Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

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1. Nature of the Business

Aileron Therapeutics, Inc. ("Aileron" or the "Company") is a clinical stage biopharmaceutical company focused on developing novel therapies for the treatment of orphan pulmonary and fibrosis indications with no approved or limited effective treatments. The Company currently has two product candidates in clinical development, LTI-03 and LTI-01, and multiple candidates in preclinical development focused on fibrosis indications.

On October 31, 2023, Aileron acquired Lung Therapeutics, Inc. ("Lung Therapeutics" or "Lung") pursuant to an Agreement and Plan of Merger, dated October 31, 2023 (the "Lung Acquisition Agreement"), by and among the Company, AT Merger Sub I, Inc., a Delaware corporation and its wholly owned subsidiary ("First Merger Sub"), AT Merger Sub II, LLC, a Delaware limited liability company and its wholly owned subsidiary ("Second Merger Sub"), and Lung. Pursuant to the Lung Acquisition Agreement, First Merger Sub merged with and into Lung, pursuant to which Lung was the surviving entity and became its wholly owned subsidiary (the "First Merger"). Immediately following the First Merger, Lung merged with and into Second Merger Sub, pursuant to which Second Merger Sub was the surviving entity (such merger, together with the First Merger, the "Lung Acquisition"). Lung was incorporated on November 13, 2012 under the laws of the state of Texas. Following the Lung Acquisition, the Company shifted its operating disease focus to advancing a pipeline of first-in-class medicines to address significant unmet medical needs in orphan pulmonary and fibrosis indications with the potential to greatly improve patient outcomes over currently available treatments. Following expiration of the operating lease agreement to rent an office space for its corporate headquarters in Austin, Texas, on March 31, 2024, the Company has been operating virtually and expects to continue to do so for the foreseeable future (see Note 15 for further details).

The Company is subject to risks and uncertainties common to clinical-stage companies in the biotechnology industry, including, but not limited to the risk that the Company never achieves profitability, the need for substantial additional financing, the risk of relying on third parties, risks of clinical trial failures, dependence on key personnel, protection of proprietary technology, and compliance with government regulations. The Company's lead product candidate, LTI-03, is being developed for the treatment of Idiopathic Pulmonary Fibrosis ("IPF") and has completed a healthy volunteer Phase 1a clinical trial. The Company has also conducted a Phase 1b clinical trial of LTI-03 in patients diagnosed with IPF and, in November 2024, the Company announced positive topline data from Cohort 2 of the Phase 1b clinical trial. The Company's second product candidate, LTI-01, is in development for loculated pleural effusion ("LPE"). The Company has completed Phase 1b and Phase 2a clinical trials in LPE patients. In June 2024, the Company decided to temporarily delay clinical development of LTI-01 in an effort to focus the Company's resources on clinical development of LTI-03 and until additional funds are raised.

Liquidity and Going Concern

In accordance with Accounting Standards Update ("ASU") No. 2014-15, Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date the accompanying consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management's plans that have not been fully implemented as of the date the condensed consolidated financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the company's ability to continue as a going concern. The mitigating effect of management's plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the consolidated financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the consolidated financial statements are issued.

The Company's condensed consolidated financial statements have been prepared assuming that the Company will continue to operate as a going concern, which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through September 30, 2024, the Company has financed its operations primarily through $145,467in net proceeds from sales of common stock and warrants, $131,211from sales of preferred stock prior to its initial public offering ("IPO"), $34,910from a collaboration agreement in 2010, $17,536in net proceeds in connection with a private placement following the Lung Acquisition in 2023, and $17,675in net proceeds in connection with an underwritten offering of the Company's common stock and accompanying warrants to purchase common stock in May 2024. As of September 30, 2024, the Company had $17,652in cash and cash equivalents.

In May 2024, Aileron completed an underwritten follow-on public offering (the "Offering"), pursuant to which the Company issued and sold 4,273,505shares of the Company's common stock, par value $0.001per share (the "Offering Shares") and accompanying warrants (the "Offering Warrants") to purchase 4,273,505shares of common stock (the "Offering Warrant Shares"). All of the Offering Shares and Offering Warrants were sold by the Company. Each Offering Share was offered and sold together with an accompanying

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Offering Warrant at a combined offering price of $4.68, and the underwriter purchased each Offering Share with an accompanying Offering Warrant from the Company at a combined price of $4.35. Net proceeds from the Offering were $17,675, after deducting underwriting discounts and commissions and offering expenses, and excluding any proceeds that may be received from exercise of the Offering Warrants.

On July 26, 2024, the Company entered into an Equity Distribution Agreement with Citizens JMP Securities, LLC ("Citizens JMP"), as agent and/or principal, under which the Company may offer and sell up to $50,000of shares of its common stock from time to time through or to Citizens JMP. Sales of common stock through or to Citizens JMP may be made by any method that is deemed an "at the market" offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Capital Market.There have been no sales on the "at the market" offering through September 30, 2024.

