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Item 7. Management’s Discussion and Analysis

2025-04-07 compared with 2024-04-15 · 179 added, 112 removed, 157 unchanged (65% of the section changed)

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Our pipeline includes:

• LTI-03, a peptide, for which we are currently recruiting patients for a Phase 1b dose-ranging, placebo-controlled safety, tolerability, and pharmacodynamic biomarker activity trial in development for the treatment of IPF, that has demonstrated the ability to protect healthy lung epithelial cells and reduce pro-fibrotic signaling;

• LTI-01, a proenzyme that completed a Phase 2a dose-ranging, placebo-controlled trial and a Phase 1b safety, tolerability and proof of mechanism trial in LPE patients, an indication that has no approved drug treatment;

• LTI-03, a peptide, for which we conducted a Phase 1b dose-ranging, placebo-controlled safety, tolerability, and pharmacodynamic biomarker activity trial in development for the treatment of Idiopathic Pulmonary Fibrosis, or IPF, that has demonstrated the ability to protect healthy lung epithelial cells and reduce pro-fibrotic signaling;

• LTI-01, a proenzyme that completed a Phase 2a dose-ranging, placebo-controlled trial and a Phase 1b safety, tolerability and proof of mechanism trial in loculated pleural effusion, or LPE, patients, an indication that has no approved drug treatment;

• preclinical programs targeting cystic fibrosis and a peptide program focused on the Cav1 protein for systemic fibrosis indications.

Prior to the termination of development of our main product candidate in February 2023 and the acquisition of Lung (as described below), our focus was the development of our main product candidate, ALRN-6924, a MDM2/MDMX dual inhibitor that leveraged our proprietary peptide drug technology.

Since our inception, we have devoted a substantial portion of our resources to developing our product candidates, including ALRN-6924, developing our proprietary stabilized cell-permeating peptide platform, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations.

Announcement of Exploration of Strategic Alternatives

In February 2023, we announced a review of initial data from our Phase 1b chemoprotection trial of ALRN-6924 in patients with p53-mutated breast cancer.

Based on these findings, we decided to terminate the Phase 1b breast cancer trial and further development of ALRN-6924.

We also announced that we were exploring a range of strategic alternatives to maximize shareholder value.

We engaged Ladenburg Thalmann & Co., Inc.

to act as a strategic advisor for this process.

Strategic alternatives that were being evaluated included, but were not limited to, an acquisition, a merger, a business combination, a sale of assets or other transactions.

In addition, in February 2023, we determined to reduce our workforce from nine to three full-time employees, which we completed in the second quarter of 2023.

In June 2024, we decided to temporarily delay clinical development of LTI-01 in an effort to focus our resources on clinical development of LTI-03 and until additional funds are raised.

In the fourth quarter of 2024, we determined that the temporary delay of further clinical development of LTI-01 may not be a short-term measure.

We have not completed the development of any of our product candidates, have not generated any revenue from product sales and have never generated an operating profit.

To date, we have financed operations primarily through $145.5 million in net proceeds from sales of common stock and warrants, $0.7 million in net proceeds from sales of common stock under our “at-the-market” offering program, $131.2 million from sales of preferred stock prior to our initial public offering, or IPO, $34.9 million from a collaboration agreement in 2010, $17.5 million in net proceeds in connection with a private placement following the Lung Acquisition (as defined below) in 2023, and $17.7 million in net proceeds in connection with the issuance and sale of shares and accompanying warrants in our public offering in May 2024.

Since our inception, we have incurred significant losses on an aggregate basis.

Our net losses were $62.9 million and $15.7 million for the years ended December 31, 2024 and 2023, respectively.

As of December 31, 2024, we had an accumulated deficit of $351.4 million.

These losses have resulted primarily from costs incurred in connection with research and development activities, licensing and patent investment and general and administrative costs associated with our operations as well as the impairment loss on intangible assets identified in the fourth quarter of 2024.

We expect to continue to incur operating losses for the foreseeable future.

As of December 31, 2024, we had cash and cash equivalents of $12.9 million.

Based on our current operating plan, we believe that our existing cash and cash equivalents will enable us to fund our planned operating expense and capital expenditure requirements into August 2025.

These funds are not sufficient to enable us to complete our planned Phase 2 clinical trial of LTI-03 and we will need to obtain additional funding prior to initiating the trial.

viability is dependent on our ability to raise additional capital to finance our operations.

Our estimate as to how long we expect our existing cash and cash equivalents to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

In addition, our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of our product candidates.

Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

There is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, or at all.

