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, 2020 that was filed with theUnited States Securities and Exchange Commission , or theSEC , onMarch 11, 2021 . 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 late-stage, clinical biopharmaceutical company dedicated to
discovering, developing and commercializing first-in-class, oral biological
therapeutics to treat patients with rare and severe metabolic and kidney
disorders. Our lead product candidate, reloxaliase (formerly known as ALLN-177),
is currently being evaluated in a pivotal Phase 3 clinical program for the
treatment of enteric hyperoxaluria, a metabolic disorder characterized by
markedly elevated urinary oxalate ("UOx") levels and commonly associated with
kidney stones, chronic kidney disease ("CKD") and other serious kidney
disorders. There are currently no approved therapies for the treatment of
enteric hyperoxaluria. We are also developing ALLN-346 for the treatment of
hyperuricemia and gout in the setting of advanced CKD. We completed a Phase 1b
multiple-ascending dose study in the second quarter of 2021 and recently
initiated dosing in two Phase 2a studies. Initial data from the Phase 2a program
are expected during the fourth quarter of 2021.
We have conducted a robust clinical development program of reloxaliase,
including three Phase 2 clinical trials and the first of two Phase 3 clinical
trials, which have demonstrated significant reductions in UOx excretion in
patients with enteric hyperoxaluria. Reloxaliase has also been well tolerated in
all studies conducted to date. We initiated URIROX-1TM (URIROX-1, formerly Study
301), the first of our two Phase 3 clinical trials in support of our planned
Biologic License Application, or BLA, for reloxaliase in patients with enteric
hyperoxaluria in March 2018 . In November 2019 , we reported that the primary
endpoint in the URIROX-1 study had been met, with a mean reduction of 22.6% in
average 24-hour UOx excretion measured during Weeks 1-4 among patients treated
with reloxaliase, compared to a mean reduction of 9.7% in the placebo group
(least square, or LS, mean treatment difference of -14.3%, p=0.004). In the
fourth quarter of 2018, we initiated URIROX-2TM (URIROX-2, formerly Study 302),
our second pivotal Phase 3 trial of reloxaliase in patients with enteric
hyperoxaluria.
In February 2020 , following engagement with the U.S. Food and Drug
Administration , or FDA, we announced that we reached agreement with the FDA on a
streamlined design for URIROX-2, based on the high rate of on-study kidney stone
events and the UOx results observed in the completed URIROX-1 trial, which
enrolled essentially the same patient population as URIROX-2. The FDA has also
advised us that it agrees that, if positive, biomarker data on 24-hour UOx
excretion in URIROX-1 and URIROX-2 would be used for a BLA submission for
reloxaliase using the accelerated approval regulatory pathway. For the long-term
follow-up phase of the trial, subjects would continue in URIROX-2 for a minimum
treatment period of two years to confirm clinical benefit post-approval,
including the ability of reloxaliase to reduce the incidence and severity of
kidney stone disease and renal impairment.
The execution and enrollment of the URIROX-2 trial have been adversely affected
by the COVID-19 pandemic. We had previously planned to conduct the first interim
analysis of the URIROX-2 study after 130 subjects had been treated for at least
six months and had estimated the timing of this analysis to be in the second or
third quarter of 2022. In July 2021 , given the adverse impact of the COVID-19
global pandemic on the rate of patient enrollment in this global study, and
considering as well that enrollment in this study began in 2019, we modified our
plans and now expect to conduct the first interim analysis,
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which will include all subjects who were enrolled in the trial as of the end of
November 2021 , during the first quarter of 2022. We estimate that this revised
interim analysis would include UOx data during weeks 1-4 for approximately 80
patients but would not include sufficient data to evaluate UOx levels during
weeks 16-24 or the blinded rate of kidney stone events, as previously planned.
We have submitted our revised plan for the first interim analysis to the FDA as
part of our planned update to the URIROX-2 statistical analysis plan and
adaptive design charter. The revised interim analysis, which will be conducted
by an independent data monitoring committee, will assess whether the study
continues to be adequately powered to evaluate efficacy against the primary
endpoint, the change in UOx levels during weeks 1-4 versus baseline, with the
planned enrollment of 200 subjects, or whether the study size should be
increased. As previously planned, the interim analysis will also include an
assessment of futility with respect to the primary endpoint. We do not
anticipate any changes to the planned second interim analysis, which will also
include an assessment of the secondary endpoint of change in UOx levels during
weeks 16-24 and of unblinded kidney stone events. The second interim analysis is
expected to be conducted once 200 subjects have reached six months of treatment
and is designed to enable a potential filing for accelerated approval for
reloxaliase.
