AILERON THERAPEUTICS INC - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2020

OR

For the transition period from                      to                     

Commission File Number: 001-38130

Aileron Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

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

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

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.

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 November 11, 2020, the registrant had 40,684,649 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

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PART I—FINANCIAL INFORMATION

AILERON THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

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

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AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(In thousands, except share and per share data)

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

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AILERON THERAPEUTICS, INC.

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

(In thousands, except share and per share data)

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AILERON THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

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

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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 a clinical stage biopharmaceutical company that is focused on transforming the experience of chemotherapy for cancer patients, enabling them to fight cancer without the fear or burden of chemotherapy-induced side effects. ALRN-6924, the Company’s first-in-class MDM2/MDMX dual inhibitor activating p53, is the only reported therapeutic agent in clinical development to employ a biomarker strategy, in which the Company exclusively focuses on treating patients with p53-mutated cancers. With this unique, targeted strategy, ALRN-6924 is designed to protect multiple healthy cell types throughout the body from chemotherapy while chemotherapy continues to destroy cancer cells.

In addition to potentially reducing or eliminating multiple side effects, ALRN-6924 may also improve patients’ quality of life and help them better tolerate chemotherapy, potentially allowing patients to complete their treatment without dose reductions or delays. The Company’s long-term vision is to provide chemoprotection for patients with p53-mutated cancers, which represents approximately 50% of cancer patients, regardless of cancer type or chemotherapeutic drug.

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.

ALRN-6924, the Company’s product candidate, is in clinical development. There can be no assurance that the Company’s development of ALRN-6924 will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that ALRN-6924 will obtain necessary governmental regulatory approval or, if approved, 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.

In September 2020, the Company entered into a purchase agreement (“Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”). The Purchase Agreement provides that, subject to the terms and conditions set forth therein, the Company may sell, at its discretion, to LPC up to $15,000 of shares of common stock during the term of the Purchase Agreement. In connection with the execution of the Purchase Agreement on September 21, 2020, LPC made an initial purchase at market price of $500 of common stock at $1.36 per share and the Company issued an additional 367,647 shares to LPC as consideration to LPC for its commitment to purchase shares under the Purchase Agreement. Subject to certain limitations, the Company has the right, but not the obligation, to sell to LPC up to an additional $14,500 in shares of common stock over a thirty-six-month period that commenced in October 2020. The

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purchase price per share of the shares sold will be based on the market prices prevailing immediately preceding the time of sale as computed under the Purchase Agreement. There are no upper limits to the price LPC may pay to purchase common stock from the Company. LPC has agreed not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of common stock. The agreement may be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty.

In June 2020, the Company issued and sold in an underwritten public offering an aggregate of 10,162,059 shares of common stock, including an additional 1,071,149 shares of common stock upon the partial exercise of an option of the underwriters to purchase additional shares, for a purchase price to the public of $1.10 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.

In July 2019, the Company entered into a Capital on Demand^SM Sales Agreement (the “Sales Agreement”) with JonesTrading Institutional Services LLC (“JonesTrading”), under which the Company currently may issue and sell shares of common stock, having an aggregate offering price of up to $15,000. 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. The Company began selling shares of common stock under the Sales Agreement in April 2020. During the nine months ended September 30, 2020, the Company issued and sold an aggregate of 1,281,571 shares of common stock pursuant to the Sales Agreement for gross proceeds of $785, before deducting commissions and fees of $24.

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 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. In July 2019, all outstanding pre-funded warrants were exercised for 1,096,741 shares of common stock.

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 September 30, 2020, the Company has funded its operations primarily through sales of common stock in its initial public offering and a follow-on public offering, sales of common stock in an “at-the-market” offering, sales of common stock under an equity line with LPC, sales of common stock and warrants in a private placement, sales of preferred stock prior to the Company’s initial public offering and payments received under a collaboration agreement. As of September 30, 2020, the Company had cash, cash equivalents and investments of $14,121. The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $214,296 as of September 30, 2020. The Company expects to continue to generate losses for the foreseeable future.

