials of ALRN-6924;
24
•initiate and resume research and preclinical and clinical development of any other product candidates that we may develop;
•seek to identify additional product candidates;
•seek marketing approvals for any product candidate that successfully completes clinical trials, if any;
•require the manufacture of larger quantities of ALRN-6924 for clinical development and potential commercialization;
•establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
•maintain, expand and protect our intellectual property portfolio;
•acquire or in-license other drugs and technologies;
•hire and retain additional clinical, quality control, and scientific personnel;
•build out new facilities or expand existing facilities to support our ongoing development activity; and
•add operational, financial, and management information systems and personnel, including personnel to support our drug development, any future commercialization effort and our compliance with our obligations as a public company.
We believe, based on our current operating plan, that our cash, cash equivalents, and investments of $25.5 million as of September 30, 2022 will enable us to fund our operating expenses through the first quarter of 2024. We expect that these cash resources will allow us to fund our operations beyond the planned topline readout from our Phase 1b breast cancer trial in the third quarter of 2023, and if warranted by the trial results, to initiate preparation for a potential pivotal trial. Our funding estimates are based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate. In any event, our cash, cash equivalents and investments will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of, the development or commercialization of ALRN-6924. Our future viability is dependent on our ability to raise additional capital to finance our operations.
Accordingly, we will be required to obtain further funding through public or private equity offerings, collaborations and licensing arrangements, or other sources of capital. We may also explore other strategic alternatives. Adequate additional financing may not be available to us on acceptable terms, if at all. In addition, while we may seek to enter into a collaboration or other strategic alternative, we may not be able to enter into such a transaction on suitable terms, on a timely basis or at all.
Because of the numerous risks and uncertainties associated with the development of ALRN-6924 and other product candidates that we may develop and programs we may pursue, and because the extent to which we may enter into collaborations with third parties for the development of ALRN-6924 is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of ALRN-6924 or other product candidates that we may develop. Our future capital requirements will depend on many factors, including:
•the scope, progress, results, and costs of our ongoing, planned and future preclinical studies and clinical trials of ALRN-6924;
•the impact of the COVID-19 pandemic on our business and operations;
•the scope, progress, results, and costs of drug discovery, preclinical studies and clinical trials for any other product candidates that we may develop;
•the number of future product candidates that we pursue and their development requirements;
•the costs, timing, and outcome of regulatory review of ALRN-6924;
•our ability to establish and maintain collaborations on favorable terms, if at all;
•the success of any collaborations that we may enter into with third parties;
•the extent to which we acquire or invest in businesses, products, and technologies, including entering into licensing or collaboration arrangements for product candidates, although we currently have no commitments or agreements to complete any such transactions;
•the costs and timing of future commercialization activities, including drug sales, marketing, manufacturing and distribution, for any product candidate for which we receive marketing approval;
25
•the amount of revenue, if any, received from commercial sales of ALRN-6924, should ALRN-6924 receive marketing approval;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•our headcount growth and associated costs, as we expand our business operations and our research and development activities; and
•the costs of operating as a public company.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any products for which we may obtain marketing approval. In addition, ALRN-6924, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. Other than the Purchase Agreement with LPC, which is subject to certain limitations and conditions, including a floor price condition of $0.30 per share (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction, we do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of our common stockholders. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt, making capital expenditures, or declaring dividends, which could adversely impact our ability to conduct our business.
On December 6, 2021, we received a deficiency letter from the Nasdaq Stock Market notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2), or the Bid Price Rule. There can be no assurance that we regain compliance with the Bid Price Rule. Any potential delisting of our common stock from the Nasdaq Capital Market would likely result in decreased liquidity and increased volatility for our common stock and would adversely affect our ability to raise additional capital or to enter into strategic transactions. On June 7, 2022, we received notification from the Nasdaq Stock Market notifying us that we were provided an additional 180 calendar day period or until December 5, 2022 to regain compliance with the Bid Price Rule.
As of the date of this Quarterly Report on Form 10-Q, we have not yet regained compliance with the Bid Price Rule. We intend to monitor the closing bid price of our common stock and intend to effect a reverse stock split to regain compliance with the Bid Price Rule prior to December 6, 2022. On June 15, 2022, our stockholders approved an amendment to our restated certificate of incorporation to effect a reverse stock split at a ratio of not less than 1-for-5 and not greater than 1-for-25, with the exact ratio to be set within that range at the discretion of our board of directors prior to December 31, 2022 without further approval or authorization of our stockholders, in its sole discretion.
If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. In addition, if, during the course of our Phase 1b breast cancer trial, we determine, based on interim data from that trial, that ALRN-6924 is not demonstrating sufficient chemoprotection to support continued clinical development, and have not obtained additional funding, our ability to pursue strategic alternatives may be limited and we may consider seeking protection under the bankruptcy laws in order to continue to pursue potential transactions and conduct a wind-down of our company. If we decide to seek protection under the bankruptcy laws, we would expect that we would file for bankruptcy at a time that is significantly earlier than when we would otherwise exhaust our cash resources. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what extent we will be able to pay our obligations, and, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.
26
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
During the three and nine months ended September 30, 2022, there were no material changes to our critical accounting policies. For further information, refer to our summary of significant accounting policies and estimates in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 28, 2022.
Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
We will cease to qualify as an emerging growth company on December 31, 2022.
We are also a “smaller reporting company” as defined in Rule 12b-2 under the Securities and Exchange Act of 1934, as amended. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.