UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March~~June 3130, 2022

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

For the transition period from __________________ to __________________

Commission File Number: 001-38268

ALLENA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Delaware	45-2729920
( State or other jurisdiction ofincorporation or organization)	(I.R.S. EmployerIdentification No.)
One Newton Executive Park, Suite 202Newton, MA	02462
142-F North Road, Suite 150Sudbury, MA	01776
(Address of principal executive offices)	(Zip Code)

(617) 467-4577

(Registrant’s telephone number, including area code)

One Newton Executive Park, Suite 202, Newton, Massachusetts 02462

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act.


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ALNA	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No 

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Small reporting company	☒
		Emerging growth Company	☒

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

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

As of ~~May~~August 912, 2022, the registrant had ~~107~~122,~~725~~083,~~169~~226 shares of common stock, $0.001 par value per share, outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. on our management’s belief and assumptions and on information currently available to our management. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•

our estimates and expectations regarding our capital requirements, cash and expense levels, liquidity sources and our need for additional financing and our ability to continue as a going concern;

•

our ability to fund our operating expenses and capital requirements beyond ~~the~~a ~~next~~matter ~~several~~of ~~weeks~~days;

•

our ability to consummate a strategic or financing transaction, including a possible partnership for ALLN-346;

•

in the event we are unable to obtain sufficient funds to continue our operations, our ability to obtain an in-court or out-of-court restructuring of our liabilities;

•

our ability to enroll a sufficient number of patients (including as a result of any delays arising from the global outbreak of the coronavirus, or the COVID-19 coronavirus) and the ability of subjects in our clinical trials to adhere to the protocol, including capsule and dietary regimen and urinary collection requirements;

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

our ability to successfully commercialize ALLN-346 and any future product candidates with a targeted sales force;

•

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

•

the impact of natural disasters, global pandemics (including the recent outbreak of a novel strain of the COVID-19 coronavirus), labor disputes, political unrest in the U.S. and abroad, lack of raw material supply, issues with facilities and equipment or other forms of disruption to business operations at our manufacturing facilities;

•

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

•

potential collaborators to license and commercialize ALLN-346 and any future product candidates, if approved, or any products for which we receive regulatory approval in the future outside of the United States;

•

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

•

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

•

our ability to attract, retain and motivate key personnel; and

•

our ability to generate revenue and become profitable.

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

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

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

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	56
	Notes to Unaudited Condensed Consolidated Financial Statements	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1518
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2631
Item 4.	Controls and Procedures	2631
PART II.	OTHER INFORMATION	2732
Item 1.	Legal Proceedings	2732
Item 1A.	Risk Factors	2732
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7075
Item 3.	Defaults Upon Senior Securities	7075
Item 4.	Mine Safety Disclosures	7075
Item 5.	Other Information	7075
Item 6.	Exhibits	7176
Signatures		7278

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Allena Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share data)

	March 31,2022			December 31,2021
	June 30,2022			December 31,2021
Assets
Current assets:
Cash and cash equivalents	$	86,~~895~~589		$	29,988
Prepaid expenses and other current assets		119,~~302~~897			3,018
Total current assets		2016,~~197~~486			33,006
Property and equipment, net		~~1,048~~930			1,173
Operating lease assets		~~364~~272			455
Other assets		123			123
Total assets	$	2117,~~732~~811		$	34,757
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	32,~~082~~271		$	1,030
Loan payable, net of discount		4,~~893~~904			9,852
Accrued expenses and other current liabilities		12,~~687~~870			4,480
Operating lease liabilities, net of discount		~~454~~380			317
Total current liabilities		10,~~116~~425			15,679
Warrant liability		3,645			—
Operating lease liabilities, net of current portion and discount		—			210
Total liabilities		1014,~~116~~070			15,889
Commitments and contingencies (Note 6)
Stockholders’ equity:
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding		—			—
Undesignated preferred stock, $0.001 par value; 5,000,000 shares authorized; 2,872 shares issued and no shares outstanding at June 30, 2022; no shares issued and outstanding at December 31, 2021		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized; 89,774,309 and 82,969,421 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		90			83
Common stock, $0.001 par value; 200,000,000 shares authorized; 107,725,169 and 82,969,421 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		108			83
Additional paid-in capital		~~269~~270,~~791~~333			265,237
Accumulated deficit		(~~258~~266,~~265~~700	)		(246,452	)
Total stockholders’ equity		113,~~616~~741			18,868
Total liabilities and stockholders’ equity	$	2117,~~732~~811		$	34,757

See accompanying notes.

Allena Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share data)

	Three Months Ended March 31,
	2022			2021
Operating expenses:
Research and development	$	7,758		$	7,852
General and administrative		3,799			3,558
Total operating expenses		11,557			11,410
Loss from operations		(11,557	)		(11,410	)
Other income (expense):
Interest expense, net		(249	)		(235	)
Other income (expense), net		(7	)		9
Other expense, net		(256	)		(226	)
Net loss	$	(11,813	)	$	(11,636	)
Net loss per share attributable to common stockholders—basic and diluted	$	(0.13	)	$	(0.21	)
Weighted-average common shares outstanding—basic and diluted		89,382,587			55,021,149
Comprehensive loss	$	(11,813	)	$	(11,636	)

See accompanying notes.


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Operating expenses:
Research and development	$	3,981		$	10,090		$	11,739		$	17,942
General and administrative		2,943			3,597			6,742			7,155
Total operating expenses		6,924			13,687			18,481			25,097
Loss from operations		(6,924	)		(13,687	)		(18,481	)		(25,097	)
Other income (expense):
Loss on issuance of securities		(371	)		—			(371	)		—
Change in valuation of warrant liability		(1,023	)		—			(1,023	)		—
Interest expense, net		(118	)		(253	)		(367	)		(488	)
Other income (expense), net		1			(32	)		(6	)		(23	)
Other expense, net		(1,511	)		(285	)		(1,767	)		(511	)
Net loss	$	(8,435	)	$	(13,972	)	$	(20,248	)	$	(25,608	)
Net loss per share attributable to common stockholders— basic and diluted	$	(0.08	)	$	(0.24	)	$	(0.21	)	$	(0.45	)
Weighted-average common shares outstanding— basic and diluted		100,623,730			57,932,389			95,034,212			56,484,811
Comprehensive loss	$	(8,435	)	$	(13,972	)	$	(20,248	)	$	(25,608	)

Allena Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands, except share amounts)

						Additional						Total
	Series D Convertible					Series E Convertible											Additional						Total
	Common stock					paid-in			Accumulated			stockholders’
	Preferred Stock					Preferred Stock						Common stock					paid-in			Accumulated			stockholders’
	Shares			Amount		~~capital~~Shares			~~deficit~~Amount			~~equity~~Shares			Amount		capital			deficit			equity
Balance at December 31, 2020		50,821,361		$	51	$	220,307		$	(197,789	)	$	22,569
Balance at March 31, 2021		—		$	—		—		$	—			56,879,679		$	57	$	232,871		$	(209,425	)	$	23,503
Issuance of stock, net of issuance costs		~~6,058,318~~—			6—		~~11,697~~—			—			111,~~703~~650,988			2		1,769			—			1,771
Stock-based compensation		—			—		867			—			867
Issuance of common stock through employee stock purchase plan ("ESPP")		—			—		—			—			4,206			—		5			—			5
Net loss		—			—		—			(11,636	)		(11,636	)
Issuance of common stock through release of restricted stock units ("RSUs")		—			—		—			—			248,111			—		—			—			—
Balance at March 31, 2021		56,879,679		$	57	$	232,871		$	(209,425	)	$	23,503
Stock-based compensation		—			—		—			—			—			—		960			—			960
Balance at December 31, 2021		82,969,421		$	83	$	265,237		$	(246,452	)	$	18,868
Net loss		—			—		—			—			—			—		—			(13,972	)		(13,972	)
Issuance of stock, net of issuance costs		6,804,888			7		3,937			—			3,944
Balance at June 30, 2021		—		$	—		—		$	—			58,782,984		$	59	$	235,605		$	(223,397	)	$	12,267
Stock-based compensation		—			—		617			—			617
Balance at March 31, 2022		—		$	—		—		$	—			89,774,309		$	90	$	269,791		$	(258,265	)	$	11,616
Net loss		—			—		—			(11,813	)		(11,813	)
Issuance of convertible preferred stock and warrants, net of issuance costs		1,436			—		1,436			—			—			—		—			—			—
Balance at March 31, 2022		89,774,309		$	90	$	269,791		$	(258,265	)	$	11,616
Conversion of preferred stock into common stock		(1,436	)		—		(1,436	)		—			17,950,860		$	18	$	(18	)		—			—
Stock-based compensation		—			—		—			—			—			—		560			—			560
Net loss		—			—		—			—			—			—		—			(8,435	)		(8,435	)
Balance at June 30, 2022		—		$	—		—		$	—			107,725,169		$	108	$	270,333		$	(266,700	)	$	3,741

See accompanying notes.

Allena Pharmaceuticals, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands, except share amounts)


	Series D Convertible					Series E Convertible									Additional						Total
	Preferred Stock					Preferred Stock					Common stock				paid-in			Accumulated			stockholders’
	Shares			Amount		Shares			Amount		Shares		Amount		capital			deficit			equity
Balance at December 31, 2020		—		$	—		—		$	—		50,821,361	$	51	$	220,307		$	(197,789	)	$	22,569
Issuance of stock, net of issuance costs		—			—		—			—		7,709,306		8		13,466			—			13,474
Issuance of common stock through employee stock purchase plan ("ESPP")		—			—		—			—		4,206		—		5			—			5
Issuance of common stock through release of restricted stock units ("RSUs")		—			—		—			—		248,111		—		—			—			—
Stock-based compensation		—			—		—			—		—		—		1,827			—			1,827
Net loss		—			—		—			—		—		—		—			(25,608	)		(25,608	)
Balance at June 30, 2021		—		$	—		—		$	—		58,782,984	$	59	$	235,605		$	(223,397	)	$	12,267

Balance at December 31, 2021		—		$	—		—		$	—		82,969,421	$	83	$	265,237		$	(246,452	)	$	18,868
Issuance of convertible preferred stock and warrants, net of issuance costs		1,436			—		1,436			—		—		—		—			—			—
Conversion of preferred stock into common stock		(1,436	)		—		(1,436	)		—		17,950,860	$	18	$	(18	)		—			—
Issuance of stock, net of issuance costs		—			—		—			—		6,804,888		7		3,937			—			3,944
Stock-based compensation		—			—		—			—		—		—		1,177			—			1,177
Net loss		—			—		—			—		—		—		—			(20,248	)		(20,248	)
Balance at June 30, 2022		—		$	—		—		$	—		107,725,169	$	108	$	270,333		$	(266,700	)	$	3,741

See accompanying notes.

Allena Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(1120,~~813~~248	)	$	(1125,~~636~~608	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		~~617~~1,177			~~867~~1,827
Depreciation expense		~~125~~243			65145
Non-cash interest expense		41			9
Loss on issuance of securities		371			—
Non-cash lease expense		97			83
Change in valuation of warrant liability		1,023			—
Non-cash interest expense		52			27
Non-cash lease expense		189			190
Changes in assets and liabilities:
Prepaid expenses and other current assets		(86,~~284~~879	)		~~(17~~542	)
Accounts payable		2,052			468
Other assets		—			(50	)
Accrued expenses		(2,793	)		199
Accounts payable		1,241			124
Operating lease liabilities		(79	)		(74	)
Accrued expenses		(1,610	)		1,555
Net cash used in operating activities		(20,037	)		(10,036	)
Operating lease liabilities		(153	)		(150	)
Net cash used in operating activities		(24,594	)		(21,398	)
Cash flows from investing activities:
Purchases of property and equipment		—			(~~422~~457	)
Net cash used in investing activities		—			(~~422~~457	)
Cash flows from financing activities:
Proceeds from the issuance of common stock, net of issuance costs		3,944			1113,~~703~~464
Proceeds from the issuance of convertible preferred stock, net of issuance costs		2,251			—
Proceeds from the issuance of stock through ESPP		—			5
Repayment of loan payable		(5,000	)		—
Net cash (used in) provided by financing activities		(1,056	)		11,703
Net cash provided by financing activities		1,195			13,469
Net (decrease) increase in cash and cash equivalents		(21,093	)		1,245
Net decrease in cash and cash equivalents		(23,399	)		(8,386	)
Cash and cash equivalents, beginning of period		29,988			35,042
Cash and cash equivalents, end of period		86,~~895~~589			3626,~~287~~656
Supplemental disclosures:
Property and equipment purchases included in accounts payable	$	—		$	6
Issuance costs included in accounts payable and accrued expenses	$	—		$	10

See accompanying notes.

Allena Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in thousands, except share and per share data)

1. Nature of Business

Allena Pharmaceuticals, Inc. (the “Company”) is a clinical stage company focused on developing non-absorbed oral enzyme therapeutics to treat metabolic conditions including hyperuricemia and gout. The Company was incorporated under the laws of the State of Delaware on June 24, 2011. The Company’s headquarters are in ~~Newton~~Sudbury, Massachusetts.

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

Liquidity and Going Concern

The Company had an accumulated deficit of $~~258~~266.37 million at ~~March~~June 3130, 2022 and will require substantial additional capital to fund operations. The future success of the Company is dependent on its ability to identify and develop its product candidates and ultimately upon its ability to attain profitable operations. At ~~March~~June 3130, 2022, the Company had $86.96 million of cash and cash equivalents.

The Company’s available cash and cash equivalents as of ~~March~~June 3130, 2022 are not sufficient to fund the Company’s current operating plan for at least the next twelve months following the filing of this Quarterly Report. The Company requires additional capital to sustain its operations, including its ALLN-346 development program. Management is exploring opportunities to secure additional funding through equity or debt financings or through collaborations, licensing transactions or other sources. In January 2022, the Company initiated a process to explore a range of strategic and financing alternatives to maximize stockholder value and has engaged the investment bank Stifel, Nicolaus & Company, Inc. ("Stifel") to act as strategic advisor for this process. Potential strategic alternatives that may be evaluated include a partnership or sale of ALLN-346, a sale or merger of the Company, or securing additional financing to enable further development of the Company's ALLN-346 program. There can be no assurance that this strategic review process will result in the Company pursuing any transaction or that any transaction, if pursued, will be completed. If the Company is unable to complete a transaction, it may be required to seek an in-court or out-of-court restructuring of its liabilities.

As part of the strategic process, the Compensation Committee of the Board of Directors approved a retention plan on January 28, 2022, available to all employees (the "Retention Plan"). Employees were required to execute retention agreements to receive payments and other considerations offered by the Retention Plan. Employees who executed a retention agreement received a salary adjustment equal to 6.5% retroactive to January 1, 2022, a restricted stock unit ("RSU") grant and a lump sum retention payment. A total of 2,998,500 RSUs were granted on February 1, 2022 under the Retention Plan. Lump sum retention payments totaling $3.0 million were made to employees in February 2022. If an employee resigns from the Company or is terminated for cause prior to June 30, 2022, the employee would be required to fully repay the lump sum retention payment received. If an employee resigns from the Company or is terminated for cause between July 1, 2022 and September 30, 2022, the employee would be required to repay 50% of the lump sum retention payment received.

During the first quarter of 2022, the Company made voluntary principal repayments of $5.0 million of the $10.0 million that was outstanding as of December 31, 2021 under the loan and security agreement with Pontifax Medison Finance (Israel) L.P. and Pontifax Medison Finance (Cayman) L.P. (together “Pontifax”) (the “Pontifax Agreement”). The Company made an additional voluntary principal repayment of $0.5 million in August 2022. The outstanding principal balance as of the filing date of this Quarterly Report is $54.05 million. The Company also purchased Directors' & Officers' run-off insurance for $6.8 million in March 2022.

On March 18, 2022, the Company announced that it was terminating its URIROX-2 study and reloxaliase program and initiated the process of closing the URIROX-2 study with the CRO, investigative sites, patients and business partners. In connection with the termination of the reloxaliase program, the Company completed a workforce reduction of approximately ~~40% on March 31, 2022. In accordance with the terms of the Retention Plan, the employees terminated by the Company on~~

40% on March 31, 2022. In accordance with the terms of the Retention Plan, the employees terminated by the Company on March 31, 2022 were not required to repay any portion of their lump sum retention payments originally received in February 2022.

OnDuring ~~May 3, 2022,~~ the ~~Company~~first ~~entered~~quarter ~~into a securities purchase agreement with an investor, pursuant to which the Company agreed to issue, in a registered direct offering, an aggregate~~ of 22022,~~872.1376~~ ~~shares of Preferred Stock (split evenly between~~ the Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”), and Series E Convertible Preferred Stock, par value $0.001 per share (“Series E Preferred Stock” and together with the Series D Preferred Stock, the “Preferred Stock”)). The Company ~~received~~issued ~~net proceeds of approximately $2.3 million from the issuance~~ and ~~sale~~sold ~~of the Preferred Stock~~6, ~~after deducting offering expenses and placement agent fees. The shares of Preferred Stock have a stated value of $1~~804,~~000~~888 ~~per share and are convertible, following the date of the issuance thereof, into an aggregate of 8,975,430~~ shares of its common stock ofunder ~~the Company upon the conversion of the Series D Preferred Stock and into~~ an ~~aggregate~~At-Market ofIssuance ~~8,975,430~~Sales ~~shares~~Agreement ofwith ~~common~~B. ~~stock~~Riley ~~of the Company upon the conversion of the Series E Preferred Stock~~Securities, inInc. ~~each case,~~ at a ~~conversion~~weighted average price of $0.1662 per share~~. H.C.~~ ~~Wainwright & Co., LLC (“HCW”) was the exclusive placement agent~~ for ~~this~~net ~~offering. On~~proceeds ~~May 5, 2022, the Preferred Stock investor converted all~~ of ~~its Series D Preferred Stock into 8,975,430 shares of common stock, and on May~~ $3.9, ~~2022, the Preferred Stock investor converted all of its Series E Preferred Stock into 8,975,430 shares of common stock~~million.

On May 3, 2022, the Company entered into a securities purchase agreement with an investor, pursuant to which the Company agreed to issue, in a registered direct offering, an aggregate of 2,872.1376 shares of Preferred Stock (split evenly between the Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”), and Series E Convertible Preferred Stock, par value $0.001 per share (“Series E Preferred Stock” and together with the Series D Preferred Stock, the “Preferred Stock”)). The Company received net proceeds of approximately $2.3 million from the issuance and sale of the Preferred Stock, after deducting offering expenses and placement agent fees. The shares of Preferred Stock have a stated value of $1,000 per share and are convertible, following the date of the issuance thereof, into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series D Preferred Stock and into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series E Preferred Stock, in each case, at a conversion price of $16.00 per share. H.C. Wainwright & Co., LLC (“HCW”) was the exclusive placement agent for this offering. On May 5, 2022, the Preferred Stock investor converted all of its Series D Preferred Stock into 8,975,430 shares of common stock, and on May 9, 2022, the Preferred Stock investor converted all of its Series E Preferred Stock into 8,975,430 shares of common stock.