Exclusive Option Agreement with Advancium

On October 31, 2024, we entered into an exclusive option agreement, or the Option Agreement, with Advancium Health Network, or Advancium, for the sale of ALRN-6924, a clinical stage oncology agent that we were development prior to the Lung Acquisition (as defined below).

During the option period, Advancium intends to evaluate ALRN-6924 as a potential therapy for retinoblastoma.

Under the terms of the option agreement Advancium paid us a non-refundable fee of $0.1 million for the exclusive option to acquire ALRN-6924 and related assets.

If Advancium exercises its option, we will receive an exercise payment with potential for additional development, regulatory and commercial milestone payments and sales royalties.

Equity Distribution Agreement

On July 26, 2024, we entered into an Equity Distribution Agreement with Citizens JMP Securities, LLC, or Citizens JMP, as agent and/or principal, under which we may offer and sell up to $50.0 million of shares of our common stock from time to time through or to Citizens JMP.

Sales of common stock through or to Citizens JMP may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Capital Market.

There have been no sales on the "at the market" offering through December 31, 2024, however, in January 2025, we issued and sold 317,772 shares of common stock for total net proceeds of $0.7 million.

Follow-on public offering

In May 2024, we completed an underwritten follow-on public offering, or the Offering, pursuant to which we issued and sold 4,273,505 shares of our common stock, or the Offering Shares, and accompanying warrants, or the Offering Warrants, to purchase 4,273,505 shares of common stock, or the Offering Warrant Shares.

We sold all of the Offering Shares and Offering Warrants.

Each Offering Share was offered and sold together with an accompanying Offering Warrant at a combined offering price of $4.68, and the underwriter purchased each Offering Share with an accompanying Offering Warrant at a combined price of $4.35.

Net proceeds from the Offering were $17.7 million, after deducting underwriting discounts and commissions and offering expenses, and excluding any proceeds that may be received from exercise of the Offering Warrants.

The Lung Acquisition

On October 31, 2023, we acquired Lung Therapeutics, Inc., or Lung, pursuant to an Agreement and Plan of Merger, or the Lung Acquisition Agreement.

Following our acquisition of Lung, or the Lung Acquisition, the business conducted by Lung became the business primarily conducted by the Company and we shifted our operating disease focus to advancing a pipeline of first-in-class medicines to address significant unmet medical needs in orphan pulmonary and fibrosis indications.

Following our acquisition of Lung, Lung became our wholly owned subsidiary, or the Lung Acquisition.

Following the Lung Acquisition, the business conducted by Lung became the business primarily conducted by us and we shifted our operating disease focus to advancing a pipeline of first-in-class medicines to address significant unmet medical needs in orphan pulmonary and fibrosis indications.

Under the terms of the Lung Acquisition Agreement, at the closing of the Lung Acquisition, we issued to the stockholders of Lung 344,345 shares of our common stock and 19,903 shares of our newly designated Series X Preferred Stock.

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In addition, we assumed (i) all Lung stock options and all warrants 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, we entered into a Stock and Warrant Purchase Agreement, or the Purchase Agreement, with a group of accredited investors, or the Investors, led by Bio Partners, the majority stockholder of Lung prior to the closing of the Lung Acquisition, and including Nantahala Capital, as well as additional undisclosed investors, pursuant to which we issued and sold (i) an aggregate of 4,707 shares of Series X Preferred Stock, and (ii) warrants to purchase up to an aggregate of 2,353,500 shares of common stock, or the Warrant Shares, for an aggregate purchase price of approximately $18.4 million, which included the conversion of certain convertible promissory notes in the aggregate principal amount of approximately $1.6 million 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 Preferred Stock,, or the Financing, and collectively with the Lung Acquisition, the Transactions.

The Financing closed on November 2, 2023.

Immediately following the closing of the Lung Acquisition, we entered into the Purchase Agreement, with the Investors, led by Bio Partners, the majority stockholder of Lung prior to the closing of the Lung Acquisition, and including Nantahala Capital, as well as additional undisclosed investors, pursuant to which we issued and sold (i) an aggregate of 4,707 shares of Series X Preferred Stock, and (ii) warrants to purchase up to an aggregate of 2,353,500 shares of common stock, or the PIPE Warrant Shares, for an aggregate purchase price of approximately $18.4 million, which included the conversion of certain convertible promissory notes in the aggregate principal amount of approximately $1.6 million 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 Preferred Stock, or the PIPE Financing, and collectively with the Lung Acquisition, the Transactions.

The PIPE Financing closed on November 2, 2023.

On February 28, 2024, we held our 2023 annual meeting of stockholders in which our stockholders approved the issuance, in accordance with Nasdaq Listing Rule 5635(a), of shares of common stock, upon conversion of our outstanding Series X Preferred Stock.