As of November 12, 2020, the date of issuance of these unaudited interim condensed financial statements, the Company expects that its cash, cash equivalents and investments as of September 30, 2020, will be sufficient to fund its current business plan including related operating expenses and capital expenditure requirements into the fourth quarter of 2021. However, after considering various risks and uncertainties as prescribed by ASU No. 2014-15 (subtopic 205-40), “ASU No. 2014-15,” there is substantial doubt about the Company’s ability to continue as a going concern as of the date of issuance of these interim financial statements without additional capital. The Company plans to address this condition by raising additional capital to finance its operations. The future viability of the Company is dependent on its ability to raise 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 on terms acceptable to the Company, if at all. Therefore, it is not considered probable, as defined in ASU No. 2014-15, that the Company’s plans to raise additional capital will alleviate the substantial doubt regarding its ability to continue as a going concern.

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, the Company 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 when needed, 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 clinical programs, product portfolio expansion plans or commercialization efforts, which could adversely affect its business prospects.

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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 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 the COVID-19 pandemic and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has made estimates of the impact 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 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 September 30, 2020 and for the nine months ended September 30, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“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 September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 30, 2020 and 2019. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are unaudited. The results for the nine months ended September 30, 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 September 30, 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 September 30, 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.

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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, 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, among other factors. 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.

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.

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

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, restricted stock units and warrants to purchase common stock are considered potential dilutive common shares. In periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share, 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 the Company is 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 the Company’s product candidate 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 its product candidate to continue the Company’s ongoing clinical trials, its product candidate, or materials contained therein, come from facilities located in areas impacted by the COVID-19 pandemic. Additionally, the Company has enrolled, and is seeking to enroll, cancer patients in the Company’s clinical trials at sites located both in the United States and Europe, which are areas

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that continue to be impacted by the COVID-19 pandemic. Enrollment at clinical trial sites may be disrupted as the effects of the COVID-19 pandemic persist. 

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 candidate 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 candidate, increase the Company’s operating expenses, affect the Company’s ability to raise additional capital, and impact the Company’s operating and financial results. The capital markets have also experienced significant volatility as a result of the pandemic. Future disruptions in the capital markets could negatively impact the Company’s ability to raise capital in the future.

Recently Adopted Accounting Pronouncements

Fair Value of Financial Instruments

In August 2018, the Financial Accounting Standards Board (“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 September 30, 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 its condensed 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:

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As of September 30, 2020 and December 31, 2019, the Company’s cash equivalents and investments 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 nine months ended September 30, 2020 and the year ended December 31, 2019, there were no transfers in and out of Level 3.

4. Investments

As of September 30, 2020 and December 31, 2019, the fair value of available-for-sale investments by type of security was as follows:

5. Property and Equipment, Net

Property and equipment, net consisted of the following:

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Depreciation and amortization expense for the nine months ended September 30, 2020 was $153. During the nine months ended September 30, 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:

7. Paycheck Protection Loan

On April 30, 2020, the Company received loan proceeds in the amount of approximately $384 under the Paycheck Protection Program (“PPP”).  The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loan and accrued interest are forgivable after eight weeks if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities. The amount of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company used the proceeds for purposes consistent with the PPP.

The Company has determined to account for the PPP loan as debt under Accounting Standards Update (“ASC 470”), “Debt”, and has allocated and recorded the loan proceeds between current and non-current liabilities. The Company further determined that loan forgiveness would become probable of occurring upon acceptance by the Small Business Association of the Company’s forgiveness application. If and when the loan forgiveness becomes probable, the Company will recognize income for debt extinguishment pursuant to ASC 470-50-15-4.

8. Stockholders’ Equity

In September of 2020, the Company entered into the Purchase Agreement with LPC. In connection with the execution of the Purchase Agreement on September 21, 2020, LPC made an initial purchase of $500 of common stock at $1.36 per share and the Company issued an additional 367,647 shares to LPC as consideration to LPC for its commitment to purchase shares under the Purchase Agreement. Subject to certain limitations, the Company has the right, but not the obligation, to sell to LPC up to an additional $14,500 in shares of common stock over a thirty-six-month period that commenced in October 2020. The purchase price per share of the shares sold will be based on the market prices prevailing immediately preceding the time of sale as computed under the Purchase Agreement. There are no upper limits to the price LPC may pay to purchase common stock from the Company. LPC has agreed not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of common stock.  The agreement may be terminated by the Company at any time, at its sole discretion, without any additional cost or penalty.        