In a concurrent private placement, the Company also issued to the Preferred Stock investor unregistered warrants (the “2022 Common Warrants”) to purchase up to an aggregate of 22,438,575 shares of the Company’s common stock, at an exercise price of $0.1694 per share. The 2022 Common Warrants will become exercisable six months after the date of issuance, and will have a term of five years from the initial exercise date. The Company also issued to designees of HCW, in a concurrent private placement, warrants to purchase up to 1,256,561 shares of Common Stock (the “HCW Warrants”). The HCW Warrants are exercisable for $0.20 per share and will be exercisable six months after the date of issuance and have a term of five years from the commencement of sales pursuant to the registered direct offering.

The Company entered into an At Market Offering Agreement with H.C. Wainwright & Co., LLC (“HCW ATM Agreement”) on July 8, 2022. Since that time and through the filing date of this Quarterly Report, the Company issued and sold 14,358,057 shares of its common stock under the HCW ATM Agreement at a weighted average price of $0.14 per share for net proceeds of approximately $1.9 million.

Reverse Stock Split

At a special meeting of stockholders held on August 4, 2022, the Company’s stockholders approved an amendment to the Company’s amended and restated certificate of incorporation, as amended, to, at the discretion of the Company’s board of directors, effect a reverse stock split with respect to its issued and outstanding Common Stock, par value $0.001 per share, including any Common Stock held by the Company as treasury shares, at any time prior to December 31, 2022, at a ratio of 1-for-10 to 1-for-100 (the “Range”). The Range and timing of the reverse stock split will be determined by the Company’s board of directors without further approval or authorization of the Company’s stockholders and included in a public announcement once determined.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates ("ASU") of the Financial Accounting Standards Board (“FASB”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021 and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary to present fairly the Company’s financial position as of ~~March~~June 3130, 2022, the results of its operations and cash flows for the three and six months ended ~~March~~June 3130, 2022 and ~~March~~June 3130, 2021~~. Such~~ ~~adjustments are of a normal~~ and ~~recurring~~cash ~~nature.~~flows ~~The results~~ for the ~~three~~six months ended ~~March~~June 3130, 2022 ~~are~~and ~~not necessarily indicative of the results for the year ending December 31, 2022 or for any future period~~2021.

Such adjustments are of a normal and recurring nature. The results for the three and six months ended June 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or for any future period.

Principles of Consolidation

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

Fair Value of Financial Instruments

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


Level 1 inputs:	Quoted prices in active markets for identical assets or liabilities.
Level 2 inputs:	Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.
Level 3 inputs:	Unobservable inputs developed using estimates or assumptions developed by the Company, which reflect those that a market participant would use in pricing the asset or liability.

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

The remainder of the Company’s significant accounting policies are described in the Annual Report filed on Form 10-K for the year ended December 31, 2021 that was filed with the United States Securities and Exchange Commission on March 31, 2022.

Warrants

The Company accounts for issued warrants either as a liability or equity in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC 480-10”) or ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock (“ASC 815-40”). Under ASC 480-10, warrants are considered a liability if they are mandatorily redeemable and they require settlement in cash, other assets, or a variable number of shares. If warrants do not meet liability classification under ASC 480-10, the Company considers the requirements of ASC 815-40 to determine whether the warrants should be classified as a liability or as equity. Under ASC 815-40, contracts that may require settlement for cash are liabilities, regardless of the probability of the occurrence of the triggering event. If warrants do not require liability classification under ASC 815-40, in order to conclude warrants should be classified as equity, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP standard. Liability-classified warrants are measured at fair value on the issuance date and at the end of each reporting period. Any change in the fair value of the warrants after the issuance date is recorded in the consolidated statements of operations as a gain or loss. Equity-classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date.

Recently Adopted Accounting Pronouncements

In 2020, the FASB issued ASU 2020-06, Debt -Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU also simplify the guidance in ASC 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The Company adopted ASU 2020-06 on January 1, ~~2022. The adoption of ASU 2020-06 did have a material impact on the Company's condensed consolidated financial statements.~~

2022. The adoption of ASU 2020-06 did not have a material impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, ASU 2016-13 requires allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 is effective for smaller reporting companies on January 1, 2023. Early adoption is permitted. The Company does not expect that the adoption of ASU 2016-13 will have a material impact on its condensed consolidated financial statements.

3. Net Loss per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. The Company has computed diluted net loss per common share after giving consideration to all potentially dilutive common shares, including options to purchase common stock, restricted stock units, common stock issuable upon conversion of outstanding debt and warrants to purchase common stock, outstanding during the period determined using the treasury-stock and if-converted methods, except where the effect of including such securities would be antidilutive. Because the Company has reported net losses since inception, these potential common shares have been anti-dilutive and basic and diluted loss per share have been the same.

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

		Three Months Ended March 31,
	Three Months Ended June 30,								Six Months Ended June 30,
	2022	~~2022~~			2021	~~2021~~			2022			2021
Numerator:
Net loss	$	$(8,435	~~(11,813~~)	)	$	$(13,972	~~(11,636~~)	)	$	(20,248	)	$	(25,608	)
Net loss attributable to common stockholders	$	$(8,435	~~(11,813~~)	)	$	$(13,972	~~(11,636~~)	)	$	(20,248	)	$	(25,608	)
Denominator:
Weighted-average common shares—basic and diluted		100,623,730	~~89,382,587~~			57,932,389	~~55,021,149~~			95,034,212			56,484,811
Net loss per share attributable to common stockholders—basic and diluted	$	$(0.08	~~(0.13~~)	)	$	$(0.24	~~(0.21~~)	)	$	(0.21	)	$	(0.45	)

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

	Three Months Ended March 31,
	Six Months Ended June 30,
	2022		2021
Stock options		5,~~737~~435,~~536~~949		67,~~535,~~091,757
Restricted stock units		2,~~251~~093,500		~~620~~372,~~277~~166
Warrants		1034,~~687~~383,~~912~~048		9,040
Common stock issuable upon conversion of outstanding debt		1,219,512		2,439,024
Total		1943,~~896~~132,~~460~~009		9,~~603~~911,~~432~~987

4. Fair Value Measurements

The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value at ~~March~~June 3130, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):

Description	~~March~~June 3130,2022		QuotedPricesin ActiveMarkets(Level 1)		SignificantOtherObservableInputs(Level 2)		SignificantUnobservableInputs(Level 3)
Assets:
Money market funds, included in cash and cash equivalents	$	75,~~895~~589	$	75,~~895~~589	$	—	$	—
Total assets	$	75,~~895~~589	$	75,~~895~~589	$	—	$	—
Liabilities:
Warrant liability	$	3,645	$	—	$	—	$	3,645
Total liabilities	$	3,645	$	—	$	—	$	3,645


Description	December 31, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds, included in cash and cash equivalents	$	16,523	$	16,523	$	—	$	—
Total assets	$	16,523	$	16,523	$	—	$	—

At ~~March~~June 3130, 2022 and December 31, 2021, all of the Company’s cash equivalents were comprised of money market funds.

There were no changes to the valuation methods during the ~~three~~six months ended ~~March~~June 3130, 2022 and ~~the~~ year ended December 31, 2021. There were no transfers within the fair value hierarchy during the ~~three~~six months ended ~~March~~June 3130, 2022 and the year ended December 31, 2021.

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their ~~carrying~~fair values.

9Assumptions Used in Determining Fair Value of Warrants

The Company issued the 2022 Common Warrants and the HCW Warrants to purchase an aggregate of up to 23,695,136 shares of common stock in connection with a registered direct financing on May 4, 2022 (see Note 8). The Company concluded that the warrants are not indexed to its own stock and therefore the 2022 Common Warrants and the HCW Warrants are being accounted for as liabilities. The Company recorded the fair value of the warrants upon issuance using the Black-Scholes valuation model and is required to revalue the warrants at each reporting date with any changes in fair value recorded on the statement of operations. The valuation of the warrants is considered under Level 3 of the fair value hierarchy and influenced by the fair value of the underlying common stock of the Company.

A summary of the Black Scholes pricing model assumptions used to record the fair value of the warrants is as follows:


	June 30, 2022		May 4, 2022
Stock price	$	0.19	$	0.14
Risk-free interest rate	3.01%		2.93%
Expected dividend yield	—%		—%
Expected term (in years)	4.9 - 5.4		5.0 - 5.5
Expected volatility	106%		105%

Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis

The following table reflects the change in the Company’s Level 3 Warrant liability for the six months ended June 30, 2022 (in thousands):


Fair value of warrant liability as of the beginning of the period	$	—
Issuance of warrants		2,622
Change in fair value		1,023
Fair value of warrant liability as of the end of the period	$	3,645

5. Accrued Expenses

Accrued expenses consist of the following (in thousands):

	March 31,2022		December 31,2021
	June 30,2022		December 31,2021
Payroll and employee-related expenses	$	~~195~~295	$	371
Third-party research and development expenses		12,~~082~~260		3,195
Professional fees		~~232~~184		677
Loan interest		—112		227
Other		~~178~~19		10
Total accrued expenses	$	12,~~687~~870	$	4,480

6. Commitments and Contingencies

The Company is a party to an operating lease for approximately 11,691 square feet of laboratory and office space in Sudbury, MA (Sudbury Lease). The Sudbury Lease expires on February 28, 2026. The Company has a one-time option to cancel the lease effective February 28, 2023 for any reason or no reason at all. Annualized base rent for the Sudbury lease is approximately $0.3 million.

Maturities of the Company’s operating lease liabilities in accordance with ASC 842 as of ~~March~~June 3130, 2022 are as follows (in thousands):

Remainder of 2022	$	~~238~~158
2023		231
Total maturities		~~469~~389
Less: Amount representing interest		(159	)
Present value of operating lease liabilities	$	~~454~~380

Lease costs included in the Company’s condensed consolidated statements of operations and comprehensive loss for each of the three and six months ended ~~March~~June 3130, 2022 and 2021 ~~was~~were $0.1 million and $0.2 million, respectively. The Company’s operating leases had a weighted average remaining lease term of ~~1.0~~nine ~~years~~months and a weighted average discount rate of 5.5% at ~~March~~June 3130, 2022.

~~The~~During the reporting period, the Company iswas also a party to an operating lease for approximately 6,055 square feet of office space in Newton, MA (Newton Lease). ~~The~~Pursuant to its terms, the Newton Lease terminates on the last day of the month following the month either party notifies the other that the term of the lease shall end. The annualized base rent for the Newton Lease is approximately $0.3 million. Due to the short nature of the minimum lease term of the Newton Lease, the Newton Lease was not considered as an operating lease liability in accordance with ASC 842 as of ~~March~~June 30, 2022. On June 15, 2022, the Company delivered to the lessor written notice of termination of the Newton Lease effective July 31, 2022.

7. Convertible Debt Agreement

On September 29, 2020, the Company entered into the Pontifax Agreement, providing up to $25.0 million of borrowings through three facilities of a term loan. An initial loan (“Initial Loan”) of $10.0 million was advanced on September 29, 2020 (“Closing Date”). An additional $5.0 million credit line (“Credit Line”) was available to the Company for withdrawal for a period of 12 months from the Closing Date. The Company paid a fee of 1.0% per annum to Pontifax for the daily average amount not withdrawn under the Credit Line. A third installment loan (“Third Installment Loan”) of $10.0 million was conditioned upon achievement of one of the following milestones by no later than 15 months from the Closing Date: (i) the Company receives non-contingent, non-refundable gross proceeds from one or more equity financings and/or strategic partnerships, in each case consummated following the Closing Date, in the aggregate amount of at least $15.0 million for all such equity financings and strategic partnerships or (ii) the 65th patient has been enrolled in the URIROX-2 trial. During the three months ended December 31, 2020, the additional $10 million under the Third Installment Loan became available to the Company when the milestone of at least $15 million of gross proceeds from equity financings was achieved. The availability to withdraw amounts available under the Credit Line expired unused on September 29, 2021 and the availability to withdraw amounts available under the Third Installment Loan expired unused on December 29, 2021.

Amounts outstanding under the Pontifax Agreement have a fixed interest rate of 9.0% per annum. The Pontifax Agreement has a term of 48 months and an interest only period of 24 months. Upon the expiration of the interest only period on September 29, 2022, amounts borrowed will be repaid over eight equal quarterly payments of principal and interest. At its 12

10The availability to withdraw amounts available under the Credit Line expired unused on September 29, 2021 and the availability to withdraw amounts available under the Third Installment Loan expired unused on December 29, 2021.

The Pontifax Agreement contains negative covenants restricting the Company’s activities, including limitations on dispositions, mergers or acquisitions, incurring indebtedness or liens, paying dividends or making investments and certain other business transactions. There are no financial covenants associated with the Pontifax Agreement. The obligations under the Pontifax Agreement are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in the Company’s business, operations or financial or other condition.

Pontifax, at its option, has the right to convert at any time any portion of the then outstanding borrowings and all accrued but unpaid interest into shares of the Company’s common stock, at the applicable conversion price. The conversion price for borrowings outstanding under the Pontifax Agreement is fixed at $4.10 per share. If the Company consummates a stock split, stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction (each a “Stock Event”), then the applicable conversion price will be proportionately increased or decreased as necessary to reflect the proportionate change in shares of the Company’s common stock issued and outstanding as a result of such Stock Event.

The Company has the right to convert at any time any portion of the then outstanding borrowings and all accrued but unpaid interest into shares of the Company’s common stock, at the applicable conversion price, subject to the fulfillment of both of the following conditions: (i) during a period of 30 consecutive trading days prior to the date on which the Company provides notice of the exercise of its conversion right, the closing price of the Company’s common stock was higher than 1.4 times the applicable conversion price of the term loans on at least 20 trading days, including on the trading day preceding the date on which the Company provides notice of the exercise of its conversion right, (ii) the number of shares of common stock issuable upon conversion by the Company shall not exceed the average weekly number of shares of the Company’s common stock traded on the stock market for the four weeks immediately preceding the date on which the Company provides notice of the exercise of its conversion right.

The shares of the Company’s common stock issued upon conversion will be free of any restrictions and the Company is required to hold at all times a sufficient number of authorized, unreserved and unissued shares of its common stock required to settle any such conversion. The Company has reserved 1,219,512 shares of its common stock for conversion of the outstanding debt balance as of ~~March~~June 3130, 2022.

The Company evaluated the Pontifax Agreement for embedded features that require bifurcation, noting certain features were required to be bifurcated, but were concluded to be de minimis in value at ~~March~~June 3130, 2022 and December 31, 2021. The Company determined the conversion feature was not required to be accounted for separately. The Company concluded that the embedded conversion option is not subject to separate accounting pursuant to either the cash conversion guidance or the beneficial conversion feature guidance.

As part of the strategic process initiated in January 2022, the Company has held discussions with Pontifax regarding repayment of amounts outstanding under the Pontifax Agreement. Taking into consideration the available cash and cash equivalents at December 31, 2021 along with the termination of its reloxaliase program in March 2022 and its inability to raise sufficient capital to sustain its operations as of the date of this Quarterly Report, the Company determined that, consistent with the determination at December 31, 2021, it was appropriate to classify the full amount outstanding under the Pontifax Agreement as a current liability as of ~~March~~June 3130, 2022 given the subjective acceleration of payment under the material adverse change clause. During the first quarter of 2022, the Company made voluntary repayments of principal totaling $5.0 million. The Company made an additional voluntary repayment of principal of $0.5 million in August 2022

The minimum aggregate future loan and interest payments at ~~March~~June 3130, 2022 are as follows (in thousands):

Years Ending December 31,
2022	$	803
2023		2,760
2024		2,070
Total minimum payments	$	5,633
Less: Amount representing interest		(633	)
Less; Discount		(107	)
Less: Current portion		(4,893	)
Loan payable, net of current portion	$	—


Years Ending December 31,
2022	$	803
2023		2,760
2024		2,070
Total minimum payments	$	5,633
Less: Amount representing interest		(633	)
Less; Discount		(96	)
Less: Current portion		(4,904	)
Loan payable, net of current portion	$	—

8. Stockholders’ Equity

On May 3, 2022, the Company entered into a securities purchase agreement with an investor, pursuant to which the Company agreed to issue, in a registered direct offering, an aggregate of 2,872.1376 shares of Preferred Stock (split evenly between the Series D Convertible Preferred Stock, and Series E Convertible Preferred Stock). The Company received net proceeds of approximately $2.3 million from the issuance and sale of the Preferred Stock, after deducting offering expenses and placement agent fees. The shares of Preferred Stock have a stated value of $1,000 per share and are convertible, following the date of the issuance thereof, into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series D Preferred Stock and into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series E Preferred Stock, in each case, at a conversion price of $0.16 per share. HCW was the exclusive placement agent for this offering. On May 5, 2022, the Preferred Stock investor converted all of its Series D Preferred Stock into 8,975,430 shares of common stock, and on May 9, 2022, the Preferred Stock investor converted all of its Series E Preferred Stock into 8,975,430 shares of common stock.

proceeds of approximately $2.3 million from the issuance and sale of the Preferred Stock, after deducting offering expenses and placement agent fees. The shares of Preferred Stock have a stated value of $1,000 per share and are convertible, following the date of the issuance thereof, into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series D Preferred Stock and into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series E Preferred Stock, in each case, at a conversion price of $0.16 per share. HCW was the exclusive placement agent for this offering. On May 5, 2022, the Preferred Stock investor converted all of its Series D Preferred Stock into 8,975,430 shares of common stock, and on May 9, 2022, the Preferred Stock investor converted all of its Series E Preferred Stock into 8,975,430 shares of common stock.

In a concurrent private placement, the Company also issued to the Preferred Stock investor the 2022 Common Warrants to purchase up to an aggregate of 22,438,575 shares of the Company’s common stock, at an exercise price of $0.1694 per share. The 2022 Common Warrants will become exercisable six months after the date of issuance, and will have a term of five years from the initial exercise date. The Company also issued to designees of HCW, in a concurrent private placement, the HCW Warrants to purchase up to 1,256,561 shares of Common Stock. The HCW Warrants are exercisable for $0.20 per share and will be exercisable six months after the date of issuance and have a term of five years from the commencement of sales pursuant to the registered direct offering.

On July 16, 2021, the Company completed a registered direct offering, in which the Company issued and sold 17,416,096 shares of its common stock, pre-funded warrants ("2021 Pre-funded Warrants") to purchase up to an aggregate of 3,941,648 shares of its common stock in lieu of shares of common stock, and warrants ("2021 Common Warrants") to purchase up to 10,678,872 shares of the Company’s common stock through a securities purchase agreement with several healthcare-focused institutional and accredited investors. The combined price of each share of common stock and accompanying 2021 Common Warrant to purchase one-half of a share of common stock was $1.311 per share. The purchase price of each 2021 Pre-funded Warrant was $1.301, which was the combined purchase price per share of common stock and accompanying 2021 Common Warrant to purchase one-half of a share of common stock, minus $0.01. Gross proceeds of the transaction were $28.0 million. As a result of the registered direct offering, the Company received approximately $25.4 million after deducting offering costs. Each 2021 Common Warrant is exercisable for one share of the Company’s common stock at an exercise price of $1.25 per share. The 2021 Common Warrants are immediately exercisable and expire on July 16, 2026. Each Pre-funded Warrant is exercisable for one share of common stock at an exercise price of $0.01 per share. All of the 2021 Pre-funded Warrants were exercised on July 16, 2021.