Following approval of the conversion of outstanding Series X Preferred Stock, the Company had approximately 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 our 2023 annual meeting of stockholders, 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 12,087,075 shares of common stock.

The remaining approximately 12,522 shares of Series X Preferred Stock (which are convertible into 12,522,925 shares of common stock) will remain convertible at the option of the holder thereof, subject to certain beneficial ownership limitations.

We have not completed the development of any of our product candidates, have not generated any revenue from product sales and have never generated an operating profit.

To date, we have financed operations primarily through $145.5 million in net proceeds from sales of common stock and warrants, $131.2 million from sales of preferred stock prior to our IPO, $34.9 million from a collaboration agreement in 2010, and $18.4 million in gross proceeds, less issuance costs of $0.9 million, 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 $1.6 million 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 Preferred Stock.

Since our inception, we have incurred significant losses on an aggregate basis.

Our net losses were $15.7 million and $27.3 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, we had an accumulated deficit of $288.5 million.

In February 2023, we discontinued development of ALRN-6924 which substantially reduced our operating expenses.

Notwithstanding these events, we expect to continue to incur operating losses for the foreseeable future.

After the Lung Acquisition, we believe that, based on our current operating plan, our cash and cash equivalents of $17.3 million as of December 31, 2023, will enable us to fund our operating expenses into the fourth quarter of 2024 following the date of this Annual Report on Form 10-K.

We have concluded that as of the date of this Annual Report on Form 10-K there is substantial doubt about our ability to continue as a going concern.

Our funding estimates are based on assumptions that may prove to be wrong and we could use our available capital resources sooner than we currently expect, see “Liquidity and Capital Resources.” We intend to fund our operations primarily through utilization of our current financial resources and additional raises of capital.

Our future viability is dependent on our 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 we become unable to continue as a going concern, we may have to liquidate our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our consolidated financial statements.

Components of Aileron’s Results of Operations

On March 5, 2024, subject to then existing beneficial ownership limitations, 11,957 shares of Series X Preferred Stock were automatically converted into 11,957,000 shares of common stock.

Components of Rein’s Results of Operations

We have not generated any revenue from product sales and we do not expect to generate any revenue from the sale of products in the foreseeable future.

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• salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

• expenses incurred in connection with the clinical development of its product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs;

• the cost of manufacturing product candidates for use in its clinical trials and preclinical studies, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs;

• expenses incurred in connection with the preclinical development of its product candidates, including outsourced professional scientific development services, consulting research fees and payments made under sponsored research arrangements with third parties;

• expenses incurred in connection with the clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs;

• the cost of manufacturing product candidates for use in our clinical trials and preclinical studies, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs;

• expenses incurred in connection with the preclinical development of our product candidates, including outsourced professional scientific development services, consulting research fees and payments made under sponsored research arrangements with third parties;

• the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;

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Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.

In addition, we typically used our employee and infrastructure resources across our development programs.

We tracked outsourced development costs and milestone payments made under our licensing arrangements by product candidate or development program, but we did not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates because these costs are deployed across multiple programs and, as such, are not separately classified.

In addition, we typically use our employee and infrastructure resources across our development programs.

We track outsourced development costs and milestone payments made under our licensing arrangements by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates because these costs are deployed across multiple programs and, as such, are not separately classified.

Research and development activities are central to our business model.

The duration, costs and timing of clinical trials and development of a product candidate will depend on a variety of factors, including:

• the scope, rate of progress, expense and results of clinical trials of the product candidate that we are developing and other research and development activities that we have conducted;

• the scope, rate of progress, expense and results of clinical trials of the product candidates that we are developing and other research and development activities that we have conducted;

• uncertainties in clinical trial design and patient enrollment rates;

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A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.

For example, if the FDA, or another regulatory authority were to have required us to conduct clinical trials beyond those that we anticipated would be required for the completion of clinical development of a product candidate, or if we experienced significant trial delays due to patient enrollment or other reasons, we would have been required to expend significant additional financial resources and time on the completion of clinical development.

For example, if the U.S.

Food and Drug Administration, or the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipated would be required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to patient enrollment or other reasons, we could be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

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and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

Impairment Loss on Intangible Assets

Impairment loss on intangible assets was identified in the fourth quarter of 2024 when the carrying value of LTI-01 exceeded its fair value as of December 31, 2024.

Restructuring Costs

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

Restructuring-related charges are comprised of one-time termination costs in connection with our reduction-in-workforce in 2023, including severance, benefits, and related costs.

