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Item 9A. Controls and Procedures

2024-04-15 compared with 2023-03-20 · 766 added, 456 removed, 352 unchanged (78% of the section changed)

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Limitations on Effectiveness of Controls and Procedures

The term “disclosure controls and procedures,”

as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

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Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934).

Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022.

Management’s Annual Report on Internal Control over Financial Reporting

Our management, with the participation of our Chief Executive Officer and principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934).

Based on that evaluation, our Chief Executive Officer and our principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2023, because of the identified material weaknesses in our internal control over financial reporting described below.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013 framework) (COSO).

Based on its assessment, management believes that, as of December 31, 2022, our internal control over financial reporting is effective at the reasonable assurance level.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2023 as a result of the material weakness discussed below.

We identified material weaknesses in our internal control over financial reporting.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

The material weaknesses primarily related to the accounting for the business combination with Lung Therapeutics, Inc., specifically the (i) lack of sufficient accounting and supervisory personnel to maintain appropriate segregation of duties relating to user access of the financial accounting system and who have the appropriate level of technical accounting experience and training, (ii) lack of evidence over reviews of account reconciliations and supporting schedules, and (iii) lack of adequate procedures and controls to ensure that accurate financial statements could have been prepared and reviewed on a timely basis for annual reporting purposes.

In the year ended December 31, 2023, management identified material weaknesses related to the accounting for our acquisition of Lung, including a lack of

sufficient precision in the performance of reviews supporting the purchase price allocation accounting, and a lack of timely oversight over third-party specialists and the reports they produced to support the accounting for the acquisition.

We are implementing procedures to remediate these material weaknesses, including the hiring of a full-time additional employee in our accounting department, integration into one accounting system, third party accounting specialists and a more streamlined process in order to prepare and review financial information, however, our control environment needs improvement, and as a result we may be exposed to errors.

Our remediation plan also includes the hiring of additional accounting employees and/or consultants with the specific technical accounting experience necessary to assist with complex, non-routine transactions and to support the timely completion of financial close procedures, the implementation of robust processes, and to assist with the preparation of financial statements and our compliance with SEC reporting obligations.

Additionally, we intend to develop and implement consistent accounting policies, internal control procedures and provide additional training to our accounting and financial reporting personnel.

While we are working to remediate such weakness as quickly and efficiently as possible, we cannot at this time, provide an estimate of the timeframe we expect in connection with implementing our plan to remediate the material weaknesses.

Changes in Internal Control Over Financial Reporting

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Other Information

Rule 10b5-1 Trading Plans

During the three months ended December 31, 2023, none of the Company’s directors or executive officers adopted , modified or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of Regulation S-K).

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Directors, Executive Off icers and Corporate Governance

The information required by this Item 10 will be included under the captions “Executive Officers,”

“Election of Directors”

and “Delinquent Section 16(a) Reports”

in our definitive proxy statement to be filed with the Securities and Exchange Commission, or SEC, with respect to our 2023 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of our last fiscal year ended December 31, 2022 and is incorporated herein by reference.

The information required by this Item 10 will be included in our definitive proxy statement to be filed with the Securities and Exchange Commission, or SEC, with respect to our 2024 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of our last fiscal year ended December 31, 2023 and is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics that applies to our officers, including our principal executive, financial and accounting officers, and our directors and employees.

We have posted the text of our Code of Business Conduct and Ethics under the “Investors & Media —

Corporate Governance”

section of our website, www.aileronrx.com .

We have posted the text of our Code of Business Conduct and Ethics under the “Investors & Media — Governance” section of our website, www.aileronrx.com.

We intend to disclose on our website any amendments to, or waivers from, the Code of Business Conduct and Ethics that are required to be disclosed pursuant to the disclosure requirements of Item 5.05 of Form 8-K.

Executiv e Compensation

The information required by this Item 11 will be included under the captions “Executive and Director Compensation”

and “Compensation Committee Interlocks and Insider Participation”

in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is, other than the information required by Item 402(v) of Regulation S-K, incorporated herein by reference

The information required by this Item 11 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2024 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of our last fiscal year ended December 31, 2023 and is incorporated herein by reference.

Security Ownership of Certain Beneficial Own ers and Management and Related Stockholder Matters.

The information required by this Item 12 will be included under the captions “Security Ownership of Certain Beneficial Owners and Management”

and “Securities Authorized for Issuance Under Equity Compensation Plans”

in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

The information required by this Item 12 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2024 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of our last fiscal year ended December 31, 2023 and is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 will be included, as applicable, under the captions “Employment Agreements,”

“Director Independence”

and “Related Person Transactions”

in our definitive proxy statement to be

filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

The information required by this Item 13 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2024 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of our last fiscal year ended December 31, 2023 and is incorporated herein by reference.

Principal Accoun ting Fees and Services

The information required by this Item 14 will be included under the captions “Audit Fees and Services”

and “Pre-Approval Policies and Procedures”

in our definitive proxy statement to be filed with the SEC with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

The information required by this Item 14 will be included in our definitive proxy statement to be filed with the SEC with respect to our 2024 Annual Meeting of Stockholders, which is expected to be filed no later than 120 days after the end of our last fiscal year ended December 31, 2023 and is incorporated herein by reference.

Exhibits, Financ ial Statement Schedules

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The following documents are included on pages F2-F35 attached hereto and are filed as part of this Annual Report on Form 10-K:

Form 10-K Summary.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Balance Sheets as of December 31, 2022 and 2021

Statements of Operations and Comprehensive Loss for the Years ended December 31, 2022 and 2021

Statements of Stockholders’

Equity for the Years ended December 31, 2022 and 2021

Statements of Cash Flows for the Years ended December 31, 2022 and 2021

Notes to Financial Statements

(b) Financial Statement Schedules .

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The exhibits filed as part of this Annual Report on Form 10-K are set forth on the Exhibit Index below.

The Exhibit Index is incorporated herein by reference.

Form 10-K Summary

Exhibit Index

Incorporation by Reference

Date of Filing

Agreement and Plan of Merger, dated October 31, 2023, by and among Aileron Therapeutics, Inc., AT Merger Sub I, Inc., AT Merger Sub II, LLC and Lung Therapeutics, Inc.

Restated Certificate of Incorporation of the Registrant, as amended

Certificate of Amendment of Restated Certificate of Incorporation of the Registrant

Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, dated as of November 10, 2022

Certificate of Amendment of Restated Certificate of Incorporation of the Registrant, dated as of February, 29, 2024

Amended and Restated By-laws of the Registrant

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Description of Securities of the Registrant

Certificate of Designation of Series X Non-Voting Convertible Preferred Stock

Form of Warrant to Purchase Common Stock issued pursuant to the Stock and Warrant Purchase Agreement

2006 Stock Incentive Plan, as amended

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2017 Employee Stock Purchase Plan

2021 Stock Incentive Plan

Aileron Therapeutics, Inc.

2021 Stock Incentive Plan, as amended

Form of Stock Option Agreement under 2021 Stock Incentive Plan

22 unchanged sentences

Separation and Release of Claims Agreement, dated July 8, 2022, by and between the Company and Vojislav Vukovic, M.D., Ph.D.

Separation and Release of Claims Agreement, dated as of April 24, 2023, between the Registrant and D.

Allen Annis, Ph.D.

Consulting Agreement, dated as of April 15, 2023, between the Registrant and D.

Allen Annis, Ph.D.

Waiver Under Amended and Restated License Agreement, dated as of February 19, 2010, by and among the Registrant, President and Fellows of Harvard College and Dana-Farber Cancer Institute, Inc.

Stock and Warrant Purchase Agreement, dated as of October 31, 2023, by and among Aileron Therapeutics, Inc.

and each purchaser identified on Annex A thereto

Form of Registration Rights Agreement, by and among Aileron Therapeutics, Inc.

and certain purchasers named therein

Executive Employment Agreement, dated as of February 1, 2014, by and between Lung Therapeutics, Inc.

and Brian Windsor, Ph.D., as amended

Letter Agreement, dated as of February 11, 2023, by and between Lung Therapeutics, Inc.

and Brian Windsor, Ph.D.

Letter Agreement, dated as of October 30, 2023, by and between Lung Therapeutics, Inc.

and Brian Windsor, Ph.D.

Exclusive License Agreement, dated as of November 12, 2020, by and between Lung Therapeutics, Inc.

and Taiho Pharmaceutical Co.

Amended and Restated Patent and Technology License Agreement, effective as of December 19, 2013, by and between Lung Therapeutics, Inc.

and the Board of Regents of The University of Texas System, on behalf of The University of Texas Health Science Center at Tyler, as amended by First Amendment, effective as of May 4, 2017.

Patent License Agreement, effective as of May 21, 2015, by and between Lung Therapeutics, Inc.

and the University of Texas at Austin, on behalf of The University of Texas System, as amended by Amendment #1, dated as of January 26, 2017, Amendment #2, dated as of November 19, 2018, Amendment #3, effective as of June 20, 2019, and Amendment #4, dated as of April 28, 2023.

Amended and Restated License Agreement, effective as of September 1, 2018, by and between Lung Therapeutics, Inc.

and Medical University of South Carolina Foundation for Research Development.

License Agreement, effective as of March 8, 2018, by and between Lung Therapeutics, Inc.

and Vivarta Therapeutics, L.L.C.

Lung Therapeutics, Inc.2013 Long-Term Incentive Plan, as amended

Letter from PricewaterhouseCoopers LLP regarding change in certifying accountant

Subsidiaries of Aileron Therapeutics, Inc.

Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.

Consent of Marcum LLP, independent registered public accounting firm.

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Aileron Therapeutics, Inc.

Compensation Recovery Policy

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* Indicates management contract or compensatory plan.

+ Confidential treatment has been requested and/or granted as to certain portions, which portions have been omitted and filed separately with the U.S.

Securities and Exchange Commission.

^ SEC File No.

+ In accordance with Item 601(b)(10)(iv) of Regulation S-K, certain information (indicated by “[**]”) has been excluded from this exhibit because it is both not material and private or confidential.

A copy of the omitted portion will be furnished to the SEC upon request.

++ Confidential treatment has been requested and/or granted as to certain portions, which portions have been omitted and filed separately with the SEC.

# Certain schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

The registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized .

Aileron Therapeutics, Inc.

March 20, 2023

/s/ Manuel C.

Alves Aivado, M.D., Ph.D.

April 15, 2024

/s/ Brian Windsor, Ph.D.

Brian Windsor, Ph.D.

President and Chief Executive Officer

(principal executive officer)

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Brian Windsor, Ph.D.

and Charles T.

Garner, each or any of them, such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such person and in such person's name, place and stead, in any and all capacities, to sign any and all amendments to this report on Form 10-K, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done in and about the premises, as fully to all intents and purposes as such person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

/s/ Manuel C.

Alves Aivado, M.D., Ph.D.

/s/ Brian Windsor, Ph.D.

President, Chief Executive Officer and Director (principal executive officer)

March 20, 2023

Alves Aivado, M.D., Ph.D.

Interim Chief Financial Officer (principal financial officer and principal accounting officer)

March 20, 2023

/s/ Jeffrey A.

April 15, 2024

Brian Windsor, Ph.D.

/s/ Charles T.

Senior Vice President, Finance

(principal financial officer and principal accounting officer)

April 15, 2024

Von Rickenbach

Chairman of the Board of Directors

March 20, 2023

April 15, 2024

Von Rickenbach

/s/ Manuel C.

April 15, 2024

/s/ Reinhard J.

Ambros, Ph.D.

March 20, 2023

April 15, 2024

Ambros, Ph.D.

/s/ William T.

March 20, 2023

/s/ Nolan Sigal, M.D., Ph.D.

March 20, 2023

Nolan Sigal, M.D., Ph.D.

/s/ Joseph H.

Von Rickenbach

March 20, 2023

Von Rickenbach

Re port of Independent Registered Public Accounting Firm

/s/ William C.

April 15, 2024

/s/ Alan Musso

April 15, 2024

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID 238)

Report of Independent Registered Public Accounting Firm (PCAOB ID 688 )

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2023 and 2022

Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity for the Years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years ended December 31, 2023 and 2022

Notes to Consolidated Financial Statements

Report of Indepe ndent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Aileron Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Aileron Therapeutics, Inc.

(the “Company”) as of December 31, 2022 and 2021, and the related statements of operations and comprehensive loss, of stockholders’

equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

We have audited the balance sheet of Aileron Therapeutics, Inc.

(the “Company”) as of December 31, 2022, and the related statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has incurred losses and negative cash flows from operations and had an accumulated deficit that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audit of these financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates

Research Contract Costs and Accruals

As described in Notes 2 and 6 to the financial statements, research and development expenses were $18.0 million for the year ended December 31, 2022.

The Company has entered into various research and development contracts with research institutions and other companies.

These agreements are cancelable, and related payments are recorded as research and development expenses as incurred.

The Company records accruals for estimated ongoing research costs, with $0.5 million recorded as of December 31, 2022 within accrued expenses and other current liabilities.

This process involves reviewing open contracts and purchase orders, communicating with personnel to identify services that have been performed and estimating level of service performed and the associated costs incurred for the services for which the Company has not yet been invoiced.

Significant judgment and estimates are made in determining the accrued balances at the end of any reporting period.