In addition to our Phase 3 program of reloxaliase for enteric hyperoxaluria, we
also evaluated reloxaliase in Study 206, a Phase 2 basket trial in adults and
adolescents with primary hyperoxaluria or enteric hyperoxaluria with advanced
CKD and elevated plasma oxalate levels (hyperoxalemia), which we initiated in
March 2018 . The data from this study has been published in Nephrology Dialysis
Transplantation (Pfau 2021). Based on the substantial reductions from baseline
to Weeks 4- 12 in both UOx and plasma oxalate, or POx, observed in subjects with
enteric hyperoxaluria and advanced CKD, we obtained feedback from the FDA on
potential expedited approval pathways for reloxaliase in this patient
population. The FDA recognized that the high oxalate burden in these patients
represents a serious, life-threatening condition, which is a requirement for
considering an expedited approval pathway. However, the FDA advised us that
reloxaliase would not currently qualify for breakthrough designation in this
patient population based on the lack of placebo-controlled data from open-label
Study 206. In this setting, and given our current financial resources, we remain
focused on executing URIROX-2 and plan to evaluate potential clinical
development of reloxaliase in patients with enteric hyperoxaluria and advanced
CKD in the future.
In addition, we have designed our second product candidate, ALLN-346, an orally
administered, novel, urate degrading enzyme, for patients with hyperuricemia and
gout in the setting of advanced CKD. Hyperuricemia, or elevated levels of uric
acid in the blood, results from overproduction or insufficient excretion of
urate, or often a combination of the two. We have conducted two preclinical
proof-of-concept studies that support the potential of ALLN-346 as an oral
therapy for the treatment of hyperuricemia in patients with gout and associated
CKD. We filed an IND for ALLN-346 with the FDA in December 2019 . We have
conducted both single ascending dose and multiple ascending dose studies of
ALLN-346 in healthy volunteers. In both studies, ALLN-346 was well tolerated,
and there were no safety signals observed. During the second half of 2021 we
initiated our Phase 2a program for ALLN-346, consisting of a 7-day inpatient
study in patients with hyperuricemia and a 14-day outpatient study in patients
with hyperuricemia and gout. We recently received notice from the FDA that
ALLN-346 has received fast track designation, which is granted to drug
candidates that address a serious or life-threatening condition and demonstrate
the potential to address an unmet medical need. The fast track process is
designed to facilitate the development and expedite the review of drug
candidates that meet these criteria.
On July 16, 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 and warrants to purchase up to 10,678,872 shares of our common
stock through a securities purchase agreement. 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 Pre-funded Warrant was $1.301 , which was the
combined purchase price per share of common stock and accompanying 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 Warrant is exercisable for one share of
our common stock at an exercise price of $1.25 per share. The Warrants are
immediately exercisable and expire on July 16, 2026 . Each Pre-funded Warrant is
exercisable for one share of common stock at an exercise price of $0.01 per
share. The Pre-funded Warrants are immediately exercisable and may be exercised
at any time until all Pre-funded Warrants are exercised in full. All Pre-funded
Warrants were exercised on July 16, 2021 .
During the first quarter of 2021, we issued and sold 6,058,318 shares of our
common stock under the Cowen ATM Agreement at a weighted average price of $1.99
per share for net proceeds of $11.7 million . On March 29, 2021 , we terminated
the Cowen ATM Agreement and entered into the B. Riley ATM Agreement. During the
second quarter of 2021, we issued and sold 1,650,988 shares of our common stock
under the B. Riley ATM Agreement, at a weighted average price of $1.25 per share
for net proceeds of $1.8 million . During the fourth quarter of 2021, through the
filing date of this Quarterly Report, we issued and sold 2,430,350 shares of our
common stock under the B. Riley ATM Agreement at a weighted average price of
$1.02 per share for net proceeds of $2.4 million .