Other Income, net

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We anticipate that our interest income will fluctuate in the future in response to our cash and cash equivalents and the interest rate environment.

Other income, net consists of gains or losses recognized from non-routine items such as accretion on short-term investments, and gains or losses recognized from foreign currency transactions, and the disposal of fixed assets.

Other income, net consists of the income recognized under the Option Agreement with Advancium, gains or losses recognized from non-routine items such as accretion on short-term investments, and gains or losses recognized from foreign currency transactions, and the disposal of fixed assets.

We anticipate that our interest income and investment accretion will fluctuate in the future in response to our then-current cash and cash equivalents, and then-current interest rates.

Results of Operations

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Year Ended December 31,

(in thousands)

Operating expenses:

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General and administrative

Restructuring and other

Impairment loss on intangible assets

Restructuring and Other Costs

Total operating expenses

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Other income, net

Income tax benefit

Research and Development Expenses

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Research and development expenses for the year ended December 31, 2024 were $14.2 million, compared to $4.0 million for the year ended December 31, 2023.

The decrease of $14.0 million was primarily a result of reduced spending of $6.0 million for our completed Phase 1b NSCLC trial, $1.6 million for our completed healthy volunteer study, $2.6 million for our terminated Phase 1b breast cancer trial, $2.0 million for ALRN-6924 manufacturing costs, and $1.0 million for other research expenses, and reduced spending of $2.7 million for employee related expenses and facilities and other expenses, offset by the research and development expense of $1.4 million and employee related expenses of $0.5 million incurred by Lung during 2023 after the acquisition.

The increase of $10.3 million of research and development expenses was primarily a result of the termination of ALRN-6924 in 2023 and new clinical programs acquired as part of the Lung Acquisition in October 2023.

During the year ended December 31, 2024, we incurred expenses of $5.9 million on clinical trials and preclinical studies, $5.5 million on manufacturing including $3.2 million write-offs due

to the expiration of clinical materials and the temporary delay of clinical development of LTI-01, and $0.6 million on regulatory and development consulting as well as $2.2 million on employee and related expenses associated with clinical programs acquired in the Lung Acquisition.

These programs and related activities were not included in our financial results for periods prior to the Lung Acquisition.

There were $2.1 million on research and development expenses related to ALRN-6924 and $1.9 million on research and development expenses related to LTI-03, LTI-01 and other preclinical programs including $1.2 million on clinical trials and preclinical studies, $0.2 million on manufacturing, $0.1 million on regulatory and development consulting as well as $0.5 million on employee and related expenses during the year ended December 31, 2023.

General and Administrative Expenses

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General and administrative expenses were $13.9 million for the year ended December 31, 2024, compared to $11.4 million for the year ended December 31, 2023.

The increase of $1.7 million in general and administrative expense was primarily the result of $2.4 million more professional fees during 2023 as compared to the year 2022 mainly due to the acquisition in October 2023, offset by $0.3 million lower headcount costs and $0.4 million lower facilities and other expenses during 2023 as compared to the year 2022.

Restructuring and Other

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

The determination to affect the workforce reduction was made in connection with our decision to terminate the Phase 1b breast cancer trial of ALRN-6924 and further development of ALRN-6924.

As a result of the above restructuring initiatives, we incurred restructuring-related charges of $0.9 million for the year ended December 31, 2023.

The increase of $2.5 million in general and administrative expenses was primarily due to increased employee and related expenses of $2.7 million as a result of increased headcount associated with the Lung Acquisition and severance expense recognized due to departure of former employees, and increased facilities and other expenses of $0.6 million as a result of the Lung Acquisition, offset by a decrease of $0.8 million in professional fees as a result of no acquisition related events during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Impairment Loss on Intangible Assets

We incurred impairment loss on intangible assets of $37.0 million for the year ended December 31, 2024 in connection with the temporary delay of further clinical development of LTI-01 until additional funds are raised.

In the fourth quarter of 2024, we determined that the temporary delay of further clinical development of LTI-01 may not be a short-term measure.

There was no impairment loss on goodwill during the year ended December 31, 2024.

There was no impairment loss on goodwill or intangible assets incurred during the year ended December 31, 2023.

Restructuring and Other Costs

There were no restructuring-related expenses incurred during the year ended December 31, 2024.

We incurred restructuring-related charges of $0.9 million for the year ended December 31, 2023 in connection with our February 2023 restructuring.

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

All restructuring-related expenses were incurred and paid in 2023.

Other Income, net

Other income, net of $0.7 million for the year ended December 31, 2024 consisted of interest income of $0.4 million, investment accretion of $0.3 million, and other income of $0.1 million recognized from the Option Agreement with Advancium.