The principal considerations for our determination that performing procedures relating to research contract costs and accruals is a critical audit matter are the significant judgment by management when recording accruals for estimated ongoing research costs and a high degree of auditor effort in performing procedures related to the Company’s research contract costs and accruals.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

These procedures included, among others (i) evaluating, on a sample basis, accruals for estimated ongoing research costs, by (a) testing the completeness and accuracy of costs incurred for services that have been performed and for which the Company has been invoiced by comparing amounts to third-party vendor contracts and invoices and (b) evaluating the reasonableness of the cost incurred for the services for which the Company has not yet been invoiced by comparing estimated amounts to information received from third-party vendors and (ii) testing, on a sample basis, classification of research and development expenses.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

1 unchanged sentence

March 20, 2023

We served as the Company’s auditor from 2009 to 2023

Report of Inde pendent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Aileron Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Aileron Therapeutics, Inc.

(the “Company”) as of December 31, 2023, the related consolidated statements of operations and comprehensive loss, changes in convertible preferred stock and stockholders’ equity and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts

and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Business Combination

Critical Audit Matter Description

As described in Note 3 to the financial statements, the Company acquired Lung Therapeutics, Inc.

on October 31, 2023.

This acquisition was accounted for as a business combination.

We identified the evaluation of the acquisition-date fair value of the intangible assets acquired as a critical audit matter.

The principal consideration for our determination that the evaluation of the acquisition-date fair values of the intangible assets acquired was a critical audit matter is the high degree of subjective auditor judgment associated with evaluating management’s determination of the fair values of the acquired intangible assets, which is primarily due to the complexity of the valuation models used and the sensitivity of the underlying significant assumptions.

The key assumptions used within the valuation models included prospective financial information such as future revenue growth and an applied discount rate.

The calculated fair values are sensitive to changes in these key assumptions.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the evaluation of acquisition-date fair values of intangible assets acquired included the following, among others:

• We evaluated the reasonableness of the purchase price allocation analysis from management and the third-party specialist engaged by management.

• We assessed the qualifications and competence of management and the third-party specialist.

• We evaluated the methodologies used to determine the fair values of the intangible assets.

• We tested the assumptions used within the discounted cash flow models to estimate the fair values of the intangible assets, which included key assumptions such as the future revenue growth and the applied discount rate.

• We assessed the reasonableness of management’s forecast by inquiring with management to understand how the forecast was developed and comparing the projections to external sources, including industry trends and peer companies’ historical data.

• We involved our internal valuation specialist who assisted in the evaluation and testing performed on the reasonableness of significant assumptions to the models, including the applied discount rate.

/s/ Marcum LLP

We have served as the Company’s auditor since 2024.

April 15, 2024

AILERON THERAPEUTICS, INC.

BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

3 unchanged sentences

Restricted cash

Operating lease, right-of-use asset, current portion

Total current assets

Operating lease, right-of-use asset

Other non-current assets

Property and equipment, net

Liabilities and Stockholders’

Intangible assets

Other non-current assets

Liabilities, Convertible Preferred Stock and Stockholders’ Equity

Current liabilities:

3 unchanged sentences

Total current liabilities

Operating lease liabilities, net of current portion

Deferred tax liability

Total liabilities

Commitments and contingencies (Note 15)

Stockholders’

Preferred stock, $ 0.001 par value;

5,000,000 shares authorized

at December 31, 2022 and December 31, 2021;

issued and outstanding at December 31, 2022 and December 31, 2021

Convertible preferred stock, $ 0.001 par value, 5,000,000 shares authorized at December 31, 2023 and at December 31, 2022;

24,610 shares issued and outstanding at December 31, 2023 and no shares issued and outstanding at December 31, 2022

Stockholders’ equity:

Common stock, $ 0.001 par value;

45,000,000 and 15,000,000 shares

authorized at December 31, 2022 and December 31, 2021;

respectively;

4,541,167 and 4,528,667 shares issued and outstanding at

December 31, 2022 and December 31, 2021, respectively

45,000,000 shares authorized at December 31, 2023 and December 31, 2022;

4,885,512 shares and 4,541,167 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

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

Total stockholders’ equity

Total liabilities, convertible preferred stock and stockholders’ equity

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

AILERON THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

3 unchanged sentences

General and administrative

Restructuring and other costs

Total operating expenses

1 unchanged sentence

Other income (expense), net

Net loss per share—basic and diluted

Weighted average common shares outstanding—basic and diluted

Net loss per share—basic and diluted

Weighted average common shares outstanding—basic and diluted

Comprehensive loss:

Other comprehensive gain (loss):

Unrealized (loss) on investments, net of tax of $ 0

Unrealized gain on short-term investments, net of tax of $ 0

Foreign currency translation adjustments

Total other comprehensive loss

Total comprehensive loss

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

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

AILERON THERAPEUTICS, INC.

STATEMENT OF STOCKHOLDERS ’

CONSOLIDATED STATEMENT OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS ’ EQUITY

(In thousands, except share data)

Convertible Series X Preferred Stock

Comprehensive

Stockholders'

Convertible Preferred Stock and Stockholders'

Balances at December 31, 2021

Issuance of common stock

Issuance costs

RSUs vested, net of shares repurchased for tax

Exercise of stock options

Stock-based compensation expense

1 unchanged sentence

Balances at December 31, 2022

RSUs vested, net of shares repurchased for tax

Issuance of common stock in connection with business acquisition

Issuance of Series X preferred stock in connection with business acquisition

Stock options assumed in connection with business acquisition

Common stock warrants assumed in connection with business acquisition

Issuance of Series X preferred stock in connection with the Financing, net of issuance costs of $ 855

Issuance of common stock warrants in connection with the Financing, net of issuance costs of $ 38

Stock-based compensation expense

Unrealized loss on investments

Unrealized gain on short-term investments

Foreign currency translation adjustments

Balances at December 31, 2023

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

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

AILERON THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

5 unchanged sentences

Stock-based compensation expense

Forgiveness of Paycheck Protection Program loan

(Gain) on disposition of property and equipment

Gain on sale of property and equipment

Loss on disposition of property and equipment

Changes in operating assets and liabilities:

5 unchanged sentences

Cash flows from investing activities:

Proceeds from sale of property and equipment

Purchases of investments

Proceeds from sales or maturities of investments

Purchases of property and equipment

Proceeds from sale of fixed asset

Net cash (used in) provided by investing activities

Acquisition, net of cash acquired

Net cash provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock, common warrants and pre-funded warrants, net of issuance costs

Proceeds from exercise of stock options

Proceeds from the Financing

Net cash provided by financing activities

Net Increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Cash and cash equivalents, end of year

Restricted cash, end of year

Cash and cash equivalents and restricted cash, end of year

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

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of year

Cash, cash equivalents and restricted cash at end of year

Cash and cash equivalents at end of year

Restricted cash at end of year

Cash, cash equivalents and restricted cash at end of year

Supplemental disclosure of non-cash investing and financing activities:

Unrealized gain on short-term investments

Fair value of common shares issued in the Lung Acquisition

Fair value of Series X Preferred Stock issued in the Lung Acquisition

Fair value of options assumed in the Lung Acquisition

Fair value of warrants assumed in the Lung Acquisition

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

A ILERON THERAPEUTICS, INC.

NOTES TO FINANCIAL ST ATEMENTS

NOTES TO CONSOLIDATED FINANCIAL ST ATEMENTS

(Amounts in thousands, except share and per share data)

Nature of the Business and Basis of Presentation

Nature of the Business

Aileron Therapeutics, Inc.

(“Aileron”

or the “Company”) is a clinical stage chemoprotection oncology company.

Our product candidate, ALRN-6924, is a MDM2/MDMX dual inhibitor that leverages our proprietary peptide drug technology.

When used as a chemoprotective agent, ALRN-6924 is designed to activate p53, which in turn upregulates p21, a known inhibitor of the cell replication cycle.

ALRN-6924 was the only reported chemoprotective agent in clinical development to employ a biomarker strategy, in which we exclusively focused on treating patients with p53-mutated cancers.

We originally initiated development of ALRN-6924 as an anti-cancer agent to restore p53-dependent tumor suppression in p53 wild-type tumors.

When used as an anti-cancer agent, ALRN-6924 is designed to disrupt the interaction of p53 suppressors MDM2 and MDMX with tumor suppressor p53 to reactivate tumor suppression in non-mutant, or wild-type, p53 cancers.

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations, uncertainties in the clinical development of product candidates and in the ability to obtain needed additional financing.

ALRN-6924 will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization.

These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance-reporting capabilities.

In February 2023, the Company decided to terminate further development of ALRN-6924 and to reduce its workforce from nine to three full-time employees.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

On November 10, 2022, the Company effected a one-for-twenty reverse stock split on its common stock (the “Reverse Stock Split”).

The Reverse Stock Split was reflected on the Nasdaq Capital Market beginning with the opening of trading on November 11, 2022.

Pursuant to the Reverse Stock Split, every 20 shares of the Company's issued and outstanding shares of common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share of the common stock.

The Reverse Stock Split reduced the authorized number of shares of common stock from 300,000,000 to 15,000,000 and, pursuant to the certificate of amendment, such reduced authorized number of shares of common stock was subsequently multiplied by three, such that following the Reverse Stock Split the Company has 45,000,000 shares of common stock authorized.

The Reverse Stock Split affected all issued and outstanding shares of the Company's common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding stock options, outstanding warrants and the Company's equity incentive plans were proportionately adjusted.

All share and per share amounts of the common stock included in the accompanying consolidated financial statements have been retrospectively adjusted to give effect to the Reverse Stock Split for all periods presented.

In accordance with Accounting Standards Update (“ASU”) No.

2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued.

When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company’s ability to continue as a going concern.

The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

The Company’s financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business.

Through December 31, 2022, the Company has financed operations primarily through $ 145,467 in net proceeds from sales of common stock and warrants, $ 131,211 from sales of preferred stock prior to its IPO, and $ 34,910 from a collaboration agreement in 2010.

As of December 31, 2022, the Company had cash, cash equivalents and investments of $ 21,242 .

The Company has incurred losses and negative cash flows from operations and had an accumulated deficit of $ 272,785 as of December 31, 2022.

The Company expects to continue to generate losses for the foreseeable future.

On February 21, 2023, the Company has decided to terminate the Phase 1b breast cancer trial and further development of ALRN-6924.

The Company determined to reduce the Company’s remaining workforce from nine to three employees.

The Company also announced that it is exploring a range of strategic alternatives to maximize stockholder value.

The Company has engaged a third party to act as a strategic advisor for this process.

Strategic alternatives that are being evaluated may include, but are not limited to, an acquisition, a merger, a business combination, a sale of assets or other transaction.

There is no set timetable for this process and there can be no assurance that this process will result in the Company pursuing a transaction or that any transaction, if pursued, will be completed.

While the Company has cash, cash equivalents and investments of $ 21,242 as of December 31, 2022, due to the inherent uncertainty in the timing and cost of potential strategic alternatives, including their impact on its cash consumption, the Company has concluded that as of the date of this Annual Report on Form 10-K there is substantial doubt about its ability to continue as a going concern for a period of twelve months from the issuance of these financial statements.

The Company will need substantial funding to support its continuing operations.

Until such time as the Company can generate significant revenue, if ever, it expects to finance its operations through the sale of common stock in public offerings and/or private placements, debt financings or other capital sources, including third-party funding.

The Company may not be able to obtain financing when needed, on acceptable terms or at all.

The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders.

There can be no assurance that a strategic transaction will be completed and our board of directors may decide to pursue a dissolution and liquidation.

If the Company is unable to raise additional funds when needed or enter into a transaction, the Company may be required to delay, limit, reduce or terminate its strategic process and it may consider seeking protection under the bankruptcy laws.

If the Company decides to seek protection under the bankruptcy laws, the Company would expect that it would file for bankruptcy at a time that is significantly earlier than when it would otherwise exhaust its cash resources.

If the Company decides to dissolve and liquidate its assets or to seek protection under the bankruptcy laws, it is unclear to what extent the Company will be able to pay its obligations, and, it is further unclear whether and to what extent any resources will be available for distributions to its stockholders.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty .

(“Aileron” or the “Company”) was a clinical stage chemoprotection oncology company.

The Company's product candidate, ALRN-6924, was a MDM2/MDMX dual inhibitor that leverages its proprietary peptide drug technology.

In February 2023, the Company decided to terminate further development of ALRN-6924.

Refer to Note 10 for more details on the restructuring event in 2023.

On October 31, 2023, Aileron acquired Lung Therapeutics, Inc.

(“Lung Therapeutics” or "Lung") pursuant to an Agreement and Plan of Merger, dated October 31, 2023 (the “Lung Acquisition Agreement”), by and among the Company, AT Merger Sub I, Inc., a Delaware corporation and its wholly owned subsidiary, or First Merger Sub, AT Merger Sub II, LLC, a Delaware limited liability company and its wholly owned subsidiary, or Second Merger Sub, and Lung.

Pursuant to the Lung Acquisition Agreement, First Merger Sub merged with and into Lung, pursuant to which Lung was the surviving entity and became its wholly owned subsidiary, or the First Merger.

Immediately following the First Merger, Lung merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity, such merger, together with the First Merger, the Lung Acquisition.

Lung was incorporated on November 13, 2012 under the laws of the state of Texas.

Its principal offices are in Austin, Texas.