Management believes that, based on the Company's current operating plan, the Company's cash and cash equivalents of $17,652as of September 30, 2024 will not be sufficient to enable the Company to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of issuance of these condensed consolidated financial statements, which raises substantial doubt about our ability to continue as a going concern.

Since its inception, the Company has not generated any revenue from product sales and has never generated an operating profit. The Company has incurred significant losses on an aggregate basis. The Company's net losses were $21,902and $8,393for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the Company had an accumulated deficit of $310,419. These losses have resulted primarily from costs incurred in connection with research and development activities, licensing and patent investment and general and administrative costs associated with the Company's operations. Management expects to continue to incur operating losses for the foreseeable future. The Company expects to finance its operations primarily through utilization of its current financial resources and through the sale of additional equity or debt financings, collaborations, licensing arrangements or other sources.

The Company plans to address these conditions by, among other things, raising additional funds through equity or debt financings, strategic collaborations, licensing arrangements or other sources. However, there is no assurance that such funding will be available to the Company, will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives. The Company's funding estimates are based on assumptions that may prove to be wrong, and the Company could use its available capital resources sooner than it currently expects. If additional funds are not available, the Company could be forced to delay, reduce or eliminate its research and development programs or future commercialization efforts and its business could be materially harmed. The Company's future viability is dependent on its ability to raise additional capital, enter into a financing, consummate a successful acquisition, merger, business combination, or a sale of assets or other transaction. If the Company becomes unable to continue as a going concern, it may have to liquidate its assets and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification ("ASC") and as amended by ASUs of the Financial Accounting Standards Board ("FASB").

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adopts the amendments in an interim period, it should adopt them as of the beginning of the annual period that includes that interim period. The Company is currently assessing the effect of this ASU on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to enhance the transparency and decision usefulness of income tax disclosures by requiring disaggregated information about an entity's effective tax rate reconciliation, as well as information on taxes paid. This ASU is effective for annual periods beginning after December 15, 2024. Interim disclosures are not impacted by this update. The Company has not evaluated the impact of these amendments on its annual disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Segment Disclosures, to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the impact of the new requirements, effective for its 2024 consolidated financial statements, to determine the level of disclosure of segment expenses.

3. Business Acquisition

On October 31, 2023, Aileron acquired 100% of Lung, pursuant to the Lung Acquisition Agreement. At the closing of the Lung Acquisition, Aileron issued to the stockholders of Lung 344,345shares of its common stock (excluding 221fractional shares from the total 344,566shares pursuant to the Lung Acquisition Agreement) and 19,903shares of its newly designated Series X non-voting convertible preferred stock (the "Series X Preferred Stock") (excluding 238fractional shares from the total 20,141shares pursuant to the Lung Acquisition Agreement). Each share of Series X Preferred Stock is convertible into 1,000shares of common stock. The Company paid $290cash in lieu of fractional shares of both common stock and Series X Preferred Stock. In addition, Aileron assumed all of Lung's stock options (1,780,459) and all warrants (726,437) exercisable for Lung common stock immediately outstanding prior to the closing of the Lung Acquisition, each subject to adjustment pursuant to the terms of the Lung Acquisition Agreement.

Immediately following the closing of the Lung Acquisition, on October 31, 2023, Aileron entered into a Stock and Warrant Purchase Agreement (the "Purchase Agreement") with a group of accredited investors, pursuant to which Aileron issued and sold (i) an aggregate of 4,707shares of Series X Preferred Stock, and (ii) warrants (the "PIPE Warrants") to purchase up to an aggregate of 2,353,500shares of Aileron common stock (the "PIPE Warrant Shares"), for an aggregate purchase price of approximately $18,429, which included the conversion of certain convertible promissory notes in the aggregate principal amount of $1,553issued by Lung to Bios Partners, the majority stockholder of Lung prior to the closing of the Lung Acquisition, at a 10% discount to the per share price of the Series X Preferred Stock (collectively, the "PIPE Financing"). The PIPE Financing closed on November 2, 2023. Each share of Series X Preferred Stock is convertible into 1,000shares of common stock.

At the 2023 annual meeting of stockholders (the "2023 Annual Meeting"), the Company's stockholders approved the issuance, in accordance with Nasdaq Listing Rule 5635(a), of shares of common stock, upon conversion of the Company's outstanding Series X Preferred Stock. On March 5, 2024, subject to then existing beneficial ownership limitations, 11,957shares of Series X Preferred Stock were automatically converted into 11,957,000shares of common stock.

The Lung Acquisition was accounted for under the acquisition method of accounting under ASC 805, Business Combinations. Under the acquisition method, the total purchase price of the acquisition is allocated to the net tangible and identifiable intangible assets acquired and liabilities assumed based on the fair values as of the date of the acquisition. Consideration transferred is the sum of the acquisition-date fair values of the assets transferred, the liabilities incurred by the acquirer to the former owners of the acquiree, and the equity interests issued by the acquirer to the former owners of the acquiree (except for the measurement of share-based payment awards). The Company recorded the assets acquired and liabilities assumed as of the date of the Lung Acquisition based on the information available at that date.