Other income, net of $0.5 million for the year ended December 31, 2023 consisted of interest income of $0.4 million and investment accretion of $0.2 million.

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As of December 31, 2024, we had federal and state net operating loss carryforwards of $77.3 million and $18.8 million, respectively, which begin to expire in 2036 and 2043, respectively.

As of December 31, 2023, we also had federal research and development tax credit carryforwards of $1.1 million, which begin to expire in 2035.

The Company also has federal orphan drug tax credit carryforwards of $6.7 million which begin to expire in 2039.

As of December 31, 2024, we also had

federal research and development tax credit carryforwards of $2.4 million, which begin to expire in 2035.

We also have federal orphan drug tax credit carryforwards of $5.8 million which begin to expire in 2039.

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.

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In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.

As a result of the Company’s acquisition of Lung Therapeutics, the tax attributes have been limited under Section 382.

The Company has reflected the reduction of these tax attributes within the income tax footnote at December 31, 2023.

On October 31, 2023, the Company acquired, in accordance with the terms of the Merger Agreement, the stock of Lung Therapeutics.

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.

As a result of the Lung Acquisition, the tax attributes have been limited under Section 382.

We have reflected the reduction of these tax attributes within the income tax footnote at December 31, 2024 and 2023, respectively.

On October 31, 2023, we acquired, in accordance with the terms of the Lung Acquisition Agreement, the stock of Lung.

In accordance with Accounting Standards Codification, or 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.

We have computed estimated temporary differences and acquired tax carryforwards and credits as of the transaction date.

We 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.

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, we have recorded a deferred tax liability for the portion of the liability that cannot be offset with indefinite lived deferred tax assets.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred significant losses on an aggregate basis.

We have not commercialized any product candidates, and as we do not have any product candidates under development, we do not expect to generate revenue from sales of any products.

We have financed our operations through sales of common stock in our initial public offering and follow-on public offerings, sales of common stock and warrants in a private placement, sales of common stock in “at-the-market” offerings, sales of common stock under our equity line with Lincoln Park Capital LLC, or LPC, sales of preferred stock prior to our initial public offering, payments received under a collaboration agreement and sales of common stock, preferred stock and warrants in connection with the Lung Acquisition and the Financing.

Since inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from operations.

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance the clinical development of our lead product candidates, LTI-03 and LTI-01, or any future product candidates.

We expect that our research and development and general and administrative costs will continue to increase significantly, including in connection with conducting clinical trials and manufacturing for our lead product candidates or any future product candidates to support potential future commercialization and providing general and administrative support for our operations, including the costs associated with operating as a public company.

As of December 31, 2024, we had cash and cash equivalents of $12.9 million.

At-the-Market Program

In January 2021, we entered into a Capital on Demand Sales Agreement, or the ATM Sales Agreement, with JonesTrading Institutional Services LLC, or JonesTrading, and William Blair & Company, L.L.C., or William Blair, as agents, under which we may issue and sell shares of common stock, having an aggregate offering price of up to $30.0 million.

Sales of common stock through JonesTrading and William Blair may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended.

We are not obligated to make any sales of common stock under the ATM Sales Agreement.

Pursuant to a prospectus relating to the ATM Sales Agreement we filed with the SEC on June 21, 2022, we may offer and sell shares of our common stock having an aggregate offering price of up to $14.0 million under the ATM Sales Agreement.

There were no sales under the ATM Sales Agreement during the year ended December 31, 2023, or the year ended December 31, 2022.

Equity Line Financing

On September 21, 2020, we entered into a purchase agreement, or the Equity Line Purchase Agreement, with LPC for an equity line financing.

The Equity Line Purchase Agreement provided that, subject to the terms and conditions set forth therein, we had the right, but not the obligation, to sell to LPC, and LPC is obligated to purchase up to $15.0 million of shares of common stock at our sole discretion, over a 36-month period that commenced in October 2020.

We filed a registration statement on Form S-1 covering the sale of shares of common stock that are issued to LPC under the Equity Line Purchase Agreement, which was declared effective on October 15, 2020.

The Equity Line Purchase Agreement was terminated in October 2023 pursuant to the terms thereof.

There were no sales under the Equity Line Purchase Agreement during the years ended December 31, 2023 and 2022.

The Lung Acquisition and Financing Transaction

On October 31, 2023, we acquired Lung, a privately held biopharmaceutical company focused on developing novel therapies for the treatment of orphan pulmonary and fibrosis indications that have no approved or limited effective treatments.