Following the Lung Acquisition, the Company shifted its operating disease focus to advancing a pipeline of first-in-class medicines to address significant unmet medical needs in orphan pulmonary and fibrosis indications with the potential to greatly improve patient outcomes over currently available treatments.

Following expiration of the lease on March 31, 2024, the Company expects to operate virtually for the foreseeable future.

The Company is subject to risks and uncertainties common to clinical-stage companies in the biotechnology industry, including, but not limited to the risk that the Company never achieves profitability, the need for substantial additional financing, the risk of relying on third parties, risks of clinical trial failures, dependence on key personnel, protection of proprietary technology, and compliance with government regulations.

The Company’s lead product candidate, LTI-03, is being developed for the treatment of Idiopathic Pulmonary Fibrosis (“IPF”) and has completed a healthy volunteer Phase 1a clinical trial.

LTI-03 is currently in a Phase 1b clinical trial in IPF patients.

The Company’s second product candidate, LTI-01, is in development for loculated pleural effusion (“LPE”).

The Company has completed Phase 1b and Phase 2a clinical trials in LPE patients.

Liquidity and Going Concern

In accordance with Accounting Standards Update (“ASU”) No.

2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying consolidated financial statements were issued.

This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the consolidated financial statements are issued.

When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company’s ability to continue as a going concern.

The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the consolidated financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the consolidated financial statements are issued.

The Company’s consolidated financial statements have been prepared assuming that the Company will continue to operate as a going concern, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business.

Through December 31, 2023, the Company has financed its operations primarily through $ 145,467 in net proceeds from sales of common stock and warrants, $ 131,211 from sales of

preferred stock prior to its initial public offering (“IPO”), and $ 34,910 from a collaboration agreement in 2010, and $ 18,429 in gross proceeds, less issuance costs of $ 893 , in connection with the financing following the Lung Acquisition, which included the conversion of certain convertible promissory notes in the aggregate principal amount of approximately $ 1,553 issued by Lung to Bios Partners prior to the closing of the Lung Acquisition at a 10 % discount to the per share price of the Series X non-voting convertible preferred stock (“Series X Preferred Stock”), or the Financing, and collectively with the Lung Acquisition, the Transactions.

After the Lung Acquisition, management believes that, based on the Company’s current operating plan, the Company’s cash and cash equivalents of $ 17,313 as of December 31, 2023, will enable Aileron to fund its operating expenses and capital expenditure requirements for at least six months following the date of this Annual Report on Form 10-K.

Since its inception, the Company has not generated any revenue from product sales and have never generated an operating profit.

The Company has incurred significant losses on an aggregate basis.

The Company’s net losses were $ 15,732 and $ 27,329 for the years ended December 31, 2023 and 2022, respectively.

A s of December 31, 2023, the Company had an accumulated deficit of $ 288,517 .

These losses have resulted primarily from costs incurred in connection with research and development activities, licensing and patent investment and general and administrative costs associated with the Company's operations.

In February 2023, the Company discontinued development of ALRN-6924 which substantially reduced its operating expenses.

Notwithstanding these events, management expects to continue to incur operating losses for the foreseeable future until the Company completes development and approval of its product candidates.

The Company will continue to fund its operations primarily through utilization of its current financial resources and additional raises of capital.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date those consolidated financial statements are issued.

The Company plans to address these conditions by raising funds from its current investors, potential outside investors and other funding sources.

However, there is no assurance that such funding will be available to the Company, will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives.

The Company’s funding estimates are based on assumptions that may prove to be wrong, and the Company could use its available capital resources sooner than it currently expects.

The Company’s future viability is dependent on its ability to raise additional capital, enter into a financing, consummate a successful acquisition, merger, business combination, or a sale of assets or other transaction.

If the Company becomes unable to continue as a going concern, it may have to liquidate its assets and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its consolidated financial statements.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by ASUs of the Financial Accounting Standards Board (“FASB”).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Lung Therapeutics, LLC, Lung Therapeutics Australia Pty Ltd, and Lung Therapeutics Limited.

All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual of research and development expenses and the valuation of common stock and stock-based awards.

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, the value of stock-based

compensation, the purchase price allocation for the Lung Acquisition, and the valuation of warrants.

Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

Actual results could differ from the Company’s estimates.

Cash Equivalents

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents.

Cash equivalents, which consist of money market accounts and commercial paper, are stated at fair value.

Restricted Cash

As of December 31, 2022 and December 31, 2021 , restricted cash of $ 25 consisted of cash deposited in a separate restricted bank account as a security deposit for the Company’s corporate credit cards.

The Company classifies its available-for-sale debt security investments as current assets on the balance sheet if they mature within one year from the balance sheet date.

The Company classifies all of its investments as available-for-sale securities.

The Company’s investments are measured and reported at fair value using quoted prices in active markets for similar securities or using other inputs that are observable or can be corroborated by observable market data.

Unrealized gains and losses on available-for-sale securities are reported as accumulated other comprehensive income (loss), which is a separate component of stockholders’

equity (deficit).

The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in other income (expense) within the statements of operations and comprehensive loss.

The Company evaluates its investments with unrealized losses for other-than-temporary impairment.

When assessing investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general.

If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary”, the Company reduces the investment to fair value through a charge to the statements of operations and comprehensive loss.

No such adjustments were necessary during the periods presented.

Changes in estimates are recorded in the period in which they become known.

Actual results could differ from those estimates.

Foreign Currency Transactions

The functional currency for the Company’s wholly owned foreign subsidiary, Lung Therapeutics Australia Pty Ltd., is the United States dollar.

All foreign currency transaction gains and losses are recognized in the consolidated statements of operations and comprehensive loss.

Concentration of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and investments.

From time to time, the Company has maintained all of its cash, cash equivalents and investment balances at three accredited financial institutions, in amounts that exceed federally insured limits.

The Company generally invests its excess cash in money market funds, commercial paper and corporate notes that are subject to minimal credit and market risks.

Management has established guidelines relative to credit ratings and maturities intended to safeguard principal balances and maintain liquidity.

The investment portfolio is maintained in accordance with the Company’s investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer.

Prior to the February 2023 decision to discontinue development of ALRN-6924, the Company was dependent on third-party manufacturers to supply products for research and development activities of its programs, including preclinical and clinical testing.

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents.

Periodically, the Company maintains balances in operating accounts above federally insured limits.

The Company deposits its cash in financial institutions that it believes have high credit quality.

The Company has not experienced any losses on such accounts and does not believe it is exposed to any significant credit risk on cash and cash equivalents.

The Company is dependent on third-party manufacturers to supply products for research and development activities of its programs, including preclinical and clinical testing.

In particular, the Company relied on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs.

These programs could have been adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs.

Cash and Cash Equivalents

The Company maintains cash balances in various accounts, including those insured by the Federal Deposit Insurance Corporation (FDIC).

The FDIC provides insurance coverage up to applicable limits for deposits held in participating financial institutions.

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at the acquisition date to be cash equivalents.

The Company’s cash equivalents are comprised of funds held in money market accounts and are measured at fair value on a recurring basis .

Restricted Cash

As of December 31, 2023 and December 31, 2022 , restricted cash of $ 25 consisted of cash deposited in a separate restricted bank account as a security deposit for the Company’s corporate credit cards.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP.

ASC 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs).

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

1 unchanged sentence

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable.

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 3).

The carrying values of the Company’s accounts payable and accrued expenses approximate their fair value due to the short-term nature of these liabilities.

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

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 Company’s cash equivalents are carried at fair value, determined according to the fair value hierarchy described above (see Note 3).

The carrying values of the Company’s accounts payable and accrued expenses approximate their fair value due to the short-term nature of these liabilities.

Property and Equipment

4 unchanged sentences

Expenditures for repairs and maintenance of assets are charged to expense as incurred.

Upon retirement or sale, the cost and related accumulated depreciation and amortization of assets disposed of are removed from the accounts and any resulting gain or loss is included in the statements of operations and comprehensive loss.

The Company has an operating lease of office space, which has a remaining lease term of less than 1 year and includes one or more options to renew or terminate early.

The Company accounts for leases under ASC Topic 842, Leases (“ASC 842”).

Under ASC 842, at inception of a contract, the Company determines whether an arrangement is or contains a lease.

For all leases, the Company determines the classification as either operating leases or financing leases.

Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the Company’s consolidated balance sheets.

Lease recognition occurs at the commencement date and lease liability amounts are based on the present value of lease payments over the lease term.

The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

If a lease does not provide information to determine an implicit interest rate, the Company uses its incremental borrowing rate in determining the present value of lease payments.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments under the lease.

ROU assets also include any lease payments made prior to the commencement date and exclude lease incentives received.

Operating lease payments are expensed using the straight-line method as a general and administrative expense over the lease term.

The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

The Company has elected to apply the practical short-term expedient to leases with a lease term of 12 months or less, which does not subject the leases to capitalization.

The Company has an operating lease of office space, which has a remaining lease term of less than one year and includes one or more options to renew or terminate early.

The Company determines if an arrangement contains a lease at inception.

1 unchanged sentence

Certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued lease payments, initial direct costs paid or incentives received.

The Company’s leases do not contain an implicit rate, and therefore the Company uses an estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

Options to extend or terminate the lease are reflected in the calculation when it is reasonably certain that the option will be exercised.

The Company has elected to account for lease and non-lease components as a single lease component, however non-lease components that are variable, such as common area maintenance and utilities, are generally paid separately from rent based on actual costs incurred and therefore are not included in the right-of-use asset and operating lease liability and are reflected as an expense in the period incurred.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

included in the right-of-use asset and operating lease liability and are reflected as an expense in the period incurred.

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed.

The Company's indefinite-lived intangible assets, which consist of in-process research and development ("IPR&D"), acquired in the Lung Acquisition were recorded at fair value on their acquisition date.

Goodwill and indefinite-lived intangible assets are not amortized but are subject to impairment testing on an annual basis as of December 31 or more frequently if events or circumstances indicate a potential impairment.

The Company accounts for goodwill and indefinite-lived intangible assets in accordance with ASC 350, Intangibles Goodwill and Other, and Accounting Standards Update, or ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

The Company’s goodwill and intangible assets are deductible for tax purposes.

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment.

Long-lived assets consist of property and equipment, goodwill and intangible assets.

Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

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The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

To date, the Company has not recorded any impairment losses on long-lived assets.

In performing the Company’s annual goodwill impairment test, the Company is permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of the Company’s reporting unit exceeds its carrying amount, including goodwill.

In performing the qualitative assessment, the Company considers certain events and circumstances specific to the reporting unit and to the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of the reporting unit exceeds its carrying amount.

The Company is also permitted to bypass the qualitative assessment and proceed directly to the quantitative assessment.

If the Company chooses to undertake the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company would then proceed to the quantitative impairment assessment.

In the quantitative assessment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill.

If the fair value exceeds the carrying value, no impairment loss exists.

If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded.

To date, the Company has no t recorded any impairment losses on long-lived assets.

For additional details regarding goodwill and intangible assets, refer to Note 7.

Series X Convertible Preferred Stock

The Company has classified its Series X convertible preferred stock, referred to as Series X Preferred Stock, as temporary equity in the accompanying consolidated balance sheets due to terms that allow for redemption of the shares in cash upon certain change in control events that are outside of the Company’s control, including sale or transfer of control of the Company as holders of the Series X Preferred Stock could cause redemption of the shares in these situations.

The Company did not accrete the carrying values of the preferred stock to the redemption values since a liquidation event was not considered probable as of December 31, 2023.

Subsequent adjustments of the carrying values to the ultimate redemption values will be made only when it becomes probable that such a liquidation event will occur .

Research and Development Costs

Research and development expenditures are expensed as incurred.

Research and development expenses are comprised of salaries, stock-based compensation and benefits of employees, third-party license fees and other operational costs related to the Company’s research and development activities, including allocated facility-related expenses and external costs of outside vendors engaged to conduct both preclinical studies and clinical trials.

Research Contract Costs and Accruals

The Company has entered into various research and development contracts with research institutions and other companies.

These agreements are cancelable, and related payments are recorded as research and development expenses as incurred.

The Company records accruals for estimated ongoing research costs.

Significant judgment and estimates are made in determining the accrued balances at the end of any reporting period.

Actual results could differ from the Company’s estimates.

The Company’s historical accrual estimates have not been materially different from the actual costs.

Research and development costs are expensed as incurred.

Research and development expenses are comprised of costs incurred in performing research and development activities, including stock-based compensation and benefits, facilities costs, costs of clinical trials, sponsored research, manufacturing, and external costs of outside vendors engaged to conduct preclinical development activities and trials.

Costs incurred in obtaining technology licenses are immediately recognized as research and development expense if the technology licensed has not reached technological feasibility and has no alternative future uses.

The Company has entered into various research and development and other agreements with commercial firms, researchers, universities, and others for provisions of goods and services.

These agreements are generally cancelable, and the related costs are recorded as research and development expenses as incurred.

Research and development expenses include costs for salaries, employee benefits, subcontractors, facility-related expenses, depreciation and amortization, stock-based compensation, laboratory supplies, and external costs of outside vendors engaged to conduct discovery, preclinical and clinical development activities, and clinical trials as well as to manufacture clinical trial materials, and other costs.

The Company records accruals for estimated ongoing research and development costs.

When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs.

Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.

