10-Q 1 alna-10q_20180630.htm ALNA-10Q-20180630 alna-10q_20180630.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2018

OR

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

For the transition period from __________________ to  __________________

Commission File Number: 001-38268

 

ALLENA PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-2729920

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

One Newton Executive Park, Suite 202

Newton, Massachusetts

02462

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 467-4577

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

 

 

 

 

Emerging growth Company

 

 

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

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

As of August 1, 2018, the registrant had 20,752,167 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

 

 


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. These statements include all matters that are not related to present facts or current conditions or that are not historical facts, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth. The words “anticipate,” “believe,” “could,” “continue,” “should,” “predict,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “will,” “may,” “would,” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:

 

the design and conduct of our Phase 3 clinical program of ALLN-177 in enteric hyperoxaluria;

 

the number, designs, results and timing of our clinical trials and preclinical studies and the timing of the availability of data from these trials and activities;

 

our ability to enroll a sufficient number of patients and the ability of subjects in our clinical trials to adhere to the protocol, including capsule and dietary regimen and urinary collection requirements;

 

the therapeutic benefits, effectiveness and safety of ALLN-177, ALLN-346 and our future product candidates;

 

our expected regulatory pathway, and our ability to receive regulatory approval for our product candidates in the United States, Europe and other geographies;

 

our ability to obtain, on satisfactory terms or at all, the financing required to support operations, development, clinical trials, and commercialization of products;

 

our reliance on third-parties for the planning, conduct and monitoring of clinical trials and for the manufacture of clinical drug supplies and drug product;

 

potential changes in regulatory requirements, and delays or negative outcomes from the regulatory approval process;

 

our estimates of the size and characteristics of the markets that may be addressed by ALLN-177 and ALLN-346;

 

the market acceptance of ALLN-177, ALLN-346 or any future product candidates that are approved for marketing in the United States or other countries;

 

our ability to successfully commercialize ALLN-177 with a targeted sales force;

 

the safety and efficacy of therapeutics marketed by our competitors that are targeted to indications which our product candidates have been developed to treat;

 

our ability to utilize our proprietary technological approach to develop and commercialize ALLN-346 and future product candidates;

 

potential collaborators to license and commercialize ALLN-177, if approved, or any products for which we receive regulatory approval in the future outside of the United States;

 


 

 

our heavy dependence on licensed intellectual property, including our ability to source and maintain licenses from third-party owners;

 

our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;

 

our ability to attract, retain and motivate key personnel;

 

our ability to generate revenue and become profitable; and

 

our estimates regarding our capital requirements and our need for additional financing.

These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. No forward-looking statement is a guarantee of future performance.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to the registration statement of which this Quarterly Report on Form 10-Q is a part completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

11

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

Defaults Upon Senior Securities

61

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

62

Signatures

63

Exhibit Index

 

 

 

 

 

1


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

Allena Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

78,853

 

 

$

94,494

 

Prepaid expenses and other current assets

 

 

911

 

 

 

1,539

 

Total current assets

 

 

79,764

 

 

 

96,033

 

Property and equipment, net

 

 

204

 

 

 

127

 

Other assets

 

 

96

 

 

 

89

 

Total assets

 

$

80,064

 

 

$

96,249

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

899

 

 

$

1,724

 

Loan payable, net of discount

 

 

 

 

 

3,870

 

Accrued expenses

 

 

1,826

 

 

 

1,949

 

Total current liabilities

 

 

2,725

 

 

 

7,543

 

Loan payable, net of current portion and discount

 

 

9,979

 

 

 

5,516

 

Other liabilities

 

 

6

 

 

 

320

 

Total liabilities

 

 

12,710

 

 

 

13,379

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; no

   shares authorized, issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 125,000,000 shares authorized; 20,752,167 and

   20,694,658 shares issued and outstanding at June 30, 2018 and December

   31, 2017, respectively

 

 

21

 

 

 

20

 

Additional paid-in capital

 

 

165,817

 

 

 

164,807

 

Accumulated deficit

 

 

(98,484

)

 

 

(81,957

)

Total stockholders’ equity

 

 

67,354

 

 

 

82,870

 

Total liabilities and stockholders’ equity

 

$

80,064

 

 

$

96,249

 

 

See accompanying notes.