4. Fair Value of Financial Assets

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During the nine months ended September 30, 2024 and the year ended December 31, 2023, there were notransfers between levels.

5. Prepaid Expenses and Other Current Assets

6. Goodwill and Indefinite-Lived Intangible Assets

$6,330of goodwill and $79,200of indefinite-lived intangible assets acquired in the Lung Acquisition were recorded at fair value on the Lung Acquisition date. The Company performed a qualitative assessment of goodwill and indefinite-lived intangible assets for potential impairment as of September 30, 2024, and concluded that there was nogoodwill or intangible assets impairment as of September 30, 2024.

7. Other Assets

The non-current prepaid research and development was fully expensed during the nine months ended September 30, 2024 due to the temporary delay of clinical development of LTI-01.

8. Accrued Expenses and Other Current Liabilities

9. Preferred Stock

The Company is authorized to issue 5,000,000shares of preferred stock, par value $0.001per share. As of September 30, 2024, the Company had issued 24,610shares of Series X Preferred Stock, of which 12,232shares of Series X Preferred Stock remained outstanding. As of December 31, 2023, 24,610shares of Series X Preferred Stock were issued and outstanding.

On October 31, 2023, under the terms of the Lung Acquisition Agreement, at the closing of the Lung Acquisition, Aileron issued to the stockholders of Lung 344,345shares of common stock, and 19,903shares of Series X Preferred Stock.

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

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and PIPE Warrants to purchase up to an aggregate of 2,353,500shares of Aileron common stock. Refer to Note 3 for more details on the PIPE Financing in connection with the Purchase Agreement. Since the Series X Preferred Stock was sold as a unit with the PIPE Warrants according to the Purchase Agreement, the proceeds received were allocated to each instrument on a relative fair value basis. Total gross proceeds of $18,429, less $893of issuance costs were allocated as follows: $16,795to the Series X Preferred Stock and $741to the PIPE Warrants. The Series X Preferred Stock and the PIPE Warrants issued in the PIPE Financing were recorded at par value of $0.001.

At the 2023 Annual Meeting, the Company's stockholders approved the issuance, in accordance with Nasdaq Listing Rule 5635(a), of shares of common stock, upon conversion of the Company's outstanding Series X Preferred Stock. On March 5, 2024, subject to then existing beneficial ownership limitations, 11,957shares of Series X Preferred Stock were automatically converted into 11,957,000shares of common stock. On May 8, 2024, individuals and entities affiliated with Bios Partners (collectively, the "Bios Entities") provided notice to the Company and converted 421shares of Series X Preferred Stock held by them into 421,000shares of common stock. As of September 30, 2024, 12,232shares of Series X Preferred Stock (which are convertible into 12,232,000shares of common stock) remained convertible at the option of the holder thereof, subject to certain beneficial ownership limitations (as described below).

The Company evaluated the Series X Preferred Stock for liability classification in accordance with the provisions of ASC 480, Distinguishing Liabilities from Equity ("ASC 480"), and determined that equity treatment was appropriate because the Series X Preferred Stock did not meet the definition of the liability instruments. Specifically, the Series X Preferred Stock is not mandatorily redeemable and does not embody an obligation to buy back the shares outside of the Company's control in a manner that could require the transfer of assets. The Company determined that the Series X Preferred Stock would be recorded as temporary equity, based on the guidance of ASC 480, given that it is contingently redeemable.

Each share of Series X Preferred Stock is convertible into 1,000shares of Common Stock. The preferences, rights, and limitations initially applicable to the Series X Preferred Stock are set forth in the Certificate of Designation of Series X Non-Voting Convertible Preferred Stock (the "Certificate of Designation").

The Series X Preferred Stock has the following characteristics:

Voting

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

Dividends

Holders of Series X Preferred Stock are entitled to receive dividends on shares of Series X Preferred Stock equal, on an as-if-converted-to-common-stock basis, and in the same form as dividends actually paid on shares of the common stock. Such dividends are not cumulative. Since the Company's inception, no dividends have been declared or paid.

Liquidation, dissolution or winding up

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

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

Conversion

The Series X Preferred Stock is convertible into common stock at a rate of 1,000shares of common stock for every one share of Series X Preferred Stock that is converted. The Series X Preferred Stock is subject to certain beneficial ownership limitations, including that a holder of Series X Preferred Stock is prohibited from converting shares of Series X Preferred Stock into shares of common stock if, as a result of such conversion, such holder (together with its affiliates and any other persons acting as a group together with the holder or any of its affiliates) would beneficially own more than a specified percentage (to be initially set at 19.99% and thereafter adjusted by the holder to a number not to exceed 19.99%) of the total number of shares of common stock issued and outstanding immediately after giving effect to such conversion.

Redemption

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Shares of the Series X Preferred Stock are not redeemable at the election of the holder.