Actual results could differ materially from the Company’s estimates.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses.

Such prepaid expenses are recognized as an expense when the goods have been delivered or the related services have been performed, or when it is no longer expected that the goods will be delivered, or the services rendered.

Upfront payments, milestone payments and annual maintenance fees under license agreements are expensed in the period in which they are incurred in the consolidated statements of operations and comprehensive loss.

All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure.

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Accounting for Stock-Based Compensation

The Company measures all stock options and other stock-based awards granted to employees and directors based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

The Company measures all stock options and other stock-based awards granted to employees, directors and non-employee consultants based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

The Company applies the straight-line method of expense recognition to all awards with only service-based vesting conditions and applies the graded vesting method to all awards with performance-based vesting conditions or both service-based and performance-based vesting conditions.

The Company recognizes compensation expense for only the portion of awards that are expected to vest.

In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for awards with service-based vesting conditions.

The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock-based compensation expense in future periods.

The Company classifies share-based compensation expense in its statement of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.

The Company accounts for forfeitures as they occur.

For performance-based awards, the Company does not recognize expense until the underlying vesting conditions are deemed to be probable of occurrence.

The Company classifies share-based compensation expenses in its statement of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified, either to general and administrative expenses or research and development expenses.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company historically has been a private company and lacks company-specific historical and implied volatility information.

Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price.

For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified”

method for awards that qualify as “plain-vanilla”

The expected term of stock options granted to non-employees is equal to the contractual term of the option award.

The Company estimates its expected stock volatility based on the historical volatility of its own traded stock price.

For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.

The expected term of

stock options granted to non-employees is equal to the contractual term of the option award.

The risk-free interest rate is determined by reference to the U.S.

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Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns.

The quoted market price of the Company’s common stock is used to estimate the fair value of the stock-based awards at grant date.

Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense.

Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change.

Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

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The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Inflation Reduction Act of 2022

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law.

The IR Act provides for, among other things, a new U.S.

federal 1 % excise tax on certain repurchases of stock by publicly traded U.S.

domestic corporations and certain U.S.

domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.

The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased.

The amount of the excise tax is generally 1 % of the fair market value of the shares repurchased at the time of the repurchase.

However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year.

In addition, certain exceptions apply to the excise tax.

Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

Any redemption or other repurchase that occurs after December 31, 2022, in connection with a business combination, extension vote or otherwise, may be subject to the excise tax.

Whether and to what extent the Company would be subject to the excise tax in connection with a business combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, extension or otherwise, (ii) the structure of a business combination, (iii) the nature and amount of any private investment in public equity ( “PIPE”) or other equity issuances in connection with a business combination (or otherwise issued not in connection with a business combination but issued within the same taxable year of a business combination) and (iv) the content of regulations and other guidance from the Treasury.

In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined.

The foregoing could cause a reduction in the cash available on hand to complete a business combination and in the Company’s ability to complete a business combination.

Segment Information

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.

The Company’s singular focus is on developing a novel class of therapeutics for the treatment of cancer and other diseases.

All of the Company’s tangible assets are held in the United States.

The Company’s singular focus is on developing novel therapies for the treatment of orphan pulmonary and fibrosis indications with no approved or limited effective treatments .

All of the Company’s tangible assets are held in the United States.

The Company views its operations and manages its business in one operating segment operating exclusively in the United States.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’

equity (deficit) that result from transactions and economic events other than those with stockholders.

The Company’s only element of other comprehensive loss in all periods presented was unrealized gains (losses) on available-for-sale investments.

Net Income (Loss) per Share

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period.

Diluted net income (loss) attributable to common stockholders is computed by adjusting income (loss) per share attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares.

For purpose of this calculation, outstanding options to purchase common stock are considered potential dilutive common shares.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes , or ASC 740, which simplifies the accounting for income taxes.

The ASU was effective for the Company in the first quarter of fiscal 2021.

Adoption of ASU2019-12 did not have a material effect on the Company’s consolidated financial statements or disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASU 2016-13 or Topic 326):

Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses.

The ASU will be effective for the Company's fiscal year beginning January 1, 2023.

The Company is currently evaluating the impact of the adoption of ASU 2016-13 and does not expect adoption to have a material effect on the Company’s consolidated financial statements or disclosures.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders.

The Company’s other comprehensive loss in all periods presented includes unrealized gains (losses) on available-for-sale investments and foreign currency translation adjustments.

Net Loss per Share

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period.

Diluted net loss attributable to common stockholders is computed by adjusting loss per share attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares.

For purpose of this calculation, outstanding options and warrants to purchase common stock are considered potential dilutive common shares.

Acquisition Accounting

The fair value of the consideration exchanged in a business combination is allocated to tangible assets and identifiable intangible assets acquired and liabilities assumed at acquisition date fair value.

Goodwill is measured as the excess of the consideration transferred over the net fair value of identifiable assets acquired and liabilities assumed.

The accounting for an acquisition involves a considerable amount of judgment and estimation.

Cost, income, market or a combination of approaches may be used to establish the fair value of consideration exchanged, assets acquired, and liabilities assumed, depending on the nature of those items.

The valuation approach is determined in accordance with generally accepted valuation methods.

Key areas of estimation and judgment may include the selection of valuation approaches, cost of capital, market characteristics, cost structure, impacts of synergies, and estimates of terminal value, among other factors.

While the Company uses estimates and assumptions as part of the purchase price allocation process to estimate the fair value of assets acquired and liabilities assumed, estimates are inherently uncertain and subject to refinement.

During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill, to the extent that adjustments are identified to the preliminary purchase price allocation.

Upon conclusion of the measurement period, or final determination of the value of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to results of operations.

Recently Adopted Accounting Pronouncements

On January 1, 2023, the Company adopted ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, for the fiscal year beginning January 1, 2023 using the modified retrospective approach, and no cumulative effect adjustment to accumulated deficit was needed as of the adoption date.

Additionally, no prior period amounts were adjusted.

The new standard adjusts the accounting for assets held on an amortized cost basis, including short-term investments accounted for as available-for-sale, and receivables.

The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses.

The allowance for credit losses is a valuation account that is deducted from the amortized

cost basis of the financial assets to present the net amount expected to be collected.

The adoption of this standard did no t have a material impact on the Company’s consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted

In October 2023, the FASB issued ASU 2023-06—Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to clarify or improve disclosure and presentation requirements of a variety of Topics.

ASU 2023-06 adds 14 of the 27 identified disclosure or presentation requirements to the Codification.

However, each amendment in the ASU will only become effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027.

The effective dates of ASU 2023-06 will depend, in part, on whether an entity is already subject to the SEC’s current disclosure requirements.

For such entities and those that must “file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer,” the effective date for each amendment will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

For all other entities, the amendments will be effective two years after the date of such removal.

The Company is currently assessing the effect of this ASU on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07—Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses.

All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023.

The Company plans to adopt the ASU for the fiscal year beginning January 1, 2024.

Since the Company has only one reportable segment, the Company will need to disclose the title and position of the chief operating decision maker (“CODM”) and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources, as well as disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the CODM.

The Company is currently assessing the effect of this ASU on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09—Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information as well as certain other amendments to improve the effectiveness of income tax disclosures.

The amendments in this update are effective for annual periods beginning after December 15, 2024.

The Company does not expect adoption of this ASU to have a material impact on its results of operations, financial condition, and its consolidated financial statements other than adding new disclosures, which the Company is currently evaluating, as the Company has not recorded any net tax provision for the periods presented due to the losses incurred and the need for a full valuation allowance on net deferred tax assets.

Business Acquisition

On October 31, 2023, Aileron acquired 100 % of Lung, pursuant to the Lung Acquisition Agreement.

At the closing of the Lung Acquisition, Aileron issued to the stockholders of Lung 344,345 shares of its common stock (excluding 221 fractional shares from the total 344,566 shares pursuant to the Lung Acquisition Agreement) and 19,903 shares of its newly designated Series X Preferred Stock (excluding 238 fractional shares from the total 20,141 shares pursuant to the Lung Acquisition Agreement).

Each share of Series X Preferred Stock is convertible into 1,000 shares of common stock.

The Company paid $ 290 cash in lieu of fractional shares of both common stock and Series X Preferred Stock.

In addition, Aileron assumed all Lung's stock options ( 1,780,459 ) and all warrants ( 726,437 )

exercisable for Lung common stock immediately outstanding prior to the closing of the Lung Acquisition, each subject to adjustment pursuant to the terms of the Lung Acquisition Agreement.

Immediately following the closing of the Lung Acquisition, on October 31, 2023, Aileron entered into a Stock and Warrant Purchase Agreement (the “Purchase Agreement” or the "PIPE") with a group of accredited investors, pursuant to which Aileron issued and sold (i) an aggregate of 4,707 shares of Series X Preferred Stock, and (ii) warrants (the “Warrants”) to purchase up to an aggregate of 2,353,500 shares of Aileron common stock (the “Warrant Shares”), for an aggregate purchase price of approximately $ 18,429 , which included the conversion of certain convertible promissory notes in the aggregate principal amount of $ 1,553 issued by Lung to Bios Partners, the majority stockholder of Lung prior to the closing of the Lung Acquisition, at a 10 % discount to the per share price of the Series X Preferred Stock.

The Financing closed on November 2, 2023.

Subject to stockholder approval for the conversion rights of the Series X Preferred Stock, each share of Series X Preferred Stock is convertible into 1,000 shares of common stock.

The net proceeds from the Financing of approximately $ 17,536 are expected to be used to advance Aileron’s clinical development pipeline, business development activities, working capital and other general corporate purposes.

The Lung Acquisition was accounted for under the acquisition method of accounting under ASC 805.

Under the acquisition method, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on the fair values as of the date of the acquisition.

Consideration transferred is the sum of the acquisition-date fair values of the assets transferred, the liabilities incurred by the acquirer to the former owners of the acquiree, and the equity interests issued by the acquirer to the former owners of the acquiree (except for the measurement of share-based payment awards).

The total purchase price consideration consisted of the following:

Fair value of common stock issued to Lung stockholders

Fair value of Series X Preferred Stock issued to Lung stockholders

Cash in lieu of fractional shares

Fair value of the options assumed

Fair value of the warrants assumed

Total purchase price consideration

The Company recorded the assets acquired and liabilities assumed as of the date of the Lung Acquisition based on the information available at that date.

The following table presents the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed as of the Lung Acquisition date:

Assets acquired:

Cash and cash equivalents

Prepaid expenses and other current assets

Property and equipment, net

Operating right-of-use assets

Indefinite-lived intangible assets

Liabilities assumed:

Accounts Payable

Accrued expenses and other current liabilities

Operating lease liabilities, current

Convertible notes payable

Deferred tax liability

Net assets acquired

Pro Forma Financial Information

The following pro forma financial information reflects the consolidated results of operations of the Company for the years ended December 31, 2023 and 2022, as if the Lung Acquisition had taken place on January 1, 2022.

The unaudited pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effected on the assumed date.

Year Ended December 31,

Total net revenue

The unaudited pro forma financial information above gives effect primarily to the following:

• The exclusion of Lung Acquisition related transaction costs from the year ended December 31, 2023, and the addition of these items to the year ended December 31, 2022.

Fair Value of Financial Assets

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

Fair Value Measurements as of

December 31, 2022 using:

Cash equivalents:

Money market funds

Commercial paper

Treasury bills

Fair Value Measurements as of

December 31, 2021 using:

Cash equivalents:

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Commercial paper

Corporate notes

Treasury bills

As of December 31, 2022 and 2021 , the Company’s cash equivalents and investments were invested in money market funds, corporate notes and commercial paper and were valued based on Level 1 and Level 2 inputs.

In determining the fair value of its corporate notes, commercial paper, and treasury bills at each date presented above, the Company relied on quoted prices for similar securities in active markets or using other inputs that are observable or can be corroborated by observable market data.

The Company’s cash equivalents have original maturities of less than 90 days from the date of purchase.

All available-for-sale investments have contractual maturities of less than one year .

During the years ended December 31, 2022 and 2021 , there were no transfers in or out of Level 3.

As of December 31, 2022 and 2021, the fair value of available-for-sale investments by type of security was as follows:

December 31, 2022

Commercial paper

Treasury bills

December 31, 2021

Commercial paper

Corporate notes

Treasury bills

During the years ended December 31, 2023 and 2022, there were no transfers between levels.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

Prepaid research and development

Other current assets

Total prepaid expenses and other current assets

Property and Equipment, Net

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Computer equipment and software

Furniture and fixtures

Accumulated depreciation and amortization

Depreciation and amortization expense for the years ended December 31, 2022 and 2021 w as $ 169 and $ 121 , respectively .

During the year ended December 31, 2021, the Company received payment for disposed, fully depreciated assets, resulting in a gain on sale of $ 66 .

Depreciation expense for the years ended December 31, 2023 and 2022 w as $ 49 and $ 169 , respectively .

During the year ended December 31, 2023, the Company received payment for disposed, fully depreciated assets, resulting in a gain on sales of $ 42 .

Goodwill and Indefinite-Lived Intangible Assets

$ 6,330 of goodwill and $ 79,200 of indefinite-lived intangible assets acquired in the Lung Acquisition were recorded at fair value on the Lung Acquisition date (refer to Note 3 for more information).