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On December 4, 2020 , we completed a public underwritten offering of 11,960,000
shares of our common stock, including the exercise in full of the underwriter's
option to purchase an additional 1,560,000 shares of common stock, at a price to
the public of $1.25 per share for net proceeds of $13.5 million .
On July 30, 2020 , we completed a public underwritten offering of 5,894,191
shares of our common stock, including the exercise in full of the underwriter's
option to purchase an additional 768,807 shares of common stock, at a price to
the public of $1.30 per share for net proceeds of $6.7 million .
On June 5, 2020 , we completed a registered direct offering, in which we issued
and sold 7,317,074 shares of our common stock, at a purchase price of $2.05 per
share, for net proceeds of $13.7 million through a securities purchase agreement
with certain institutional and accredited investors. The shares of common stock
sold in this offering were offered by us pursuant to our shelf registration
statement on Form S-3 filed with the SEC , which was declared effective on
December 26, 2018 and a prospectus supplement thereunder filed on June 5, 2020 .
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. As of September 30, 2021 , we had cash and cash equivalents
totaling $40.4 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
$12.7 million and $8.0 million for the three months ended September 30, 2021 and
2020, respectively, and $38.3 million and $22.6 million for the nine months
ended September 30, 2021 and 2020, respectively. As of September 30, 2021 , we
had an accumulated deficit of $236.1 million . We anticipate that our expenses
will increase significantly as we:
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conduct clinical trials of our lead product candidate, reloxaliase;
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manufacture additional material for our pivotal Phase 3 clinical program and
potential future clinical studies we might conduct for our product candidates;
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scale up our manufacturing process for reloxaliase to prepare for the filing of
a potential Biologics License Application, or BLA, and commercialization if our
clinical development program is successful;
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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. 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.
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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 the Company's common stock from The Nasdaq Global Select Market. In accordance with Nasdaq Listing Rule 5810(c)(3)(A) (the "Compliance Period Rule"), we have been provided an initial period of 180 calendar days, or untilFebruary 21, 2022 (the "Compliance Date"), 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 on The Nasdaq Global Select Market. If we do not regain compliance with the Minimum Bid Price Requirement by the Compliance Date, we may be eligible for an additional 180 calendar day compliance period. To qualify, we would be required to transfer to The Nasdaq Capital Market and meet the continued listing requirement for the market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and would need to provide written notice to Nasdaq of our intention to cure the deficiency during the additional compliance period. 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 intend to monitor the closing bid price of our common stock and may, if appropriate, consider available options to regain compliance with the Minimum Bid Price Requirement, which could include seeking to effect a reverse stock split. However, there can be no assurance that we will be able to regain compliance with the Minimum Bid Price Requirement, secure a second period of 180 days to regain compliance, or maintain compliance with any of the other Nasdaq continued listing requirements.
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 reloxaliase 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,
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-------------------------------------------------------------------------------- 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:
? reloxaliase is our lead product candidate which we are developing for the treatment of enteric hyperoxaluria. A substantial majority 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 the treatment of hyperuricemia and gout in the setting of CKD.
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 September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Reloxaliase external costs $ 2,988 $ 2,021 $ 11,851 $ 4,717
ALLN-346 external costs 2,600 737 5,501 1,435
Employee compensation and benefits 2,650 1,765 7,361 6,122
Other 786 429 2,253 1,132
Total research and development expenses $ 9,024 $
4,952$ 26,966 $ 13,406 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$103.7 million of external research and development costs for reloxaliase and$16.0 million of external research and development costs for ALLN-346. We expect that our research and development costs will continue to increase for the foreseeable future as we advance the URIROX-2 trial for reloxaliase, conduct the Phase 2a program and initiate additional clinical trials for ALLN-346 and scale our manufacturing processes of reloxaliase and ALLN-346. The successful development of reloxaliase, 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 reloxaliase; ? successful data from our clinical program of reloxaliase that supports an acceptable benefit-risk profile of reloxaliase in the intended populations; ? successful enrollment in, and completion of, clinical trials for ALLN-346; ? establishing an appropriate safety profile for any potential future product candidates with studies to enable the filing of investigational new drug application, or INDs; ? approval of INDs for any potential future product candidate to commence planned or future clinical trials; ? 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; 20
-------------------------------------------------------------------------------- ? 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 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. 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.