In June 2020, the Company issued and sold in an underwritten public offering an aggregate of 10,162,059 shares of common stock, including an additional 1,071,149 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 $1.10 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.

In July 2019, the Company entered into the Sales Agreement with JonesTrading, under which the Company currently may issue and sell shares of common stock, having an aggregate offering price of up to $15,000. 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. The Company began selling

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shares of common stock under the Sales Agreement in April 2020. During the nine months ended September 30, 2020 the Company issued and sold an aggregate of 1,281,571 shares of common stock pursuant to the Sales Agreement for gross proceeds of $785, before deducting commissions and fees of $24.

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 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.  

9. 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 5,380,802 as of September 30, 2020, of which 419,681 shares remained available for grant. Upon the adoption of the Plan, 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. Pursuant to the terms of 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 nine months ended September 30, 2020, pursuant to the terms of the 2017 Plan, the Company granted options to employees and directors to purchase 1,771,000 shares of common stock at a weighted average exercise price of $0.72 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.

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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.

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 nine months ended September 30, 2020 and 2019 were as follows, presented on a weighted average basis:

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Stock Options

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

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2020 and 2019 was $0.48 and $1.11, respectively.

The aggregate fair value of stock options that vested during the nine months ended September 30, 2020 and 2019 was $1,694 and $1,836, 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 nine months ended September 30, 2020 and 2019 was $0 and $109, respectively.

Restricted Stock Units

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

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:

During the three months ended September 30, 2020 and 2019 the Company recognized stock-based compensation expense of $0 and $68, respectively, included in the table above, related to performance-based awards for which achievement of such performance-based conditions were deemed probable. During the nine months ended September 30, 2020 and 2019 the Company

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recognized stock-based compensation expense of $160 and $91, respectively, included in the table above, related to performance-based awards for which achievement of such performance-based conditions were deemed probable. 

As of September 30, 2020, the Company had an aggregate of $2,456 of unrecognized stock-based compensation expense, which it expects to recognize over a weighted average period of 2.8 years.

10. Net Loss per Share

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

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:

11. 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.

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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 annual license maintenance fees of $145 during each of the nine months ended September 30, 2020 and 2019. The Company did not make any milestone payments during the three and nine months ended September 30, 2020 and 2019. As of September 30, 2020, no additional milestones had been achieved and no liabilities for additional milestone payments had been recorded in the Company’s financial statements.

As of September 30, 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 nine months ended September 30, 2020 and 2019. The Company did not make any milestone payments during the three and nine months ended September 30, 2020 and 2019. As of September 30, 2020, no additional milestones had been achieved and no liabilities for additional milestone payments had been recorded in the Company’s financial statements.

The Umicore 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 is not aware of any claims that would have a material effect on its financial position, results of operations or cash flows, and it had not accrued any liabilities related to such obligations in its financial statements as of September 30, 2020 or December 31, 2019.

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12. Income Taxes

The Company did not provide for any income taxes for the three and nine months ended September 30, 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 September 30, 2020 and December 31, 2019.

13. Subsequent Event

On November 11, 2020, the Company entered into a lease termination agreement with respect to its corporate headquarters at 490 Arsenal Way, Watertown, Massachusetts. The Company intends to relocate its corporate headquarters. The Company has migrated to a remote work environment and is evaluating its need for future office space.

Between October 1, 2020 and November 11, 2020, the Company issued and sold an aggregate of 650,000 shares of its common stock to LPC pursuant to the Purchase Agreement, resulting in gross proceeds of $889.

Between October 1, 2020 and October 5, 2020, the Company settled transactions that occurred pursuant to the Sales Agreement with JonesTrading, whereby the Company issued and sold an aggregate of 159,802 shares of its common stock, resulting in gross proceeds of $202.

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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 that is focused on transforming the experience of chemotherapy for cancer patients, enabling them to fight cancer without the fear or burden of chemotherapy-induced side effects. ALRN-6924, our first-in-class MDM2/MDMX dual inhibitor activating p53, is the only reported therapeutic agent in clinical development to employ a biomarker strategy, in which we exclusively focus on treating patients with p53-mutated cancers. With this unique, targeted strategy, ALRN-6924 is designed to protect multiple healthy cell types throughout the body from chemotherapy while chemotherapy continues to destroy cancer cells.