Maturity

The Series X Preferred Stock shall be perpetual unless converted.

10. Common Stock

On February 28, 2024, the Company held the 2023 Annual Meeting, at which the Company's stockholders approved an amendment to the Company's Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of common stock of the Company from 45,000,000to 100,000,000shares. The Company filed the Certificate of Amendment to implement the increase in the number of authorized shares, which was effective upon filing, with the Secretary of State of the State of Delaware on February 28, 2024. The additional shares of common stock authorized by the Certificate of Amendment have rights identical to the Company's currently outstanding common stock. As of September 30, 2024 and December 31, 2023, the Company was authorized to issue 100,000,000and 45,000,000shares of common stock, respectively, par value $0.001per share.

As of September 30, 2024, the Company had 21,665,941shares of common stock issued and outstanding. As of December 31, 2023, the Company had 4,885,512shares of common stock issued and outstanding.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders.Common stockholders are entitled to receive dividends, as may be declared by the Company's Board of Directors (the "Board"), if any. As of September 30, 2024 and December 31, 2023, nodividends had been declared.

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

Issuance of Common Stock and Warrants

On July 26, 2024, the Company entered into an Equity Distribution Agreement with Citizens JMP, as agent and/or principal, under which the Company may offer and sell up to $50,000of shares of its common stock from time to time through or to Citizens JMP. Sales of common stock through or to Citizens JMP may be made by any method that is deemed an "at the market" offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Capital Market. The Company did not sell any shares of common stock pursuant to the Equity Distribution Agreement during the nine months ended September 30, 2024.

In May 2024, the Company completed an underwritten follow-on public offering, pursuant to which the Company issued and sold 4,273,505shares of the Company's common stock and accompanying warrants to purchase 4,273,505shares of common stock. All of the Offering Shares and Offering Warrants were sold by the Company. Each Offering Share was offered and sold together with an accompanying Offering Warrant at a combined offering price of $4.68, and the underwriter purchased each Offering Share and accompanying Offering Warrant at a combined price of $4.35. Net proceeds from the Offering were approximately $17,675, after deducting underwriting discounts and commissions and offering expenses, and excluding any proceeds that may be received from exercise of the Offering Warrants. The Offering closed on May 3, 2024.

Each Offering Warrant has an exercise price per share of common stock equal to $4.68. Each Offering Warrant may be exercised until May 1, 2027. Each Offering Warrant is exercisable solely by means of a cash exercise, except that an Offering Warrant is exercisable via cashless exercise if at the time of exercise, a registration statement registering the issuance of Offering Warrant Shares is not then effective or the prospectus contained therein is not available for the issuance of Offering Warrant Shares.

The Offering Warrants include certain rights upon "fundamental transactions" as described in the Offering Warrants, including the right of the holders thereof to receive from the Company or a successor entity the same type or form of consideration (and in the same proportion) that is being offered and paid to the holders of common stock in such fundamental transaction (as described in such Offering Warrants) of the unexercised portion of the applicable Warrants immediately prior to such fundamental transaction. A holder of Offering Warrants (together with its affiliates) may not exercise any portion of an Offering Warrant to the extent that the holder would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the Company's outstanding common stock immediately after exercise.

The Company has assessed the Offering Warrants for appropriate equity or liability classification and determined the Offering Warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to ASC 815, Derivatives and Hedging ("ASC 815"). The Offering Warrants are indexed to the Company's common stock and meet all other conditions for equity classification under ASC 480 and ASC 815. Accordingly, the Offering Warrants are classified as equity and accounted for as a component of additional paid-in capital at the time of issuance. The Offering Warrants were initially recognized at their relative fair value in the amount of $8.0million at the time of issuance determined using Black-Scholes option-pricing model and will not be remeasured.

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At the 2023 Annual Meeting, the Company's stockholders also approved the issuance, in accordance with Nasdaq Listing Rule 5635(a), of shares of common stock, upon conversion of the Company's outstanding Series X Preferred Stock. On March 5, 2024, subject to then existing beneficial ownership limitations, 11,957shares of Series X Preferred Stock were automatically converted into 11,957,000shares of common stock.

On October 31, 2023, Aileron acquired Lung. Under the terms of the Lung Acquisition Agreement, at the closing of the Lung Acquisition, Aileron issued to the stockholders of Lung 344,345shares of common stock and 19,903shares of Series X Preferred Stock.

Immediately following the closing of the Lung Acquisition, on October 31, 2023, Aileron entered into the Purchase Agreement with a group of accredited investors, pursuant to which Aileron issued and sold an aggregate of 4,707shares of Series X Preferred Stock and PIPE Warrants to purchase up to an aggregate of 2,353,500shares of Aileron common stock. Refer to Note 3 for more details on the PIPE Financing in connection with the Purchase Agreement. The exercise price of the PIPE Warrants is $4.89per share, subject to certain price and share adjustments, including for stock splits, stock dividends, recapitalizations, subdivisions, combinations, reclassifications, noncash distributions, and cash dividends. The PIPE Warrants are exercisable on or prior to May 2, 2027. Payment for the PIPE Warrant Shares upon exercise of the PIPE Warrants may be (i) in cash or (ii) in the event that there is no registration statement available for the resale of the PIPE Warrant Shares, by cashless exercise.