The Company performed a qualitative assessment of goodwill and indefinite-lived intangible assets for potential impairment as of December 31, 2023, and concluded that there was no goodwill or intangible assets impairment as of December 31, 2023.

Other assets consisted of the following:

Non-current prepaid research and development

Total other non-current assets

Accrued Expenses and Other Current Liabilities

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Professional fees

Paycheck Protection Loan

On April 30, 2020, the Company received loan proceeds in the amount of approximately $ 384 under the Paycheck Protection Program (“PPP”).

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

The loan and accrued interest are forgivable after eight weeks if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities.

The amount of loan forgiveness may be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1 %, with a deferral of payments for the first six months .

The Company used the proceeds for purposes consistent with the PPP .

The Company determined to account for the PPP loan as debt under Accounting Standards Update (“ASC 470”), “Debt”, and allocated and recorded the loan proceeds between current and non-current liabilities.

On May 20, 2021 the Small Business Administration notified the Company that the PPP loan had been forgiven in full.

During the year ended December 31, 2021 the Company recognized income for debt extinguishment pursuant to ASC 470-50-15-4 as other income.

Total accrued expenses and other current liabilities

Restructuring and Other Costs

On February 16, 2023, the Board of Directors of the Company determined to reduce the Company’s remaining workforce from nine to three full-time employees.

The determination to effect the workforce reduction was made in connection with the Company’s decision to terminate its Phase 1b breast cancer trial of ALRN-6924 and further development of ALRN-6924.

As a result of the above restructuring initiatives, the Company incurred restructuring-related charges of $ 928 for the year ended December 31, 2023.

Restructuring-related charges were comprised of one-time termination costs in connection with the reduction-in-workforce, including severance, benefits, and related costs.

The Company paid all restructuring-related charges during the year ended December 31, 2023.

Preferred Stock

O n July 5, 2017, in connection with the closing of the Company’s IPO, the Company filed its restated certificate of incorporation, which authorizes the Company to issue up to 5,000,000 shares of preferred stock, $ 0.001 par value per share.

As of December 31, 2022 and 2021 , the Company had no shares of preferred stock issued or outstanding.

On June 16, 2021, the Company filed a certificate of amendment to its restated certificate of incorporation which increased the authorized number of shares of common stock from 7,500,000 shares of $ 0.001 par value common stock to 15,000,000 shares of common stock.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.

Common stockholders are entitled to receive dividends, as may be declared by the Company’s board of directors, if any, subject to the preferential dividend rights of the preferred stock.

As of December 31, 2023, the Company had 5,000,000 shares of preferred stock, par value $ 0.001 per share, authorized, out of which 24,610 shares of Series X Preferred Stock were issued and outstanding.

As of December 31, 2022, the Company had 5,000,000 shares of preferred stock, par value $ 0.001 per share, authorized, and no shares of preferred stock issued or outstanding.

On October 31, 2023 Aileron acquired Lung.

Under the terms of the Lung Acquisition Agreement, at the closing of the Lung Acquisition, Aileron issued to the stockholders of Lung 344,345 shares of the common stock of Aileron, par value $ 0.001 per share, and 19,903 shares of Series X Preferred Stock.

Immediately following the closing of the Lung Acquisition, on October 31, 2023, Aileron entered into the Purchase Agreement with a group of accredited investors, pursuant to which Aileron issued and sold 4,707 shares of Series X Preferred Stock and Warrants to purchase up to an aggregate of 2,353,500 shares of Aileron common stock.

Refer to Note 3 for more details on the Financing in connection with the Purchase Agreement.

Since the Series X Preferred Stock was sold as a unit with the Warrants according to the Purchase Agreement, the proceeds received were allocated to each instrument on a relative fair value basis.

Total gross proceeds of $ 18,429 reduced by $ 893 of the issuance costs were allocated as follows:

$ 16,795 to the Series X Preferred Stock and $ 741 to the Warrants.

The Series X Preferred Stock and the Warrants issued in the Financing were recorded at par value of $ 0.001 .

The Company evaluated the Series X Preferred Stock for liability classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity ("ASC 480"), and determined that equity treatment was appropriate because the Series X Preferred Stock did not meet the definition of the liability instruments.

Specifically, the Series X Preferred Stock is not mandatorily redeemable and does not embody an obligation to buy back the shares outside of the Company’s control in a manner that could require the transfer of assets.

The Company determined that the Series X Preferred Stock would be recorded as temporary equity, based on the guidance of ASC 480, given that it is contingently redeemable (see below).

Subject to stockholders’ approval, each share of Series X Preferred Stock is convertible into 1,000 shares of Common Stock.

The preferences, rights, and limitations initially applicable to the Series X Preferred Stock are set forth in the Certificate of Designation.

The Series X Preferred Stock has the following characteristics:

Except as otherwise required by law, the Series X Preferred Stock does not have voting rights.

However, as long as any shares of Series X Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series X Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series X Preferred Stock or alter or amend the Certificate of Designation, amend or repeal any provision of, or add any provision to, the Certificate of Incorporation or by-laws of the Company, or file any articles of amendment, certificate of designations, preferences, limitations and relative rights of any series of preferred stock, if such action would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of the Series X Preferred Stock, (ii) issue further shares of Series X Preferred Stock or increase or decrease (other than by conversion) the number of authorized shares of Series X Preferred Stock, or (iii) enter into any agreement with respect to any of the foregoing.

Additionally, the approval of the holders of a

majority of the Series X Preferred Stock is required for certain change of control transactions, provided that this approval right will terminate upon stockholders’ approval of the conversion proposal.

Holders of Series X Preferred Stock are entitled to receive dividends on shares of Series X Preferred Stock equal, on an as-if-converted-to-common-stock basis, and in the same form as dividends actually paid on shares of the common stock.

Such dividends are not cumulative.

Since the Company’s inception, no dividends have been declared or paid.

Liquidation, dissolution or winding up

The Series X Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company.

Upon liquidation, dissolution or winding up of the Company, the Series X preferred stockholders shall be entitled to receive an equivalent amount of distributions as would be paid on the common stock underlying the Series X Preferred Stock, determined on an as-converted basis, pari passu with any distributions to the common stock shareholders.

Subject to stockholders’ approval of the conversion proposal, the Series X Preferred Stock is convertible into common stock at a rate of 1,000 shares of common stock for every one share of Series X Preferred Stock that is converted.

The Series X Preferred Stock is subject to certain beneficial ownership limitations, including that a holder of Series X Preferred Stock is prohibited from converting shares of Series X Preferred Stock into shares of common stock if, as a result of such conversion, such holder (together with its affiliates and any other persons acting as a group together with the holder or any of its affiliates) would beneficially own more than a specified percentage (to be initially set at 19.99 % and thereafter adjusted by the holder to a number not to exceed 19.99 %) of the total number of shares of common stock issued and outstanding immediately after giving effect to such conversion.

At the 2023 Annual Meeting on February 28, 2024, the Company’s stockholders approved the issuance of shares of common stock, upon conversion of its outstanding Series X Preferred Stock.

Refer to Note 18 for more details on the 2023 Annual Meeting.

Shares of the Series X Preferred Stock are not redeemable at the election of the holder except for in the event the Company would have been unable to obtain an affirmative stockholder vote at the 2023 Annual Meeting to permit conversion, each holder of Series X Preferred Stock would have been entitled to elect, at the holder’s option, to have the shares of Series X Preferred Stock be redeemed by the Company and equal to the estimated fair value of the Series X Preferred Stock share at the time of redemption.

Due to this redemption feature, as of December 31, 2023, the Series X Preferred Stock was classified within temporary equity on the consolidated balance sheet.

The Series X Preferred Stock shall be perpetual unless converted.

As of December 31, 2023 and 2022, the Company was authorized to issue 45,000,000 shares of common stock, par value $ 0.001 per share.

As of December 31, 2023, the Company had 4,885,512 shares of common stock issued and outstanding.

As of December 31, 2022, the Company had 4,541,167 shares of common stock issued and outstanding.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders.

Common stockholders are entitled to receive dividends, as may be declared by the Company’s board of directors, if any.

As of December 31, 2023 and 2022, no dividends had been declared.

In the event of liquidation or dissolution, the holders of the common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock.

Issuance of Common Stock

As disclosed above, on October 31, 2023, the Company issued to the stockholders of Lung 344,345 shares of the common stock of Aileron, par value $ 0.001 per share, under the terms of the Lung Acquisition Agreement.

In addition, Aileron assumed (i) all Lung stock options immediately outstanding prior to the First Merger, each becoming an option for common stock subject to adjustment pursuant to the terms of the Lung Acquisition Agreement, and (ii) all warrants exercisable for Lung common stock immediately outstanding prior to the First Merger, each becoming a warrant to purchase common stock, subject to adjustment pursuant to the terms of the Lung Acquisition Agreement.

Immediately following the closing of the Lung Acquisition, the Company had 4,885,512 shares of common stock issued and outstanding.

As disclosed in the Note 3 above, immediately following the closing of the Lung Acquisition, on October 31, 2023, Aileron entered into the Purchase Agreement with a group of accredited investors, pursuant to which Aileron issued and sold 4,707 shares of Series X Preferred Stock and warrants to purchase up to an aggregate of 2,353,500 shares of Aileron common stock.

The exercise price of the Warrants is $ 4.89 per share, subject to certain price and share adjustments, including for stock splits, stock dividends, recapitalizations, subdivisions, combinations, reclassifications, noncash distributions, and cash dividends.

The Warrants will be exercisable any time after the later of May 2, 2024, the date the requisite stockholder approval is obtained, and on or prior to May 2, 2027.

Payment for Warrant shares upon exercise of the Warrants may be (i) in cash or (ii) in the event that there is no registration statement available for the resale of Warrant shares, by cashless exercise.

Under the terms of the Warrants, the Company shall not effect the exercise of any portion of any Warrant, and a holder shall not have the right to exercise any portion of any Warrant, to the extent that after giving effect to such exercise, the holder (together with its affiliates and any other persons acting as a group together with the holder or any of its affiliates), would beneficially own in excess of a percentage elected by the holder up to 19.99 % of the number of shares of common stock outstanding immediately after giving effect to such exercise, as such percentage ownership is determined in accordance with the terms of the Warrants.

However, any holder may, upon written notice to the Company, increase or decrease such percentage to any other percentage not in excess of 19.99 %;

provided that any increase or decrease in such percentage will not be effective until 61 days after such notice is delivered to the Company.

The Company has assessed the Warrants for appropriate equity or liability classification and determined the Warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to ASC 815, Derivatives and Hedging (“ASC 815”) .

The Warrants are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815.

Accordingly, the Warrants are classified as equity and accounted for as a component of additional paid-in capital at the time of issuance.

The Warrants were initially recognized at their relative fair value in the amount of $ 741 at the time of issuance determined using Black-Scholes option-pricing model and will not be remeasured.

Reverse Stock Split

The Company’s stockholders approved a reverse stock split of the Company’s common stock on June 15, 2022.

The Company effected the Reverse Stock Split on November 10, 2022.

Pursuant to the Reverse Stock Split, every 20 shares of the Company’s issued and outstanding shares of common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share of the common stock.

stock was subsequently multiplied by three, such that following the Reverse Stock Split the Company has 45,000,000 shares of common stock authorized.

The Reverse Stock Split affected all issued and outstanding shares of the Company's common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding stock options, outstanding warrants and the Company’s equity incentive plans were proportionately adjusted.

common stock authorized.

The Reverse Stock Split affected all issued and outstanding shares of the Company’s common stock, and the respective numbers of shares of common stock underlying the Company’s outstanding stock options, outstanding warrants and the Company’s equity incentive plans were proportionately adjusted.

All share and per share amounts disclosed give effect to the Reverse Stock Split on a retroactive basis.

Sales of Common Stock

On January 6, 2021, the Company entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company issued and sold, in a registered direct offering (the “Offering”), an aggregate of 1,631,549 shares of common stock, $ 0.001 par value per share, at a purchase price per share of $ 22.00 (the “Shares”).

The aggregate gross proceeds of the Offering were $ 35,894 , before deducting $ 2,887 of fees payable to the placement agent and other offering expenses payable by the Company.

The Offering closed on January 8, 2021 .

Between January 1, 2021 and January 28, 2021, the Company issued and sold an aggregate 358,749 shares of its common stock pursuant to its sales agreement with JonesTrading Institutional Services LLC (“JonesTrading”), resulting in gross proceeds of $ 9,658 , before deducting expenses of $ 290 .

The Company terminated its sales agreement with Jones Trading in January 2021.

On January 29, 2021, the Company entered into a Capital on Demand Sales Agreement (the “ATM Sales Agreement”) with JonesTrading and William Blair & Company, L.L.C.

(“William Blair”

and, collectively with JonesTrading, the “Agents”), pursuant to which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 30,000 from time to time through or to the Agents (the “ATM Offering”).

During the year ended December 31, 2021, the Company issued and sold an aggregate of 261,270 shares of its common stock pursuant to the ATM Sales Agreement, resulting in gross proceeds of $ 10,922 before deducting expenses of $ 329 .

Pursuant to a prospectus relating to the ATM Sales Agreement filed by the Company with the SEC on June 21, 2022, the Company may from time to time offer and sell shares of its common stock having an aggregate offering price of up to $ 14,024 under the ATM Sales Agreement.

There were no sales under the ATM Sales Agreement during the twelve months ended December 31, 2022.