 

2


 

Allena Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,860

 

 

$

3,458

 

 

$

11,791

 

 

$

7,809

 

General and administrative

 

 

2,275

 

 

 

1,017

 

 

 

4,317

 

 

 

2,208

 

Total operating expenses

 

 

8,135

 

 

 

4,475

 

 

 

16,108

 

 

 

10,017

 

Loss from operations

 

 

(8,135

)

 

 

(4,475

)

 

 

(16,108

)

 

 

(10,017

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

118

 

 

 

(123

)

 

 

218

 

 

 

(255

)

Other income (expense), net

 

 

(13

)

 

 

(34

)

 

 

(20

)

 

 

(31

)

Loss on extinguishment of debt

 

 

(617

)

 

 

 

 

 

(617

)

 

 

 

Other income (expense), net

 

 

(512

)

 

 

(157

)

 

 

(419

)

 

 

(286

)

Net loss

 

$

(8,647

)

 

$

(4,632

)

 

$

(16,527

)

 

$

(10,303

)

Net loss per share attributable to common stockholders—basic and

   diluted

 

$

(0.42

)

 

$

(3.46

)

 

$

(0.80

)

 

$

(7.70

)

Weighted-average common shares outstanding—basic and diluted

 

 

20,733,043

 

 

 

1,342,957

 

 

 

20,714,319

 

 

 

1,342,628

 

Net loss

 

$

(8,647

)

 

$

(4,632

)

 

$

(16,527

)

 

$

(10,303

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments

 

 

 

 

 

3

 

 

 

 

 

 

2

 

Total other comprehensive loss

 

 

 

 

 

3

 

 

 

 

 

 

2

 

Comprehensive loss

 

$

(8,647

)

 

$

(4,629

)

 

$

(16,527

)

 

$

(10,301

)

 

See accompanying notes.

 

 

 

3


 

Allena Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(16,527

)

 

$

(10,303

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

917

 

 

 

196

 

Depreciation expense

 

 

27

 

 

 

34

 

Non-cash interest expense

 

 

157

 

 

 

163

 

Loss on extinguishment of debt

 

 

617

 

 

 

 

Amortization of premium on investments

 

 

 

 

 

33

 

Change in fair value of warrant liability

 

 

 

 

 

32

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

628

 

 

 

205

 

Other assets

 

 

(7

)

 

 

(114

)

Accounts payable

 

 

(726

)

 

 

(190

)

Accrued expenses

 

 

(12

)

 

 

(764

)

Other liabilities

 

 

7

 

 

 

 

Net cash used in operating activities

 

 

(14,919

)

 

 

(10,708

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(115

)

 

 

(56

)

Purchases of investments

 

 

 

 

 

(1,247

)

Maturities of investments

 

 

 

 

 

21,472

 

Net cash (used in) provided by investing activities

 

 

(115

)

 

 

20,169

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

81

 

 

 

2

 

Payments of initial public offering costs

 

 

(186

)

 

 

 

Proceeds from loan payable

 

 

10,000

 

 

 

 

Repayment of loan payable

 

 

(10,492

)

 

 

 

Debt issuance costs paid

 

 

(10

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(607

)

 

 

2

 

Net (decrease) increase in cash and cash equivalents

 

 

(15,641

)

 

 

9,463

 

Cash and cash equivalents, beginning of period

 

 

94,494

 

 

 

25,250

 

Cash and cash equivalents, end of period

 

$

78,853

 

 

$

34,713

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Accretion of convertible preferred stock to redemption value

 

$

 

 

$

34

 

 

See accompanying notes.

 

 

4

 


 

Allena Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, except share and per share data)

1. Nature of Business

Allena Pharmaceuticals, Inc. (the “Company”) is a late-stage clinical biopharmaceutical company dedicated to developing and commercializing first-in-class, oral enzyme therapeutics to treat patients with rare and severe metabolic and kidney disorders. The Company is focused on metabolic disorders that result in excess accumulation of certain metabolites that can cause kidney stones, damage the kidney, and potentially lead to chronic kidney disease (“CKD”), and end-stage renal disease. The Company’s lead product candidate, ALLN-177, is a first-in-class, oral enzyme therapeutic that it is developing for the treatment of hyperoxaluria, a metabolic disorder commonly associated with kidney stones, CKD and other serious kidney diseases. The Company was incorporated under the laws of the State of Delaware on June 24, 2011 and is located in Newton, Massachusetts.               

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, reliance on third party manufacturers, ability to transition from pilot-scale manufacturing to large-scale production of products and the need to obtain adequate additional financing to fund the development of its product candidates.

The Company has an accumulated deficit of $98.5 million at June 30, 2018, and will require substantial additional capital to fund operations. The future success of the Company is dependent on its ability to identify and develop its product candidates and ultimately upon its ability to attain profitable operations. At June 30, 2018, the Company had $78.9 million of cash and cash equivalents.  The Company believes that its cash and cash equivalents as of June 30, 2018 will be sufficient to fund the Company’s operating plan into 2020.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (“FASB”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations.  Accordingly, these financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2017 and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 27, 2018.  The unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary to present fairly the Company’s financial position as of June 30, 2018, the results of its operations for the three and six months ended June 30, 2018 and 2017 and cash flows for the six months ended June 30, 2018 and 2017. Such adjustments are of a normal and recurring nature. The results for the three and six months ended June 30, 2018 are not necessarily indicative of the results for the year ending December 31, 2018, or for any future period.