During the first quarter of 2021, the Company issued and sold 6,058,318 shares of its common stock under an At-the Market Equity Offering Sales Agreement with Cowen and Company, LLC (Cowen ATM Agreement) at a weighted average price of $1.99 per share for net proceeds of $11.7 million.

The Company entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc. (“B. Riley ATM Agreement”) on March 29, 2021. During the year ended December 31, 2021, the Company issued and sold a total of 4,081,338 shares of its common stock under the B. Riley ATM Agreement at a weighted average price of $1.11 per share for net proceeds of approximately $4.2 million. The Cowen ATM Agreement was terminated at the time the Company entered into the B. Riley ATM Agreement.

The Company entered into another At Market Issuance Sales Agreement with B. Riley Securities, Inc. (“Updated B. Riley ATM Agreement”) on December 23, 2021. During the first quarter of 2022, the Company issued and sold 6,804,888 shares of its common stock under the Updated B. Riley ATM Agreement at a weighted average price of $0.62 per share for net proceeds of $4.1 million. The B. Riley ATM Agreement was terminated at the time the Company entered into the Updated B. Riley Agreement. 14

The Company entered into another At Market Issuance Sales Agreement with B. Riley Securities, Inc. (“Updated B. Riley ATM Agreement”) on December 23, 2021. During the first quarter of 2022, the Company issued and sold 6,804,888 shares of its common stock under the Updated B. Riley ATM Agreement at a weighted average price of $0.62 per share for net proceeds of $3.9 million. The B. Riley ATM Agreement was terminated at the time the Company entered into the Updated B. Riley Agreement.

The Company entered into the HCW ATM Agreement on July 8, 2022. Since that time and through the filing date of this Quarterly Report, the Company issued and sold 14,358,057 shares of its common stock under the HCW ATM Agreement at a weighted average price of $0.14 per share for net proceeds of approximately $1.9 million. The Updated B. Riley ATM Agreement was terminated at the time the Company entered into the HCW ATM Agreement.

Common Stock

The holders of common stock are entitled to one vote for each share held. Common stockholders are not entitled to receive dividends, unless declared by the Board of Directors.

12The Company has reserved for future issuances the following shares of common stock as of June 30, 2022 and December 31, 2021:

The Company has reserved for future issuances the following shares of common stock as of March 31, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
Stock options and restricted stock units		11,691,089		8,372,313
Warrants		34,383,048		10,687,912
Common stock issuable upon conversion of outstanding debt		1,219,512		2,439,024
Employee stock purchase plan		306,527		306,527
Total		47,600,176		21,805,776

	March 31,2022		December 31,2021
Stock options and restricted stock units		11,691,089		8,372,313
Warrants		10,687,912		10,687,912
Common stock issuable upon conversion of outstanding debt		1,219,512		2,439,024
Employee stock purchase plan		306,527		306,527
Total		23,905,040		21,805,776

Warrants

At ~~March~~June 3130, 2022 ~~and~~the Company had 34,383,048 warrants outstanding for the purchase of shares of common stock at a weighted average exercise price of $0.51. At December 31, 2021, the Company had 10,687,912 warrants outstanding for the purchase of shares of common stock at a weighted average exercise price of $1.26. 1022,~~678~~438,~~872~~575 warrants with an exercise price of $10.251694 ~~expire~~and ~~on July 16~~1, ~~2026. 9~~256,~~040~~561 warrants with an exercise price of $110.0620 expire on May 13, ~~2026~~2027. ~~Additionally,~~ ~~in a concurrent private placement in connection with the registered direct offering completed in May 2022~~10, ~~the Company issued 22~~678,~~438,575~~872 warrants with an exercise price of $01.~~1694~~25 ~~and~~expire 1on July 16,~~256~~ 2026. 9,~~561warrants~~040 warrants with an exercise price of $011.2006 ~~that~~ expire on May 31, ~~2027~~2026.

Preferred Stock

On July 12, 2022, the Company entered into a Subscription and Investment Representation Agreement (the “Subscription Agreement”) with a single accredited investor (the “Subscriber”), pursuant to which the Company agreed to issue and sell 100 shares of the Company’s Series F Non-Convertible Preferred Stock, par value $0.001 per share (the “Series F Non-Convertible Preferred Stock”), to the Subscriber for $100.00 in cash. The sale was completed and settled on July 12, 2022. The Subscription Agreement contains customary representations and warranties and certain indemnification rights and obligations of the parties.

The Series F Non-Convertible Preferred Stock is not convertible into shares of the Company’s common stock or any other class or series of stock of the Company. In the event of any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Series F Non-Convertible Preferred Stock shall be entitled to receive, in priority to any distributions to the holders of Common Stock, out of the assets, whether capital or surplus, of the Company an amount equal to $0.01 per share, or $1.00 in the aggregate. The holder of the Series F Non-Convertible Preferred Stock will not be entitled to receive dividends of any kind.

9. Stock Incentive Plans

On October 31, 2017, the Company adopted the 2017 Stock Option and Incentive Plan (“2017 Plan”). Upon the adoption of the 2017 Plan, no further grants would be made under the 2011 Stock Incentive Plan (“2011 Plan”). The 2017 Plan initially provided for the grant of awards for 2,038,021 shares of common stock. In addition to the shares available for grant under the 2017 Plan, shares underlying any awards outstanding under the 2011 Plan as of October 31, 2017 that are cancelled, forfeited or otherwise terminated without being exercised will be available for future grant under the 2017 Plan. The 2017 Plan also provides that an additional number of shares will automatically be added to the shares authorized for issuance under the 2017 Plan on January 1 of each year. The number of shares added each year will be equal to the lesser of: (i) 4% of the outstanding shares on the immediately preceding December 31 or (ii) such amount as determined by the Compensation Committee of the registrant’s Board of Directors. On January 1, 2020, 2021 and 2022, the shares available for grant under the 2017 Plan were automatically increased by 989,400, 2,032,854 and 3,318,776 shares, respectively.

All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock units (“RSUs”), and other share-based awards under the terms of the 2017 Plan. As of March 31, 2022, 2,590,678 shares of common stock were available for future grant under the 2017 Plan.15

Onthe ~~January~~outstanding ~~22,~~shares ~~2021,~~on the ~~Company~~immediately ~~adopted~~preceding ~~the~~December ~~2021~~31 ~~Inducement~~or ~~Equity Plan~~ (~~“2021 Plan”~~ii)~~. The~~ ~~2021~~such ~~Plan~~amount ~~provides~~as ~~for~~determined by the ~~grant~~Compensation Committee of ~~awards~~the ~~for~~registrant’s ~~1,600,000~~Board ~~shares~~ of ~~common stock~~Directors. ~~The~~ On ~~purpose~~January of1, ~~the~~2020, 2021 ~~plan is to enable the Company to grant equity awards to induce highly qualified prospective officers~~ and ~~employees~~2022, ~~who are not currently employed by~~ the ~~Company~~shares toavailable ~~accept~~for ~~employment~~grant ~~and~~under ~~provide them with an equity interest in~~ the ~~Company. The~~2017 ~~Company is utilizing the 2021~~ Plan ~~for~~were ~~awards~~automatically ~~the~~increased ~~Company~~by ~~may make without stockholder approval as an inducement pursuant to Rule 5635(c)(4) of the Marketplace Rules of the Nasdaq Stock Market~~989, ~~Inc. As of March 31~~400, ~~2022~~2,032,854 1and 3,~~111~~318,~~375~~776 shares, ~~of common stock were available for future grant under the 2021 Plan~~respectively.

All of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock units (“RSUs”), and other share-based awards under the terms of the 2017 Plan. As of June 30, 2022, 3,016,640 shares of common stock were available for future grant under the 2017 Plan.

On January 22, 2021, the Company adopted the 2021 Inducement Equity Plan (“2021 Plan”). The 2021 Plan provides for the grant of awards for 1,600,000 shares of common stock. The purpose of the 2021 plan is to enable the Company to grant equity awards to induce highly qualified prospective officers and employees who are not currently employed by the Company to accept employment and provide them with an equity interest in the Company. The Company is utilizing the 2021 Plan for awards the Company may make without stockholder approval as an inducement pursuant to Rule 5635(c)(4) of the Marketplace Rules of the Nasdaq Stock Market, Inc. As of June 30, 2022, 1,145,000 shares of common stock were available for future grant under the 2021 Plan.

All stock option grants are nonstatutory stock options except option grants to employees (including officers and directors) intended to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended. Incentive stock options may not be granted at less than the fair market value of the Company’s common stock on the date of grant, as determined in good faith by the Board of Directors at its sole discretion. Nonqualified stock options may be granted at an exercise price established by the Board of Directors at its sole discretion (which has not been less than fair market value on the date of grant) and the vesting periods may vary. Vesting periods are generally four years and are determined by the Board of Directors or a delegated subcommittee. Stock options become exercisable as they vest. Options granted under the 2011 Plan, 2017 Plan and 2021 Plan expire no more than 10 years from the date of grant.

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

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	~~170~~135	$	~~247~~303	$	305	$	550
General and administrative		~~447~~425		~~620~~657		872		1,277
Total	$	~~617~~560	$	~~867~~960	$	1,177	$	1,827

13The fair value of each stock option granted to employees and directors during the three and six months ended June 30, 2021 was estimated on the date of grant using the Black-Scholes option-pricing model, with the following range of assumptions:

The fair value of each stock option granted to employees and directors during the three months ended March 31, 2021 was estimated on the date of grant using the Black-Scholes option-pricing model, with the following range of assumptions:


	Three Months Ended June 30, 2021	Six Months Ended June 30, 2021
Risk-free interest rate	0.9%-1.4%	0.4%-1.4%
Expected dividend yield	—%	—%
Expected term (in years)	5.4-7.0	5.0-7.0
Expected volatility	93%-94%	93%-94%

Risk-free interest rate		0.4%-1.1%
Expected dividend yield		—%
Expected term (in years)		5.0-7.0
Expected volatility		93%-94%

The Company did not grant any stock options during the three and six months ended June 30, 2022. A summary of the stock option activity under the 2011, 2017 and 2021 Plans during the six months ended June 30, 2022 is as follows:

The Company did not grant any stock options during the three months ended March 31, 2022. A summary of the stock option activity under the 2011, 2017 and 2021 Plans during the three months ended March 31, 2022 is as follows:


	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		6,765,837		$	2.81		7.6	$	3
Granted		—			—
Exercised		—			—
Forfeited		(1,316,712	)		2.54
Expired		(13,176	)		0.42
Outstanding at June 30, 2022		5,435,949			2.88		7.0	$	—
Exercisable at June 30, 2022		3,417,270		$	3.31		6.2	$	—

	Shares			Weighted-AverageExercisePrice		Weighted-AverageRemainingContractualLife(in years)		AggregateIntrinsicValue(in thousands)
Outstanding at December 31, 2021		6,765,837		$	2.81		7.6	$	3
Granted		—			—
Exercised		—			—
Forfeited		(1,015,125	)		2.29
Expired		(13,176	)		0.42
Outstanding at March 31, 2022		5,737,536			2.90		7.3	$	—
Exercisable at March 31, 2022		3,211,793		$	3.49		6.3	$	—

As of June 30, 2022, total unrecognized stock-based compensation expense relating to unvested stock options was $3.1 million. This amount is expected to be recognized over a weighted-average period of 2.2 years.

As of March 31, 2022, total unrecognized stock-based compensation expense relating to unvested stock options was $3.8 million. This amount is expected to be recognized over a weighted-average period of 2.3 years.16

Restricted Stock Units (RSUs)

On February 1, 2022, the Company awarded 2,998,500 RSUs to employees of the Company as part of the Retention Plan. The RSUs vest over a three-year period ratably on July 15th and January 15th of each year following grant date. The RSUs are generally forfeited if the employment relationship terminates with the Company prior to vesting.

	Shares			Weighted-AverageGrant DateFair Value
Nonvested at December 31, 2021		—		$	—
Granted		2,998,500			0.40
Vested		—			—
Forfeited		(~~747~~905,000	)		0.40
Nonvested at March 31, 2022		2,251,500		$	0.40
Nonvested at June 30, 2022		2,093,500		$	0.40

As of ~~March~~June 3130, 2022, the total remaining unrecognized compensation cost related to all nonvested RSUs amounted to $0.97 million. This amount is expected to be recognized over a weighted-average period of 2.85 years.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021 that was filed with the United States Securities and Exchange Commission, or the SEC, on March 31, 2022.

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview

We are a biopharmaceutical company dedicated to developing and commercializing first-in-class, oral enzyme therapeutics to treat patients with rare and severe metabolic and kidney disorders. We are focused on metabolic disorders that result in excess accumulation of certain metabolites that can stimulate inflammation, damage the kidney, and potentially lead to chronic kidney disease, or CKD, and end-stage renal disease, or ESRD. We believe our proprietary know-how in enzyme technology allows for the design, development, formulation, and scalable manufacturing of non-absorbed and stable enzymes delivered orally and in sufficient doses for activity in the gastrointestinal tract. This approach enables us to develop enzyme therapies that degrade metabolites within the GI tract, which reduces potentially toxic metabolite levels in the blood and urine, and in turn, diminishes the disease burden including on the kidney over time.

Our product candidate, ALLN-346, is an orally administered, novel, urate degrading enzyme for patients with hyperuricemia and gout in the setting of advanced CKD. We have conducted a Phase 1 program, including both a single-ascending dose and multiple-ascending dose study in healthy volunteers. In both studies, ALLN-346 was well tolerated with no clinically significant safety signals and no dose-limiting toxicities observed in any cohort up to the highest administered dose. We are currently conducting two Phase 2a studies. Study 201 is a 7-day inpatient study in patients with hyperuricemia, for which we reported initial data in January 2022. Study 202 is a 14-day outpatient study in patients with hyperuricemia, gout and varying degrees of renal insufficiency, for which we ~~expect~~reported ~~to report~~ initial data inon Q2August 10, 2022.

We previously had been developing reloxaliase, a first-in-class, oral enzyme therapeutic for the treatment of hyperoxaluria, a metabolic disorder characterized by markedly elevated urinary oxalate, or UOx, levels and commonly associated with kidney stones, CKD and ESRD. However, in March 2022 we terminated this program following the first of two planned sample size re-estimations (SSR1) of the Phase 3 URIROX-2 Trial, which was conducted by an independent data safety monitoring board (DSMB) statistician. Based on the results of its unblinded analysis, the DSMB recommended that the trial size be increased from the initial 200 subjects to the maximum allowed number of 400 subjects under the pre-specified rules. However, even with this maximum recommended sample size increase, the power to detect an effect of reloxaliase vs. placebo would still be less than 80% based on the available data. Based upon this recommendation, we believe that the separation between the reloxaliase and placebo groups for the UOx primary endpoint is lower than expected, and therefore that the likelihood of success for the long term endpoint of reduction in kidney stone disease progression is also lower than expected. We have therefore decided to terminate the URIROX-2 study. No further clinical studies of reloxaliase are planned at this time.

Our operations to date have been primarily focused on organizing and staffing our company, business planning, raising capital, developing our technology, identifying potential product candidates, manufacturing our product candidates and conducting preclinical studies and clinical trials of reloxaliase and ALLN-346. We do not have any products approved for sale and have not generated any revenue to date.

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We have incurred significant net operating losses in every year since our inception and expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. Our net losses were $~~11.~~8.4 million and $1114.60 million for the three months ended ~~March~~June 3130, 2022 and 2021, respectively and $20.2 million and $25.6 million for the six months ended June 30, 2022 and 2021, respectively. As of ~~March~~June 3130, 2022, we had cash and cash equivalents of $86.96 million and an accumulated deficit of $~~258~~266.37 million. If we are able to secure adequate financing to continue our operations, we anticipate that our expenses will increase significantly as we:

•

advance the development and conduct future clinical trials of ALLN-346;

•

conduct research on the discovery and development of additional product candidates;

•

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

•

establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval in geographies in which we plan to commercialize our products ourselves;

•

maintain, expand and protect our intellectual property portfolio;

•

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

•

add clinical, scientific, operational, financial and management information systems to support our product development and potential future commercialization efforts, and to enable us to operate as a public company.

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate. Additionally, we currently use contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, to carry out our preclinical and clinical development activities. We do not yet have a sales organization. If we obtain regulatory approval for our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we may seek to fund our operations through public or private equity or debt financings or other sources, including strategic collaborations. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue as a going concern.

NASDAQ Delisting Notification

On August 25, 2021, we received a letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that, for the 30 consecutive business day period between July 14, 2021 through August 24, 2021, our common stock had not maintained a minimum closing bid price of $1.00 per share (the “Minimum Bid Price Requirement”) required for continued listing on The Nasdaq Global Select Market pursuant to Nasdaq Listing Rule 5550(a)(2). The Nasdaq letter does not result in the immediate delisting of our common stock from The Nasdaq Global Select Market.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A) (the “Compliance Period Rule”), we were provided an initial period of 180 calendar days, or until February 21, 2022 (the “Compliance Date”), to regain compliance with the Minimum Bid Price Requirement. On February 22, 2022 we applied to transfer our securities to Nasdaq Capital Market and requested a second 180-day period to regain compliance with the Minimum Bid Price Requirement. On February 24, 2022, Nasdaq approved our request for a second 180-day period, or until August 22, 2022, to regain compliance with the Minimum Bid Price Requirement. If, at any time during this 180-day period, the closing bid price for our common stock closes at $1.00 or more per share for a minimum of 10 consecutive business days, as required under the Compliance Period Rule, the Staff will provide written notification to us that we comply with the Minimum Bid Price Requirement and the common stock will continue to be eligible for listing on The Nasdaq Capital Market provided that we are able to meet all other requirements for continued listing on the NASDAQ Capital Market, which we currently do not.

If it appears to the Staff that we will not be able to cure the deficiency, the Staff will provide written notice to us that our common stock will be subject to delisting. At that time, we may appeal the Staff’s delisting determination to a Nasdaq Hearing Panel (the “Panel”). We expect that our stock would remain listed pending the Panel’s decision. There can be no assurance that, if we do appeal the Staff’s delisting determination to the Panel, such appeal would be successful.