During the year ended December 31, 2021, the Company issued and sold an aggregate of 68,750 shares of its common stock to Lincoln Park Capital, LLC pursuant to a purchase agreement entered into between Lincoln Park Capital, LLC and the Company in September 2020, resulting in gross proceeds of $ 2,614 .

During the year ended December 31, 2020, the Company issued and sold 29,411 shares to LPC under the purchase agreement for proceeds of $ 500 .

There were no sales under the purchase agreement during the twelve months ended December 31, 2022 .

Under the purchase agreement, the Company may not effect any sales of shares of common stock on any purchase date that the closing sale price of its common stock on Nasdaq is less than the floor price of $ 6.00 per share, which will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction

In June 2020, the Company issued and sold in an underwritten public offering an aggregate of 508,102 shares of common stock, including an additional 53,557 shares of common stock upon the partial exercise of an option of the underwriter to purchase additional shares, for a purchase price to the public of $ 22.00 per share.

The Company received aggregate gross proceeds from the public offering of approximately $ 11,178 , before deducting underwriting discounts and commissions and offering expenses of $ 932 .

On April 2, 2019, the Company issued and sold in a private placement an aggregate of (i) 591,922 units, consisting of 591,922 shares of its common stock and associated warrants, or the common warrants, to purchase an aggregate of 591,922 shares of common stock, for a combined price of $ 40.20 per unit and (ii) 54,837 units, consisting of (a) pre-funded warrants to purchase 54,837 shares of our common stock and (b) associated common warrants to purchase 54,837 shares of common stock, for a combined price of $ 40.20 per unit.

The pre-funded warrants had an exercise price of $ 0.20 per share and had no expiration.

In July 2019, all outstanding pre-funded warrants were exercised for 54,837 shares of common stock.

At December 31, 2021 there were 646,759 common warrants outstanding with an exercise price of $ 40.00 per share.

The Company has assessed the warrants for appropriate equity or liability classification and determined the warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to ASC 815.

The warrants are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815.

Accordingly, the warrants are classified as equity and accounted for as a component of additional paid-in capital at the time of issuance.

As of December 31, 2022 , the Company had reserved 612,269 shares for the exercise of outstanding stock options and grant of future awards under the Company’s stock incentive plans (see Note 10).

As of December 31, 2023, 4,885,512 shares of common stock were issued and outstanding, no shares were held in treasury, and 24,610 shares of Series X Preferred Stock were issued and outstanding.

In addition, as of December 31, 2023, there were:

• 24,847,000 shares of common stock reserved for issuance upon conversion of the Series X Preferred Stock;

• 2,212,102 shares of common stock issuable upon the exercise of options under existing equity incentive plans, of which 1,780,459 options were assumed through the Lung Acquisition;

• 416,617 and 7,500 shares of common stock reserved for issuance under the 2021 Plan and 2017 Employee Stock Purchase Plan, respectively, as well as any automatic increases in the number of shares of the common stock reserved under these plans;

• 3,726,696 shares of common stock reserved for issuance upon exercise of outstanding warrants.

The warrants consist of (i) warrants to purchase 646,759 shares of the Company’s common stock, with an exercise price of $ 40.00 per share, which were issued in the April 2019 private placement, which expire on April 2, 2024 ;

(ii) warrants to purchase 726,437 shares of the Company’s common stock, with an exercise price of $ 5.66 , which expire on May 20, 2029 , which were assumed in connection with the Lung Acquisition, and (iii) warrants to purchase 2,353,500 shares of the Company’s common stock, which were issued and sold in the Financing as described above.

Accordingly, as of December 31, 2023, out of the 45,000,000 shares of common stock presently authorized, 36,095,427 shares are issued and outstanding or reserved for issuance and 8,904,573 shares of common stock remain available for future issuance.

Stock-Based Awards

As of December 31, 2023, the Company had five equity compensation plans, each of which was approved by its stockholders:

2006 Equity Incentive Plan, as amended (the “2006 Plan”), 2016 Stock Incentive Plan (the “2016 Plan”), 2017 Stock Incentive Plan (the “2017 Plan”), 2021 Stock Incentive Plan (the “2021 Plan”), and 2017 Employee Stock Purchase Plan (the “2017 ESPP”).

The Company also assumed Lung’s 2013 Long-Term Incentive Plan (the “2013 Plan”) as a result of the Lung Acquisition.

As of December 31, 2023, the Company had 9,482 shares to be issued upon exercise of outstanding options under the 2006 Plan;

8,404 shares to be issued upon exercise of outstanding options under the 2016 Plan, and 130,903 shares to be issued upon exercise of outstanding options under the 2017 Plan.

No outstanding options under the 2006 Plan, the 2016 Plan, or the 2017 Plan as of December 31, 2023.

As such, no shares remained available for future issuance under the 2006 Plan, the 2016 Plan, or the 2017 Plan as of December 31, 2023.

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards.

In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

The exercise price for stock options granted may not be less than the fair market value of the common stock as of the date of grant.

2021 Stock Incentive Plan

The Company’s 2021 Stock Incentive Plan (the “2021 Plan”) was approved by the Company’s stockholders on June 15, 2021 and became effective on June 16, 2021.

The Company’s 2021 Plan was approved by the Company’s stockholders on June 15, 2021 and became effective on June 16, 2021.

Under the 2021 Plan, the Company may grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, awards of restricted stock units and other stock-based awards.

The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2021 Plan;

Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2021 Plan;

however, incentive stock options may only be granted to employees.

The 2021 Plan is administered by the board of directors or, at the discretion of the board of directors, by a committee of the board.

The number of shares of common stock covered by options and the date those options become exercisable, type of options to be granted, exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or its committee if so delegated.

The 2021 Plan is administered by the Company’s Board of Directors (the “Board”) or, at the discretion of the Board, by a committee of the Board.

Stock options granted under the 2021 Plan with service-based vesting conditions generally vest over four years and may not have a duration in excess of ten years , although options have been granted with vesting terms of less than four years .

The total number of shares of common stock that may be issued under the 2021 Plan was 728,685 a s of December 31, 2022, of which 315,948 s hares remained available for grant.

The Company initially reserved 625,000 shares of common stock, plus the number of shares of common stock subject to outstanding awards under the Company’s 2017 Stock Incentive Plan (the “2017 Plan”), and the Company’s 2016 Stock Incentive Plan (“the 2016 Plan”) and the Company’s 2006 Stock Incentive Plan, as amended (the “2006 Plan”) that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right up to 314,006 shares.

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards.

In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

The exercise price for stock options granted may not be less than the fair market value of the common stock as of the date of grant.

The total number of shares of common stock that may be issued under the 2021 Plan was 840,254 as of December 31, 2023, of which 416,617 shares remained available for grant.

The Company initially reserved 625,000 shares of common stock, plus the number of shares of common stock subject to outstanding awards under the 2017 Plan, the 2016 Plan and the 2006 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right up to 314,006 shares.

2017 Stock Incentive Plan

The 2017 Plan was approved by the Company’s stockholders on June 16, 2017, and became effective on June 28, 2017.

Under the 2017 Plan, the Company could grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, awards of restricted stock units and other stock-based awards.

The Company’s employees, officers, directors, consultants and advisors were eligible to receive awards under the 2017 Plan;

however, incentive stock options could only be granted to employees.

The 2017 Plan is administered by the board of directors or, at the discretion of the board of directors, by a committee of the board.

The number of shares of common stock covered by options and the date those options become exercisable, type of options granted, exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or its committee if so delegated.

Stock options granted under the 2017 Plan with service-based vesting conditions generally vest over four years and may not have a duration in excess of ten years , although options have been granted with vesting terms of

less than four years .

The 2017 Plan is administered by the Board or, at the discretion of the Board, by a committee of the Board.

The exercise price for stock options granted may not be less than the fair market value of the common stock as of the date of grant.

As of the effective date of the 2021 Plan, the board of directors determined to grant no further awards under the 2017 Plan.

Shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards under the 2021 Plan.

As of the effective date of the 2021 Plan, the Board determined to grant no further awards under the 2017 Plan.

Shares that are expired, terminated, surrendered or canceled without having been fully exercised under the 2017 Plan will be available for future awards under the 2021 Plan.

In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards under the 2021 Plan.

2017 Employee Stock Purchase Plan

On June 16, 2017, the Company’s stockholders approved the 2017 Employee Stock Purchase Plan (the “2017 ESPP”), which became effective on June 28, 2017.

A total of 375 shares of common stock were initially reserved for issuance under this plan.

Under the 2017 ESPP, the number of shares of common stock that may be issued under the 2017 ESPP will automatically increase on each January 1, beginning with the fiscal year ending December 31, 2018 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 1,556 shares, (ii) 1 % of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors.

The compensation committee of the board of directors determined that the number of shares of common stock that may be issued under the 2017 ESPP would no t be increased on January 1, 2022 or January 1, 2023.

The Company has no t issued any shares under the 2017 ESPP.

On June 16, 2017, the Company’s stockholders approved the 2017 ESPP, which became effective on June 28, 2017.

Under the 2017 ESPP, the number of shares of common stock that may be issued under the 2017 ESPP will automatically increase on each January 1, beginning with the fiscal year ended December 31, 2018 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 31,120 shares, (ii) 1 % of the outstanding shares of common stock on such date and (iii) an amount determined by the Company’s Board.

On January 1, 2023 and January 1, 2024, no additional shares were reserved for issuance under the 2017 ESPP pursuant to this provision.

7,500 shares remained available for future issuance under the 2017 ESPP as of December 31, 2023.

2013 Stock Incentive Plan

The Company assumed the Lung’s 2013 Plan as a result of the Lung Acquisition.

In October 2013, Lung’s Board of Directors (“Lung’s Board”) approved the 2013 Plan to provide long-term incentives for its employees, non-employee directors and certain consultants.

As of December 31, 2023, 1,780,459 shares were reserved to be issued upon exercise of options outstanding under the 2013 Plan, and 726,437 shares to be issued upon exercise of outstanding warrants under Lung’s 2013 Plan.

These options and warrants were assumed by the Company in connection with the Lung Acquisition.

Before the Lung Acquisition, the 2013 Plan was administered by the Lung’s Board or, at the discretion of the Lung’s Board, by a committee of the Lung’s Board.

The exercise prices, vesting and other restrictions are determined at the discretion of the Lung’s Board, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100 % of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years .

The vesting periods for equity awards are determined by the Board, but generally are four years .

The contractual term for stock option awards is ten years .

The vesting periods for equity awards were determined by Lung’s Board, but generally are four years .

The contractual term for stock option awards is ten years .

Following the closing of the Lung Acquisition on October 31, 2023, no further awards can be granted under the 2013 Plan.

Stock Option Valuation

The assumptions that the Company used to determine the grant-date fair value of the stock options granted to employees and directors during the year ended December 31, 2022 and 2021 were as follows, presented on a weighted average basis:

The assumptions that the Company used to determine the grant-date fair value of the stock options granted to employees and directors during the years ended December 31, 2023 and 2022 and at the Lung Acquisition date were as follows, presented on a weighted average basis:

Year Ended December 31,

Risk-free interest rate

4.82 - 5.58 %

Expected term (in years)

2 unchanged sentences

Stock Options

The following table summarizes the Company’s stock option activity since January 1, 2022:

The following table summarizes the Company’s stock option activity since January 1, 2023:

Term (in years)

Outstanding at December 31, 2022

Forfeited/Canceled

Options assumed through business combination

Outstanding at December 31, 2023

3 unchanged sentences

Options vested and expected to vest at December 31, 2022

The weighted average grant-date fair value of stock options granted during the year ended December 31, 2022 and 2021 was $ 7.32 and $ 19.40 , respectively.

The aggregate fair value of stock options that vested during the year ended December 31, 2022 and 2021 was $ 2,808 and $ 1,106 , respectively.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The aggregate intrinsic value of stock options exercised during the year ended December 31, 2022 and 2021 was $ 0 and $ 68 , respectively.

Restricted Stock Units

The following table summarizes the Company’s restricted stock unit activity since December 31, 2021:

Weighted-Average

Outstanding, non-vested at December 31, 2021

Canceled/forfeited

Outstanding, non-vested at December 31, 2022

The weighted average grant-date fair value of stock options granted during the year ended December 31, 2023 was $ 0.80 .

The weighted average grant-date fair value of stock options granted during the year ended December 31,

2022 was $ 7.32 .

The aggregate fair value of stock options that vested during the years ended December 31, 2023 and 2022 was $ 1,191 and $ 2,808 , respectively.

There were no options exercised during the year ended December 31, 2023.

The aggregate intrinsic value of stock options exercised during the year ended December 31, 2022 was $ 0 .

Stock-Based Compensation

The Company recorded stock-based compensation expense related to stock options and restricted stock units in the following expense categories of its statements of operations and comprehensive loss:

The Company recorded stock-based compensation expense related to stock options in the following expense categories of its statements of operations and comprehensive loss:

Year Ended December 31,

1 unchanged sentence

General and administrative expenses

As of December 31, 2022, the Company had a n aggregate of $ 3,187 of unrecognized stock-based compensation expense, which it expects to recognize over a weighted average period of 2.49 yea rs.

As of December 31, 2023, the Company had an aggregate of $ 1,702 of unrecognized stock-based compensation expense, which it expects to recognize over a weighted average period of 1.73 years.