Principles of Consolidation

The consolidated financial statements include the accounts of Allena Pharmaceuticals, Inc. and its wholly owned subsidiaries Allena Pharmaceuticals Security Corporation (“Security Corporation”), which was incorporated in December 2014, and Allena Pharmaceuticals Ireland Limited, which was incorporated in March 2017. All intercompany transactions and balances have been eliminated.

 

5


 

Fair Value of Financial Instruments

Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability between market participants at measurement dates. ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a three-level valuation hierarchy for instruments measured at fair value. The hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The hierarchy defines three levels of valuation inputs, of which the first two are considered observable and the last is considered unobservable:

 

Level 1

 

inputs: Quoted prices in active markets for identical assets or liabilities.

 

 

 

Level 2

 

inputs: Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.

 

 

 

Level 3

 

inputs: Unobservable inputs developed using estimates or assumptions developed by the Company, which reflect those that a market participant would use in pricing the asset or liability.

 

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The remainder of the Company’s significant accounting policies are described in the Annual Report filed on Form 10-K for the year ended December 31, 2017 that was filed with the United States Securities and Exchange Commission on March 27, 2018.

 

Recently Adopted Accounting Pronouncements  

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”). This guidance addresses the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU No. 2016-15 effective January 1, 2018. The adoption of ASU No. 2016-15 did not have a material impact on the Company’s financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU No. 2017-09”). This update clarifies the changes to terms or conditions of a share-based payment award that require an entity to apply modification accounting. ASU No. 2017-09 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. Early application is permitted and prospective application is required. The Company adopted ASU No. 2017-09 effective January 1, 2018.  The adoption of ASU No. 2017-09 did not have a material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The Company adopted ASC 606 on January 1, 2018 under the modified retrospective method. The modified retrospective method requires that the cumulative effect of initially applying ASC 606 be recognized as an adjustment to the opening balance of retained earnings or accumulated deficit of the annual period that includes the date of initial application. The Company did not have any arrangements that were in the scope of ASC 606 and thus there was no impact to the condensed consolidated financial statements as a result of the adoption.

 

Recently Issued Accounting Pronouncements  

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The new standard aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. ASU No. 2016-02 is effective for public entities for annual periods beginning after December 15, 2018 and for interim periods within those fiscal years.  The Company is currently evaluating the potential impact that ASU No. 2016-02 may have on its financial position and results of operations.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The new standard largely aligns the accounting for share-based payment awards issued to employees and nonemployees by expanding the scope of ASC 718 to apply to nonemployee share-based transactions, as long as the transaction is not effectively a form of financing. The new guidance will be effective for the Company on January 1, 2019. The Company is currently evaluating the potential impact that ASU No. 2018-07 may have on its financial position and results of operations.

 

6


 

 

3. Net Loss per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. The Company has computed diluted net loss per common share after giving consideration to all potentially dilutive common shares, including options to purchase common stock, restricted common stock, convertible preferred stock and warrants to purchase convertible preferred stock (that were converted into warrants to purchase common stock in connection with the Company’s IPO in November 2017), outstanding during the period determined using the treasury-stock and if-converted methods, except where the effect of including such securities would be antidilutive. Because the Company has reported net losses since inception, these potential common shares have been anti-dilutive and basic and diluted loss per share have been the same.

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(8,647

)

 

$

(4,632

)

 

$

(16,527

)

 

$

(10,303

)

Accretion of convertible preferred stock

 

 

 

 

 

(17

)

 

 

 

 

 

(34

)

Net loss attributable to common stockholders

 

$

(8,647

)

 

$

(4,649

)

 

$

(16,527

)

 

$

(10,337

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares—basic and diluted

 

 

20,733,043

 

 

 

1,342,957

 

 

 

20,714,319

 

 

 

1,342,628

 

Net loss per share attributable to common

   stockholders—basic and diluted

 

$

(0.42

)

 

$

(3.46

)

 

$

(0.80

)

 

$

(7.70

)

 

The following table sets forth the potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to include them would be anti-dilutive (in common stock equivalent shares):

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Series A convertible preferred stock

 

 

 

 

 

4,400,410

 

Series B convertible preferred stock

 

 

 

 

 

4,753,536

 

Series C convertible preferred stock

 

 

 

 

 

4,791,563

 

Warrants

 

 

9,040

 

 

 

43,265

 

Stock options

 

 

2,097,652

 

 

 

1,394,299

 

Total

 

 

2,106,692

 

 

 

15,383,073

 

 

4. Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value at June 30, 2018 and December 31, 2017, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

Description

 

June 30,

2018

 

 

Quoted

Prices

in Active

Markets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds, included in cash and cash equivalents

 

$

68,349

 

 

$

68,349

 

 

$

 

 

$

 

Total assets

 

$

68,349

 

 

$

68,349

 

 

$

 

 

$

 

 

7


 

 

Description

 

December 31,

2017

 

 

Quoted

Prices

in Active

Markets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds, included in cash and cash equivalents

 

$

93,745

 

 

$

93,745

 

 

$

 

 

$

 

Total assets

 

$

93,745

 

 

$

93,745

 

 

$

 

 

$

 

 

 

At June 30, 2018 and December 31, 2017, all of the Company’s cash equivalents were comprised of money market funds.