We ~~are~~received ~~seeking~~ stockholder approval to effect a reverse stock split. ~~However~~on August 4, ~~there~~2022, ~~can~~to be noeffected ~~assurance~~at ~~that~~the wediscretion ~~will~~of ~~receive~~the ~~such~~Company’s ~~approval~~board orof ~~that~~directors weat ~~will~~any betime ~~able~~prior to ~~regain~~December ~~compliance~~31, ~~with~~2022. The timing of the ~~Minimum~~reverse ~~Bid~~stock ~~Price~~split ~~Requirement~~will orbe ~~maintain~~determined ~~compliance~~by ~~with~~the ~~any~~Company’s board of directors without further approval or authorization of the ~~other~~Company’s ~~Nasdaq~~stockholders ~~continued~~and ~~listing~~included ~~requirements~~in a public announcement once determined. The result of the reverse stock split, ~~even~~once ifeffective, wewill dobe ~~obtain~~to ~~such~~regain ~~approval.~~

1619

compliance with the Minimum Bid Price Requirement for continued listing on the Nasdaq Capital Market. However, we may fail to meet other requirements for continued listing on the NASDAQ Capital Market.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales or any other source and do not expect to generate any revenue from the sale of products for the foreseeable future. If our development efforts for ALLN-346 or other product candidates that we may develop in the future are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts and the development of our product candidates, which include:

•

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

•

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

•

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

•

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

•

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

•

costs related to compliance with clinical regulatory requirements; and

•

facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies.

We expense research and development costs as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as clinical site activations, patient enrollment, or information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and may be reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

We are developing ALLN-346 for patients with hyperuricemia and CKD. We began incurring external research and development costs for this program in 2016. We recently terminated development of reloxaliase, which we had been developing for the treatment of enteric hyperoxaluria and which had accounted for the substantial majority of our research and development expenses over the past three years.

We typically use our employee and infrastructure resources across our development programs. We track outsourced development costs by product candidate or development program, but we do not allocate personnel costs and other internal costs to specific product candidates or development programs.

The following table summarizes our research and development expenses by program (in thousands):

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Reloxaliase external costs	$	21,~~570~~405	$	34,~~970~~893	$	3,975	$	8,863
ALLN-346 external costs		1,~~096~~068		1,~~123~~778		2,164		2,901
Employee compensation and benefits		31,~~292~~322		2,~~160~~551		4,614		4,711
Other		~~800~~186		~~599~~868		986		1,467
Total research and development expenses	$	73,~~758~~981	$	710,~~852~~090	$	11,739	$	17,942

1720

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. Since inception, we have incurred $~~109~~111.93 million of external research and development costs for reloxaliase and $1920.34 million of external research and development costs for ALLN-346. Provided that we are able to secure sufficient capital to continue our operations, we expect that our research and development costs will increase in future years as we advance our ALLN-346 program, including initiating additional clinical trials and scaling our manufacturing processes.

The successful development of ALLN-346 and other potential future product candidates is highly uncertain. Accordingly, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of these product candidates. We are also unable to predict when, if ever, we will generate revenue and material net cash inflows from the commercialization and sale of any of our product candidates for which we may obtain marketing approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of preclinical studies, clinical trials and development of our product candidates will depend on a variety of factors, including:

•

successful enrollment in, and completion of, clinical trials for ALLN-346;

•

establishing an appropriate safety profile for any potential future product candidates with studies to enable the filing of investigational new drug application, or INDs;

•

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

•

significant and changing government regulation and regulatory guidance;

•

timing and receipt of marketing approvals from applicable regulatory authorities;

•

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

•

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

•

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

•

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

•

maintenance of a continued acceptable safety profile of the drugs following approval.

A change in the outcome of any of these variables with respect to the development, manufacture or commercialization enabling activities of any of our product candidates could mean a significant change in the costs, timing and viability associated with the development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, business development and human resources functions. Other significant costs include directors’ and officers’ insurance, facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and professional fees for accounting, auditing, tax and consulting services.

If we are able to secure adequate financing to continue our operations, we expect that our general and administrative expenses will increase in the future to support continued research and development activities and potential commercialization of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses.

Interest Expense, Net

Interest expense, net, primarily consists of interest income earned on our cash and cash equivalents, interest expense incurred on our credit facility and amortized debt discount related to debt issuance costs.

1821

Other Income (Expense), Net

Other income (expense), net, primarily consists of gain (loss) on transactions denominated in foreign currency ~~transactions~~.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. There have been no changes to our critical accounting policies appearing in our Annual Report filed on Form 10-K for the year ended December 31, 2021.

Our significant accounting policies are described in detail in the notes to our consolidated financial statements appearing in our Annual Report filed on Form 10-K for the year ended December 31, 2021. There have been no changes to our significant accounting policies.

Results of Operations

Comparison of the three months ended ~~March~~June 3130, 2022 and 2021

The following table summarizes our results of operations for the three months ended ~~March~~June 3130, 2022 and 2021(in thousands):

	Three Months Ended March 31,						Dollar
	Three Months Ended June 30,						Dollar
	2022			2021			Change
Operating expenses:
Research and development	$	73,~~758~~981		$	710,~~852~~090		$	(946,109	)
General and administrative		32,~~799~~943			3,~~558~~597			~~241~~(654	)
Total operating expenses		116,~~557~~924			1113,~~410~~687			~~147~~(6,763	)
Loss from operations		(116,~~557~~924	)		(1113,~~410~~687	)		~~(147~~6,763	)
Other income (expense):
Interest expense, net		(249	)		(235	)		(14	)
Loss on issuance of securities		(371	)		—			(371	)
Other income (expense), net		(7	)		9			(16	)
Change in valuation of warrant liability		(1,023	)		—			(1,023	)
Other income (expense), net		(256	)		(226	)		(30	)
Interest expense, net		(118	)		(253	)		135
Net loss	$	(11,813	)	$	(11,636	)	$	(177	)
Other income (expense), net		1			(32	)		33
Other income (expense), net		(1,511	)		(285	)		(1,226	)
Net loss	$	(8,435	)	$	(13,972	)	$	5,537

Research and Development Expense

Research and development expense was $74.80 million for the three months ended ~~March~~June 3130, 2022 and $710.91 million for the three months ended ~~March~~June 3130, 2021. The following table summarizes our research and development expenses for the three months ended ~~March~~June 3130, 2022 and 2021(in thousands):

Three Months Ended March 31,

Dollar

Three Months Ended June 30,

Dollar

2022

2021

Change

Clinical development external costs

32,~~323~~152

35,~~493~~114

(~~170~~2,962

)

Manufacturing external costs

~~651~~167

1,~~283~~707

(~~632~~1,540

)

Employee compensation and benefits

31,~~292~~322

2,~~160~~551

(1,~~132~~229

)

Other

~~492~~340

~~916~~718

(~~424~~378

)

Total research and development expenses

73,~~758~~981

710,~~852~~090

(946,109

)

1922

Research and development expense consisted primarily of the following:

•

Our clinical development external costs were $32.32 million and $3.5.1 million for the three months ended ~~March~~June 3130, 2022 and 2021, respectively:

Our URIROX-2 costs decreased $12.02 million from $3.23 million for the three months ended ~~March~~June 3130, 2021 to $21.21 million for the three months ended ~~March~~June 3130, 2022. In conjunction with the strategic process we announced in January 2022, we reduced our activities for URIROX-2 and stopped enrolling new sites while we sought additional financing and completed the SSR1. Based on the results of the SSR1 and the ~~recommendation~~determination of the DSMB statistician, we terminated URIROX-2 and the reloxaliase program in March 2022. Costs incurred during the three months ended June 30, 2022 were primarily related to study close-out activities; and

Our ALLN-346 costs ~~increased~~decreased $0.84 million from $01.24 million for the three months ended ~~March~~June 3130, 2021 to $1.0 million for the three months ended ~~March~~June 3130, 2022. ALLN-346 costs incurred during the three months ended ~~March~~June 3130, 2022 were related to conducting our two Phase 2a studies. WeDuring ~~were~~the ~~not~~three ~~conducting~~months ~~any~~ended June 30, 2021, we incurred $0.6 million of clinical ~~studies~~costs for ~~ALLN-346~~our ~~during~~Phase ~~the~~1b ~~three~~multiple ~~months~~ascending ~~ended~~dose ~~March~~trial ~~31,~~in ~~2021~~healthy volunteers and $0.7 million of start-up related costs for our Phase 2a program.

•

Our manufacturing external costs decreased by $01.65 million from $1.37 million for the three months ended ~~March~~June 3130, 2021 to $0.72 million for the three months ended ~~March~~June 3130, 2022. In conjunction with the strategic process we announced in January 2022, we significantly reduced our external manufacturing activities for reloxaliase and ALLN-346 while we sought additional financing:

Reloxaliase manufacturing costs decreased $01.40 million from $01.62 million for the three months ended ~~March~~June 3130, 2021 to $0.2 million for the three months ended ~~March~~June 3130, 2022. ~~Included~~Costs inincurred ~~the costs~~ for the three months ended ~~March~~June 3130, ~~2021~~2022 ~~were~~related ~~$0.2~~primarily ~~million~~to ofstability ~~costs~~activity ~~at our CMO for engineering services for plant modifications in preparation for commercial batch scale up~~ and ~~$0.2 million of~~ drug ~~product~~storage ~~costs~~and ~~associated~~disposal ~~with scale-up batches~~activities; and

ALLN-346 manufacturing costs decreased from $0.52 million for the three months ended ~~March~~June 3130, ~~2021~~2022 to $2232,000 for the three months ended ~~March~~June 3130, 2022. We ~~The~~significantly ~~costs~~reduced ~~incurred~~our manufacturing activities during the three months ended ~~March~~June 3130, ~~2021~~2022 ~~included~~as ~~$0.2~~part ~~million~~ of ~~formulation~~the ~~and~~strategic ~~development~~process ~~costs~~ and ~~$0.2~~awaiting ~~million~~results of ~~costs~~our ~~for~~Phase ~~technology~~2a ~~transfer~~ and ~~GMP~~Phase ~~batch~~2b ~~production; and~~studies.

•

~~Partially~~Employee ~~offsetting~~benefits ~~the decreases in reloxaliase~~ and ~~ALLN-346~~compensation ~~manufacturing~~ costs ~~was~~decreased anby ~~increase~~$1.2 ofmillion from $0.2.6 million for ~~our~~the ~~other~~three ~~consulting~~months ~~and~~ended ~~external~~June ~~laboratory~~30, ~~service~~2021 ~~costs~~to $1.3 million for the three months ended ~~March~~June 3130, 2022. ~~Included~~The decrease in ~~our~~employee ~~other~~benefits ~~consulting~~and compensation costs ~~for~~is due to the ~~three~~reduction ~~months~~of ~~ended~~our ~~March~~staff ~~31,~~by ~~2022~~40% ~~was~~during $0March 2022.1 Our ~~million~~research ~~for~~and ~~supply~~development ~~chain~~headcount ~~consulting~~was ~~services,~~six ~~for~~employees ~~which~~at ~~there~~June ~~was~~30, no2022 ~~comparable~~as ~~cost~~compared ~~for~~to ~~the~~36 ~~three~~employees ~~months~~at ~~ended~~June ~~March 31~~30, 2021.

Employee benefits and compensation costs increased by $1.1 million from $2.2 million for the three months ended March 31, 2021 to $3.3 million for the three months ended March 31, 2022. The increase in employee benefits and compensation costs is primarily due to costs recognized on payments made to employees under the Retention Plan in February 2022. The payments made to employees are being amortized to expense over the retention period. In connection with the reduction of our staff by 40% during March 2022, the amortization of retention costs for the terminated employees was accelerated and the remainder was expensed on the date of termination.

General and Administrative Expenses

General and administrative expense was $32.89 million for the three months ended ~~March~~June 3130, 2022 and $3.6 million for the three months ended ~~March~~June 3130, 2021. The following table summarizes our general and administrative expenses for the three months ended ~~March~~June 3130, 2022 and 2021(in thousands):

	Three Months Ended March 31,				Dollar
	Three Months Ended June 30,				Dollar
	2022		2021		Change
Employee compensation and benefits	$	1,~~637~~526	$	1,~~803~~779	$	(~~166~~253	)
Consulting and professional services		~~1,407~~660		~~932~~937		~~475~~(277	)
Other		755		823		(68	)
Market research and commercialization planning		—		133		(133	)
Total general and administrative expenses	$	3,799	$	3,558	$	241
Other		757		748		9
Total general and administrative expenses	$	2,943	$	3,597	$	(654	)

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

•

Our employee compensation and benefits expense decreased by $0.23 million for the three months ended ~~March~~June 3130, 2022 primarily due to a decrease in stock-based compensation and a reduction of headcount from 13 employees at June 30, 2021 to seven employees at June 30, 2022; and

•

Our consulting and professional services costs ~~increased~~decreased by $0.53 million for the three months ended ~~March~~June 3130, 2022. The ~~increase~~decrease is primarily due to $0.71 million of ~~strategic~~recruiting ~~advisory~~ costs incurred during the three months ended ~~March~~June 3130, ~~2022~~2021, tofor ~~support~~which ~~our~~there ~~strategic~~were ~~process. Partially~~no ~~offsetting~~comparable ~~this~~costs ~~increase~~for ~~was~~the three months ended June 30, 2022 and a decrease of investor relations costs from $0.21 million offor the three months ended June 30, 2021 compared to $28,000 for the three months ended June 30, 2022.

2023

~~recruiting~~Loss ~~costs~~on ~~incurred~~Issuance ~~during~~of ~~the~~Securities ~~three months ended March 31, 2021, for which there were no comparable costs for the three months ended March 31, 2022.~~

Loss on issuance of securities represents the amount that the fair value of the warrants issued concurrent with the sale of Series D Preferred Stock and Series E preferred issued on May 4, 2022 through a registered direct offering exceeded the net proceeds received.

Change in Valuation of Warrant Liability

Change in valuation of warrant liability represents the increase of the fair value of the warrants issued concurrent with the sale of Series D Preferred Stock and Series E Preferred Stock from issuance date to June 30, 2022. The fair value of the warrants on issuance date of May 4, 2022 was $2.6 million. The fair value of the warrants on June 30, 2022 was $3.6 million.

Interest Expense, net

Interest expense, net consists of interest income earned on our cash and cash equivalents and interest expense charged on our outstanding debt. Net interest expense was $0.21 million and $0.3 million for the three months ended ~~March~~June 3130, 2022 and 2021, respectively, primarily due to interest expense associated with amounts outstanding under the Pontifax Agreement. We expect our interest expense to decrease in future periods due to $5.0 million of voluntary principal repayments we made to Pontifax during the three months ended March 31, 2022. Our outstanding balance under the Pontifax Agreement at ~~March~~June 3130, 2022 was $5.0 million.

Comparison of the six months ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021(in thousands):


	Six Months Ended June 30,						Dollar
	2022			2021			Change
Operating expenses:
Research and development	$	11,739		$	17,942		$	(6,203	)
General and administrative		6,742			7,155			(413	)
Total operating expenses		18,481			25,097			(6,616	)
Loss from operations		(18,481	)		(25,097	)		6,616
Other income (expense):
Loss on issuance of securities		(371	)		—			(371	)
Change in valuation of warrant liability		(1,023	)		—			(1,023	)
Interest income (expense), net		(367	)		(488	)		121
Other income (expense), net		(6	)		(23	)		17
Other income (expense), net		(1,767	)		(511	)		(1,256	)
Net loss	$	(20,248	)	$	(25,608	)	$	5,360

Research and Development Expense

Research and development expense was $17.9 million for the six months ended June 30, 2021 and $11.7 million for the six months ended June 30, 2022. The following table summarizes our research and development expenses for the six months ended June 30, 2022 and 2021(in thousands):


	Six Months Ended June 30,				Dollar
	2022		2021		Change
Clinical development external costs	$	5,475	$	8,607	$	(3,132	)
Manufacturing external costs		818		2,990		(2,172	)
Employee compensation and benefits		4,614		4,711		(97	)
Other		832		1,634		(802	)
Total research and development expenses	$	11,739	$	17,942	$	(6,203	)

Research and development expense consisted primarily of the following:

•

Our clinical development external costs were $5.5 million and $8.6 million for the six months ended June 30, 2022 and 2021, respectively:

Our URIROX-2 costs decreased $3.2 million from $6.5 million for the six months ended June 30, 2021 to $3.3 million for the six months ended June 30, 2022. We terminated URIROX-2 and the reloxaliase program in March 2022; and

Partially offsetting the decrease in URIROX-2 costs was an increase in costs for our ALLN-346 program. ALLN-346 costs increased $0.5 million from $1.5 million for the six months ended June 30, 2021 to $2.0 million for the six months ended June 30, 2022. ALLN-346 costs incurred during the six months ended June 30, 2022 were related to conducting our two Phase 2a studies. In April 2021, we initiated a Phase 1b multiple ascending dose trial in healthy volunteers and announced initial data from this study in July 2021. We incurred $0.8 million of clinical costs for this trial during the six months ended June 30, 2021. In addition, we incurred $0.7 million of start-up related costs for our Phase 2a program.

•

Our manufacturing external costs decreased by $2.2 million from $3.0 million for the six months ended June 30, 2021 to $0.8 million for the six months ended June 30, 2022. In conjunction with the strategic process we announced in January 2022, we significantly reduced our external manufacturing activities for reloxaliase and ALLN-346 while we sought additional financing:

Reloxaliase manufacturing costs decreased $1.4 million from $1.8 million for the six months ended June 30, 2021 to $0.4 million for the six months ended June 30, 2022. Costs incurred during the six months ended June 30, 2022 related primarily to costs associated with the termination of the reloxaliase program. Costs incurred during the six months ended June 30, 2021 related to formulation and development; and

ALLN-346 manufacturing costs decreased from $0.7 million for the six months ended June 30, 2021 to $54,000 for the six months ended June 30, 2022. We significantly reduced our manufacturing activities during the three months ended June 30, 2022 as part of the strategic process and awaiting results of our Phase 2a studies. The costs incurred during the six months ended June 30, 2021 related to formulation and development.

•

Employee benefits and compensation costs were $4.6 million and $4.7 million for the six months ended June 30, 2022 and 2021, respectively. Decreased costs due to the reduction in headcount for the three months ended June 30, 2022 were offset by costs recognized on payments made to employees under the Retention Plan in February 2022.

General and Administrative Expenses

General and administrative expense was $6.7 million for the six months ended June 30, 2022 and $7.2 million for the six months ended June 30, 2021. The following table summarizes our general and administrative expenses for the six months ended June 30, 2022 and 2021(in thousands):


	Six Months Ended June 30,				Dollar
	2022		2021		Change
Employee compensation and benefits	$	3,163	$	3,582	$	(419	)
Consulting and professional services		2,067		1,869		198
Market research and commercialization planning		—		133		(133	)
Other		1,512		1,571		(59	)
Total general and administrative expenses	$	6,742	$	7,155	$	(413	)

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

•

Our employee compensation and benefits expense decreased by $0.4 million for the six months ended June 30, 2022 primarily due a decrease in stock-based compensation and a reduction of headcount; and

•

Our consulting and professional services costs increased by $0.2 million for the six months ended June 30, 2022. The increase is primarily due to $0.5 million of consulting costs related to strategic advisory costs incurred during the six months ended June 30, 2022 to support our strategic process and $0.1 million increase in legal costs.. Partially offsetting these increases was $0.3 million decrease in recruiting costs and $0.1 million decrease in investor relations costs for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.