Under the terms of the PIPE Warrants, the Company shall not effect the exercise of any portion of any PIPE Warrant, and a holder shall not have the right to exercise any portion of any PIPE Warrant, to the extent that after giving effect to such exercise, the holder (together with its affiliates and any other persons acting as a group together with the holder or any of its affiliates), would beneficially own in excess of a percentage elected by the holder up to 19.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise, as such percentage ownership is determined in accordance with the terms of the PIPE Warrants. However, any holder may, upon written notice to the Company, increase or decrease such percentage to any other percentage not in excess of 19.99%; provided that any increase or decrease in such percentage will not be effective until 61 days after such notice is delivered to the Company.

The Company has assessed the PIPE Warrants for appropriate equity or liability classification and determined the PIPE Warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to ASC 815. The PIPE Warrants are indexed to the Company's common stock and meet all other conditions for equity classification under ASC 480 and ASC 815. Accordingly, the PIPE Warrants are classified as equity and accounted for as a component of additional paid-in capital at the time of issuance. The PIPE Warrants were initially recognized at their relative fair value in the amount of $741at the time of issuance determined using Black-Scholes option-pricing model and will not be remeasured.

As of September 30, 2024, 21,665,941shares of common stock were issued and outstanding, noshares were held in treasury, and 24,610shares of Series X Preferred Stock had been issued, of which 12,232shares of Series X Preferred Stock remained outstanding. In addition, as of September 30, 2024, there were:

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Accordingly, as of September 30, 2024, out of the 100,000,000shares of common stock presently authorized, 46,926,928shares are issued and outstanding or reserved for issuance and 53,073,072shares of common stock remain available for future issuance.

11. Stock-Based Awards

As of September 30, 2024, the Company had fiveequity compensation plans, each of which was approved by its stockholders: 2006 Equity Incentive Plan, as amended (the "2006 Plan"), 2016 Stock Incentive Plan (the "2016 Plan"), 2017 Stock Incentive Plan (the "2017 Plan"), 2021 Stock Incentive Plan (the "2021 Plan"), and 2017 Employee Stock Purchase Plan (the "2017 ESPP"). The Company also assumed Lung's 2013 Long-Term Incentive Plan (the "2013 Plan") as a result of the Lung Acquisition.

As of September 30, 2024, the Company had 6,693shares issuable upon exercise of outstanding options under the 2006 Plan; 8,404shares to be issued upon exercise of outstanding options under the 2016 Plan, 98,528shares to be issued upon exercise of outstanding options under the 2017 Plan, and 503,179shares to be issued upon exercise of outstanding options under the 2021 Plan. Noshares remained available for future awards under the 2006 Plan, the 2016 Plan, and the 2017 Plan as of September 30, 2024.

Under the 2021 Plan, shares that are expired, terminated, surrendered or canceled without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

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

2021 Stock Incentive Plan

The Company's 2021 Plan was approved by the Company's stockholders on June 15, 2021 and became effective on June 16, 2021. At the 2023 Annual Meeting, the stockholders of the Company approved an amendment (the "Plan Amendment") to the 2021 Plan to increase the number of shares of common stock issuable under the 2021 Plan by 3,000,000shares to 3,840,254. Other than increasing the number of shares issuable under the 2021 Plan, the Plan Amendment does not make any changes to the 2021 Plan.

Under the 2021 Plan, the Company may grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, awards of restricted stock units and other stock-based awards. The Company's employees, officers, directors, consultants and advisors are eligible to receive awards under the 2021 Plan; however, incentive stock options may only be granted to employees. The 2021 Plan is administered by the Board or, at the discretion of the Board, by a committee of the Board. The number of shares of common stock covered by options and the date those options become exercisable, type of options to be granted, exercise prices, vesting and other restrictions are determined at the discretion of the Board, or its committee if so delegated.

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

The total number of shares of common stock that may be issued under the 2021 Plan was 3,908,718as of September 30, 2024, of which 3,236,006shares remained available for grant. The Company initially reserved 625,000shares of common stock, plus the number of shares of common stock subject to outstanding awards under the 2017 Plan, the 2016 Plan and the 2006 Plan that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right up to 314,006shares. As of September 30, 2024, the Company had 503,179shares to be issued upon exercise of outstanding options under the 2021 Plan.

2017 Stock Incentive Plan

The 2017 Plan was approved by the Company's stockholders on June 16, 2017, and became effective on June 28, 2017. Under the 2017 Plan, the Company could grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, awards of restricted stock units and other stock-based awards. The Company's employees, officers, directors, consultants and advisors were eligible to receive awards under the 2017 Plan; however, incentive stock options could only be granted to employees. The 2017 Plan is administered by the Board or, at the discretion of the Board, by a committee of the Board. The number of shares of common stock covered by options and the date those options become exercisable, type of options granted, exercise prices, vesting and other restrictions were determined at the discretion of the Board, or its committee if so delegated.