 

There were no changes to the valuation methods during the three and six months ended June 30, 2018 and the year ended December 31, 2017. There were no transfers within the fair value hierarchy during the three and six months ended June 30, 2018 and the year ended December 31, 2017.

 

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their carrying values. The Company believes the terms of the loan payable reflect current market conditions for an instrument with similar terms and maturity, therefore the carrying value of the Company’s debt approximates its fair value based on Level 3 of the fair value hierarchy.

5. Accrued Expenses

Accrued expenses consist of the following (in thousands):

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Payroll and employee-related expenses

 

$

871

 

 

$

1,132

 

Professional fees

 

 

345

 

 

 

420

 

Third-party research and development expenses

 

 

550

 

 

 

135

 

IPO-related services

 

 

 

 

 

111

 

Other

 

 

60

 

 

 

151

 

Total accrued expenses

 

$

1,826

 

 

$

1,949

 

 

6. Loan and Security Agreement

In August 2014, the Company entered into a Loan Agreement with Silicon Valley Bank (“SVB”) and borrowed $7.0 million under the loan.  In May 2016, the Loan Agreement was amended (“Amended Loan Agreement”) to borrow up to $10.0 million with a portion of the proceeds to be used to pay down the outstanding balance of the original $7.0 million of advances. At the time of the Amended Loan Agreement, SVB advanced a gross amount of $7.5 million to the Company. Net proceeds received by the Company were $1.6 million after deducting $5.3 million for repayment of the original advances and $0.6 million for final interest due upon maturity or prepayment of the original advances. In December 2016, upon the achievement of certain milestones, SVB advanced the remaining $2.5 million available under the Amended Loan Agreement.

The borrowings were secured by a lien on all Company assets, excluding intellectual property. The May 2016 and December 2016 advances had a floating per annum interest rate of the greater of 4.0% or 0.5% above the prime rate. In December 2016, the interest only period was extended to 18 months. Upon the expiration of the interest only period, amounts borrowed were to be repaid over 30 equal monthly payments of principal and interest. At its option, the Company could prepay all, but not less than all, of the outstanding borrowings subject to a prepayment premium as defined in the Amended Loan Agreement. The Company was also required to make a final payment equal to 8.25% of the total borrowings (“Final Payment”) on the earliest of the loan maturity date, an acceleration of the loan as defined in the Amended Loan Agreement or at the time of prepayment.

On June 29, 2018, the Company terminated the Amended Loan Agreement and repaid the $7.7 million outstanding principal balance and the Final Payment to SVB. The Company recorded a loss on extinguishment of debt of $0.6 million in the Statement of Operations, accordingly.

 On June 29, 2018 the Company also entered into a loan agreement with Pacific Western Bank (“PWB Loan Agreement”) providing up to $12.0 million of borrowings, of which $10.0 million was advanced on June 29, 2018.  The remaining $2.0 million of borrowings available under the PWB Loan Agreement are available to the Company through one additional advance request until the

 

8


 

end of the interest only period as defined below.   Borrowings are secured by a lien on all Company assets, excluding intellectual property, and amounts borrowed have a floating per annum interest rate of the greater of 5.0% or the prime rate.  The PWB Loan Agreement has a term of 48 months and an initial interest only period of 18 months.  If the Company receives at least $50M of gross proceeds from the sale of its equity securities or upfront cash payment from a strategic partnership prior the expiration of the initial interest only period, the interest only period will be extended an additional six months.  Upon the expiration of the initial interest only period on December 31, 2019, amounts borrowed will be repaid over 30 equal monthly payments of principal plus accrued but unpaid interest. If the interest only period is extended an additional six months, amounts borrowed will be repaid over 24 equal monthly payments of principal plus accrued but unpaid interest beginning July 1, 2020.  At its option, the Company may prepay all, but not less than all, of the outstanding borrowings subject to a prepayment premium as defined in the Loan Agreement.  Upon the closing of one or more financings, in which the Company receives aggregate gross proceeds of at least $25 million, a success fee will be paid to the Lender.  If the gross proceeds are received on or before June 30, 2019, the Success Fee is $200,000, and f the gross proceeds are received after June 30, 2019, the Success Fee is $300,000.  The Company’s obligation to pay this Success Fee survives termination of the Agreement.

The PWB Loan Agreement contains negative covenants restricting the Company’s activities, including limitations on dispositions, mergers or acquisitions, incurring indebtedness or liens, paying dividends or making investments and certain other business transactions. There are no financial covenants associated with the PWB Loan Agreement. The obligations under the PWB Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in the Company’s business, operations or financial or other condition. The Company has determined that the risk of subjective acceleration under the material adverse events clause is remote and therefore has classified the outstanding principal based on scheduled principal payments.