Other Expense, Net
Other expense, net, consists of a success fee paid to PWB at the time the
conditions required to trigger the success fee as defined in the PWB Loan
Agreement were met in
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 withU.S. 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. Our significant accounting policies are described in detail in the notes to our consolidated financial statements appearing in the Annual Report filed on Form 10-K for the year endedDecember 31, 2020 . There have been no changes to our significant accounting policies other than as follows.
Warrants
We account for issued warrants either as a liability or equity in accordance
with ASC 480-10, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity ("ASC 480-10") or ASC 815-40,
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock ("ASC 815-40"). Under ASC 480-10, warrants are
considered a liability if they are mandatorily redeemable and they require
settlement in cash, other assets, or a variable number of shares. If warrants do
not meet liability classification under ASC 480-10, we consider the requirements
of ASC 815-40 to determine whether the warrants should be classified as a
liability or as equity. Under ASC 815-40, contracts that may require settlement
for cash are liabilities, regardless of the probability of the occurrence of the
triggering event. Liability-classified warrants are measured at fair value on
the issuance date and at the end of each reporting period. Any change in the
fair value of the warrants after the issuance date is recorded in the
consolidated statement of
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-------------------------------------------------------------------------------- operations as a gain or loss. If warrants do not require liability classification under ASC 815-40, in order to conclude warrants should be classified as equity, we assess whether the warrants are indexed to our common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP standard. Equity-classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date. The Warrants and Pre-funded Warrants do not meet the requirements for liability classification under ASC-480-10 or ASC-815-40. Therefore, the Warrants and Pre-funded Warrants were treated as equity at the time of issuance. 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 September 30, Dollar
2021 2020 Change
Operating expenses:
Research and development $ 9,024 $ 4,952 $ 4,072
General and administrative 3,407 2,966 441
Total operating expenses 12,431 7,918 4,513
Loss from operations (12,431 ) (7,918 ) (4,513 )
Other expense:
Interest expense, net (250 ) (104 ) (146 )
Other expense, net (11 ) (4 ) (7 )
Other expense, net (261 ) (108 ) (153 )
Net loss $ (12,692 ) $ (8,026 ) $ (4,666 ) Research and Development Expense
Research and development expense increased by$4.1 million from$5.0 million for the three months endedSeptember 30, 2020 to$9.0 million for the three months endedSeptember 30, 2021 . The following table summarizes our research and development expenses for the three months endedSeptember 30, 2021 and 2020 (in thousands): Three Months Ended September 30, Dollar 2021 2020 Change Clinical development external costs $ 4,007 $ 2,104$ 1,903 Manufacturing external costs 1,453 399 1,054 Employee compensation and benefits 2,650 1,766 884 Other 914 683 231
Total research and development expenses $ 9,024 $
4,952 $ 4,072
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The
? Our clinical development external costs increased by$1.9 million from$2.1 million for the three months endedSeptember 30, 2020 to$4.0 million for the three months endedSeptember 30, 2021 : o Our URIROX-2 costs increased$0.4 million from$1.7 million for the three months endedSeptember 30, 2020 to$2.1 million for the three months endedSeptember 30, 2021 . During the first half of 2020, we limited the opening of new trial sites for the ongoing URIROX-2 trial while we assessed revisions to the study design and sought additional funds to support the development of reloxaliase. During the three months endedSeptember 30, 2020 , we began expanding URIROX-2 to additional geographies and clinical trial sites; and o Our ALLN-346 costs increased$1.4 million from$0.3 million for the three months endedSeptember 30, 2020 to$1.7 million for the three months endedSeptember 30, 2021 . During the three months endedSeptember 30, 2021 , we initiated dosing in two Phase 2a studies. We incurred$1.4 million of costs for the Phase 2a program during the three months endedSeptember 30, 2021 , for which there were no comparable costs during the three months endedSeptember 30, 2020 . InApril 2021 , we initiated a Phase 1b multiple ascending dose trial in healthy volunteers and announced initial data from this study inJuly 2021 . ? Our manufacturing external costs increased by$1.1 million from$0.4 million for the three months endedSeptember 30, 2020 to$1.5 million for the three months endedSeptember 30, 2021 : o Our reloxaliase costs increased$0.3 million from$0.2 million for the three months endedSeptember 30, 2020 to$0.5 million for the three months endedSeptember 30, 2021 , primarily due to increased costs for consumables and raw materials; and o Our ALLN-346 costs increased$0.5 million from$0.1 million for the three months endedSeptember 30, 2020 to$0.6 million for the three months endedSeptember 30, 2021 , primarily due to increased formulation and development costs. ? Our employee compensation and benefits costs increased$0.9 million from$1.8 million for the three months endedSeptember 30, 2020 to$2.7 million for the three months endedSeptember 30, 2021 , primarily due to an increase in research and development headcount from 22 employees atSeptember 30, 2020 to 35 employees atSeptember 30, 2021 .