Stock options granted under the 2017 Plan with service-based vesting conditions generally vest over four yearsand may not have a duration in excess of ten years, although options have been granted with vesting terms of less than four years. The exercise price for stock options granted may not be less than the fair market value of the common stock as of the date of grant.

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

Shares that are expired, terminated, surrendered or canceled without having been fully exercised under the 2017 Plan will be available for future awards under the 2021 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards under the 2021 Plan.

2017 Employee Stock Purchase Plan

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On June 16, 2017, the Company's stockholders approved the 2017 ESPP, which became effective on June 28, 2017. Under the 2017 ESPP, the number of shares of common stock that may be issued under the 2017 ESPP will automatically increase on each January 1, beginning with the fiscal year ended December 31, 2018 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 31,120shares, (ii) 1% of the outstanding shares of common stock on such date and (iii) an amount determined by the Company's Board. On January 1, 2023 and January 1, 2024, noadditional shares were reserved for issuance under the 2017 ESPP pursuant to this provision. 7,500shares remained available for future issuance under the 2017 ESPP as of September 30, 2024.

2013 Stock Incentive Plan

The Company assumed the 2013 Plan as a result of the Lung Acquisition. In October 2013, Lung's Board of Directors ("Lung Board") approved the 2013 Plan to provide long-term incentives for its employees, non-employee directors and certain consultants. As of September 30, 2024, 1,578,235shares were reserved to be issued upon exercise of options outstanding under the 2013 Plan. These options were assumed by the Company in connection with the Lung Acquisition.

Before the Lung Acquisition, the 2013 Plan was administered by the Lung Board or, at the discretion of the Lung Board, by a committee of the Lung Board. The exercise prices, vesting and other restrictions were determined at the discretion of the Lung Board, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option may not be greater than ten years. The contractual term for stock option awards is ten years. The vesting periods for equity awards were determined by the Lung Board, but generally were four years. The contractual term for stock option awards is ten years. Following the closing of the Lung Acquisition on October 31, 2023, nofurther awards can be granted under the 2013 Plan.

Stock Option Valuation

There were nooptions granted to employees or directors during the three and the nine months ended September 30, 2023. The assumptions that the Company used to determine the grant-date fair value of the stock options granted to employees and directors during the three and nine months ended September 30, 2024 were as follows, presented on a weighted average basis:

Stock Options

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2024 was $2.46. There were nooptions granted to employees or directors during the nine months ended September 30, 2023. The aggregate fair value of stock options that vested during the nine months ended September 30, 2024 and 2023, was $1,453and $1,033, respectively.

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

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common stock. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2024 was $354. There were nostock options exercised during the nine months ended September 30, 2023.

Stock-Based Compensation

As of September 30, 2024, the Company had an aggregate of $232of unrecognized stock-based compensation expense, which it expects to recognize over a weighted average period of 1.65years.

On March 11, 2024, the Company and Manuel C. Alves-Aivado, M.D., Ph.D., agreed that his employment with the Company would cease and he would resign from his position as Chief Executive Officer ("CEO") of the Company, effective as of March 11, 2024. Dr. Aivado remains a member of the Company's Board. Dr. Aivado's resignation from the Company was not the result of any disagreement with the Company on any matter relating to its operations, policies or practices. As a non-employee director, following the separation date, Dr. Aivado will be compensated in accordance with the terms of the Company's non-employee director compensation program. In addition, Dr. Aivado will continue to vest in all unvested stock option awards pursuant to the amended vesting terms. The resignation of Dr. Aivado as CEO was considered a significant reduction in service and his original awards were deemed to have been modified and accounted for as a Type III modification with no material effect on these condensed consolidated financial statements.

12. Net Loss Per Share

The Company's potential dilutive securities, which include stock options as of September 30, 2024 and 2023, have been excluded from the computation of diluted net loss per share attributable to common stockholders whenever the effect of including them would be to reduce the net loss per share. In periods where there is a net loss, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The following potential shares of common stock, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

13. Income Taxes

As of September 30, 2024, the Company has not recorded any U.S. federal or state income tax benefits for either the net losses it has incurred or its earned research and orphan drug credits, due to the uncertainty of realizing a benefit from those items in the future.

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14. Related Party Transactions

On May 8, 2024, the Bios Entities converted 421shares of the Company's Series X Preferred Stock into 421,000shares of common stock. After the conversion, as of September 30, 2024, the Bios Entities owned 2,094,305shares of the Company's common stock resulting in a beneficial ownership of 9.9% of the Company's outstanding common stock.

15. Commitments and Contingencies

Operating Leases

On August 16, 2021, Lung entered into an operating lease agreement to rent approximately 6,455square feet of office space for its corporate headquarters in Austin, Texas, beginning on October 1, 2021. The lease expired March 31, 2024, and the Company did not renew the lease. Following expiration of the lease, the Company is operating virtually, and expects to do so for the foreseeable future.

Legal Proceedings

The Company may from time to time be party to litigation arising in the ordinary course of business. As of September 30, 2024, the Company was not party to any legal proceedings and no material legal proceedings are currently pending or, to the best of the Company's knowledge, threatened.

Intellectual Property Licenses

Harvard and Dana-Farber Agreement

In August 2006, the Company entered into an exclusive license agreement with President and Fellows of Harvard College ("Harvard") and Dana-Farber Cancer Institute ("DFCI"). The agreement granted the Company an exclusive worldwide license, with the right to sublicense, under specified patents and patent applications to develop, obtain regulatory approval for and commercialize specified product candidates based on cell-permeating peptides. Under the agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize one or more licensed products and to achieve specified milestone events by specified dates. In connection with entering into the agreement, the Company paid an upfront license fee and issued to Harvard and DFCI shares of its common stock.

In February 2010, the agreement was amended and restated (the "Harvard/DFCI agreement") under which additional patent rights were added to the scope of the license agreement and the annual license maintenance fees were increased. Under the Harvard/DFCI agreement, the Company is obligated to make aggregate milestones payments of up to $7,700per licensed therapeutic product upon the Company's achievement of specified clinical, regulatory and sales milestones with respect to such product and up to $700per licensed diagnostic product upon the Company's achievement of specified regulatory and sales milestones with respect to such product. In addition, the Company is obligated to pay royalties of low single-digit percentages on annual net sales of licensed products sold by the Company, its affiliates or its sublicensees. The royalties are payable on a product-by-product and country-by-country basis and may be reduced in specified circumstances. In addition, the agreement obligates the Company to pay a percentage, up to the mid-twenties, of fees received by the Company in connection with its sublicense of the licensed products. In accordance with the terms of the agreement, the Company's sublicense payment obligations may be subject to specified reductions.

The Harvard/DFCI agreement requires the Company to pay annual license maintenance fees of $110each year, which was reduced to $35starting in 2023. Any payments made in connection with the annual license maintenance fees will be credited against any royalties due.

As of September 30, 2024, the Company had not developed a commercial product using the licensed technologies and no royalties under the agreement had been paid or were due.

Under the Harvard/DFCI agreement, the Company is responsible for all patent expenses related to the prosecution and maintenance of the licensed patents and applications in-licensed under the agreement as well as cost reimbursement of amounts incurred for all documented patent-related expenses. The agreement will expire on a product-by-product and country-by-country basis upon the last to expire of any valid patent claim pertaining to licensed products covered under the agreement. The Company incurred $27in license maintenance fees in the nine months ended September 30, 2024. Nolicense maintenance fees were incurred by the Company in the nine months ended September 30, 2023.

Agreement with the University of Texas Health Science Center at Tyler

In June 2013, Lung entered into a patent and technology license agreement with UT System, on behalf of UTHSCT. The patent and technology license agreement with UT System (the "UTHSCT Agreement") provides Lung access to patents and technology related to the development of LTI-01 and LTI-03. As part of the UTHSCT Agreement, Lung has (i) a royalty-bearing, exclusive license under the patent rights to manufacture, distribute, and sell certain intellectual property; (ii) a non-exclusive license under the technology rights to manufacture, distribute and sell the licensed product; and (iii) a sublicensing right that allows Lung to grant sublicenses to affiliates and third parties to use the licensed product in the field of use and approved territories outlined in the UTHSCT Agreement. In December

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2013, the UTHSCT Agreement was amended and restated to include certain patents in all fields worldwide. In May 2017, the UTHSCT Agreement was amended and restated to modify the specific milestone criteria.

In consideration of the UTHSCT Agreement, Lung granted UT System (via UTHSCT and UT Horizon Fund affiliates) (i) 2,000,000shares of Lung common stock and (ii) 400,000shares of Lung non-convertible preferred stock. On February 6, 2015, UT System exchanged the 400,000shares of Lung non-convertible preferred stock for 4,000,000shares of Lung common stock. In addition, Lung agreed to pay past and ongoing patent expenses, and Lung owes UTHSCT sublicensing fees, assignment fees, and single digit royalties on worldwide net product sales, with fixed minimum royalty payments that started in 2015.

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

The Company may terminate the UTHSCT Agreement for convenience with 90 days' notice. UTHSCT may also terminate the UTHSCT Agreement, but only if the Company breaches the terms of the agreement. The Company did not incur any expenses under the UTHSCT Agreement in the nine months ended September 30, 2024 and 2023.

Agreement with the University of Texas at Austin

In May 2015, Lung entered into a patent license agreement with UT Austin on behalf of UT System. This license agreement with UT Austin (the "UT Austin 6607 Agreement") relates to the patent rights to polypeptide therapeutics and uses thereof. Pursuant to the UT Austin 6607 Agreement Lung has (i) a royalty-bearing, exclusive license under the patent rights to manufacture, distribute, and sell the licensed product; and (ii) a sublicensing right that allows Lung to grant sublicenses to affiliates and third parties to use the licensed product in the field of use and approved territories outlined in the agreement. The UT Austin 6607 Agreement was amended and restated in January 2017, November 2018, and June 2019. The amendments related to extension of milestone payment dates and specific terminology around the milestone achievement criteria.

In consideration of the UT Austin 6607 Agreement, Lung agreed to pay past and ongoing patent expenses, milestone fees upon certain development and regulatory milestone events, annual license fees, tiered sublicense fees, assignment fees, low single digit royalties on net sales and a Food and Drug Administration ("FDA") Priority Review Voucher fee if Lung sells or transfers this voucher.

Pursuant to the UT Austin 6607 Agreement, Lung is required to use diligent efforts to commercialize the licensed products, including maintaining active research and development, regulatory, marketing and sales program. Moreover, Lung is required to meet certain development and regulatory milestones by specific dates.

The Company may terminate the UT Austin 6607 Agreement for convenience with 90 days' notice. UT Austin may also terminate the UT Austin 6607 Agreement, but only if the Company breaches the terms of the agreement. The Company did not incur any expenses under the UT Austin 6607 Agreement in the nine months ended September 30, 2024 and 2023.

Agreement with Medical University of South Carolina

In March 2016, Lung entered into a license agreement with Medical University of South Carolina Foundation for Research Development ("MUSC"). Pursuant to this license agreement with MUSC (the "MUSC Agreement") Lung has patent rights related to protecting against lung fibrosis by up regulating Cav1. The MUSC Agreement granted (i) a royalty-bearing, exclusive license under the patent rights to make, use and sell the license product; and (ii) a sublicensing right that allows Lung to grant sublicenses to affiliates and third parties to use the licensed product in the field of use and approved territories outlined in the agreement. In September 2018, the agreement was amended and restated to include definitions of related methods, related products and related rights.

In consideration of the MUSC Agreement, Lung agreed to pay a non-refundable license fee, patent expenses, milestone fees upon certain development, regulatory and commercial milestone events, sublicense fees, assignment fees and low single digit royalties on net sales, with a fixed minimum royalty payment starting in 2019 and a transaction fee upon Lung's liquidation.

Pursuant to the MUSC Agreement, Lung is required to use diligent efforts to develop, manufacture and sell the licensed products.

The Company may terminate the MUSC Agreement for convenience by providing a written notice to MUSC effective 90 days following the receipt of notice, and either party may terminate the agreement for a breach of contract. The Company incurred $25in license fee in the nine months ended September 30, 2024. Nolicense fee was incurred by the Company in the nine months ended September 30, 2023.

Agreement with Vivarta Therapeutics LLC

In March 2018, Lung entered into a license agreement with Vivarta Therapeutics, LLC, or Vivarta. This license agreement with Vivarta (the "Vivarta Agreement") relates to intellectual property relating to epithelial sodium channel inhibitors and methods to treat pulmonary disease. Pursuant to the Vivarta Agreement Lung has (i) a royalty-bearing, exclusive license under the intellectual property rights to make, use and sell the licensed product, and (ii) a sublicensing right that allows Lung to grant sublicenses to affiliates and third parties to use the licensed product in the field of use and approved territories outlined in the agreement.

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In consideration for the Vivarta Agreement, Lung agreed to grant Vivarta a warrant to purchase an aggregate of 75,000shares of Lung common stock for $0.12per share, to pay a license fee of $10,000upon the Vivarta Agreement effective date and $40,000within 30 days of the receipt of a positive freedom to operate analysis from legal counsel. Lung also agreed to pay patent expenses, milestone fees upon certain development and regulatory milestone events, sublicense fees, assignment fees and low single digit royalties on net sales.

Pursuant to the Vivarta Agreement, Lung is required to use diligent efforts to develop, manufacture and sell the licensed products.

The Company may terminate the Vivarta Agreement for convenience by providing a written notice to Vivarta effective 90 days following the receipt of notice, and either party may terminate the agreement for a breach of contract. The Company did not incur any expenses under the Vivarta Agreement in the nine months ended September 30, 2024 and 2023.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it had not accrued any liabilities related to such obligations in its consolidated financial statements as of September 30, 2024 or December 31, 2023.

16. Subsequent Event

Exclusive Option Agreement with Advancium

On October 31, 2024, the Company entered into an exclusive option agreement with Advancium Health Network ("Advancium") for the sale of ALRN-6924. During the option period, Advancium intends to evaluate ALRN-6924 as a potential therapy for retinoblastoma. Under the terms of the option agreement Advancium paid the Company a non-refundable fee of $100for the exclusive option to acquire ALRN-6924 and related assets. If Advancium exercises its option, the Company will receive an exercise payment with potential for additional development, regulatory and commercial milestone payments and sales royalties.

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