Loss on Issuance of Securities

Change in Valuation of Warrant Liability

Interest Expense, net

Interest expense, net consists of interest income earned on our cash and cash equivalents and interest expense charged on our outstanding debt. Net interest expense was $0.4 million and $0.5 million for the six months ended June 30, 2022 and 2021, respectively, primarily due to interest expense associated with amounts outstanding under the Pontifax Agreement.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations from inception through ~~March~~June 3130, 2022 through gross proceeds of $96.0 million from sales of our convertible preferred stock prior to our IPO, net proceeds of $67.0 million from our IPO which was completed in November 2017, net proceeds totaling $33.8 million from follow-on offerings of common stock during 2020, borrowings of $10.0 million under our credit facilities, net proceeds totaling $22.8 million from the sale of our common stock under our ATM agreements with Cowen and B. Riley, and net proceeds of $25.4 million and $2.3 million from the registered direct offerings completed in July 2021 and May 2022, respectively. Our total cash and cash equivalents were $86.96 million as of ~~March~~June 3130, 2022.

On May 3, 2022, we completed a registered direct offering, in which we sold an aggregate of 2,872.1376 shares of Preferred Stock (split evenly between the Series D Convertible Preferred Stock and Series E Convertible Preferred Stock). We received net proceeds of approximately $2.3 million from the issuance and sale of the Preferred Stock, after deducting offering expenses and placement agent fees. The shares of Preferred Stock have a stated value of $1,000 per share and are convertible, following the date of the issuance thereof, into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series D Preferred Stock and into an aggregate of 8,975,430 shares of common stock of the Company upon the conversion of the Series E Preferred Stock, in each case, at a conversion price of $0.16 per share. ~~Prior~~In toMay ~~the filing date of this Quarterly Report~~2022, the Purchaser converted all of its shares of Preferred Stock into an aggregate of 17,950,860 shares of common stock. In a concurrent private placement, we also issued unregistered warrants (the “2022 Common Warrants”) to purchase up to an aggregate of 22,438,575 shares of our common stock, at an exercise price of $0.1694 per share. The 2022 Common Warrants will become exercisable six months after the date of issuance, and will have a term of five years from the initial exercise date. We also issued to designees of HCW, in a concurrent private placement, warrants to purchase up to 1,256,561 shares of common stock (the “HCW Warrants”). The HCW Warrants are exercisable for $0.20 per share and will be exercisable six months after the date of issuance and have a term of five years from the commencement of sales pursuant to the Offering.

In July 2021, we completed a registered direct offering, in which we issued and sold 17,416,096 shares of our common stock, pre-funded warrants to purchase up to an aggregate of 3,941,648 shares of our common stock in lieu of shares of common stock (the “2021 Pre-Funded Warrants”) and warrants to purchase up to 10,678,872 shares of our common stock through a securities purchase agreement (the “2021 Common Warrants”). The combined price of each share of common stock and accompanying Warrant to purchase one-half of a share was $1.311. The purchase price of each 2021 Pre-funded Warrant was $1.301, which was the combined purchase price per share of common stock and accompanying 2021 Common Warrant, minus $0.01. Gross proceeds of the transaction were $28.0 million. As a result of the registered direct offering, we received approximately $25.4 million after deducting estimated offering costs. Each 2021 Common Warrant is exercisable for one share of our common stock at an exercise price of $1.25 per share. The 2021 Common Warrants are immediately exercisable and expire on July 16, 2026. Each 2021 Pre-funded Warrant is exercisable for one share of common stock at an exercise price of $0.01 per share. All 2021 Pre-funded Warrants were exercised on July 16, 2021.

In March 2021, we entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc. (“B. Riley ATM Agreement”). During the year ended December 31, 2021, we issued and sold a total of 4,081,338 shares of our common stock under the B. Riley ATM Agreement at a weighted average price of $1.11 per share for net proceeds of approximately $4.2 million.

In December 2021, we entered into an updated At Market Issuance Sales Agreement with B. Riley Securities, Inc. (“Updated B. Riley ATM Agreement”), which was essentially identical to the initial agreement, but utilized a shelf registration statement that we also filed at that time. During the first quarter of 2022 through the filing date of this Quarterly Report, we 26

21In December 2021, we entered into an updated At Market Issuance Sales Agreement with B. Riley Securities, Inc. (“Updated B. Riley ATM Agreement”), which was essentially identical to the initial agreement, but utilized a shelf registration statement that we also filed at that time. During the first quarter of 2022 through the filing date of this Quarterly Report, we issued and sold 6,804,888 shares of our common stock under the Updated B. Riley ATM Agreement at a weighted average price of $0.62 per share for net proceeds of $3.9 million. The B. Riley ATM Agreement was terminated at the time we entered into the Updated B. Riley ATM Agreement.

issued and sold 6,804,888 shares of our common stock under the Updated B. Riley ATM Agreement at a weighted average price of $0.62 per share for net proceeds of $4.1 million. The B. Riley ATM Agreement was terminated at the time we entered into the Updated B. Riley ATM Agreement.

During the first quarter of 2021, we issued and sold 6,058,318 shares of our common stock under an At-the Market Equity Offering Sales Agreement with Cowen and Company, LLC ("Cowen ATM Agreement") at a weighted average price of $1.99 per share for net proceeds of $11.7 million. The Cowen ATM Agreement was terminated at the time we entered into the B. Riley ATM Agreement.

We entered into the HCW ATM Agreement on July 8, 2022. Since that time and through the filing date of this Quarterly Report, we issued and sold 14,358,057 shares of our common stock under the HCW ATM Agreement at a weighted average price of $0.14 per share for net proceeds of approximately $1.9 million. The Updated B. Riley ATM Agreement was terminated at the time we entered into the HCW ATM Agreement.

On September 29, 2020, we entered into a loan and security agreement with Pontifax Medison Finance (Israel) L.P. and Pontifax Medison Finance (Cayman) L.P. (together “Pontifax”) (“Pontifax Agreement”) providing up to $25.0 million of borrowings through three facilities of a term loan. An initial loan (“Initial Loan) of $10.0 million was advanced on September 29, 2020. A portion of these proceeds were used to pay the remaining balance of our credit facility with PWB and terminate the PWB Loan Agreement. We also had an additional $5.0 million credit line (“Credit Line”) that was available to us for withdrawal until September 29, 2021. We did not withdraw any amounts available through the Credit Line prior to the expiration of the availability period. We paid a fee of 1.0% per annum to Pontifax for the daily average amount not withdrawn under the Credit Line during the period amounts were available for withdrawal. A third installment loan (Third Installment Loan”) of an additional $10.0 million was conditioned upon achievement of one of the following milestones by no later than December 29, 2021: (i) we receive non-contingent, non-refundable gross proceeds from one or more equity financings and/or strategic partnerships, in each case consummated following the Closing Date, in the aggregate amount of at least $15.0 million for all such equity financings and strategic partnerships or (ii) the 65th patient has been enrolled in the URIROX-2 trial. In December 2020, the additional $10 million under the Third Installment Loan became available to us for withdrawal until December 29, 2021 when we satisfied the milestone of at least $15 million of gross proceeds from equity financings. We did not withdraw any amounts available through the Third Installment Loan prior to expiration of the availability period.

The Pontifax Agreement has a term of 48 months and an interest only period of 24 months. Amounts outstanding under the Pontifax Agreement have a fixed interest rate of 9.0% per annum. Upon the expiration of the interest only period on September 29, 2022, amounts borrowed will be repaid over eight equal quarterly payments of principal and interest. At our option, we may prepay all or part of the outstanding borrowings at any time without any prepayment premium or penalty. During the first quarter of 2022, we made voluntary repayments totaling $5.0 million. In August 2022, we made an additional voluntary prepayment of $0.5 million. In light of our recent termination of the reloxaliase development program and certain acceleration provisions in the Pontifax Agreement, we have classified the amounts due under the Pontifax loan as a current liability.

At the option of Pontifax, amounts outstanding under the Pontifax Agreement may be converted at any time into shares of our common stock at a conversion price of $4.10 per share. In addition, we have the right to convert at any time any portion of the then outstanding borrowings and all accrued but unpaid interest into shares of our common stock, at the applicable conversion price, subject to the fulfillment of both of the following conditions: (i) during a period of 30 consecutive trading days prior to the date on which we provide notice of the exercise of our conversion right, the closing price of our common stock was higher than 1.4 times the applicable conversion price of the term loans on at least 20 trading days, including on the trading day preceding the date we provide notice of the exercise of our conversion right and (ii) the number of shares of common stock issuable upon conversion by us shall not exceed the average weekly number of shares of our common stock traded on the stock market for the four weeks immediately preceding the date on which we provide notice of the exercise of our conversion right.

The borrowings under the Pontifax Agreement are secured by a lien on all of our assets except intellectual property. The Pontifax Agreement contains customary representations, warranties and covenants by us, including negative covenants restricting our activities, such as disposing of our business or certain assets, incurring additional debt or liens or making payments on other debt, making certain investments and declaring dividends, acquiring or merging with another entity, engaging in transactions with affiliates or encumbering intellectual property, among others. The obligations under the Pontifax Agreement are subject to acceleration upon occurrence of specified events of default, including a material adverse change in our business, operations or financial or other condition.

2227

payments on other debt, making certain investments and declaring dividends, acquiring or merging with another entity, engaging in transactions with affiliates or encumbering intellectual property, among others. The obligations under the Pontifax Agreement are subject to acceleration upon occurrence of specified events of default, including a material adverse change in our business, operations or financial or other condition.

Cash Flows

The following table provides information regarding our cash flows for the ~~three~~six months ended ~~March~~June 3130, 2022 and 2021(in thousands):

	Three Months Ended March 31,
	Six Months Ended June 30,
	2022			2021
Net cash used in operations	$	(2024,~~037~~594	)	$	(1021,~~036~~398	)
Net cash used in investing activities		—			(~~422~~457	)
Net cash (used in) provided by financing activities		(1,056	)		11,703
Net cash provided by financing activities		1,195			13,469
Net (decrease) increase in cash and cash equivalents	$	(21,093	)	$	1,245
Net decrease in cash and cash equivalents	$	(23,399	)	$	(8,386	)

Net Cash Used in Operating Activities

Net cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital.

Net cash used in operating activities was $2024.06 million for the ~~three~~six months ended ~~March~~June 3130, 2022 compared to $1021.04 million for the ~~three~~six months ended ~~March~~June 3130, 2021. The increase in cash used in operating activities of $103.02 million was attributable to:

•

an increase of $9.74 million due to changes in the components of working capital, primarily related to the purchase of Directors' and Officers' run-off insurance for $6.8 million in March 2022; partially offset by

•

an increase in ~~net~~non-cash ~~loss~~items of $0.29 million resulting primarily from a decrease in stock-based compensation expense; and

•

a decrease in ~~non-cash~~net ~~items~~loss of $05.14 million ~~resulting primarily from a decrease in stock-based compensation expense~~.

Net Cash Used in Investing Activities

We did not have any cash flow activity relating to investment activities during the ~~three~~six months ended ~~March~~June 3130, 2022. Net cash used in investing activities of $0.45 million for the ~~three~~six months ended ~~March~~June 3130, 2021 consisted of purchases of property and equipment.

Net Cash ~~(Used in)~~ Provided by Financing Activities

Net cash ~~used~~provided inby financing activities was $1.12 million for the ~~three~~six months ended ~~March~~June 3130, 2022, compared to ~~net cash provided by financing activities of~~ $1113.75 million for the ~~three~~six months ended ~~March~~June 3130, 2021. The net cash ~~used~~provided inby financing activities for the ~~three~~six months ended ~~March~~June 3130, 2022 consisted of ~~voluntary~~net ~~repayments~~proceeds of $53.09 million wefrom ~~made on~~ the ~~outstanding~~sale ~~principal~~of ~~balance~~common onstock under the ~~Pontifax~~Updated ~~Agreement,~~B. ~~partially~~Riley ~~offset~~ATM byAgreement and net proceeds of $32.93 million from the sale of ~~common~~preferred stock ~~under~~through ~~the~~a ~~Updated~~registered Bdirect offering in May 2022, partially offset by voluntary repayments of $5.0 ~~Riley~~million ~~ATM~~we made on the outstanding principal balance on the Pontifax Agreement. The net cash provided by financing activities for the ~~three~~six months ended ~~March~~June 3130, 2021 consisted of net proceeds of $11.7 million and $1.8 million from the sale of common stock under the Cowen ATM Agreement and the B. Riley ATM Agreement, respectively.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development for, initiate later stage clinical trials for, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

Going Concern

As of ~~March~~June 3130, 2022, we had cash and cash equivalents totaling $86.96 million. Based on our current operating plans, we do not have sufficient cash and cash equivalents to fund our operating expenses and capital expenditures for at least the next 12 months from the filing date of this Quarterly Report. We do not believe that our cash and cash equivalents as of ~~March~~June 3130, 2022, together with the proceeds we received from ~~our~~sales ~~registered~~of ~~direct~~common ~~offering~~stock ~~completed~~under the HCW ATM Agreement in ~~May~~the third quarter of 2022 through the date of this Quarterly Report, will enable us to fund our operating expenses and capital requirements beyond ~~the~~a ~~next~~matter ~~several~~of ~~weeks~~days. We will require additional capital to sustain our operations, including our ALLN-346 development program, beyond that time.

We are exploring opportunities to secure additional funding through equity or debt financings or through collaborations, licensing transactions or other sources. In January 2022, we initiated a process to explore a range of strategic and financing alternatives to maximize stockholder value and have engaged the investment bank Stifel, Nicolaus & Company, Inc. ("Stifel") to act as strategic advisor for this process. Potential strategic alternatives that may be evaluated include a partnership or sale of ALLN-346, a sale or merger of the Company, or securing additional financing to enable further development of our ALLN-346 program. There can be no assurance that this strategic review process will result in the pursuit of any transaction or that any transaction, if pursued, will be completed. The failure to obtain sufficient additional funds on commercially acceptable terms to fund our operations may have a material adverse effect on our business, results of operations and financial condition and jeopardize our ability to continue operations in the near-term. We will likely need to consider additional cost reduction strategies, which may include, among others, amending, delaying, limiting, reducing, or terminating the development program for ALLN-346, and we may need to seek an in-court or out-of-court restructuring of our liabilities. In the event of such future bankruptcy proceeding, holders of our common stock and other securities will likely suffer a total loss of their investment.

As part of the strategic process, the Compensation Committee of the Board of Directors approved a retention plan on January 28, 2022, available to all employees ("Retention Plan"). Employees were required to execute retention agreements to receive payments and other considerations offered by the Retention Plan. Employees who executed a retention agreement received a salary adjustment equal to 6.5% retroactive to January 1, 2022, a restricted stock unit ("RSU") grant and a lump sum retention payment. A total of 2,998,500 RSUs were granted on February 1, 2022 under the Retention Plan. The RSUs vest over a three-year period ratably on July 15th and January 15th of each year following grant date. Lump sum retention payments totaling $3.0 million were made to employees in February 2022. If an employee resigns from the Company or is terminated for cause prior to June 30, 2022, the employee would be required to fully repay the lump sum retention payment received. If an employee resigns from the Company or is terminated for cause between July 1, 2022 and September 30, 2022, the employee would be required to repay 50% of the lump sum retention payment received.

On March 18, 2022, we announced our decision to terminate our URIROX-2 study for reloxaliase and initiated the process of closing the study with our CRO, investigative sites, patients and business partners. In connection with the termination of the reloxaliase program, we completed a workforce reduction of approximately 40% in March 2022.

On May 3, 2022, we entered into a securities purchase agreement with an investor, pursuant to which we agreed to issue, in a registered direct offering, an aggregate of 2,872.1376 shares of Preferred Stock (split evenly among the Series D Convertible Preferred Stock, par value $0.001 per share (“Series D Preferred Stock”), and Series E Convertible Preferred Stock, par value $0.001 per share (“Series E Preferred Stock” and together with the Series D Preferred Stock, the “Preferred Stock”). We received net proceeds of approximately $2.3 million from the issuance and sale of the Preferred Stock. The shares of Preferred Stock have a stated value of $1,000 per share and are convertible, following the date of the issuance thereof, into an aggregate of 8,975,430 shares of our common stock upon the conversion of the Series D Preferred Stock and into an aggregate of 8,975,430 shares of our common stock upon the conversion of the Series E Preferred Stock, in each case, at a conversion price of $0.16 per share. On May 5, 2022, the Preferred Stock investor converted all of its Series D Preferred Stock into 8,975,430 shares of our common stock, and on May 9, 2022, the Preferred Stock investor converted all of its Series E Preferred Stock into 8,975,430 shares of common stock.

In a concurrent private placement, we also issued to the Preferred Stock investor unregistered warrants (the “Common Warrants”) to purchase up to an aggregate of 22,438,575 shares of our common stock, at an exercise price of $0.1694 per share. The Common Warrants will become exercisable six months after the date of issuance and will have a term of five years from the initial exercise date. We also issued to designees of HCW, in a concurrent private placement, warrants to purchase up to 1,256,561 shares of our common stock (the “HCW Warrants”). The HCW Warrants are exercisable for $0.20 per share and will be exercisable six months after the date of issuance and have a term of five years from the commencement of sales pursuant to the registered direct offering.

24On July 8, 2022, we entered into the HCW ATM Agreement. Since that time and through the filing date of this Quarterly Report, we issued and sold 14,358,057 shares of our common stock under the HCW ATM Agreement at a weighted average price of $0.14 per share for net proceeds of approximately $1.9 million.

Market volatility resulting from the COVID-19 pandemic, conflicts and sanctions involving Russia, Ukraine and other countries abroad or other factors could also adversely impact our ability to access capital as and when needed. The failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on our business, results of operations and financial condition and jeopardize our ability to continue operations. These factors raise substantial doubt about our ability to continue as a going concern. We may implement cost reduction strategies, which may include amending, delaying, limiting, reducing, or terminating one or more of our ongoing or planned clinical trials or development programs of our product candidates. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business for the foreseeable future. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Our future capital requirements will depend on many factors, including;

•

the costs of conducting future clinical trials and other development activities to advance ALLN-346;

•

the scope, progress, results and costs of discovery, preclinical development, laboratory testing and clinical trials for other potential product candidates we may develop, if any;

•

the costs, timing and outcome of regulatory review of our product candidates;

•

our ability to establish and maintain collaborations on favorable terms, if at all;

•

the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we might have at such time;

•

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

•

the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

•

the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

•

the expansion of our workforce and associated costs as we expand our business operations and our research and development activities; and

•

the costs of operating as a public company.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

We do not have any committed external sources of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Additional debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business.

If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization ~~efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.~~

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efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risk related to changes in interest rates. As of ~~March~~June 3130, 2022, our cash equivalents consisted of short-term money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term nature of the cash equivalents in our portfolio and the low risk profile of our cash equivalents, an immediate 10% change in interest rates would not have a material effect on the fair market value of our financial position or results of operations.

We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors that are located in Europe. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the three and six months ended ~~March~~June 3130, 2022 and 2021.

Item 4. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain “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, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

Our management, with the participation of our principal executive officer and principal financial and accounting officer, evaluated the effectiveness of our disclosure controls and procedures the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of such date.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations or financial condition.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form 10-Q and in our other public filings before making an investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we currently consider immaterial. If any such risks or uncertainties actually occur, our business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings. The trading price of our common stock could decline due to any of these risks, and as a result, you may lose all or part of your investment.

Those risk factors below denoted with a “*” are newly added or have been materially updated from our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 31, 2022.

Summary of the Material Risks Associated with Our Business


	•	We have identified conditions and events that raise substantial doubt about our ability to continue operations in the near-term. We may need to seek an in-court or out-of-court restructuring of our liabilities.
	•	If we are able to continue our operations beyond the near term, we will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts. We may need to seek an in-court or out-of-court restructuring of our liabilities.
	•	Our existing and any future indebtedness could adversely affect our ability to operate our business.
	•	We are heavily dependent on the clinical development program for ALLN-346, which is our only clinical program.
	•	If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other comparable foreign regulators, we, or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.
	•	If we are unable to obtain and maintain sufficient patent protection for our product candidates, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to commercialize our product candidates successfully may be adversely affected.


	•	We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time consuming and unsuccessful.


	•	If we are sued for infringing intellectual property of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.


	•	If we fail to maintain the listing of our common stock with a United States national securities exchange, the liquidity of our common stock could be adversely affected.


	•	The price of our common stock may be volatile and fluctuate substantially.


	•	A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is otherwise doing well.

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	•	As a public reporting company, we are subject to rules and regulations established from time to time by the SEC and the Public Company Accounting Oversight Board, or PCAOB, regarding our internal control over financial reporting. We may not complete improvements to our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the market price of our common stock could decline and you could lose all or part of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

Risks Related to Future Financial Condition

* We have identified conditions and events that raise substantial doubt about our ability to continue operations in the near-term. We may need to seek an in-court or out-of-court restructuring of our liabilities.

We may be forced to amend, delay, limit, reduce or terminate the scope of our development program for ALLN-346 and/or limit or cease our operations if we are unable to obtain additional funding. As of ~~March~~June 3130, 2022, we had cash and cash equivalents totaling $86.96 million. We do not believe that our cash and cash equivalents as of ~~March~~June 3130, 2022, together with the net proceeds from sales of our ~~registered~~common ~~direct~~stock ~~offering~~through ~~completed~~the inHCW ~~May~~ATM Agreement during the third quarter 2022, through the filing date of this Quarterly Report, will enable us to fund our operating expenses and capital requirements beyond ~~the~~a ~~next~~matter ~~several~~of ~~weeks~~days. We will need to raise additional capital to continue as a going concern. Of note, because of our limited cash resources and the recent termination of our Phase 3 clinical trial of reloxaliase, we have had discussions with our senior lender, Pontifax, regarding the potential repayment of our outstanding borrowing under our loan agreement with Pontifax. In March 2022, we made voluntary repayments of $2.0 million and $3.0 million, reducing the loan balance to $5.0 million. We made an additional voluntary repayment of principal of $0.5 million in August 2022, reducing the loan balance to $4.5 million. Our loan agreement with Pontifax contains a provision for the acceleration of the principal balance under certain conditions. We have therefore classified the Pontifax loan balance as a current liability on our balance sheet. We are likewise in discussions with the contract research organization that conducted our reloxaliase clinical trial and is currently conducting our clinical trial for ALLN-346 about our inability to repay outstanding obligations due to them, which discussions may lead to the contract research organization ceasing further work on ALLN-346. The failure to obtain sufficient additional funds on commercially acceptable terms to fund our operations and satisfy our obligations to creditors may have a material adverse effect on our business, results of operations and financial condition and jeopardize our ability to continue operations in the near-term. We will likely need to consider additional cost reduction strategies, which may include, among others, amending, delaying, limiting, reducing, or terminating the development program for ALLN-346, and we may need to seek an in-court or out-of-court restructuring of our liabilities. In the event of such future restructuring activities, holders of the company’s preferred stock, common stock and other securities will likely suffer a total loss of their investment.

If we are able to continue our operations beyond the near term, we will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts. We may need to seek an in-court or out-of-court restructuring of our liabilities.

We do not have sufficient cash and cash equivalents to fund our operating expenses and capital expenditures in the near-term. If we are able to raise funds through public or private equity, debt financings or other sources, such as strategic collaborations, such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our future operating plans.

Our future funding requirements will depend on many factors, including, but not limited to:

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	•	the time and cost necessary to complete our Phase 2a clinical program and any subsequent clinical development of ALLN-346, including any unforeseen costs we may incur as a result of clinical trial delays due to the COVID-19 pandemic or other causes;
	•	the costs of manufacturing clinical trial supplies of ALLN-346;
	•	our ability to successfully commercialize ALLN-346, if approved;
	•	the selling and marketing costs associated with ALLN-346, including the cost and timing of building our sales and marketing capabilities, if approved;
	•	the amount of sales and other revenues from ALLN-346, including the sales price and the availability of adequate third-party reimbursement;
	•	the cash requirements of any future acquisitions or discovery of product candidates;
	•	the progress, timing, scope and costs of our nonclinical studies and clinical trials, including the ability to enroll patients in a timely manner for potential future clinical trials;
	•	our ability to comply with the covenants under our current and future debt obligations, particularly the outstanding balance of our debt owed to Pontifax, which is subject to acceleration upon certain conditions;
	•	the time and cost necessary to respond to technological and market developments; and
	•	the costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate our clinical development program for ALLN-346 and cease operations.

Our existing and any future indebtedness could adversely affect our ability to operate our business.

As of ~~March~~June 3130, 2022, we had $5.0 million of outstanding borrowings under the Pontifax Agreement. We are currently making quarterly interest payments. Beginning October 1, 2022, we will be required to repay any outstanding borrowings under the convertible debt facility with eight equal quarterly payments of principal and interest, or until such time as the then outstanding borrowings convert into shares of our common stock. Subject to the restrictions in this existing credit facility, we could in the future incur additional indebtedness beyond our borrowings from Pontifax.

Because of our limited cash resources and the recent termination of our Phase 3 clinical trial of reloxaliase, we have had discussions with Pontifax regarding potential repayment of the outstanding borrowing. In March 2022, we made voluntary repayments of $2.0 million and $3.0 million, reducing the loan balance to $5.0 million. We made an additional voluntary repayment of principal of $0.5 million in August 2022, reducing the loan balance to $4.5 million. The Pontifax Agreement contains a provision for the acceleration of the principal balance under certain conditions. We have therefore classified the Pontifax loan balance as a current liability.

Our outstanding indebtedness, including any additional indebtedness beyond our borrowings from Pontifax, combined with our other financial obligations and contractual commitments could have significant adverse consequences, including:


	•	requiring us to dedicate a portion of our cash resources to the payment of interest and principal, reducing money available to fund working capital, capital expenditures, product development and other general corporate purposes;
	•	increasing our vulnerability to adverse changes in general economic, industry and market conditions;
	•	subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;
	•	limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
	•	placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

We do not currently have sufficient funds to satisfy our current and future debt service obligations and our operating expenses. Failure to make payments or comply with other covenants under our existing credit facility or such other debt instruments could result in an event of default and acceleration of amounts due. Under our loan and security agreement with Pontifax, the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, assets or condition is an event of default. If an event of default occurs and Pontifax accelerates the amounts due, we may not be able to make accelerated payments, and the lenders could seek to enforce security interests in the collateral ~~securing such indebtedness, which includes substantially all of our assets other than our intellectual property. In addition, the~~

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securing such indebtedness, which includes substantially all of our assets other than our intellectual property. In addition, the covenants under our existing credit facility, the pledge of our assets as collateral and the negative pledge with respect to our intellectual property could limit our ability to obtain additional debt financing.

Risks Related to Past Financial Condition

* We have incurred significant losses since inception, and, if we are able to finance our continuing operations, expect that we would incur significant and increasing losses for at least the next several years. Moreover, we have not generated any revenue, may never generate any revenue, and may never achieve or maintain profitability.

We have incurred significant annual net operating losses in every year since our inception. If we are able to continue our operations, we expect that we would continue to incur significant and increasing net operating losses for at least the next several years. Our net losses were $~~11.~~8.4 million and $1114.60 million for the three months ended ~~March~~June 3130, 2022 and 2021, respectively, and $20.2 million and $25.6 million for the six months ended June 30, 2022 and 2021, respectively. As of ~~March~~June 3130, 2022, we had an accumulated deficit of $~~258~~266.37 million. We have not generated any revenue, have not completed the development of any product candidate and may never have a product candidate approved for commercialization. We have funded our operations from inception through ~~March~~June 3130, 2022 through gross proceeds of $96.0 million from sales of our convertible preferred stock, net proceeds of $67.0 million from our IPO which was completed in November 2017, net proceeds totaling $33.8 million from follow-on offerings of common stock during 2020, borrowings of $10.0 million under our credit facilities, net proceeds of $14.6 million, ~~and~~ $8.2 million and $1.9 million from the sale of our common stock under the Cowen ATM Agreement, ~~and~~ the B. Riley ATM Agreement and the HCW ATM Agreement, respectively, and net proceeds of $25.4 million and $2.3 million from the registered direct offerings completed in July 2021 and May 2022, respectively. We have devoted substantially all of our financial resources and efforts to the research and development of reloxaliase, the development of which has now been terminated, and, to a lesser extent, ALLN-346 and general and administrative expense to support such research and development.

Our net losses may fluctuate significantly from quarter to quarter and year to year. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.

If we are able to continue our operations, we anticipate that our expenses will increase substantially if and as we:


	•	advance the development of ALLN-346;
	•	seek to identify and develop additional product candidates, if we resume our research efforts;
	•	seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any;
	•	establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may obtain marketing approval, if any;
	•	obtain, maintain, expand and protect our intellectual property portfolio;
	•	hire and retain additional personnel, such as clinical, manufacturing, quality control and scientific personnel;
	•	add operational, financial and management information systems and personnel, including personnel to support our product development and help us comply with our obligations as a public company; and
	•	add equipment and physical infrastructure to support our research and development programs.

Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless and until we are, or any future collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our product candidates, which we do not expect to occur for at least the next several years, if ever. Successful commercialization will require achievement of key milestones, including initiating and successfully completing clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we, or any of our future collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing and amount of revenues, if any, and if or when we might achieve profitability. We and any future collaborators may never succeed in these activities and, even if we do, or any future collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our pipeline of product candidates or continue our operations and cause a decline in our stock price. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed.

We have a limited operating history, no products approved for sale and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.

We commenced operations in 2011. Our operations to date have been limited to financing and staffing our company and developing our product candidates. We have not yet demonstrated an ability to obtain marketing approvals, manufacture a 35

30We commenced operations in 2011. Our operations to date have been limited to financing and staffing our company and developing our product candidates. We have not yet demonstrated an ability to obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially clinical stage biopharmaceutical companies such as ours. Any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially clinical stage biopharmaceutical companies such as ours. Any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will eventually need to transition from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

If we are able to continue our operations, we expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

Risks Related to Drug Development, Regulatory Approval and Commercialization

Risks Related to Clinical Development

We are heavily dependent on the clinical development program for ALLN-346, which is our only clinical program.

We are a biopharmaceutical company with no products approved by regulatory authorities or available for commercial sale. We have generated no revenue to date and do not expect to do so for the foreseeable future. As a result, our future success is currently dependent upon the clinical trial results, regulatory approval and commercial success of ALLN-346, our only clinical program. In addition, we have incurred and expect to continue to incur significant expenses as we continue to pursue the clinical development of ALLN-346. The success of ALLN-346 will depend on several factors, including:

• the successful clinical development of ALLN-346, including the successful completion of Phase 2 and Phase 3 registrational clinical trials. In August 2022, we reported data from Study 201, a 7-day inpatient study of ALLN-346, and from cohorts A and B of Study 202, a two-week outpatient study. While the effect size in Study 201 was generally consistent with our expectations, we observed a significantly lower effect size in Study 202, which may make continued clinical development of ALLN-346 difficult to pursue even if we are able to secure additional capital; • approval of ALLN-346 for marketing by the FDA or EMA; • execution of an effective sales and marketing strategy for the commercialization of ALLN-346; • acceptance by patients, the medical community and third-party payors; • our success in educating physicians and patients about the benefits, administration and use of ALLN-346; • the incidence and prevalence of patient populations with hyperuricemia and gout in those markets in which ALLN-346 is approved; • the prevalence and severity of side effects, if any, experienced by patients treated with ALLN-346; • the availability, perceived advantages, cost, safety and efficacy of alternative treatments, including potential alternate treatments that may currently be available or in development or may later be available or in development or regulatory approval or marketing of a generic biosimilar, or any other version of uricase, the active enzyme in ALLN-346; • successful implementation of our manufacturing processes that are included in our BLA and production of sufficient quantities of commercial drug product; • maintaining compliance with regulatory requirements, including current good manufacturing practices, or cGMPs, good laboratory practices, or GLPs, and good clinical practices, or GCPs; and • obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity and otherwise protecting our rights in our intellectual property portfolio.

We may also fail in our efforts to develop and commercialize any future product candidates. If this were to occur, we would continue to be heavily dependent on the regulatory approval and successful commercialization of ALLN-346, our development costs may increase and our ability to generate revenue or profits, or to raise additional capital, could be impaired.

Results of earlier studies, or interim data from ongoing trials, may not be predictive of future clinical trial results, and planned or ongoing studies may not establish an adequate safety or efficacy profile for ALLN-346 and other product candidates that we may pursue to justify proceeding to an application for regulatory approval or be worthy of regulatory approval if such an application is made.

31The results of preclinical studies and clinical trials of ALLN-346 conducted to date and future studies and trials of ALLN-346, including our Phase 2a clinical trials, and other product candidates that we may pursue, may not be predictive of the results of subsequent clinical trials. For example, in March 2022 we reported that an interim analysis in our URIROX-2 trial indicated that the trial was unlikely to be successful, despite more favorable results in prior clinical trials. Additionally, we reported generally favorable results from the first cohort of patients in Study 201 for ALLN-346 in January 2022, which results were further confirmed by data from the second cohort of patients in this study. However, we observed a significantly lower effect size of ALLN-346 in Study 202, which may make continued clinical development of ALLN-346 difficult to pursue even if we are able to secure additional capital. Data, our interpretation of data and results from our Phase 2a clinical trials of ALLN-346 in adults with hyperuricemia and gout do not ensure that we will achieve similar results in subsequent clinical trials. In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and early-stage clinical trials have nonetheless failed to replicate results in later-stage clinical trials and subsequently failed to obtain marketing approval. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials.

The results of preclinical studies and clinical trials of ALLN-346 conducted to date and future studies and trials of ALLN-346, including our Phase 2a clinical trials, and other product candidates that we may pursue, may not be predictive of the results of subsequent clinical trials. For example, in March 2022 we reported that an interim analysis in our URIROX-2 trial indicated that the trial was unlikely to be successful, despite more favorable results in prior clinical trials. Data, our interpretation of data and results from our Phase 2a clinical trials of ALLN-346 in adults with hyperuricemia and gout do not ensure that we will achieve similar results in subsequent clinical trials. In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and early-stage clinical trials have nonetheless failed to replicate results in later-stage clinical trials and subsequently failed to obtain marketing approval. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials.

A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if early stage clinical trials are successful, we may need to conduct additional clinical trials for product candidates in additional patient populations or under different treatment conditions before we are able to seek approvals from the U.S. Food and Drug Administration, or FDA, and comparable foreign regulators to market and sell these product candidates. Our failure to demonstrate the required characteristics to support marketing approval for ALLN-346 or any other product candidate we may choose to develop in any ongoing or future clinical trials would substantially harm our business, prospects, financial condition and results of operations.

Our proprietary technological approach is a new approach to the design and development of stable, non-absorbable oral biological therapies and may not result in any additional product candidates or ultimately any products of commercial value.

We have developed our proprietary know-how in enzyme technology which allows us to design, formulate and deliver non-absorbed and stable enzymes orally and in sufficient doses for activity in the GI tract. While the general therapeutic approach of deploying a non-absorbed drug into the GI tract to reduce metabolic disease burden in patients with kidney disease has been proven successful in several therapeutic categories, we cannot assure you that our technological approach will ultimately work for ALLN-346 or any other product candidates we may develop. In addition, while we believe our enzyme therapeutic candidates will not be absorbed, future clinical trials may find this not to be true. We also cannot guarantee that any other aspects of our proprietary technological approach will yield product candidates that could enter clinical development, receive regulatory approval and, ultimately, be commercially valuable.

Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

Our Phase 2a clinical program for ALLN-346 consists of two Phase 2a clinical trials in adult patients with hyperuricemia and gout. The FDA or other regulatory authorities could change their position on the acceptability of our trial designs, or the clinical endpoints selected, which may require us to complete additional preclinical studies or clinical trials or impose stricter approval conditions than we currently expect. We may need to conduct additional clinical trials or other testing for, among other parameters, drug-drug interactions and increased dosages of our product candidates. Successful completion of our clinical trials is a prerequisite to submitting a BLA to the FDA and a Marketing Authorization Application, or MAA, in Europe for each product candidate and, consequently, the ultimate approval and commercial marketing of ALLN-346 and any product candidates we may develop in the future. We do not know whether any of our clinical trials will be completed on schedule, if at all.

We may experience delays in initiating or completing our planned clinical trials or additional preclinical studies or clinical trials in the future, and we may experience numerous unforeseen events during, or as a result of, any future clinical trials that we conduct that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

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	•	regulators or institutional review boards, or IRBs, or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

	•	we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

	•	we may experience delays in recruiting, or be unable to recruit, a sufficient number of suitable patients to participate in our clinical trials;

	•	the patients and sites who participate in our trials may not comply with protocols, such as compliance with the capsule and timing regimen and urine collection requirements, rendering the results insufficient or uninterpretable;
	•	clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon drug development programs;
	•	the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;
	•	our third party contractors may fail to comply with regulatory or legal requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;
	•	we may elect to, or regulators or IRBs or ethics committees may require that we or our investigators, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
	•	the cost of clinical trials of our product candidates may be greater than we anticipate;
	•	the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate;
	•	the occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
	•	any changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
	•	our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs or ethics committees to suspend or terminate the trials, or reports may arise from preclinical or clinical testing of other therapies that raise safety or efficacy concerns about our product candidates; and
	•	the FDA or other comparable foreign regulators may require us to submit additional data or impose other requirements before permitting us to initiate a clinical trial.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board for such trial or by the FDA or other comparable foreign regulators. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements, GCP or our clinical protocols, inspection of the clinical trial operations or trial sites by the FDA or other comparable foreign regulators resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA may disagree with our clinical trial design and our interpretation of data from clinical trials or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials.

Our drug development costs will also increase if we experience delays in testing or regulatory approvals. For example, we initially expected to have data from Study 202 for ALLN-346 during the first quarter of 2022, but these results were delayed until the third quarter of 2022. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. Any delays in our preclinical or clinical development programs may significantly harm our business, prospects, financial condition and results of operations.

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The regulatory approval processes of the FDA and comparable foreign regulators are lengthy, time-consuming and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for ALLN-346 or our other product candidates, our business will be substantially harmed.

We are not permitted to market ALLN-346 or any of our other product candidates in the United States or the EU until we receive approval of a BLA from the FDA or an MAA from the EMA, respectively. Prior to submitting a BLA to the FDA or an MAA to the EMA for approval of any of our product candidates for a specific indication, we are required to complete preclinical studies and clinical trials.

Successfully initiating and completing our clinical program and obtaining approval of a BLA or an MAA is a complex, lengthy, expensive and uncertain process, and the FDA, the EMA or other comparable foreign regulators may delay, limit or deny approval of any of our candidates for many reasons, including, among others:


	•	we may not be able to demonstrate that our product candidates are safe and effective to the satisfaction of the FDA or the EMA;
	•	the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or the EMA for marketing approval;
	•	the FDA or the EMA may disagree with the number, design, size, conduct or implementation of our clinical trials;
	•	the FDA or the EMA may require that we conduct additional clinical trials;
	•	the FDA or the EMA or other applicable foreign regulators may not approve the formulation, labeling or specifications of ALLN-346 or our other product candidates;
	•	the CROs that we retain to conduct our clinical trials may take actions outside of our control that materially adversely impact our clinical trials;
	•	the FDA or the EMA may find the data from preclinical studies and clinical trials insufficient to demonstrate that the clinical and other benefits of ALLN-346 and our other product candidates outweigh their safety risks;
	•	the FDA or the EMA may disagree with our interpretation of data from our preclinical studies and clinical trials, including our characterization of observed toxicities;
	•	the FDA or the EMA may not accept data generated at our clinical trial sites;
	•	if our BLAs or MAAs, if and when submitted, are reviewed by the FDA or the EMA, as applicable, the regulatory agency may have difficulties scheduling the necessary review meetings in a timely manner, advisory committees or reviewers may recommend against approval of our application or may recommend that the FDA or the EMA, as applicable, require, as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;
	•	the FDA may require development of a Risk Evaluation and Mitigation Strategy as a condition of approval or post-approval, and the EMA may grant only conditional approval or impose specific obligations as a condition for marketing authorization, or may require us to conduct post-authorization safety studies;
	•	the FDA, the EMA or other applicable foreign regulators may find deficiencies with or not approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or
	•	the FDA or the EMA may change their approval policies or adopt new regulations.

Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market ALLN-346 or any of our other product candidates. Any such setback in our pursuit of regulatory approval would have a material adverse effect on our business and prospects.

In addition to the United States and Europe, we or potential collaborators intend to market our product candidates, if approved, in other international markets. Such marketing will require separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements. The approval procedures vary from country-to-country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA or EMA approval. In addition, in many countries, a product candidate must be approved for reimbursement before it can be approved for sale in that country, even if regulatory approval has been obtained. Approval by the FDA or the EMA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA or the EMA. The regulatory approval process in other international markets may include all of the risks associated with obtaining FDA or EMA approval.

Health regulatory agencies globally may experience disruptions in their operations as a result of COVID-19. The FDA and comparable foreign regulatory agencies may have slower response times or be under-resourced to continue to monitor our clinical trials and, as a result, review, inspection, and other timelines may be materially delayed. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of our product candidates. For

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example, regulatory authorities may require that we not distribute a product candidate lot until the relevant agency authorizes its release. Such release authorization may be delayed as a result of the COVID-19 pandemic and could result in delays to our ongoing clinical trials.

Risks Related to Clinical Trials

If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other comparable foreign regulators, we, or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.

We, and any future collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable foreign regulators, such as the European Medicines Agency, or EMA, impose similar restrictions. We, and any future collaborators, may never receive such approvals. We, and any future collaborators, must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of our product candidates in humans before we, or they, will be able to obtain these approvals.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We have not previously submitted a BLA to the FDA or similar drug approval applications to comparable foreign regulators for any of our product candidates. Any inability to complete preclinical and clinical development successfully could result in additional costs to us, or any future collaborators, and impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. Moreover, if (1) we, or any future collaborators, are required to conduct additional clinical trials or other testing of our product candidates beyond the trials and testing that we, or they contemplate, (2) we, or any future collaborators, are unable to successfully complete clinical trials of our product candidates or other testing, (3) the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or (4) there are unacceptable safety concerns associated with our product candidates, we, or any future collaborators, may:


	•	incur additional unplanned costs, including as a result of any delays in our research programs resulting from factors related to the COVID-19 pandemic;
	•	be delayed in obtaining marketing approval for our product candidates;
	•	not obtain marketing approval at all;
	•	obtain approval for indications or patient populations that are not as broad as intended or desired;
	•	obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
	•	be subject to additional post-marketing testing or other requirements; or
	•	be required to remove the product from the market after obtaining marketing approval.

Our failure to successfully complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our product candidates would significantly harm our business, prospects, financial condition and results of operations.

We depend heavily on the success of our only clinical development program, ALLN-346, which is in Phase 2a clinical development. Preclinical testing and clinical trials of product candidates may not be successful. If we are unable to commercialize any product candidates we may develop or experience significant delays in doing so, our business will be materially harmed.

We had invested substantially all of our efforts and financial resources in the identification and development of reloxaliase for the treatment of hyperoxaluria, the development program for which we recently terminated. To a lesser extent, we have invested in our clinical development program for ALLN-346 for the treatment of hyperuricemia and gout. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of ALLN-346 and any future product candidates we may develop. The success of ALLN-346 and any future product candidates we may identify and develop will depend on many factors, including the following:

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	•	sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials;
	•	successful completion of preclinical studies;
	•	successful enrollment in, and completion of, clinical trials;
	•	addressing any delays in our preclinical studies and clinical trials resulting from factors related to the COVID-19 pandemic;
	•	receipt of marketing approvals from applicable regulatory authorities in our target indications and potential additional indications;
	•	establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
	•	obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our medicines;
	•	launching commercial sales of the medicines, if and when approved, whether alone or in collaboration with others;
	•	acceptance of the medicines, if and when approved, by patients, the medical community, and third-party payors;
	•	effectively competing with other therapies and treatment options;
	•	a continued acceptable safety profile of the medicines following approval;
	•	enforcing and defending intellectual property and proprietary rights and claims; and
	•	achieving desirable medicinal properties for the intended indications.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize ALLN-346 or any other product candidates we may develop, which would materially harm our business.

In August 2022, we reported data from Study 201, a 7-day inpatient study of ALLN-346, and from cohorts A and B of Study 202, a two-week outpatient study. While the effect size in Study 201 was generally consistent with our expectations, we observed a significantly lower effect size in Study 202, which may make continued clinical development of ALLN-346 difficult to pursue even if we are able to secure additional capital.

Of the large number of biologics and drugs in development in the pharmaceutical industry, only a small percentage result in the submission of a BLA or NDA to the FDA or an MAA to the EMA. Not all BLAs, NDAs or MAAs that are submitted to a regulatory agency are approved for commercialization. ALLN-346 is an oral biologic product candidate, which is a less common formulation in the biotech industry. Accordingly, there are few oral biologic therapeutics that have achieved regulatory approval. Furthermore, even if we do receive regulatory approval to market our most advanced program or any other product candidates that we may identify and develop, any such approval may be subject to limitations on the indicated uses for which we may market the product. Accordingly, even if we are able to obtain the requisite financing to continue to fund our research programs, we cannot assure you that we will successfully develop or commercialize ALLN-346 or any of our other research programs. If we or any of our future development partners are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize ALLN-346 or any product candidates we may identify and develop, we may not be able to generate sufficient revenue to continue our business.

Changes in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols submitted to applicable regulatory authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs or ethics committees for re-examination, which may impact the costs, timing or successful completion of a clinical trial.

The FDA’s and other comparable foreign regulators’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of ALLN-346 and any future product candidates we may develop. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action in the United States, the EU or other countries or jurisdictions. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability, which would harm our business, prospects, financial condition and results of operations.

If we are required to conduct additional clinical trials or other studies with respect to ALLN-346 or any future product candidates we may develop beyond those that we currently contemplate, or if we are unable to successfully complete our clinical trials or other studies, we may be delayed in obtaining regulatory approval of ALLN-346 or any future product candidates we may develop, we may obtain approval of indications that are not as broad as intended or we may not be able to obtain regulatory approval at all. Our product development costs will also increase if we experience delays in testing or approvals, and we may not have sufficient funding to complete the testing and approval process for ALLN-346 or any future product candidates we may develop. Significant clinical trial delays could allow our competitors to bring products to market ~~before we do and impair our ability to commercialize our products if and when approved. If any of this occurs, our business would be harmed.~~

before we do and impair our ability to commercialize our products if and when approved. If any of this occurs, our business would be harmed.

If we experience delays or difficulties in the enrollment or continuation of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

36We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or comparable foreign regulators, or if a significant number of patients withdraw from our clinical trials. For example, in part because of the impact of the pandemic, during the first quarter of 2021, we determined that site initiation and patient enrollment in the recently terminated URIROX-2 study of reloxaliase was proceeding at a slower rate than we had originally projected. Accordingly, we significantly revised our plans for the interim analysis of this trial, both with regard to its scope and its timing. As another example, we initially expected to have data from Study 202 for ALLN-346 during the first quarter of 2022, but these results were delayed until the third quarter of 2022.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or comparable foreign regulators, or if a significant number of patients withdraw from our clinical trials. For example, in part because of the impact of the pandemic, during the first quarter of 2021, we determined that site initiation and patient enrollment in the recently terminated URIROX-2 study of reloxaliase was proceeding at a slower rate than we had originally projected. Accordingly, we significantly revised our plans for the interim analysis of this trial, both with regard to its scope and its timing.

Patient enrollment may be affected by other factors including, but not limited to:


•	the severity of the disease under investigation;
•	the design of the clinical trial;
•	the size and nature of the patient population;
•	the eligibility criteria for the clinical trial in question;
•	the availability of appropriate screening tests for study subjects;
•	the perceived risks and benefits of the product candidate under study;
•	availability of competing therapies and clinical trials;
•	clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies or treatment approaches;
•	the efforts to facilitate timely enrollment in clinical trials;
•	the ability to obtain and maintain patient consents and the risk that patients enrolled in clinical trials will not complete a clinical trial;
•	the patient referral practices of physicians;
•		the ability of patients to comply with the protocol, including capsule and timing regimen and urine collection requirements;
•		the ability to monitor patients adequately during and after treatment;
•		the proximity and availability of clinical trial sites for prospective patients and any limitations on travel or access to trial sites (including due to the COVID-19 pandemic); and
•	the extent to which our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates.

In addition, patients may withdraw from our clinical trials prematurely, which could also have a negative effect on our ability to complete our clinical trials or obtain and retain regulatory approvals. If a significant number of patients withdraw from any of our clinical trials prematurely it could potentially jeopardize the interpretability of the results from our clinical trials, which could have a material adverse effect on our ability to obtain, or retain, regulatory approval for ALLN-346.

Further, timely enrollment in clinical trials is reliant on clinical trial sites which may be adversely affected by global health matters, including, among other things pandemics. For example, our clinical trial sites may be located in regions currently being afflicted by the COVID-19 pandemic. Some factors from the COVID-19 pandemic that we believe may adversely affect enrollment in our trials include:


	•	the diversion of healthcare resources away from the conduct of clinical trial matters to focus on pandemic concerns, including the attention of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
	•	limitations on travel that interrupt key trial activities, such as clinical trial site initiations and monitoring;
	•	interruption in global shipping affecting the transport of clinical trial materials, such as investigational drug candidates and comparator drugs used in our trials; and
	•	employee furlough days that delay necessary interactions with local regulators, ethics committees and other important agencies and contractors.

These and other factors arising from the COVID-19 coronavirus could worsen in countries that are already afflicted with the virus or could continue to spread to additional countries, each of which may further adversely impact our clinical trials. The global outbreak of the COVID-19 coronavirus continues to evolve (with some areas reporting increasing cases of COVID-19) and the conduct of our trials may continue to be adversely affected, despite efforts to mitigate this impact.

Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by our product candidates could cause us to interrupt, delay or halt preclinical studies or could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulators. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects. Although ALLN-346 has thus far been well-tolerated without significant safety concerns in the clinical trials conducted to date, these trials are early and involve a relatively small number of subjects. It is possible that the current Phase 2a trials or future clinical trials we conduct may not demonstrate a favorable safety profile. In addition, while we have not observed ALLN-346 to be absorbed into the bloodstream in our clinical trials to date, it is possible absorption could occur in subsequent clinical trials. We may also need to conduct additional clinical trials or other testing for, among other things, drug-drug interactions and increased dosages of our product candidates. In the event of adverse safety issues, our trials could be suspended or terminated, and the FDA or comparable foreign regulator could order us to cease further development of or deny approval of ALLN-346 or any future product candidate we may develop for any or all targeted indications. Any drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.

Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. If ALLN-346 or our other product candidates receive marketing approval and we or others identify undesirable side effects caused by such product candidates (or any other similar drugs) after such approval, a number of potentially significant negative consequences could result, including:


	•	regulatory authorities may withdraw or limit their approval of such product candidates;
	•	regulatory authorities may require the addition of labeling statements, such as a "boxed" warning or a contraindication;
	•	we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
	•	we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or change the labeling of the product candidates;
	•	regulatory authorities may require a Risk Evaluation and Mitigation Strategy plan to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools;
	•	we may be subject to regulatory investigations and government enforcement actions;
	•	we may decide to remove such product candidates from the marketplace;
	•	we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and
	•	our reputation may suffer.

We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates and could substantially increase the costs of commercializing our product candidates, if approved, and significantly impact our ability to successfully commercialize our product candidates and generate revenues.

Risks Related to Regulatory Approval

Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our drugs.

If the FDA, the EMA or a comparable foreign regulator approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the drug will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the drug. Later discovery of previously unknown problems with a drug, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

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other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the drug. Later discovery of previously unknown problems with a drug, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:


	•	restrictions on the marketing or manufacturing of the drug, withdrawal of the drug from the market, or voluntary or mandatory drug recalls;
	•	fines, warning letters or holds on clinical trials;
	•	refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of drug approvals;
	•	drug seizure or detention, or refusal to permit the import or export of the drug; and
	•	injunctions or the imposition of civil or criminal penalties.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

Accordingly, assuming we, or any collaborators we may have, receive marketing approval for one or more product candidates we develop, we, and such collaborators, and our and their contract manufacturers will continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance, and quality control. If we and such collaborators are not able to comply with post-approval regulatory requirements, we and such collaborators could have the marketing approvals for our products withdrawn by regulatory authorities and our, or such collaborators’, ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our business, operating results, financial condition, and prospects.

The manufacture and packaging of pharmaceutical products such as ALLN-346 is subject to FDA requirements and those of similar foreign regulatory bodies. If we or our third-party manufacturers fail to satisfy these requirements, our product development and commercialization efforts may be harmed.

The manufacture and packaging of pharmaceutical products, such as ALLN-346, if approved, is regulated by the FDA and similar foreign regulatory bodies and must be conducted in accordance with the FDA’s cGMP and comparable requirements of foreign regulatory bodies. There are a limited number of manufacturers that operate under these cGMP regulations who are both capable of manufacturing ALLN-346 and willing to do so. We may not be able to identify or secure contracts with manufacturers with suitable capability to manufacture ALLN-346 according to FDA requirements on favorable terms or at all. Failure by us or our third-party manufacturers to comply with applicable regulations or requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, seizures or voluntary or mandatory recalls of product, operating restrictions and criminal prosecutions, any of which could harm our business. The same requirements and risks are applicable to the suppliers of the key raw material used to manufacture ALLN-346.

Changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval of the manufacturing process and procedures in accordance with the FDA’s cGMPs. Any new facility is subject to a pre-approval inspection by the FDA and would again require us to demonstrate product comparability to the FDA. There are comparable foreign requirements. This review may be costly and time consuming and could delay, constrain or prevent the launch or supply of a product.

Furthermore, in order to obtain approval of our product candidates, including ALLN-346, by the FDA and foreign regulatory agencies, we will be required to consistently produce the drug substance and the finished product in commercial quantities and of specified quality on a repeated basis and document our ability to do so. This requirement is referred to as process validation. We have not yet met with the FDA or foreign regulatory agencies to understand the complete manufacturing requirements which must be met for ALLN-346 to receive regulatory approval. Each of our potential suppliers will likely use a different method to manufacture drug substance, which has the potential to increase the risk to us that our manufacturers will fail to meet applicable regulatory requirements. We also need to complete process validation on the finished product in the packaging we propose for commercial sales. This includes testing of stability, measurement of impurities and testing of other product specifications by validated test methods. If the FDA or foreign regulatory agencies do not consider the result of the process validation or required testing to be satisfactory, we may not obtain approval to launch the product or approval, launch or availability of commercial supply after launch may be delayed.

impurities and testing of other product specifications by validated test methods. If the FDA or foreign regulatory agencies do not consider the result of the process validation or required testing to be satisfactory, we may not obtain approval to launch the product or approval, launch or availability of commercial supply after launch may be delayed.

The FDA and similar foreign regulatory bodies may also implement new requirements, or change their interpretation and enforcement of existing requirements, for manufacture, packaging or testing of products at any time. If we are unable to comply, we may be subject to regulatory, civil actions or penalties which could harm our business.

We must reach agreement with FDA and foreign regulatory agencies on an appropriate method for evaluating bioavailability and/or bioequivalence in connection with any potential future BLA submission for ALLN-346 and in support of any scale up of commercial supply of ALLN-346 in anticipation of a commercial launch. Failure to reach agreement or failure to demonstrate bioavailability and/or bioequivalence may require that we run additional preclinical or clinical studies, which could delay the timing of a potential BLA submission or approval.

Changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval of the manufacturing process and procedures in accordance with the FDA’s cGMPs. Any new facility is subject to a pre-approval inspection by the FDA and requires us to demonstrate product comparability to the FDA. There are comparable foreign requirements.

The unique crystalline nature of ALLN-346 and its expected mechanism of action involving the breakdown of urate in the gastrointestinal tract, without absorption of the enzyme across the gut lining, precludes the use of traditional absorption-dependent methods for determining bioavailability and bioequivalence. As a result, we have developed an in vitro method to describe an area under the curve (AUC) of catalytic potency over time in simulated gastric fluid. We believe that the method is sufficiently discriminating to detect potential variation in the product and provide evidence of bioequivalence in the event of future changes to the manufacturing process or sites of production.

It is possible that the FDA or comparable foreign authorities may not agree with the methods we propose to use to demonstrate bioequivalence across our clinical trials for purposes of obtaining regulatory approvals and/or in connection with manufacturing commercial supply, or they may not accept the results of those methods as sufficient to demonstrate bioequivalence. In this case, we may be required to perform additional in vivo animal studies or confirmatory human studies. If the FDA requires us to pursue these actions, this could significantly increase the cost of our clinical and manufacturing development and/or delay the timing of a potential BLA submission or approval.

Manufacture and supply of drug substance, drug product and finished drug product is a complex and technically challenging undertaking, particularly for oral biologics, and there is potential for failure at many points in the manufacturing, testing, quality assurance and distribution supply chain, as well as the potential for latent defects after a product has been manufactured and distributed.

Manufacture and supply of drug substance, drug product and finished drug product is technically challenging, particularly for oral biologics. Changes that may be made outside the purview of our direct control can have an impact on the success of our processes, on quality, and on successful delivery of finished drug product. Mistakes and mishandling could affect successful production and supply. Some of these risks include:


	•	failure to follow cGMP requirements or mishandling of our product while in production or in preparation for transit;
	•	delays in analytical results or failure of analytical techniques that we depend on for quality control and release of drug product;
	•	natural disasters, global pandemics (including the COVID-19 pandemic), political unrest in the U.S. and abroad, labor disputes, lack of raw material supply, issues with facilities and equipment or other forms of disruption to business operations at our manufacturing facilities; and
	•	latent defects that may become apparent after drug product has been released and which may result in recall or required destruction of drug product.

If any of these risks materialize, it would have a material and adverse impact on our ability to develop, obtain regulatory approval for and market ALLN-346, if approved.

Risks Related to Sales, Marketing and Competition

The incidence and prevalence for target patient populations of our product candidate have not been established with precision. If the market opportunities for our product candidate are smaller than we believe they are, our revenue may ~~be adversely affected, and our business may suffer. Our ability to successfully identify patients and acquire a significant market share will be necessary for us to achieve profitability and growth.~~

40be adversely affected, and our business may suffer. Our ability to successfully identify patients and acquire a significant market share will be necessary for us to achieve profitability and growth.

Our research and product development efforts are currently focused on a treatment for hyperuricemia and gout. The precise incidence and prevalence for this disease are unknown. Our projections of both the number of people who have this disease, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidate, are based on estimates. For example, we estimate there are approximately 375,000 patients in the United States who have refractory gout and CKD, the target population for our ALLN-346 product candidate. These estimates have been derived from a variety of sources, including the scientific literature and market research projects with third-party consultants, and may prove to be incorrect. Further, new studies and future developments in patient care or treatment paradigms may change the estimated incidence or prevalence of this disorder. The number of patients may turn out to be lower than expected. The potentially addressable patient population for our product candidate may be limited or may not be amenable to treatment with our product candidate, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business. Further, even if we obtain significant market share for our product candidate, because our potential target population is limited, we may never achieve profitability despite obtaining such significant market share.

Even if our product candidate receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for our product candidate may be smaller than we estimate.

We have never obtained marketing approval for a product candidate or commercialized a product. Even if our product candidate is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies due to lack of reimbursement for existing therapies.

Efforts to educate the medical community and third-party payors on the benefits of our product candidate may require significant resources and may not be successful. If our product candidate is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of our product candidate, if approved for commercial sale, will depend on a number of factors, including:


	•	the potential advantages of the product compared to alternative treatments;
	•	the prevalence and severity of any side effects;
	•	the clinical indications for which the product is approved;
	•	the potential absence of the results of a late-stage clinical trial with a clinically meaningful primary endpoint;
	•	whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy;
	•	limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling;
	•	our ability, or the ability of any future collaborators, to offer the product for sale at competitive prices;
	•	the product’s convenience and ease of administration compared to alternative treatments;
	•	the willingness of the target patient population to try, and of physicians to prescribe, the product;
	•	the strength of our sales, marketing and distribution support;
	•	the approval of other new products for the same indications;
	•	changes in the standard of care for the targeted indications for the product;
	•	the timing of market introduction of our approved products as well as competitive products;
	•	availability and amount of reimbursement from government payors, managed care plans and other third-party payors;
	•	adverse publicity about the product or favorable publicity about competitive products; and
	•	potential product liability claims.

The potential market opportunity for our product candidate is difficult to estimate precisely. Our estimates of the potential market opportunity are predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual market for our product candidate could be smaller than our estimates of the potential market opportunity, which would adversely affect our results of operations and our business.

assumptions has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual market for our product candidate could be smaller than our estimates of the potential market opportunity, which would adversely affect our results of operations and our business.

We face substantial competition, which may result in others discovering, developing or commercializing drugs before or more successfully than we do, and reducing or eliminating our commercial opportunity.

Our industry is highly competitive and subject to rapid and significant technological change as researchers learn more about diseases and develop new technologies and treatments. Our potential competitors include primarily large pharmaceutical companies, biotechnology companies and specialty pharmaceutical companies. Key competitive factors affecting the commercial success of ALLN-346 and any other product candidates we may develop are likely to be efficacy, safety and tolerability profile, reliability, convenience of administration, price and reimbursement.

companies, biotechnology companies and specialty pharmaceutical companies. Key competitive factors affecting the commercial success of ALLN-346 and any other product candidates we may develop are likely to be efficacy, safety and tolerability profile, reliability, convenience of administration, price and reimbursement.

There are already three classes of drugs approved to treat hyperuricemia and gout including established classes of xanthine oxidase inhibitors and uricosuric agents and more-recently available injectable recombinant uricases. Patients with CKD who have hyperuricemia and gout are often not optimally managed due to limitations of available therapies, including decreased tolerability, dose restrictions, drug-drug interactions, contraindications and increased risk for long-term morbidity and mortality. Despite the significant limitations of these drugs, newer entrants such as KRYSTEXXA, a recombinant uricase sold by Horizon Therapeutics, have been competitive. In addition to Horizon, a number of other competitors have drug candidates in clinical trials, including Selecta Biosciences Inc., which has initiated a Phase 3 trial of a candidate for the treatment of chronic refractory gout. In July 2020, Selecta and Swedish Orphan Biovitrum AB, or Sobi, entered into a strategic licensing agreement under which Sobi will assume responsibility for certain development, regulatory, and commercial activities for this product candidate. In addition, there are several additional candidates in various stages of development for gout patients.

Several of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of our competitors. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval of drugs and achieving widespread market acceptance. Our competitors’ drugs, or drugs they may develop in the future, may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render ALLN-346 or any future product candidates we may develop obsolete or non-competitive before we can recover the expenses of developing and commercializing them. Our competitors may also obtain FDA or other regulatory approval of their products more rapidly than we may obtain approval of ours. Our competitors could develop and the FDA could approve a generic or biosimilar version of uricase, the active enzyme in ALLN-346. We anticipate that we will face intense and increasing competition as new drugs enter the market and more advanced technologies become available. If we are unable to compete effectively, our opportunity to generate revenue from the sale of ALLN-346, or any future product candidates we may develop, if approved, will be adversely affected.

We currently have no sales and marketing organization and, as a company, have not commercialized any products. If we are unable to establish effective sales and marketing capabilities in the United States and access them in Europe and other international markets, we may not succeed in commercializing our product candidate.

At present, we have no sales or marketing employees and we rely on part-time consultants. We cannot guarantee that we will be successful in marketing ALLN-346 for hyperuricemia and gout in the United States, if approved. We may not be able to establish a direct sales force in a cost-effective manner or realize a positive return on this investment. In addition, we will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to commercialize ALLN-346 in the United States without strategic partners or licensees include:


	•	our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
	•	the inability of our planned relatively small sales force to obtain access to or inform adequate numbers of nephrologists, urologists or other practitioners at kidney stone clinics;
	•	the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
	•	the inability of market-access personnel to obtain sufficient levels of pricing and reimbursement in each jurisdiction; and
	•	unforeseen costs, expenses and delays associated with creating a commercial organization.

If we are not successful in timely recruiting of sales and marketing personnel or in building a sales and marketing infrastructure or if we do not successfully enter into appropriate collaboration arrangements, we will have difficulty commercializing ALLN-346, which could harm our business, operating results and financial condition. Expansion of our business into the EU and other international markets will require significant management attention and additional financial resources. We currently intend to explore commercializing ALLN-346, if approved, in Europe and other international markets by entering into collaboration agreements with other biopharmaceutical companies, and we may not be successful in entering into these collaboration agreements. In the event that we do enter into such agreements, we may have limited or no control over the sales, marketing and distribution activities of these third parties. Additional factors and risks that may inhibit our efforts to commercialize ALLN-346 in foreign markets include:


	•	our inability to directly control commercial activities because we are relying on third parties, should we enter into third-party collaborations;
	•	varying pricing in different foreign markets, which could adversely affect pricing in the United States or other countries;
	•	the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;
	•	different medical practices and customs in foreign countries affecting acceptance in the marketplace;
	•	import or export licensing requirements;
	•	longer collection times for accounts receivable;
	•	longer lead times for shipping;
	•	language barriers for technical training;
	•	reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic alternatives to therapeutics;
	•	the imposition of governmental price controls, political and economic instability, trade restrictions and changes in tariffs;
	•	foreign currency exchange rate fluctuations;
	•	our customers' ability to obtain adequate reimbursement for ALLN-346 in foreign markets at all, either at all or at prices that exceed our costs; and
	•	the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Our future revenues may depend heavily on the success of the efforts of these third parties. We may not be able to establish a commercial operation in a cost-effective manner or realize a positive return on this investment, even with the assistance of one or more third-party collaborators, should we choose to enter into such an arrangement. In addition, we will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel.

If we or third-party collaborators are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure or if we do not successfully enter into additional collaboration arrangements with third parties, we may not be able to successfully commercialize ALLN-346 and any future product candidates we may develop in foreign markets, which could impair our business, operating results and financial condition.

Even with the potential assistance of third-party collaborators, we may not be successful in establishing a commercial operation in foreign markets for numerous reasons, including, but not limited to, failing to attract, retain and motivate the necessary skilled personnel and failing to develop a successful marketing strategy. Failure to establish a commercial operation in foreign markets will have a negative outcome on our ability to commercialize ALLN-346 and generate revenue.

Additionally, if approved for marketing in one or more countries, we and/or our potential third-party collaborators may encounter unexpected or unforeseen delays in establishing our commercial operations that delay the commercial launch in these countries. These delays may increase the cost of, and the resources required for successful commercialization of ALLN-346 internationally. We do not have any experience in a commercial launch in Europe or elsewhere.

Risks Related to Business Development

We expect to expand our development, regulatory, and future sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

If we are able to secure adequate financing, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of clinical development, manufacturing, regulatory affairs, and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational, and financial systems, expand our facilities, and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expected expansion of our operations or recruit and train additional qualified personnel. Moreover, the expected physical expansion of our operations may lead to significant costs and may divert our management and business development resources and attention. Any inability to manage growth could delay the execution of our business plans or disrupt our operations, which could affect our ability to generate revenue.

to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expected expansion of our operations or recruit and train additional qualified personnel. Moreover, the expected physical expansion of our operations may lead to significant costs and may divert our management and business development resources and attention. Any inability to manage growth could delay the execution of our business plans or disrupt our operations, which could affect our ability to generate revenue.

The longer term growth of our business depends on our ability to expand our portfolio of product candidates, which may require substantial financial resources and may ultimately be unsuccessful.

The longer term growth of our business depends upon our ability to develop and commercialize multiple product candidates in addition to the development and commercialization of ALLN-346 for hyperuricemia and gout. We may never be able to identify other developmental prospects that we can successfully develop into product candidates, let alone receive regulatory approval of or successfully commercialize such product candidates.

A significant portion of the research that we are conducting involves new technologies. Research programs to identify new disease targets and product candidates require substantial technical, financial and human resources whether or not we ultimately identify any product candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including, but not limited to:


	•	the research methodology used may not be successful in identifying potential product candidates; or
	•	potential product candidates may on further study be shown to have harmful side effects or other characteristics that indicate they are unlikely to be effective drugs.

There are a number of FDA requirements that we must satisfy before we can commence a clinical trial in the United States. If we are able to identify additional potential product candidates, satisfaction of these regulatory requirements will entail substantial time, effort and financial resources. We may never satisfy these requirements. Any time, effort and financial resources we expend on development of other product candidates may impair our ability to continue efforts to develop and commercialize ALLN-346 for hyperuricemia and gout, and we may never commence clinical trials of such development programs despite expending significant resources in pursuit of their development. If we do commence clinical trials of other product candidates, those product candidates may never demonstrate sufficient safety and efficacy to be approved by the FDA or other comparable foreign regulators. If any of these events occur, we may be forced to abandon our development efforts for such program or programs, which would harm our business. If we do not successfully develop and commercialize product candidates based upon our approach, we will not be able to obtain drug revenues in future periods, which likely would result in significant harm to our financial position and adversely affect our stock price.

Risks Related to Our Business and Industry

Risks Related to COVID-19 and the Global Economy

The COVID-19 pandemic has had and could continue to have an adverse impact on our developmental programs and our financial condition.

In December 2019, a novel strain of coronavirus was first identified in Wuhan, Hubei Province, China. This virus continues to spread globally and has spread to a number of countries, including the United States where new cases continue to rise in some states. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to the spread of COVID-19, we have closed our executive offices with our administrative employees continuing their work outside of our offices and limited the number of staff in any given research and development laboratory. Our employees and contractors conducting research and development activities may not be able to access our laboratory for an extended period of time as a result of the closure of our offices and the possibility that governmental authorities further modify current restrictions.

As a result of the COVID-19 pandemic we may experience further disruptions that could severely impact our business, preclinical studies and clinical trials. For example, the COVID-19 pandemic adversely affected the execution and enrollment progress of the URIROX-2 clinical trial of reloxaliase prior to our decision to terminate this program. Additional impacts of the Covid-19 pandemic may include:

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	•	additional delays or difficulties enrolling patients in our clinical trials.
	•	additional delays or difficulties in clinical site initiation, including difficulties in receiving approval from local regulatory authorities, recruiting clinical site investigators and clinical site staff;
	•	delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;
	•	changes in local regulations as part of a response to the COVID-19 coronavirus outbreak or new shelter in place rules from state governments which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
	•	diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
	•	interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;
	•	risk that participants enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;
	•	interruptions in preclinical studies due to restricted or limited operations at our research and development laboratory facility;
	•	delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
	•	limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
	•	refusal of the FDA to accept data from clinical trials in these affected geographies; and
	•	interruption or delays to our sourced discovery and clinical activities.

We and the third-party manufacturers, CROs and academic collaborators that we engage have faced in the past and may face in the future disruptions that could affect our ability to initiate and complete preclinical studies or clinical trials, including disruptions in procuring items that are essential for our research and development activities, such as, for example, raw materials used in the manufacture of our product candidates, laboratory supplies for our preclinical studies and clinical trials, or animals that are used for preclinical testing, in each case, for which there may be shortages because of ongoing efforts to address the COVID-19 pandemic. Three vaccines for COVID-19 have been granted Emergency Use Authorization by the FDA since late 2020, and more are likely to be authorized in the coming months. The resultant demand for vaccines and potential for manufacturing facilities and materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or manufacturing slots for the products needed for our clinical trials, which could lead to delays in these trials. The response to the COVID-19 pandemic may redirect resources with respect to regulatory and intellectual property matters in a way that would adversely impact our ability to pursue marketing approvals and protect our intellectual property. In addition, we may face impediments to regulatory meetings and potential approvals due to measures intended to limit in-person interactions.

The COVID-19 pandemic continues to rapidly evolve and the future progression of the COVID-19 pandemic and its effects on our business and operations are uncertain. The extent to which the outbreak impacts our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.

Risks Related to Employee Matters and Managing Growth

During the first quarter of 2022, we reduced the size of our organization, and we may encounter difficulties in managing this development and restructuring, which could disrupt our operations. In addition, we may not achieve anticipated benefits and savings from the reduction.

In March 2022, we implemented a workforce restructuring to conserve cash as we pursue financing and strategic alternatives. The workforce reduction resulted in the loss of longer-term employees, the loss of institutional knowledge and expertise and the reallocation and combination of certain roles and responsibilities across the organization, all of which could adversely affect our operations. Given the complexity of our business, provided that we are able to secure adequate financing to continue our operations, we must continue to implement and improve our managerial, operational and financial systems, manage our facilities and continue to recruit and retain qualified personnel. This will be made more challenging given the

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workforce reduction described above. As a result, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these activities. Further, the restructuring and possible additional cost containment measures may yield unintended consequences, such as attrition beyond our intended workforce reduction and reduced employee morale. In addition, we may not achieve anticipated benefits from the workforce reduction, and we may need to implement a further reduction of our workforce. Due to our limited resources, we may not be able to effectively manage our operations or recruit and retain qualified personnel, which may result in weaknesses in our infrastructure and operations, risks that we may not be able to comply with legal and regulatory requirements, and loss of employees and reduced productivity among remaining employees. For example, the workforce reduction may negatively impact our clinical and regulatory functions, which would have a negative impact on our ability to successfully develop, and ultimately, commercialize our product candidate. If our management is unable to effectively manage this transition and workforce reduction and additional cost containment measures, our expenses may be more than expected and we may not be able to implement our business strategy. As a result, our future financial performance and our ability to commercialize our product candidates successfully would be negatively affected.

In addition, if we are not able to secure adequate financing, we may need to implement a further workforce reduction in the near future. These changes could be disruptive to our business, including our research and development efforts, and could result in significant expense, including accounting charges for inventory and technology related write-offs, workforce reduction costs and charges relating to consolidation of excess facilities. Substantial expense or charges resulting from restructuring activities could adversely affect our results of operations and use of cash in those periods in which we undertake such actions.

* We only have a limited number of employees to manage and operate our business.

As of ~~May~~August 912, 2022, we had 1712 full-time, part-time, or short-term employees. Our focus on the development of ALLN-346 requires us to optimize cash utilization and to manage and operate our business in a highly efficient manner. If we are able to secure additional financing to continue our operations, we will need to hire and retain a significant number of new employees to execute our clinical development, manufacturing and commercialization plans. We cannot provide assurance that we will be able to hire and/or retain adequate staffing levels to develop and commercialized ALLN-346 or run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish.

We depend on the knowledge and skill of our senior management and other key employees, and if we are unable to retain or if we fail to recruit additional highly skilled personnel, our business will be harmed.

Our ability to compete in the highly competitive pharmaceuticals industry depends in large part upon our ability to attract and retain highly qualified managerial, commercial, scientific and medical personnel. We are highly dependent on our management, commercial, scientific and medical personnel. In order to induce valuable employees to remain with us, we have provided employees with stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that we cannot control and, together with our other compensation programs and benefits, may at any time be insufficient to counteract more lucrative offers from other companies.

We are highly dependent upon the principal members of our management team, including Louis Brenner, M.D., our President and Chief Executive Officer, and Richard Katz, M.D., our Chief Financial Officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. The loss of any executive or other principal member of our management team would impair our ability to identify, develop and market new products and conduct successful operations.

In addition, provided we are able to secure adequate financing to continue our operations, our growth will require us to hire a significant number of qualified technical, commercial and administrative personnel. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. Other biopharmaceutical companies with which we compete for qualified personnel may have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can develop and commercialize ALLN-346 and any other product candidates we may develop would be impaired and could adversely affect our growth and financial performance.

Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requi

Filing Compare · Allena Pharmaceuticals, Inc.