General and Administrative Expenses
General and administrative expense increased$0.4 million from$3.0 million for the three months endedSeptember 30, 2020 to$3.4 million for the three months endedSeptember 30, 2021 . The following table summarizes our general and administrative expenses for the three months endedSeptember 30, 2021 and 2020 (in thousands): Three Months Ended September 30, Dollar 2021 2020 Change Employee compensation and benefits $ 1,814 $ 1,698$ 116 Consulting and professional services 869 695 174 Market research and commercialization planning - 35 (35 ) Other 724 538 186
Total general and administrative expenses $ 3,407 $
2,966 $ 441 General and administrative expense included the following:
? Our employee compensation and benefits costs were$1.8 million and$1.7 million for the three months endedSeptember 30, 2021 and 2020, respectively; ? Our consulting and professional services costs increased$0.2 million for the three months endedSeptember 30, 2021 . The increase is primarily due to a$0.1 million increase in consulting costs and$0.1 million of website design costs for the three months endedSeptember 30, 2021 ; and ? Our other costs increased$0.2 million for the three months endedSeptember 30, 2021 , primarily due to an increase in insurance costs. 23 --------------------------------------------------------------------------------
Interest Expense, net
Interest income (expense), net consists of interest income earned on our cash and cash equivalents and interest expense incurred on our outstanding debt. Net interest expense increased$0.1 million for the three months endedSeptember 30, 2021 due to increased interest expense associated with amounts outstanding under the Pontifax Agreement. InSeptember 2020 , we terminated the PWB Agreement, under which we were paying an annualized interest rate of 5.0% and entered into the Pontifax Agreement, under which we are paying an annualized interest rate of 9.0% on outstanding borrowings. In addition, we were paying Pontifax an annualized fee of 1.0% for the$5.0 million that was available under the Credit Line of the Pontifax Agreement. The availability to withdraw amounts available under the Credit Line expired unused onSeptember 29, 2021 .
Other Expense, net
Other (expense), net consists of gain (loss) on foreign currency transactions.
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30, Dollar
2021 2020 Change
Operating expenses:
Research and development $ 26,966 $ 13,406 $ 13,560
General and administrative 10,562 8,595 1,967 Total operating expenses 37,528 22,001 15,527 Loss from operations (37,528 ) (22,001 ) (15,527 ) Other expense: Interest expense, net (738 ) (261 ) (477 ) Other expense, net (34 ) (325 ) 291 Other income (expense), net (772 ) (586 ) (186 ) Net loss$ (38,300 ) $ (22,587 ) $ (15,713 )
Research and Development Expenses
Research and development expense increased by$13.6 million from$13.4 million for the nine months endedSeptember 30, 2020 to$27.0 million for the nine months endedSeptember 30, 2021 . The following table summarizes our research and development expenses for the nine months endedSeptember 30, 2021 and 2020 (in thousands): Nine Months Ended September 30, Dollar 2021 2020 Change
Clinical development external costs
4,288$ 8,326 Manufacturing external costs 4,443 1,528 2,915 Employee compensation and benefits 7,361 6,122 1,239 Other 2,548
1,468 1,080
Total research and development expenses
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The
? Our clinical development external costs increased by$8.3 million from$4.3 million for the nine months endedSeptember 30, 2020 to$12.6 million for the nine months endedSeptember 30, 2021 : o Our URIROX-2 costs increased$5.6 million from$3.0 million for the nine months endedSeptember 30, 2020 to$8.6 million for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2020 , we limited the opening of new trial sites for the ongoing URIROX-2 trial while we assessed revisions to the study design and sought additional funds to support the development of reloxaliase. We began expanding URIROX-2 to additional geographies and clinical trial sites using a portion of the$13.7 million of net proceeds received from a registered direct offering completed inJune 2020 and the$6.7 million of net proceeds received from a public offering completed inJuly 2020 . We continued to expand URIROX-2 to additional geographies and clinical trial sites and enrolling subjects during the nine months endedSeptember 30, 2021 ; and o Our ALLN-346 costs increased$2.9 million from$0.3 million for the nine months endedSeptember 30, 2020 to$3.2 million for the nine months endedSeptember 30, 2021 . ? During the nine months endedSeptember 30, 2021 , we initiated dosing in two Phase 2a studies. We incurred$2.1 million of costs for the Phase 2a program during the nine months endedSeptember 30, 2021 , for which there were no comparable costs during the nine months endedSeptember 30, 2020 . ? We incurred costs for our Phase 1 program of$1.1 million and$0.3 million for the nine months endedSeptember 30, 2021 and 2020, respectively, as follows: ? 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$0.9 million of clinical costs for this trial during the nine months endedSeptember 30, 2021 , for which there were no comparable costs during the nine months endedSeptember 30, 2020 ; and ? We incurred$0.2 million and$0.3 million of costs during the nine months endedSeptember 30, 2021 and 2020, respectively, for our Phase 1a single ascending dose trial in healthy volunteers, which we completed in the fourth quarter of 2020. ? Our manufacturing external costs increased by$2.9 million from$1.5 million for the nine months endedSeptember 30, 2020 to$4.4 million for the nine months endedSeptember 30, 2021 . o Formulation and development related costs for reloxaliase increased$1.7 million from$0.7 million for the nine months endedSeptember 30, 2020 to$2.4 million for the nine months endedSeptember 30, 2021 ; and o Formulation and development related costs for ALLN-346 increased$0.7 million from$0.6 million for the nine months endedSeptember 30, 2020 to$1.3 million for the nine months endedSeptember 30, 2021 . ? Our employee compensation and benefits costs increased by$1.2 million from$6.1 million for the nine months endedSeptember 30, 2020 to$7.4 million for the nine months endedSeptember 30, 2021 . The increase is primarily due to an increase in headcount from 22 employees atSeptember 30, 2020 to 35 employees atSeptember 30, 2021 , partially offset by a decrease in stock-based compensation costs.
We expect that our research and development expenses will increase in future periods as we continue our clinical development of reloxaliase, scale our manufacturing processes for reloxaliase and advance development of ALLN-346.
General and Administrative Expenses
General and administrative expense increased by$2.0 million from$8.6 million for the nine months endedSeptember 30, 2020 to$10.6 million for the nine months endedSeptember 30, 2021 . The following table summarizes our general and administrative expenses for the nine months endedSeptember 30, 2021 and 2020 (in thousands): Nine Months Ended September 30, Dollar 2021 2020 Change Employee compensation and benefits $ 5,396 $ 5,012$ 384 Consulting and professional services 2,738 1,930 808 Market research and commercialization planning 133 35 98 Other 2,295 1,618 677
Total general and administrative expenses $ 10,562 $ 8,595
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The increase in general and administrative expense was primarily attributable to the following:
? Our employee compensation and benefits costs increased by$0.4 million from$5.0 million for the nine months endedSeptember 30, 2020 to$5.4 million for the nine months endedSeptember 30, 2021 , primarily due to an increase in the number of employees; ? Our consulting and professional services costs increased by$0.8 million from$1.9 million for the nine months endedSeptember 30, 2020 to$2.7 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to a$0.4 million increase in consulting costs and$0.3 million of recruiting costs for the nine months endedSeptember 30, 2021 , for which there were no comparable costs for the nine months endedSeptember 30, 2020 ; and ? Our other costs increased by$0.7 million from$1.6 million for the nine months endedSeptember 30, 2020 to$2.3 million for the nine months endedSeptember 30, 2021 , primarily due to an increase in insurance costs.
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 increased$0.5 million for the nine months endedSeptember 30, 2021 due to increased interest expense associated with amounts outstanding under the Pontifax Agreement.
Other Expense, net
Other expense, net consists gain (loss) on foreign currency transactions.
Included in other expense, net for nine months ended
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations from inception throughSeptember 30, 2021 through gross proceeds of$96.0 million from sales of our convertible preferred stock, 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 of$14.6 million and$1.8 million from the sale of our common stock under the Cowen ATM Agreement and the B. Riley ATM Agreement, respectively, and net proceeds of$25.4 million from the registered direct offering completed inJuly 2021 . Our total cash and cash equivalents were$40.4 million as ofSeptember 30, 2021 . OnMay 6, 2021 , we filed a shelf registration statement on Form S-3, which was declared effective onMay 12, 2021 (File No. 333-255837), for the offering of up to$200 million in the aggregate of common stock, preferred stock, debt securities, warrants and/or units ("securities") from time to time in one or more offerings. As of the filing of this Quarterly Report on Form 10-Q, we have not offered any securities pursuant to this shelf registration. 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. During the three months endedDecember 31, 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. Upon withdrawal of the Third Installment Loan, if withdrawn, we shall pay Pontifax a one-time fee of 1.0% of the Third Installment Loan. 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 on 26 --------------------------------------------------------------------------------September 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. 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 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 nine
months ended
Nine Months Ended September 30,
2021 2020
Net cash used in operations $ (32,875 ) $ (20,329 )
Net cash used in investing activities (642 ) -
Net cash provided by financing activities 38,896
20,458
Net increase in cash and cash equivalents $ 5,379 $
129
The 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$32.9 million for the nine months endedSeptember 30, 2021 compared to$20.3 million for the nine months endedSeptember 30, 2020 . The increase in cash used in operating activities of$12.5 million was attributable to: ? an increase in net loss of$15.7 million ; ? a decrease in non-cash items of$0.2 million ; partially offset by ? an increase of$3.4 million due to changes in the components of net working capital.
Net cash used in investing activities of$0.6 million for the nine months endedSeptember 30, 2021 consisted of purchases of property and equipment. We did not have any cash flow activity relating to investment activities during the nine months endedSeptember 30, 2020 .
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$38.9 million for the nine months endedSeptember 30, 2021 compared to$20.5 million for the nine months endedSeptember 30, 2020 . The net cash provided by financing activities for the nine months endedSeptember 30, 2021 consisted of net proceeds of$11.7 million and$1.8 from the sale of common stock under the Cowen ATM Agreement and the B. Riley ATM Agreement, and$25.4 million of net proceeds from the issuance and sale 27
-------------------------------------------------------------------------------- of 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 and warrants to purchase up to 10,678,872 shares of our common stock completed onJuly 16, 2021 through a registered direct offering, respectively. The net cash provided by financing activities for the nine months endedSeptember 30, 2020 consisted primarily of$13.7 million of net proceeds from the issuance and sale of 7,317,074 shares of our common stock completed onJune 5, 2020 through a registered direct offering and$6.7 million of net proceeds from the issuance of 5,894,191 shares of our common stock completed onJuly 30, 2020 through a public underwritten offering.
Funding Requirements
If we are able to fund our operations, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development, initiate later stage clinical trials 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.
Going Concern
As ofSeptember 30, 2021 , we had cash and cash equivalents totaling$40.4 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 believe that our cash and cash equivalents atSeptember 30, 2021 will enable us to fund our operating expenses and capital requirements into the second quarter of 2022. We will require additional capital to sustain our operations, including our reloxaliase and ALLN-346 development programs, beyond that time. We are exploring opportunities to secure additional funding through equity or debt financings or through collaborations, licensing transactions or other sources. However, there can be no assurance that we will be able to complete any such transaction on acceptable terms or otherwise. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. If we are unable to raise capital when needed or on attractive terms, we may decide to delay, reduce or eliminate our research and development programs or future commercialization efforts and our ability to continue operations will be jeopardized. 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 condensed 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 condensed 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 clinical trials of reloxaliase, including any unforeseen
costs we may incur as a result of clinical trial delays due to the COVID-19
pandemic or other causes;
?
the costs of manufacturing additional material for our pivotal Phase 3 clinical
program and potential future clinical studies we might conduct for reloxaliase;
?
the costs of scaling up our manufacturing process for reloxaliase to prepare for
the potential filing of a BLA and commercialization if our clinical development
program is successful;
?
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;
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?
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.
Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, collaborations, strategic alliances and licensing arrangements.
Except for the Third Installment Loan under the Pontifax Agreement, we do not
have any committed external source of funds. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
your 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 efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under applicable
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