The Company evaluated the PWB Loan Agreement for embedded features that require bifurcation, noting certain features were required to be bifurcated, but were concluded to be de minimus in value at June 30, 2018.

 

7. Stockholders’ Equity

Common Stock

Common stockholders are not entitled to receive dividends, unless declared by the Board of Directors.

At June 30, 2018, warrants to purchase up to 9,040 shares of common stock at an exercise price of $11.06 were outstanding.  These warrants expire May 1, 2026.

The Company has reserved for future issuances the following shares of common stock as of June 30, 2018 and December 31, 2017:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Warrants

 

 

9,040

 

 

 

9,040

 

Stock options

 

 

4,311,711

 

 

 

3,538,345

 

Employee stock purchase plan

 

413,230

 

 

 

206,284

 

Total

 

 

4,320,751

 

 

 

3,753,669

 

 

8. Stock Incentive Plan    

On October 31, 2017, the Company adopted the 2017 Stock Option and Incentive Plan (“2017 Plan”).  Upon the adoption of the 2017 Plan, no further grants would be made under the 2011 Stock Incentive Plan (“2011 Plan”).  The 2017 Plan initially provided for the grant of awards for 2,038,021 shares of common stock.  In addition to the shares available for grant under the 2017 Plan, any awards outstanding under the 2011 Plan as of the October 31, 2017 are cancelled, forfeited or otherwise terminated without being exercised, the number of shares underlying such awards will be available for future grant under the 2017 Plan. The 2017 Plan also provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2017 Plan on January 1 of each year. The number of shares added each year will be equal to the lesser of: (i) 4% of the outstanding shares on the immediately preceding December 31 or (ii) such amount as determined by the Compensation Committee of the registrant’s Board of Directors.  On January 1, 2018, the shares available for grant under the 2017 Plan was automatically increased by 827,786 shares.

All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock units (“RSUs”), and other share-based awards under the terms of the 2017 Plan.  As of June 30, 2018, 2,214,059 shares of common stock were available for future grant under the 2017 Plan.

 

9


 

All stock option grants are nonstatutory stock options except option grants to employees (including officers and directors) intended to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended. Incentive stock options may not be granted at less than the fair market value of the Company’s common stock on the date of grant, as determined in good faith by the Board of Directors at its sole discretion. Nonqualified stock options may be granted at an exercise price established by the Board of Directors at its sole discretion (which has not been less than fair market value on the date of grant) and the vesting periods may vary. Vesting periods are generally four years and are determined by the Board of Directors or a delegated subcommittee. Stock options become exercisable as they vest. Options granted under both the 2011 Plan and 2017 Plan expire no more than 10 years from the date of grant.

Stock-based compensation expense included in the Company’s statements of operations and comprehensive loss is as follows (in thousands):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development

 

$

144

 

 

$

30

 

 

$

234

 

 

$

57

 

General and administrative

 

 

368

 

 

 

70

 

 

 

683

 

 

 

139

 

Total

 

$

512

 

 

$

100

 

 

$

917

 

 

$

196

 

 

The fair value of each stock option granted to employees and directors was estimated on the date of grant using the Black-Scholes option-pricing model, with the following range of assumptions as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2018

 

2017

 

2018

 

2017

Risk-free interest rate

 

2.6%-2.8%

 

1.9%-2.0%

 

2.3%-2.8%

 

1.9%-2.0%

Expected dividend yield

 

—%

 

—%

 

—%

 

—%

Expected term (in years)

 

5.5-6.1

 

5.6-6.3

 

5.5-6.1

 

5.6-6.3

Expected volatility

 

85%-87%

 

84%-87%

 

81%-89%

 

84%-87%

 

A summary of the stock option activity under the 2011 and 2017 Plans is as follows:

 

 

 

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Life

(in years)

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Outstanding at December 31, 2017

 

 

1,508,124

 

 

 

1.89

 

 

 

7.9

 

 

$

12,328

 

Granted

 

 

672,674

 

 

 

8.25

 

 

 

 

 

 

 

 

 

Exercised

 

 

(57,509

)

 

 

1.41

 

 

 

 

 

 

 

 

 

Cancelled

 

 

(25,637

)

 

 

5.27

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2018

 

 

2,097,652

 

 

$

3.90

 

 

 

8.1

 

 

$

19,213

 

Exercisable at June 30, 2018

 

 

946,273

 

 

$

1.57

 

 

 

7.0

 

 

$

10,844

 

As of June 30, 2018, total unrecognized stock-based compensation expense relating to unvested stock options was $4.9 million. This amount is expected to be recognized over a weighted-average period of 2.9 years.

9. Commitments and Contingencies

The Company has operating leases for office space in Newton, MA (“Newton Lease”) and for laboratory space in Sudbury, MA (“Sudbury Lease”).  The Newton lease expires in December 2020 and base rent is $0.3 million annually.      