Immediately following the acquisition of Lung, we entered into a definitive agreement for the sale of (i) 4,707 shares of Series X Non-Voting Convertible Preferred Stock, at par value of $0.001, or the Series X Preferred Stock, and (ii) warrants to purchase an aggregate of 2,353,500 shares of Aileron's common stock in a private placement to a group of accredited investors led by Bios Partners, all affiliated entities are collectively called Bios, and including Nantahala Capital, as well as additional undisclosed investors, or the Financing.

The Financing resulted in gross proceeds to Aileron of approximately $18.4 million, which included the conversion of certain convertible promissory notes in the aggregate principal amount of approximately $1.6 million 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 Preferred Stock.

The Financing closed on November 2, 2023.

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, noncash distributions and cash dividends.

The Warrants issued under the Financing will be exercisable any time after May 2, 2024, 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.

In connection with the Financing, we entered into a Registration Rights Agreement, or the Registration Rights Agreement, with certain investors.

Pursuant to the Registration Rights Agreement, we filed a resale registration statement with the SEC on January 29, 2024, which was declared effective on February 5, 2024.

The Registration Rights Agreement also contains customary terms, including an obligation to indemnify the investors, their officers, directors, agents, partners, members, managers, stockholders, affiliates and employees under the registration statement from certain liabilities and pay all fees and expenses (excluding any underwriting discounts and selling commissions and all legal fees and expenses of legal counsel for the investors, except for reasonable and documented fees and expenses in an amount not to exceed $30,000 of the investors that hold a majority in interest of the registrable securities in connection with the review of the registration statement) incident to our obligations under the Registration Rights Agreement.

Based on our current operating plan, we believe that our existing cash and cash equivalents as of December 31, 2024 will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into August 2025.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, strategic collaborations, licensing arrangements or other sources.

See the section titled “Risk Factors” found elsewhere in this Annual Report on Form 10-K for risks associated with our substantial capital requirements.

To date, we have funded our operations through sales of common stock in our initial public offering, sales of common stock and warrants in follow-on public offerings, sales of common stock and warrants in a private placement, sales of common stock in “at-the-market” offerings, sales of preferred stock prior to our initial public offering, payments received under a collaboration agreement, sales of common stock, preferred stock and warrants in connection with the Lung Acquisition and the PIPE Financing and sales of common stock upon option exercises.

In July 2024, we entered into an Equity Distribution Agreement with Citizens JMP, as agent and/or principal, under which we may offer and sell up to $50.0 million of our common stock from time to time through or to Citizens JMP.

Under General Instruction I.B.6 to Form S-3, or the Baby Shelf Rule, the amount of funds we can raise through primary public offerings of securities in any 12-month period using our registration statement on Form S-3 is limited to one-third of the aggregate market value of our common stock held

by non-affiliates.

As of March 27, 2025, the aggregate market value of our outstanding shares of common stock held by non-affiliates was approximately $35.2 million, which was calculated based on 19,889,930 shares held by non-affiliates on such date and a price per share of $1.77, which was the closing price of our common stock on the Nasdaq Capital Market on March 27, 2025.

We therefore are limited by the Baby Shelf Rule as of the filing of this Annual Report on Form 10-K, until such time as our public float exceeds $75.0 million.

We did not sell any shares of common stock pursuant to the Equity Distribution Agreement during the year ended December 31, 2024.

In January 2025, we issued and sold 317,772 shares of common stock for total net proceeds of $0.7 million.

Upon entry into the Equity Distribution Agreement, we terminated our prior “at the market offering” pursuant to a Capital on Demand Sales Agreement with JonesTrading Institutional Services LLC and William Blair & Company, L.L.C.

At the time of termination, we had not sold any shares under the sales agreement prospectus related to the prior sales agreement.

In May 2024, we completed the Offering as described above.

We received net proceeds of $17.7 million from the Offering, after deducting underwriting discounts and commissions and offering expenses, and excluding any proceeds that may be received from exercise of the Offering Warrants.

Each Offering Warrant has an exercise price per share of common stock equal to $4.68.

Each Offering Warrant may be exercised until May 1, 2027.

Each Offering Warrant is exercisable solely by means of a cash exercise, except that an Offering Warrant is exercisable via cashless exercise if at the time of exercise, a registration statement registering the issuance of Offering Warrant Shares is not then effective or the prospectus contained therein is not available for the issuance of such shares.

The following table summarizes our sources and uses of cash for each of the periods presented:

Year Ended December 31,

(in thousands)

Cash used in operating activities

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Effect of exchange rate changes on cash and cash equivalents

Net increase in cash, cash equivalents and restricted cash

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

Operating Activities

During the year ended December 31, 2024, operating activities used $22.3 million of cash, primarily resulting from our net loss of $62.9 million partially offset by a change in operating assets and liabilities of $2.4 million and non-cash charges of $38.2 million.