In addition to potentially reducing or eliminating multiple side effects, ALRN-6924 may also improve patients’ quality of life and help them better tolerate chemotherapy, potentially allowing patients to complete their treatment without dose reductions or delays. Our long-term vision is to provide chemoprotection for patients with p53-mutated cancers, which represents approximately 50% of cancer patients, regardless of cancer type or chemotherapeutic drug.

In September 2019, we initiated a Phase 1b trial of ALRN-6924 in patients with p53-mutated small cell lung cancer, or SCLC, being treated with topotecan to assess the ability of ALRN-6924 to reduce the proportion of patients with Grade 3/4 treatment emergent adverse events, or TEAEs, and to mitigate and reduce severe anemia, thrombocytopenia and neutropenia related to treatment with topotecan. We are currently conducting the Phase 1b dose and schedule optimization portion of the trial in patients with advanced, p53-mutated SCLC receiving second line topotecan. In the dose optimization part of the trial, ALRN-6924 is administered 24 hours before each dose of topotecan at multiple levels in order to determine the optimal dose of ALRN-6924. The schedule optimization part of the trial is intended to determine whether ALRN-6924 given six hours prior to topotecan, could be an alternative dosing schedule that could provide patients and healthcare providers with additional flexibility of when to administer ALRN-6924 before topotecan.

On October 24, 2020, we announced positive clinical data demonstrating clinical proof of concept that treatment with ALRN-6924 prior to second-line topotecan administration resulted in a protective effect against severe anemia, thrombocytopenia and neutropenia. The results were presented at 32nd EORTC-NCI-AACR Annual Symposium on Molecular Targets and Cancer Therapeutics. As of an August 31, 2020 data cut-off, a total of 26 adult patients were enrolled in the dose optimization part of the trial. Of these patients, 18 were enrolled across three ALRN-6924 dose levels (1.2 mg/kg, 0.6 mg/kg and 0.3 mg/kg) and an additional eight patients were enrolled in a 0.3 mg/kg expansion cohort. 25 of the 26 patients were evaluable per the trial protocol. ALRN-6924 was administered 24 hours before each dose of topotecan. Topotecan (1.5 mg/m2) was administered on days 1 through 5 of every 21-day treatment cycle. In the trial,

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toxicities were evaluated using the National Cancer Institute’s, or NCI, Common Terminology Criteria for Adverse Events, or CTCAE. Per the Phase 1b trial protocol, patients were not permitted to receive prophylactic granulocyte-colony stimulating factor, or G-CSF, treatment in cycle 1.

Key findings from data analysis include the following:

We continue to enroll patients in Phase 1b. We expect to report final data from the Phase 1b trial, including data from the schedule optimization part, in the first quarter of 2021.

In addition, in the fourth quarter of 2020, we plan to initiate a clinical study of ALRN-6924 in healthy volunteers to characterize the time to onset, and the magnitude and duration of cell cycle arrest in human bone marrow relative to ALRN-6924 administration. Subject to the results of the healthy volunteer study and the final data from the Phase 1b trial, as well as additional funding, we expect to initiate a randomized controlled Phase 1b trial in advanced non-small cell lung cancer in the second quarter of 2021 and in the future, a development program in a gastrointestinal cancer indication.

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 September of 2020, we entered into a common stock purchase agreement, or the Purchase Agreement with Lincoln Park Capital Fund, LLC, or LPC. The Purchase Agreement provides that, subject to the terms and conditions therein, we may sell, at our discretion, to LPC up to $15.0 million of shares of common stock during the term of the Purchase Agreement. In connection with the execution of the Purchase Agreement on September 21, 2020, LPC made an initial purchase of $0.5 million of common stock at $1.36 per share and we issued an additional 367,647 shares to LPC as consideration to LPC for its commitment to purchase shares under the Purchase Agreement. Subject to certain limitations, we have the right, but not the obligation, to sell to LPC up to an additional $14.5 million in shares of common stock over a thirty-six-month period that commenced in October 2020. The purchase price per share of the shares sold will be based on the market prices prevailing at the time of each sale to LPC. There are no upper limits to the price LPC may pay to purchase common stock from us and the purchase price of the shares will be based on the market prices prevailing immediately preceding the time of sale as computed under the Purchase Agreement. LPC has agreed not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares of common stock. In consideration for entering into the agreement, we issued shares of 220,588 common stock to LPC as a commitment fee. We may terminate the Purchase Agreement at any time, at our sole discretion, without any additional cost or penalty.

As of November 11, 2020, we have issued and sold an aggregate of 650,000 shares of common stock to LPC pursuant to the Purchase Agreement, resulting in gross proceeds of $0.9 million. In June 2020, we issued and sold in an underwritten public offering an aggregate of 10,162,059 shares of common stock, including an additional 1,071,149 shares of common stock upon the partial exercise of the option of the underwriter to purchase additional shares of common stock, for a purchase price to the public of $1.10 per share. We received aggregate gross proceeds from the public offering of approximately $11.2 million, before deducting underwriting discounts and commissions and offering expenses of $0.9 million.

In July 2019, we entered into a Capital on Demand^SM Sales Agreement, or the Sales Agreement, with JonesTrading, under which we currently may issue and sell shares of common stock, having an aggregate offering price of up to $15.0 million. 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 common stock under the Sales Agreement. As of

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September 30, 2020, we have issued and sold an aggregate of 1,281,571 shares of common stock pursuant to the Sales Agreement for gross proceeds of $0.8 million, before deducting commissions and fees.

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.

Through September 30, 2020, we have funded our operations primarily through sales of common stock in our initial public offering and a follow-on public offering, sales of common stock and warrants in a private placement, sales of common stock in our “at-the-market” offering, sales of common stock under our equity line with LPC, sales of preferred stock prior to our initial public offering and payments received under a collaboration agreement.

Since our inception, we have incurred significant losses on an aggregate basis. Our net losses were $16.2 million and $22.1 million for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, we had an accumulated deficit of $214.3 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. Other than the Purchase Agreement with LPC, which is subject to certain limitations and conditions, 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 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 clinical 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 have taken steps to reduce additional operating expenses, including additional reductions in personnel as well as eliminating previously planned research studies and advisory services.

As of September 30, 2020, we had cash, cash equivalents and investments of $14.1 million. We believe that, based on our current operating plan, our cash, cash equivalents and investments as of September 30, 2020 will enable us to fund our current business plan including related operating expenses and capital expenditure into the fourth quarter of 2021. After considering various risks and uncertainties as prescribed by accounting standard ASU No. 2014-15 (subtopic 205-40), “ASU No. 2014-15”, there is substantial doubt about our ability to continue as a going concern as of the date of issuance of the interim financial statements included in this Quarterly Report on Form 10-Q without additional capital. 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.

In the first half of 2020 we implemented various cost savings measures, including the elimination of previously planned research activities and a shift to a remote work environment, due to our limited cash resources and the uncertainty associated with the coronavirus pandemic.

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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 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, 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 nine months ended September 30, 2020, 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 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.

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:

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

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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:

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. Pending the results of our ongoing studies, as well as our ability to obtain additional funding in the future, we expect to incur significant research and development expenses in the foreseeable future as we continue our ongoing clinical trial of ALRN-6924, initiate additional clinical trials of ALRN-6924 for the purpose of chemoprotection in multiple cancer types and pursue later stages of clinical development of ALRN-6924.

We cannot determine with certainty the duration and costs of the current or future clinical trials of our product candidates or if, when, or to what extent we will generate revenue from the commercialization and sale of any 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:

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 U.S. Food and Drug Administration, or 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.

We are currently conducting a Phase 1b clinical trial of ALRN-6924 to assess the chemoprotective effect in patients with SCLC being treated with second-line topotecan.

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, corporate and business development 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.

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Interest Income

Interest income consists of interest income earned on our cash, cash equivalents and investments. Historically, our interest income had not been significant due to low investment balances and low interest earned on those balances. We anticipate that our interest income will fluctuate in the future in response to our cash, cash equivalents and investments, and the interest rate environment.

Income Taxes

Since our inception in 2001, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in any year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2019, we had federal and state net operating loss carryforwards of $185.1 million and $179.8 million, respectively, which begin to expire in 2029 and 2030, respectively. As of December 31, 2019, we also had federal and state research and development tax credit carryforwards of $2.6 million and $1.7 million, respectively, which begin to expire in 2025.

Results of Operations

Comparison of the Three Months Ended September 30, 2020 and 2019

The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019: