ALLENA PHARMACEUTICALS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2021 that was filed with theUnited States Securities and Exchange Commission , or theSEC , onMarch 31, 2022 . 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. In addition, 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, they may not be predictive of results or developments in future periods.
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, including those risks identified under Part II, Item 1A. Risk Factors.
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. We disclaim any obligation, except as specifically required by law and the rules of theSEC , 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.
Overview
We are a biopharmaceutical company dedicated to developing and commercializing first-in-class, oral enzyme therapeutics to treat patients with rare and severe metabolic and kidney disorders. We are focused on metabolic disorders that result in excess accumulation of certain metabolites that can stimulate inflammation, damage the kidney, and potentially lead to chronic kidney disease, or CKD, and end-stage renal disease, or ESRD. We believe our proprietary know-how in enzyme technology allows for the design, development, formulation, and scalable manufacturing of non-absorbed and stable enzymes delivered orally and in sufficient doses for activity in the gastrointestinal tract. This approach enables us to develop enzyme therapies that degrade metabolites within the GI tract, which reduces potentially toxic metabolite levels in the blood and urine, and in turn, diminishes the disease burden including on the kidney over time. Our product candidate, ALLN-346, is an orally administered, novel, urate degrading enzyme for patients with hyperuricemia and gout in the setting of advanced CKD. We have conducted a Phase 1 program, including both a single-ascending dose and multiple-ascending dose study in healthy volunteers. In both studies, ALLN-346 was well tolerated with no clinically significant safety signals and no dose-limiting toxicities observed in any cohort up to the highest administered dose. We are currently conducting two Phase 2a studies. Study 201 is a 7-day inpatient study in patients with hyperuricemia, for which we reported initial data inJanuary 2022 . Study 202 is a 14-day outpatient study in patients with hyperuricemia, gout and varying degrees of renal insufficiency, for which we reported initial data onAugust 10, 2022 . We previously had been developing reloxaliase, a first-in-class, oral enzyme therapeutic for the treatment of hyperoxaluria, a metabolic disorder characterized by markedly elevated urinary oxalate, or UOx, levels and commonly associated with kidney stones, CKD and ESRD. However, inMarch 2022 we terminated this program following the first of two planned sample size re-estimations (SSR1) of the Phase 3 URIROX-2 Trial, which was conducted by an independent data safety monitoring board (DSMB) statistician. Based on the results of its unblinded analysis, the DSMB recommended that the trial size be increased from the initial 200 subjects to the maximum allowed number of 400 subjects under the pre-specified rules. However, even with this maximum recommended sample size increase, the power to detect an effect of reloxaliase vs. placebo would still be less than 80% based on the available data. Based upon this recommendation, we believe that the separation between the reloxaliase and placebo groups for the UOx primary endpoint is lower than expected, and therefore that the likelihood of success for the long term endpoint of reduction in kidney stone disease progression is also lower than expected. We have therefore decided to terminate the URIROX-2 study. No further clinical studies of reloxaliase are planned at this time. Our operations to date have been primarily focused on organizing and staffing our company, business planning, raising capital, developing our technology, identifying potential product candidates, manufacturing our product candidates and conducting preclinical studies and clinical trials of reloxaliase and ALLN-346. We do not have any products approved for sale and have not generated any revenue to date. 18 -------------------------------------------------------------------------------- We have incurred significant net operating losses in every year since our inception and expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. Our net losses were$8.4 million and$14.0 million for the three months endedJune 30, 2022 and 2021, respectively and$20.2 million and$25.6 million for the six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 , we had cash and cash equivalents of$6.6 million and an accumulated deficit of$266.7 million . If we are able to secure adequate financing to continue our operations, we anticipate that our expenses will increase significantly as we:
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advance the development and conduct future clinical trials of ALLN-346;
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conduct research on the discovery and development of additional product candidates;
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seek regulatory and marketing approvals for product candidates that successfully complete clinical trials, if any;
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establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval in geographies in which we plan to commercialize our products ourselves;
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maintain, expand and protect our intellectual property portfolio;
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hire additional staff, including clinical, scientific, technical, operational, and financial personnel, to execute our business plan; and
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add clinical, scientific, operational, financial and management information systems to support our product development and potential future commercialization efforts, and to enable us to operate as a public company.
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate. Additionally, we currently use contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, to carry out our preclinical and clinical development activities. We do not yet have a sales organization. If we obtain regulatory approval for our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we may seek to fund our operations through public or private equity or debt financings or other sources, including strategic collaborations. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue as a going concern.
NASDAQ Delisting Notification
OnAugust 25, 2021 , we received a letter from theListing Qualifications Department (the "Staff") of theNasdaq Stock Market ("Nasdaq") notifying us that, for the 30 consecutive business day period betweenJuly 14, 2021 throughAugust 24, 2021 , our common stock had not maintained a minimum closing bid price of$1.00 per share (the "Minimum Bid Price Requirement") required for continued listing on The Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5550(a)(2). The Nasdaq letter does not result in the immediate delisting of our common stock from The Nasdaq Global Select Market. In accordance with Nasdaq Listing Rule 5810(c)(3)(A) (the "Compliance Period Rule"), we were provided an initial period of 180 calendar days, or untilFebruary 21, 2022 (the "Compliance Date"), to regain compliance with the Minimum Bid Price Requirement. OnFebruary 22, 2022 we applied to transfer our securities to Nasdaq Capital Market and requested a second 180-day period to regain compliance with the Minimum Bid Price Requirement. OnFebruary 24, 2022 , Nasdaq approved our request for a second 180-day period, or untilAugust 22, 2022 , to regain compliance with the Minimum Bid Price Requirement. If, at any time during this 180-day period, the closing bid price for our common stock closes at$1.00 or more per share for a minimum of 10 consecutive business days, as required under the Compliance Period Rule, the Staff will provide written notification to us that we comply with the Minimum Bid Price Requirement and the common stock will continue to be eligible for listing onThe Nasdaq Capital Market provided that we are able to meet all other requirements for continued listing on the NASDAQ Capital Market, which we currently do not. If it appears to the Staff that we will not be able to cure the deficiency, the Staff will provide written notice to us that our common stock will be subject to delisting. At that time, we may appeal the Staff's delisting determination to aNasdaq Hearing Panel (the "Panel"). We expect that our stock would remain listed pending the Panel's decision. There can be no assurance that, if we do appeal the Staff's delisting determination to the Panel, such appeal would be successful. We received stockholder approval to effect a reverse stock split onAugust 4, 2022 , to be effected at the discretion of the Company's board of directors at any time prior toDecember 31, 2022 . The timing of the reverse stock split will be determined by the Company's board of directors without further approval or authorization of the Company's stockholders and included in a public announcement once determined. The result of the reverse stock split, once effective, will be to regain 19 --------------------------------------------------------------------------------
compliance with the Minimum Bid Price Requirement for continued listing on the Nasdaq Capital Market. However, we may fail to meet other requirements for continued listing on the NASDAQ Capital Market.
Financial Operations Overview
Revenue
To date, we have not generated any revenue from product sales or any other source and do not expect to generate any revenue from the sale of products for the foreseeable future. If our development efforts for ALLN-346 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 such collaboration or license agreements.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our product candidates, which include:
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employee-related expenses, including salaries, benefits and stock-based compensation expense;
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costs incurred under agreements with third parties, including CROs, that conduct research and development, preclinical studies and clinical trials on our behalf;
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costs related to production of preclinical and clinical materials, including fees paid to CMOs;
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consulting, licensing and professional fees related to research and development activities;
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costs of purchasing laboratory supplies and non-capital equipment used in our research and development activities;
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costs related to compliance with clinical regulatory requirements; and
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facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies.
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 clinical site activations, patient enrollment, 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 may be reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed. We are developing ALLN-346 for patients with hyperuricemia and CKD. We began incurring external research and development costs for this program in 2016. We recently terminated development of reloxaliase, which we had been developing for the treatment of enteric hyperoxaluria and which had accounted for the substantial majority of our research and development expenses over the past three years.
We typically use our employee and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs and other internal costs to specific product candidates or development programs.
The following table summarizes our research and development expenses by program (in thousands):
Three Months Ended June 30 ,
Six Months Ended
2022 2021 2022 2021
Reloxaliase external costs $ 1,405 $ 4,893 $ 3,975 $ 8,863
ALLN-346 external costs 1,068 1,778 2,164 2,901
Employee compensation and benefits 1,322 2,551 4,614 4,711
Other 186 868 986 1,467
Total research and development expenses
$ 11,739 $ 17,942 20
-------------------------------------------------------------------------------- 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, primarily due to the increased size and duration of later-stage clinical trials. Since inception, we have incurred$111.3 million of external research and development costs for reloxaliase and$20.4 million of external research and development costs for ALLN-346. Provided that we are able to secure sufficient capital to continue our operations, we expect that our research and development costs will increase in future years as we advance our ALLN-346 program, including initiating additional clinical trials and scaling our manufacturing processes. The successful development of ALLN-346 and other potential future product candidates is highly uncertain. Accordingly, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of these product candidates. We are also unable to predict when, if ever, we will generate revenue and material net cash inflows from the commercialization and sale of any of our product candidates for which we may obtain marketing approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of preclinical studies, clinical trials and development of our product candidates will depend on a variety of factors, including:
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successful enrollment in, and completion of, clinical trials for ALLN-346;
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establishing an appropriate safety profile for any potential future product candidates with studies to enable the filing of investigational new drug application, or INDs;
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approval of INDs for any potential future product candidate to commence planned or future clinical trials;
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significant and changing government regulation and regulatory guidance;
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timing and receipt of marketing approvals from applicable regulatory authorities;
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making arrangements with CMOs for third-party commercial manufacturing of our product candidates;
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obtaining and maintaining patent and other intellectual property protection and regulatory exclusivity for our product candidates;
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commercializing the product candidates, if and when approved, whether alone or in collaboration with others;
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acceptance of the product, if and when approved, by patients, the medical community and third-party payors; and
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maintenance of a continued acceptable safety profile of the drugs following approval.
A change in the outcome of any of these variables with respect to the development, manufacture or commercialization enabling activities of any of our product candidates could mean a significant change in the costs, timing and viability associated with the development of that product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, business development and human resources functions. Other significant costs include directors' and officers' insurance, facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and professional fees for accounting, auditing, tax and consulting services. If we are able to secure adequate financing to continue our operations, we expect that our general and administrative expenses will increase in the future to support continued research and development activities and potential commercialization of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses.
Interest Expense, Net
Interest expense, net, primarily consists of interest income earned on our cash and cash equivalents, interest expense incurred on our credit facility and amortized debt discount related to debt issuance costs.
21
--------------------------------------------------------------------------------Other Income (Expense), Net
Other income (expense), net, primarily consists of gain (loss) on transactions denominated in foreign currency.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States , or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. There have been no changes to our critical accounting policies appearing in our Annual Report filed on Form 10-K for the year endedDecember 31, 2021 . Our significant accounting policies are described in detail in the notes to our consolidated financial statements appearing in our Annual Report filed on Form 10-K for the year endedDecember 31, 2021 . There have been no changes to our significant accounting policies.
Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended June 30, Dollar
2022 2021 Change
Operating expenses:
Research and development $ 3,981 $ 10,090 $ (6,109 )
General and administrative 2,943 3,597 (654 )
Total operating expenses 6,924 13,687 (6,763 )
Loss from operations (6,924 ) (13,687 ) 6,763
Other income (expense):
Loss on issuance of securities (371 ) - (371 )
Change in valuation of warrant liability (1,023 ) - (1,023 )
Interest expense, net (118 ) (253 ) 135
Other income (expense), net 1 (32 ) 33
Other income (expense), net (1,511 ) (285 ) (1,226 )
Net loss $ (8,435 ) $ (13,972 ) $ 5,537 Research and Development Expense
Research and development expense was$4.0 million for the three months endedJune 30, 2022 and$10.1 million for the three months endedJune 30, 2021 . The following table summarizes our research and development expenses for the three months endedJune 30, 2022 and 2021(in thousands): Three Months EndedJune 30 ,
Dollar
2022 2021 Change
Clinical development external costs
$ (2,962 ) Manufacturing external costs 167 1,707 (1,540 ) Employee compensation and benefits 1,322 2,551 (1,229 ) Other 340 718 (378 ) Total research and development expenses$ 3,981 $ 10,090 $ (6,109 ) 22
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Research and development expense consisted primarily of the following:
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Our clinical development external costs were
o Our URIROX-2 costs decreased$2.2 million from$3.3 million for the three months endedJune 30, 2021 to$1.1 million for the three months endedJune 30, 2022 . In conjunction with the strategic process we announced inJanuary 2022 , we reduced our activities for URIROX-2 and stopped enrolling new sites while we sought additional financing and completed the SSR1. Based on the results of the SSR1 and the determination of the DSMB statistician, we terminated URIROX-2 and the reloxaliase program inMarch 2022 . Costs incurred during the three months endedJune 30, 2022 were primarily related to study close-out activities; and o Our ALLN-346 costs decreased$0.4 million from$1.4 million for the three months endedJune 30, 2021 to$1.0 million for the three months endedJune 30, 2022 . ALLN-346 costs incurred during the three months endedJune 30, 2022 were related to conducting our two Phase 2a studies. During the three months endedJune 30, 2021 , we incurred$0.6 million of clinical costs for our Phase 1b multiple ascending dose trial in healthy volunteers and$0.7 million of start-up related costs for our Phase 2a program.
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Our manufacturing external costs decreased by$1.5 million from$1.7 million for the three months endedJune 30, 2021 to$0.2 million for the three months endedJune 30, 2022 . In conjunction with the strategic process we announced inJanuary 2022 , we significantly reduced our external manufacturing activities for reloxaliase and ALLN-346 while we sought additional financing: o Reloxaliase manufacturing costs decreased$1.0 million from$1.2 million for the three months endedJune 30, 2021 to$0.2 million for the three months endedJune 30, 2022 . Costs incurred for the three months endedJune 30, 2022 related primarily to stability activity and drug storage and disposal activities; and o ALLN-346 manufacturing costs decreased from$0.2 million for the three months endedJune 30, 2022 to$32,000 for the three months endedJune 30, 2022 . We significantly reduced our manufacturing activities during the three months endedJune 30, 2022 as part of the strategic process and awaiting results of our Phase 2a and Phase 2b studies.
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Employee benefits and compensation costs decreased by$1.2 million from$2.6 million for the three months endedJune 30, 2021 to$1.3 million for the three months endedJune 30, 2022 . The decrease in employee benefits and compensation costs is due to the reduction of our staff by 40% duringMarch 2022 . Our research and development headcount was six employees atJune 30, 2022 as compared to 36 employees atJune 30, 2021 .
General and Administrative Expenses
General and administrative expense was$2.9 million for the three months endedJune 30, 2022 and$3.6 million for the three months endedJune 30, 2021 . The following table summarizes our general and administrative expenses for the three months endedJune 30, 2022 and 2021(in thousands): Three Months Ended June
30, Dollar
2022 2021 Change
Employee compensation and benefits $ 1,526 $ 1,779 $ (253 )
Consulting and professional services 660 937 (277 )
Market research and commercialization planning - 133 (133 )
Other 757 748 9
Total general and administrative expenses
3,597
The decrease in general and administrative expense was primarily attributable to the following:
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Our employee compensation and benefits expense decreased by$0.3 million for the three months endedJune 30, 2022 primarily due to a decrease in stock-based compensation and a reduction of headcount from 13 employees atJune 30, 2021 to seven employees atJune 30, 2022 ; and
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Our consulting and professional services costs decreased by$0.3 million for the three months endedJune 30, 2022 . The decrease is primarily due to$0.1 million of recruiting costs incurred during the three months endedJune 30, 2021 , for which there were no comparable costs for the three months endedJune 30, 2022 and a decrease of investor relations costs from$0.1 million for the three months endedJune 30, 2021 compared to$28,000 for the three months endedJune 30, 2022 . 23 --------------------------------------------------------------------------------
Loss on Issuance of Securities
Loss on issuance of securities represents the amount that the fair value of the warrants issued concurrent with the sale of Series D Preferred Stock and Series E preferred issued onMay 4, 2022 through a registered direct offering exceeded the net proceeds received.
Change in Valuation of Warrant Liability
Change in valuation of warrant liability represents the increase of the fair value of the warrants issued concurrent with the sale of Series D Preferred Stock and Series E Preferred Stock from issuance date toJune 30, 2022 . The fair value of the warrants on issuance date ofMay 4, 2022 was$2.6 million . The fair value of the warrants onJune 30, 2022 was$3.6 million .
Interest Expense, net
Interest expense, net consists of interest income earned on our cash and cash equivalents and interest expense charged on our outstanding debt. Net interest expense was$0.1 million and$0.3 million for the three months endedJune 30, 2022 and 2021, respectively, primarily due to interest expense associated with amounts outstanding under the Pontifax Agreement. We expect our interest expense to decrease in future periods due to$5.0 million of voluntary principal repayments we made to Pontifax during the three months endedMarch 31, 2022 . Our outstanding balance under the Pontifax Agreement atJune 30, 2022 was$5.0 million .
Comparison of the six months ended
The following table summarizes our results of operations for the three months
ended
Six Months Ended June 30, Dollar
2022 2021 Change
Operating expenses:
Research and development $ 11,739 $ 17,942 $ (6,203 )
General and administrative 6,742 7,155 (413 )
Total operating expenses 18,481 25,097 (6,616 )
Loss from operations (18,481 ) (25,097 ) 6,616
Other income (expense):
Loss on issuance of securities (371 ) - (371 )
Change in valuation of warrant liability (1,023 ) - (1,023 )
Interest income (expense), net (367 ) (488 ) 121
Other income (expense), net (6 ) (23 ) 17
Other income (expense), net (1,767 ) (511 ) (1,256 )
Net loss $ (20,248 ) $ (25,608 ) $ 5,360 Research and Development Expense
Research and development expense was$17.9 million for the six months endedJune 30, 2021 and$11.7 million for the six months endedJune 30, 2022 . The following table summarizes our research and development expenses for the six months endedJune 30, 2022 and 2021(in thousands): Six Months EndedJune 30 ,
Dollar
2022 2021 Change
Clinical development external costs
$ (3,132 ) Manufacturing external costs 818 2,990 (2,172 ) Employee compensation and benefits 4,614 4,711 (97 ) Other 832 1,634 (802 ) Total research and development expenses$ 11,739 $ 17,942 $ (6,203 ) 24
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Research and development expense consisted primarily of the following:
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Our clinical development external costs were
o Our URIROX-2 costs decreased$3.2 million from$6.5 million for the six months endedJune 30, 2021 to$3.3 million for the six months endedJune 30, 2022 . We terminated URIROX-2 and the reloxaliase program inMarch 2022 ; and o Partially offsetting the decrease in URIROX-2 costs was an increase in costs for our ALLN-346 program. ALLN-346 costs increased$0.5 million from$1.5 million for the six months endedJune 30, 2021 to$2.0 million for the six months endedJune 30, 2022 . ALLN-346 costs incurred during the six months endedJune 30, 2022 were related to conducting our two Phase 2a studies. InApril 2021 , we initiated a Phase 1b multiple ascending dose trial in healthy volunteers and announced initial data from this study inJuly 2021 . We incurred$0.8 million of clinical costs for this trial during the six months endedJune 30, 2021 . In addition, we incurred$0.7 million of start-up related costs for our Phase 2a program.
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Our manufacturing external costs decreased by$2.2 million from$3.0 million for the six months endedJune 30, 2021 to$0.8 million for the six months endedJune 30, 2022 . In conjunction with the strategic process we announced inJanuary 2022 , we significantly reduced our external manufacturing activities for reloxaliase and ALLN-346 while we sought additional financing: o Reloxaliase manufacturing costs decreased$1.4 million from$1.8 million for the six months endedJune 30, 2021 to$0.4 million for the six months endedJune 30, 2022 . Costs incurred during the six months endedJune 30, 2022 related primarily to costs associated with the termination of the reloxaliase program. Costs incurred during the six months endedJune 30, 2021 related to formulation and development; and o ALLN-346 manufacturing costs decreased from$0.7 million for the six months endedJune 30, 2021 to$54,000 for the six months endedJune 30, 2022 . We significantly reduced our manufacturing activities during the three months endedJune 30, 2022 as part of the strategic process and awaiting results of our Phase 2a studies. The costs incurred during the six months endedJune 30, 2021 related to formulation and development.
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Employee benefits and compensation costs were$4.6 million and$4.7 million for the six months endedJune 30, 2022 and 2021, respectively. Decreased costs due to the reduction in headcount for the three months endedJune 30, 2022 were offset by costs recognized on payments made to employees under the Retention Plan inFebruary 2022 .
General and Administrative Expenses
General and administrative expense was$6.7 million for the six months endedJune 30, 2022 and$7.2 million for the six months endedJune 30, 2021 . The following table summarizes our general and administrative expenses for the six months endedJune 30, 2022 and 2021(in thousands): Six Months Ended June
30, Dollar
2022 2021 Change
Employee compensation and benefits $ 3,163 $ 3,582 $ (419 )
Consulting and professional services 2,067 1,869 198
Market research and commercialization planning - 133 (133 )
Other 1,512 1,571 (59 )
Total general and administrative expenses
The decrease in general and administrative expense was primarily attributable to the following:
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Our employee compensation and benefits expense decreased by
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Our consulting and professional services costs increased by$0.2 million for the six months endedJune 30, 2022 . The increase is primarily due to$0.5 million of consulting costs related to strategic advisory costs incurred during the six months endedJune 30, 2022 to support our strategic process and$0.1 million increase in legal costs.. Partially offsetting these increases was$0.3 million decrease in recruiting costs and$0.1 million decrease in investor relations costs for the six months endedJune 30, 2022 , as compared to the six months endedJune 30, 2021 . 25 --------------------------------------------------------------------------------
Loss on Issuance of Securities
Loss on issuance of securities represents the amount that the fair value of the warrants issued concurrent with the sale of Series D Preferred Stock and Series E preferred issued onMay 4, 2022 through a registered direct offering exceeded the net proceeds received.
Change in Valuation of Warrant Liability
Change in valuation of warrant liability represents the increase of the fair value of the warrants issued concurrent with the sale of Series D Preferred Stock and Series E Preferred Stock from issuance date toJune 30, 2022 . The fair value of the warrants on issuance date ofMay 4, 2022 was$2.6 million . The fair value of the warrants onJune 30, 2022 was$3.6 million .
Interest Expense, net
Interest expense, net consists of interest income earned on our cash and cash equivalents and interest expense charged on our outstanding debt. Net interest expense was$0.4 million and$0.5 million for the six months endedJune 30, 2022 and 2021, respectively, primarily due to interest expense associated with amounts outstanding under the Pontifax Agreement.
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations from inception throughJune 30, 2022 through gross proceeds of$96.0 million from sales of our convertible preferred stock prior to our IPO, net proceeds of$67.0 million from our IPO which was completed inNovember 2017 , net proceeds totaling$33.8 million from follow-on offerings of common stock during 2020, borrowings of$10.0 million under our credit facilities, net proceeds totaling$22.8 million from the sale of our common stock under our ATM agreements with Cowen andB. Riley , and net proceeds of$25.4 million and$2.3 million from the registered direct offerings completed inJuly 2021 andMay 2022 , respectively. Our total cash and cash equivalents were$6.6 million as ofJune 30, 2022 . OnMay 3, 2022 , we completed a registered direct offering, in which we sold an aggregate of 2,872.1376 shares of Preferred Stock (split evenly between the Series D Convertible Preferred Stock and Series E Convertible Preferred Stock). We received net proceeds of approximately$2.3 million from the issuance and sale of the Preferred Stock, after deducting offering expenses and placement agent fees. The shares of Preferred Stock have a stated value of$1,000 per share and are convertible, following the date of the issuance thereof, into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series D Preferred Stock and into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series E Preferred Stock, in each case, at a conversion price of$0.16 per share. InMay 2022 , the Purchaser converted all of its shares of Preferred Stock into an aggregate of 17,950,860 shares of common stock. In a concurrent private placement, we also issued unregistered warrants (the "2022 Common Warrants") to purchase up to an aggregate of 22,438,575 shares of our common stock, at an exercise price of$0.1694 per share. The 2022 Common Warrants will become exercisable six months after the date of issuance, and will have a term of five years from the initial exercise date. We also issued to designees of HCW, in a concurrent private placement, warrants to purchase up to 1,256,561 shares of common stock (the "HCW Warrants"). The HCW Warrants are exercisable for$0.20 per share and will be exercisable six months after the date of issuance and have a term of five years from the commencement of sales pursuant to the Offering. InJuly 2021 , we completed a registered direct offering, in which we issued and sold 17,416,096 shares of our common stock, pre-funded warrants to purchase up to an aggregate of 3,941,648 shares of our common stock in lieu of shares of common stock (the "2021 Pre-Funded Warrants") and warrants to purchase up to 10,678,872 shares of our common stock through a securities purchase agreement (the "2021 Common Warrants"). The combined price of each share of common stock and accompanying Warrant to purchase one-half of a share was$1.311 . The purchase price of each 2021 Pre-funded Warrant was$1.301 , which was the combined purchase price per share of common stock and accompanying 2021 Common Warrant, minus$0.01 . Gross proceeds of the transaction were$28.0 million . As a result of the registered direct offering, we received approximately$25.4 million after deducting estimated offering costs. Each 2021 Common Warrant is exercisable for one share of our common stock at an exercise price of$1.25 per share. The 2021 Common Warrants are immediately exercisable and expire onJuly 16, 2026 . Each 2021 Pre-funded Warrant is exercisable for one share of common stock at an exercise price of$0.01 per share. All 2021 Pre-funded Warrants were exercised onJuly 16, 2021 . InMarch 2021 , we entered into an At Market Issuance Sales Agreement withB. Riley Securities, Inc. ("B. Riley ATM Agreement"). During the year endedDecember 31, 2021 , we issued and sold a total of 4,081,338 shares of our common stock under the B. Riley ATM Agreement at a weighted average price of$1.11 per share for net proceeds of approximately$4.2 million . 26 -------------------------------------------------------------------------------- InDecember 2021 , we entered into an updated At Market Issuance Sales Agreement withB. Riley Securities, Inc. ("Updated B. Riley ATM Agreement"), which was essentially identical to the initial agreement, but utilized a shelf registration statement that we also filed at that time. During the first quarter of 2022 through the filing date of this Quarterly Report, we issued and sold 6,804,888 shares of our common stock under the Updated B. Riley ATM Agreement at a weighted average price of$0.62 per share for net proceeds of$3.9 million . The B. Riley ATM Agreement was terminated at the time we entered into the Updated B. Riley ATM Agreement. During the first quarter of 2021, we issued and sold 6,058,318 shares of our common stock under an At-the Market Equity Offering Sales Agreement withCowen and Company, LLC ("Cowen ATM Agreement") at a weighted average price of$1.99 per share for net proceeds of$11.7 million . The Cowen ATM Agreement was terminated at the time we entered into the B. Riley ATM Agreement. We entered into the HCW ATM Agreement onJuly 8, 2022 . Since that time and through the filing date of this Quarterly Report, we issued and sold 14,358,057 shares of our common stock under the HCW ATM Agreement at a weighted average price of$0.14 per share for net proceeds of approximately$1.9 million . The Updated B. Riley ATM Agreement was terminated at the time we entered into the HCW ATM Agreement. OnSeptember 29, 2020 , we entered into a loan and security agreement withPontifax Medison Finance (Israel) L.P. andPontifax Medison Finance (Cayman) L.P. (together "Pontifax") ("Pontifax Agreement") providing up to$25.0 million of borrowings through three facilities of a term loan. An initial loan ("Initial Loan) of$10.0 million was advanced onSeptember 29, 2020 . A portion of these proceeds were used to pay the remaining balance of our credit facility with PWB and terminate the PWB Loan Agreement. We also had an additional$5.0 million credit line ("Credit Line") that was available to us for withdrawal untilSeptember 29, 2021 . We did not withdraw any amounts available through the Credit Line prior to the expiration of the availability period. We paid a fee of 1.0% per annum to Pontifax for the daily average amount not withdrawn under the Credit Line during the period amounts were available for withdrawal. A third installment loan (Third Installment Loan") of an additional$10.0 million was conditioned upon achievement of one of the following milestones by no later thanDecember 29, 2021 : (i) we receive non-contingent, non-refundable gross proceeds from one or more equity financings and/or strategic partnerships, in each case consummated following the Closing Date, in the aggregate amount of at least$15.0 million for all such equity financings and strategic partnerships or (ii) the 65th patient has been enrolled in the URIROX-2 trial. InDecember 2020 , the additional$10 million under the Third Installment Loan became available to us for withdrawal untilDecember 29, 2021 when we satisfied the milestone of at least$15 million of gross proceeds from equity financings. We did not withdraw any amounts available through the Third Installment Loan prior to expiration of the availability period. The Pontifax Agreement has a term of 48 months and an interest only period of 24 months. Amounts outstanding under the Pontifax Agreement have a fixed interest rate of 9.0% per annum. Upon the expiration of the interest only period onSeptember 29, 2022 , amounts borrowed will be repaid over eight equal quarterly payments of principal and interest. At our option, we may prepay all or part of the outstanding borrowings at any time without any prepayment premium or penalty. During the first quarter of 2022, we made voluntary repayments totaling$5.0 million . InAugust 2022 , we made an additional voluntary prepayment of$0.5 million . In light of our recent termination of the reloxaliase development program and certain acceleration provisions in the Pontifax Agreement, we have classified the amounts due under the Pontifax loan as a current liability. At the option of Pontifax, amounts outstanding under the Pontifax Agreement may be converted at any time into shares of our common stock at a conversion price of$4.10 per share. In addition, we have the right to convert at any time any portion of the then outstanding borrowings and all accrued but unpaid interest into shares of our common stock, at the applicable conversion price, subject to the fulfillment of both of the following conditions: (i) during a period of 30 consecutive trading days prior to the date on which we provide notice of the exercise of our conversion right, the closing price of our common stock was higher than 1.4 times the applicable conversion price of the term loans on at least 20 trading days, including on the trading day preceding the date we provide notice of the exercise of our conversion right and (ii) the number of shares of common stock issuable upon conversion by us shall not exceed the average weekly number of shares of our common stock traded on the stock market for the four weeks immediately preceding the date on which we provide notice of the exercise of our conversion right. The borrowings under the Pontifax Agreement are secured by a lien on all of our assets except intellectual property. The Pontifax Agreement contains customary representations, warranties and covenants by us, including negative covenants restricting our activities, such as disposing of our business or certain assets, incurring additional debt or liens or making 27 --------------------------------------------------------------------------------
payments on other debt, making certain investments and declaring dividends, acquiring or merging with another entity, engaging in transactions with affiliates or encumbering intellectual property, among others. The obligations under the Pontifax Agreement are subject to acceleration upon occurrence of specified events of default, including a material adverse change in our business, operations or financial or other condition.
Cash Flows
The following table provides information regarding our cash flows for the six
months ended
Six Months Ended June 30,
2022 2021
Net cash used in operations $ (24,594 ) $ (21,398 )
Net cash used in investing activities - (457 )
Net cash provided by financing activities 1,195 13,469
Net decrease in cash and cash equivalents
Net cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital.
Net cash used in operating activities was$24.6 million for the six months endedJune 30, 2022 compared to$21.4 million for the six months endedJune 30, 2021 . The increase in cash used in operating activities of$3.2 million was attributable to:
•
an increase of$9.4 million due to changes in the components of working capital, primarily related to the purchase of Directors' and Officers' run-off insurance for$6.8 million inMarch 2022 ; partially offset by
•
an increase in non-cash items of
•
a decrease in net loss of
We did not have any cash flow activity relating to investment activities during the six months endedJune 30, 2022 . Net cash used in investing activities of$0.5 million for the six months endedJune 30, 2021 consisted of purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$1.2 million for the six months endedJune 30, 2022 compared to$13.5 million for the six months endedJune 30, 2021 . The net cash provided by financing activities for the six months endedJune 30, 2022 consisted of net proceeds of$3.9 million from the sale of common stock under the Updated B. Riley ATM Agreement and net proceeds of$2.3 million from the sale of preferred stock through a registered direct offering inMay 2022 , partially offset by voluntary repayments of$5.0 million we made on the outstanding principal balance on the Pontifax Agreement. The net cash provided by financing activities for the six months endedJune 30, 2021 consisted of net proceeds of$11.7 million and$1.8 million from the sale of common stock under the Cowen ATM Agreement and the B. Riley ATM Agreement, respectively.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities,
particularly as we continue the research and development for, initiate later
stage clinical trials for, and seek marketing approval for, our product
candidates. In addition, if we obtain marketing approval for any of our product
candidates, we expect to incur significant commercialization expenses related to
product sales, marketing, manufacturing and distribution. Accordingly, we will
need to obtain substantial additional funding in connection with our continuing
operations. If we are unable to raise capital when needed or on attractive
terms, we would be forced to delay, reduce or eliminate our research and
development programs or future commercialization efforts.
28
--------------------------------------------------------------------------------Going Concern
As ofJune 30, 2022 , we had cash and cash equivalents totaling$6.6 million . Based on our current operating plans, we do not have sufficient cash and cash equivalents to fund our operating expenses and capital expenditures for at least the next 12 months from the filing date of this Quarterly Report. We do not believe that our cash and cash equivalents as ofJune 30, 2022 , together with the proceeds we received from sales of common stock under the HCW ATM Agreement in the third quarter of 2022 through the date of this Quarterly Report, will enable us to fund our operating expenses and capital requirements beyond a matter of days. We will require additional capital to sustain our operations, including our ALLN-346 development program, beyond that time. We are exploring opportunities to secure additional funding through equity or debt financings or through collaborations, licensing transactions or other sources. InJanuary 2022 , we initiated a process to explore a range of strategic and financing alternatives to maximize stockholder value and have engaged the investment bankStifel, Nicolaus & Company, Inc. ("Stifel") to act as strategic advisor for this process. Potential strategic alternatives that may be evaluated include a partnership or sale of ALLN-346, a sale or merger of the Company, or securing additional financing to enable further development of our ALLN-346 program. There can be no assurance that this strategic review process will result in the pursuit of any transaction or that any transaction, if pursued, will be completed. The failure to obtain sufficient additional funds on commercially acceptable terms to fund our operations may have a material adverse effect on our business, results of operations and financial condition and jeopardize our ability to continue operations in the near-term. We will likely need to consider additional cost reduction strategies, which may include, among others, amending, delaying, limiting, reducing, or terminating the development program for ALLN-346, and we may need to seek an in-court or out-of-court restructuring of our liabilities. In the event of such future bankruptcy proceeding, holders of our common stock and other securities will likely suffer a total loss of their investment. As part of the strategic process, the Compensation Committee of the Board of Directors approved a retention plan onJanuary 28, 2022 , available to all employees ("Retention Plan"). Employees were required to execute retention agreements to receive payments and other considerations offered by the Retention Plan. Employees who executed a retention agreement received a salary adjustment equal to 6.5% retroactive toJanuary 1, 2022 , a restricted stock unit ("RSU") grant and a lump sum retention payment. A total of 2,998,500 RSUs were granted onFebruary 1, 2022 under the Retention Plan. The RSUs vest over a three-year period ratably onJuly 15th andJanuary 15th of each year following grant date. Lump sum retention payments totaling$3.0 million were made to employees inFebruary 2022 . If an employee resigns from the Company or is terminated for cause prior toJune 30, 2022 , the employee would be required to fully repay the lump sum retention payment received. If an employee resigns from the Company or is terminated for cause betweenJuly 1, 2022 andSeptember 30, 2022 , the employee would be required to repay 50% of the lump sum retention payment received. OnMarch 18, 2022 , we announced our decision to terminate our URIROX-2 study for reloxaliase and initiated the process of closing the study with our CRO, investigative sites, patients and business partners. In connection with the termination of the reloxaliase program, we completed a workforce reduction of approximately 40% inMarch 2022 . OnMay 3, 2022 , we entered into a securities purchase agreement with an investor, pursuant to which we agreed to issue, in a registered direct offering, an aggregate of 2,872.1376 shares of Preferred Stock (split evenly among the Series D Convertible Preferred Stock, par value$0.001 per share ("Series D Preferred Stock"), and Series E Convertible Preferred Stock, par value$0.001 per share ("Series E Preferred Stock" and together with the Series D Preferred Stock, the "Preferred Stock"). We received net proceeds of approximately$2.3 million from the issuance and sale of the Preferred Stock. The shares of Preferred Stock have a stated value of$1,000 per share and are convertible, following the date of the issuance thereof, into an aggregate of 8,975,430 shares of our common stock upon the conversion of the Series D Preferred Stock and into an aggregate of 8,975,430 shares of our common stock upon the conversion of the Series E Preferred Stock, in each case, at a conversion price of$0.16 per share. OnMay 5, 2022 , the Preferred Stock investor converted all of its Series D Preferred Stock into 8,975,430 shares of our common stock, and onMay 9, 2022 , the Preferred Stock investor converted all of its Series E Preferred Stock into 8,975,430 shares of common stock. In a concurrent private placement, we also issued to the Preferred Stock investor unregistered warrants (the "Common Warrants") to purchase up to an aggregate of 22,438,575 shares of our common stock, at an exercise price of$0.1694 per share. The Common Warrants will become exercisable six months after the date of issuance and will have a term of five years from the initial exercise date. We also issued to designees of HCW, in a concurrent private placement, warrants to purchase up to 1,256,561 shares of our common stock (the "HCW Warrants"). The HCW Warrants are exercisable for$0.20 per share and will be exercisable six months after the date of issuance and have a term of five years from the commencement of sales pursuant to the registered direct offering. 29 -------------------------------------------------------------------------------- OnJuly 8, 2022 , we entered into the HCW ATM Agreement. Since that time and through the filing date of this Quarterly Report, we issued and sold 14,358,057 shares of our common stock under the HCW ATM Agreement at a weighted average price of$0.14 per share for net proceeds of approximately$1.9 million . Market volatility resulting from the COVID-19 pandemic, conflicts and sanctions involvingRussia ,Ukraine and other countries abroad or other factors could also adversely impact our ability to access capital as and when needed. The failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on our business, results of operations and financial condition and jeopardize our ability to continue operations. These factors raise substantial doubt about our ability to continue as a going concern. We may implement cost reduction strategies, which may include amending, delaying, limiting, reducing, or terminating one or more of our ongoing or planned clinical trials or development programs of our product candidates. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business for the foreseeable future. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Our future capital requirements will depend on many factors, including;
•
the costs of conducting future clinical trials and other development activities to advance ALLN-346;
•
the scope, progress, results and costs of discovery, preclinical development, laboratory testing and clinical trials for other potential product candidates we may develop, if any;
•
the costs, timing and outcome of regulatory review of our product candidates;
•
our ability to establish and maintain collaborations on favorable terms, if at all;
•
the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we might have at such time;
•
the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
•
the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;
•
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•
the expansion of our workforce and associated costs as we expand our business operations and our research and development activities; and
•
the costs of operating as a public company.
Identifying potential product candidates and conducting preclinical testing 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 and achieve product sales. In addition,
our product candidates, if approved, may not achieve commercial success. Our
commercial revenues, if any, will be derived from sales of products that we do
not expect to be commercially available for many years, if at all. Accordingly,
we will need to continue to rely on additional financing to achieve our business
objectives. Adequate additional financing may not be available to us on
acceptable terms, or at all.
We do not have any committed external sources of funds. To the extent that we
raise additional capital through the sale of equity or convertible debt
securities, ownership interests may be diluted, and the terms of these
securities may include liquidation or other preferences that could adversely
affect your rights as a common stockholder. Additional debt financing, if
available, may involve agreements that include restrictive covenants that limit
our ability to take specific actions, such as incurring additional debt, making
capital expenditures or declaring dividends, that could adversely impact our
ability to conduct our business.
If we raise funds through collaborations, strategic alliances or licensing
arrangements with third parties, we may have to relinquish valuable rights to
our technologies, future revenue streams, research programs or product
candidates or to grant licenses on terms that may not be favorable to us. If we
are unable to raise additional funds through equity or debt financings when
needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization
30
--------------------------------------------------------------------------------efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
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