Net Loss per Share

2 unchanged sentences

Weighted average common shares

outstanding—basic and diluted

Net loss per share attributable to common

stockholders—basic and diluted

The Company’s potential dilutive securities, which include stock options as of December 31, 2022 and 2021 , have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share.

stockholders—basic and diluted

The Company’s potential dilutive securities, which include stock options as of December 31, 2023 and 2022 , have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share.

In periods where there is a net loss, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

1 unchanged sentence

Year Ended December 31,

Warrants to purchase common stock

Stock options to purchase common stock

Options to purchase common stock

Warrants to issue shares of common stock

Series X Preferred Stock issued and outstanding, as converted

Commitments and Contingencies

Operating Leases

285 Summer Street

On March 26, 2021, the Company entered into a lease agreement for office space located at 285 Summer Street, Boston, Massachusetts (the “285 Summer Street Lease”).

Under the terms of the 285 Summer Street Lease, starting on April 1, 2021, and has a two year term, the Company leases approximately 3,365 square feet of office space at $ 42.00 per square foot per year, or $ 141 per year in base rent, which is subject to scheduled annual rent increases plus certain operating expenses and taxes.

The lease expires March 31, 2023 and we do not plan to renew the lease.

Following expiration of the lease, we plan to operate virtually.

The Company accounted for this lease under ASC 842 using its initial two-year term through March 31, 2023 .

The Company classified this lease as an operating lease and recorded a right-of-use asset of $ 228 and lease liability of $ 228 on the effective date.

On March 26, 2021, the Company entered into a sublease agreement (the “Sublease”) by and among the Company, Vittoria Industries North America, Inc.

(the “Sublessor”) and Waterfront Equity Partners, LLC (the “Lessor”), under which the Company was leasing approximately 3,365 square feet of office space located at 285 Summer Street, Unit 101, Boston, Massachusetts (the “Premises”).

The Sublease was subject and subordinate to a lease agreement, dated as of July 13, 2012, by and between the Sublessor and Lessor, pursuant to which the Sublessor is leasing the Premises from the Lessor.

The Sublease expired March 31, 2023 , and the Company did not renew the Sublease.

Following expiration of the Sublease, the Company is operating virtually, and expects to do so in the foreseeable future.

On August 16, 2021, Lung Therapeutics entered into an operating lease agreement to rent approximately 6,455 square feet of office space for its corporate headquarters in Austin, Texas, beginning on October 1, 2021.

The lease agreement is for a 30-month term that ended on March 31, 2024, and includes a rent escalation clause and a rent holiday.

In addition to the base rent, the Company was also responsible for its share of operating expenses, electricity and real estate taxes, in accordance with the terms of the lease agreement.

Following expiration of the lease, the Company expects to operate virtually for the foreseeable future.

The Company recognizes rent expense on a straight-line basis throughout the remaining term of the lease.

The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the year ended December 31, 2022 and 2021:

Twelve Months Ended

December 31, 2022

Twelve Months Ended

December 31, 2021

Lease cost (1)

The following table contains a summary of the lease costs recognized and other information pertaining to the Company’s operating leases for the years ended December 31, 2023 and 2022:

Year Ended December 31,

Operating lease cost

4 unchanged sentences

Weighted average discount rate

(1) Short-term lease costs and variable lease costs incurred by the Company for the twelve months ended December 31, 2022 and 2021 were not material.

As of December 31, 2022, future minimum commitments under ASC 842 under the Company’s operating leases were as follows:

As of December 31, 2023, future minimum commitments under the Company’s operating leases were as follows:

2025 and thereafter

2 unchanged sentences

Total operating lease liabilities

Legal Proceedings

The Company may from time to time be party to litigation arising in the ordinary course of business.

As of December 31, 2023 and 2022, the Company was not party to any legal proceedings and no material legal proceedings are currently pending or, to the best of the Company’s knowledge, threatened.

Intellectual Property Licenses

Harvard and Dana-Farber Agreement

In August 2006, the Company entered into an exclusive license agreement with President and Fellows of Harvard College (“Harvard”) and Dana-Farber Cancer Institute (“DFCI”).

The agreement granted the Company an exclusive worldwide license, with the right to sublicense, under specified patents and patent applications to develop, obtain regulatory approval for and commercialize specified product candidates based on cell-permeating peptides.

In August 2006, the Company entered into an exclusive license agreement with President and Fellows of Harvard College (“Harvard”) and Dana-Farber Cancer Institute (“DFCI”).

The agreement granted the Company an exclusive worldwide license, with the right to sublicense, under specified patents and patent applications to develop,

obtain regulatory approval for and commercialize specified product candidates based on cell-permeating peptides.

Under the agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize one or more licensed products and to achieve specified milestone events by specified dates.

In connection with entering into the agreement, the Company paid an upfront license fee and issued to Harvard and DFCI shares of its common stock.

In February 2010, the agreement was amended and restated (the “Harvard/DFCI agreement”) under which additional patent rights were added to the scope of the license agreement and the annual license maintenance fees were increased.

Under the Harvard/DFCI agreement, the Company is obligated to make aggregate milestones payments of up to $ 7,700 per licensed therapeutic product upon the Company’s achievement of specified clinical, regulatory and sales milestones with respect to such product and up to $ 700 per licensed diagnostic product upon the Company’s achievement of specified regulatory and sales milestones with respect to such product.

In addition, the Company is obligated to pay royalties of low single-digit percentages on annual net sales of licensed products sold by the Company, its affiliates or its sublicensees.

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In addition, the agreement obligates the Company to pay a percentage, up to the mid-twenties, of fees received by the Company in connection with its sublicense of the licensed products.

In accordance with the terms of the agreement, the Company’s sublicense payment obligations may be subject to specified reductions.

The Harvard/DFCI agreement requires the Company to pay annual license maintenance fees of $ 110 each year.

Any payments made in connection with the annual license maintenance fees will be credited against any royalties due.

The Company incurred license fees of $ 110 and $ 145 during each of the years ended December 31, 2022 and 2021, respectively .

The Company incurred license maintenance fees of $ 35 and $ 110 during each of the years ended December 31, 2023 and 2022, respectively.

In addition, the Company did no t make any milestone payments during the years ended December 31, 2023 and 2022.

During the years ended December 31, 2022 and 2021 , no milestones were achieved and no liabilities for milestone payments were recorded in the Company’s financial statements.

During the years ended December 31, 2023 and 2022, no milestones were achieved and no liabilities for milestone payments were recorded in the Company’s consolidated financial statements.

From 2010 through December 31, 2023 and December 31, 2022, the Company had made non-refundable cash payments, consisting of license and maintenance fees, milestone payments and sublicense fees, totaling $ 5,153 and $ 5,118 , respectively.

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In December 2006, the Company entered into a license agreement with Materia, Inc.

(“Materia”), under which it was granted a non-exclusive worldwide license, with the right to sublicense, under specified patent and patent applications to utilize Materia’s catalysts to develop, obtain regulatory approval for and commercialize specified peptides owned or controlled by Materia and the right to manufacture specified compositions owned or controlled by Materia.

In February 2017, Materia assigned the license agreement (the “Umicore agreement”) to Umicore Precious Metals Chemistry USA, LLC (“Umicore”), and Umicore agreed to continue to supply the Company under the agreement.

Under the Umicore agreement, the Company is obligated to make aggregate milestone payments to Umicore of up to $ 6,400 upon the Company’s achievement of specified clinical, regulatory and sales milestones with respect to each licensed product.

In addition, the Company is obligated to pay tiered royalties ranging in the low single-digit percentages on annual net sales of licensed products sold by the Company or its sublicensees.

The royalties are payable on a product-by-product and country-by-country basis, and may be reduced in specified circumstances.

The Umicore agreement requires the Company to pay annual license fees of $ 50 .

The Company incurred license fees of $ 50 during each of the years ended December 31, 2023 and 2022.

The Company did no t make any milestone payments during the years ended December 31, 2023 and 2022.

During the year ended December 31, 2022 , no milestones were achieved and no liabilities for additional milestone payments were recorded in the Company’s financial statements.

The agreement expires upon the expiration of the Company’s obligation to pay royalties in each territory covered under the agreement.

During the year ended December 31, 2023, no milestones were achieved and no liabilities for additional milestone payments were recorded in the Company’s consolidated financial statements.

The Umicore Agreement terminated in July 2023 with the expiration of the last patent the Company had licensed.

Agreement with the University of Texas Health Science Center at Tyler

In June 2013, Lung entered into a patent and technology license agreement with the Board of Regents of the University of Texas System, or UT System, on behalf of University of Texas Health Science Center at Tyler, or UTHSCT.

The patent and technology license agreement with UT System, or the UTHSCT Agreement, provides Lung access to patents and technology related to the development of LTI-01 and LTI-03.

As part of the UTHSCT Agreement, Lung has (i) a royalty-bearing, exclusive license under the patent rights to manufacture, distribute, and sell certain intellectual property;

(ii) a non-exclusive license under the technology rights to manufacture, distribute and sell the licensed product;

and (iii) a sublicensing right that allows Lung to grant sublicenses to affiliates and third parties to use the licensed product in the field of use and approved territories outlined in the UTHSCT Agreement.

In December 2013, the UTHSCT Agreement was amended and restated to include certain patents in all fields worldwide.

In May 2017, the UTHSCT Agreement was amended and restated to modify the specific milestone criteria.

In consideration of the UTHSCT Agreement, Lung granted UT System (via UTHSCT and UT Horizon Fund affiliates) (i) 2,000,000 shares of Lung common stock and (ii) 400,000 shares of Lung non-convertible preferred stock.

On February 6, 2015, UT System exchanged the 400,000 shares of Lung non-convertible preferred stock for 4,000,000 shares of Lung common stock.

In addition, Lung agreed to pay past and ongoing patent expenses, and Lung owes UTHSCT sublicensing fees, assignment fees, and single digit royalties on worldwide net product sales, with fixed minimum royalty payments that started in 2015.

Pursuant to the UTHSCT Agreement, Lung is required to use diligent efforts to commercialize the licensed technology as soon as commercially practicable, including maintaining active research and development, regulatory, marketing and sales program, all as commercially reasonable.

The Company may terminate the UTHSCT Agreement for convenience with 90 days’ notice.

UTHSCT may also terminate the UTHSCT Agreement, but only if the Company breaches the terms of the agreement.

Agreement with the University of Texas at Austin

In May 2015, Lung entered into a patent license agreement with UT Austin on behalf of the UT System.

This license agreement with UT Austin, or the UT Austin 6607 Agreement, relates to the patent rights to polypeptide therapeutics and uses thereof.

Pursuant to the UT Austin 6607 Agreement Lung has (i) a royalty-bearing, exclusive license under the patent rights to manufacture, distribute, and sell the licensed product;

and (ii) a sublicensing right that allows Lung to grant sublicenses to affiliates and third parties to use the licensed product in the field of use and approved territories outlined in the agreement.

The UT Austin 6607 Agreement was amended and restated in January 2017, November 2018, and June 2019.

The amendments related to extension of milestone payment dates and specific terminology around the milestone achievement criteria.

In consideration of the UT Austin 6607 Agreement, Lung agreed to pay past and ongoing patent expenses, milestone fees upon certain development and regulatory milestone events, annual license fees, tiered sublicense fees, assignment fees, low single digit royalties on net sales and an FDA Priority Review Voucher fee if Lung sells or transfers this voucher.

Pursuant to the UT Austin 6607 Agreement, Lung is required to use diligent efforts to commercialize the licensed products, including maintaining active research and development, regulatory, marketing and sales program.

Moreover, Lung is required to meet certain development and regulatory milestones by specific dates.

The Company may terminate the UT Austin 6607 Agreement for convenience with 90 days’ notice.

UT Austin may also terminate the UT Austin 6607 Agreement, but only if the Company breaches the terms of the agreement.

Agreement with Medical University of South Carolina

In March 2016, Lung entered into a license agreement with Medical University of South Carolina Foundation for Research Development, or MUSC.

Pursuant to this license agreement with MUSC, or the MUSC Agreement, Lung has patent rights related to protecting against lung fibrosis by up regulating Cav1.

The MUSC Agreement granted (i) a royalty-bearing, exclusive license under the patent rights to make, use and sell the license product;

and (ii) a sublicensing right that allows Lung to grant sublicenses to affiliates and third parties to use the licensed product in the field of use and approved territories outlined in the agreement.

In September 2018, the agreement was amended and restated to include definitions of related methods, related products and related rights.

In consideration of the MUSC Agreement, Lung agreed to pay a non-refundable license fee, patent expenses, milestone fees upon certain development, regulatory and commercial milestone events, sublicense fees, assignment fees and low single digit royalties on net sales, with a fixed minimum royalty payment starting in 2019 and a transaction fee upon Lung's liquidation.

Pursuant to the MUSC Agreement, Lung is required to use diligent efforts to develop, manufacture and sell the licensed products.

The Company may terminate the MUSC Agreement for convenience by providing a written notice to MUSC effective 90 days following the receipt of notice, and either party may terminate the agreement for a breach of contract.

Agreement with Vivarta Therapeutics LLC

In March 2018, Lung entered into a license agreement with Vivarta Therapeutics, LLC, or Vivarta.