     In March 2018, the Company amended the Sudbury Lease to reduce the square footage and to extend the term to February 28, 2021.  Base rent for Sudbury Lease is approximately $0.1 million annually.

 

10


 

Item 2.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited 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 ended December 31, 2017 that was filed with the United States Securities and Exchange Commission, or the SEC, on March 27, 2018.

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 the 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 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.

Overview

We are a late-stage, clinical 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 cause kidney stones, damage the kidney, and potentially lead to chronic kidney disease, or CKD, and end-stage renal disease. Our lead product candidate, ALLN-177, is a first-in-class, oral enzyme therapeutic that we are developing for the treatment of hyperoxaluria, a metabolic disorder characterized by markedly elevated urinary oxalate levels and commonly associated with kidney stones, CKD and other serious kidney diseases. There are currently no approved therapies for the treatment of hyperoxaluria.

We have conducted a robust clinical development program of ALLN-177, including three Phase 2 clinical trials, and are in discussions with the U.S. Food and Drug Administration, or the FDA, to finalize the design of our planned pivotal Phase 3 program in enteric hyperoxaluria.  In March 2018, we initiated URIROX-1TM (URIROX-1) (formerly Study 301), the first of two anticipated Phase 3 clinical trials in support of our planned Biologic License Application, or BLA, for ALLN-177 in patients with enteric hyperoxaluria. We expect to announce topline data from this trial in the second half of 2019.   We continue to engage with the FDA to finalize the design of URIROX-2TM (URIROX-2) (formerly Study 302), the larger and second of two planned Phase 3 clinical trials, and to discuss suitability for an accelerated approval pathway for our planned BLA submission for ALLN-177 in patients with enteric hyperoxaluria. Earlier this year, we submitted to the FDA a draft protocol for URIROX-2 and the planned statistical approach to support a BLA filing using the Subpart E accelerated approval pathway.  The FDA provided comments and recommendations on these documents.  We have resubmitted the URIROX-2 protocol and statistical approach to the FDA to address this feedback.  We have also entered into an agreement with our clinical research organization, or CRO, for start-up activities for URIROX-2, including site identification and development of the operational plan to collect data for the confirmatory clinical benefit elements of the trial.  We continue to expect to initiate URIROX-2 in the second half of 2018.  In addition to our Phase 3 program of ALLN-177 for enteric hyperoxaluria, we are also evaluating ALLN-177 in Study 206, a Phase 2 basket trial in adults and adolescents with primary hyperoxaluria or enteric hyperoxaluria with hyperoxalemia, which we initiated in March 2018.  We expect to announce interim data from Study 206 in the second half of 2018.

On November 6, 2017, we completed our initial public offering, or IPO, in which we issued and sold 5,333,333 shares of our common stock at a public offering price of $14.00 per share, for aggregate gross proceeds of $74.7 million. The underwriters partially exercised their over-allotment option on December 1, 2017, and purchased 16,969 shares of our common stock, for aggregate gross proceeds of $0.2 million.  As a result of the IPO, we received approximately $67.0 million in net proceeds after deducting $7.9 million of underwriting discounts and commissions and offering costs.

 

11


 

Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our technology, identifying potential product candidates, producing drug substance and drug product material for use in preclinical studies and clinical trials, conducting preclinical studies of our product candidates and conducting clinical trials for our lead product candidate, ALLN-177. We do not have any products approved for sale and have not generated any revenue to date. As of June 30, 2018, we had cash and cash equivalents totaling $78.9 million.

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 $8.6 million and $4.6 million for the three months ended June 30, 2018 and 2017, respectively, and $16.5 million and $10.3 million for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018, we had an accumulated deficit of $98.5 million. We anticipate that our expenses will increase significantly as we:

 

conduct ongoing and future clinical trials of our lead product candidate, ALLN-177;

 

manufacture additional material for our planned pivotal Phase 3 clinical program, Phase 2 clinical basket trial and potential future clinical studies we might conduct for our product candidates;

 

scale up our manufacturing process for ALLN-177 to prepare for the filing of a potential BLA and commercialization if our clinical development program is successful;

 

advance the development of our second product candidate, ALLN-346;

 

 

seek regulatory and marketing approvals for product candidates that successfully complete clinical trials, if any;

 

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;

 

maintain, expand and protect our intellectual property portfolio;

 

hire additional staff, including clinical, scientific, technical, operational, and financial personnel, to execute our business plan; and

 

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 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. Furthermore, we expect to incur additional costs associated with operating as a public company. 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 develop our current product candidates, or any additional product candidates, if developed.

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-177 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:

 

employee-related expenses, including salaries, benefits and stock-based compensation expense;

 

costs incurred under agreements with third parties, including CROs, that conduct research and development, preclinical studies and clinical trials on our behalf;

 

costs related to production of preclinical and clinical materials, including fees paid to CMOs;

 

12


 

 

consulting, licensing and professional fees related to research and development activities;

 

costs of purchasing laboratory supplies and non-capital equipment used in our research and development activities;

 

costs related to compliance with clinical regulatory requirements; and

 

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.

The following summarizes our most advanced current research and development programs:

 

ALLN-177 is our lead product candidate which we are developing for the treatment of hyperoxaluria. Substantially all of our research and development costs to date have been used to fund this program.

 

ALLN-346 is our second product candidate which we are developing for patients with hyperuricemia and CKD. We began incurring external research and development costs for this program in 2016.

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 June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

ALLN-177 external costs

 

$

3,535

 

 

$

2,124

 

 

$

7,670

 

 

$

5,168

 

ALLN-346 external costs

 

 

298

 

 

 

105

 

 

 

369

 

 

 

123

 

Employee compensation and benefits

 

 

1,737

 

 

 

1,018

 

 

 

3,187

 

 

 

2,081

 

Other

 

 

290

 

 

 

211

 

 

 

565

 

 

 

437

 

Total research and development expenses

 

$

5,860

 

 

$

3,458

 

 

$

11,791

 

 

$

7,809

 

 

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 $57.0 million of external research and development costs for ALLN-177. We expect that our research and development costs will continue to increase for the foreseeable future as we conduct and initiate additional clinical trials of ALLN-177, scale our manufacturing processes and advance development of ALLN-346.

The successful development of ALLN-177, 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:

 

successful enrollment in, and completion of, clinical trials for ALLN-177;

 

successful data from our clinical program of ALLN-177 that supports an acceptable benefit-risk profile of ALLN-177 in the intended populations;

 

establishing an appropriate safety profile for ALLN-346 and any potential future product candidate with studies to enable the filing of an investigational new drug application;

 

approval of INDs for ALLN-346 and any potential future product candidate to commence planned or future clinical trials;

 

13


 

 

significant and changing government regulation and regulatory guidance;

 

timing and receipt of marketing approvals from applicable regulatory authorities;

 

making arrangements with CMOs for third-party commercial manufacturing of our product candidates;

 

obtaining and maintaining patent and other intellectual property protection and regulatory exclusivity for our product candidates;

 

commercializing the product candidates, if and when approved, whether alone or in collaboration with others;

 

acceptance of the product, if and when approved, by patients, the medical community and third-party payors; and

 

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 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.

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. Additionally, we expect to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor and public relations costs.

Interest Income (Expense), Net

Interest income (expense), net, primarily consists of interest expense incurred on our credit facilities, amortized debt discount related to the fair value of the warrants issued in conjunction with the advances under our former credit facility with Silicon Valley Bank, or SVB, and debt issuance costs, and interest income earned on our cash, cash equivalents and investments.

Other Income (Expense), Net

Other income (expense), net, primarily consists of gain (loss) on foreign currency transactions and non-cash changes in the fair value of warrants issued in connection with our former credit facility with SVB. The preferred warrants converted upon the closing of our IPO and therefore became exercisable into common stock instead of convertible preferred stock. The warrants for the purchase of common stock met the criteria to be classified in stockholders’ equity and the fair value of the warrant liability as of the IPO date was reclassified to stockholders’ equity (deficit).  As a result, we will no longer recognize any changes to the fair value of the warrants through other income (expense).

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 in the 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.

 

14


 

Our significant accounting policies are described in detail in the notes to our consolidated financial statements appearing the Annual Report filed on Form 10-K for the year ended December 31, 2017. There have been no changes to our significant accounting policies.

Results of Operations

Comparison of the three months Ended June 30, 2018 and 2017

The following table summarizes our results of operations for the three months ended June 30, 2018 and 2017 (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Dollar

 

 

 

2018

 

 

2017

 

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,860

 

 

$

3,458

 

 

$

2,402

 

General and administrative

 

 

2,275

 

 

 

1,017

 

 

 

1,258

 

Total operating expenses

 

 

8,135

 

 

 

4,475

 

 

 

3,660

 

Loss from operations

 

 

(8,135

)

 

 

(4,475

)

 

 

(3,660

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

118

 

 

 

(123

)

 

 

241

 

Other income (expense), net

 

 

(13

)

 

 

(34

)

 

 

21

 

Loss on extinguishment of debt

 

 

(617

)

 

 

 

 

 

(617

)

Other income (expense), net

 

 

(512

)

 

 

(157

)

 

 

(355

)

Net loss

 

$

(8,647

)

 

$

(4,632

)

 

$

(4,015

)

Research and Development Expense

Research and development expense increased by $2.4 million from $3.5 million for the three months ended June 30, 2017 to $5.9 million for the three months ended June 30, 2018. The following table summarizes our research and development expenses for the three months ended June 30, 2018 and 2017 (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Dollar

 

 

 

2018

 

 

2017

 

 

Change

 

Clinical development external costs

 

$

2,425

 

 

$

878

 

 

$

1,547

 

Manufacturing external costs

 

 

858

 

 

 

834

 

 

 

24

 

Employee compensation and benefits

 

 

1,737

 

 

 

1,018

 

 

 

719

 

Other

 

 

840

 

 

 

728

 

 

 

112

 

Total research and development expenses

 

$

5,860

 

 

$

3,458

 

 

$

2,402

 

 

The $2.4 million increase in research and development expense was primarily attributable to the following:

 

Our clinical development external costs increased by $1.5 million from $0.9 million for the three months ended June 30, 2017 to $2.4 million for the three months ended June 30, 2018:

 

o

We incurred $1.8 million of costs for our URIROX-1 Study during the three months ended June 30, 2018.  This study was initiated during the first quarter of 2018;

 

o

We also incurred $0.3 million of costs for our 206 Study during the three months ended June 30, 2018, which was also initiated during the first quarter of 2018; and

 

o

The increase in costs due to our URIROX-1 Study and our 206 Study was partially offset by $0.6 million of costs incurred during the three months ended June 30, 2017 as we continued the closeout of our 713 Study, for which there were no comparable costs for the three months ended June 30, 2018.

 

Our manufacturing external costs were $0.8 million for both the three months ended June 30, 2018 and 2017.  Included in manufacturing costs for the three months ended June 30, 2018 was $0.4 million of costs incurred at our CMO for the production of clinical batches of drug substance for our Phase 3 clinical program and $0.2 million of drug product costs for our Phase 3 clinical program.  Manufacturing costs for the three months ended June 30, 2017 included $0.3 million of costs incurred at our CMO for the production of engineering batches and $0.2 of costs for modifications of equipment at our CMO; and

 

Our employee compensation and benefits costs increased by $0.7 million for the three months ended June 30, 2018, primarily due to an increase headcount from 20 employees at June 30, 2017 to 30 employees at June 30, 2018 as we grew our clinical and technical operations teams in preparation for our planned Phase 3 program.

 

15


 

General and Administrative Expenses

General and administrative expense increased by $1.3 million from $1.0 million for three months ended June 30, 2017 to $2.3 million for the three months ended June 30, 2018. The following table summarizes our general and administrative expenses for the three months ended June 30, 2018 and 2017 (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Dollar

 

 

 

2018

 

 

2017

 

 

Change

 

Employee compensation and benefits

 

$

1,065

 

 

$

587

 

 

$

478

 

Consulting and professional services

 

 

594

 

 

 

245

 

 

 

349

 

Market research and commercialization planning

 

 

279

 

 

 

44

 

 

 

235

 

Other

 

 

337

 

 

 

141

 

 

 

196

 

Total general and administrative expenses

 

$

2,275

 

 

$

1,017

 

 

$

1,258

 

The increase in general and administrative expense was primarily attributable to the following:

 

Our employee compensation and benefits costs increased by $0.5 million for the three months ended June 30, 2018, primarily due to an increase in employee salaries, wages, benefit costs and stock-based compensation.  Our stock-based compensation increased from $0.1 million for the three months ended June 30, 2017 to $0.4 million for the three months ended June 30, 2018;

 

Our consulting and professional services costs increased by $0.3 million. The increase was primarily related to increased accounting and tax costs, legal costs and other costs incurred as a public company;

 

Our market research and commercialization planning costs increased by $0.2 million during the three months ended June 30, 2018 as we engaged an independent third party to conduct a study to assess the market opportunity for ALLN-177 in Europe and Asia, for which there was no comparable expense during the three months ended June 30, 2017; and

 

Our other costs increased by $0.2 million for the three months ended June 30, 2018, due primarily to $0.2 million increase in corporate insurance premiums.  Our insurance premiums increased as a result of being a public company.

Interest Income (Expense), net

Interest income (expense), net consists of interest income earned on our cash and cash equivalents, interest expense on our outstanding debt, and amortization of our debt discount. We had net interest income of $0.1 million for the three months ended June 30, 2018 and net interest expense of $0.1 million for the three months ended June 30, 2017. The increase was attributable to interest earned from higher average balances of cash and cash equivalents for the three months ended June 30, 2018 due to the net proceeds received from our IPO in November 2017.

Loss On Extinguishment of Debt

On June 29, 2018, we terminated our loan agreement with SVB.  As a result we recorded a loss on extinguishment of debt of $0.6 million representing unamortized debt discount and the final payment fee associated with the loan.

 

16


 

 

Comparison of the Six Months Ended June 30, 2018 and 2017

The following table summarizes our results of operations for the six months ended June 30, 2018 and 2017 (in thousands):

 

 

 

Six Months Ended June 30,

 

 

Dollar

 

 

 

2018

 

 

2017

 

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

11,791

 

 

$

7,809

 

 

$

3,982

 

General and administrative

 

 

4,317

 

 

 

2,208

 

 

 

2,109

 

Total operating expenses

 

 

16,108

 

 

 

10,017

 

 

 

6,091

 

Loss from operations

 

 

(16,108

)

 

 

(10,017

)

 

 

(6,091

)

Other income (expense):