Non-cash charges resulted primarily from impairment loss on intangible assets of $37.0 million and stock-based compensation expense of $1.1 million.

Changes in our operating assets and liabilities during the year ended December 31, 2024 consisted primarily of a decrease of $2.2 million in other assets, and an increase of $1.7 million in accrued expenses and other current liabilities, offset by a decrease of $1.6 million in deferred tax liabilities due to the reduction in the carrying value of our intangible assets.

During the year ended December 31, 2023, operating activities used $19.8 million of cash, primarily resulting from our net loss of $15.7 million and cash provided by the change in operating assets and liabilities of $5.4 million offset by non-cash charges of $1.3 million.

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Changes in our operating assets and liabilities during the year ended December 31, 2023 consisted primarily of an increase of $5.0 million in accounts payable, and $0.4 million in accrued expenses and other current liabilities.

During the year ended December 31, 2022, operating activities used $24.9 million of cash, primarily resulting from our net loss of $27.3 million and cash provided by the change in operating assets and liabilities of $0.4 million offset by non-cash charges of $2.0 million.

Non-cash charges resulted primarily from stock-based compensation expense.

Changes in our operating assets and liabilities during the year ended December 31, 2022 consisted primarily of a decrease of $1.6 million in accrued expenses and other current liabilities, a decrease of $1.6 million in prepaid expense and other assets, and an increase of $0.5 million in accounts payable.

Investing Activities

During the year ended December 31, 2024, no cash was provided by investing activities.

During the year ended December 31, 2023, investing activities provided $16.2 million of cash.

We received $16.3 million of proceeds from the maturities of investments, offset by $0.1 million of cash and cash equivalents from the Lung Acquisition.

During the year ended December 31, 2022, investing activities provided $26.5 million of cash.

We received $48.3 million of proceeds from the sale of investments, offset by $21.9 million of purchases of investments.

Financing Activities

During the year ended December 31, 2023, net cash provided by financing activities was $15.8 million due to the proceeds of $15.8 million from the Financing in October 2023.

During the year ended December 31, 2022, net cash provided by financing activities was $0 million.

During the year ended December 31, 2024, net cash provided by financing activities was $17.8 million primarily due to the Offering in May 2024.

During the year ended December 31, 2023, net cash provided by financing activities was $15.8 million due to the proceeds of $15.8 million from the PIPE Financing in October 2023.

Funding Requirements

Our plan of operation is to continue implementing our business strategy, continue research and development of LTI-03 and LTI-01 and any other product candidates we may acquire or develop and continue to expand our research pipeline and our internal research and development capabilities.

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our current and future product candidates.

In addition, we expect to incur additional costs associated with operating as a public company.

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or terminate our research and development programs or future commercialization efforts.

Our future capital requirements will depend on many factors, including:

• the scope, timing, progress, costs, and results of discovery, preclinical development, and clinical trials for our current and future product candidates;

• the number of clinical trials required for regulatory approval of our current and future product candidates;

• the costs, timing, and outcome of regulatory review of any of our current and future product candidates;

• the cost of manufacturing clinical and commercial supplies of our current and future product candidates;

• the costs and timing of future commercialization activities, including manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive marketing approval;

• the costs and timing of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property rights, and defending any intellectual property-related claims, including any claims by third parties that we are infringing upon their intellectual property rights;

• our ability to maintain existing, and establish new, strategic collaborations, licensing, or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty, or other payments due under any such agreement;

• the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

• expenses to attract, hire and retain, skilled personnel;

• the costs of operating as a public company;

• if our product candidates are approved, our ability to establish a commercially viable pricing structure and obtain approval for coverage and adequate reimbursement from third-party and government payors;

• the effect of competing technological and market developments;

• the extent to which we acquire or invest in businesses, products, and technologies;

• unfavorable global economic conditions, which may exacerbate the magnitude of the factors discussed above.

As of December 31, 2024, we had cash and cash equivalents of $12.9 million.

Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into August 2025.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Our future viability is dependent on our ability to raise additional capital to finance our operations.

In addition, our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of our product candidates.

Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

Although management plans to pursue additional funding, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, or at all.

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations from the sale of additional equity or debt financings, strategic collaborations, licensing, arrangements or other sources.

In the event that additional financing is required, we may not be able to raise it on terms acceptable to us, or at all.

If we raise additional funds through the issuance of equity or convertible preferred stock, it may result in dilution to our existing stockholders.

Debt financing or preferred equity financing, if available, may result in increased fixed payment obligations, and the existence of securities with rights that may be senior to those of our common stock.

If we incur indebtedness, we could become subject to covenants that would restrict our operations.

If we raise funds through strategic collaborations, licensing or other arrangements, we may relinquish significant rights or grant licenses on terms that are not favorable to us.

Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Off-Balance Sheet Arrangements

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• vendors in connection with preclinical and clinical development activities;

• CROs in connection with performing research activities on our behalf and conducting preclinical studies and clinical trials on our behalf;

• contract research organizations, or CROs, in connection with performing research activities on our behalf and conducting preclinical studies and clinical trials on our behalf;

• investigative sites or other service providers in connection with clinical trials;

• CMOs or other vendors in connection with the production of preclinical and clinical trial materials.

• contract manufacturing organization, or CMOs, or other vendors in connection with the production of preclinical and clinical trial materials.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage clinical trials and preclinical studies on our behalf.

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We account for stock option forfeitures during the period in which they occur.

Impairment on Indefinite-lived Intangible Assets

We review our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Indefinite-lived intangible assets, including goodwill, are tested for impairment at least annually.

The fair value of reporting unit was determined using the income approach with a reconciliation to market capitalization.

The fair value of intangible assets was determined using multi-period excess earning method and using Level 3 inputs, which included estimates of forecasted cash flows for each candidate.

Impairment is assessed by comparing the carrying value of the asset to its recoverable amount, which is determined as the higher of its fair value less costs to sell and its value in use.

The value in use is estimated based on discounted future cash flows derived from assumptions regarding revenue growth, operating margins, discount rates, and market conditions.

These estimates require significant management judgment and are subject to inherent uncertainties.

Key assumptions used in impairment testing include:

• Projected cash flows:

Based on historical trends, market analysis, and business forecasts.

• Discount rate:

Reflecting the risk-adjusted cost of capital applicable to the asset or cash-generating unit.

• Growth rate:

Used for terminal value calculations, based on long-term industry outlook and economic conditions.

• Market conditions:

Including competitive landscape, industry trends, and macroeconomic factors.

Changes in these assumptions, particularly in discount rates or expected future cash flows, could result in significant adjustments to the impairment calculation and may lead to impairment losses recognized in the financial statements.

During the year ended December 31, 2024, we conducted an impairment assessment and determined that an impairment loss of $37.0 million was recognized for our LTI-01 intangible asset in connection with the temporary delay of further clinical development of LTI-01 until additional funds are raised.

In the fourth quarter of 2024, we determined that the temporary delay of further clinical development of LTI-01 may not be a short-term measure.

Management continues to monitor these estimates and will adjust them as necessary to reflect changing economic conditions and business performance.

We account 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 our tax returns.

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Contractual Obligations

Our wholly owned subsidiary, Lung Therapeutics LLC, leased a facility containing 6,455 square feet of office space located at 3801 S.

Our wholly owned subsidiary, Lung, leased a facility containing 6,455 square feet of office space located at 3801 S.

Capital of Texas Hwy, Suite 330, Austin, Texas, which expired on March 31, 2024.

We do not plan on renewing the lease.

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

Our remaining contractual rent commitment under this lease was less than $0.1 million as of December 31, 2023.

We did not renew the lease.

Following expiration of the lease, we are operating virtually, and expect to do so for the foreseeable future.

Our remaining contractual rent commitment under this lease was $0 million and less than $0.1 million as of December 31, 2024 and December 31, 2023, respectively.

For a description of our lease obligations, refer to Note 14 to our consolidated financial statements appearing in this Annual Report on Form 10-K.

Emerging Growth Company Status

We ceased to qualify as an emerging growth company as of December 31, 2022, and are now subject to Section 14A(a) and (b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, beginning with our fiscal year that started January 1, 2023.

However, notwithstanding the loss of our status as an emerging growth company, we will continue to be exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002 for so long as we are neither a “large accelerated filer” nor an “accelerated filer” as those terms are defined in Rule 12b-2 under the Exchange Act.

We are a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act.

Smaller Reporting Company Status

We are a “smaller reporting company” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250.0 million or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700.0 million.

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We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K, such standards will not have a material impact on our consolidated financial statements or do not otherwise apply to our operations.

Quantitative and Qualitati ve Disclosures About Market Risk

We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.

Financial Statement s and Supplementary Data

The consolidated financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K.

An index of those consolidated financial statements is found in Item 15 of Part IV of this Annual Report on Form 10-K.

Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure

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 7. Management’s Discussion and Analysis