This license agreement with Vivarta, or the Vivarta Agreement, relates to intellectual property relating to epithelial sodium channel inhibitors and methods to treat pulmonary disease.

Pursuant to the Vivarta Agreement Lung has (i) a royalty-bearing, exclusive license under the intellectual property rights to make, use and sell the licensed product, and (ii) a sublicensing right that allows Lung to grant sublicenses to affiliates and third parties to use the licensed product in the field of use and approved territories outlined in the agreement.

In consideration for the Vivarta Agreement, Lung agreed to grant Vivarta a warrant to purchase an aggregate of 75,000 shares of Lung common stock for $ 0.12 per share, to pay a license fee of $ 10,000 upon the Vivarta Agreement effective date and $ 40,000 within 30 days of the receipt of a positive freedom to operate analysis from legal counsel.

Lung also agreed to pay patent expenses, milestone fees upon certain development and regulatory milestone events, sublicense fees, assignment fees and low single digit royalties on net sales.

Pursuant to the Vivarta Agreement, Lung is required to use diligent efforts to develop, manufacture and sell the licensed products.

The Company may terminate the Vivarta Agreement for convenience by providing a written notice to Vivarta effective 90 days following the receipt of notice, and either party may terminate the agreement for a breach of contract.

Manufacturing Commitments

As of December 31, 2023, the Company has non-cancellable purchase obligations and a prepaid balance with its contract manufacturer in the amount of $ 2,312 and $ 1,432 , respectively.

Aggregate future service and purchase commitments with manufacturer as of December 31, 2023 are as follows:

2025 and thereafter

Total purchase commitments

Indemnification Agreements

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To date, the Company has not incurred any material costs as a result of such indemnifications.

The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it had not accrued any liabilities related to such obligations in its financial statements as of December 31, 2022 or December 31, 2021 .

There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets.

The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it had not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2023 or December 31, 2022.

On October 31, 2023, the Company acquired, in accordance with the terms of the Lung Acquisition Agreement, the stock of Lung Therapeutics ("Target").

In accordance with ASC 805-740-25-3, recognition of deferred tax assets and liabilities is required for substantially all temporary differences and acquired tax carryforwards and credits.

The Company has computed estimated temporary differences and acquired tax carryforwards and credits as of the transaction date.

The Company will not have tax basis in intangible assets recorded as part of the purchase.

For accounting purposes, the intangible assets will not be amortized and subject to impairment review and testing.

Though the tax effects may be delayed indefinitely, ASC 740-10-55-63 states that “deferred tax liabilities may not be eliminated or reduced because a reporting entity may be able to delay the settlement of those liabilities by delaying the events that would cause taxable temporary differences to reverse.” As such, the Company has recorded a deferred tax liability for the portion of the liability that cannot be offset with indefinite lived deferred tax assets.

The Company reported no income tax expense or benefit for the year ended December 31, 2023.

The reported amount of income tax expense for the years differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses primarily because of changes in valuation allowance.

A reconciliation of the U.S.

federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Federal statutory income tax rate

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Change in deferred tax asset valuation allowance

Loss of federal net operating losses due to 382

Effective income tax rate

Net deferred tax assets as of December 31, 2022 and 2021 consisted of the following:

Net deferred tax liabilities as of December 31, 2023 and 2022 consisted of the following:

Deferred tax assets:

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Net deferred tax asset (liability)

Since inception in 2001, the Company has not recorded any U.S.

federal or state income tax benefits for the net losses the Company has incurred in any year or for its earned research and development tax credits, due to its uncertainty of realizing a benefit from those items.

As of December 31, 2023, the Company had net operating loss carryforwards for federal and state purposes of $ 56,518 and $ 8,197 , respectively.

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federal tax operating losses can be carried forward indefinitely.

Of this amount, $ 44,420 of federal net operating losses came over from the Lung Acquisition, of which $ 2,863 will begin to expire in 2036 and the remaining $ 41,557 can be carried forward indefinitely.

The state tax operating loss carryforwards expire beginning in 2043 .

As of December 31, 2022, the Company also had available research and development tax credit carryforwards for federal and state income tax purposes of $ 2,664 and $ 1,922 , respectively, which begin to expire in 2025 and 2026 , respectively .

As of December 31, 2023, the Company also had available research and development tax credit carryforwards for federal income tax purposes of $ 1,094 , which begin to expire in 2035 .

As of December 31, 2023, the Company also had available orphan drug credit carryforwards of $ 6,731 for federal income tax purposes, which begin to expire in 2039 .

Of this amount, $ 1,064 of research and development credit carryforwards and $ 6,574 of orphan drug credit carryforwards came over from the Lung Acquisition.

On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was signed into law.

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Taxpayers are now required to capitalize and amortize these costs over 5 years for research conducted within the United States or 15 years for research conducted abroad.

As a result, the Company capitalized $ 17,705 of research and development expenses for the year ended December 31, 2022.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 and similar state statutes due to ownership changes that have occurred previously or that could occur in the future.

As a result, the Company capitalized $ 3,639 of research and development expenses for the year ended December 31, 2023 for tax purposes.

Utilization of the net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future.

These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.

In general, an ownership change, as defined by Section 382 and similar state statutes, results from

transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period.

The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.

If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382 and similar state statutes, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required.

Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization.

Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position.

In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 % over a three-year period.

As of December 31, 2023, the Company has wound down its original business operations and entered into a merger in the year, which resulted in a significant shift in ownership.

The Company expects to have all prior year net operating losses and tax credits of its legacy business to be completely limited going forward due to the lack of continuation in its legacy business.

As such, all prior year net operating losses and tax credits have been written down to zero as of December 31, 2023.

The remaining net operating losses and tax credits as of December 31, 2023 relate to post-merger activity in the year, as well as acquired attributes as part of the merger in the year.

A study has been completed on the Target ownership shifts through December 31, 2023, and multiple ownership changes were determined.

As a result, the Company has written down the $ 1,673 portion of the Target net operating losses expected to expire unutilized and include the $ 44,420 of remaining net operating losses and $ 7,638 of federal tax credits as part of its available attributes.

As of December 31,

2023, the total federal net operating losses are $ 56,518 and federal research and development tax credits are $ 7,825 , which could be subject to future limitations under these rules.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets.

Management has considered the Company’s cumulative net losses and its lack of commercialization of any products or generation of any revenue from product sales since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets.

Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2022 and 2021.

The Company maintained a full valuation allowance on its net deferred tax assets as of December 31, 2023.

Management reevaluates the positive and negative evidence at each reporting period.

The increase in the valuation allowance for deferred tax assets during the years ended December 31, 2022 and 2021 related primarily to the increase in net operating loss carryforwards.

The decrease in the valuation allowance relates primarily to the deferred tax liability recognized as a result of the transaction as well as the reduction in prior year deferred tax assets due to Section 382 limitations.

The increase in the valuation allowance for deferred tax assets during the year ended December 31, 2023 related primarily to an increase in net operating loss carryforwards.

Changes in the valuation allowance were as follows:

Year Ended December 31,

Valuation allowance at beginning of year

Increases recorded to income tax provision

Decreases/(increases) recorded to income tax provision

Increases recorded to invested capital

Valuation allowance at end of year

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There are currently no pending tax examinations.

The Company’s tax years are still open under statute from 2019 to the present.

Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods.

The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.

As of December 31, 2022 and 2021 , the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations and comprehensive loss .

The Company has a 401(k) plan available for participating employees who meet certain eligibility requirements.

Eligible employees may defer a portion of their salary as defined by the plan.

The Company provides a safe harbor match with a maximum amount of 4.0 % of the participant’s compensation, and vests 100 % at time of match.

The Company accrued approximately $ 105.0 for the estimated safe harbor matching contribution for the year ended December 31, 2022.

The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.

As of December 31, 2023 and 2022, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations and comprehensive loss.

Related Party Transactions

Immediately following the closing of the Lung Acquisition, the Company entered into the Purchase Agreement with a group of accredited investors led by Bios Partners, the majority stockholder of Lung prior to the closing of Lung Acquisition, and including Nantahala Capital, as well as additional undisclosed investors, pursuant to which the Company issued and sold (i) an aggregate of 4,707 shares of Series X Preferred Stock, and (ii) up to an aggregate of 2,353,500 Warrant Shares, as described in the Note 3, which included the conversion of convertible promissory notes in the aggregate principal amount of $ 1,553 issued by Lung to Bios Partners prior to the closing of the acquisition at a 10 % discount to the per share price of Series X Preferred Stock.

The Financing closed on November 2, 2023.

Subsequent Event

On February 16, 2023, the Board of Directors (the “Board”) of the Company determined to reduce the Company’s remaining workforce from nine to three employees.

The determination to effect the workforce reduction was made in connection with the Company’s decision, further described below, to terminate its Phase 1b breast cancer trial of ALRN-6924 and further development of ALRN-6924.

The workforce reduction is designed to reduce the Company’s operating expenses while the Company explores a range of strategic alternatives.

The workforce reduction is expected to be completed in the second quarter of 2023.

Affected employees will be offered separation benefits, including severance payments along with temporary healthcare coverage assistance.

The Company estimates that the severance and termination-related costs will be approximately $ 1.0 to $ 1.1 million and expects to record these costs in the first quarter of 2023.

The Company expects that payment of these costs will be made through the second quarter of 2023.

The Company’s estimate of costs and the expected timing for recording and paying those costs are subject to a number of assumptions and actual results may differ.

The Company may also incur other costs not currently contemplated due to events that may occur as a result of, or associated with, the workforce reduction.

The Company also announced that it is exploring a range of strategic alternatives to maximize stockholder value.

The Company has engaged Ladenburg Thalmann & Co., Inc.

to act as a strategic advisor for this process.

Strategic alternatives that are being evaluated may include, but are not limited to, an acquisition, a merger, a business combination, a sale of assets or other transaction.

There is no set timetable for this process and there can be

no assurance that this process will result in the Company pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms.

On February 28, 2024, the Company held its 2023 annual meeting of stockholders (the “2023 Annual Meeting”) at which the stockholders of the Company approved an amendment (the “Plan Amendment”) to the Aileron’s 2021 Plan to increase the number of shares of common stock issuable under the 2021 Plan by 3,000,000 shares to 3,840,254 .

On January 17, 2024, upon the recommendation of the compensation committee and subject to stockholder approval, the Company’s Board of Directors adopted the Plan Amendment.

Other than increasing the number of shares issuable under the 2021 Plan, the Plan Amendment does not make any changes to the 2021 Plan.

The material terms of the 2021 Plan are described in the Company’s definitive proxy statement for the 2023 Annual Meeting filed with the Securities and Exchange Commission on January 29, 2024 (the “Proxy Statement”).

At the 2023 Annual Meeting, the Company’s stockholders approved an amendment to the Company’s Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of common stock of the Company from 45,000,000 to 100,000,000 shares.

The Company filed the Certificate of Amendment to implement

the increase in the number of authorized shares, which was effective upon filing, with the Secretary of State of the State of Delaware on February 28, 2024.

The additional shares of common stock authorized by the Certificate of Amendment have rights identical to the Company’s currently outstanding Common Stock.

At the 2023 Annual Meeting, the Company’s stockholders also approved the issuance, in accordance with Nasdaq Listing Rule 5635(a), of shares of common stock, upon conversion of the Company's outstanding Series X Preferred Stock.

Following approval of the conversion of outstanding Series X Preferred Stock, the Company had 29,495,512 shares of common stock issued and outstanding on a pro forma basis, which gives effect to the full conversion of the Series X Preferred Stock as of the date of the 2023 Annual Meeting, without regard to beneficial ownership limitations that may limit the ability of certain holders of Series X Preferred Stock to convert such shares to common stock as such time.

On March 5, 2024, based upon existing beneficial ownership limitations, 12,087 shares of Series X Preferred Stock were automatically converted into 12,087,000 shares of common stock.

The remaining approximately 12,523 shares of Series X Preferred Stock (which are convertible into 12,523,000 shares of common stock) will remain convertible at the option of the holder thereof, subject to certain beneficial ownership limitations.

On February 29, 2024, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market notifying the Company that it has regained compliance with the annual meeting requirement for continued listing on the Nasdaq Capital Market set forth in Nasdaq Listing Rule 5620.

On March 11, 2024, the Company and Manuel C.

Alves-Aivado, M.D., Ph.D., agreed that his employment with the Company would cease and he would resign from his position as Chief Executive Officer of the Company, effective as of March 11, 2024 (the “Separation Date”).

Aivado will remain a member of the Company’s Board.

Aivado’s resignation from the Company was not the result of any disagreement with the Company on any matter relating to its operations, policies or practices.

In connection with Dr.

Aivado’s separation from the Company, and in accordance with the severance agreement, dated as of September 6, 2018, between the Company and Dr.

Aivado is entitled to receive his base salary for eighteen months of $ 881 following the separation date, payments on Dr.

Aivado’s behalf of the monthly premiums for medical insurance coverage under COBRA until the earlier of the date that is eighteen months following the separation date or the date on which Dr.

Aivado becomes eligible to receive group health insurance coverage through another employer, a lump sum payment of $ 441 equal to one and one-half times Dr.

Aivado’s target bonus for the 2024 calendar year, and acceleration in full of the vesting of any unvested equity awards.

Aivado’s receipt of these post-separation benefits under the severance agreement is conditioned upon his execution of a severance and release of claims agreement with the Company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures